European Commission clears Cisco’s acquisition of Tandberg, subject to conditions

On 29 March 2010, the European Commission approved the proposed acquisition of Norway’s Tandberg, a vendor of video communications systems, by Cisco Systems subject to conditions.  On the same day, just one hour after the Commission issued its press release, the U.S. Department of Justice announced that it had also decided not to challenge the transaction due to the evolving nature of the videoconferencing market and the commitments that Cisco has made to the Commission to facilitate interoperability.  The full Commission decision is not published yet.

While the transaction did not raise significant concerns regarding vertical (in the light of Tandberg’s Multipoint Control Units) or conglomerate effects (owing to Cisco’s networking products), the investigation focused on the horizontal overlaps in the markets for video conferencing solutions, in particular in relation to the market for high-end video conferencing solutions (dedicated-room solutions, also known as “telepresence”).   The Commission had identified serious competition concerns due to interoperability issues between the solutions that Cisco could offer as a result of the merger and those of its competitors.

In order to address these concerns, Cisco committed to divest its rights to its proprietary Telepresence Interoperability Protocol (“TIP”) to an independent industry body to ensure interoperability with Cisco’s solutions and to allow other vendors to participate in the development and in the updates of such protocol.   The remedy is designed in a manner ensuring that an independent industry body will elaborate an industry-based proposal for a standard protocol, which will then be submitted to a standard setting organization.

In principle, a royalty-free license may have reached the same goal, but the Commission’s usual preference for structural solutions rather than “behavioral” mechanisms (like IP licensing) appears to have convinced Cisco to divest rather than license TIP, arguably to avoid a lengthy and in-depth investigation.

In fact, in its 2008 Remedies Notice, the Commission claims that a divestiture of technology or IP rights is the preferable remedy because it eliminates uncertainties linked to the lasting, ongoing relationship between the merged entity and its competitors, as well as the risks for disputes between them. Licensing arrangements may be acceptable where a divestiture would jeopardize ongoing research or where a divestiture would be impossible due to the nature of the business or when certain assets necessary to facilitate competitive entry cannot be duplicated.

As to the unfolding of the proceedings, it is noteworthy that EU Commissioner for Competition, Joaquín Almunia stated that he was “…satisfied with the overall review process that was carried out in close co-operation with the US Department of Justice”, while Christine Varney, Assistant Attorney General in charge of the U.S. Department of Justice’s Antitrust Division appeared more enthusiastic as she stated that “This investigation was a model of international cooperation between the United States and the European Commission” and that “The parties should be commended for making every effort to facilitate the close working relationship between the Department of Justice and the European Commission.” [Gabriele Accardo]