The European Commission (the “Commission”) has approved the proposed acquisition by Cisco of its main competitor on the market for high-end videoconferencing products. However, such clearance required substantial and innovative commitments according to which Cisco will have to divest some of its intellectual property rights to an independent body.
By its decision of 29 March 2010, the Commission authorised the acquisition by Cisco of Tandberg, its main competitor on different markets relating to videoconferencing solutions.
Yet, the Commission had identified competition concerns on the market for “dedicated-room solutions” on which the merged entity would have market shares above 60 percent, as well as on the segment for “telepresence” solutions, which provide for very high-definition communication with life-size images.
Following market tests, the Commission identified potential competition concerns with regard to interoperability. For clients, it is indeed crucial that equipments supplied by different manufacturers can properly function when connected with each other. This requirement actually constitutes the main barrier to entry for new entrants.
Cisco has developed the so-called “TIP protocol”, notably meant to improve the interoperability of its products. Following the operation and taking into account the market shares of the merged entity, all Cisco’s competitors would be forced to use this protocol in order to insure the compatibility of their products with the products of the market leader.
The concerns identified by the Commission did not pertain to the access to the TIP protocol as such, but to the conditions under which access was granted. Indeed, Cisco was ready to grant free licence of its protocol to any interested person. However, the conditions of this licence might advantage Cisco on several levels.
Competitors also argued that, on this market, the interests of the industry could be better served if protocols were developed and managed by an independent industry body, within which any operator could participate.
As a result, Cisco offered innovative commitments according to which it will divest its rights on the TIP protocol to an independent industry body. In this respect, Cisco approached IMTC, a consortium gathering more than 70 companies active in the field of telecommunications. If the latter decided to refuse this assignment, Cisco committed to create a consortium open to all interested operator, within which members will have equal voting rights and will be able to take part in the development and the management of the TIP protocol.
In addition, Cisco commits not to give up the TIP protocol and to continue using it on all its related products.
In this decision, the European Commission adopted an innovative and pragmatic approach, where it also demonstrates a will to regulate a sector, something which is rare in European decisions, and which is more frequent in French decisions. This kind of commitments, which help solving the standardisation issue in highly technical sectors, could constitute a role model for other operations, and eventually for litigation cases.