RealTime IT News

Qualcomm to Pay Up For Antitrust Violation

Wireless system developer Qualcomm just couldn't wait to get its arms around Flarion, the inventor of FLASH-OFDM for mobile broadband Internet protocol (IP) services that it acquired in the summer of 2005. The companies began planning and making decisions together during the mandatory premerger waiting period.

That's a no-no with the antitrust authorities in the U.S. Department of Justice.

As a result, the wireless technology provider will have to pay $1.8 million in penalties, federal officials said today.

"Merging parties must continue to operate independently until the end of the premerger waiting period," said Thomas O. Barnett, Assistant Attorney General in charge of the Department's Antitrust Division, in a statement announcing the settlement. "The Antitrust Division will vigorously enforce this requirement against any company that assumes operational control of a business that it is acquiring."

The fine of $1.8 million is less than 4 percent of the $600 million Qualcomm paid to acquire Flarion in July of 2005 and a fraction of the company's market capitalization of more than $85 billion. News of the settlement apparently had little impact on the company's stock price, which was trading at approximately $51.60 shortly after the settlement announcement today.

According to the government's complaint, Qualcomm began taking operational control before the transaction had closed, following the announcement of the merger. However, the government agreed to reduce the amount of the penalty from the statutory maximum because the companies voluntarily reported the existence of the violation and voluntarily took certain measures to redress it, the DoJ said.

The companies' merger agreement required Flarion to seek Qualcomm's consent before undertaking certain basic business activities, such as making new proposals to customers. Further, although not required by the agreement, Flarion sought and followed Qualcomm's guidance before undertaking routine activities, such as hiring consultants and employees.

In doing so, Qualcomm committed what is known as gun-jumping, violating provisions of the Hart-Scott-Rodino (HSR) Act of 1976.

The suit was filed by the Antitrust Division of the Department of Justice in U.S. District Court for the District of Columbia, along with the proposed settlement that, if approved by the court, would resolve the lawsuit.

The HSR Act requires companies planning acquisitions or mergers that meet certain threshold requirements to file premerger notification documents with the Justice Department and the Federal Trade Commission. The HSR Act also requires that the merging parties observe a mandatory 30-day waiting period, after which the companies may proceed with the transaction if neither agency has requested additional information about the transaction.

The purpose of the waiting period is to give the antitrust agencies an opportunity before the parties merge to investigate proposed transactions and determine whether they would violate the antitrust laws. Parties are subject to a maximum civil penalty of $11,000 per day for each day that they are in violation of the HSR Act.

The HSR Act waiting period ended on Dec. 23, 2005. The Department's complaint does not challenge the underlying merger, which the companies announced they had consummated on January 19, 2006.

Qualcomm is headquartered in San Diego. Flarion, now a subsidiary of Qualcomm still maintains its principal offices in Bedminster, N.J.