Qualcomm accused of colluding with Flarion before merger

Qualcomm's $600 million acquisition of Flarion was supposed to be a done deal, but three months after its close, the U.S. Department of Justice has filed an anti-trust suit against Qualcomm, accusing it of illegally colluding with Flarion before the merger was final.

The DOJ is accusing Qualcomm of taking over operational control of Flarion right after it announced its acquisition plans last July before observing the pre-merger waiting period required by federal anti-trust laws. Specifically, Qualcomm required Flarion to get permission before undertaking basic business activities, and Flarion sought out Qualcomm's guidance in hiring and consultants and employees--basically Flarion stopped acting like a separate company even though the merger was far from finalized, the lawsuit stated. The conduct is commonly known as "gun jumping" and is in direct violation of the Hart-Scott-Rodino anti-trust act of 1976, Justice authorities said.

"Merger parties must continue to operate independently until the end of the pre-merger waiting period," Assistant Attorney General Thomas Barnett said in a statement today. "The Antitrust Division will vigorously enforce this requirement against any company that assumes operation control of a business that it is acquiring."

The lawsuit, filed today, isn't expected to make it very far in the courts though. The Justice Department and Qualcomm have already reached a settlement requiring Qualcomm to pay $1.8 million, a fraction of the total acquisition cost. The DOJ said that the small penalty was reduced from the statutory maximum because Qualcomm came forward with the information voluntarily and took efforts to amend their merger agreement and stop the gun-jumping practices. The lawsuit was filed in the U.S. District Court for the District of Columbia where a federal judge will review the settlement.

The DOJ opened an inquiry into the deal last year, delaying its close by a month. The Justice Department, however, dropped its inquiry in January, clearing the way for the merger, without citing any possible ant-trust violations until today. Since then, Qualcomm has been incorporating Flarion's Orthogonal Frequency Division Multiplexing (OFDM) technology into its own hardware and chipset lines and has been touting OFDM Access as a key component of future IEEE 802.11n wireless LAB and 802.20 broadband wireless access standards.

The DOJ suit is not Qualcomm's only regulatory problem. Last week, Qualcomm's big splash at CTIA Wireless was dampened by its revealing that Korean regulators are inquiring into Qualcomm's business dealings with three of its Korean CDMA licensees: Samsung, LG Electronics and Pantech. Qualcomm said Korean Free Trade Commission officials visited its offices on April 4, but did not provide an explanation for the probe or its scope. Qualcomm, however, said it believes the inquiry is related to complaints lodged by a small unnamed Korean company about mobile video software Qualcomm distributes with its chipsets.

In Europe Qualcomm is facing complaints before the European Commission lodged by several GSM vendors, accusing Qualcomm of using unfair business practices to squeeze competitors in the UMTS space.