Qualcomm to pay $1.8M merger penalty

IDG News Service - WASHINGTON -- Wireless technology vendor Qualcomm Inc. and Flarion Technologies Inc. will pay $1.8 million in civil fines in a settlement over charges the two companies violated antitrust law before their merger in January, the U.S. Department of Justice said today.

Qualcomm announced in July 2005 its plans to acquire Flarion, and it obtained operational control over Flarion without observing premerger waiting period requirements, the DOJ said.

The DOJ's Antitrust Division filed a civil antitrust complaint in U.S. District Court for the District of Columbia, along with the proposed settlement. If approved by the court, the settlement will end the lawsuit.

The companies' merger agreement required Flarion to seek Qualcomm's consent before undertaking some basic business activities, such as making new proposals to customers, the DOJ said. Flarion also sought Qualcomm's guidance before undertaking routine activities, such as hiring consultants and employees. Such conduct, commonly known as "gun jumping," violated the Hart-Scott-Rodino (HSR) Act of 1976, the DOJ said.

The 1976 law requires some companies planning acquisitions or mergers to file premerger notification documents with the DOJ and the U.S. 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.

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

In a statement on the companies' Web site, Qualcomm and Flarion acknowledged that they had reached an agreement with the DOJ over gun-jumping charges, but that they disagreed with the DOJ's position. The companies said that the DOJ was notified of "provisions of the acquisition agreement that required Flarion to obtain Qualcomm's consent to enter into certain types of intellectual property licenses and other agreements, and to make certain types of customer proposals." They said the companies voluntarily changed "the provisions to eliminate or reduce the consent requirement."

The companies also noted that the judgment had no finding or admission of wrongdoing by Qualcomm or Flarion.

"With the successful integration of Flarion well under way, we decided to put this matter behind us to avoid diverting or distracting the Qualcomm-Flarion team from the important tasks of integrating the best of both companies' technologies and refining our joint road map,” said Louis Lupin, Qualcomm's senior vice president and general counsel, in the statement.

San Diego-based Qualcomm agreed to buy Flarion, based in Bedminster, N.J., for about $600 million, plus an extra $205 million or so if certain goals are met over the next few years (see "Qualcomm-Flarion deal may rock wireless world"). The acquisition was completed in January.