The EU’s Digital Markets Act (DMA) enters into force on 1 November 2022. It promises to be one of the most significant developments in the history of EU regulation, ushering in a new era for technology companies operating in the EU. In this communication we set out the background to the DMA, the companies whose services will be affected, the obligations that they will have, the consequences of non-compliance and the next steps in the DMA’s application.
Douglas has represented clients before the European Commission and the Competition and Markets Authority for more than 20 years in all areas of competition law. He provides multinational clients with innovative solutions on high-profile complex matters including merger control, abuse of dominance, private damages actions and cartel investigations, often involving multiple jurisdictions. He founded our Brussels office.
Douglas has acted for clients in a broad range of industries, including software, technology, telecommunications, manufacturing, consumer goods, energy, healthcare, and defence. He is representing Microsoft, Sonos and Telenor in merger control and technology matters.
Douglas advises on the UK national security regime. He has contributed to working groups organized by the Department for Business, Energy & Industrial Strategy and the Parliament’s Foreign Affairs Committee on the National Security & Investment Bill. He has moderated discussions on the National Security and Investment Act. He represents clients active in the UK semiconductor industry.Douglas has been recognised as a leading antitrust and competition practitioner by Chambers. He is known for being "skilled, easy to work with and very service-minded". GCR’s Who’s Who Legal recognises Douglas as “an excellent technical lawyer in the competition space”. Douglas is also ranked as a leading competition lawyer in Legal 500 UK 2021, described by one client as "very experienced and good at finding strategic and practical solutions".
Posts by: Douglas Lahnborg
The European Commission (“Commission”) is expanding its jurisdiction over transactions by encouraging national competition authorities (“NCAs”) of the EU Member States to ‘refer’ certain transactions to it that fall below the thresholds for mandatory notification at the EU and the national level. On 26 March 2021, the Commission published guidance (“Guidance”) setting out referrals that are ‘encouraged’ and how and when it will accept such referrals. This development has not required legislative changes (which would have taken some time and also required unanimity among EU Member States) but rather the Commission is resuscitating an existing provision, the so-called “Dutch clause”, namely Article 22 of the EU Merger Regulation (“EUMR”).
The Commission hopes to remedy what it perceives as an enforcement gap under the turnover-based thresholds for notification. In particular, this change in policy aims to catch transactions that would otherwise fall outside its jurisdiction as the turnover thresholds would not be met, but the parties otherwise have an important competitive position that is not reflected in their turnover, including so-called “killer acquisitions”. The Commission considers this to be a particular issue in the digital economy, pharmaceutical sector and other ‘innovation-driven’ sectors.
Only a couple of Member States (Austria and Germany) have implemented transaction value-based thresholds to catch acquisitions of companies with low turnover and high valuation. The Guidance allows the Commission to enable a more systematic EU-wide response.
The substantive test remains unchanged: the Commission will continue to assess whether there is a risk of significant impediment to effective competition (the “SIEC test”).
Transactions falling within the new policy
According to the Guidance, Article 22 referrals will be encouraged for transactions where the turnover of at least one party does not reflect its actual or future “competitive potential.” A non-exhaustive list of examples includes acquisitions of: (i) promising start-ups, (ii) “important innovators,” (iii) an “actual or potential important competitive force,” (iv) companies having access to key raw materials, infrastructure, data or IP rights, and (v) companies providing key inputs for other industries.
Whether a transaction is eligible for an Article 22 referral depends on two legal requirements: the transaction must (i) affect trade between Member States, and (ii) threaten to significantly affect competition within the territory of the Member State(s) making the request. The Commission provides examples of the relevant factors for the assessment of these criteria:
- Trade between Member States could be considered affected, for example, based on the location of potential customers, data collection, or likely future commercialisation of IP rights.
- The requirement of a threat to “significantly affect competition” within the relevant territory will be met if a preliminary assessment reveals a real risk that the transaction could result in the creation or strengthening of a dominant position, the elimination of an important competitive force (in particular, a new important innovator), the foreclosure from a market or supplies, and leveraging a strong market position from one market to another through exclusionary practices. The preliminary assessment conducted to verify this second criterion is without prejudice to the subsequent formal assessment of the transaction if the Commission accepts the referral.
The Commission intends to play an active role in the enforcement of the new policy. It is willing to “cooperate closely” with NCAs to identify transactions that would fall within the scope of this new policy, or even invite NCAs to invoke Article 22 in certain cases. Third parties are encouraged to contact the Commission or NCAs, if they consider a transaction appropriate for referral, provided they have sufficient evidence to enable a preliminary assessment.
The timing for referral is as follows:
- In cases where there is no mandatory filing at a national level, NCAs have 15 working days to request referral, starting from the date on which the transaction is made known to them (according to the Guidance, this is when sufficient information is available to make a preliminary assessment);
- The Commission will inform the other NCAs of the referral request “without delay”;
- Other NCAs then have 15 working days to join the initial request (direct communication between NCAs is also encouraged by the Commission); and
- After 10 additional working days, the Commission will be deemed to have adopted a decision to examine the transaction, if it has not already done so.
While the referral is subject to the deadlines set out above, the Commission is willing to accept Article 22 referrals up to six months after completion of the transaction or the transaction having become known in the EU (whichever is the later), or even later in “exceptional situations”.
Implications for parties to corporate transactions
Standstill effect and risk of gun jumping: The obligation not to close a transaction applies to transactions that have not completed at the date on which the Commission informs the parties that an Article 22 referral request has been made, after which the parties risk substantial gun jumping fines if they decide to close. The standstill obligation ceases if the Commission subsequently decides not to examine the concentration. The standstill obligation does not apply to transactions that have already completed before the Article 22 referral process is initiated such that no gun jumping fines can be incurred. The Commission will inform the parties as soon as possible if a referral is being considered to allow the parties to refrain from completing the transaction.
Duty to notify: Once the Commission has accepted Article 22 jurisdiction, the acquirer will be under a duty to notify the transaction under the standard notification procedure under the EUMR.
Potential effects on the transaction and risk of sanctions: Once the Commission has accepted jurisdiction, the transaction will be reviewed based on the standard substantive and procedural EUMR rules, which for transactions that raise concerns include the risk of remedies and in the worst-case scenario, a prohibition decision. If the transaction has not yet completed, there will be no real difference with the standard rules for notifiable transactions, although a decision to apply Article 22 adds to the timetable and may delay closing. However, effective remedies could prove difficult to implement for transactions that have already closed depending on the degree to which the acquired business has been integrated, particularly remedies requiring structural changes (e.g. full or partial divestment) to restore the situation pre-transaction.
The end of the “one stop shop” within the EU?: While under Article 22, the territorial jurisdiction is in theory limited to the EU Member States that have either referred the concentration to the Commission or joined the initial referral(s), the Commission takes into account the effects of a transaction in the rest of the EU whenever a relevant market has a geographic dimension larger than the referring Member State(s). This is likely to be the case in many digital and innovation markets potentially covered by the new policy and tech companies with global ambitions should assume that the Commission will investigate the effect of the transaction on an EU-wide basis.
The Guidance states that if a transaction has already been notified in one or more EU Member States that did not request a referral or join such referral request, this could be a factor against accepting a referral. However, for the purposes of legal certainty and considering potential for inconsistencies, in particular in relation to any remedies, we encourage the NCAs and the Commission to maintain a high level of cooperation to avoid overlapping investigations.
Our recommendations in light of the new policy
This is a major change to the Commission’s merger control policy. With this new policy, which is not limited to “Big Tech” or the digital economy (which has driven recent policy shifts or discourse relating to such shifts), EU merger control no longer provides for the legal certainty resulting from turnover-based notification thresholds. Several months of delay could be added between signing and closing, remedies could be imposed after the implementation of a transaction, and completed acquisitions might have to be unwound, all for transactions which prior to this policy change would not have faced any merger control review in the EU.
In light of this, transaction parties should consider:
Assessing the risk of falling within the scope of the new policy: Transaction parties should consider if a transaction falls within the categories of potential Article 22 referrals set out above. They should also consider if the transaction is likely to raise competition concerns – including through the strengthening of dominance/market power, access to advanced/innovative technology, R&D or data, or if the transaction involves a highly concentrated market, a target with a substantial user base or high projected growth, or meets merger control thresholds outside the EU. The rationale of the transaction and projected market developments will also be relevant factors in assessing if an Article 22 referral is likely.
Allocating risk and adapting transaction documents: Transaction agreements should be revised to take into account the risk of an Article 22 referral. In particular, agreements should allocate the risk of an Article 22 referral between buyers and sellers and include, or not include, as a condition precedent the absence of an Article 22 referral in the time period between signing and closing. If a transaction is likely to be referred, the acquirer may insist on having received from the Commission or NCAs confirmation that the transaction will not get referred under Article 22.
Strategically informing NCAs: At a national level, it might be beneficial to provide NCAs with enough information to allow a preliminary assessment of whether Article 22 referral is appropriate. Providing a sufficient level of detail should trigger the 15 working day deadline vis-à-vis the NCAs that have been provided with such information. It remains to be seen what level of cooperation will be achieved among NCAs; at this stage, it is not certain that informing one NCA would be regarded as informing all NCAs.
Reaching out to the Commission: While it is not yet clear what type of “comfort letter” the Commission is willing to provide, early communication with the Commission should help clarify whether a transaction is outside the scope of Article 22 referral, provided that sufficient information is made available to the Commission to make such assessment. This option should be particularly attractive in a competing bid scenario, or where competitors or other third parties otherwise may use the new Article 22 policy to scupper or delay a transaction.
The UK is introducing a new far-reaching national security regime which will impact M&A activity in Tech, Energy, Finance and other sectors. Orrick Partner Douglas Lahnborg, on 3 February 2021, hosted a webinar with panellists Niall Mackenzie (Department for Business, Energy & Industrial Strategy), Tim Riisager (Centrica), Alex van Someren (Amadeus Capital Partners) and Tom Tugendhat MP (Chairman of the Foreign Affairs Committee), who shared valuable insights for businesses and their advisors into the National Security and Investment Bill.
Watch a recording of the discussion here and listen to this experienced panel share their views on points such as what businesses should do now if they are concerned that a transaction may fall within the scope of the regime, the timing of the Bill, definition of “national security”, changes to the structuring of transactions, expectations on the newly-created Investment Security Unit and whether this is the first of a suite of legislation and policy that we will see from the government to address national security concerns in transactions involving entities or assets with links to the UK.
The EU State Aid regime has long protected the EU internal market from anti-competitive subsidies granted by EU Member States. On 17 June 2020, the European Commission published a White Paper that proposes a new set of tools designed to address distortive effects in the internal market caused by subsidies granted by states outside the EU.
The White Paper outlines three complementary tools, or “modules”, intended to tackle the distortive competitive effects arising from foreign subsidies. These modules would be implemented by “supervisory authorities”, possibly at EU-level (most likely by the Commission itself) and/or at national level by an authority chosen by the Member State. For each of the three modules, the existence of a foreign subsidy with an actual or potential disruptive effect in the EU would be assessed in a “preliminary review”, potentially followed by an “in-depth investigation”. Undertakings under investigation could face “redressive measures” including the prohibition or even unwinding of certain transactions, or else make commitments to avoid prohibition. Failure to comply with procedural obligations would be subject to fines and periodic penalty payments.
Module 1 – General instrument to capture distortive effects of foreign subsidies
This largely mirrors the existing EU State Aid regime that applies to states in the European Economic Area (EEA). It proposes a general instrument that could capture all distortive effects of foreign subsidies exceeding a certain threshold, currently proposed at EUR 200,000 over three consecutive years. The Commission lists several categories of distortive subsidies, i.e. foreign subsidies that would distort the EU’s internal market: export financing, debt relief to the benefit of ailing undertakings, unlimited government guarantees, individual tax reliefs and foreign subsidies directly facilitating an acquisition.
For all other forms of subsidies, a more detailed assessment would be necessary, based on indicators such as the size of the subsidy, the size of the beneficiary and the utilisation of production capacity, the market situation, specific behaviour such as outbidding in acquisitions or distortive bidding in procurement procedures, and the level of activity of the beneficiary in the EU. If a distortive effect is established, it would be weighed up against any positive impact (the “EU interest test”), taking into account EU objectives such as job creation, climate neutrality goals, digital transformation, security, public order, public safety and resilience. Redressive measures could range from structural remedies and behavioural measures, to redressive payments to the EU, or the Member States, and could be subject to a limitation period of ten years.
Module 2 – Control of acquisitions facilitated by foreign subsidies
This proposes to tackle subsidised acquisitions of EU businesses by introducing an ex ante notification system, separate from and complementary to EU merger control and foreign direct investment screening. This module would investigate direct facilitation of acquisitions by foreign subsidies, as well as indirect de facto facilitation when foreign subsidies increase the acquirer’s financial strength. The regime would be subject to certain quantitative and qualitative thresholds and cover not only the acquisition of control over EU targets, but also the acquisition of significant – but possibly non-controlling – minority rights or shareholdings. The time period for the benefit of foreign subsidies would be limited, e.g. from three years prior to the notification until one year after closing. To avoid a prohibition of the planned transaction the acquirer could offer commitments, which would likely have to include structural remedies.
The proposals also envisage an ex officio review process to scrutinise acquisitions that should have been notified by the acquirer but were not, including after they have completed. The module includes the right to order the unwinding of completed transactions.
Module 3 – Control of unfair advantages in public procurement due to foreign subsidies
This complements the public procurement regime by introducing an additional notification obligation when submitting a bid, where the bidding party has received a “financial contribution” in the last three years. This module would address direct distortion of a procurement procedure by operation-specific foreign subsidies, as well as indirect de facto distortion by increasing the financial strength of the operator. The Commission aims to avoid situations where artificially low public procurement bids are facilitated by foreign subsidies. If a bidder is found to benefit from foreign subsidies, it could be excluded from public procurement in the EU.
The White Paper also identifies a risk that foreign subsidies create unfairness in the context of EU funding. The proposals are less developed, but the solution could be similar to Module 3 where EU funding is distributed through public tenders.
Hurdles and next steps
A first obstacle might be resistance by national governments that will scrutinise the proposal – the outcome of this process will influence the distribution of powers between the Commission and the Member States. For the general instrument (Module 1) as well as the public procurement instrument (Module 3), it is proposed that the Commission and the relevant national authorities would have concurrent authority for the initial stages. However, the Commission proposes to be exclusively competent to apply the EU interest test. Similar to its “one-stop shop” role in EU merger control, the Commission envisages exclusive responsibility for the enforcement of the ex ante control of acquisitions facilitated by foreign subsidies (Module 2).
In any event, enforcement outside the EEA will largely depend on third countries’ willingness to co-operate, which is not a given. State aid is highly political – foreign countries are unlikely to give the EU access to detailed information, unless the benefit of achieving EU approval outweighs the intrusion in the foreign state’s autonomy and political process. While the White Paper proposes an obligation to provide information, as well as powers to impose a fine or to order parties to unwind a transaction, the lack of effective enforcement outside the EEA could jeopardize the new regime(s). Even providing the supervisory authorities with the possibility to make decisions based on the facts available would not fully address this fundamental and intrinsic weakness.
Conversely, foreign companies benefiting from subsidies may lack information that would enable them to argue either the absence of a distortive effect, or the benefits outweighing such distortive effects. These dynamics could cause a stalemate between the EU and foreign countries, with increased trade barriers as a result.
The Commission acknowledges that there might be overlaps with existing legal tools, including international law such as the WTO Agreement on Subsidies and Countervailing Measures (for goods), as well as bilateral free trade agreements with third states, which may contain relevant dispute settlement or consultation provisions. In case of overlapping actions, the White Paper merely suggests the ability to suspend the proceedings under the proposed new instruments and to conditionally resume those if the distortion persists.
A public consultation is open for stakeholders to comment on the White Paper until 23 September 2020, with proposed legislation scheduled for 2021. Legislation is unlikely to come into force before 2022.
The UK will no longer be a Member State of the European Union (the “EU”) as of 11 p.m. on 31 January 2020 (“Exit Day”). A ‘transition period’ will run from Exit Day until 11 p.m. on 31 December 2020 (the “Transition Period”).
The Competition and Markets Authority (“CMA”) has published a guidance document explaining how Brexit, or “EU Exit,” will affect its ‘powers and processes’ for competition law enforcement (antitrust, including cartels), merger control and consumer protection law enforcement during, towards the end of and after the Transition Period (the “Guidance”). The Guidance also explains how ‘live’ mergers and ‘live’ antitrust cases being reviewed by the European Commission (the “Commission”) or the CMA during and at the end of the Transition Period will be treated.
In this post, we provide an overview of the key takeaways in relation to merger control and antitrust.
The implications of EU Exit on merger control need to be considered during three different periods: (i) during the Transition Period; (ii) towards the end of the Transition Period; and (iii) after the end of the Transition Period.
- During the Transition Period: The ‘one-stop shop’ principle will continue to apply. When considering whether the merger control thresholds under the EU Merger Regulation (“EUMR”) are met, the turnover generated by an undertaking in the UK will still need to be included. The CMA will not open an investigation into a transaction unless jurisdiction has been transferred to it under the EUMR’s referral mechanisms. The UK courts and the Competition Appeal Tribunal will not have jurisdiction to review decisions of the Commission or the UK-related aspects of these decisions.
- Towards the end of the Transition Period: The Commission will retain jurisdiction over transactions that have been formally notified to it before the end of the Transition Period or if it has accepted referral requests under the EUMR (or the deadline for Member States to disagree to the request has expired (Article 4(5) of the EUMR)). If the Commission’s clearance decision in a particular case is subject to commitments, the Commission will continue to be responsible for monitoring and enforcing all aspects of these commitments, including any aspects relating to the UK, irrespective of whether the commitments have been agreed before the end of the Transition Period. However, the Commission and the CMA can agree to transfer responsibility for the monitoring and enforcement of the UK aspects of any commitments to the CMA.
- Following the end of Transition Period: The ‘one-stop shop’ principle will no longer apply. The turnover generated in the UK will no longer be relevant for determining whether the jurisdictional thresholds under the EUMR are met. Parallel investigations (i.e. investigations by the Commission and the CMA) can take place with regards to transactions that meet the thresholds under the EUMR and the Enterprise Act 2002. The Commission will continue to be able to investigate the effects in the UK of transactions over which it had already exercised jurisdiction (i.e. because the transaction had been notified during the Transition Period or referral requests were accepted).
As with merger control, the implications for antitrust enforcement should be considered during three different periods: (i) during the Transition Period; (ii) towards the end of the Transition Period; and (iii) after the end of the Transition Period.
- During the Transition Period: Articles 101 and 102 of the Treaty on the Functioning of the European Union (“TFEU”) will have full force and effect in the UK in addition to the domestic Chapter I and Chapter II prohibitions. Regulation 1/2003, the EU block exemption Regulations and EU guidance will also continue to be applicable. The Commission will continue to have the power to enforce and investigate suspected infringements of Articles 101 and 102 TFEU in relation to the UK. If the Commission has initiated an investigation into a suspected breach of either Article 101 or Article 102, the CMA and concurrent (sector) regulators in the UK will not be able to launch a parallel investigation. In the event that commitments have been accepted by the Commission before or during the Transition Period, the Commission will continue to have the responsibility for monitoring and enforcement of the UK-related aspects of these commitments. Infringements of EU law are relevant to the disqualification of directors for competition law infringements. This will continue to be the case during the Transition Period.
- Towards the end of the Transition Period: The Commission will retain jurisdiction over cases in relation to which it has formally initiated proceedings before the end of the Transition Period. However, the CMA and the concurrent regulators may be able to obtain jurisdiction over such cases. For instance, if the agreement or conduct under investigation affects trade within the UK and are ongoing at the end of the Transition Period, the CMA or concurrent regulators may investigate facts post-dating the Transition Period. Further guidance will be issued concerning the applicable procedure. If the CMA and the concurrent regulators are investigating conduct that may affect trade between EU Member States and have not issued a decision before the end of the Transition Period and the case is ongoing, Articles 101 and 102 TFEU will no longer be applied.
- Following the end of Transition Period: After the end of the Transition Period, the CMA and the concurrent regulators will only investigate suspected infringements of the Chapter I and Chapter II prohibitions. The Commission will continue to have responsibility for monitoring and enforcing the UK aspects of commitments given or remedies imposed; however, there is an option under the Withdrawal Agreement for this responsibility to be transferred to the CMA and concurrent regulators by ‘mutual agreement.’ Further guidance will be issued concerning the applicable procedure. It is expected that company director disqualification orders will also concern conduct found to have infringed Articles 101 and 102 TFEU during the Transition Period. The EU block exemption Regulations are ‘retained exemptions.’ As such, after the Transition Period, exemptions will operate as exemptions from domestic prohibitions. The Secretary of State, acting in consultation with the CMA, will have the power to vary or revoke the application of the retained exemptions. Businesses entering into agreements after the end of the Transition Period will be able to benefit from the retained exemptions provided they meet the relevant criteria.
The CMA considers the Guidance to be a ‘live’ document subject to change “in light of further political and legal developments.”
On 6 August 2019, the UK’s Competition and Markets Authority (the “CMA”) imposed an ‘Unwinding Order’ on a U.S. company, Bottomline Technologies (de), Inc (“Bottomline”), active in the business payment automation technology space, and its UK subsidiary (“Bottomline UK”), in connection with its investigation into Bottomline’s completed acquisition of Experian Limited’s Experian Payments Gateway business (the “EPG Business”). The acquisition was completed on 6 March 2019.
An ‘Initial Enforcement Order’ or ‘IEO’, preventing further integration, had already been imposed on Bottomline and Bottomline UK on 22 May 2019.
The Unwinding Order imposes obligations in relation to the handling of information:
- Bottomline must not use “EPG Confidential Information” (i.e. commercially sensitive information regarding the EPG business) to “solicit” any existing EPG customers in relation to any product or service that competes with the EPG business;
- Bottomline and Bottomline UK must “segregate” all EPG Confidential Information (including existing physical and electronic materials) and ensure that such information cannot be accessed by any Bottomline and Bottomline UK representatives or employees other than certain EPG staff, except where necessary to comply with regulatory and/or accounting obligations or with the prior written consent of the CMA;
- Bottomline and Bottomline UK must procure that EPG staff destroy or delete any “Bottomline Confidential Information” (i.e. any commercially sensitive information regarding the Bottomline business in respect of any products or services that compete with the EPG business) that they hold; and
- Bottomline and Bottomline UK must procure that no EPG staff have access to Bottomline Confidential Information, except with the prior written consent of the CMA.
The Unwinding Order remains in force until it is varied or revoked.
This matter reminds us of the risks inherent in proceeding to complete a transaction without having obtained CMA clearance, i.e. the risks of the CMA investigating a transaction (that has been legally completed) and imposing disruptive measures pending the outcome of its investigation. At a more general level, the difficulties of reversal are relative to the scale of implementation and would be far more difficult for instance if employee’ contracts have been terminated, or supply/customer contracts novated or terminated. A careful assessment of whether to voluntarily notify the CMA of a transaction prior to completion should therefore be conducted in respect of transactions involving overlapping businesses in the UK.
For the first time, the UK Competition and Markets Authority (CMA) has flexed its regulatory muscles by ordering the unwinding – during the course of its ongoing investigation – of a completed acquisition. In a demonstration of its willingness to use all of the tools at its disposal – regardless of deal size or complexity – the CMA ordered Tobii AB (Tobii) to reverse any integration that had taken place as a result of its completed acquisition of Smartbox Assistive Technology Limited and Sensory International Ltd (Smartbox).
Tobii announced its acquisition of Smartbox for £11 million in cash through a debt-financed deal in August 2018. Both are relatively small tech companies that provide specialist “augmentative and assistive communication” (AAC) for those with speech disabilities through hardware and software solutions, including eye-gaze cameras.
Following completion of the transaction, Tobii took various steps to integrate the Smartbox business, including entering into an agreement (Reseller Agreement) whereby Smartbox would act as reseller of Tobii products in the UK and Ireland, the discontinuation of certain Smartbox R&D projects, and the withdrawal of certain Smartbox products from the market.
In September 2018, the CMA opened an investigation into the completed transaction and subsequently found that it would lead to less choice, higher prices and reduced innovation for customers. The CMA gave the parties one week to submit undertakings to address these concerns, or the CMA would proceed to an in-depth, Phase 2 investigation.
Despite the parties offering various undertakings designed to alleviate the CMA’s concerns, these were not deemed sufficient and, on February 8, 2019, the CMA referred the transaction for Phase 2 investigation, simultaneously imposing an interim order preventing preemptive action.
Following further investigation during the Phase 2 process, the CMA issued – for the first time – an unwinding order. The order requires the parties to reverse integration and restore the parties to the positions in which they would have been had the integration not taken place. The parties are required to fulfil any open orders pursuant to the Reseller Agreement, but terminate it once these are fulfilled. Moreover, the unwinding order requires Smartbox to supply certain products which had been discontinued. Smartbox is also required to reinstate all R&D projects, including investment and staff allocations, which were discontinued due to the acquisition.
In imposing the unwinding order, the CMA concluded that the integration actions taken by the parties might prejudice the Phase 2 reference or impede the taking of any action by the CMA to rectify competitive harm caused by the transaction.
The CMA is scheduled to make its final decision on the transaction by July 25, 2019.
The imposition of an order to unwind integration in a small tech deal could be seen as the CMA wielding a sledgehammer to crack a nut, but the Tobii/Smartbox case reflects several of the CMA’s priorities for 2019, including an increased focus on tech deals and the protection of vulnerable consumers.
The willingness of the CMA to use the full range of merger control tools at its disposal impacts not only tech deals, but deals in all industry sectors, regardless of size and complexity. Parties in completed transactions, which might affect competition in the UK, but which are not notified to the CMA, should consider carefully what steps to take in terms of integration, and whether and how those steps could be reversed if required to do so by a CMA unwinding order.
The CMA’s approach in this case also highlights the perils of not notifying transactions prior to completion. While the UK merger control regime is voluntary in theory, the consequences of not notifying are such that, in practice, the regime requires parties to carry out a careful pre-transaction assessment of the impact on competition in the UK and the risk of the CMA’s launching an investigation, instead of simply concluding that filing is not required because the UK regime is voluntary.
Douglas Lahnborg and Matthew Rose present a comparative discussion on the recently issued National Security and Investment White Paper, which proposes a significant expansion of the UK government’s powers to scrutinize foreign investment beyond those available in other leading economies. The white paper introduces powers to intervene in a broad range of transactions in any sector, regardless of deal value, the transaction parties’ market shares, or their revenues. If the proposals are brought into force in their current form, the UK regime would be one of the most stringent in the world, with wide-ranging implications for foreign and domestic companies and projects in sensitive sectors, including technology, energy, infrastructure, telecommunications, real estate and financial services. Read more here.
Last year on this Blog we wrote about the uptick in enforcement action by European competition authorities against violations of merger control procedure (see here).
Yesterday, the UK Competition and Markets Authority (“CMA”) indicated that this trend is set to continue, issuing a fine of £100,000 for a breach of an Interim Order imposed on Electro Rent in its acquisition of Microlease. This is the first time the CMA has fined a company for such a procedural breach.
On the face of it, the fine seems harsh given that the relevant action – serving notice of termination of a lease without the CMA’s prior consent – was discussed with the appointed Monitoring Trustee prior to coming into effect. Indeed, the European Court of Justice (“ECJ”) recently confirmed that parties may take certain actions without violating the standstill obligation imposed under the EU Merger Regulation – including terminating agreements – where such actions do not contribute to the implementation of a transaction. In doing so, the ECJ’s ruling confirmed the commonly held view that merging parties are permitted to take certain steps allowing them to prepare for implementation of a transaction without violating merger control procedural rules.
Given the developing case law on standstill obligations, companies involved in M&A will need to revisit pre-completion protocols, noting that the EU approach seems to be diverging from the CMA’s somewhat more rigid approach to merger control. READ MORE
The UK government considers that transactions in the following sectors can raise national security concerns:
1. quantum technology;
2. computing hardware; and
3. the development or production of items for military or military and civilian use.
In order to allow the UK’s Secretary of State to intervene in transactions in these sectors, the UK government has proposed amendments to the Enterprise Act 2002 that would expand the Competition & Markets Authority’s (“CMA”) jurisdiction to review transactions in these sectors from a competition perspective. READ MORE
On 6 September 2017, the Court of Justice of the European Union (“CJEU”) handed down its long-awaited ruling in Intel v Commission (the “Ruling”). The Ruling, which sets aside the appealed judgment of the EU General Court and orders the case to be re-examined for failing to consider the effects of anticompetitive conduct on competition, has potentially broad implications for how the European Commission (“Commission”) conducts its analysis and reasons its decisions in ongoing and future EU antitrust investigations.
- The Ruling signals a return of “effects-based” analysis in EU antitrust cases and a move away from a “form-based” approach where certain conduct is deemed per se illegal.
- The Ruling not only clarifies how the General Court should assess appeals of Commission decisions, but is likely to have implications for how the Commission approaches its analysis and reasons its decisions in EU antitrust cases going forward. In particular, the burden of proving that specific conduct or practices have anticompetitive effects is placed firmly with the Commission.
- Intel’s victory may embolden other entities facing similar allegations to defend their corners more aggressively.
- This is not the end of the road. It cannot be ruled out that the General Court, when it re-examines the case and applies the appropriate analysis, comes to the same ultimate conclusions and upholds the Commission’s original fine.
The Competition and Markets Authority (“CMA”) has today announced that it has secured the first disqualification of a director of a company which has infringed competition law. Under the Company Directors Disqualification Act 1986 (as amended by the Enterprise Act 2002), the CMA can apply to the court for a disqualification order to be made against a director in cases where a company has breached competition law and the director’s conduct makes him or her “unfit to be concerned in the management of a company”. This is the first time that the CMA has utilised this power.
In this case, poster supplier Trod breached competition law by agreeing with a competitor that they would not undercut each other’s prices for posters and frames sold online, with the agreement between the competitors being implemented using automated re-pricing software. The company received a fine of £163,371 for this behaviour.
On 29 July 2016, the High Court of England and Wales delivered its judgment dismissing the applications of two defendants to strike out a follow-on damages case in which the claimant, iiyama, asserts that it suffered losses as a result of the defendants’ alleged participation in the LCD cartel. Iiyama v Samsung  EWHC 1980 (Ch).
The claim follows on from the European Commission’s decision of 8 December 2010, which found that six LCD panel producers had entered into a world-wide price fixing cartel and had implemented that cartel within the EU. The Commission had been satisfied that the agreement related to direct and indirect sales of LCD panels to companies in the EU. It also found that the participants in the cartel had sought to implement the cartel within the EU, even if price negotiations took place outside the EU.
The long list of practices violating EU competition law just got longer: in Container Shipping, the European Commission confirmed that the unilateral publishing of pricing information, in public media, can violate Article 101 TFEU.
In this case, the Commission expressed concern that the practice of fourteen container liner shipping companies (“Carriers”) to publish intentions to increase prices may harm competition. The Carriers regularly announced intended increases of freight prices on their websites, via the press, or in other ways. The announcements were made several times a year and included the level of increase and the date of implementation. The Carriers were not bound by the announced increases and some of them postponed or modified the price increases after announcement.
Rightly considered to be a “once in a generation decision,” the UK electorate will on 23 June 2016 have a chance to vote on whether the UK should remain a member of the European Union (“EU”).
This upcoming referendum has resulted in emotional rhetoric and heated discussions in the media (and no doubt around dining tables throughout the UK and elsewhere) on which way to vote, and why. However, what is striking to us is the relative lack of focus on the legal implications of so-called “Brexit,” including on EU and UK competition law.
The Consumer Rights Act 2015 (“CRA”) comes into force today, 1 October 2015.1 It introduces major reforms to the antitrust damages actions regime in the UK.2 In particular, the CRA broadens the type of cases that can be heard by the UK’s specialist antitrust court, the Competition Appeal Tribunal (the “CAT”), to include opt-out class actions, and makes other procedural amendments aimed at facilitating and streamlining private damages actions in the UK.
On July 16, 2015, the EU’s highest court, the Court of Justice, rendered its long-awaited ruling on whether seeking an injunction for a standard-essential patent (“SEP“) against an alleged patent infringer constitutes an abuse of a dominant position pursuant to Article 102 TFEU. The judgment was in response to a request for a preliminary ruling from the Landgericht Düsseldorf (Regional Court of Düsseldorf, Germany) in the course of a dispute between Huawei Technologies Co. Ltd (“Huawei“) and ZTE Corp. together with its German subsidiary ZTE Deutschland GmbH (together, “ZTE“).
In April 2014, the European Parliament approved legislation governing antitrust damages actions brought in the national courts of European Union Member States. The Parliament’s approval followed several years of debate, and was the last significant hurdle for developing a private damages law for the EU. The Directive requires the approval of the European Council, which will be a formality, at which point it will be formally adopted. EU Member States then have two years to implement it into their national laws. The Directive aims to make it easier for companies and consumers to bring damages actions against companies involved in EU antitrust infringements. The text of the Directive is available here.
There has been a great deal of commentary concerning the extent to which EU private damages law will become like that of the United States—with all of its benefits for those harmed by anticompetitive conduct and all of its burdens for those accused of engaging in the conduct. Now that the Parliament has approved the Directive and the scope and contours of the forthcoming EU law have become clearer, this article compares some of the key features of the new law with U.S. law in price-fixing cases. For simplicity, the article focuses on U.S. federal law, with references to state law only where important. Our discussion of the new EU law similarly omits reference to national laws. Although brevity is the soul of wit, it also can be a source of potentially incomplete short-cuts that can lead to debatable, or even misleading, conclusions. Accordingly, while this article provides a general overview and comparison of some important issues under U.S. and EU law, it is not meant to substitute for independent legal research and analysis. READ MORE
In October 2012, the UK Supreme Court issued its first antitrust judgment, ruling that the UK statutory limitation period for bringing “follow-on” damages actions—i.e., claims based on antitrust infringement decisions—was sufficiently clear that, under the facts of the case, it did not deprive the claimants of effective redress. This ruling is significant as it is the first time the UK’s highest appeal court has examined antitrust damages claims and shows, alongside several high-profile UK Court of Appeal judgments handed down earlier this year, that the UK courts are gaining experience and confidence in dealing with complex antitrust matters. This increased competence will continue to benefit both claimants and defendants in the form of increased legal certainty in what remains a growing and developing area of EU and UK law.
BCL v. BASF centered on the compatibility of the UK limitation rules for follow-on damages actions with the European Union legal principles of effectiveness and legal certainty. The claimants, BCL Old Co. Limited and others (BCL), brought an action, in 2004, for damages against members of the vitamins cartel other than BASF, following a decision issued by the European Commission in November 2001. BCL did not sue BASF until more than six years after the decision, in March 2008, bringing its action in the UK specialist Competition Appeal Tribunal (CAT). Pursuant to the CAT’s rules, a claimant wishing to bring such an action must do so within two years from the date on which the decision of the relevant competition authority becomes final, suspended by any appeal brought against the decision. BASF had appealed the Commission’s decision, but only on the level of the fine. BCL argued that it was not clear from the limitation rules that an appeal of the fine alone did not invoke the suspension of the limitation period and that, in any event, it had not been clear at the time the appeal was brought what BASF was appealing against.
In May 2009, the UK Court of Appeal found that BCL’s claim was time-barred and could proceed, if at all, only with an extension to the limitation period granted by the CAT itself. Later that year, the CAT assumed that it did have the power to extend but declined to do so. On appeal of this decision, the Court of Appeal, however, held that the CAT had no such power to extend the statutory deadline for bringing an action before the CAT and that European Union law did not require the CAT to hold such a power.
The UK Supreme Court was asked to consider whether the statutory limitation period and its application violated the claimant’s rights under European Union law principles by rendering it “excessively difficult” for BCL to bring a claim against BASF. The Supreme Court considered that the statutory language was “plain and ordinary” and the legal position was “clear.” It found that the risks to BCL of not bringing a claim against BASF in January 2004 were or should have been evident and the Supreme Court found no evidence that the reason BCL had not brought its claim earlier was actually due to any legal uncertainty. In any event, the Supreme Court held, even if the legal position had not been clear, the only remedy for BCL would have been to bring an action against the UK government. Any uncertainty would not have permitted an action for damages to be brought against BASF at this stage.
The ruling clarifies the CAT limitation period: An appeal of a Commission decision limited to the level of fine does not suspend the two-year period. By contrast, an appeal on the substance of the infringement, by any addressee of the decision—even if not a defendant in the damages claim—does suspend the limitation period.
The UK Supreme Court and recent Court of Appeal judgments have a number of practical implications for both claimants and defendants in UK private damages actions. First, a claimant will need to review the details of all appeals of any relevant infringement decision to determine whether it is the infringement itself that is the subject of the appeal or merely the level of fine. An appeal of the level of fine will not suspend the CAT limitation period. For potential defendants who did not appeal the Commission’s decision, for example because they were one of the immunity or leniency applicants, this may mean a number of years of uncertainty where they have no influence over the outcome of any appeal. Conversely, a claimant will not be able to proceed with an action before the CAT until the outcome of any appeal brought on the substance of the infringement by one of the decision addressees, even if the claimant did not intend to sue that particular defendant. This may significantly delay any recovery by the claimant through an action brought before the CAT. Instead, a claimant may decide to bring a damages action before the UK High Court, which also has jurisdiction to hear follow-on damages actions, and where a claim is more likely to proceed pending appeals of the underlying infringement decision.
As outlined in previous editions of this Newsletter, the UK regime is currently undergoing significant reform with the planned merger of the Office of Fair Trading and the Competition Commission due to take place as early as spring 2014. The procedure for bringing antitrust damages actions is also currently under review by the UK government with a proposal to expand the CAT’s jurisdiction to hear damages claims that do not arise from a decision by a competition authority (also known as “standalone” claims). The full text of the Supreme Court’s judgment is available here.