This newsletter is a summary of the antitrust developments we think are most interesting to your business. Marinus Winters, Counsel based in Amsterdam, is our editor this month. He has selected:
How competition rules and sustainability policies work together has been the subject of growing debate across the globe. Much of the discussion has been focused in Europe, with antitrust authorities in the Netherlands, Greece and the UK in particular setting out policies or issuing guidance in recent months.
In September 2020 the European Commission (EC) launched a call for contributions, asking for views on how state aid, antitrust and merger control rules currently work together with environmental and climate policies and how they could interact even better (read our commentary here). Responses were discussed at a conference earlier this year. And, now, the EC has published a Policy Brief setting out its conclusions on what a “greener competition policy” could look like.
Taking a rather different stance to those who argue that competition rules should be relaxed in order to further sustainability goals, the EC is clear that the green transition must be supported by enforcing the rules “more vigorously than ever”. But to aid compliance, companies can also expect much greater clarity on how antitrust rules apply in a sustainability context. In particular:
– Merger control
The EC will continue to protect green innovation by enforcing merger rules strictly, noting that it has already pursued innovation theories of harm across different sectors. And it will use its new policy on Article 22 referrals (mentioned below) to prevent possible killer acquisitions relating to nascent green innovators.
The Policy Brief notes, however, that the EC does not have a mandate to intervene in mergers solely because they are likely to harm the environment.
The EC is clear that antitrust enforcement contributes to the pursuit of sustainability objectives by promoting and protecting competitive markets. But the rules should not discourage firms from working together to make products more sustainable. While, according to Competition Commissioner Vestager, there is “huge scope” to set up agreements in line with antitrust law, the EC acknowledges that more guidance is needed.
The EC encourages companies to approach it with their projects, saying that in appropriate cases it is prepared to give individual guidance (as in the recent car emissions cartel case), or even issue a formal decision that an agreement is legal. It plans to give more general guidance in its revised rules/guidelines on horizontal cooperation and vertical agreements (both currently under review), in particular on when an agreement delivers benefits for consumers that can justify some restrictions on competition.
Interestingly, this looks set to cover three situations. First, sustainability agreements that benefit customers because a more sustainable product is a better one (a wooden, rather than plastic, toy for example). Second, where benefits come from consumers knowing they are doing their bit for the environment (eg, paying more for fair-trade coffee). Third, where an agreement helps society as a whole (such as an agreement to cut carbon emissions). In this last scenario, however, the EC takes the approach that the consumers of the product in question must not be worse off on balance. This can be contrasted with, for example, the stance of the Dutch competition authority, which in draft guidelines has stated it will allow certain anti-competitive agreements if the negative effects on competition are outweighed by the wider benefits to society.
– State aid
The EC is reviewing its whole portfolio of state aid rules to ensure they are in line with its green goals.
A recent expansion to the general block exemption regulation gives governments new ways to invest in green infrastructure (such as charging stations) without the need to seek advance EC approval. Further expansions are planned.
New guidelines on state aid for climate, energy and the environment will be adopted in early 2022. These rules will significantly increase the scope for using state aid to further sustainability objectives, including covering new areas, higher aid amounts and new aid instruments. And they will discourage investments that will make climate change worse.
Merging parties should now be well aware that breaching procedural merger control rules can come at a price. Antitrust authorities across the globe are keeping up their vigorous enforcement in this area, handing out fines for failures to make mandatory filings, gun-jumping (ie closing a transaction before clearance is obtained in breach of a “standstill obligation”), providing false or misleading information during the course of a review, and breaching remedies. The last couple of months is no exception, with a number of high-profile examples cementing the importance of observing these rules.
In the EU, the General Court has handed down its much-anticipated Altice gun-jumping ruling. The court upheld the majority of the European Commission (EC)’s decision that Altice jumped the gun in relation to its acquisition of PT Portugal. It agreed with the EC that provisions in the sale agreement gave Altice the possibility of exercising decisive influence over PT Portugal before the EC had issued its clearance decision (and in some cases even before the deal had been notified to the EC). It confirmed that, in addition, Altice had intervened in practice in the day-to-day running of PT Portugal. And sensitive information about PT Portugal was exchanged.
But the court did slightly reduce the record EUR124.5m fine. It said this was justified on the basis that Altice had informed the EC about the transaction before it signed the agreement, and immediately requested the allocation of an EC case team after signing. Watch out for our alert setting out what the ruling means for merging parties.
Also at EU-level, the EC has opened an investigation into whether Illumina has breached the standstill obligation under the EU Merger Regulation. In a bold move, Illumina publicly announced that it would close its acquisition of GRAIL while the EC’s in-depth probe into the deal is ongoing, saying the EC decision was not anticipated until after the transaction expiry date. Illumina has committed to hold GRAIL separate until the investigation is concluded, but has separately recognised that taking these steps could result in fines. The EC intends to adopt interim measures to restore and maintain effective competition while its review is ongoing.
Interestingly, the U.S. Federal Trade Commission, which is currently challenging the transaction in court, had dropped its request for a preliminary injunction to halt the deal on the basis that the parties were subject to the standstill obligation in the EU. More generally, the deal has attracted a great deal of attention on both sides of the Atlantic. In particular, it marks the first time that the EC accepted a referral request under its revised Article 22 policy (see our alert, which explains that the EC now encourages Member States to refer certain transactions to it that do not meet either EU or national merger control thresholds). Illumina has appealed the referral decision, claiming the EC has no jurisdiction to review the deal and challenging the new Article 22 policy.
In the U.S., CEO of Capital One Financial Corp, Richard Fairbank, has agreed to pay a nearly USD640,000 civil penalty to settle charges that he breached U.S. merger rules by failing to notify the antitrust agencies of a windfall of stocks in the company (acquired as part of a compensation package) in 2018. Fairbank had been previously warned of similar violations in 1999 and 2004, although he escaped fines in those cases by alleging these were inadvertent failures to file and pledging to implement a system ensuring that the future notifications would be properly filed. According to a Capital One spokesperson, the 2018 filing obligation was missed due to administrative errors by Fairbank’s personal law firm. The law firm has agreed to pay the full amount of the fine as a result of its mistake.
China’s State Administration for Market Regulation (SAMR) has been particularly active in investigating potential failure to file cases in the past year (see our reports in March and July). Most recently, SAMR has announced it is investigating ecommerce platform Meituan for failing to notify the acquisition of a stake in Mobike. More cases are expected in the coming months.
In Austria, Facebook’s EUR9.6m fine for not notifying its purchase of Giphy has been confirmed by the cartel court. The Austrian antitrust authority is currently conducting an in-depth review of the deal (which in the UK has been provisionally found to raise competition concerns). Separately, in August the UK Competition and Markets Authority found that ION breached a hold-separate order imposed as part of the UK review of ION’s acquisition of Broadway Technologies. The authority alleges the parties continued close collaboration on a response to a bid proposal (effectively presenting the parties as a collective unit rather than separate players) after the order came into force and failed to provide information. The fines total GBP325,000, with continuing non-compliance and significant senior management involvement in the breaches counting as aggravating factors.
Elsewhere, the COMESA Competition Commission has notched up its first gun-jumping fine (relating to a telecoms infrastructure deal – the fine was set at 0.05% of the parties’ combined COMESA turnover) and failure to file fines have been recently imposed in Portugal and South Africa.
Finally, alleged breaches of other procedural merger control rules are also in the authorities’ headlights. In the U.S., CenturyLink has agreed to pay USD275,000 to settle a claim that it had failed to comply with remedies imposed to address concerns over its acquisition of Level 3. This follows a settlement last year for similar breaches, as covered in our Global Trends in Merger Control Enforcement report. In Israel, in relation to the since abandoned Taboola/Outbrain transaction, the competition authority announced that Ynet – a customer of the merging parties – has agreed to pay a fine of over EUR263,000 for withholding key information during the authority’s review of the deal. And the Spanish CNMC has required Telefónica to make changes to a bundle commercial offer in order to comply with behavioural remedies imposed in 2015 in relation to its acquisition of DTS.
In order to start a debate about the future of Australia’s merger control regime, Chair of the Australian Competition and Consumer Commission (ACCC), Rod Sims, has announced a package of major reform proposals. He sets out three significant changes:
According to Sims, there are several drivers behind the proposals. These include aligning the Australian merger control rules with those in jurisdictions such as the U.S. and the EU, and addressing a perceived underenforcement by regulators in relation to acquisitions by digital platforms.
We expect the ACCC to release more details and consult on the reforms in due course. In the meantime, you can find out more in our alert.
Head of our Asia Pacific Competition practice, Peter McDonald, has been speaking to both Australian and global news services about the developments.
The U.S. Federal Trade Commission (FTC) has announced a new communication policy for some transactions reportable under the Hart-Scott-Rodino (HSR) Act. Under this policy, the FTC may issue a standard form “warning letter” to parties to HSR reportable transactions where the FTC has opened an investigation into the transaction but has taken no action within the 30-day statutory waiting period. This letter warns that the FTC’s investigation remains ongoing and that if the parties close the transaction, they do so at their own risk of a post-closing investigation. In our experience, the letters are usually issued near the end of the waiting period, in place of a “second request” for additional information.
The antitrust authorities have always had the ability to open an investigation into a completed deal after expiry/termination of the HSR waiting period. However, such situations have been quite rare and in practice parties have been able to take a fairly high degree of comfort from fulfilling HSR requirements. Going forward, with what the FTC describes as a “tidal wave” of merger filings restricting its capacity to rigorously investigate deals ahead of the statutory deadlines, we expect the new policy to presage an increase in such investigations.
Closing after receipt of a warning letter and on expiry of the waiting period is still a potential option for parties, especially where a transaction clearly raises no competition issues. However, given the slightly greater risk that these letters present, we anticipate that, now more than ever, buyers will conduct a thorough antitrust analysis to assess divestiture risk prior to signing. Moreover, to mitigate the risk of these letters, buyers may seek additional conditionality language in transaction documents that are tied not only to the receipt of HSR clearance but also to having received no such warning letter from the U.S. authorities.
Separately, the FTC is undertaking a review of its non-binding “informal interpretations”. These are letters and emails addressed to parties about whether specific types of transactions are caught by the HSR Act. First to be shelved is a series of informal interpretations on the treatment of debt in the context of the size-of-transaction jurisdictional test. From 27 September 2021, the FTC will begin to recommend enforcement action for companies that fail to file when retirement of debt is part of the consideration for the deal.
In the July edition of Antitrust in focus we outlined the key aspects of the UK government’s consultations on:
Read our alert to find out more about each of these initiatives.
The Turkish Competition Board has settled an antitrust investigation into alleged anti-competitive agreements between distributors of consumer electronics. Coming just a month after the new settlement procedure came into force, the decision indicates that the authority is ready and willing to engage with parties looking to acknowledge infringements in return for a penalty discount.
An alert on the development from our associated law firm Gedik & Eraksoy provides more information on the case and details the process settling parties can expect to follow. Our April edition of Antitrust in focus includes a briefing on the Turkish Competition Authority’s current approach to enforcement.
A Federal judge has concluded that Apple is not a monopolist over its own systems of distributing apps in the App Store under either state or federal antitrust laws. The judge arrived at that conclusion in a case brought against the company by Epic Games, known best for its Fortnite mobile game. Epic was challenging Apple’s alleged control over access to a significant portion of the digital mobile gaming transactions market.
The judge determined that Apple’s market share of over 55% and profit margins do not on their own show antitrust conduct. And Epic had failed to demonstrate other critical factors, such as barriers to entry and conduct decreasing output or decreasing innovation in the relevant market. She noted that “success is not illegal”. In finding that Epic “overreached”, the judge ordered Epic to pay Apple a fee for breaching its contract with Apple and creating an alternative in-app payment system for Fortnite players.
However, the judge did find that Apple is engaging in anti-competitive conduct under California’s unfair trading laws. She concluded that Apple’s anti-steering provisions, including a prohibition on app developers directing customers to payment options outside the App Store, “hide critical information from consumers and illegally stifle consumer choice”. And, controversially given the infringement related to just Californian law, she directed a U.S.-wide remedy to eliminate those provisions. This will require Apple to make certain changes to its App Store business model.
This is not the first we have heard of Apple making App Store changes this month. Earlier in September, the Japanese Fair Trade Commission closed a probe into Apple after the company volunteered to allow developers of “reader apps” to include an in-app link to their website for users to set up or manage an account.
The U.S. court ruling will undoubtedly reinvigorate interest in the proposed reforms making their way through federal and state legislative processes. Our alert on antitrust enforcement in the U.S. covers some of these proposals and other developments.
The French competition authority has fined several road freight transport stakeholders a total of EUR500,000 for hindering the arrival and development of new digital intermediation platforms and “traceability” software.
The platforms allow direct contact between shipping customers and carriers through an online interface. The software optimises the performance of transport transactions, making it possible to monitor and manage fleets, without intervening in trade relations. In short, they cut out the intermediation role undertaken by freight forwarders.
The authority found that freight exchange B2Pweb (with 10,000 members), five hauliers’ associations and two trade associations all agreed to implement a common blocking strategy. They also warned their members against the use of the platforms and software. The lion’s share of the fine ‒ EUR350,000 ‒ fell on the freight exchange and its parent company as it had a “particular and decisive role” in the boycotts and calls for boycotts and could influence the trade associations.
Any other sector seeing the emergence of new computer and digital technologies stands warned. Antitrust authorities globally are likely to respond firmly against any conduct that might restrict efficiency-enhancing innovation, especially in a time when economies are struggling through the pandemic. Here, the French Ministry of Economy and Finance actually asked the authority to open the case. And the probe also reflects another antitrust enforcement hot topic: the authority noted the potential environmental cost of the boycott as the platforms and software ensure a reduction in “empty returns” by carriers.
Recent publications by members of our global team include:
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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