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New European Commission Guidance Acquisitions of Nascent Competitors on the Radar

The European Commission wants to be able to block or conditionally approve transactions, mainly in the digital economy and in the pharmaceutical sector, even when the thresholds for notification are not met. In publishing its new Article 22 Guidance, the Commission has significantly expanded its ability to review transactions. Parties to a transaction, especially in the digital economy and in the pharma sector, should bear this in mind when strategising on deal timing and any potential remedies. They will also have to take into account the possibility that the transaction will be blocked. For third parties, this opens another possibility to stop a transaction, to extract remedies from the notifying parties or to even roll back an implemented transaction.

What Happened

  • Article 22 of the EU Merger Regulation (EUMR) allows for one or more Member States to request the Commission to examine any merger that does not have an EU dimension but meets the following cumulative conditions: it affects trade between Member States, and it threatens to significantly affect competition within the territory of the Member State or States making the request (Article 22 Conditions). Fulfilment of the Article 22 Conditions ensures that a merger has a sufficient nexus with the European Union and the referring Member State(s).
  • Traditionally, the Commission has discouraged the use of Article 22 EUMR in merger cases that were not notifiable under the laws of the referring Member State(s). This is principally because the Commission considered such transactions unlikely to have a significant impact on the internal market.
  • Recently, however, there has been an increase in the number of mergers involving companies that play, or may develop into playing, a significant competitive role on the market, despite generating little or no turnover at the time of the merger. This development has been found to be particularly significant in the digital economy, where services regularly launch with the aim of building up a significant user base and/or commercially valuable data inventories, before the business is monetised, and in the pharma sector, where transactions have involved innovative companies conducting R&D with strong competitive potential, even if such companies have not yet finalised, let alone exploited commercially, the results of their R&D activities. Because of the absence of, or low, turnover of one the parties to such transactions, they invariably escape assessment under national merger control rules.
  • With a view ensuring that non-notifiable yet potentially problematic mergers do not fly under the radar of merger control review, on 26 March 2021 the Commission issued practical guidance (Article 22 Guidance) on when it might be appropriate for a Member State to refer such mergers to the Commission for merger control review.

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Antitrust M&A Snapshot | Q4 2020

In the United States, despite initial obstacles because of the COVID-19 pandemic, 2020 rounded out to be the busiest year for mergers and acquisitions (M&A) enforcement in nearly two decades. In the fourth quarter, US agencies challenged five transactions. November 2020 saw the most premerger filings in any month since 2001. Mergers and filings in the United States are predicted to remain at high levels into the new year in light of the current economic climate. The antitrust agencies have continued to maintain that their evaluation and investigation of anticompetitive harm will remain rigorous despite the uncertain times.

In Europe, the European Commission (EC) and the UK Competition and Markets Authority (CMA) had a busy last quarter of 2020. The EC completed several in-depth investigations, including the Fiat Chrysler/Peugeot merger. The EC approved this transaction with behavioural remedies. With respect to policy and legislative developments, the EC published the much-anticipated draft of the Digital Markets Act, which is intended to regulate the market behaviour of large online platforms which act as “gatekeepers” in digital markets. Given the end of the transition period for the United Kingdom’s exit from the European Union, the CMA published a guidance paper explaining how it will conduct its work following Brexit.

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Annual European Competition Review 2020

McDermott’s Annual European Competition Review summarizes significant developments in the field of European competition law. 2020 saw several important legislative and policy developments, including EC guidance on foreign direct investment, the promulgation of a temporary framework for antitrust cooperation in the context of COVID-19 and the issuance of a rare competition law comfort letter thereunder. Furthermore, in addition to a number of interesting EC decisions, key judgments were handed down by the EU Courts, including in relation to the conditions for assessing “by object” infringements, the notion of “gun jumping” and jurisdiction under the EU merger regulation and tax planning measures under EU State aid rules. All these new rules and judicial decisions may be relevant for your company and your day-to-day practice.

In our super-connected age, because we are inundated with information from numerous sources it can be difficult to select what is really relevant to one’s business. The purpose of this review is therefore to help general counsel and their teams to be aware of, and to conduct their business in line with, essential EU competition law developments.

This review was prepared by McDermott’s European Competition Team in Brussels. Throughout 2020 they have monitored legal developments and drafted the summary reports.

Click here to read the full Review.




Antitrust M&A Snapshot | Q3 2020

In the United States, mergers and acquisitions appear to be bouncing back after a muted start to the year due to COVID-19. Hart-Scott-Rodino (HSR) filings in Q3 2020 were up significantly over Q2, but still down from the mergers & acquisitions (M&A) boom we saw in Q3 and Q4 of 2019. Against the backdrop of a pandemic, we also saw significant developments in the approaches taken by the Federal Trade Commission (FTC) and Department of Justice (DOJ) in reviewing proposed acquisitions. The FTC has recently announced an intention to expand its retrospective analysis of consummated mergers; DOJ has restructured its merger review operations to reflect changes in how the economy operates and to allow the regulator to further specialize its review efforts; and the regulators jointly proposed amendments to the HSR premerger notification regulations that are likely to increase the number of filings required for private equity organizations.

In Europe, as a result of the ongoing pandemic, the European Commission (EC) received a lower number of notifications (78) compared to the same period in 2018 and 2019 (106 and 116 respectively). In August, however, the number of notifications made to the EC returned to a level that has been seen in previous years (30). That being said, in September, the number of notifications fell again (24). In terms of key cases, the EC approved the acquisition of Bombardier Transportation by Alstom. With respect to policy and legislative developments, the EC announced a new policy of accepting referrals from national competition authorities in cases where the national thresholds for notification have not been met. This new policy is expected to be implemented by mid-2021. The EC also plans to introduce changes to the merger control procedural rules with a view to bringing more deals within the ambit of the EC’s simplified procedure, and to reduce the amount of information that parties are required to provide.

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European Commission Announces New Approach to Merger Review Referrals Falling Below Thresholds

Under current EU merger control rules, whether a concentration has to be notified to the European Commission (“Commission”) depends, among other things, on the level of revenue generated by the parties worldwide and in the European Union.  A key question that has sparked considerable debate in recent years is whether the current merger control thresholds cover all transactions that have the potential to harm competition, or whether there is a so-called “enforcement gap”.

On September 11, during the International Bar Association’s 24th Annual Competition Conference, Competition Commissioner Margrethe Vestager announced that the Commission intends to change its approach towards referrals to the EU from national competition authorities. Commissioner Vestager noted that although the current, revenue-based thresholds set out in the EU Merger Regulation generally work well, revenue does not always reflect a company’s significance – particularly in innovative sectors, such as the pharmaceutical and digital sectors. In other words, innovative firms with low revenues may have a significantly out-sized market presence.

This issue is not entirely new, and has been debated in recent years – for example, in connection with possibly amending the thresholds set out in the EU Merger Regulation.  On this point, however, Commissioner Vestager pointed out that “changing the merger regulation, to add a new threshold like this, doesn’t seem like the most proportionate solution”.

Instead, as a solution to this shortfall, Commissioner Vestager stated that the Commission intends to broaden its approach to cases referred to it from one or more EU Member States, stating that the Commission will “[…] start accepting referrals from national competition authorities of mergers that are worth reviewing at the EU level – whether or not those authorities had the power to review the case themselves”.

The current referral system set out in the EU Merger Regulation enables the Commission to review concentrations that fall below the EU thresholds. Indeed, in recent years, certain significant transactions have been reviewed by the Commission only after an upward referral, as they did not fulfil the jurisdictional thresholds of the EU Merger Regulation, including for example Apple/Shazam (2018), Microsoft/GitHub (2018) and Facebook/WhatsApp (2014). Under the current rules, the Commission can review transactions which fall below the EU merger control thresholds on the basis of referrals from national competition authorities where:

  • the concentration is notifiable in at least three Member States; or
  • where the concentration affects trade between Member States and threatens to significantly affect competition within the Member State(s) making the request for a referral.

The Commission has discouraged national competition authorities from referring cases to the Commission  in instances when they themselves did not have the power to review because national merger control thresholds were not met.

The proposal announced by Commissioner Vestager would change this approach, and would allow a broader universe of cases – including those which fall below national thresholds – to be referred to the Commission.  Ms. Vestager explained that “those referrals could be an excellent way to see the mergers that matter at a European scale, but [...]

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Antitrust M&A Snapshot | Q2 2020

In the United States, despite requesting additional time to review pending mergers, the US antitrust agencies have continued their work through the COVID-19 pandemic. The Department of Justice (DOJ) and Federal Trade Commission (FTC) reached settlements with a number of merging parties during Q2 2020, and the FTC is proceeding to trial in several merger cases. Both the FTC and the DOJ are conducting investigational hearings and depositions via remote videoconferencing technology such as Zoom. The FTC also announced it prevented 12 deals from closing in 2020 despite the COVID-19 pandemic. Five of the transactions were blocked and another seven were abandoned due to antitrust concerns, putting the FTC on pace for one of its busiest years for merger enforcement in the past 20 years.

In Europe, in light of the COVID-19 outbreak, the European Commission (EC) warned that merger control filings would likely not be processed as swiftly as usual. The EC encouraged parties to postpone merger notifications because the EC envisaged difficulties, within the statutory deadlines imposed by the EU Merger Regulation, to elicit relevant information from third parties, such as customers, competitors and suppliers. In addition, the EC foresaw limitations in accessing information on a remote basis. This period thus saw a drop in merger notifications to the EC; however, notifications increased in June and July.

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Antitrust M&A Snapshot | Quarter 1 2020

In the United States, The Federal Trade Commission (FTC) and Department of Justice (DOJ) faced new issues this quarter with the unprecedented challenges brought about by the COVID-19 global pandemic. In March, the agencies made certain changes to the merger review process to accommodate businesses and counsel working remotely. However, merger reviews, challenges, trials and consents have continued as usual at both agencies despite the additional obstacles.

In Europe, the European Commission (EC) also put in place special measures to ensure business continuity in the enforcement of merger control during the COVID-19 crisis. The first quarter of 2020 also saw the United Kingdom’s official departure from the European Union, which has consequences on the enforcement of EU competition law in the United Kingdom.

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Crisis & Compliance: EU Competition Law During COVID-19

Amid the economic shocks caused by the Coronavirus (COVID-19) crisis, many industries are facing reduced demand for their products and services. Other industries—notably healthcare and food—are adjusting rapidly to expanding demand requirements and changing consumption patterns due to large-scale population confinement in several countries. Significant over- or under-capacity can create incentives, or even the necessity, to collaborate in ways that may push the limits of antitrust and competition rules.

On 23 March 2020, the European Competition Network (ECN) took unprecedented action. ECN, the network of competition enforcement authorities in the European Union, issued a joint statement announcing that its members will not actively intervene against “necessary and temporary” measures, including cooperation among competitors, in order to avoid a “shortage of supply.” At the same time, the ECN cautioned that its members would actively intervene against any measures taken by companies to limit the supply or charge excessive prices for critical products, such as masks or hand sanitising gel. This joint statement followed steps taken by several competition authorities in Europe to signal relaxed antitrust treatment of certain types of collaboration.

This article provides an overview of how companies can navigate these rapidly evolving developments in line with EU competition law. In brief, competition rules still apply, but are sufficiently flexible to allow critical industry adjustments during economic shocks that cannot be addressed in the short term by market forces, which are currently in turmoil.

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EU Commission Issues Another Fine for Restrictions on Cross-Border Licensed Merchandise Sales

The European Commission has reiterated its position that if a business allows for the non-exclusive licensing of its products in the EEA, such licensor can no longer control where, to whom, and in what manner (online/off-line) the products can be sold within the EEA.

On 30 January 2020, the Commission fined NBCUniversal Media, LLC, and other Comcast Group companies (collectively, NBCUniversal) EUR 14.327 million for restricting licensees from selling licensed products across customer groups and across countries within the European Economic Area (EEA). This is the third time in one year that the Commission has fined a brand owner for such restrictions, following Nike and Sanrio.

Although agreements restricting out-of-territory sales (i.e., market partitioning by territory) have long been prohibited under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), the Commission’s increased enforcement activity on vertical restraints is remarkable.

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Annual European Competition Review 2019

McDermott’s Annual European Competition Review summarizes key developments in European competition rules. During the previous year, several new regulations, notices and guidelines were issued by the European Commission. There were also many interesting cases decided by the General Court and the Court of Justice of the European Union. All these new rules and judicial decisions may be relevant for your company and your day-to-day practice.

In our super-connected age, we can be inundated by information from numerous sources and it is difficult to select what is really relevant to one’s business. The purpose of this review is to help general counsel and their teams to be aware of the essential updates.

This review was prepared by the Firm’s European Competition Team in Brussels and Paris. Throughout 2019 they have monitored legal developments and drafted the summary reports.

Access the full report.




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