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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European Commission Consultation on Ex Ante Regulation of Online Platforms: Is Change Coming?

In parallel to a public consultation to seek feedback from the public regarding the New Competition Tool, the European Commission (Commission) is consulting on a proposal for an ex ante regulatory instrument that would ensure that “online platform ecosystems controlled by large online platforms that benefit from significant network effects remain fair and contestable, in particular in situations where such platforms may act as gatekeepers”.

This proposal stems from a range of concerns which, according to the Commission, could lead to large-scale unfair trading practices, less innovation and reduced consumer choice.

Feedback on the Commission’s inception impact assessment was due on 30 June (85 opinions were collected). The period for stakeholders from public and private sectors to contribute to the Commission’s public consultation (via online questionnaires) ends on 8 September 2020.

Identified Need to Regulate Large Online Platforms

In its inception impact assessment, the Commission noted that the number of digital ecosystems controlled by a handful of large online platforms have multiplied and businesses and (final) consumers have become increasingly dependent upon them.

According to the Commission, these large online platforms can gain market power due to their ability to accumulate a considerable amount of data, to access different technical assets and to easily expand into new markets and leverage their advantage (i.e. data) from their services. As a result, the key role that these “gatekeepers” play in the online economy has led to imbalances in bargaining power vis-à-vis users and competitors, making it particularly difficult for smaller digital firms to bring innovative solutions to the market. The Commission is further concerned that the current EU regulatory framework does not specifically address “the economic power” of these platforms at the source of these issues aforementioned.

Notably, Regulation (EU) 2019/1150 of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services (Platform to Business Regulation or P2B Regulation) came into effect in July 2020. It aims to address the imbalance that exists between online platform providers and business users by imposing a number of transparency obligations on online intermediation services, such as e-commerce market places, applications stores, online social media. However, the Regulation does not take account of market power and further does not specifically address, in its present form, the issues stemming from gatekeeper power. The P2B Regulation also leaves outside of its scope emerging practices, such as certain forms of ‘self-preferencing’, data access policies, and unfair contractual provisions. As such, the Commission does not believe that the P2B Regulation, as is, can address the problems that it has observed.

Proposed Options

In this context, the Commission has proposed three alternative or complementary policy options:

  • Option 1: A revision of the P2B Regulation, adding prescriptive rules on specific practices that are currently addressed by transparency obligations in the Regulation, as well as on aforementioned new emerging practices.
  • Option 2: A horizontal framework empowering a dedicated regulatory body at EU level to collect information from gatekeepers for the purposes of assessment of their business practices. The regulator’s enforcement powers may include the power to impose penalties for refusing to provide the requested data but would not include any power to impose any substantive behavioral and/or structural remedies.
  • Option 3: A new regulatory framework targeted at large online platforms acting as gatekeepers. This option includes two sub-options: (i) establishing clear obligations and blacklisting certain practices of gatekeepers, in all or in specific sectors (Option 3a); and (ii) in addition to establishing obligations and blacklisted practices as envisaged in Option 3a, allowing a dedicated EU regulatory body to impose tailor-made remedies on a case-by-case basis (Option 3b). These remedies could include platform-specific non-personal data access obligations, specific requirements regarding personal data portability, and interoperability requirements.

Comment

The P2B Regulation has only just become applicable; yet the Commission is already contemplating a revision to regulate “gatekeepers” the first evaluation of the Regulation scheduled in 2022. The Commission’s action appears to be motivated by a growing opinion that the ex-post competition law enforcement is not sufficient to tackle emerging issues in the digital sector.

The Commission’s baseline scenario focuses essentially on the application and enforcement of the current regulatory instruments applicable to online platforms, such as the P2B Regulation, competition law and consumer and personal data protection rules. If this initiative moves forward, these regulatory instruments will have to fit together in such a way to avoid excessive regulation which could hamper the ability and incentives of online platforms to innovate. In addition, the Commission’s consultation on the New Antitrust Tool will also need to be taken into account to ensure complementarity, while avoiding excessive regulation, as both are expected, to some extent, to operate in same field.

Also, the initiative gives rise to other interesting considerations.

If the Commission elects the option of setting a new regulatory framework targeted at large online platforms acting as gatekeepers only, it will need to assess what criteria to use to accurately define ‘gatekeepers’ and whether to regulate gatekeepers in all markets without taking into account their degree of competitiveness.

Secondly, if the Commission decides to establish a list of prohibited practices, there should be unambiguous evidence that shows the harmful effects of such practices. Conversely, one could argue that in the rapidly evolving digital sector, the list of practices should remain sufficiently flexible to include emerging practices.

Lastly, if the Commission chooses to apply customized remedies, as is stated in Option 3b, the principle of proportionality will need to serve as a guideline in the application of these remedies.

Commissioner Vestager recently acknowledged that the term gatekeeper will be “tricky to define”. The Consultation and subsequent administrative process will therefore provide valuable input as to what platforms will be covered.



THE LATEST: Antitrust Agencies Show Frustration with Slow Divestitures

The US Federal Trade Commission (FTC) recently extracted a $3.5 million civil penalty from two companies involved in a gas station merger. The FTC asserts the companies violated their settlement agreement with the government, which required the divestment of 10 gas stations within 120 days from the date of the settlement agreement. The parties overshot the divestiture deadline by more than three months. The Commission stated its deadlines are not a suggestion and it will not permit parties to profit from order violations of any kind, including late divestitures.

FTC commissioner Rohit Chopra’s dissenting statement, made in an unrelated case just two weeks prior to this fine, emphasized that divestitures should be completed promptly and raised concerns with settlements involving divestitures that are made “after a prolonged period of time.” Taken together, if there is a change in administrations in November, we may see even more focus on requiring buyers up front or buyers in hand for mergers that require divestitures to gain clearance.

WHAT HAPPENED:

  • On July 6, 2020, the FTC imposed a $3.5 million civil penalty on two companies relating to 10 gas stations the Commission required the companies to divest within 120 days of the settlement, to gain clearance for their recent transaction. The companies failed to divest the gas stations by the June 15, 2018, Commission deadline.
    • The FTC noted that “Commission orders carry the force of law” and Commission “deadline[s are] not a suggestion.”
    • The FTC emphasized that it will “vigorously pursue and penalize” parties who attempt to “profit from order violations of any kind, including late divestitures.” The daily civil penalty is $43,280.
    • The Commission voted 5–0 on this settlement and civil penalty.
    • The divestitures were ultimately made more than three months after the original agreed-to deadline.
    • The Commission also claimed that the compliance reports submitted to the FTC were not complete, and the incomplete reports, in and of themselves, constituted consent order violations, commencing the daily civil penalty clock.
  • On June 26, 2020, less than two weeks before the civil penalty in the gas station matter was made public, Commissioner Chopra issued a dissenting statement in the Matter of Eldorado Resorts and Caesars Entertainment. In that case, the Commission allowed the assets to be divested to be retained by Eldorado for a period of roughly a year post-closing. During that period, the divestiture buyer would seek state gaming licensures needed to take ownership, and the casinos to be divested would be operated by an independent trustee.
    • Commissioner Chopra argued that “the Commission should not agree to merger settlements unless divestitures are completed promptly to a qualified buyer ready and willing to compete on day one.”
    • He also stated that “[i]t is risky and makes little sense to propose a complex settlement with a prolonged divestiture period and unorthodox terms to justify a merger that has no meaningful benefits, particularly given the financial uncertainties stemming from the COVID-19 crisis.”

WHAT THIS MEANS:

  • The FTC insists on technical compliance with its consent orders and will seek civil penalties for violations.
  • Both the FTC and Department of Justice (DOJ) have increasingly required buyers up front for deals requiring divestitures.
  • Given Commissioner’s Chopra disquiet with “prolonged divestitures periods” and the apparent flouting of the divestiture timeline agreed to by the parties in the gas station merger, if there is a change of administrations in November, we may see even more focus on requiring buyers up front or buyers in hand for divestitures, even if the industry is one in which the government has historically permitted divestitures several months after the close of the main transaction.
    • Alternatively, the FTC and DOJ could seek additional terms in settlement agreements to add more bite to parties’ violations of settlement terms, including the divestiture timeline.


European Commission Initiates Consultation on Possible New Competition Investigation Tool

On 2 June 2020, the European Commission (the Commission) published its inception impact assessment (or roadmap) on the possible adoption of regulation that would introduce a new market investigation tool. This assessment was immediately followed by the launch of a public consultation to seek views and feedback from the public regarding such a tool. The new tool would enable the Commission to investigate and impose behavioural and/or structural remedies on businesses with significant market power, whether dominant or not – and without any prior finding of a competition law infringement. As such, this new tool could present a significant risk and potential burden for companies with market power. On the other hand, it offers potential benefits to market participants, such as new entrants, who might otherwise see their access to markets foreclosed.

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If Past is Prologue, Ramped up Antitrust Compliance is Critical

The COVID-19 pandemic has brought not only a healthcare crisis, but also one of the worst economic downturns in history. As businesses emerge from this crisis, there may be increased risk that employees may cross the line and engage in anticompetitive conduct. Therefore, it is critical that companies and individuals prepare now to ensure that antitrust compliance and, if necessary, reporting of conduct through internal hotlines are strongly encouraged. In this article, published on Bloomberg Law, our authors explore the risks associated with antitrust cartel conduct, review enforcement by government authorities following past economic crises, and outline compliance steps companies and individuals should take to minimize enforcement risks.

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