European Commission confirms final texts for new EU rules for vertical agreements

On 10 May, the European Commission (the ‘Commission’) published final texts of the new Vertical Agreements Block Exemption Regulation (‘VBER’) and the accompanying Guidelines on Vertical Restraints (‘Guidelines’).  These two documents set out the full legal framework for the assessment of vertical agreements under EU competition law that will apply from 1 June. 

Although the process leading up to this moment started back in 2018, this means that businesses and their advisers have been given only three weeks to digest the final texts before they come into force.  While the main changes that will come into force on 1 June are largely as previewed in the draft texts that were published for consultation back in July last year, there are some surprises.

To discover and be surprised, download a copy of our briefing.

Taking Security and Options Seriously: the UK and German Investment Screening Regimes

Arrangements involving current and potential future events, such as taking security and agreeing options, require careful scrutiny under investment screening regimes. It is not safe to assume that a trigger will operate in the same way as under another more developed regulatory regime, such as merger control. Moreover, taking a security or agreeing an option needs to be considered upfront and not just when the security is about to be enforced or the option exercised.

In this piece we consider the position under the UK’s forthcoming National Security & Investment Act (NSI Act) regime and briefly compare this to the position under the recently reformed German regime. We assume that the other requirements for triggering are satisfied and focus on whether a security or an option could in itself take the transaction over the jurisdictional threshold.

Taking security

When a security is actually enforced, then this may well trigger an investment screening regime, as enforcement will typically involve the lender gaining control over the relevant target or its assets which are the subject of the security. The more difficult question, which will likely arise many years earlier at the initial transaction stage, is whether merely taking the security is sufficient.

To download and read the full paper, click here.

Becket McGrath quoted in GCR “Epic Games files new claims against Apple and Google in UK”

The UK’s Competition Appeal Tribunal yesterday published Epic’s separate claims against Apple and Google, which accuse the companies of abusing their dominance in the markets for distributing apps and processing in-app payments in their respective app stores.

Becket McGrath, a partner at Euclid Law in London, said substantive differences in UK, US and Australian law mean it is “perfectly conceivable” that Epic could have a successful abuse of dominance claim in the UK and an unsuccessful monopolisation claim in the US, or indeed vice versa.

Most of the ongoing discussions around digital markets and competition law concern the balance between regulation – such as the European Commission’s Digital Markets Act or the introduction of the UK’s digital markets unit – and public competition enforcement by authorities, he said.

“While that is very important, this is a good reminder that there is the private litigation aspect of it too”, which on this occasion involves an aggrieved and well-resourced claimant and a system that welcomes these types of claims, McGrath said

To read the full GCR article: https://globalcompetitionreview.com/digital-markets/epic-games-files-new-claims-against-apple-and-google-in-uk

Becket McGrath quoted in GCR article: “CMA proposes regulatory reform to combat big tech”

The UK’s Competition and Markets Authority has called for a new regime to regulate the online economy, after its digital advertising study found the market power of Google and Facebook is causing substantial harm to “society as a whole”.

The enforcer today asked the UK government to create a digital markets unit and empower it to break up big tech companies and enforce a code of conduct among online platforms to resolve competition concerns in that sector. It did not specify if the new unit should function within an existing body or be created as a new standalone regulator.

The EU enforcer launched a public consultation on its proposed market investigations tool in May. EU competition commissioner Margrethe Vestager has cited the CMA’s similar power as an efficient way of tackling competition concerns in fast-moving markets.

Euclid Law partner Becket McGrath, who advised a publisher during the UK enforcer’s market study, said it is understandable why the CMA asked the government to introduce a new regulatory regime. Conduct that is not good for competition does not necessarily infringe antitrust law, but it could be addressed through careful, targeted regulation, he said.

Combating concerns related to the market power of big tech requires difficult public policy trade-offs that extend well beyond competition law, McGrath added. 

“With all these moving pieces, there has to come a point when the CMA, as an independent and unelected agency, hands over to the government,” he said.

McGrath also questioned if the UK could effectively implement some of the CMA’s proposals without aligning with reforms emerging elsewhere, particularly in the EU. “Solutions need to be closely coordinated – it’s not good for businesses if there is too much divergence,” he warned.

To read the full article on GCR website, click here.

KNOW YOUR ABCS, KNOW YOUR DATA

Inventus and Euclid Law have teamed up to write a series of articles highlighting what companies and their legal and compliance teams need to know about the use of technology in competition law as well as guiding on how to tackle each step and overcome the challenges that come with it. Download the first article written by Inventus’ Jérôme Torres Lozano, Director of Professional Services, and Euclid’s Marie Leppard, Partner, as they go over the ABC’s of knowing your data. 

In this article, you’ll learn:

– How to identify data and understand the sources

– Correctly collect data and preserve it

– Use of technology to assist during crucial data identification, collection, and preservation steps

To read the full article, click here.

Sarah Long speaks at the Vertical Restraints and Distribution Conference 2019

Sarah Long spoke at the Vertical Restraints and Distribution Conference 2019 in Brussels on 26 June on Dual Distribution: Challenges for Competition Law and RPM in the Digital World. Copies of Sarah’s slides can be found here (Dual Distribution) and here (RPM).

Marie Leppard presented a Legal Perspective on ‘Utilization and Limitations of Digitization in Antitrust Law’ at the 11th CLU on 2nd April 2019 in Zurich

The event, hosted by the Swiss Association for Compliance and Competition Law (ACCL) saw partner Marie Leppard participate in a panel alongside Prof. Dr. Patrick Krauskopf from Agon Partners and Lionel block from Forentec. Modern progressive digitization is exponentially used by Competition authorities in simplifying their procedures. But where are the limits of these digital methods and to what extent are they to be used? A fascinating topic discussed by experts from the Competition sector.

Sarah Long to chair RPM session at Vertical Restraints & Distribution Conference – June 2019

Sarah Long will be chairing the session on Resale Price Maintenance (RPM) in the Digital World at the KNect 365 Law’s Vertical Restraints and Distribution Conference. A great opportunity to gather valuable insight on platforms, MFNs, price parity agreements and a review of recent RPM decisions. The event will take place on Wednesday 26 June 2019 at the Le Chatelain Hotel in Brussels, Belgium.
Sign up to the event here.

Something is happening in UK merger control … despite Brexit

One would be forgiven for concluding that the only thing that is happening in the UK is Brexit.  However, there are some interesting ideas being considered, either in the context of Brexit or perhaps more precisely despite Brexit.  The political paralysis that the country has suffered could come to an end quite quickly and the inevitable ministerial reshuffle could re-invigorate the process. 

With the appointment (on 20 June 2018) of Andrew Tyrie as Chairman of the Competition and Markets Authority (CMA), the body is now backed by a political heavyweight and those who followed his work as the Chairman of the Treasury Select Committee know that he means business for consumers.  Tyrie wasted no time in setting out his agenda in a well-publicised letter to the Secretary of State.

The core aspect for merger control is that with the increase in mergers after Brexit, a compulsory notification system with a standstill provision is being mooted. 

The accompanying CMA document explains as follows:

“Brexit could have important implications for merger control UK, in part because the CMA will need to review a larger number of multi-jurisdictional mergers that would previously have been considered by the European Commission. The existing rules, whereby firms notify the CMA of mergers on a voluntary basis, may need amendment, so that the CMA can work effectively with international counterparts. With this in mind, proposals are made to require mandatory notifications of mergers above a certain threshold, accompanied by a “standstill obligation” designed to prevent parties from proceeding with the transaction prior to the CMA’s approval (page 42 in the letter). It is also proposed that higher or full cost recovery from merging parties be reconsidered (the CMA currently recovers around half the cost of its mergers work from fees paid by merging parties, page 43 in the letter).”

The final statement on merger fees is also interesting in that the UK already has the highest merger fees in Europe.  At the moment, the level of fees is based on the turnover of the target, which often has no relationship to the complexity or indeed cost of the review.  Any change could have a chilling effect on smaller mergers in concentrated industries – which may of course be part of the CMA’s objective, even if that is not the most appropriate tool.

In the footnotes to the letter you can also find a suggestion that in digital markets the CMA should have a special power to look at the effect of successive acquisitions by the same company in the round rather than individually – and importantly a special regime whereby certain companies have to report acquisitions to the CMA as a matter of course.  This latter power is clearly aimed at the digital platforms and has to be read in the context of the conclusions of the Furman report, which can be found here.

In that report the Digital Competition Expert Panel made a number of far-reaching recommendations, including:

“Our recommendations also update merger policy to protect consumers and innovation, preserving competition for the market. Central to updating merger policy is ensuring that it can be more forward-looking and take better account of technological developments. This will require updated guidance about how to conduct these assessments based on the latest economic understanding, and updated legislation clarifying the standards for blocking or conditioning a merger. We believe that the correct application of economic analysis would result in more merger enforcement. This would be welcome given that historically there has been little scrutiny and no blocking of an acquisition by the major digital platforms. This suggests that previous practice has not had any ‘false positives’, blocking mergers that should have been allowed, while it may well have had ‘false negatives’, approving mergers that should not have been allowed.”

We may well see legislative change to deal with forward-looking mergers in technology and in particular so-called “killer-acquisitions”, a phrase coined by Cunningham, Ederer and Ma in their paper looking at pipeline pharmaceutical acquisitions – available here.  Although their study was limited to the pharma sector, the principles are now being considered in the context of digital markets and particularly where digital platforms buy up potential competitors before they can potentially become threatening.  This would deal with the 400+ acquisitions that digital platforms have made in recent years.

Change is on its way and this one could make the UK merger regime divert very significantly from its EU counterpart – and ironically place more pressure on reforming the latter. 

What is apparent is that deal or no deal, there will be a parallel merger control system in the UK, which will have its own features, timings and costs – and most larger mergers will be caught by both.  At the moment the UK has a “voluntary” system, but in practice mergers that raise issues in the UK will need to be filed in the UK.  The reason for that is very simple: under UK merger control, the CMA can intervene in a merger within 4 months of closing.  If it does so, it has the ability to impose stringent hold-separate obligations and it has the power to fine the company if those are not respected.  That is a risk that few companies will want to take, especially if there is a prospect of the target being left isolated and rudderless under a hold-separate for extended periods of time.  The Phase II process in the UK is particularly drawn out and painful and this is a risk that few purchasers are willing to accept.  A second ancillary point is that the UK process is very much driven by third party submissions and complaints, which increases the uncertainties in relation to mergers.  Often problems can arise in a very small area (for example in a recent deal that Euclid Law advised on, it was one single bottling line), which can then have significant implications for the rest of the deal.

On balance, it is often better to include a condition precedent in the deal and to notify a merger than to take the risk of a post-closing intervention by the CMA.  If the target is hotly contested, in an auction sale, for example, that may not always be possible, and it is not uncommon for purchasers to take the competition risk in the transaction where that is strictly necessary.  Early strategic advice on the options is clearly crucial in this area, as the CMA is likely to impose hold-separate obligations even where the risk of Phase II is very low.

One important aspect of UK merger control is the CMA’s ability to determine when a merger can be filed by declaring the notification complete.  This is different from the EU process, where the parties can ultimately decide the point of filing and the Commission would have to declare the notification incomplete after filings.  This power gives the CMA the ability to manage its own caseload.  The CMA also has the power to stop the clock if information requests to the parties are not complied with and it has used those powers in the recent past.

It is therefore appropriate to conclude that whatever the outcome of Brexit, the CMA will become a leading player in global merger control, probably on a par with other reputable agencies.  The Commission will have to adapt to dealing with the CMA as an equal rather than as a subordinated NCA under Regulation 1/2003.  This may involve the negotiation of a bilateral agreement, such as the one with Switzerland.  However, unlike Switzerland, the UK is unlikely to wait politely for the Commission to take a merger decision first and follow it.  Whereas the Commission is likely to be more influenced by the ordoliberal thinking in Germany and France, it is likely that the UK will develop an increasingly “dynamic” view of competition, especially in relation to forward-looking merger control.  Divergence is an inevitable consequence of that process. 

The CMA will inevitably need to evolve into a regime that is compatible with merger control regimes in the EU and the US.  Dialogue with Brussels will be key, as many companies operate a single integrated European business across jurisdictions.  This is particularly relevant if the parties need to structure global or EEA-wide remedies. 

The human factor in all of this cannot be underestimated as the future relationship between CMA and EU Commission will be shaped by mutual trust (or perhaps distrust) between the key decision makers.  The European elections and the new Competition Commissioner could have a significant impact on this dynamic.

Regardless of whether the Brexit date is 29 March 2019 or a later date, any large merger will have to be examined in both regimes on a forward-looking basis.  Without a deal, the CMA will become fully competent on Brexit day.  With a deal, that process may be delayed. However, the UK merger regime should not be underestimated and a parallel approach in Brussels and London will become the order of the day.  Chairman Andrew Tyrie is well aware of the opportunity and will use it to set the political tone.  His letter is well worth reading.

Oliver Bretz