Control Online Sales in the US and Europe for Optimized Growth

BWG ConnectVorys eControl & Euclid Law invite you to participate in an interactive discussion on Feb 24, 2022, 12:00pm – 1:pm EST / 5pm – 6pm GMT

Summary

In this webinar, Sarah Long, Partner at Euclid Law, Daren Garcia, Partner at Vorys eControl and Jessica Cunning, Partner at Vorys eControl will discuss the similarities and differences between a U.S. and European online sales control program to achieve successful eCommerce growth.

Discussion Topics

  • The critical need for online sales control across geographies
  • Key distribution and sales control elements needed to address growing challenges
  • Differences in seller enforcement & monitoring tools when in the U.S. vs. Europe
  • Online sales control as a function of empowering sales growth and protecting brand value

To Infinity and Beyond: The Extra-territorial Application of the UK’s National Security Regime

By Oliver Bretz and Becket McGrath

With the coming into force of the UK National Security Regime on 4 January 2022, the UK will subject 17 sectors to mandatory notification and clearance requirements.  In addition there is a wide power to call-in other transactions.

A lot has already been written about the implications of having a national security regime that applies without any thresholds and regardless of the identity of the purchaser so we will not repeat that here.

What has received a lot less attention is the potential extra-territorial effect of the regime, which should be of concern to companies and third-country States at a political level.

On 20 July 2021 the UK published Guidance on how the National Security and Investment Act 2021 could affect people or acquisitions outside the UK.

Qualifying Entity

The Guidance defines a qualifying entity as being one that carries on business in the UK (including from a regional office or research facility), or supplies goods and services to people in the UK (including an overseas company that produces goods for exporting to a company in the UK or is responsible for distributing them to the UK company).

Having a sales subsidiary in the UK or supplying to a distributor in the UK would therefore be a sufficient nexus with the UK.  The extra-territorial scope is therefore very wide.

The Guidance goes on to state that if one of the following is met, the entity would definitely be a qualifying entity if it:

 supplies goods or services to the UK

·      carries out research and development in the UK

·      has an office in the UK from which it carries on activities

·      oversees the activities of a subsidiary that carries on activities in the UK (unless it is independent from the parent entity being acquired)

·      supplies goods to a UK hub which sends the goods onto other countries (unless the UK hub only places orders for goods to be sent to other countries)

·      has staff that travel to the UK for business

·      supplies goods that pass through the UK

It should be noted that UK investors, a UK Stock Exchange listing or a the existence of a common parent with a UK subsidiary is not sufficient to be regarded as a qualifying entity.

Qualifying Asset

qualifying asset is defined as an asset that is used in connection with activities carried on in the UK (regardless of where the asset is based or who is carrying on that activity) or used in connection with the supply of goods or service in the UK (regardless of where the asset is based or who is carrying on that activity).  The example in the guidance is a wind-farm supplying electricity to the UK.

This is satisfied where the asset is used:

·      by someone in the UK

·      by someone outside the UK to supply goods or services to the UK or

·      to generate energy or materials that are used in the UK.

The Guidance notes that asset purchases are not subject to compulsory notification and that the call-in of an asset purchase is going to be relatively rare. 

Information Powers

The government can require a person/entity to provide information or to give evidence if any one of the following applies:

·      if the person carries on business in the UK, even if they are not directly involved in an acquisition being investigated

·      if the person is a UK national

·      if the person is an individual ordinarily resident in the UK

·      if the entity is incorporated or constituted under the law of any part of the UK

·      if the person or entity has or is in the process of or contemplating acquiring, a qualifying entity or qualifying asset

The Government can do this by issuing information and attendance notices and the Guidance states that it will use available criminal and civil penalties including fines and custodial sentences against individuals outside the UK.

A company that is not subject to UK mandatory notification because it does not carry on activities in the UK but only provides goods or services to the UK could find itself on the receiving end of an interim order or final order. Equally a transaction that takes place entirely overseas could be subject to UK mandatory notification.

An example

Many will be familiar with the LNG import terminal (LNG Terminal) on the Isle of Grain, which is likely to be of strategic importance to the UK.  However an LNG Terminal does not own the gas that it handles – it merely makes a charge for the gasification process.  If you now take an Algerian state-owned company that merely sells its gas through the LNG Terminal to the UK that wishes to sell a 40% shareholding stake to a Gulf investor, it would be unthinkable that such a transaction would be subject to UK mandatory notification?  Think again.

The relevant steps are as follows:

1)    The state-owned company is a qualifying entity because it carries on business in the UK;

2)    The transaction may be subject to mandatory notification if that state-owned company has an existing up-stream petroleum facility (as defined in the Regs);

3)    The acquisition of 40% is a triggering event.

Whether in practice the UK would be able to compel the notification of such a transaction is a different matter.  Politically that may also be difficult in relation to companies that are majority-owned by another state.  But as always, the risks will be on the UK nationals or UK residents working for that company who may be asked to provide information, which may be subject to strict confidentiality obligations, sometimes backed up by criminal law. 

The UK will have to think long and hard about how it is likely to use those powers, especially if a transaction is not notified in the UK when it should have been.  In addition, in our example, how would the UK enforce the likely remedies set out in the Guidance:

Requiring the state-owned company to not sell more than a certain percentage of its shares; 

·      ensuring the Gulf investor cannot access certain intellectual property;

·      requiring the state-owned company to report regularly to the UK government on compliance.

The answer is of course that it would not and could not – and in this example the risk to UK national security would probably be minimal.   But just replace LNG with uranium fuel rods and Algeria with France and you will see how political this issue may become.

Internal Restructuring of an International Group

If the foregoing discussion has not had anyone worried about regulatory overreach, we would like to introduce the topic of internal restructurings.  It is a canon of merger control that internal restructurings, especially of multinational companies, which do not change the ultimate control structure are not caught by merger control.  Not so with the NS&I Act.

The Guidance provides that:

Qualifying acquisitions that are part of a corporate restructure or reorganisation may be covered by the new rules. This is the case even if the acquisition takes place within the same corporate group. This means that even within corporate restructures, it may be mandatory to notify.

So that means that a corporate reorganisation taking place in Brazil could potentially trigger a filing obligation in the UK, which is clearly completely bonkers.  What conceivable UK national security concern may be triggered by such a reorganisation is not discussed in the Guidance and remains a mystery.

Impact of a failure to notify – unenforceability?

So why does any of this matter.  Well, it matters!  Many transactions are conducted under English law and are subject to English jurisdiction.  Even if they are not, the lawfulness of the underlying transaction documents will be relevant to the financing of the transaction, which is most likely going to involve English Law documents and London banks.  Law firms will be issuing legal opinions attesting to the enforceability of the financing documents with all the usual disclaimers and caveats.

The bottom line will be the impact that illegality for failure to notify under the NS&I Act 2021 could have on the transaction and financing documents.  A textbook example of the unintended consequences of well-intentioned regulatory overreach.

EC Evaluation of the VBER – Euclid Law’s response to the Public Consultation

As part of its ongoing assessment of the Vertical Block Exemption Regulation (VBER), the European Commission launched a public consultation questionnaire, which closed on 26 March 2021, to obtain specific feedback on various policy options. 

Euclid Law responded to the consultation, agreeing with the Commission’s overall evaluation that the VBER and Guidelines remain useful and relevant, but also agreeing that they need to be updated to take account of market and case law developments since 2010. 

To support the questionnaire response, Euclid Law prepared a separate paper focused on some of the specific points addressed by the Commission, which you can find here.

The Euclid formula – How I moved from Big law to a rather special boutique and lived to tell the tale

By Becket McGrath

There comes a time in one’s career where an opportunity arises that feels like a jump into the unknown. The question then becomes, do you stick to what you know and are used to or dare to take what looks like the riskier option?

As one of the partners who built up the Berwin Leighton Paisner EU and UK competition practice in the mid-2000s, a founding partner of the London office of US firm Cooley in 2015 and of that firm’s Brussels office in 2019, I was accustomed to building a high quality EU and UK law competition practice in a larger firm context.  Based on that experience, I was no stranger to risk, but it felt like time to take on the challenge of building such a practice in a smaller, more focused firm.

At a time of economic uncertainty, when so many workplaces are having to evolve rapidly, it provided some comfort that the Euclid team had already undertaken a radical change in how they do business. Founding partner Oliver Bretz and the rest of the team created something truly unique in the London market five years ago: a boutique firm entirely focused on providing expert EU and UK competition law advice to the highest possible standard, in a collegiate and nimble manner.  

Having watched the firm go from strength to strength, joining them for the next phase of this exciting venture right now turned out to be perfect timing. Indeed, the events of 2020 have demonstrated the benefits of our approach in a dramatic way, as we were already set up for remote working, including through the use of a cloud-based matter management platform. Our model also meant that we were not saddled with the high overheads associated with large City offices, support staff and teams of associates.

While joining Euclid Law in the middle of a national lockdown in June was certainly challenging, and felt far from playing it safe, it now turns out to have been less of a risk, as we are uniquely well-placed to ride out the current storm.  

Playing it safe vs. expert versatility

While traditional law firms largely maintain a rigid, one-size-fits-all approach, Euclid is like the pragmatic skink of New South Wales: we look at the risk and adapt to the environment in a way that best meets the overall objective. We approach each case with customised and personalised advice and work together with clients to explore the risks and uncertainties associated with different options for solving their issues. We then create a bespoke strategy tailored to their risk appetite and the ever-changing competition law environment. While the choice is ultimately the client’s, we are quite happy to take a view on the level of risk and provide the direction they need to make a decision.

Client feedback and case studies validate our business model. For example, when a global food retailer wanted to buy a competitor company, a big firm simply told them “no, too risky”, so they then turned to Euclid for a second opinion. We found that it was in fact possible, with some risk but minimum divestment prospects. It took a pragmatic approach to push through this high-yield deal.

We adopt a similar approach to UK merger notifications. While other firms might opt for a ‘one size fits all’ approach on whether to notify the authorities prior to a merger, we analyse each case’s risk profile in-depth, in the context of what is a highly dynamic CMA environment, and advise accordingly. We are not adverse to the client taking a calculated risk and will stick to our guns when we’re confident in our counsel.

Proudly Counter-Cultural

So, if we’re a lean partner-led team with a flexible fee structure that aims to produce the best results for clients, how is Euclid able to offer high quality, bespoke solutions and be profitable, all without partners burning the proverbial candle at both ends?

The answer is simple: we keep our costs low, we deploy our deep expertise straight away rather than expecting the client to pay for junior lawyers to acquire that expertise on the job, and we use technology in a smart way.  

The deep experience of the Euclid team, acquired from our work at global law firms and at a senior level within competition authorities, gives us the confidence to do this with confidence. All of our senior lawyers are ranked in the current Global Competition Review/Who’s Who Legal directory of leading competition lawyers and two are ranked as ‘thought leaders’ by that publication. Clients get direct access to this expertise, in a focused and efficient way. 

Once we are instructed, our clients become part of our team and also appreciate this approach. Although we are hyper-professional and always available, regardless of timing, we can structure our worktime and lives around our extended team’s needs and our humane approach is valued by all concerned.

Euclid’s flexible fee structure, bespoke case strategy and client-first approach is undeniably ‘counter-cultural’ in an industry that can be beset by entrenched working practices and business models. We’re comfortable being viewed as rebel upstarts, because we don’t view ourselves as a traditional law firm, but rather as entrepreneurs. And being an entrepreneur means constantly working to improve what we do, for clients, for staff and for society as a whole. In fact, both Oliver Bretz and Marie Leppard were nominated for EY Entrepreneur of the Year in 2020.

We are also alive to the social context in which we operate. Competition law helps to shape the societies we live in and what we do for our clients impacts markets and consumer welfare. Competition law also has the ability to support wider policies, such as environmental protection – a cause Euclid is dedicated to.

Competition law is an exciting space right now and in this respect, we are arguably fortunate to be living in such interesting times, even if it doesn’t always feel like it. Euclid is uniquely placed to thrive in this environment, and this is one of the main reasons why I decided to join this exciting venture. We believe that our success in such a short time – against strong competition – is due largely to our innovative yet pragmatic approach, which continues to evolve as we do.

More on Euclid’s #5YearEvolution here: https://euclid-law.eu/5-year-anniversary-pragmatic

European Commission Consultation on New Competition Tool

Justification for a New Competition Tool

Based on our experience of the operation of the UK market investigations regime, we agree that a new tool that goes beyond the options currently available to the Commission under Articles 101 and 102 TFEU, and that enables the Commission to identify and tackle structural market issues, is likely to be a useful addition to the EU competition regime. As far as jurisdictional scope is concerned, however, while digital markets may be particularly prone to structural issues, and the need for rapid action may be greater, there is nothing inherently novel or ‘digital’ in the desirability of a ‘backstop’ regime that empowers an authority to take specific action if harms arise for which traditional antitrust tools are insufficient.

UK experience has demonstrated that, as well as being helpful for tackling issues in potentially oligopolistic markets (such as groceries or audit), such a tool can be valuable where markets are not functioning well due to wider factors, including the interplay with regulatory regimes (for example, rolling stock leasing, energy or private health care) or past government decisions (for example, airports). Each case will turn on its facts, however, justifying the need to individual assessments, within a clearly defined legal framework.

Our response to the European Commission Consultation

As lawyers qualified in the UK and Member States with significant expertise in advising clients on EU and UK competition law, our views also draw on personal experience of enforcing the UK competition regime gained by members of the firm while working for the UK Competition and Markets Authority and its predecessor, the Office of Fair Trading. Our hope is that this experience can provide useful pointers that may assist the Commission in the design of a new competition tool. To read our full response, click here.