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.

Revised EU rules for vertical agreements unveiled

by Becket McGrath & Loukia Kopitsa

On 9 July 2021, the European Commission (the ‘Commission’) published its draft texts for the new Vertical Agreements Block Exemption Regulation (‘VBER’) and Guidelines on Vertical Restraints (‘Guidelines’) for public consultation.  These are the result of an evaluation process, which started in 2018, of the current competition law rules for vertical agreements.  Those rules entered into force in January 2010 and are due to expire at the end of May 2022.

One area that has not changed is the attitude taken to price restrictions.  Despite intense lobbying, the new VBER retains the current approach in classifying resale price maintenance (‘RPM’)as a hardcore restriction of competition that is presumptively unlawful and can be justified only in exceptional circumstances.

The single key theme that emerges most strongly from the new texts is that the Commission agrees with those who have argued that the 2010 regime was unduly favourable to online retailers and marketplaces (principally Amazon).  While the 2010 changes were motivated by a desire to encourage online retail, as a means of developing the single market and improving consumer access to products on a cross-border basis, brands objected that the regime made it too difficult for brands to control online retail.  Should they be retained in the final texts, the proposed changes will make life harder and less certain for online retailers (especially those, such as Amazon, that operate third party marketplaces in parallel) and those doing business with them.  While some of the changes will be welcomed by brands, others introduce additional complexity and uncertainty that are likely to make it harder to apply the VBER in practice.  As a result, it cannot be said that, taken in the round, the new texts mark a distinct improvement on the 2010 regime.

Background

The VBER creates a safe harbour, known as a ‘block exemption’, which protects common forms of distribution agreements from legal challenge under Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’), which prohibits anticompetitive agreements, and national equivalent rules.  In principle, any agreement between parties operating at different levels of the supply chain (for example, a brand and a distributor) can benefit from the block exemption, provided that the parties’ market shares do not exceed 30% of the relevant markets and the agreement does not contain any ‘hardcore’ restrictions of competition. 

Hardcore restrictions (e.g., RPM, absolute territorial protection, customer allocation), which are set out in Article 4 of the VBER, are presumed to be so harmful to competition that they render an entire agreement ineligible for protection and presumptively unlawful.  If an agreement contains a less serious ‘excluded restriction’, the specific restriction will be unenforceable, but the rest of the agreement will be protected.  

The Guidelines set out extensive guidance concerning application of the VBER and for assessing the legality of agreements outside of its protective scope.  Taken together, the VBER and Guidelines effectively create a code for the application of EU competition law (and, by extension, national competition laws) to vertical agreements.

Click here to download the full briefing and dive into the main changes of the revised Regulation.

So… this is Brexit

UK competition law beyond the withdrawal – Part I & II

by Becket McGrath

Since the moment that the result of the UK’s referendum on EU membership in June 2016 was announced, there has been significant uncertainty over when the UK would leave the EU, whether the terms for departure could be agreed in time to avoid a “no deal” exit and even whether Brexit would happen at all. The first part focused on the competition law provisions in the Withdrawal Agreement. These provisions confirm the continued application of EU competition law in the UK during the Brexit transition period, which is currently due to end on 31 December 2020 These uncertainties were ultimately resolved sufficiently to enable Brexit to take place on 31 January 2020.

The second part goes beyond the Withdrawal Agreement which also provides for the continued jurisdiction in the UK of the European Commission and Court of Justice of the EU (CJEU) after the end of the transition period for certain matters, including competition investigations that are ongoing at that point and related appeals. Finally, the Northern Ireland Protocol to the Agreement provides for indefinite Commission jurisdiction to supervise UK state aid measures with a potential to affect trade between Northern Ireland and the EU. Assuming that the UK abides by its international law obligations under the Withdrawal Agreement, these aspects of the relationship are now fixed. As a result, the only major area of uncertainty regarding the transition period is whether it will be extended.

To read the rest of this article which was published in Competition Law Insight, click for Part I and Part II.

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.

Webinar: Foreign direct investment in Germany and the investor status of the UK

On 13 May, Oliver Bretz hosted our monthly live webinar #FDI on the European Foreign Direct Investment Screen #EUFIS, which affects most mergers and investments at this critical time. Oliver had the pleasure of chairing the Microsoft Teams debate alongside Dimitri Slobodenjuk who provided an interesting update on the changes to the German FDI control system.

The discussion also focused on the status of UK investors and UK Private Equity in the EU during the Transition Period.

Notes from the webinar can be found here.

The European “CIFIUS”: Understanding the EU Foreign Investment Screening (EUFIS).

Marie Leppard chaired the teleconference  “The European “CIFIUS”: Understanding the EU Foreign Investment Screening (EUFIS)” organised by the ABA Section of International Antitrust Law Committee Panel on 29th October 2019.

The event covered the new EU Foreign Investment Screening (EUFIS) framework and its similarities to CFIUS and Investment Canada. EUFIS will come into force in October of 2020 and is already relevant to deals and investments being negotiated today.

The speakers participating in the teleconference included:

  • Carlo Pettinato – head of Investment Policy Unit, DG Trade at European Commission
  • Damara Chambers – Partner at Vinson & Elkins
  • Michael Cadelcott – Senior Associate at McCarthy Tetrault.

“CMA Policy: UK Competition Authority Asserts itself in Anticipation of Brexit” comments by Sarah Long

Sarah Long was asked to comment on The Capital Forum’s Vol. 7 No. 300 story published on 15 August 2019 entitled “CMA Policy: UK Competition Authority Asserts Itself in Anticipation of Brexit”.In anticipation of the UK’s imminent exit from the EU, the CMA has adopted an aggressive approach in a bid to secure a better outcome for UK consumers. […] The CMA “will now have an element of freedom to look at mergers in a different way,” said Sarah Long, a partner at Euclid Law in London, adding that the CMA could ultimately move away from the European Commission’s approach in some key respects.

To read the full article, click 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

For a Facts-Based Analysis of Uber’s Activities in the EU: Addressing Some Misconceptions

Damien Geradin

Tilburg Law & Economics Center (TILEC); University College London – Faculty of Laws

Date Written: March 13, 2017

Abstract

While it has now been several years since Uber started its activities in Europe, it is striking that in most EU Member States there is still no regulatory framework allowing Uber and similar ridesharing companies to compete and deliver the efficiencies generated by their technology, while assuring that the public interest is guaranteed. Regulatory change is impeded by the emotional nature of the debate where new entrants like Uber are often characterised as villains, stealing business away from taxi companies and replacing “good jobs” with precarious ones. These allegations, which are largely based on misconceptions about Uber’s activities, prevent a constructive, forward-looking debate on how to take advantage of the major opportunities created by Uber and other companies offering online intermediation services in terms of user convenience, affordability and quality of service, road safety, and reduced urban congestion.

To read more and download full paper, please click here.