This update summarizes recent developments and trends in the different areas of EU competition law and gives an outlook on what can be expected in 2021.
In March 2020, the European Commission (EC) announced a new Industrial Strategy setting out three key priorities:
- Shaping Europe’s digital future
- Making Europe climate-neutral by 2050 (European Green Deal)
- Maintaining European industries’ global competitiveness and a level playing field.
Digitalization — Making Europe fit for the digital age
In December 2020, following wide-ranging feedback from earlier consultations, the EC proposed a Digital Markets Act (DMA) aimed at platforms acting as digital “gatekeepers” in the marketplace.1 Under the DMA, gatekeepers are large players, in terms of annual turnover or market capitalization, who operate as a gateway between a large number of businesses and individual users. The DMA proposes ex-ante “do’s and don’ts” rules for these gatekeepers, e.g., in relation to self-preferencing, use of data and interoperability. The DMA would allow the EC to impose behavioral or structural remedies including a breakup of large tech companies as a last resort. The DMA will now go through the legislative process, which is expected to take 18-24 months. We expect further debate on the scope and mechanics of the DMA, in particular on the gatekeeper definition as it not only captures large US tech players but also most likely some of the larger European tech firms.
In July 2020, a sector inquiry was launched into the consumer-related “Internet of Things” sector, which includes, e.g., intelligent household appliances and wearable devices such as smartwatches.
Sustainability — Making Europe “greener”
The European Green Deal is at the top of the agenda of EC President Ursula von der Leyen. At the core of the debate is whether the EC should factor non-price-related sustainability aspects (e.g., lower carbon emissions or cleaner air) into its antitrust analysis and weigh these against anti-competitive effects. The EC has now started to take these into account in its substantive assessment of merger cases. For instance, in Aurubis/Metallo, the EC carried out an in-depth investigation given that both parties were active in copper, which is an important input for electric mobility and therefore contributes to a sustainable usage of resources.
The EC will present preliminary findings in February 2021 from a consultation launched last year on sustainability. The EC is also considering the use of “comfort letters” (which it has only recently re-introduced in response to COVID-19) to provide guidance and greater certainty that specific “green” initiatives between companies do not infringe antitrust laws. National competition authorities in Europe have started to focus on this topic as well, e.g., the Dutch authority with the publication of draft sustainability guidelines.
Scrutiny of foreign direct investments and maintaining a level playing field — Making Europe more “geopolitical”
Foreign investment scrutiny continues to be on the rise in light of increased protectionism and international trade tensions. In October 2020, the EU FDI Screening Regulation (FDI Regulation) became binding for EU Member States. The FDI Regulation establishes an EU-wide framework in which the EC and Member States can coordinate their actions on foreign investments (different from the US CFIUS regime, it does however not create a stand-alone mechanism to vet foreign investment at EU level). In light of the EC’s focus on foreign investment, several Member States have now introduced new foreign investment regimes or expanded existing ones. Post-Brexit, the UK is no longer part of the EU FDI framework, but the UK government has introduced into Parliament a far-reaching national security regime that will require mandatory notifications and will apply retroactively (expected to come into force in spring 2021).
Separately, the EC has also published a White Paper proposing an ex-post review of foreign subsidies granted by third party governments and an ex-ante merger control-like regime for acquisitions of EU targets by companies benefiting from government support. The idea behind the White Paper is to create a level playing field between companies that receive support from EU governments, which is subject to EU State aid rules, and those that obtain foreign subsidies from non-EU governments, which are currently not subject to State aid control. The need for a level playing field relating to subsidies has been under discussion for some time, but the idea has now gained momentum with Member States in light of the “European Champions” debate following the EC’s prohibition of the proposed Siemens/Alstom merger. The EC is expected to publish a legislative proposal on a foreign subsidies regime in the second half of 2021.
At the beginning of the pandemic, the EC moved very quickly to publish so-called Temporary Frameworks in the areas of antitrust and State aid. It also provided — for the first time in nearly 20 years — a comfort letter (providing guidance on collaboration between competitors for the supply of critical hospital medicines needed for the treatment of COVID-19 patients (Medicines for Europe). The EC also adopted a huge number of State aid approval decisions relating to government support measures for companies impacted by COVID-19, often with incredible speed. Merger control in non-complex cases was largely “business as usual”, but almost all of the EC’s investigations of complex merger cases were delayed by “stop-the-clocks” over the summer. Substantively the EC has so far not softened its stance, e.g., with regard to failing firm defense or crisis cartels.
EU Merger Control Developments
Despite COVID-19, the EC still received 361 merger notifications in 2020 (compared to 380 in 2019 and a record-breaking 414 in 2018). Over three quarters of notifications in 2020 were cleared unconditionally under the EC’s simplified procedure.
The EC approved 13 cases in Phase 1 subject to commitments and three cases in Phase 2 subject to commitments: Google/Fitbit (healthcare tech), FCA/PSA (automotive), and PKN Orlen/Lotos (oil and gas). In Google/Fitbit, the EC has required Google not to use any Fitbit user data for its advertising business and to store it in a separate “data silo” for at least 10 years.
Substantive Analysis of Mergers (Hutchison)
In May 2020, the European General Court overturned the EC’s 2016 decision blocking CK Hutchison’s (Three) acquisition of Telefónica UK (O2). This is a highly significant judgment. Aside from Three and O2, two other players were active in the UK telecommunications market (Vodafone and BT’s EE). The transaction would have led to combined market shares of around 40% in the UK mobile market. In its judgment, the General Court sets a high bar to show that a merger is anti-competitive in oligopolistic markets where a dominant market position is not created or strengthened: the EC needs to show a “strong probability” of a significant impediment to effective competition (not just that this is more likely than not). The EC has criticized the judgment as fundamentally flawed and lodged an appeal before the European Court of Justice. We expect that it will take two to three years before the Court of Justice’s judgment.
Change to Referral Policy
There has been intense debate in the last few years on whether the EC should introduce transaction value based thresholds to allow for a review of acquisitions relating to companies with low turnover but highly valuable technology (typically in the digital or pharmaceutical spheres). The concern is that the current thresholds under the EU Merger Regulation are purely revenue-based. This may enable large players to acquire nascent or smaller players without being scrutinized by the EC, when the objective of the acquisition could be to eliminate future competition (so-called “killer acquisitions”). However, the EC has decided to adapt its usage of an existing provision of the Merger Regulation rather than undergo the long and political process of legislative change. Specifically, the EC has said it will consult in the coming months on the use of Article 22 of the Regulation (which enables Member States to request the EC to review cases that raise concerns) to refer potential killer acquisitions to the EC, regardless of whether the national merger thresholds are triggered. This will expand the jurisdiction of the EC — it can be expected to lead to greater uncertainty as to what cases the EC will choose to review, so is likely to prove controversial, in particular for tech and pharmaceutical companies.
EU Cartel Developments
While cartel enforcement remains a top priority for the EC, there have been fewer cartel cases in recent years due to increased private damages enforcement, which has reduced the number of leniency applications. The total cartel fines in 2020 amounted to approximately €288 million (compared to approximately €1.4 billion in 2019 and approximately €800 million in 2018). The most significant fine by far of 2020 was imposed in the ethylene purchaser cartel case against several specialty chemicals companies (€260 million). Purchasing cartels are rare, but the EC and national competition authorities are increasingly investigating purchasing markets with regard to cartel violations. One interesting development in that case: even though the parties agreed to settle the case with the EC, one of the cartelists has lodged an appeal challenging certain aspects of the decision in a bid to have its agreed fine reduced.
Abuse of Dominance
Investigations into Abuses in the Digital Sector
The EC is currently investigating a number of large tech players, and this continues to be a highly contentious topic with the EC. Numerous complaints have been made to the EC against Big Tech players, and a large group of digital companies and industry associations recently urged Commissioner Vestager to enforce Google’s compliance with the 2017 Google Shopping decision. In a separate development, in October 2020, the EC accepted commitments from Broadcom to suspend existing agreements containing exclusive or quasi-exclusive arrangements for components used in TV set-top boxes and Internet modems after the EC had imposed interim measures against the company in 2019 for the first time in nearly 20 years. In a commitments decision the EC does not reach a conclusion as to whether there is an infringement of EU antitrust rules but legally binds the company to respect the commitments.
Outlook — What to Expect in 2021?
- We expect the EC to continue its significant enforcement against Big Tech players. Once the DMA has been adopted, the EC may begin shifting its enforcement focus to other types of conduct or companies not captured by the DMA in both the digital and non-digital sector.
- Regulatory scrutiny of mergers is expected to increase in Europe as new regimes are introduced and existing ones expanded. The administrative burden of complying with these rules is expected to grow and needs to be factored into deal planning and transaction timetables. Going forward, transactions may potentially require notifications under three types of regulatory regimes, namely EU or national merger control, national FDI and foreign subsidies control.
- Post-Brexit, dealmakers need to be aware that transactions may require a parallel merger review by the EC and the UK’s CMA as the UK is no longer part of the EU’s “one-stop shop” for merger control. We expect that the CMA will continue its interventionist approach including in global mergers.
- The interplay between sustainability and antitrust will become increasingly important in light of the climate crisis. Given the truly global nature of the topic, it would be natural for the EC to take a lead role in the debate. However, it is not certain whether the EC will in practice allow for sustainability aspects to play a greater role in its antitrust assessments, and if so, whether this carries a risk of increased politicization.
1. Together with the DMA the EC also published a proposal on the Digital Services Act which is aimed at giving protection to consumers and establish a transparency and accountability framework for online platforms. ↩