Key Developments — January/February 2023

The “European Antitrust Bimonthly Bulletin” (EABB) breaks down the major antitrust developments in Europe in the past two months into concise and actionable takeaways for clients with operations in Europe. For any questions, please contact Jindrich Kloub, Beau Buffier, Deirdre Carroll, Thomas Pflock, or any other attorney from the European Antitrust team (see the full list of attorneys at the end of the Bulletin).

New Filing Requirement for EU M&A Activities Under the EU Foreign Subsidies Regulation (FSR)
Clients involved in transactions with an acquisition target, a merging party, or a joint venture with EU revenues of at least €500 million ($539 million) should be aware that from October 12, 2023, they may face a filing obligation with the European Commission (EC). FSR notifications will be separate from filing obligations under merger control or FDI rules but will follow a similar timetable and involve an additional standstill obligation that will need to be reflected in merger agreements. Recent U.S. government measures, such as the Inflation Reduction Act, will see U.S. companies active in the EU brought into the FSR’s crosshairs. While the EC may not ultimately raise any concerns, a notification is still due where the parties have received combined financial contributions from non-EU governments of more than €50 million ($54 million) over the three previous years.

Clients should consider already preparing for the FSR and start tracking and collecting information on received financial contributions (including loan guarantees, tax exemptions, capital injections, fiscal incentives, debt forgiveness, contributions in kind, and any provision or purchase of goods or services by government entities). We have published a more detailed client alert on the topic and can provide guidance on tracking financial contributions and the new regime more generally.

EU and CMA Treatment of Microsoft/Activision Underlines Current Merger Assessment Trends
Both the European Commission (EC) and the UK Competition and Markets Authority (CMA) have expressed concerns over the planned acquisition of games-maker Activision Blizzard by Microsoft. The agencies’ tough stance on this transaction emphasizes three trends in merger review in Europe: i) agencies increasingly rely on non-horizontal theories of harm, challenging mergers that do not involve direct competitors but companies active on different levels of the value chain (or even in entirely separate value chains); ii) in doing so, agencies are increasingly willing to push the boundaries on these theories of harm where they suspect that growing and developing markets are affected; iii) for the firm’s many e-gaming clients, M&A activity is set to become more challenging despite still fragmented markets, as e-gaming is increasingly viewed by agencies as linked to the collection of personal data and key innovations such as cloud computing and the metaverse.

Clients should consider factoring in these current enforcement dynamics in Europe into any initial M&A discussions. Parties should not assume that vertical or conglomerate deals will escape scrutiny and should anticipate and prepare for non-horizontal (and non-traditional) theories of harm, including through the early involvement of economists to ground a pro-competitive deal rationale.

EC Extends Its Anonymous Whistleblower Tool to Mergers
The EC recently opened a new channel to proactively challenge merger-related infringements, such as gun-jumping, by extending its whistleblower platform beyond cartels to all areas of antitrust enforcement. The tool will allow anonymous submissions, but the EC will be able to follow-up with questions. A formal complaint, by contrast, may involve a disclosure of the complainant’s identity to the merging parties and will require much more active participation in fact-gathering via agency information requests.

Clients should consider carefully weighing the use of this tool versus formal complaints to the EC or national agencies. For rights of defense and procedural fairness reasons, the likelihood of agency action will be higher where complainant identities and information sources are disclosed, but this will need to be balanced against the potential for retaliation by merging firms.

EC Reports Uptick in Cartel Leniency Applications
A senior EC enforcer announced that the number of leniency applications from companies seeking to avoid or lower cartel fines has increased over the last two years. The uptick in applications counters a steady downward trend in requests for leniency observed over the last couple of years that was triggered by a steep increase in private follow-on damages litigation. The growth in leniency applications may be a reaction to agencies’ increased proactive cartel detection activities and resumed inspections (including at private premises), their extension of enforcement against “non-traditional” cartel conduct (such as buyers’ cartels, agreements reducing innovation and no-poach agreements), and the EC’s intention to focus on sectors that have not previously faced cartel enforcement (which may include the tech sector).

Clients should consider ensuring that their competition compliance policies are up to date and their Europe-based operations and key staff know their rights and obligations during a potential inspection by the EC or national competition authority. We will be happy to share guidance on inspections in Europe and assist in the review or design of compliance policies and in the delivery of compliance training to staff. We have strong cartel experience and a distinct perspective on the EC’s enforcement practice, and we can help you manage your risk and, where necessary, prepare against enforcement action.

EU's Top Court Confirms Tough Stance on Information Exchange and 'Object' Infringements
By rejecting HSBC’s appeal, the EU’s top court confirmed that an exchange of information between competitors may constitute a by object (cartel) infringement if it restricts or distorts competition by reducing uncertainty about the functioning of the specific market in question without the need to show a direct link to consumer prices. Specifically, the judges found that by manipulating their Euribor submissions, the cartelists distorted competition by creating an information asymmetry with other market participants that reduced their uncertainty about the market’s functioning and allowed them to offer better conditions to their clients. Europe’s aggressive stance against information exchange was recently mirrored by the U.S. Department of Justice (DOJ) announcing significant changes to its review of companies’ information sharing practices (see also Wilson Sonsini Alert)—companies who previously relied on the department’s guidance to share competitively sensitive information should be aware that these exchanges will face increased scrutiny going forward, with the EU’s long-standing precedent potentially informing the DOJ’s enforcement practice.

Clients should consider whether their competition compliance policies reflect the EU’s stance on information exchanges and their sales staff and other key personnel are aware of the risks involved in sharing of non-price information that in your industry can be viewed as competitively significant. We can assist with the review/design of compliance policies and the delivery of training to staff.

EU's Top Court Strengthens Dominant Companies' Economic Defenses Against Exclusivity Abuse Allegations
For many clients, the use of exclusivity provisions is standard practice, but it can lead to antitrust concerns where clients have a strong market position. However, even where that is the case, the EU’s top court has now strengthened possible defenses in its Unilever judgment. The judges held that even in cases of outright exclusivity anticompetitive effects cannot be presumed but must be demonstrated, and that all economic evidence submitted by the dominant firm (including as efficient competitor test evidence) must be properly considered. This judgment is likely to make it more difficult for agencies in the EU to successfully challenge the use of exclusivity provisions.

Clients should consider whether greater use of exclusivity provisions (rebates, single branding restrictions, etc.) would be commercially advantageous for their business. We can assist in the review and optimization of your existing distribution arrangements in Europe.

EU's Top Court Broadens Possibilities to Enforce Access to Dominant Companies' Infrastructure
While U.S. case law sets a very high threshold for enforcing access to other companies’ infrastructure under illegal monopolization rules, the threshold for such claims is lower in the EU (including claims for access to interoperability information and IP). In its recent Baltic Rails judgment, the EU’s top court expanded the scenarios under which companies can enforce access to dominant undertakings’ infrastructure without having to demonstrate the infrastructure’s indispensability (which often has turned out to be a tough threshold to meet for claimants and agencies). That is notably the case, where access is statutorily mandated by another regulatory scheme or where the infrastructure in question was not developed by the dominant firm.

Clients should consider whether they are facing any access barriers because of conduct by dominant or incumbent firms in Europe for which the EU’s tough stance on refusal to deal could provide a remedy/leverage in negotiations. We can assist in identifying possible opportunities and formulating the appropriate strategy for obtaining relief. Equally, we can assist with defending against access claims.

EC Accepts Referral Request to Review $20 Billion Adobe/Figma Deal
On February 15, 2023, the EC accepted the referral by Austria of Adobe’s acquisition of the web and app design platform Figma. Under its new Article 22 policy, the EC can review deals which are “worth reviewing” regardless of whether EU or national notification thresholds are met. One or more Member States can refer to the EC any deal that does not meet the EU merger thresholds, but "affects trade between Member States" and "threatens to significantly affect competition" within the territory of the Member State(s) in question. The Austrian referral was backed by 15 other EU jurisdictions, including the German Federal Cartel Office, which has refused to join such requests unless its national thresholds are met. The transaction was notified to Austria and Germany under their deal value thresholds, introduced to capture killer acquisitions or deals where the target’s sales do not adequately capture its competitive significance (Figma offers many of its web-based design products for free). In the U.S., the transaction is under an in-depth review (so-called "Second Request"). In the UK, the CMA has yet to announce an investigation but is understood to be reviewing the deal.

Clients contemplating M&A impacting the EU and UK should consider front-loading substantive assessments in any filing analysis and factor in the impact of EU and UK reviews on deal terms, timetables, and risk allocation, even if they generate little or no revenue in Europe. We have extensive experience in such analysis and can support companies in initial M&A feasibility discussions.