On October 20, the Competition and Markets Authority (CMA) fined Facebook, Inc. £50.5 million ($69.5 million) for breaching an Initial Enforcement Order (IEO) during the CMA's investigation into the social media giant's completed $400 million acquisition of the GIF database company GIPHY, Inc.
In merger investigations, IEOs typically require the parties to cease integration pending completion of the CMA's review, with compliance often overseen by monitoring trustees and with the parties required to submit regular compliance updates.1 IEOs often apply to the global activities of the firms, not just any UK operations.
Facebook completed the GIPHY acquisition in May 2020, and the CMA issued the IEO two weeks later. In August 2021, the CMA provisionally found that the merger would harm competition between social media platforms and remove a potential challenger in display advertising. Its concerns centred on Facebook preventing rival social media platforms from having access to GIFs or demanding more data from GIPHY customers (such as TikTok, Twitter, and Snapchat) to ensure continued access to GIPHY's library of GIFs. The CMA proposed a full divestiture of GIPHY to remedy its provisional concerns. Facebook argued that such a remedy was disproportionate and unnecessary and that the CMA had no jurisdiction over the transaction, and made requests for waiver of certain provisions of the IEO. Facebook unsuccessfully challenged the CMA's refusal to accede to those requests before the Competition Appeal Tribunal (CAT)2 and in the Court of Appeal.3 Facebook was criticized by the CAT and the Court of Appeal for its lack of cooperation with the CMA's investigation and its "high-risk strategy"4 regarding compliance. In its fining decision, the CMA stated that Facebook deliberately failed to comply with the IEO by providing only limited information in its compliance updates, despite repeated warnings and its court losses.
This decision and the resulting fine mark the first time in the CMA's history that it has found that a company "consciously refused" to supply compliance information required under an IEO. Facebook's record fine illustrates the CMA's increasing willingness to aggressively enforce the terms of its IEOs5 (see this previous Wilson Sonsini Alert). Although the size of the penalty indicated the seriousness of the CMA, the CMA also noted that this case should "serve as a warning to any company that thinks it is above the law." The largest fine previously issued for breach of an IEO was £325,000 ($444,405) in August 2021. This case serves as a reminder that parties considering entering into any M&A activity with a nexus to the UK must consider the risk that the CMA may issue an IEO and demand strict compliance with its terms.
For more information, please contact Beau Buffier, Dan Glazer, or another member of the global antitrust and competition or corporate practices at Wilson Sonsini Goodrich & Rosati.
Deirdre Carroll and Liam Boylan contributed to the preparation of this Wilson Sonsini Alert.
[1] See s.72(2) Enterprise Act 2002.
[2] Facebook, Inc. v. Competition and Markets Authority [2020] CAT 23.
[3] Facebook, Inc. v. Competition and Markets Authority [2021] Bus. L.R. 1178.
[5] For example, Electro Rent in 2019 during the investigation of its acquisition of Microlease; JD Sports in 2020 during the investigation of its acquisition of Footasylum; and ION Investment Group in 2021 during the investigation of its acquisition of Broadway Technology Holdings.
