Antitrust in Focus - September 2023

Published Date
Oct 3, 2023
Related people
This newsletter is a summary of the antitrust developments we think are most interesting to your business. Christopher Best, counsel based in London, is our editor this month. He has selected:

UK guidance on horizontal agreements confirms and develops the CMA’s approach to anti-competitive information exchange

The UK Competition and Markets Authority (CMA) has published its much anticipated guidance on horizontal agreements explaining how it will apply the UK prohibition on anti-competitive agreements to agreements concluded between actual or potential competitors.

The UK guidance came two months after the European Commission (EC) adopted its revised guidelines on horizontal cooperation agreements. Our June 2023 alert takes you through the headline points of the revised EU rules, including the new guidance on sustainability initiatives between rivals and mobile telecoms infrastructure sharing agreements.

In terms of the approach of the CMA and the EC to the assessment of information exchange, both sets of guidance contain similar, significantly expanded sections.

Many of the additions confirm positions already established in EU and UK case law, such as the risks of indirect information exchange between competitors via a third party (including “hub-and-spoke” arrangements). However, the documents also expand on familiar issues as well as provide guidance on new topics, such as data sharing/pooling and algorithms.

Our alert focuses on what you need to know about the authorities’ approach to information exchange and how you can minimise antitrust risk. We draw out key updates from the EC’s previous 2011 horizontal guidelines and highlight differences between the new UK and EU guidance. In general, we note that much of the distinction between the UK and EU guidance is a result of the CMA providing more clarification and detail than the EC on certain topics, rather than a divergence in approach – clearly good news for businesses with operations in both jurisdictions.

In addition to information exchange, the UK and EU guidance provide a revised steer on how antitrust law applies to the most common types of cooperation agreements between competitors. This includes production, mobile telecoms infrastructure sharing, commercialisation, joint purchasing (distinguishing buyer cartels) and standardisation. The authorities also provide direction on how businesses should interpret and apply the new EU and UK block exemptions for research and development and specialisation agreements. Again, there are some differences in the approach taken by the EC and the CMA – watch out for our upcoming commentary on these.

EC exercises merger control jurisdiction over below-threshold transactions

When the European Commission (EC) published guidance in March 2021 setting out its new policy on referrals under Article 22 of the EU Merger Regulation, pulses were set racing. The new approach encourages EU member states to refer certain transactions to the EC for review, even if they are not notifiable under domestic merger control rules.

Many predicted a flood of referrals would follow. However, until recently, only one transaction had been caught: Illumina’s acquisition of GRAIL. The parties challenged the EC’s jurisdiction to review the transaction but, in a landmark ruling, the General Court endorsed the revised policy. A further appeal by the parties is pending before the European Court of Justice (ECJ). In the meantime, the EC blocked the deal.

Now, in the space of just three days, the EC has announced that it will review two further transactions that do not meet EU and member state merger notification thresholds:

  1. Qualcomm’s acquisition of Autotalks. According to the EC, this transaction would combine the two main suppliers of vehicles-to-everything (V2X) semiconductors in the EEA. V2X technology enables vehicles to communicate directly with each other and with their surrounding environment and contributes to road safety, traffic management and reducing CO2 emissions, as well as to the deployment of autonomous vehicles. The EC says it is important to ensure that customers such as OEMs and infrastructure managers retain access to V2X technology at competitive prices and conditions.
  2. European Energy Exchange’s (EEX) acquisition of Nasdaq Power. In the EC’s initial view, the transaction would combine the only two providers of services facilitating the on-exchange trading and subsequent clearing of Nordic power contracts. The EC notes that a strong and competitive trading and clearing ecosystem is important to support the smooth functioning of energy markets, especially in the current context of the energy crisis.

Interestingly, the referral requests came about in different ways. The EC itself invited member states to refer Qualcomm/Autotalks. In response, seven member states initiated the referral, with a further eight joining the initial requests. Several authorities, including the Dutch and French, announced their support for the EC’s review, noting their concerns that the deal could in particular harm innovation.

By contrast, the EEX/Nasdaq Power referral was initiated by Denmark and Finland on their own initiative, joined later by Sweden and Norway.

From a timing perspective, the EC launched the EEX/Nasdaq Power review only nine weeks after the transaction was announced, while the Qualcomm/Autotalks review was launched around three and a half months after the deal announcement.

Qualcomm and EEX now have to submit a merger filing to the EC and suspend closing before receiving the clearance.

The cases show that the EC will not hesitate to follow its new Article 22 policy, despite the challenge to its approach currently pending before the ECJ. The EEX/Nasdaq Power transaction in particular suggests that such referrals may not be limited only to digital or pharmaceutical deals, as some had initially predicted.

Digital deals will, however, remain in the EC’s sights. The authority made its first “gatekeeper” designations under the Digital Markets Act earlier this month. These designated firms are now under an obligation to inform the EC of any planned acquisitions involving services in the digital sector or that enable the collection of data. Crucially, these reports will give the EC greater visibility over a wide range of digital transactions and may prompt it to invite EU member states to make Article 22 referrals.

All this means it is increasingly important that parties assess the risk of referral in all below-threshold transactions and take any potential EC review into account when considering deal conditions and timelines.

U.S. FTC ground-breaking complaint signals growing focus on PE funds and roll-up acquisitions

The U.S. Federal Trade Commission (FTC) has brought a legal challenge against PE fund Welsh Carson and its portfolio company U.S. Anesthesia Partners (USAP).

The agency alleges multiple antitrust violations over a ten-year period relating to anaesthesiology services in Texas. Specifically, the FTC alleges the firms engaged in a three-part anti-competitive strategy involving acquisitions of anaesthesiology practices, price-setting agreements and market allocation.

The FTC claims that Welsh Carson is as culpable as its portfolio company, despite owning less than 50% of USAP over the relevant period, given its board seats and control over hiring and strategy.

Our alert takes you through the details of the FTC’s lawsuit and the relief sought. It highlights the novel nature of the agency’s arguments and provides key takeaways for PE funds. With forthcoming changes to the U.S. merger guidelines and expansion of the HSR notification form, we expect scrutiny of and enforcement against PE-backed serial acquisitions to only increase.

U.S. FTC joins the DOJ in policing interlocking directorates

The U.S. Federal Trade Commission (FTC) broke new ground on multiple fronts this month when it took action to resolve antitrust concerns in relation to a transaction between PE firm Quantum Energy and natural gas producer EQT.

Quantum Energy and EQT are direct competitors in the production and sale of natural gas in the Appalachian Basin. Post-transaction, Quantum would become one of EQT’s largest shareholders and would also have a seat on EQT’s board.

The FTC was concerned that this structure would breach Section 8 of the Clayton Act, a provision which prohibits directors and officers from serving simultaneously on the boards of competitors (ie “interlocking directorates”), subject to limited exceptions. It found that it would facilitate the exchange of confidential and competitively sensitive information and would give Quantum the ability to sway EQT’s decision-making.

To address these concerns, the FTC has issued a wide-ranging consent order, which it describes as delivering “ground-breaking structural relief”.

Under the consent order, Quantum is prohibited from occupying an EQT board seat, must divest its shares in EQT, and is required to take steps to prevent anti-competitive information exchange. The consent order also provides for the unwinding of an existing joint venture between the parties relating to the acquisition of mineral rights, which the FTC found to be anti-competitive. Finally, the order imposes limits on future entanglements between the parties, including prohibiting non-compete agreements.

The case is significant for several reasons:

  • It marks the FTC’s first action in four decades to enforce against interlocking directorates under Section 8 of the Clayton Act. It is also the first time that the agency has applied Section 8 to a non corporate entity. FTC Chair Lina Khan notes that the order “makes clear that Section 8 applies to businesses even if they are structured as limited partnerships or limited liability corporations”, warning PE and financial sectors in particular that they are not out of scope. Notably, as reported in our alert mentioned above, the FTC is also now targeting PE roll-up acquisitions.
  • It shows the FTC is willing to expand the use of its “prior approval” remedy to interlocking directorates. In the past year, we have seen the FTC increasingly require remedies that prevent an acquirer from making future acquisitions in the market in question. In this case, it prohibits Quantum from taking a seat on the boards of any of the top seven natural gas producers in the Appalachian Basin. Expect more prior approval provisions of this kind in any future Section 8 enforcement by the FTC.
  • It is the first time in many years that the FTC has used Section 5 of the FTC Act (which prohibits “unfair methods of competition”) as a standalone authority to take action in a merger case. Traditionally, the agency has relied on Section 7 of the Clayton Act, which prohibits deals that may substantially lessen competition. However, in November 2022 the agency announced that it would take a more expansive view of its enforcement authority under Section 5 (see our alert for more details). In the M&A context, this would enable it to challenge transactions that might not strictly violate Section 7, giving it a broader authority to intervene. Quantum/EQT is practical proof that the FTC is following through on that promise.

In focusing on interlocking directorates, the FTC is following the path of the U.S. Department of Justice (DOJ). The DOJ is now almost a year into its drive to enforce Section 8 of the Clayton Act and has taken action across the entire U.S. economy. Most recently, two directors of Pinterest resigned their positions as Nextdoor directors, bringing the DOJ’s resignation tally to 15 from 11 boards. With the agency noting that enforcement targeting interlocking directorates will continue to be one of its top priorities, we expect that figure to rise in the coming months.

Australian government establishes dedicated taskforce to conduct competition policy review

Australian competition rules look set for a shake-up after the Australian government announced a two-year review of competition policy.

The review aims to assess competition laws, policies and institutions to ensure they remain fit for the modern economy. It will focus on reforms that would increase productivity, reduce the cost of living and increase wages.

The initiative follows earlier calls for changes to Australian competition rules.

Late last year, for example, the Australian Competition and Consumer Commission (ACCC) recommended adopting a digital platform competition regulation that would apply to certain “designated” digital platforms, as well as new consumer legislation targeted at digital platforms (see our report for more details).

Then, in April 2023, ACCC chair Gina Cass-Gottlieb called for a mandatory and suspensory merger control regime for mergers above specified thresholds to replace the current voluntary regime (read our commentary). More recently, Cass-Gottlieb responded to criticisms that these reforms could lead the ACCC to oppose significantly more mergers, clarifying that proposals to include both notification waiver and pre-assessment processes mean that this is unlikely to be the case. She expressed her willingness to engage with the government in the merger review process.

As well as considering the ACCC’s proposals on merger reform, the review will also cover issues such as non-compete clauses in employment contracts and competition issues raised by new technologies, the net zero transformation and growth in the care economy.

The government has established a “Competition Taskforce” to coordinate the review, launch public consultations and provide advice. An expert panel, with members including Cass-Gottlieb’s ACCC predecessor, will join and support the taskforce.

With a two-year review period ahead, there is still a long way to go before any new rules are adopted. However, the establishment of a dedicated taskforce and the appointment of former senior competition officials to advisory roles suggests that the government is treating this initiative seriously.

China publishes important guidance on merger control compliance and for the first time conditionally clears a below-threshold merger

Significant changes to the Chinese Anti-Monopoly Law came into force last year. These included amendments to China’s merger control regime. Notably, they explicitly granted China’s antitrust authority – the State Administration for Market Regulation (SAMR) – the power to investigate below-threshold transactions, “stop-the-clock” on reviews and impose significantly increased fines for implementing a transaction prior to approval (gun-jumping).

Now, for the first time, SAMR has published guidelines that aim to provide targeted and practical guidance on merger control. Specifically, SAMR sets out how businesses should go about establishing effective merger control compliance management systems and allocating internal responsibilities for compliance.

The authority’s guidelines also provide guidance on substantive aspects through the use of various examples.

Our alert takes you through the guidelines’ key points and suggestions for ensuring compliance.

In other related news, SAMR has conditionally approved Simcere Pharmaceutical Group’s acquisition of Beijing Tobishi Pharmaceutical. It is the first time the authority has imposed remedies on a below-threshold transaction under its revised merger control rules.

The transaction concerns the Chinese markets for the supply of (i) Batroxobin active pharmaceutical ingredient (API) and (ii) Batroxobin injections. Batroxobin injections are mainly used for the treatment of full-frequency hearing loss and sudden deafness in China.

Through an exclusive cooperation and supply agreement with the only global manufacturer of Batroxobin API, DSM Pentapharm, Simcere has a monopoly over the supply of Batroxobin API in China. While Simcere is developing the capability to produce the downstream injections using the Batroxobin API, Tobishi has a 100% share in the market for Batroxobin injections in China. The deal was voluntarily notified to SAMR in 2022.

To proceed with the transaction, Simcere is obliged to terminate its exclusivity agreement with DSM. Simcere must also divest all business related to Batroxobin injections which is currently under development, supply the divestiture buyer with relevant API and provide necessary assistance to help the buyer enter into a direct supply relationship with DSM.

The behavioural conditions also extend to price control – post-merger, Simcere (or the merged entity) will be required to reduce the price it charges for Batroxobin injections by at least 20% and guarantee supply to meet domestic demand. SAMR’s interest in, and choice of remedies for, the deal likely reflects the fact that in 2021 it fined Simcere for refusing to supply Batroxobin API to downstream companies.

We expect SAMR to continue to strengthen enforcement against transactions in concentrated markets, even if they are below-threshold.

Czech Competition Authority gains more antitrust investigation and enforcement powers

At the end of July, the long-awaited amendment to the Czech Act on the Protection of Competition entered into force. The amendment (finally) transposes the EU’s ECN+ Directive and also introduces new instruments that will bolster the powers of the Czech Competition Authority (CCA) and provide it with more flexibility in antitrust proceedings.

The key changes include:

  • Extension of the scope of the leniency programme to all agreements aimed at restricting competition, including vertical agreements (concluded between parties operating at different levels of the supply chain)
  • Protection of the identity of complainants in the administrative file if protection is sought from the CCA
  • Use by the CCA of transcripts from wiretappings carried out by the Czech police in the course of criminal investigations
  • Flexibility in the CCA’s application of the settlement procedure, including greater discretion in the fine reduction and the length of any prohibition on performing public contracts (up to one year), as well as the ability to reach hybrid settlements

You can read more about the amendment in our alert.

Ukrainian merger control rules and enforcement increasingly in step with EU

Following legislative approval in August, substantial revisions to Ukraine’s competition rules that further align the regime with EU standards are set to come into force on 1 January 2024.

Most notably with respect to merger control, a seller’s turnover/assets will no longer be considered when establishing whether the AMC has jurisdiction over a transaction if the target has not been active or not owned assets in Ukraine during the last two financial years and in the current year of the transaction. This change helps to exempt deals with no Ukrainian nexus from notification.

Keeping with the EU theme, greater merger control collaboration between Ukraine’s Antimonopoly Committee (AMC) and the European Commission (EC) was in evidence last month when the AMC conditionally cleared Advent’s acquisition of GfK.

In step with the EC, the AMC raised conglomerate concerns. Advent owns NielsenIQ, and the AMC alleged that, post-transaction, Advent would be able to foreclose competitors by limiting rivals’ access to its services and bundling retail measurement services and market research panel services.

To address these concerns, and dovetailing with remedies agreed with the EC in July, Advent will sell GfK’s global consumer panel services business and associated assets. Unlike the EC, however, the AMC has not required Advent to commit to providing transition services to the purchaser of the divested business.

Significantly, the case marks the first time that the AMC has approved a transaction subject to a structural remedy.

In terms of the AMC’s policy towards commitments, it remains to be seen whether this development exemplifies a stricter approach favouring structural solutions over behavioural remedies in Ukraine. We discuss more general trends in authorities’ attitudes to remedies in our Global trends in merger control enforcement report.

The AMC has confirmed that its assessment took the EC’s decision into account. We expect the two authorities to communicate regularly on global and regional transactions going forward.

More twists and turns as Microsoft restructures Activision Blizzard deal in a bid for UK approval

When the European Commission (EC) conditionally cleared Microsoft’s proposed acquisition of Activision Blizzard shortly after the UK Competition and Markets Authority (CMA) blocked the deal in April (see our report), we knew that these decisions would not be the end of the story.

In the UK, there have been unprecedented developments.

First, Microsoft and the CMA took the unusual step of announcing that they were in discussions about how the deal might be modified to address the CMA’s antitrust concerns.

Microsoft then requested that the CMA revisit its prohibition decision, arguing that a number of subsequent developments meant that blocking the deal was no longer appropriate. Microsoft based its arguments on the fact that the EC had accepted remedies following its review of the deal, the agreement struck between Microsoft and Sony (one of the strongest opponents of the transaction) to provide access to Activision’s Call of Duty, and new evidence that had emerged during litigation in the U.S. and the appeal of the CMA’s prohibition decision.

Ultimately, however, the CMA concluded there was no basis to move away from its conclusion that the original deal should be blocked. The authority therefore imposed a final order, prohibiting the transaction on a global basis.

But, at the same time, Microsoft submitted a new, restructured transaction to the CMA for review. Under this deal, Microsoft will not acquire the cloud streaming rights to current and future Activision games released during the next 15 years (with the exception of the EEA). Instead, these rights will be divested to a third party, Ubisoft.

The CMA notes that, under the new deal, Ubisoft will be able to license out Activision’s content to any cloud gaming provider. This will allow gamers to access Activision’s games in different ways, including through cloud-based multigame subscription services. The agreement with Ubisoft also requires Microsoft to port Activision games to operating systems other than Windows and support game emulators when requested.

These latest developments seem positive for the merging parties, but the CMA makes it clear that the deal does not yet have a green light.

The authority is conducting a new phase 1 investigation and has most recently announced that the restructured deal “makes important changes that substantially address the concerns it set out in relation to the original transaction”. To address the CMA’s “limited residual concerns” that the terms of the sale of Activision’s rights to Ubisoft could be circumvented, terminated or not enforced, it is consulting on remedies offered by Microsoft to ensure that the Ubisoft agreement is fully implemented and can be enforced by the CMA.

The CMA’s phase 1 decision is due in mid-October (the same timing as the extended merger agreement).

These twists and turns break new ground in merger control procedure – it is the first time that parties have negotiated with the CMA following a prohibition decision and then renotified a restructured transaction. It will be interesting to see if parties to future deals blocked by the CMA are encouraged to attempt a similar “third phase review” route. They should, however, heed the CMA Chief Executive’s warning of the “costs, uncertainty and delay that parties can incur if a credible and effective remedy option exists but is not put on the table” during the original investigation.

All eyes are now on whether the restructured deal will have an impact on any of the other merger control clearances already obtained, in particular the EC’s conditional approval.

The rumours from Europe are that the EC is not planning to open a new formal review of the revised transaction. Instead, it appears to be seeking feedback from customers and rivals on whether the proposed deal could impact the remedies it has accepted. We are likely to learn more in the coming weeks.

Across the Atlantic, the U.S. Federal Trade Commission (FTC)’s attempt to obtain a preliminary injunction to stop the transaction closing was defeated by a U.S. District Court in July. The court dismissed the FTC’s arguments that access to Activision’s blockbuster game Call of Duty would be foreclosed if the deal was not immediately halted. The FTC paused its administrative challenge of the transaction later that month.

Now, the FTC is appealing the ruling that denied the preliminary injunction. In the meantime, the parties are free to close the deal from a U.S. perspective, which they are likely to do if they get the go-ahead from the CMA in the UK.

We will keep you updated as the case continues to unfold.

EC prohibits Booking/eTraveli on the basis of “ecosystem concerns”

Towards the end of September, the European Commission (EC) blocked Booking’s proposed acquisition of eTraveli.

It is the EC’s first prohibition decision based purely on ecosystem concerns. The parties are active in different but related online travel agency (OTA) markets. The EC describes Booking as “the dominant hotel OTA in the EEA” with a market share above 60% and eTraveli as a “best-in-class” flight OTA with a number two spot in the EEA. It notes that flight OTA services generate significant traffic to, and are therefore an important customer acquisition channel for, hotel OTAs.

As a consequence, the EC argues, in addition to leveraging eTraveli’s capabilities to become the main flight OTA in Europe, the transaction would have allowed Booking to expand its travel services ecosystem. Increased traffic to and cross-selling by Booking’s platforms, together with existing “customer inertia”, would have reinforced Booking’s existing network effects and raised barriers to entry and expansion for rival hotel OTAs.

The EC alleges that the resultant strengthening of Booking’s dominant position on the market for hotel OTAs would have further increased its bargaining position and could have led to “higher costs for hotels and, possibly, consumers”.

Booking did propose a “choice screen” remedy. Under this, Booking would have shown flight customers four hotel options offered by competing hotel OTAs on their flight check-out page. It would have been powered by KAYAK, Booking’s subsidiary and me

Content Disclaimer
This content was originally published by Allen & Overy before the A&O Shearman merger

Related capabilities