This newsletter is a summary of the antitrust developments we think are most interesting to your business. Francesca Miotto, partner based in Brussels, is our editor this month. She has selected:
General
Revised EU rules on horizontal cooperation agreements include guidance on sustainability initiatives, information exchange and mobile telecom network sharing
Early this month, the European Commission (EC) adopted revised Guidelines on Horizontal Cooperation Agreements. These provide guidance on the assessment under EU competition law of cooperation agreements between competitors, such as joint purchasing, standardisation, production and commercialisation, including bidding consortia. They also set out how businesses should interpret and apply revised Horizontal Block Exemption Regulations on research & development and specialisation agreements that will enter into force on 1 July 2023.
Our alert takes you through the headline points from the revised rules. These include how:
- “sustainability agreements” between rivals can avoid infringing EU competition law by benefiting from an exclusion, soft safe harbour or individual exemption
- a new assessment framework applies to data sharing and other forms of information exchange
- the use of algorithms may raise competition concerns
- minimum conditions in mobile telecom network sharing agreements can be used to reduce antitrust risk
Generally, the EC has sought to update the rules to account for societal and economic developments such as digitalisation and the green transition, and the rules provide welcome clarifications and additional guidance on emerging areas of antitrust risk for companies as they respond to the evolving way of doing business.
However, it remains to be seen whether the guidelines will remain relevant as technologies continue to evolve, and whether the assessment framework for sustainability agreements will be successful in encouraging green cooperation.
In the UK, horizontal guidelines have yet to be finalised. We expect the UK provisions to remain largely consistent with those in the EU. However, there are notable differences. In relation to the exemption for research & development agreements, for example, the UK has a more complex approach to assessing innovation competition. And the UK looks set to formalise a more liberal approach to assessing “climate change agreements”. Businesses with operations across the EU and UK will need to take account of these discrepancies.
European Commission Q&A provides some colour on the Foreign Subsidies Regulation
The EU Foreign Subsidies Regulation (FSR) will regulate subsidies granted by non-EU countries to companies active in the EU. Under the new regime, notification obligations will apply to companies participating in certain M&A transactions and public tenders. The EC will also be able to investigate on its own initiative all market situations regarding potentially distortive foreign subsidies. Our alert provides more detail.
Most of the FSR’s provisions will take effect on 12 July 2023 but the mandatory notification requirements will begin on 12 October 2023.
The procedural rules and notification forms will be set out in an implementing regulation (IR), publication of which is expected any day now.
In the meantime, the EC has published a Q&A document covering a range of practical, procedural and jurisdictional points. Specifically, the EC has clarified the following key issues:
- Application of the FSR in the interim period: transactions for which the agreement will be concluded on or after 12 July but which will be implemented (ie will close) before 12 October, will not be subject to the notification obligation. By contrast, deals where the signing date is on or after 12 July but which will not be implemented before 12 October, will need to be notified and the standstill obligation will apply.
- Turnover calculation in a JV scenario: for transactions consisting in the creation of full-function joint ventures, the turnover notification threshold will be met if the joint venture will be established in the EU and the joint venture’s aggregate turnover in the EU will be at least EUR500 million. This means that the threshold will not be met in the case of ‘greenfield’ joint ventures, as these will have no turnover of their own. The situation will be different when the joint venture will be created via a change from sole to joint control of a pre-existing business or subsidiary, which has its own turnover.
- Relevant date for financial contributions: the relevant moment to determine which financial contributions are relevant for a given notification is the date on which the financial contribution is granted, not the date on which it is received. For example, the entire amount of a loan should be allocated to the date the loan agreement is signed, even if the loan is payable in several instalments.
- Sale of goods and services: the commercial sale of goods and services to a non-EU public body at market price is a “foreign financial contribution” and relevant for determining whether the notification threshold for transactions is met. Information on that sale may need to be reported in the notification form for concentrations. The sale will not, however, amount to a “foreign subsidy” as there is no “benefit” attached to it.
- Pre-notification and notification: the parties will be able to pre-notify planned deals at any time following the adoption of the IR. The FSR pre-notification process seems similar to the one followed in merger control proceedings, starting with the submission of a case team allocation request. All of the necessary practical information for pre-notification contacts and notifications, such as address, means of delivery and formalities for the submission of notifications, as well as the necessary templates (including powers of attorney), will be published on the EC’s website by the date of adoption of the IR.
It is clear that much about the new regime remains uncertain. The EC’s draft IR and, in particular, the extent of the information requirements set out in it, has been heavily criticised (see our alert on its scope). The final version is expected to significantly reduce the burden on notifying parties. We will keep you posted.
Proposed changes to U.S. merger control filing forms will significantly increase information requirements on merging parties
In the biggest shake up of the U.S. merger review process in decades, the Federal Trade Commission (FTC) and Department of Justice (DOJ) have announced proposed amendments to the merger control notification form as well as the pre-merger notification rules which implement the Hart-Scott-Rodino Act.
According to the agencies, the revisions will enable transactions to be screened for potential antitrust issues “more effectively and efficiently” within the initial 30-day waiting period. However, to facilitate this, they plan to dramatically expand the scope of information that must be submitted by merging parties upfront.
For example, the new form will require the submission of details on transaction rationale, investment vehicles/corporate relationships and previous acquisitions. Merging parties will also need to submit information on horizontal overlaps and non-horizontal relationships, as well as more detailed financial data, new categories of internal documents and, importantly, the structure of entities involved in the deal such as private equity investments.
In line with the current focus of the FTC and DOJ on the impact of M&A on competition for workers, the revised form will require the disclosure of information that enables the agencies to screen for labour market issues.
Finally, the changes will enable the agencies to collect information on foreign subsidies that might distort the competitive process – something that is also top of the agenda for other jurisdictions, in particular the EU (see our article above).
The proposals have not yet been implemented. Once published in the Federal Register there will be a 60-day period for stakeholders to submit comments, which may result in tweaks to the final forms and rules.
Watch out for our upcoming alert which will tell you more about how the proposals will impact merging parties and the merger control review process.
In the meantime, we await publication of the much-anticipated updated U.S. merger review guidelines, due imminently. There has been a great deal of speculation about what they will contain, but whatever the outcome, they (together with the revised filing forms) will likely revolutionise how the U.S. agencies review transactions going forward.
Belgian Competition Authority imposes interim measures in review of merger under abuse of dominance rules
In our March edition of Antitrust in focus we reported on the ground-breaking ruling by the European Court of Justice (ECJ) in the Towercast case. The court held that transactions involving dominant companies that do not meet EU or national merger control thresholds, and have not been referred to the EC under Article 22 of the EU Merger Regulation, can be assessed by member state antitrust authorities under EU rules on abuse of dominance.
This judgment is significant – it means that merging parties are subject to post-closing uncertainty in situations where merger control reviews are not triggered.
On the back of the ruling, the Prosecutor General of the Belgian Competition Authority (BCA) – the head of the BCA’s investigation and prosecution service – almost immediately opened an own initiative abuse of dominance investigation into Proximus’ takeover of rival broadband provider EDPnet, which did not meet the country’s merger control thresholds (see our alert for more information). It was the first antitrust authority to put the ECJ’s conclusions into practice.
In another important move, at the request of the Prosecutor General, the College of the BCA has now imposed interim measures on Proximus. These are aimed at ensuring the operational continuity of EDPnet as well as its independence from Proximus until the BCA’s investigation has concluded.
Crucially, the College has determined that the two conditions for the imposition of interim measures are met. First, it found a prima facie abuse of dominance by Proximus resulting from the takeover of EDPnet. Second, it concluded that, given the deal has already completed, putting in place interim measures is urgent in order to ensure that the acquisition does not become irreversible.
The measures require Proximus to maintain the viability and competitiveness of EDPnet, segregate its activities from Proximus and not obtain any confidential information relating to EDPnet. They will be in place for 15 months, but can be extended if needed. An independent trustee will monitor compliance.
The imposition of interim measures in antitrust cases is relatively unusual in other jurisdictions. At EU level, for example, the last time the EC imposed interim measures in a behavioural antitrust investigation (on Broadcom) was in 2019. This was the first time it had done so in nearly two decades.
It is as yet unclear how many member state antitrust authorities will follow the BCA’s lead and initiate abuse of dominance probes in relation to non-notifiable M&A. To the extent that they do, we may well see authorities seeking to impose interim measures in such cases in order to preserve the independence of the target as far as possible.
More generally, the EC itself is keen on making more use of its interim measures powers – some officials have hinted that the current review of procedural EU antitrust rules may be a good opportunity to consider changes to make such measures easier to impose. The results of the EC’s evaluation of the rules, due in Q2 2024, will be very interesting to see.
Saudi Arabian antitrust authority enforcement comes to fruition
As previously reported, Saudi Arabia’s General Authority for Competition (GAC) is taking an increasingly proactive enforcement role. This month that trend was confirmed.
First, GAC fined three engineering consultancy companies EUR1.2m each for colluding to rig a public tender.
Second, GAC reported that it had fined First Mills, a former state-owned flour producer, EUR2.44m for abuse of dominance. In particular, GAC found that First Mills had imposed exclusivity clauses in contracts with a distributor. The Administrative Court of Appeal in Riyadh subsequently dismissed First Mills’ appeal against the decision.
In terms of merger control enforcement, last month GAC issued its second-ever conditional clearance. It approved financial intelligence company Wamid’s acquisition of a 51% stake in rival Direct Financial Network subject to non-public commitments. GAC will monitor compliance with the commitments for a three-year period.
GAC’s willingness to consider remedies will be welcomed by merging parties. As will a decrease in the filing fee cap to SAR250,000 (approx. EUR63,000) from SAR400,000, which was also announced this month.
Luxembourg and Belgium move forward laws to screen foreign investments in sensitive sectors as European Commission reviews its FDI framework
This month the EC initiated a review of its foreign direct investment screening regulation. The EU screening framework has been in operation for two and a half years and the EC has identified shortcomings.
Potential revisions under consideration relate to improvements in cooperation among between the screening authorities, the types of investments covered, the division of responsibilities between EU member states and the EC and, significantly, the degree of convergence in member states’ screening mechanisms.
The EC would clearly like to see a greater alignment in national screening systems – notably, their sectoral and transaction coverage as well as procedural aspects, including timelines. It would also like to extend the scope of the EU screening mechanism to cover investments by investors established in the EU but ultimately owned or controlled by non-EU persons.
Indeed, the patchwork of regimes across the EU is a potential compliance headache where entities invest in companies with subsidiaries in more than one Member State. 18 EU member states have national screening mechanisms that are up and running. Recently both Luxembourg and Belgium have taken steps to add to that number.
The Luxembourg parliament has adopted a mandatory suspensory notification regime that will apply to non-EEA investors who want to acquire control of Luxembourg entities operating in “critical” areas in the country. Sectors within scope include defence, energy, transport, health, communications, finance and media.
Notably, portfolio investments – acquisitions of securities to complete financial investments that do not allow investors to exercise, directly or indirectly, control of Luxembourg entities – have been carved out of the regime.
The new screening mechanism is expected to come into force soon, potentially in August.
Our alert tells you what you need to know about the new Luxembourg regime – which investments are within scope, the notification and review procedures and the potential penalties for violation of the new rules.
Belgium is one step ahead of its neighbour. A Belgian foreign direct investment regime relating to a number of broadly-defined “strategic” areas is coming into force on 1 July 2023.
Our alert provides five practical tips and tricks for navigating the new Belgian regime – including a consideration of the impact on deal timelines, the risk of ex officio screenings and the significance of national concerns on documentation. It also highlights how the scope of the regime is broader than private M&A, potentially covering acquisitions of free-float shares in publicly listed companies, public bids, internal restructurings and refinancing deals.
Life Sciences
Chinese antitrust enforcement continues to focus on the pharma sector
For a number of years the pharmaceutical industry has been a key area of focus for antitrust enforcement in China.
There are no signs that this will change any time soon. China’s State Administration for Market Regulation (SAMR) has recently imposed three separate sets of antitrust fines – in the space of only a few days – on companies at various levels of the pharma supply chain.
First, SAMR found that Grand Pharmaceutical (China) and Wuhan Huihai Medicine agreed to restrict the sale of an active pharmaceutical ingredient (API) for adrenaline/noradrenaline injections. Grand Pharmaceutical and Wuhan Huihai are the only two suppliers of the API in the Chinese market.
According to the authority, Wuhan Huihai committed to stop selling the API. In exchange, Grand Pharmaceutical (which also manufactures the injections) agreed to sell injections to Wuhan Huihai and repurchase them at high prices.
SAMR also found that, as a result of this anti-competitive agreement, Grand Pharmaceutical held a dominant position in the API market, which it abused by imposing unreasonable terms on other injection manufacturers without reasonable justification. In particular, SAMR concluded that Grand Pharmaceutical forced manufacturers to sell injections to Wuhan Huihai at low prices, enabling the latter to resell at higher prices. When such resale conduct became prohibited under China’s “two-invoice” policy reform in 2016, Grand Pharmaceutical continued to require manufacturers to pay rebates, in the guise of promotion or development service fees.
Grand Pharmaceutical was fined CNY285.6m (EUR37.7m). The penalty for Wuhan Huihai was CNY35.1m (EUR4.6m). Significantly, the case marks the first time that SAMR has sanctioned a company for both abuse of dominance and cartel conduct in the same case.
Second, SAMR’s Beijing provincial branch fined China Resources Zizhu Pharmaceuticals (Zizhu Pharma) CNY12.6m (EUR1.7m) for resale price maintenance.
It concluded that Zizhu Pharma set a minimum resale price for two emergency contraceptives over a six-year period, as well as separately entering agreements with distributors and retail pharmacies to fix resale prices and control sales. SAMR also found that Zizhu Pharma appointed a third-party firm to monitor compliance with the agreements.
Finally, two drug wholesalers were sanctioned a total of CNY57.1m (EUR7.5m) for cartel behaviour by SAMR’s Shanghai branch.
SAMR found that Tianjin Tianyao Pharmaceuticals and Shanghai Xudong Haipu Pharmaceutical fixed the price of an injection used to treat cancer. According to the authority, the rivals also allocated markets for the sale of the injection and agreed not to sell more than a certain volume of the drug each year. Notably, it is the third time that Tianjin Pharm Group affiliates have received antitrust fines in the past two years.
Following this run of enforcement, SAMR held an “administrative guidance” meeting for various pharma associations and industry players. The authority asked participants to learn from the recent cases, carry out rigorous self-assessments to identify any potential antitrust issues, and tackle non-compliance promptly and thoroughly.
SAMR also committed to further stepping up antitrust enforcement in the pharma sector. All of this serves as a stark warning to pharmaceutical companies active in China – take compliance with the country’s Anti-Monopoly Law seriously, or face heavy penalties.
Post
Postal sector under the spotlight
This month we have seen a variety of antitrust developments in the postal sector, covering abuse of economic dependence, merger control and cartel conduct. We go through each in turn.
1. Poste Italiane overturns abuse of economic dependence fine
In Italy, the Regional Administrative Court of Lazio has largely upheld an appeal by Poste Italiane against the Italian Antitrust Authority (IAA)’s decision to fine the company for abuse of economic dependence.
In 2021, the IAA fined Poste Italiane EUR11.3m for allegedly imposing unjustifiably onerous clauses in its contracts with Naples mail delivery and collection services provider Soluzioni. The IAA found, for example, that Soluzioni was prohibited from providing services to competing postal service networks and forced to accept Poste Italiane’s right to reduce, at its discretion, the minimum quantities of mail. According to the IAA, this conduct exploited Poste Italiane’s dominant position by abusing the economic dependence of Soluzioni.
However, this month the court criticised the IAA’s “illogical” analysis and concluded that the authority had failed to collect sufficient evidence to support its abuse of economic dependence allegations. In particular, the court noted that, during the alleged infringement period, Soluzioni had in fact made more money from third-party contracts than from its agreements with Poste Italiane, and that it was Soluzioni’s controlling shareholders (rather than Poste Italiane) that had decided to introduce the exclusivity provision in its distribution agreements with Poste Italiane.
The court also criticised the IAA’s failure to cooperate with Italy’s postal regulator during the preliminary investigation.
While the IAA has had abuse of economic dependence powers since 2001, it has only recently started to bring enforcement action. We expect the IAA to heed the court’s ruling – and base future cases on in-depth economic analysis – but to not be deterred from using the tool to step in where it sees an imbalance of contractual power, especially in digital markets. In August 2022, the scope of the rules was extended to certain digital platforms. Our alert questions how the expansion of the IAA’s powers will interact with the EC’s approach to enforcement under the Digital Markets Act.
2. Czech Republic blocks merger of postal operators
In the Czech Republic, the Office for the Protection of Competition (UOHS) prohibited Czech Post’s acquisition of assets belonging to rival První Novinová Společnost.
Following an in-depth investigation, the UOHS concluded that the transaction would significantly distort competition in a number of national markets. In terms of the delivery of ordinary mail and addressed direct mail, the acquisition would remove the only major competitor to Czech Post. In the market for the delivery of unaddressed direct mail, the transaction would combine the second- and third-largest players. Also, in the markets for the distribution of subscriptions and the delivery of magazines, the UOHS found that the acquisition would eliminate a potential competitor.
Overall, the UOHS considered that the transaction would lead to a deterioration in service quality and an increase in customer prices.
The prohibition is an unusual step for the UOHS – it is its first merger block in over 18 years. The authority notes that it will only prohibit a merger “in very exceptional cases” and we don’t see this decision as necessarily indicative of a hardening in the UOHS’s approach to merger enforcement more generally.
For the Czech postal sector, however, a large-scale transformation is on the horizon. By 2025, the government plans to split Czech Post into a state-owned enterprise operating branches providing basic postal and financial services, and a commercial joint-stock company offering parcel and logistics services.
3. Hong Kong fines mail-inserting machine suppliers for cartel conduct
Hong Kong’s Competition Tribunal has ordered three suppliers of mail-inserting machines to pay penalties totalling HKD5.6m (approx. EUR0.7m) for price fixing, market sharing and bid rigging.
Notably, it is the first case where all the companies under investigation cooperated with the Competition Commission in its investigation and agreed to a full settlement under its cooperation policy.
In return for their cooperation, the Competition Commission recommended to the tribunal penalty discounts of 25% or more. It also agreed not to pursue any enforcement action against employees.
This case demonstrates the efficacy of the Competition Commission’s cooperation policy, which allows parties to resolve enforcement cases efficiently and effectively in exchange for discounted penalties and avoidance of prolonged litigation. This case is the first of its kind, but certainly not the last.
A&O Antitrust team in publication
Recent publications/initiatives by members of our global team include:
