In early March we published our latest Global trends in merger control enforcement report. In it, we analyse data for 2020 from 26 jurisdictions (focusing on the EU, UK, U.S., and China) and look ahead at what to expect from merger control enforcement in 2021.
We find that antitrust authorities maintained their tough approach to merger control enforcement last year. More than 29 transactions were prohibited or abandoned due to antitrust concerns. Whilst not as high as 2019 totals, this is most likely a reflection of the general decline in M&A activity in the wake of the Covid-19 pandemic rather than a more relaxed approach from antitrust authorities. In fact, there was an uptick in enforcement activity by some authorities – the UK Competition & Markets Authority, for example, had another record-breaking year.
Policy debates over reforms to merger control rules increased in intensity during 2020. Most focused on tightening scrutiny of deals in the digital sector. Many jurisdictions also introduced new or tougher foreign investment controls, increasing obstacles to deal making.
We also observe that the number of transactions subject to remedies remained high, antitrust authorities continued to take a strict approach to breaches of procedural merger control rules, and merger review periods stayed steady despite the pandemic.
Finally, we identify trends to watch out for in the coming year. Overall, merging parties should prepare for greater scrutiny of M&A combined with increasingly sophisticated merger control assessments.
Check out the full report here. The report was also featured in the FT’s Brussels Briefing.
President Biden has announced his intention to nominate Lina Khan for Commissioner of the U.S. Federal Trade Commission (FTC). The announcement is seen by many as a further sign that the Biden administration will inject more vigour into U.S. antitrust enforcement.
Khan, a professor of law at Columbia University, has been an outspoken advocate for more aggressive antitrust enforcement against Big Tech. She previously served as counsel to the U.S. House Subcommittee on Antitrust where she contributed to last October’s ground-breaking report that recommended far-reaching reforms to strengthen existing U.S. antitrust laws in the digital sector (see our commentary).
Once nominated, Kahn will need to secure the approval of the Senate, which is by no means certain. But whatever the outcome of the nomination process, the White House’s announcement shows that President Biden intends to place antitrust enforcement high on his agenda. In the meantime, we await news of who the President will nominate as new head of the Department of Justice’s Antitrust Division. And, once these important positions are filled, we should start to see the more detailed legislative and enforcement priorities of the antitrust agencies take shape.
In the February edition of Antitrust in focus we reported that the U.S. Federal Trade Commission (FTC) and Department of Justice (DOJ) had temporarily suspended grants of early termination of the waiting period under the U.S. merger notification rules.
The agencies have now clarified that the suspension does not apply in at least two situations. Both relate to transactions where a “Second Request” has been issued (ie the FTC or DOJ has requested additional information to enable it to take a closer look at the transaction, substantial compliance with which triggers a second 30-day waiting period during which the parties cannot close the deal). In short, the agencies will still grant early termination where:
- The agency finds that the deal is unlikely to substantially lessen competition, even before the parties have fully complied with the Second Request.
- The parties have resolved the agency’s antitrust concerns by agreeing remedies in the form of a consent agreement.
This is clearly good news for merging parties. It has been welcomed as “a step in the right direction” by the two FTC commissioners who had objected to the temporary suspension. As yet, however, there is no hint of when the halt on early termination for all other types of notified transactions will come to an end. Meanwhile, an FTC Premerger Notification Office blog post has provided guidance on communications regarding the status of filings (including the use of “Waiting Period Letters”) and the applicable waiting period.
In January, we reported on the European Commission (EC)’s initiative to support collective bargaining agreements for the self-employed. The concern is that, as individuals, the self-employed (including so-called gig-workers) suffer from being in a position of unbalanced negotiation power vis-à-vis certain companies/buyers of labour. Cooperation would improve their position but, as self-employed persons are considered “undertakings”, risks breaching EU rules on anti-competitive agreements. The EC’s answer: to clarify how the antitrust rules apply to collective bargaining by the (genuine) solo self-employed (ie self-employed workers who do not employ anyone else).
Following the EC’s January inception impact assessment setting out four policy options on the categories of workers falling within the scope of its initiative, this month the Commission launched a detailed public consultation. It is seeking to gather more information about the current situation of the solo self-employed, and to identify the added value of EU action in this area, the likely impact of the four policy options, and stakeholder preferences.
The Commission is not taking its foot off the pedal. It is looking to adopt an initiative by the end of this year.
Prompted by the end of the Brexit transition period, the UK Competition and Markets Authority (CMA) is taking a look at its key sets of merger control guidance. Its jurisdictional and procedural guidelines, as well as guidance on its mergers intelligence function, have already been updated. Now, following a consultation in November (see our alert), the CMA has issued revised merger assessment guidelines explaining its approach to analysing mergers.
The CMA is keen to point out that the updated materials are not intended to reflect a shift away from its current practice. Rather, they are designed to capture the CMA’s evolved approach to reviewing mergers since the previous guidelines were adopted in 2010. Revisions to take account of recent case law were also needed.
And, crucially, the guidelines have been updated to reflect the evolution in markets and the economy over the past decade. In particular, the CMA has set out its approach to digital mergers, incorporating the recommendations of the Furman report on digital competition and the Lear report on past digital merger control decisions.
Key points from the revised guidelines are as follows:
- The CMA explains the importance of non-price aspects of competition, including innovation, privacy levels, reputation, and sustainability.
- There is more clarity on the assessment of evidence, confirming the CMA’s wide margin of appreciation in its use of evidence. The CMA’s recent focus on internal documents and deal valuation looks set to continue.
- The CMA acknowledges that the time horizon of the counterfactual (ie what the competitive market conditions would be without the merger) will depend on the context – there is no one-size-fits-all. Plus it has removed the third limb of the “exiting firm” test, which considered what would have happened to the sales of the firm in the event of its exit. The test will now be met where (1) the firm is likely to have exited, and (2) there would not have been an alternative, less anti-competitive purchaser. This may encourage more parties to raise the defence, particularly in light of the continued impact of the pandemic on the economy.
- There is more detail on the CMA’s approach to two-sided markets as well as to potential and dynamic competition.
- Vertical mergers remain on the CMA’s radar – an expanded and reframed section sets out the factors it will consider when assessing potential foreclosure issues.
- Benefits to customers in the form of environmental sustainability and supporting the transition to a low carbon economy can be relevant to the assessment and might outweigh any competition concerns.
- The CMA will place more emphasis on the competitive assessment than on static market definition. It notes, for example, that evidence on closeness of competition can often be interpreted without having defined the relevant market.
The guidelines took effect on 18 March 2021 and apply to all new merger cases from that point (including any mergers referred to phase 2). However, the CMA is clear to point out that the assessment of mergers is inherently case specific. Merging parties can therefore use the revised guidelines as a steer for how their deal is likely to be analysed under the UK merger control rules, but must bear in mind that the CMA will apply them flexibly.
Prompted by complaints, as well as its own work in the digital sector, the UK Competition and Markets Authority (CMA) has opened an investigation into Apple’s App Store. It will consider whether Apple has abused a dominant position in connection with the distribution of apps on Apple devices in the UK by imposing unfair or anti-competitive terms on developers using the App Store.
According to the CMA, app developers’ complaints focus on two aspects of Apple’s terms. First, developers can only distribute their apps to iPhones and iPads via Apple’s App Store. Second, they are required to use Apple’s payment system (where Apple charges them a commission of up to 30%) when they offer in-app features, add-ons or upgrades.
The CMA says it is coordinating closely with the European Commission (EC). Significantly, the UK probe is the first post-Brexit antitrust case to run in parallel with an EC investigation. Last year the EC announced that it was looking into certain elements of Apple’s App Store rules – those relating to its in-app purchase system as well as restrictions on the ability of developers to tell users about alternative purchasing possibilities outside of apps. It will be interesting to see how the two investigations progress.
The launch of the probe comes as the CMA is working with the UK Government on proposals for a new pro-competitive regulatory regime for digital markets. A CMA taskforce reported on the possible shape and scope of the rules in December (our alert has the details) and the Government is expected to open a public consultation in the coming months. The UK proposals sit alongside a patchwork of other potential new and revised antitrust and regulatory rules for the digital sector in jurisdictions across the globe, including the planned EU-level Digital Markets Act – see our recent Global antitrust enforcement report for more information.
In the meantime, the CMA is clear that (as set out in its updated digital markets strategy – see our alert) it will “continue to use its existing powers to their fullest extent in order to protect competition in these areas”.
The Chinese antitrust regulator SAMR's intensive action in the tech sector – starting in late 2020 – is continuing in 2021. In early February, SAMR released the final version of its antitrust guidelines for the platform economy, following an earlier draft in November 2020 (on which we reported). In the final guidance SAMR maintains its recently announced position, made clear through its investigation into the Huya/Douyu merger as well as the first-ever gun-jumping fines imposed on three variable interest entity (VIE)-structured companies (see our commentary), that deals involving VIE structures are subject to Chinese merger control rules in the same way as other transactions.
It appears that these three gun-jumping decisions were only the start. In March, SAMR published another ten gun-jumping decisions in one go. All of them concern deals made by Chinese tech firms, including Tencent, Baidu, Didi and Alibaba, either as a direct party to the transactions or as an investor in the direct party. Based on public information, at least eight of the penalty decisions involve VIE-structured companies. Each of the firms investigated was hit with the highest possible fines under the current regime – CNY500,000 (approximately EUR63,000) – an amount that is not large in absolute terms, but signals that the regulator is sending a message. These fines match the gun-jumping penalties imposed on the three VIE-structured companies last year, and exceed the largest gun-jumping penalty of CNY400,000 previously imposed by SAMR.
When it announced it was investigating failure to file cases in the internet sector last year, SAMR urged the “companies concerned” to do a “self-examination” into their past non-notified transactions. It has been reported that some if not all tech firms that were called upon have already submitted a list of these transactions to SAMR. It remains to be seen whether the ten recent penalty decisions wrap up the regulator's efforts, or if a new wave of fines is on the way.
Elaine Johnston, this month’s editor, participated in a recent Global Competition Review webinar panel discussing the development of biologics, and whether antitrust has a role in relation to price competition between biologics and biosimilars.
In our latest Global trends in merger control enforcement report (see article above), we comment that the life sciences sector was a key focus for merger control intervention in 2020. Cross-border transactions in particular were in the spotlight. Some (such as Johnson & Johnson/Tachosil) were abandoned as a result of antitrust concerns raised by at least one authority. Others were subjected to remedies in multiple jurisdictions.
Our report also discusses a growing trend for antitrust authorities to cooperate on merger control reviews, both in relation to particular transactions and on more general policy issues.
Combining these two themes, antitrust authorities on both sides of the Atlantic (the U.S. agencies, Canadian Competition Bureau, European Commission and UK Competition and Markets Authority, as well as Offices of U.S. State Attorneys General) are teaming up to form a working group on pharmaceutical mergers. Initiated by the Federal Trade Commission (FTC), the goal is to share expertise and to identify “concrete and actionable” steps to review and update the analysis of such deals.
Particular issues to be considered include:
- Current theories of harm and whether they should be expanded.
- The impact of pharmaceutical mergers on innovation.
- Types of remedy that can address antitrust concerns including the characteristics of firms that make successful divestiture buyers.
- How conduct such as price fixing and reverse payments should be considered in merger reviews.
What does this mean for pharma companies? A unified approach to assessment by authorities across jurisdictions may well lead to more consistency and – in the absence of local/regional market differences giving rise to distinct antitrust concerns – decrease the risk of diverging outcomes. Full communication of any revised approach will also improve predictability. However, firms should expect (in the words of FTC Acting Chair, Rebecca Slaughter) a more “aggressive approach”, resulting in greater scrutiny of pharmaceutical M&A and more detailed merger reviews. And time will tell whether this cross-border working group approach serves as a model for other sectors. Learn more about this development in our Life Sciences Hub post.
Hot off the press, the European Court of Justice (ECJ) has dismissed appeals by Lundbeck and generics manufacturers against fines of almost EUR150m imposed by the European Commission (EC) for agreeing to delay the entry of a generic antidepressant. In its highly anticipated ruling, the ECJ:
- Confirms the test for assessing whether a patent holder and generic manufacturer are potential competitors. In particular, it must be shown that the generics company has a firm intention and an inherent ability to enter the market, and does not meet insurmountable barriers to entry. According to the court the existence of a patent protecting the manufacturing process is not an insurmountable barrier.
- Sets out when pay-for-delay agreements constitute restrictions of competition “by object”. This will be the case, said the court, where the transfers of value to the generics manufacturers have no explanation other than the parties’ common commercial interest not to engage in competition on the merits. It must be assessed whether the value transfers are sufficiently significant to incentivise the generics firms not to enter the market and not to compete on the merits.
As we expected, the judgment follows the ECJ’s 2020 ruling in GSK (which answered questions referred from a UK court on when patent settlement agreements can infringe EU antitrust rules – see our alert). Together, the rulings set a high bar for pharmaceutical companies to show that pay-for-delay of agreements are not anti-competitive by object.
Watch out for our more detailed commentary on the judgment which will be available soon.
The European Commission (EC) has opened a formal abuse of dominance investigation into Teva. In particular, the regulator is assessing whether the pharmaceutical company illegally blocked or delayed the market entry and uptake of medicines that compete with its multiple sclerosis drug Copaxone. There are two strands to the EC’s investigation, both of which involve novel EC theories of potential abuses in the pharmaceutical industry:
- Misuse of patent procedures: Whether, following patent expiry in 2015, Teva artificially extended Copaxone’s market exclusivity by strategically filing and withdrawing divisional patents. The EC’s concern is that this behaviour may have allowed Teva to “multiply the patent barriers” that a generic competitor had to overcome to enter the market, repeatedly delaying entry as the rival was obliged to file a new legal challenge each time Teva filed a new divisional patent. This is a new enforcement focus for the EC.
- Exclusionary disparagement of rival products: Whether Teva undertook a communication campaign to unduly deter the use of competing generic products. At this stage, the EC says it has indications that Teva tried to create a “false perception” among healthcare institutions and professionals of health risks associated with the use of generic alternatives to Copaxone, even after they had been approved by relevant public health authorities. While a few EU national antitrust authorities have considered denigration of rival products ‒ in 2013 the French competition authority, for example, fined Sanofi-Aventis EUR40.6m for implementing a disparagement strategy in relation to generic versions of Plavix ‒ the EC is treading new ground.
The EC is mindful of the role intellectual property rights play in ensuring incentives for pharma companies to develop innovative medicines. However, it is clearly continuing to prioritise enforcement against certain conduct and, in particular, tactics that it believes protect blockbuster drugs from entry by cheaper generics. In its sights: pay-for-delay (see our November 2020 article on the EC’s EUR60.5m fine on Teva and Cephalon and the Lundbeck development reported above), excessive pricing (see our piece last month on commitments the EC agreed with Aspen), and now alleged patent procedure misuse and discrediting competitors.
A&O antitrust team in publication
Recent publications by members of our global team include:
- Lukas Rengier (senior associate, Hamburg) and Fabian Kolf (associate Hamburg): Cross-border antitrust litigation in Europe – Practical questions and European Union, chapters from Private Antitrust Litigation 2021, Lexology Getting The Deal Through
In addition, Pieter Huizing (senior associate, Amsterdam) has this month been awarded his PhD by Leiden University after successfully defending his dissertation on parallel enforcement against international cartels. In it he assesses current practices of parallel enforcement from the perspective of proportionality of the overall punishment. He discusses the apparent lack of international coordination between authorities in relation to global cartel enforcement and the fact that fining policies typically do not take into account foreign sanctions already imposed for the same overall conduct, meaning that the proportionality of the overall punishment is not factored in. Pieter has published a number of articles in leading peer-reviewed journals based on his findings, including European Competition and Regulatory Law Review, World Competition, and European Competition Law Review.
