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:
- 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.
- 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 metasearch service. However, the EC concluded that this behavioural remedy would not adequately address its concerns. It noted that the selection and ranking of competing hotel OTA offers by KAYAK would not have been sufficiently transparent and non-discriminatory. The authority took issue with not extending the choice display offering beyond the flight check-out page to, eg, emails, notifications and other website pages. Finally, the EC was concerned that the commitments would be too easy to circumvent and too difficult to monitor since KAYAK’s algorithm works as a black box.
Booking is reported to be preparing to appeal on multiple grounds.
This is not the first merger case in which the EC has raised non-horizontal concerns. As Commissioner Didier Reynders commented: “[w]e have previously investigated mergers raising non-horizontal concerns in digital markets, and we have intervened in a number of cases. Today’s decision is also in line with the observations on ecosystems in the Commission’s report on Competition policy for the digital era from 2019, which specifically recommends looking more into those concerns”.
Only this year, the EC has raised non-horizontal concerns in other concluded phase 2 reviews. However, in these cases, the parties have successfully obtained clearance based on behavioural remedies. In Broadcom/VMware the EC accepted access and interoperability commitments as well as the organisational separation of teams. In Microsoft/Activision Blizzard the EC accepted ten-year licensing commitments (see our update on the UK position of the deal above).
Notably, they are all cases with diverging EU and UK outcomes.
In Booking/eTraveli, the UK Competition and Market Authority (CMA) unconditionally cleared the deal following a phase 1 review in September last year. Although the UK authority also found that Booking has significant market power in the supply of accommodation OTA services in the UK, it concluded that eTraveli “is not a particularly significant customer retention and/or acquisition channel for suppliers of accommodation OTA services in the UK”.
In contrast to the EC’s conclusion that consumer inertia works to the benefit of the largest platforms, the CMA found that UK consumers “shop around” rather than purchasing multiple travel services from the same provider. It also noted that post-merger Booking’s accommodation OTA rivals would continue to have access to the “vast majority” of UK consumers that purchase flights online directly from airlines.
Overall, transactions potentially raising conglomerate or ecosystem concerns can expect to face more challenging and unpredictable merger control reviews.
EC reimposes fine on Intel for excluding rivals from chip markets
The European Commission (EC) has fined Intel EUR376 million for abuse of a dominant position in the market for x86 central processing units (CPUs).
The EC took issue with so-called “naked restrictions”, which involved Intel paying computer manufacturers to cancel or postpone the launch of specific products containing competitors’ x86 CPUs and to limit the sales channels available to these products. The authority found that this had a detrimental impact on competition by depriving customers of a choice they would otherwise have had.
The conduct took place a long time ago, from November 2002 to December 2006. Intel was originally sanctioned by the EC – for the naked restrictions as well as for anti-competitive conditional rebates – in 2009, with a fine of EUR1.06bn.
However, following appeals and subsequent EU court rulings, the conditional rebates part of the EC’s decision was annulled. In particular, in 2017 the European Court of Justice clarified when conditional rebates may breach EU antitrust rules, advocating an effects-based approach, and in 2022 the General Court then ruled that the EC’s analysis of the conditional rebates fell short (see our alert for more details).
Despite the protracted court proceedings in this case, the EC’s 2009 findings on Intel’s naked restrictions ultimately remained unscathed. In its 2022 ruling the General Court confirmed their unlawfulness but annulled the fine imposed on Intel in its entirety as it could not identify the amount relating only to the naked restrictions.
Some had wondered whether the EC would drop the case after the General Court’s judgment. However, noting that naked restrictions are a serious infringement of EU antitrust rules and that it is committed to ensuring that such anti-competitive practices do not go unsanctioned, the EC has once again fined Intel for this abuse.
In the meantime, the EC has appealed the General Court’s ruling which annulled the conditional rebates part of the EC’s decision. We will update you on the results in due course.
UK CMA report into AI foundation models proposes principles to protect consumers and competition
In May 2023, we reported that the UK Competition and Markets Authority (CMA) had launched an informal review of competition and consumer protection issues in the development and use of artificial intelligence (AI) foundation models. In line with the UK government’s March 2023 White Paper, the CMA intended to produce principles to guide the government’s policy-making and potential future regulation of foundation models. The CMA has now published a report of its findings, including proposed guiding principles.
Foundation models are AI systems, trained on vast amounts of data, that can be adapted to a range of purposes and operations. Applications include chatbots, writing assistants, coding and artistic image generation. The CMA notes that foundation models have the potential to quickly “transform a range of industries and how we live and work”.
The CMA’s report highlights the potential benefits to businesses and consumers if the development and use of foundation models works well. These include better products and services, easier access to information and lower prices. The authority notes that more firms may be able to compete and challenge market leaders, resulting in “vibrant competition and innovation”.
However, the report warns that, if competition is weak or if developers do not comply with consumer protection rules, people and businesses could be harmed by false and misleading information and AI-enabled fraud. Firms may also be able to use foundation models to gain or entrench positions of market power resulting in, for example, higher prices.
The CMA has therefore published seven proposed principles to guide the development and use of foundation models. These are broad, covering accountability, access to key inputs, diversity of business models, choice, flexibility to switch or use multiple foundation models, no anti-competitive conduct, and transparency.
The principles are not set in stone. The CMA plans to seek views on them over the coming months by engaging with UK and international stakeholders, including foundation model developers and deployers, governments, regulators and consumer groups. It will publish an update on its thinking in early 2024.
CMA Chief Executive Sarah Cardell notes that, by taking a proactive and collaborative approach, the CMA aims to help shape these rapidly developing markets “rather than waiting for problems to emerge and only then stepping in with corrective measures”. It will be interesting to see if antitrust authorities in any other jurisdictions – and we know a number have AI in their sights – follow the CMA’s lead and develop a similar framework.
More generally, the CMA acknowledges that the principles it develops in this area will inform its approach when it takes on new responsibilities under the planned UK digital markets regime. We have no news on when the new regime is likely to receive Parliamentary approval. In the meantime, the CMA looks set to continue to lay the groundwork for its new powers.
You can read more about latest developments in UK AI regulation in our Tech Talk blog post.
U.S. moves to restrict outbound investment to China
The Biden Administration has issued a long-awaited Executive Order (EO) to address the potential national security threats posed by outbound investment from the U.S. to certain countries of concern, specifically the People’s Republic of China, the Special Administrative Region of Hong Kong and the Special Administrative Region of Macau.
The EO directs the U.S. Department of the Treasury to establish a regime to prohibit certain investments into those countries and to require the notification of others. The EO specifically targets investments involving semiconductors and microelectronics, quantum information technologies and artificial intelligence.
Our alert sets out more information on the planned regime, including on the Treasury Department’s Advance Notice of Proposed Rulemaking, now open for comment and detailing the scope of the rules and how they will be implemented. The alert also discusses similar proposals that are being contemplated in the EU (expected to propose an initiative by the end of 2023) and the UK. We will continue to track these developments closely and keep you updated as the various proposals are implemented.
Steel industry hit with record cartel fines
During late August, antitrust enforcers in both Australia and Kenya sanctioned cartel conduct in the steel sector with record-breaking fines.
Australia’s Federal Court ordered BlueScope Steel to pay a AUD57.5m (approx. EUR34.2m) penalty for attempting to fix prices for flat steel products. This is the highest penalty ever imposed for cartel conduct in Australia.
The court also imposed a AUD575,000 (approx. EUR342,000) penalty on BlueScope’s former general manager and, to ensure deterrence, ordered that it could not be recovered from an insurance company.
The imposition of the penalties follows a December 2022 ruling in which the court found that BlueScope – Australia’s largest steel manufacturer – and the general manager had attempted to induce eight Australian steel distributors and an overseas manufacturer to enter agreements to fix and/or raise the level of pricing for flat steel products supplied in Australia.
At the time of that judgment, ACCC Commissioner Liza Carver noted that the case serves as a strong warning that attempting to fix prices with competitors will have “very serious” corporate and personal consequences, “even if the attempt fails and they do not reach an agreement”.
Since then, the ACCC has been successful in a further two similar court cases. In April, the Federal Court fined an architecture company AUD0.9m (approx. EUR0.5m) and a former managing director AUD75,000 (approx. EUR44,500) for trying to rig bids for a government-funded university construction project. Earlier in August, the Federal Court held that a building management system provider and its sole director attempted to induce a rival to rig a tender for a project at the National Gallery of Australia.
The Australian ruling came less than a week after the Competition Authority of Kenya issued its highest-ever sanction, fining nine steel manufacturers a total of KES338.8m (approx. EUR2m) for fixing prices and limiting production. Specifically, the companies collectively set prices and price adjustment timelines. All but one agreed output restrictions by limiting imports of certain steel components, thereby causing an artificial shortage that increased prices.
The authority’s decision follows own-initiative nationwide covert investigations in August 2020 and dawn raids in December 2021. Settlement negotiations are ongoing with five other steel firms.
The authority’s Acting Director-General notes that the record penalty “should send a clear message that cartel conduct is illegal”. Indeed, the nature of the case, as well as the level of the fine, is indicative of the authority’s efforts to facilitate competition in the construction market.
Together, the cases are an important reminder that, while antitrust authorities are increasingly grappling with how to enforce the rules in nascent, fast-moving markets and using novel theories of harm, this does not mean that more traditional industries are off the hook. Players in steel and other industrial and manufacturing sectors must be on their guard and take antitrust compliance seriously.
U.S. FTC resolves litigated pharma merger with extensive behavioural commitments
The U.S. Federal Trade Commission (FTC)’s suit to block Amgen’s acquisition of Horizon Therapeutics, raising an unusual portfolio leveraging theory of competitive harm, was controversial. We set out the FTC’s concerns, and the significance of the case more generally, in our May edition of Antitrust in focus. It was the FTC’s first litigated challenge to a pharmaceutical merger in more than a decade.
Now, three and a half months on, Amgen has reached a nationwide settlement with the FTC and attorneys general from six states that resolves charges in return for a suite of behavioural remedies.
Specifically, for 15 years, Amgen will be prohibited from: (i) bundling its products with Horizon’s monopoly “orphan drugs” used to treat thyroid eye disease (TED) and chronic refractory gout (CRG), respectively Tepezza and Krystexxa; (ii) conditioning any Amgen product rebate or contract terms on the sale or positioning of either of these medications; and (iii) using any product rebate or contract to exclude or disadvantage any product that would compete with Tepezza or Krystexxa.
Amgen will also be subject to extensive prior approval requirements. It will be banned from entering into any agreement or understanding to acquire any products or interest in any business engaged in the manufacturing or sale of any products, biosimilars or therapeutic equivalents that treat either TED or CRG without prior FTC approval. Until 2032, Amgen will be obliged to seek FTC approval for any acquisition of pre-commercial products that have completed FDA clinical trials to treat either of these conditions.
There are two takeaways for parties to deals raising antitrust concerns.
First, while the FTC may not accept commitments offered by parties during the merger review process, it may go on to agree expanded remedies in litigation. The FTC rejected an initial pre-challenge “bare commitment not to bundle” Amgen drugs but has now green-lighted a broader set of obligations.
A similar turn of events has played out in Intercontinental Exchange/Black Knight. The FTC sued to block the merger, which involved mortgage technology products, stating that a proposed pre-complaint divestiture commitment was insufficient. Now, however, the parties were able to settle on the basis of a broader divestment package and other commitments than initially.
Together, these cases show that parties have an opportunity to continue to negotiate a remedy offer post complaint, rather than just abandon a transaction should the U.S. authorities decide to challenge a merger.
Second, the FTC may agree to behavioural remedies. Concerned about implementation risk, FTC officials have previously indicated that such remedies are only acceptable in exceptional circumstances.
In this case, FTC Chair Lina Khan notes that the conduct at issue was “distinct”, involving “bundling across different insurance benefit arrangements, which makes it easier to detect”. She emphasises that the selection and administration of orphan drugs for rare diseases “involves providers with incentives to resist and report exclusionary behaviour”. Khan also points out that six attorneys general will be independently keeping check on Amgen’s compliance, alongside an appointed monitor.
This gives merging parties some hints as to when the high bar for acceptance of behavioural commitments by the FTC might be met. But it is only an indication – Khan warns that each merger is assessed on its specific facts and there is “no guarantee that the relief achieved in this matter would adequately resolve concerns about cross-product bundling in any future merger actions”.
What is clear is that the FTC will continue to challenge unlawful bundling and exclusionary rebating practices by pharma companies and pharmacy benefit managers, and to scrutinise pharmaceutical mergers that may enable such practices.
A&O Antitrust team in publication
Recent publications/initiatives by members of our global team include:
Dominic Long (partner) and Christopher Best (counsel): EU case shows wide approach to blocking telecoms mergers, Law360, 4 August 2023
Jiaming Zhang (counsel at Allen & Overy Lang Yue): Simplified proceedings in China: statistics, trends and implications since 2014. This article first appeared in the June 2023 issue of Competition Law International (Vol 19, No 1), and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association
Spotlight on Chris
A typical working day in London involves… trying to fit in a run or swim before walking to the office, then juggling my to-do list with the new items that come in over the day. The actual work varies a lot day-to-day – competition law is a broad field, and the team also handles some interesting adjacent areas, like national security reviews and sector regulation.
If I hadn’t become an antitrust lawyer, I would be… realistically, a doctor. With better drawing skills, an architect…
The best career advice I’ve been given is… always look to understand the wider context to a matter. It makes you a better lawyer and the job much more interesting.
The most interesting matter I’ve worked on is…21st Century Fox’s bid for the remaining shares in Sky – a fascinating and exceptionally high profile mix of competition law, media plurality rule, broadcasting regulation and litigation.
For me, being a good lawyer/adviser means… making complex issues as simple as possible.
Something I’d like to do but haven’t yet done is… trek the Annapurna circuit.
My top tip for visitors to London is… I’m tempted to say go to King’s Cross and take a train to my home region of the north-east of England instead – some of the best scenery and history in the country and still fairly under-visited. More practically, try heading along the Regent’s Canal from Islington to Limehouse Basin – it winds through lots of interesting parts of town and ends with great views over a broad sweep of the Thames.