[co-author: Rebecca Halbach]

ANTITRUST AND COMPETITION

The Court of Justice Overturns the General Court’s Judgment Annulling the European Commission’s Prohibition Decision in the Telecom Sector

On 13 July 2023, the European Court of Justice (ECJ) set aside the General Court’s judgment of 2020 annulling the European Commission’s (Commission) 2016 prohibition decision concerning the telecom merger in the United Kingdom and referred the case back to the General Court for a new review.

On 11 May 2016, the Commission blocked, under Council Regulation (EC) No 139/2004 (EU Merger Regulation), a transaction between two of the four largest mobile-network operators in the United Kingdom. The Commission found that the transaction would have removed an important competitor in the United Kingdom mobile telephony market, and the merged entity would have faced competition only from two mobile network operators post transaction. This four-to-three merger would have resulted in a likely price increase for mobile telephony services in the United Kingdom and a restriction of choice for consumers. Following an action brought by the buyer, on 28 May 2020 the General Court annulled the Commission’s decision on grounds that the Commission had failed to prove that the transaction would have significantly impeded effective competition in the UK mobile telephony market. The Commission challenged this ruling and brought an appeal before the ECJ.

In its ruling, the ECJ annulled the General Court’s judgment and held that the General Court made several errors in law in the interpretation of the EU Merger Regulation (the ECJ Judgment). The ECJ Judgment clarifies when transactions pose a “significant impediment to effective competition” under the EU Merger Regulation, the interpretation of key principles in the assessment of mergers between competitors, and the interpretation and use of economic evidence. In particular:

• The Commission is not required to carry out a particularly high standard of proof under the EU Merger Regulation to demonstrate that a notified transaction would significantly impede effective competition within the EU internal market. The General Court erred in law in holding that a significant impediment to effective competition can be established only if the Commission demonstrates that two cumulative conditions are met: (i) the elimination of important competitive constraints that the merging parties had exerted upon each other; and (ii) the reduction of competitive pressure on the remaining competitors.
• The General Court’s narrow interpretation of “important competitive force” is incorrect. For a company to qualify as an “important competitive force,” it is sufficient that it has more of an influence on the competitive process than what its market share or similar measures would suggest.
• The General Court did not properly interpret the framework for the assessment of efficiencies. The ECJ held that it is for the parties to demonstrate the standard efficiencies that the merger would generate and that the Commission is not obliged to include such standard efficiencies in the quantitative analysis of the effects of the transaction under review.

Vice President Vestager, commissioner for competition, announced shortly after the ECJ Judgment that the ECJ Judgment’s importance “goes far beyond the specific circumstances and mobile telecommunications sector.” The ECJ Judgment confirms the Commission’s approach in assessing the impact of mobile mergers on oligopolistic markets when the creation or strengthening of a dominant position cannot be established. However, the full ramifications of the ECJ Judgment and its implications for transactions subject to review in other sectors remain to be seen.

New Implementing Regulation and FAQs Provide Further Details on How the European Commission Will Apply the Foreign Subsidies Regulation

As of 12 October 2023, businesses will be required to notify the Commission under the Foreign Subsidies Regulation (FSR) if they intend to undertake substantial mergers and acquisitions (M&A) or participate in major public procurement projects if certain thresholds are met. The notification requirement applies to M&A transactions that are signed on or after 12 July 2023 and closed after 12 October 2023. The notification requirement will also apply from 12 October 2023 to businesses participating in new and ongoing public procurement procedures where no contract has been awarded by that date, unless the public procurement procedure was initiated before 12 July 2023.

On 10 July 2023, the Commission adopted Implementing Regulation (EU) 2023/1441 (FSR Implementing Regulation). Supplemented by Questions and Answers published by the Commission in early June 2023, the FSR Implementing Regulation provides details on the procedural aspects of the implementation of the FSR and contains the long-awaited notification forms. The FSR Implementing Regulation took into account the extensive concerns raised by both EU and non-EU businesses about the heavy administrative burden of the disclosure of foreign financial contributions required in the (previously published) draft notification forms. Those initial forms required the disclosure of detailed information of each foreign financial contribution, which included notably all contracts concluded with government entities at market terms and nonselective tax measures that conferred an advantage. In practice, this would require the disclosure of a vast amount of information that companies normally do not keep track of in a systematic way as they do for sales revenues or assets, which are the more traditional filing thresholds used for merger control.

Among other clarifications, the FSR Implementing Regulation provides that the notifying parties in M&A transactions and in procurement projects will only need to disclose the following in the filing:

• Detailed information on financial contributions that are most likely to qualify as “foreign subsidies” under the FSR (such as financing to ailing businesses and unlimited guarantees) and that are at least £1 million; and
• An overview only of all other financial contributions of at least €1 million and in relation only to those countries that in total have granted in M&A notifications, at least €45 million and in procurement notifications, at least €4 million to the notifying businesses over the past three years, subject to a number of exceptions.

It should be noted, however, that even financial contributions which do not need to be disclosed in the notification form are considered in the calculation to determine whether the notification thresholds are met.

Moreover, the FSR Implementing Regulation sets out the conditions for requesting waivers regarding the obligation to submit certain information required by the notification form and the time limits for the investigation process. The Commission will consider written waiver requests made during prenotification contacts where the notifying parties give adequate reasons why the relevant information is: (i) not reasonably available; or (ii) not necessary for the examination.

In addition, the FSR Implementing Regulation clarifies details on the notification procedure, including the date on which a notification is deemed to be effective, and on the investigation procedure, as well as the process to be followed by businesses wishing to offer commitments to address any possible concerns. The FSR procedure is largely based on the EU Merger Regulation, with the only notable difference being that, in contrast with the EU Merger Regulation, there is no oral hearing. Additional practical information is now also available on the Commission’s website, including information on the digital document exchange platform to be used for the exchange of all official documents with the Commission. Templates for documents such as power of attorney and the tables for turnover data are also available on the Commission’s website.

While there is no formal procedure for third parties, the Commission expects to gather valuable information on problematic foreign subsidies both from EU member states and businesses who might have suffered adverse results from foreign subsidies in the context of an M&A bid process, an EU procurement procedure, or even general market conduct. Under the FSR, the Commission has the ability to open an ex officio investigation regardless of whether a particular merger transaction or participation in a public procurement was formally notified or not.

Finally, the FSR Implementing Regulation contains detailed rules on the calculation and suspension of various time limits provided for in the FSR and on the procedural rights of the parties such as the protection of confidentiality, the right to access to the file, and the right to submit observations.

ECONOMIC AND FINANCIAL AFFAIRS

Sustainable Finance: Commission Proposes to Regulate ESG Rating Providers

On 13 June 2023, the Commission published a series of initiatives aimed at enhancing sustainable finance rules for the financial industry and businesses at large. The objective is to enable investors to make well-informed decisions in their investment strategies while channeling funds to sustainable activities.

Within the same legislative package, the Commission has put forward a proposal to regulate environmental, societal, and governance (ESG) rating providers. The regulation takes into account the new requirements imposed on financial institutions and market participants by the sustainable finance legislation, including the Corporate Sustainability Reporting Directive (CSRD, Directive (EU) 2022/2464) and the EU Taxonomy Regulation.

Building upon the existing legal framework applicable to credit rating agencies (CRAR, Regulation (EU) 1060/2009), the Commission now intends to regulate ESG rating providers by addressing:

• The necessity to clarify how ESG rating providers operate, focusing on the prevention of conflicts of interests within their activities; and
• The need to improve transparency of ESG ratings characteristics (i.e., the kind of information they provide, their objectives, the methodologies used, and the data sources or estimates for their development).

In this context, the Commission aims to establish operating conditions for ESG rating providers, which will now need to seek authorization by the European Securities and Markets Authority (ESMA). Similar rules are established for third-county ESG rating providers, who will have to possess an equivalence, an endorsement, or a recognition from ESMA to operate in the European Union. Additionally, ESMA is mandated to develop regulatory technical standards further specifying the conditions for authorization set under Annex I of the regulation.

The proposal outlines principles to ensure the integrity and reliability of ESG rating activities, namely in their internal organization, procedures, and governance on the issuance of ESG ratings. The Commission aims to ensure that their activities are independent and separated from other functions that ESG rating providers may offer (e.g., consulting, audit, sale of credit ratings, or development of benchmarks). To address any potential conflict of interest arising from their business, the proposed regulation requires ESG rating providers to establish a clear organizational structure while defining the roles and responsibilities of all employees involved in rating activities.

The Commission published the proposal for consultation, which will run until 10 August 2023. On 10 July, the EU member states financial services attachés had a first round of discussion on the proposal, while the European Parliament Committee on Economic and Monetary Affairs (ECON Committee) will be responsible for the file. The upcoming European Parliament’s elections in June 2024, and the consequent changes of the Commission’s college, are likely to delay the adoption of the regulation.

Open Finance and Payment Services Package

On 28 June 2023, the Commission unveiled three legislative initiatives in the field of digital finance. The Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) introduced a regulation for financial data access (FIDA) establishing rights and obligations for managing customer data sharing in the financial sector. Under the same legislative package, DG FISMA presented a proposal to revise the Payment Services Directive and implement a Payment Services Regulation (PSR).

Financial Data Access Regulation

The proposed FIDA aims to enhance economic outcomes for both consumers and businesses in the financial services sector by fostering open finance in a digital context. Under the regulation, the notion of financial data access covers the access and process of business-to-business and business-to-consumer data. To foster consumers’ protection, the regulation requires market participants to provide clients with financial data dashboards, enabling customers to monitor and manage the permissions they provided.

Data users (i.e., firms that access customer data to provide services, such as credit and payment institutions, investment firms, cryptoasset service providers, credit rating agencies, and crowdfunding service providers) will have comprehensive access to the information stored by data holders (i.e., financial institutions that collect, store, and process customer data).

The proposal covers customer data typically collected, stored, and processed by financial institutions during their interactions with customers, including mortgage credit agreements, loans, and accounts; savings and investments in financial instruments; cryptoassets, real estate, and other financial assets; and pension rights in occupational pension schemes.

Customers will retain full control over who accesses their data and for what purposes, with permission dashboards providing transparency into data collection, processing, and usage. Financial institutions will share data through “financial data sharing schemes,” to which both data holders and users must adhere. This framework will facilitate data exchange in the financial sector while ensuring that information on customers is processed correctly.

Payment services directive and regulation

The Commission proposed to amend the existing PSD2 (to be renamed “PSD3”), and to implement a regulation (PSR) establishing specific rules for supervision of payment service providers (PSPs).

PSD2 served as the legal basis for all retail payments in the European Union, domestic and cross-border both in Euro and other currencies. The amendments proposed by DG FISMA are driven by the opinion of the European Banking Authority issued on 23 June 2022 and take into account the difficulties in relation to the current payment-related legal framework.

Notably, the proposed PSD3 addresses the issues arising from new types of fraud and strengthens the mechanisms preventing illegal activities in the payment services sector (e.g., Strong Customer Authentication). The Commission reinforces consumer rights and the level of information by introducing a dedicated data-access interface (permission dashboard), which enables users to manage their open banking access permissions to PSPs.

Finally, to enhance supervision over PSPs, the Commission has opted to replace a significant portion of PSD2 with a directly applicable regulation. The new regulation establishes specific definitions for supervision and outlines the rules that national competent authorities (NCAs) must enforce. NCAs will also have a list of breaches for which specific sanctions must be taken.

The Commission is consulting on FIDA, PSD3, and PSR until 6 September 2023. Financial services attachés of the European Council discussed the package at their meeting on 12 July 2023. The European Parliament referred the work on FIDA, PSD3, and PSR to the ECON Committee.

CONSUMER PROTECTION

Consumer Protection: EU Directive on the Protection of Consumers’ Collective Interests Entered into Application

On 25 June 2023, Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers (EU Representative Actions Directive) entered into force. This directive repeals the Directive 2009/22/EC on injunctions for the protection of consumers’ interests (the Injunctions Directive), and it concerns the possibility for consumers to claim their rights through collective actions. The Injunctions Directive will continue to apply to representative actions brought by the qualified entities before 25 June 2023, as foreseen by article 22(2) of the EU Representative Actions Directive.

In fact, the EU Representation Actions Directive sets out rules to ensure that a representative action mechanism for the protection of the consumers’ collective interests is available in the EU member states. Representative actions are actions brought by qualified entities (i.e., a consumer organization, a public body or any other organisation designated by Member States as qualified to bring representative actions), who acts as a claimant, before national courts or administrative authorities on behalf of groups of consumers against infringements by traders of EU law provisions referred to in Annex I of the EU Representation Actions Directive. Through these actions, qualified entities can seek injunctive measures (similarly to what was previously provided by the Injunctions Directive), or redress measures (such as refund, replacement, and repair), or both injunctive and redress measures. Individual consumers concerned by a representative action are not claimants but should be entitled to benefit from that action. In order for a qualified entity to seek an injunctive measure, individual consumers are not required to express their wish to be represented by that qualified entity. While, in case of redress measures, the Directive provides that Member States should establish whether their regime should operate on an opt-out or opt-in basis or a combination of the two.

This directive aims to protect consumers’ collective interests in several areas such as data protection, financial services, travel and tourism, energy, and telecommunications. However, EU member states may decide to apply the mechanism to other areas of law.

These actions can be brought at national or cross-border level (i.e., in an EU member state different from the one in which the qualified entity has been appointed). Representative consumers’ entities from different EU member states may also jointly bring a single representative action.

Lastly, the Commission has decided to set up the Representative Actions Collaboration Tool, an electronic collaboration tool, “EC-REACT,” to facilitate the exchange of information across the European Union on representative actions between EU member state representatives, judges, and designated qualified entities.

OTHER EU NEWS

The Priorities of the Spanish EU Presidency

On 1 July 2023, Spain assumed the rotating presidency of the European Council (Spanish Presidency). The Spanish Presidency, which will last until 31 December 2023, sets out four priorities in its six-month program that, according to the prime minister of Spain, respond to the main concerns and demands of EU citizens.

The first priority of the Spanish Presidency is reindustrializing the European Union and guaranteeing its open strategic autonomy, i.e., capacity to act autonomously if necessary but without ruling out cooperation with other countries whenever possible. To this end, the Spanish Presidency will focus on two key strategies:

• The promotion of dossiers that encourage the development of technologies and strategic industries (including finalization of legislative works concerning the EU’s AI Act), those that allow the diversification and expansion of EU trade relations, and those dossiers that strengthen EU supply chains.
• The proposal of a common strategy to ensure economic security and the global leadership of the European Union by 2030.

The second priority of the Spanish Presidency is transitioning to a green economy and advancing environmental adaptation. To this end, the Spanish Presidency intends to reform the electricity market and accelerate the adoption of the Fit for 55 legislative proposals (such as the gas and hydrogen package or the energy efficiency regulations). Moreover, it will promote measures regarding the reduction of waste and microplastics, the production of green fuels, and the design of sustainable products.

The third priority focuses on the promotion of greater social and economic justice. For this purpose, the Spanish Presidency will promote the implementation of minimum and joint standards on corporate taxation and will combat tax evasion by large multinationals. In this respect, it will also revise the Multiannual Financial Framework 2021-2027 and reform the fiscal rules to achieve more transparency, overcome austerity, and finance the green and digital transition. Furthermore, it will work to increase the rights of workers, children, women suffering from violence, and people with disabilities.

The fourth and last priority of the Spanish Presidency is strengthening European unity. In this respect, it will support a further deepening of the internal market and the achievement of the banking union and the capital markets union. Moreover, it will improve some common instruments such as NextGenerationEU funds, enhance the efficiency and coordination of migration and asylum management processes, and coordinate EU member states support to Ukraine and other neighbor countries.