The "European Antitrust Bimonthly Bulletin" breaks down the major antitrust developments in Europe during the past two months into concise and actionable takeaways. For any questions or suggestions please contact Jindrich Kloub, Beau Buffier, Deirdre Carroll, or any other attorney in the European Antitrust Team listed at the end of the Bulletin.

European Commission Orders Illumina to Unwind Its Completed Acquisition of GRAIL
On October 12, 2023, the European Commission (EC) ordered Illumina to unwind its completed acquisition of GRAIL. The EC prohibited the transaction in September 2022. Post-divestment, GRAIL will have to be as independent from Illumina as it was before the acquisition, and as viable and competitive as before. Illumina will have 12 months to divest. While Illumina will have some latitude as to the divestment method (sale, public offering, other method), the EC will have to approve the divestment plan. To safeguard GRAIL's competitive position in the meantime, the EC imposed transitional measures. These include having Illumina provide for GRAIL's cash needs as it rolls out its early cancer detection test. If Illumina fails to comply, the EC can levy fines of up to 10 percent of Illumina's annual worldwide turnover and periodic penalty payments of up to five percent of its daily worldwide turnover.

Illumina has several challenges before the EU courts related to this case. Prior to the divestment order, Illumina had publicly argued that an order to divest should be stayed until a final ruling on the EC's prohibition decision. It remains to be seen whether Illumina will now appeal the divestment order and request that it be stayed.

Companies contemplating M&A impacting the EU and UK should consider front-loading substantive assessments in any filing analysis and factor in the impact of EU and UK reviews on deal terms, timetables, and risk allocation—even if they generate little or no revenue in Europe—given the increasing risk of being "called in" for review. While the Illumina/Grail deal did not meet the standard merger thresholds in the EU, it resulted in the first review under the EU's Article 22 below-threshold review powers, the first use of interim measures in a merger review, a record gun-jumping fine, the first gun-jumping fine on a target company, and multiple appeals. Despite these pending appeals, the EC accepted two further Article 22 referrals in August.

Prohibition of Booking/eTraveli Merger
The EC prohibited Booking Holdings’ proposed €1.6 billion ($1.7 billion) takeover of Swedish online flight booking provider eTraveli on September 25, 2023. The EC held that the deal would have strengthened Booking’s dominant position on the market for hotel online travel agencies (OTAs), allowed it to leverage eTraveli’s capabilities to become the main flight OTA in Europe, and allowed it to expand its travel services ecosystem. The EC rejected as insufficient the “choice screen” remedies that Booking had offered, noting that, among other reasons, the selection and ranking of offers by competitor hotel OTAs were not sufficiently transparent and nondiscriminatory. The prohibition is the first EC decision based on an “ecosystem” theory of harm. It is also the first not based on the EC’s horizontal or nonhorizontal merger guidelines, but instead relying directly on the EU Merger Regulation (under which the strengthening of a dominant position is an example of a significant impediment to effective competition, the test for prohibition). Booking has announced its intent to appeal the decision, stating that it “departs from settled law and precedent.” The case is also another example of divergence from the UK’s Competition and Markets Authority (CMA), which cleared the deal unconditionally in September 2022.

Booking’s appeal will be closely watched, as the EC’s decision is a significant departure from its Non-Horizontal Guidelines, which require the EC to prove anticompetitive foreclosure in the prohibition of conglomerate mergers such as this. While an EC official has stated that the Merger Guidelines may need to be updated to reflect new practice, firms with high market shares contemplating M&A are left facing significant uncertainty pending such an update or the outcome of Booking’s appeal.

Pending the outcome of any appeal by Booking or an update to the EC’s Guidelines, companies should consider front-loading substantive assessments in any filing analysis to preempt any novel and expanding interpretations of the EC’s merger review framework.

Restructured Microsoft/Activision Deal Closes
Microsoft closed its acquisition of video game company Activision Blizzard on October 13, 2023, following approval from the UK's CMA, ending a 20-month regulatory process. The CMA's initial veto of the deal in April 2023 led to an appeal by Microsoft (now suspended) and the subsequent—and unprecedented—submission by Microsoft of a "restructured" deal to the CMA for a fresh Phase I review. This included transferring Activision's ex-EEA cloud gaming rights to competitor Ubisoft Entertainment and receiving a nonexclusive EEA license for the cloud gaming rights in return. The EC cleared the deal subject to licensing remedies (which were rejected by the CMA) in April 2023. The EC confirmed that the restructured deal would not need to be renotified to the EC. In the U.S., the Federal Trade Commission continues with its lawsuit to block the deal.

Companies should consider factoring in these current enforcement dynamics in the UK into any initial M&A discussions. Parties should anticipate and prepare for nonhorizontal (and nontraditional) theories of harm, including through the early involvement of economists and the early consideration of appropriate remedy packages. While the CMA's decision is seen by some as a climbdown due to political pressure, the CMA has stressed that Microsoft's strategy should not be seen as a blueprint for other deals and that "[d]ragging out proceedings in this way only wastes time and money."

EC, United Kingdom, Turkey Launch Investigation into Potential Construction Chemicals Cartel
On October 17, 2023, the EC carried out unannounced inspections (dawn raids) at the premises of several companies in the construction chemicals sector (chemical additives for cement and chemical admixtures for concrete and mortar). The raids were conducted in coordination with the competition authorities of the United Kingdom and Turkey, while the EC was also in contact with the Antitrust Division of the U.S. Department of Justice. Several companies, including Saint-Gobain, Sika, and the Cinven portfolio company Master Builders Solutions, publicly confirmed that their premises had been inspected and that they were cooperating with the investigation. Competition authorities in both the UK and Turkey stated they were investigating trade associations as well.

This is the first international cartel investigation carried out jointly by competition authorities in several years. The raids come just five months after Sika took over MBCC Group and divested its admixtures unit Master Builders Solutions to Cinven as part of the remedies required to close the deal. Additionally, in the past two years Saint-Gobain took over Chryso Group and GCP Applied Technologies, both featuring significant activities on the construction chemicals markets. Whether the current investigation stems from observations made by the authorities during these merger review processes, complaints from competitors, or company internal reviews following the deal, the industry was in the sights of competition authorities that have redoubled their efforts to detect cartel conduct on their own initiative in the past several years.

Companies are advised to review their antitrust compliance policies to ensure they are up to date and effective. We have deep experience in advising on cartel investigations and a unique insight into the EC's enforcement practice. We can help companies with their cartel compliance measures and to anticipate, identify, and address potential cartel conduct and the risk of a government investigation.

EC Fines Pharma Companies in First Pharmaceutical Cartel
On October 19, 2023, the EC fined five pharmaceutical companies for participating in a cartel involving the setting of minimum prices to customers (distributors and generics manufacturers) and allocation of quotas for the substance N-Butylbromide Scopolamine/Hyoscine (SNBB), along with the exchange of commercially sensitive information. SNBB is used in the production of abdominal antispasmodic drug Buscopan and its generic versions. In a hybrid settlement, the EC imposed fines totaling €13.4 million ($14.3 million) on Alkaloids of Australia, Alkaloids Corporation, Boehringer Ingelheim, Linnea, and Transo-Pharm. The companies received a 10 percent reduction in fines for settling. C2 PHARMA received no fine because it revealed the cartel to the EC under its leniency program. A seventh company, Alchem, is fighting the probe. The overall cartel lasted from November 2005 to September 2019 while some companies took part for shorter periods. The EC cooperated with the Australian and Swiss authorities in this investigation. The Swiss authority confirmed that it has an ongoing investigation involving the same companies.

Companies, in particular those in the pharma sector, are advised to review their compliance policies to ensure they are up to date and effective. The EC highlighted the pharma sector's importance, and it is not uncommon that a first investigation in a sector leads to others in the same sector. Companies should also consider whether they may have been affected by the cartel sanctioned by the EC and may be able to claim damages.

EU Court Clarifies That Cross-Market Noncompetes Can Restrict Competition “by Object”
On October 27, 2023, the European Court of Justice held that noncompete clauses between potential competitors in different markets may breach antitrust rules unless objectively necessary for the implementation of a commercial agreement and proportionate to its objectives. The judgment was in response to a request for a preliminary ruling from a Portuguese court deciding on an appeal against a 2017 decision by the Portuguese competition authority imposing fines totaling €34.5 million ($36.5 million) on the incumbent electricity provider EDP and the supermarket chain Modelo Continente belonging to the conglomerate Sonae. The Portuguese competition authority found that as part of their agreement setting up a common rebate scheme, EDP and Modelo Continente also agreed not to compete on the markets for supplying electricity, natural gas, or foodstuffs in Portugal, just as the Portuguese electricity market was being liberalized. The parties objected that they were neither actual nor potential competitors and that the noncompete was an ancillary restriction necessary to the functioning of their broader commercial agreement.

The Court of Justice held that there needed to be "real and concrete possibilities" for a company to enter into a market and to compete with the other company to be a potential competitor. Sonae's prior foray into electricity provision (including via a joint venture between 2002 and 2008), together with the timing of the noncompete just prior to further liberalization of the market might be enough to show this. A noncompete itself is also a "strong indication" of there being potential competition between the parties to an agreement, as if they had not perceived themselves as potential competitors, they would have had no reason to use such a clause. In addition, the Court of Justice held that to be considered an ancillary restraint, a noncompete clause must be objectively necessary for the implementation of the agreement and proportionate to its objectives (not go further than necessary).

Companies should carefully evaluate and document their reasons for using noncompete clauses in commercial agreements, especially when their counterparty was active in the same or a related market in the past.

Teva Loses Challenge Against EC Fine in Pay-for-Delay Case
The General Court rejected an appeal by generic pharmaceuticals company Teva against an EC decision fining Teva and its now-subsidiary Cephalon €60.5 million ($64 million) in a pay-for-delay case. Teva and Cephalon had agreed to end a patent dispute over the sleep disorder drug Provigil (Modafinil) through Teva ending its competing generics sales in the UK and the parties exchanging certain payments and licenses in return. The infringement lasted from 2005 until 2011, when Teva acquired Cephalon. The General Court held that there was no plausible alternative explanation for the arrangement and that a sufficient degree of harm to competition was clear, with Teva prevented from competing and Cephalon likely protected from price competition for seven years.

This judgment stands in line with a number of pay-for-delay cases including a "net gains" test. This test asks whether the net gains which a party receives after ending its alleged patent infringement can be justified by the terms of commercial transaction between the parties, or whether the transfers of value can only be explained by the desire to prevent competition on the merits.

Companies should carefully evaluate the terms of any settlement to a patent dispute and ensure that the terms cannot be construed as aimed at preventing competition on the merits.

EU Court Confirms Valve Corporation Fine for Geo-Blocking
On September 27, 2023, the General Court confirmed an EC decision fining Valve Corporation (Valve) and five video game publishers for implementing a geo-blocking strategy for certain PC video games. While the video game publishers admitted to participating in the anticompetitive conduct (and received reduced fines), Valve argued that it had merely helped implement third-party conduct and that the geo-blocking was a legitimate measure to protect intellectual property (IP). In rejecting Valve's appeal, the General Court notably supported the EC's finding that Valve and the publishers had improperly used copyright protection to justify geo-blocking while its true purpose was to prevent "parallel" or "gray" imports. The General Court stated that, in any case, the protection of the copyright of the game publishers would not allow the rights holders to demand the highest possible profits or to partition up national markets.

Companies should consider reviewing their licensing agreements for geo-blocking provisions in light of this ruling. While it remains acceptable to grant licenses to distributors that are only valid in the territory of certain member states of the EU, adopting measures that restrict access to the protected items from outside the licensed territory may have an anticompetitive object and violate EU antitrust rules.

See also the Wilson Sonsini Alert on this judgment.

EU Court Rejects Clariant’s Challenge to Cartel Settlement Decision
On October 18, 2023, the General Court addressed separate challenges by both Clariant and the EC against a cartel settlement decision by which the EC had fined Clariant, Orbia, and Celanese a total of €260 million ($275 million) for forming a buyer's cartel on the ethylene merchant market between December 2011 and March 2017. Clariant's fine was set at €155.8 million ($165 million). A fourth participant in the cartel, Westlake, escaped any penalty because it revealed the cartel to the authorities. While Clariant had agreed to the terms of the settlement, it claimed this did not cover certain aspects of the calculation of the fine. Clariant argued the EC had disproportionately increased its fine by 50 percent due to recidivism because the previous cartel it was involved in was of a different nature and it had received leniency for blowing the whistle on that cartel. The EC, conversely, asked the court to strike the 10 percent reduction of the fine granted to Clariant for participating in the settlement given its subsequent challenge to the settlement decision, which Clariant characterized as an attempt to block judicial scrutiny of cartel settlements. The General Court rejected both Clariant's and the EC's attempts to modify the settlement, ruling that: 1) the EC has broad discretion when it comes to repeat offenses and had not made any errors in calculating the fine; and 2) that Clariant did not challenge facts that it had acknowledged in the settlement.

Companies considering engaging in settlement discussions with the EC should carefully evaluate their defense strategies to ensure they preserve an effective scope of judicial review of any relevant points.

EC Refusal to Deal Decision Overturned by EU Court
On October 25, 2023, the General Court annulled a decision by the EC fining Bulgarian Energy Holding (BEH), a Bulgarian state-owned company, €77 million ($82 million) for abusing its dominance by excluding competitors from the Bulgarian market for natural gas during the period of August 2010 to December 2014. During that period, BEH had exclusive use of a Romanian pipeline (RTP1) which was the only import pipeline of natural gas to Bulgaria, as well as the Bulgarian gas transmission network and the sole gas storage facility in Bulgaria. While Romania's Transgaz owned RTP1, third-party access was impossible without BEH's consent due to BEH's exclusive rights. However, the General Court held that the EC had not succeeded in showing that BEH was at fault for the problems competitors experienced trying to gain access to it, noting that BEH engaged constructively with Overgas (the complainant) and that in some instances, requests for access made to Transgaz were not shared with BEH. The General Court also criticized the EC for breaching BEH's rights of defense, with notes of certain meetings with Overgas not added to the case file—some of which were significant for the defense. This ruling underlines the EU courts' continuing strong stance on procedural rights in EC proceedings.

Companies should consider whether they are facing any access barriers because of conduct by dominant or incumbent firms in Europe. We can assist in identifying possible opportunities and formulating the appropriate strategy for obtaining relief. Equally, we can assist with defending against access claims.

Notification Requirements Under Foreign Subsidy Regulation Enter into Force
The Foreign Subsidy Regulation (FSR) gives the EC new powers to police subsidies from non-EU countries, complementing the EC's powers to control state aid from EU member states. This includes: 1) M&A transactions involving companies active in the EU that meet certain turnover and foreign financial contribution (FFC) thresholds; and 2) bids for large tenders in the EU by companies that have received FFC above a specified threshold. The notification requirement under the FSR kicked in on October 12, 2023. Transactions signed on or after July 12, 2023—and which have not closed by October 12, 2023—will need to be notified, as will public procurement procedures initiated and not completed between those dates. The EC recently acknowledged that it is short-staffed (with just seven staff currently working on FSR cases) and is likely to focus on the most problematic cases at the outset. This assessment is underlined by Olivier Guersent, director general of the EU's competition authority, recently stating that U.S. subsidies under the Inflation Reduction Act will not be subject to assessment under the FSR.

Companies should be aware that the FSR adds yet another potential regulatory filing to the approval checklist for M&A transactions, alongside regimes such as antitrust and foreign investment. It also creates a new regulatory hurdle for companies bidding for large public contracts in the EU. Companies would be well-advised to already establish systems for the collection and tracking of FFCs on a three-year rolling basis.

See the Wilson Sonsini Fact Sheet, EU Foreign Subsidies Regulation.

UK Regulator Provides Guidance on Antitrust and Environmental Sustainability
On October 12, 2023, the UK CMA published guidance for firms on how to collaborate with competitors to further environmental sustainability goals without running afoul of antitrust laws. The guidance helpfully outlines categories of agreements which are unlikely to raise antitrust concerns (such as the phasing out of nonsustainable products or processes, in certain circumstances). Notably, the guidance is more permissive than the EC when it comes to "climate change agreements" (those that address climate change), given the "special category of threat" that climate change represents. The guidance allows an assessment of the totality of the agreement's climate change benefits to consumers in the UK as a whole, rather than just whether a fair share of the benefits flows to customers in the affected market. This contrasts with the EC's guidance, according to which a fair share of the benefits of the cooperation must always flow to the consumers in the same relevant market. The CMA also announced an "open door policy," calling on companies to contact it for informal guidance on collaborations.

Companies should know that the UK is a potentially more permissive environment for collaborations with competitors related to environmental sustainability than the EU. We have significant experience assessing sustainability agreements and advising on their antitrust implications.

In a related development, the EC adopted long-awaited sustainability disclosure standards under the Corporate Sustainability Reporting Directive. Companies may refer to the Wilson Sonsini Fact Sheet, EU Corporate Sustainability Reporting Directive, and assess whether they are impacted by these developments.

Cloud Computing Sector Receives Antitrust Scrutiny
On October 17, 2023, the UK CMA initiated a formal market investigation into public cloud computing services following a referral by the UK telecoms regulator Ofcom which found, in its market study completed earlier in October, that Amazon Web Services and Microsoft Azure were the dominant players and that certain features of the market might limit competition. The CMA's investigation is focused on impediments to switching between cloud computing providers such as egress fees, technical barriers, rebate practices, and software licensing practices. The CMA is asking for submissions from market participants until November 9, 2023. The probe is the latest in a long line of investigations into the cloud computing sector. The French Competition Authority published a market study in June 2023 which raised concerns about competition in the sector. The Dutch and Japanese competition regulators also previously assessed the market in 2022. At the EC level, a group of cloud providers agreed to withdraw their complaint to the EC about Microsoft Azure's licensing practices after reaching agreements with Microsoft, while a second similar complaint to the EC by trade association CISPE continues. Reportedly, the EC itself has informally asked market participants and customers for information about the cloud computing market. Finally, the head of the French Competition Authority has called for the EC to move quickly to designate cloud computing services as "core platform services" subject to the EU's Digital Market Act. No provider of cloud computing services was included in the EC's first round of designations in September 2023, as none met the quantitative thresholds. However, the EC could still use its market investigation powers to effect designation.

Companies active in the cloud computing sector may want to consider whether they are facing any barriers because of conduct by potentially dominant firms. We have extensive experience in such analysis and can assist with assessing third-party intervention opportunities—both in the UK and in the EU.