[co-author: Julius Giesen]
The "European Antitrust Bimonthly Bulletin" (EABB) breaks down the major antitrust developments in Europe in 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 Opens a Formal Antitrust Probe Against Microsoft for Bundling Its Teams Communication Platform
On July 27, 2023, the European Commission (EC) launched a formal antitrust investigation against Microsoft over allegations that it has been "tying" or "bundling" its Teams communication platform with its wider suite of Office 365 and Microsoft 365 business productivity software. Following a 2020 complaint by Slack (now owned by Salesforce), the EC is concerned that Microsoft may have abused its dominant position in the market for productivity software by restricting competition for communication and collaboration products. The EC is investigating whether Microsoft has granted Teams an unfair distribution advantage by not giving customers the choice on whether to get access to Teams when they subscribe to Microsoft’s productivity suites and by limiting the interoperability between its productivity suites and competing communication and collaboration products. In response to the EC’s concerns, on August 31, 2023, Microsoft announced changes to the way it licenses its Office 365 and Microsoft 365 productivity suites to enterprise customers, by offering them the option to use Microsoft’s productivity software without Teams and by offering new clients the option to buy Teams separately. Microsoft also announced measures to address the EC’s interoperability concerns, by creating "new support resources" for application developers when using Microsoft’s application programming interfaces (APIs) that connect with Teams and by developing a "new method for hosting the Office web applications within competing apps and services."
Clients may want to consider whether they are facing any access/expansion barriers because of conduct by dominant or incumbent firms. The ongoing implementation of the EU Digital Markets Act (DMA) may provide further opportunities for clients affected by anticompetitive conduct by dominant companies.
EU's Top Court Rules That Competition Authorities Can Consider Data Protection Breaches in Their Investigations
In a landmark judgment issued on July 4, 2023, the European Court of Justice (ECJ) ruled that competition authorities in the EU can consider a company’s compliance with the EU’s data protection rules when assessing whether it abused its dominant position. In addition, the ECJ ruled on important General Data Protection Regulation (GDPR) clarifications on the legal bases for personalized advertising. While the ECJ judgment allows competition agencies to assess GDPR breaches as part of a competition investigation, these agencies are not compelled to do so. For example, in instances where privacy practices are the only form of abuse assessed by a competition agency, the ECJ notes that it may be more appropriate for the issue to be resolved by a sectoral regulatory agency—e.g., a data protection authority (DPA). To ensure consistent application of the GDPR, the ECJ stressed that competition authorities shall "consult and cooperate sincerely" with their appropriate sectoral regulatory counterparts (e.g., DPAs) and consult them as soon as there is a doubt as to the scope of GDPR provisions. Competition agencies should wait for DPAs to take action before proceeding on the basis of competition rules, but they can do so if they receive no objections from the latter. If the conduct is already subject to a decision by a DPA or a court, the competition agency cannot depart from it (but can draw its own conclusions from a competition law perspective).
Clients subject to competition investigations involving assessments of their data collection/processing practices will need to be prepared to educate competition authorities on their GDPR compliance. In particular, companies with an alleged dominant position should be prepared to show that the data collection/processing consent they obtained from users was freely given. For further information, please see our alert on this topic.
EC Issues Record Fine Against Illumina for Gun-Jumping
On July 12, 2023, the EC imposed a record "gun-jumping" fine of 432 million ($460 million) on Illumina for unlawfully closing its acquisition of Grail before receiving EU merger approval. The fine represents the maximum permissible under EU law (10 percent of Illumina’s annual worldwide turnover) and reflects the company’s "unprecedented" decision (per the EC) to intentionally breach the standstill obligation, which prevents the closing of a deal until receipt of EC approval. The authority claimed that Illumina strategically weighed the risk of a penalty against a significant break-up fee and potential profits even if forced to divest Grail. The EC’s record fine stems from Illumina’s battle with the authority over its revised "Article 22" policy, which encourages the referral of transactions from national competition authorities (NCAs) to the EC, even when national merger thresholds are not met. Illumina is contesting the EC’s assertion of jurisdiction over the deal, given Grail’s lack of turnover in the EU, and has closed the deal on this basis. While the EU’s General Court (GC) upheld the EC’s jurisdiction at the first instance, Illumina is challenging this before the EU’s top court. Illumina has also indicated that it will challenge the gun-jumping fine. The EC imposed a symbolic fine of 1,000 ($1,065) on Grail, marking the first time a gun-jumping fine was levied against a target company.
Clients 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. Clients should also engage early with counsel to identify and address potential standstill obligations across various jurisdictions while adhering to deal terms, e.g., through a derogation.
EC Accepts Additional Referral Requests for Below-Threshold Transactions
In the first referrals under its revised "Article 22" merger control policy since the launch of its investigation into Illumina/Grail in April 2021, the EC recently accepted two back-to-back referrals from NCAs in cases where neither the EU nor the national thresholds were met. On August 17, 2023, the EC asserted jurisdiction over the proposed acquisition of Autotalks by Qualcomm, valued at approximately $350 million-$400 million. The deal would combine the two leading suppliers of so-called vehicles-to-everything (V2X) chipsets, enabling vehicles to communicate directly with each other and their surrounding environment. A day later, the EC also asserted jurisdiction over the proposed acquisition of Nasdaq Power by European Energy Exchange AG (EEX), the only two providers of services facilitating the on-exchange trading and subsequent clearing of Nordic power contracts. While the EC opened an investigation in Illumina/Grail seven months after the deal was announced, it only took the agency around two and three months, respectively, for EEX/Nasdaq Power and Qualcomm/Autotalks. This could indicate a growing level of comfort from the EC in flexing its new jurisdictional powers, despite the pending challenge by Illumina before the EU’s top court.
Clients contemplating M&A impacting the EU should consider front-loading substantive assessments in any filing analysis and factor in the impact of EU reviews on deal terms, timetables, and risk allocation (including longstop dates and breakup fees)—even if they generate little or no revenue in Europe—given the increasing risk of being "called in" for review. We have extensive experience in such analysis and can support companies in initial M&A feasibility discussions.
Microsoft/Activision Deal Restructured and Re-Filed Before the UK Regulator in Unprecedented Move
In an unprecedented move on August 22, 2023, the UK’s Competition and Markets Authority (CMA) rejected Microsoft’s request to reconsider its prohibition decision and instead launched a new Phase I review of a restructured deal. The CMA had blocked Microsoft’s $68.7 billion acquisition of Activision Blizzard in April over concerns the deal "would alter the future of the fast-growing cloud gaming market," rejecting similar cloud licensing remedies that had been accepted by the EC (see our previous alert here). Microsoft lodged an appeal in May 2023, but on July 17, 2023, it was formally suspended by the UK’s specialist competition tribunal, pending discussions between Microsoft and the CMA. Microsoft argued there had been a "material change of circumstances'' or "special reasons" such that the final order to block the deal should not be imposed, relying on the EC commitments, an agreement with Sony on access to Call of Duty, and additional evidence from the U.S. and UK litigation. This was rejected by the CMA on August 22, 2023, the same day it opened its Phase I review of the "new" deal. The restructured proposal is effectively a "fix-it-first" remedy, with Microsoft committing to transfer the cloud streaming rights outside of the EEA for all current and new Activision PC and console games to be released in the next 15 years to Ubisoft, a global game publisher, before it completes the acquisition of Activision. Ubisoft will also receive a non-exclusive license for the EEA and Microsoft has indicated it is engaging closely with the EC to ensure there is no impact on the EC commitments. Microsoft expects the review to be completed before the 90-day extension in its agreement with Activision expires on October 18, 2023—the same date as the CMA’s deadline to take a decision.
Clients should factor in the current enforcement dynamics in the EU and UK into any initial M&A discussions. There is increasing divergence between the UK and both EU and global authorities, resulting in a much slower and more costly regulatory process. Vertical or conglomerate deals will not escape scrutiny and clients should anticipate and prepare for nonhorizontal (and nontraditional) theories of harm, including through the early consideration of appropriate remedy packages. While the CMA has consistently rejected behavioral remedies in favor of deal blocks, the restructured Microsoft deal could point to a willingness to consider quasi-structural remedies following the political backlash over the initial prohibition decision.
EU's Top Court Validates the Status Quo for Standard of Proof
In its CK Telecoms judgment of July 13, 2023, the ECJ overturned an earlier GC ruling and confirmed the standard of proof to be applied by the EC for finding a "significant impediment to effective competition" (SIEC). This is of particular importance since the EC must establish such a finding to either prohibit a merger or require remedies. For background, the SIEC concept was originally closely linked to the creation or strengthening of a dominant position, but it has been extended to also include noncoordinated effects on oligopolistic markets. In the CK Telecoms case, the GC previously held that the standard of proof to find a SIEC in the context of coordinated effects would not be a "more likely than not" test—the test usually applicable where SIEC results from a dominant position—but a "strong probability" test, i.e.,a stricter test than the former. With this judgment, the ECJ restored the EC’s room to maneuver in assessing mergers. The case has been referred back to the GC.
Clients should be aware that, following this ruling, the EC is expected to take advantage of the lower standard of proof required to prohibit a merger or require remedies, and maintain its vigorous standard of review.
EU Foreign Subsidies Regulation and Implementing Regulations Go Live
On July 12, 2023, the EU’s new Foreign Subsidies Regulation (FSR) began to apply. Just two days prior to the regime going live, on July 10, 2023, the EC also adopted the rules for implementing the FSR, detailing procedural aspects of the FSR’s implementation (e.g., notification forms and templates). Companies engaging in certain M&A transactions and public procurement in the EU will now be required to notify foreign financial contributions (FFCs) received from non-EU countries or entities whose actions are attributable to a non-EU country. Notification is mandatory and suspensory where thresholds are met. Transactions signed on or after July 12, 2023—and which have not closed by October 12, 2023—will need to be notified. Any public procurement procedures initiated and not completed between those dates will also need to be notified. Outside of mandatory notifications, the EC may still investigate transactions/procurement procedures on its own initiative (ex officio)—including completed transactions and those falling below the thresholds. While all FFCs are relevant for the purposes of calculating the notification thresholds, companies are only required to disclose certain FFCs above 1 million ($1.1 million) in the notification form. EC officials have indicated that guidelines will be published in the near future to help companies navigate the new regime, while the authority has also encouraged companies to engage early in prenotification talks. See our previous alerts here and here for more detail on the FSR.
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 affects companies bidding for 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 in line with the reporting requirements (including loan guarantees, tax exemptions, capital injections, fiscal incentives, debt forgiveness, contributions in kind, and any provision or purchase of goods or services by government entities).
Designation of Digital Platforms Under the EU's DMA Formally Underway
Potential gatekeepers had until July 3, 2023, to notify the EC as to whether they meet the thresholds set out in Article 3 of the DMA. By July 4, 2023, five U.S. companies and two Asian companies—but no European firms—had submitted their notifications: Alphabet, Amazon, Apple, Meta, Microsoft, ByteDance, and Samsung. This prompted a 45-working-day period during which the EC has to assess the notifications and adopt a designation decision (by September 6, 2023), which will trigger a six-month DMA compliance countdown (by March 6, 2024). The DMA sets out a list of fixed ex ante obligations for the large tech platforms designated as gatekeepers, including rules related to, among others, interoperability between platforms, data combination, data access by business users, and self-preferencing. Sanctions include fines of up to 10 percent of global annual turnover or even structural break-ups for repeat offenders. See our previous alerts here and here for more detail on the DMA.
Our European team has extensive experience with the DMA and a unique insight into the EC’s enforcement practice and can assist with DMA compliance or assessing third-party intervention opportunities.
Spain Fines Apple and Amazon €194 million ($210.1 million) for Anticompetitive "Brand Gating"
Following probes by Germany’s and Italy’s competition authorities, on July 18, 2023, the Spanish competition authority (CNMC) imposed its largest-ever individual fine on Apple for allegedly colluding with Amazon to remove third-party resellers from Amazon's Spanish marketplace. The CNMC took issue with a 2018 so-called "brand gating" agreement between the two companies, according to which only Apple-approved distributors could sell Apple products on Amazon’s platform—the same agreement also restricted Apple third-party resellers' ability to advertise on Amazon's Spanish site without Apple's prior approval. The Spanish authority found that this conduct removed more than 90 percent of Apple resellers from Amazon Marketplace, which is the main channel for consumers to purchase electronic goods in Spain. The CNMC further noted that the "brand gating agreement" reduced both competition among distributors and choices for end consumers, leading to an increase in prices for Apple products. The CNMC fined Apple 143.6 million ($155.5 million) and Amazon €50.5 million ($54.7 million), ordering them to remove the clauses from their agreement.
Clients with European operations should be conscious when entering cooperation and license agreements that contain "brand gating," including policies allowing brands to set up a barrier around their products that restricts third-party sellers to sell the branded product in online marketplaces. Such agreements could entail anticompetitive coordination contrary to European competition law.
