The past few months the European Commission has paid a great deal of attention to (alleged) breaches of procedural rules in the field of merger control. It has also critically assessed transactions that reduce innovation. These and other developments in the field of merger control are addressed below.
Fines for breach of the prohibition on gun jumping
A transaction that must be notified to the European Commission may not be implemented until the Commission gives the required approval. Failure to notify such a transaction, or to do so within the stipulated period, is known as “gun jumping”. The Commission has been very active in that field this year, as apparent from the following cases:
- On 18 May 2017 the Commission announced that it suspects Altice of gun jumping. Altice had allegedly implemented its acquisition of telecom operator PT Portugal before the Commission had received the required notification and had given its approval. In late 2016 the French competition authority had already imposed a fine of 80 million euros on Altice for gun jumping.
- On 6 July 2017 the Commission announced that Canon had breached the prohibition on gun jumping with regard to the acquisition of a Toshiba division (“TMSC”). Canon had used a warehousing arrangement when it acquired TMSC. As the first step in that regard (i) a special-purpose vehicle acquired 95% of the shares in TMSC for EUR 800; and (ii) Canon purchased the remaining 5% of the shares in TMSC with an option to purchase all the shares in TMSC for EUR 5.28 billion. This took place before the transaction had been notified to and approved by the Commission. As the second step Canon exercised the purchase option, after the transaction had been notified to and approved by the Commission. Despite that approval, the Commission now believes that Canon should have notified the acquisition before taking the first step.
Another important development in practice is that the European Court of Justice will present its views in the near future on the scope of the prohibition on gun jumping. On 7 December 2016 a Danish judge requested the Court to issue a preliminary ruling regarding the interpretation of the prohibition on gun jumping. In that case EY and KPMG agreed to merge their Danish divisions. KPMG Denmark thereby terminated the cooperation agreement with KPMG’s international branch. The question that gave rise to the request for a preliminary ruling is whether the parties should not first have awaited the approval of the merger by the Danish competition authority before terminating the agreement with KPMG’s international branch.
Fines for providing incorrect or misleading information
The competition authorities do not only object to gun jumping, but also to the provision of incorrect or misleading information during a reporting process. Earlier this year the Commission imposed a EUR 110 million fine on Facebook on in this context. Facebook had allegedly provided the Commission with incorrect information on the acquisition of WhatsApp. By way of comparison: until that time the highest fine imposed by the Commission for such an offence had amounted to EUR 50,000. Subsequently, on 6 July 2017 the Commission announced that it was investigating whether (i) General Electric and (ii) Merck and Sigma had provided the Commission with incorrect or incomplete information when notifying transactions. Although the Commission will not reverse either of these transactions, high fines may be imposed, as in the case of Facebook.
Attention for reduction of innovation
The Commission allows a transaction if it does not significantly impedes competition. In principle, the Commission primarily investigates whether the parties are creating a dominant position in the form of a large combined market share. It is remarkable that recently the Commission expresses that with regard to merger control it also critically considers the possible reduction of innovation as a result of a concentration. In April 2016 the Commission addressed this issue in detail in a Competition policy brief. The speech by Euro Commissioner Vestager of 18 April 2016 also points towards the Commission’s concerns:
“One of the simplest defences against innovation is to buy up rivals that create innovative products. That’s why, when we look at high-tech mergers, we don’t just look at whether they might raise prices. We also assess whether they could be bad for innovation.”
Elsewhere in the European Union the attention paid to this subject is giving rise to the inclination of placing the acquisition of innovative start-ups with minimal turnover within the scope of the merger control (see this blog). And it’s not all talk: the Commission critically commented on the reduction of innovation as a result of a transaction several times this year. An example is the acquisition of Actelion by Johnson & Johnson. The supply of pharmaceutical products of those parties is largely complementary and not competitive. The Commission nevertheless thoroughly investigated whether the transaction would not be detrimental to the development of insomnia drugs. Until that time both parties had separate R&D programs for insomnia medicines. Johnson & Johnson successfully offered remedies to obtain the Commission’s approval. Those remedies entail that Johnson & Johnson (i) would not acquire strategic control over Actelion’s activities in the field of insomnia medicines and (ii) would remove the incentive of negatively influencing those activities of Actelion. Another recent case in which innovation played an important role is Dow/DuPont. To remove the competition objectives, DuPont offered to close down almost its entire R&D organisation.
Scope of merger assessment powers
The Commission is therefore expressly looking beyond the classical theories of harm in merger control. This is not an entirely new development. The Commission’s Guidelines on the assessment of horizontal mergers (2004) already addressed the reduction of innovation. The Commission recently also noted that the concerns regarding innovation in the case of Dow/DuPont were not new and had also played a role in earlier merger cases. In sum, companies that are not each other’s direct competitors must do more with regard to markets in which innovation plays a part than merely conclude that their merger does not involve large combined market shares. At the same time the Commission recently saw reason to give a clear signal regarding the restrictions that apply to its merger control assessment framework. At the recent start of the Phase II investigation into the acquisition of Bayer by Monsanto, for instance, it emphasised that it must limit itself (in assessing that case) to what is relevant under competition law. The Commission stated on that it expressly could not take into account objections regarding that transaction that related to food safety, consumers, the environment and climate issues. The limitations described by the Commission also apply to ACM. This will change if the legislator decides that ACM must observe a different framework, as in the case of certain mergers in the healthcare sector, in which ACM must also take healthcare related elements into account in her assessment. See this blog regarding the developments in the assessment framework regarding mergers in the healthcare sector.
