Summer’s Top Stories: Serving up your post-holiday cheat sheet

The summer holidays have afforded little downtime in the world of antitrust and foreign investment control. If you’ve had the chance to get away, what might you have missed? Here’s a whistle-stop tour of five thematic developments (and related further reading, courtesy of LinkingCompetition and friends) that have unfolded over the summer months:

  • Significant antitrust reforms now on the statute books in key jurisdictions as authorities seek to step up enforcement efforts
  • Important changes to EU, UK, US and Chinese merger control regimes to capture more deals
  • Foreign investment controls going from strength to strength
  • Digital markets remain a popular battleground for testing new foreign investment and antitrust powers
  • Continued focus on greening competition to meaningfully tackle climate change

What do these changes mean for your business? Read on to find out more.

1. Refreshed antitrust enforcement powers at the ready

Authorities globally have been re-vamping antitrust rules, with significant changes enacted and proposed in the EU, UK, US and China. We have also seen more investigations and proactive intervention – for example with dawn raids in several EU Member States – and an increase in using investigatory powers to obtain e-mails (and other forms of electronic communication) and search private homes.

  • Europe has seen a recent surge in proactive intervention, with unannounced inspections in various sectors such as online food delivery, water infrastructure, fuel and fashion. The EC also carried out its first home raid for many years and warned that it intends to use this power more often – which is perhaps not that surprising given the increase in remote working arrangements.
  • The EC has also proposed changes to its Notice on informal guidance for novel or unresolved questions in antitrust cases. The revised draft Notice clarifies the use of informal guidance letters and (ideally) will allow such guidance to be issued in more cases. But pitfalls remain and modifications are needed for the Notice to encourage businesses to seek guidance – and to adequately protect the party’s legitimate interests when they do.
  • Meanwhile, the EC’s new Vertical Block Exemption Regulation (VBER) and corresponding Guidelines came into force this June. The new VBER narrows the scope of certain safe harbours, especially for online intermediation services (platforms), with a specific focus on dual distribution and parity obligations. But it also creates opportunities for businesses, with new flexibility for both exclusive and selective distribution systems, as well as online sales restrictions. Watch our recent webinar to find out what you need to know as the VBER goes live.
  • In the UK, the new Vertical Agreements Block Exemption Order (VABEO) came into force on 1 June with the accompanying Guidelines following closely behind in July. There are varying degrees of alignment between the EU and UK treatment of resale price maintenance (including minimum advertised prices (MAPs) and fulfilment contracts), dual pricing and the non-equivalence principle, as well as the approach to hardcore restrictions. However, some notable divergences remain, giving scope for interpretational discrepancies post-Brexit.
  • The US has launched several pending legislative initiatives to expand antitrust enforcement powers. At the federal level, legislation proposed in the Senate would substantially rebalance burdens of proof for enforcement and revamp rules on unilateral conduct. Specific legislation targeting platform markets is up for vote in November. States have also been active in revising enforcement rules, including proposed legislation in New York that would implement unilateral conduct rules intended to more closely mirror EU abuse of dominance rules and give substantial discretion to the state attorney general to set enforcement standards.
  • China has amended its 14-year-old Anti-Monopoly Law (AML). These changes came into force on 1 August and include, for example, capturing facilitators of anti-competitive agreements, a new rebuttable presumption of illegality for RPM, authorisation for the authority to make safe harbour rules for vertical agreements, and personal liability for anti-competitive agreements.

2. Merger control reforms to capture more deals

As competition authorities focus on the digital landscape – and following several high-profile “incumbent/challenger” acquisitions in the tech industry – they have been busy reforming their merger control rules to facilitate the review of more deals, especially potential killer acquisitions.

  • The much-anticipated EU General Court’s judgment in July regarding the US-on-US deal Illumina/Grail was a ringing endorsement of the EC’s new approach to Article 22 referrals. The General Court agreed that national authorities can rely on Article 22 to refer deals for EC review even where they fall outside the scope of the national merger control rules. This judgment has wide-ranging and important implications for dealmakers, particularly those acquiring nascent competitors in innovative industries.
  • There is no news yet on the proposed reforms to the UK merger control regime announced back in April. Designed to address the perceived enforcement gap for – you guessed it – potential killer acquisitions, these would build on the UK’s already expansive jurisdictional tests to capture deals with no UK overlap as long as there is a (as yet unspecified) “UK nexus”. Meanwhile, the CMA is continuing to show its post-Brexit teeth, blocking a deal which was cleared by the EC earlier this year.
  • In the US, the federal agencies are also expected to release new merger guidelines later this year. The current revisions are intended to modernise rules to account for the digital economy. They are expected to take a more interventionist approach than the versions revoked earlier this year, particularly regarding digital platforms.
  • Proposed amendments to China’s anti-monopoly rules include introducing a “stop-the-clock” mechanism and codifying ex officio jurisdiction into the AML, as well as higher filing thresholds and a new secondary threshold to capture deals involving companies with Chinese turnover of more than RMB 100 bn (~USD 15 bn). Deals that don’t meet this threshold will still be captured if the buyer has significant Chinese turnover, and the target has a high market value and a substantial portion of its business in China.
  • Similar initiatives to facilitate an expansive approach to jurisdictional thresholds are underway around the world, including in South Korea, Turkey and Italy – where the ICA now has call-in powers in certain specified circumstances for deals which fall below the applicable thresholds, although the procedural rules are still to be defined.

It would also be remiss of us not to mention the EU General Court’s judgment in Canon, in which it confirmed the EC’s restrictive approach to warehousing structures and upheld a EUR 28 m gun-jumping fine. This judgment illustrates that warehousing is risky (and can amount to gun-jumping), but that two-step structures remain possible in certain situations.

3. Foreign investment scrutiny still going strong

Foreign investment control activity shows no signs of slowing down, with new regimes being introduced and others already bedding in.

  • Investors have taken the new UK NSIA regime in their stride. Transactions that don’t raise substantive concerns have generally been accepted for review within a week and information requests have been proportionate for no-issues cases. Defence, military and dual use transactions and those involving critical suppliers to government have made up the majority of both mandatory notifications and call-ins.
  • The first NSIA prohibition came in July, with a second a few weeks later. These demonstrate the heightened political focus on potential UK national security threats around cutting-edge technologies. This, in addition to concerns about China-backed investors, is also clear from the ongoing high-profile Newport Wafer Fab case.
  • Meanwhile in Europe, we have seen more foreign investment regime proliferation including in Ireland, the Netherlands, Italy, Belgium, Sweden, Norway, Luxembourg and Romania. We can expect foreign investment developments to continue at pace – keep an eye on our ForeignInvestmentLinks blog for more on these.
  • But an increase in controls does not necessarily mean a slowing of foreign investment activity. In France, we saw a notable increase in cases filed in 2021 and so far we are not aware of any cases being rejected. The Ministry has emphasised the importance of Member States using the cooperation mechanism and ensuring there is dialogue between them and the EC.
  • Over in the US, CFIUS’s recently published annual report also shows a step up in the number of filings received (over 100 more than in 2020). The use of voluntary short form declarations to address CFIUS risk prior to closing has increased, reflecting their popularity as a faster, easier, and cheaper alternative to a full notice. While most notices now relate to deals involving Chinese investors, support appears to be growing for a “reverse CFIUS” proposal, imposing mandatory review of outbound US investments in countries deemed “of concern”, like China.
  • One final but important practical point: given that information-sharing occurs in many jurisdictions between foreign investment and merger control authorities and across different jurisdictions (particularly in the EU under the European Foreign Investment Screening Framework), it is critical to have a co-ordinated strategy across all filings and countries.

4. Digital markets remain front and centre for regulatory expansion

The digital landscape has proven to be a popular battleground for testing new foreign investment and antitrust enforcement powers, as well as a key focus area for regulatory reforms.

  • Set to be the most significant addition to the EC’s regulatory toolbox since the 1990s, the Digital Markets Act (DMA) will come into force in October this year and apply from Spring 2023. It aims to regulate the gatekeeper power of the largest digital companies – although ambiguity remains over which firms will make the cut. It’s also unclear whether the DMA will set the global standard for digital market regulation (for example, if gatekeepers adjust to the DMA’s rules on a global basis) or if it will mark a significant step towards regulatory fragmentation (if they opt for implementing bespoke business models in the EEA). Some insight may be gleaned from Google’s reaction to its “paramount significance” designation by Germany’s FCO. Shortly after the decision early this year, Google offered concessions on how it operates its new licensing product (Google Showcase) but only in Germany. This could signal a post-DMA future where tech companies take a bespoke approach. For more insights on the gatekeeper designation process, implementation of the DMA’s more complex rules, and whether the DMA will set global standards for regulating the largest digital platforms, watch our recent webinar.
  • Although the UK was previously at the forefront of attempts to regulate digital markets, it now looks set to fall behind other regulators due to delays in implementation. After several notable amendments in the latest proposals for the CMA’s Digital Markets Unit (DMU) the final legislation could now be delayed by a year.
  • US legislation was introduced in both houses of Congress last year that would significantly alter the regulatory landscape for certain covered platforms. Although a bipartisan initiative, there has so far been little traction. But lawmakers have indicated that these rules may be up for debate in the next term in November.
  • In China, authorities have proposed guidelines taking approaches similar to the DMA, which include classifying platforms and imposing additional obligations on so-called super large and large platforms. But it is unclear when – or even whether – the drafts will be finalised and given effect, and what the consequences of non-compliance would be. Nonetheless the proposed amendments to the AML implementing guidelines also include deeming self-preferencing by platform operators as a new type of abuse of dominance.

5. The push towards greening competition continues

Progress towards tackling climate change continues with regulators focusing their agendas on greening competition.

  • The EC has gathered views on its draft Horizontal Guidelines which include a new section dedicated to sustainability agreements designed to address concerns that a lack of clarity on the application of the competition rules to sustainability agreements was hindering progress. New rules are due to enter into force in January 2023 and in the meantime the EC has signalled its willingness to issue comfort letters in relation to proposed sustainability agreements. We anticipate that companies will avail of this process while the new rules are finding their feet.
  • The Dutch authority (ACM) has published its application of its draft Sustainability Guidelines to a number of agreements in the FMCG and energy sectors in a continued bid to provide companies with published guidance on what’s doable under the competition rules. The ACM found that the agreements either did not restrict competition in the first place, or the sustainability benefits gained outweighed the competitive harm and the cooperation was necessary to achieve those benefits. Most recently, the ACM blessed arrangements to curtail the use of illegal pesticides, declaring that they fell outside of the competition rules because they were aimed at reducing illicit competition.
  • The CMA has advised the UK government that neither the competition nor consumer law frameworks were obstacles to achieving sustainability goals. However, recognising that businesses need more clarity, the CMA plans to establish a Sustainability Taskforce and to issue more detailed guidance on when sustainability agreements won’t restrict competition – watch this space.
  • Meanwhile, the CMA has opened an investigation into potentially misleading “green claims” made by three fashion retailers. The CMA may still target others in the fashion sector and will likely also turn its attention to other sectors like FMCG and travel/transport. Clearly, this is only the beginning of enforcement in this area.