Platypus in the Competition Law Journal: The long arm of UK merger jurisdiction
Platypus team members took a pause from blogging to contribute to the latest issue of the Competition Law Journal, focusing on themes that should be familiar to regular Platypus readers – the CMA’s approach to merger enforcement, the elastic nature of its jurisdiction, and its increasing willingness to intervene in “foreign-to-foreign” deals with limited nexus to the UK.
You can read the article in full here – but here’s a taster menu of the key takeaways.
Addressing the Platypus in the room
As previously noted, key among the monotrematic qualities of the UK merger control regime is its uniquely elastic jurisdiction. In the article, we catalogue the ways in which almost every operative word of the jurisdictional test has been interpreted expansively by the CMA: the concepts of ‘enterprise’, ‘material influence’ and ‘ceasing to be distinct’, not to mention ‘share of supply’. Perhaps more critically, even if one believes these elastic concepts have been stretched beyond their reasonable outer limit, there is limited practical scope to challenge the CMA’s decisions on jurisdiction before the end of Phase 2.
The CMA has never been shy to use its tools to their fullest extent where it spots a threat to competition from domestic or UK-centric deals. Since around the start of 2019, however, the CMA has demonstrated an increasing willingness to use its broad jurisdiction to intervene in “foreign-to-foreign” deals with a centre of gravity outside the UK.
This is particularly true for ‘incumbent v. challenger’ deals in innovation-heavy markets, viewed as Priority Number One for merger enforcement. While regulators elsewhere have had to shop for new tools to address these deals (e.g. new transaction value thresholds in Germany and Austria and the EU’s new twist on Article 22 to scoop up deals that fall below Member State thresholds, the CMA’s elastic jurisdictional rules meant it was a step ahead. In the CLJ article, we examine three recent cases where the CMA has been particularly creative in using share of supply to capture cross-border deals deals – and what this means for future transactions. All were effectively framed as incumbent v. challenger in the theories of harm.
- GBP or US$? Short on local currency? Don’t worry, they’ll take dollars. In Sabre/Farelogix (an all-American incumbent/challenger deal), jurisdiction was established based on the target’s supply to a single customer (British Airways) in an indirect manner, and without any revenue realised in the UK. The CMA argued that Farelogix “derived value” from supplying services to British Airways (BA) as: (i) BA’s alliance partner, American Airlines, did pay Farelogix for its services and among other things did issue tickets incorporating a flight segment operated by BA; and (ii) Farelogix was formally entitled to charge BA for tickets booked using its system – notwithstanding that no pounds sterling had actually changed hands. The transaction was abandoned following a prohibition from the CMA (after the DOJ’s attempt at an injunction failed in a US court). The parties are in the Competition Appeal Tribunal this week challenging the CMA’s approach to jurisdiction, as a point of principle.
- So … how many scientists do you actually have working on this? In Roche/Spark (Swiss incumbent buyer, US challenger target), the CMA exercised jurisdiction despite the target not having made any UK sales to date. This was based on Spark’s intention to commercialise its pipeline product (which would compete with Roche’s existing blockbuster drug) in the UK – gleaned by the CMA on UK-based R&D FTE headcount (and alternatively on relevant UK/EU patents). The CMA’s frame of reference grouped the parties’ products together and measured their shares of supply based on the number of employees in the UK. Unlike Sabre, jurisdiction was not contested: in step with the FTC, the CMA ultimately cleared the deal at Phase 1 due to third party pipeline products that would compete with Roche post-merger.
- It doesn’t matter if you win or lose: all that matters is that you try … and uh, have done it before. Another lesson from the CMA’s recent merger enforcement record comes from its decision to refer Mastercard/Nets (US incumbent buyer, Danish challenger target) to the European Commission under Article 22. Here, the CMA asserted jurisdiction on the basis of mere participation in UK tenders by bidders that had implemented the tendered service, excluding those bidders that hadn’t. The CMA reasoned that the target’s participation in a tender process organised by a UK-based customer counted as “supply” to the UK market. The CMA also concluded Nets’ services overlapped with services that Mastercard undertook on a captive basis. To jump through the final jurisdictional hurdle, the CMA applied a filter to the firms competing in the tender, excluding bidders that had not implemented the service before to arrive at “two bidders out of [5-8]” also known as a share of supply of 25% or more. The Commission ultimately cleared the deal conditionally, requiring some of Nets’ technology to be licensed out (along with personnel and support services). For its part, the CMA’s assertion of UK jurisdiction was not necessary for Article 22 and it could have left the issue open. But as this outsourcing route will fall away in 2021, the CMA probably decided it was worth creating a Brexit-proof precedent.
These cases demonstrate some of the more creative and dare we suggest ingenious ways the CMA can arrive at jurisdictional power over deals and, therefore, how difficult it can be confidently to rule out the risk of CMA review.
But these examples are not random: the common theme is of course that the CMA thought they raised competition issues for which it was proportionate to deploy the effort on jurisdictional claims. Jurisdiction and substance are therefore formally separate legal questions but, in practice, entirely commingled.
They underscore the importance of front-loading substantive competitive analysis of a transaction in scoping CMA risk. At least in innovation-heavy markets (e.g. tech and life sciences), this applies even in the absence of UK sales, UK customers or current competitive overlap.