This article was first published in the Law Society Gazette August/September 2021 edition.
Merger control refers to the process whereby a regulator reviews a proposed transaction to prevent potential anti-competitive consequences. Both EU and Irish merger control rules operate in the State. The former regime is contained in the EU Merger Regulation (EUMR) whereas the latter regime is found in the Competition Act 2002 (as amended) (2002 Act). The EUMR tends to apply to transactions involving large companies with a potential impact across several EU Member States whereas the 2002 Act typically catches deals whose likely effects are national rather than international. Both laws are supplemented by various sets of guidance on key jurisdictional, procedural and substantive issues.
EU merger control operates under the ‘one-stop shop’ principle. This means that a proposed merger that triggers the relevant jurisdictional thresholds under the EUMR will, in general, be reviewed by the European Commission (Commission) alone rather than being subject to review under the national merger control rules of one or more European Economic Area or EEA Member States. (The EEA comprises the 27 current EU Member States plus Norway, Iceland, and Liechtenstein.) If a notification to the Commission under the EUMR is not required, the merging parties should consider whether their proposed transaction triggers the national merger control rules of any EEA Member State. For example, if a planned deal satisfies the turnover tests under the 2002 Act, it will require pre-completion clearance from the Competition and Consumer Protection Commission (CCPC). The CCPC also allows parties to notify transactions, that fall below the relevant thresholds, on a voluntary basis.
Partly to reflect changes in competition policy due to the evolving dynamics of the marketplace, partly to react to issues that have arisen in previous cases, both the EU and Irish merger control canons are regularly revised. The last twelve months or so have proven no exception.
Review of Article 22 of the EUMR
In March 2021, the Commission published long-anticipated Guidance on the application of the referral mechanism set out in Article 22 of the EUMR to certain categories of cases (March Guidance).
While, on the one hand, the Commission has jurisdiction to examine transactions that fall under the EUMR and, on the other hand, the CCPC and other national competition authorities (NCAs) have similar rights vis-à-vis deals that fall under their respective national rules, there is some interplay between the relevant regimes. For example, Article 9 of the EUMR allows an NCA to request the Commission to refer a notified concentration to that EU Member State. By contrast, Article 4(5) of the EUMR allows the merging parties to request the Commission to review transactions that trigger the national thresholds in, at least, three EU Member States. Article 22 also allows for referrals to the Commission, although this time the request should come from an NCA.
The original purpose of Article 22 was to allow EU Member States, which at the time of entry into force of the EUMR back in 1990 did not have their own domestic merger control regimes, to request the Commission to review transactions that threaten to undermine competition in their respective territories. However, as more and more EU Member States adopted their own merger control regimes, the Commission discouraged the relevant NCAs from seeking an Article 22 referral if they did not have initial jurisdiction over the relevant transaction. The March Guidance represents a ‘u-turn’. The Commission now encourages and accepts referrals in cases even if the relevant EU Member State(s) does or do not have initial jurisdiction over the relevant transaction. The Commission hopes that the March Guidance will plug an ‘enforcement gap’ where cross-border transactions that might have escaped scrutiny at both EU and national level will, from now on, be reviewed in Brussels.
The motivation behind the March Guidance stems from the recent increase in so-called ‘killer acquisitions’, particularly in the digital and pharmaceutical sectors. Such deals see companies with significant growth potential being acquired by major players despite generating minimal turnover at the time of signing. A typical ‘killer acquisition’ in the digital sector would, for example, see a major tech company purchase a start-up with a significant user base or data inventory, thereby preventing the potential emergence of future competition. Moreover, it is not uncommon in the pharmaceutical sector that newer companies with innovative medicines are acquired by more-established players before such products receive the relevant authorisations/are exploited commercially.
The adoption of the March Guidance means that parties to a transaction with a potential cross-border impact in the EU, that does not satisfy the relevant thresholds either under the EUMR or under the 2002 Act (or under any other national merger control rules within the EU), must now address the risk of an Article 22 referral and consequent suspension of the proposed deal, if it has not already closed, in their transaction documents.
Digital Markets Acts Proposal
The March Guidance, in its scope, is reminiscent of the Digital Markets Act (DMA) that was recently proposed by the Commission. Under Article 12 of the proposed DMA, gatekeepers (e.g. major tech companies) are required to ‘inform’ the Commission regarding proposed acquisitions of other digital companies regardless of whether the relevant transaction is mandatorily notifiable either under the EUMR or under national merger control rules. In doing so, gatekeepers must provide relevant information on the target, including its most recent annual global and EEA annual turnover, details of its user numbers, and the rationale for the acquisition. Yet, unlike transactions notified under the EUMR, gatekeepers do not require clearance before completing relevant acquisitions in the digital space.
In summer 2020, the Commission launched a public consultation to determine whether the Notice on the definition of the relevant market for the purposes of Community competition law published in 1997 (1997 Notice) is still relevant and what, if any, changes should be made.
The purpose of the 1997 Notice is to provide guidance on how the Commission applies the concept of relevant product and geographic market definition in its application of EU merger control and competition law. Defining the relevant market(s) in which a particular entity operates is crucial to the relevant merger control (or, indeed, competition law) analysis.
In December 2020, the Commission published a factual summary of the relevant responses. Most respondents considered that there are certain basic principles that have not changed since 1997 (e.g., significant international trade supports the suggestion of a broader than national geographic market) and, therefore, these should remain the bedrock of any guidance. That said, there are certain major trends that need to be reflected in any updates to the 1997 Notice. Unsurprisingly, digitalisation was viewed by nearly all respondents as having affected how many markets work. Examples of this are the prevalence of both multi-sided platforms which create engagement between two or more customer groups (such as Airbnb and Facebook) and digital ecosystems (i.e. where a platform offers complementary products and services to its core service, e.g. Google Search and Google Maps.) Certain respondents highlighted the fact that, since many products are provided for ‘free’ in the digital sector, it is difficult to assess demand distribution in such circumstances.
The Commission is now contemplating possible changes to the 1997 Notice. It is likely to be 2022 before any revised Notice is adopted.
In July 2020, the CCPC introduced a Simplified Procedure aimed at shortening review periods for notifiable transactions that do not give rise to competition concerns. If the Simplified Procedure is applicable, the parties are not required to complete certain sections of the CCPC’s Merger Notification Form. However, the CCPC expressly reserves the right to require full or further information at any point. The CCPC may also revert to the standard merger notification process by issuing a formal request for information (RFI) or by declaring the notification invalid and requiring a fresh notification. In both cases, the effect would be to re-start the statutory review timeframe from Day 1. Importantly, the CCPC will not issue a confirmation to parties that their transaction qualifies for the Simplified Procedure until after the expiry of the deadline for third-party submissions, usually two weeks after formal notification.
Potential reforms to the 2002 Act
In January of this year, the Department of Enterprise, Trade and Employment (the Department) launched a public consultation on possible changes to certain merger control provisions of the 2002 Act (Consultation). Failure to notify a transaction which falls to be notified to the CCPC under Part 3 of the 2002 Act is an offence under Section 18(9) of the same legislation. Currently, only the Director of Public Prosecutions may prosecute this offence, either summarily or on indictment. The Department proposes to give the CCPC the power to prosecute such offences on a summary basis.
Putting a notifiable transaction into effect before clearance is the most widely understood definition of gun-jumping, including under the EUMR. However, Section 18(9) of the 2002 Act currently penalises only the failure to notify a notifiable transaction and the failure to supply information requested by the CCPC. While a transaction which purports to have been completed without clearance by the CCPC is void under Section 19(2) of the 2002 Act, the transaction’s implementation is not currently a separate offence. This raises issues in the case of transactions which are notified to the CCPC, but which are completed in the absence of CCPC clearance (or deemed clearance). The Department should thus consider whether, as part of the potential reform of the 2002 Act, it is appropriate to amend Section 18(9) to include implementing or completing a notified transaction prior to clearance by the CCPC.
Under another proposal in the Consultation, the CCPC would have the power to issue RFIs to third parties in a merger review. This change would formalise the CCPC’s current approach whereby it requests information and/or views from the merging parties’ customers, suppliers, and competitors, or from a vendor in the case of an asset acquisition, on a voluntary basis. If a new specific power is introduced, the 2002 Act should be amended so that failure to respond to such an RFI should have no impact on the statutory timeframe for clearance. This is to remove the possibility that the actions or inactions of third parties (who may well have ulterior commercial motives) could prolong the CCPC’s review timetable. Any changes to the merger control provisions of the 2002 Act are unlikely to be adopted until later in 2021, at the earliest.
The marketplace, particularly in dynamic industries such as the digital sector, is always likely to move more quickly than legislation/regulation. Accordingly, both the EU and Irish merger control regimes need regular refreshing to make sure they are both ‘fit for purpose’. The power and pervasiveness of the major digital companies continues to the subject of intense debate – it is not certain that the recent change to the scope of the EUMR will be particularly impactful. It also remains to be seen whether the wish to examine the impact of ‘Big Tech’ and ‘Big Pharma’ more closely will be reflected in any changes in the Commission’s approach to market definition. While the CCPC has recently implemented modest refinements to its operation of Irish merger control rules, time will tell whether this NCA will prove to be an enthusiastic supporter of the expansion in scope of the EUMR or whether it will use its own powers to ‘encourage’ voluntary merger notifications of potential ‘killer acquisitions’ under the 2002 Act.