27 July 2023 | Marten Männis
Antitrust & Competition Law
The Evolution of EU Antitrust Law: Emerging Trends and Challenges
The article is a summary of the discussions held at the 2023 General Counsel Roundtable in Rome, on Antitrust and M&A, presented by Dr. Frederik Wiemer, Partner at Heuking Kühn Lüer Wojtek. The initial presentation was titled “Hot topics in EU Antitrust Law: Killer acquisitions, enhancement of enforcement powers, exchanges of information, amendments to national laws, etc.”
The European Union (EU) antitrust enforcement landscape is experiencing unprecedented changes, largely shaped by volatile geopolitical and economic circumstances and by recent influential case law. The current focus areas, among other things, include the so-called “killer acquisitions”, enhanced enforcement powers, information exchange regulation, and amendments to national laws.
A Toxic Environment Fuelling Antitrust Enforcement
The present political and economic environment is increasing the pressure on antitrust enforcement. Geopolitical events such as the Russian invasion have led to a surge in gas and oil prices. High inflation rates coupled with price increases beyond inflation, attributed to the free-riding effect, have further strained economies.
Additionally, the increased costs tied to the green transition, coupled with the acquisition of European core industries by entities outside the EU, have raised significant concerns. The advent of AI facilitating concerted practices has further complicated the landscape.
In the face of these challenges, national antitrust authorities are becoming more interventionist, epitomized by the notion of ‘Antitrust Law with claws and teeth’ as put by Robert Habeck, the German Federal Minister of Economics. Legal amendments are empowering these authorities with new competencies to tackle market distortions through reforms in Antitrust Laws, heralding a new era of robust enforcement.
Shifting Dynamics in M&A/Merger Control: Cases T-227/21 and C-449/21
Regulatory intervention in M&A, even without meeting traditional merger control revenue thresholds, has emerged as a critical concern. New value thresholds have been introduced in many national merger control laws, leading to landmark judgements like the Illumina Grail (GC judgment 13 July 2022, Case T-227/21) and the Towercast (CJEU judgment 16 March 2023, Case C-449/21).
The Illumina Grail case underscores the growing power of national authorities in M&A regulation. This case encapsulates the paradigm shift in the interpretation of Article 22 of the EU Merger Regulation 139/2004 (EUMR).
The General Court’s ruling stated that an EU Member State can refer a merger case to the European Commission even if the case does not fall within the scope of that Member State’s national merger regime.
This judgment is particularly significant as it addresses an increasing number of transactions, labelled as “killer acquisitions”, involving targets that already play or may be playing a significant competitive role on relevant markets. These acquisitions often take place in the digital or pharmaceutical sector, where a large incumbent market player can acquire a new entrant before it can grow large enough to threaten the incumbent’s current market position. The ramifications of these acquisitions for competition can be severe, eliminating the potential for disruptive competition that successful new entrants often bring.
The EU Commission’s reliance on Article 22 EUMR to catch transactions that do not trigger the notification obligations has stirred considerable controversy within the legal community. This interpretation of Article 22 EUMR enables the Commission, with the aid of at least one EU Member State, to bypass the turnover thresholds outlined in Article 1 EUMR, thereby expanding its merger control jurisdiction. As a result, companies would have to notify all transactions that meet the conditions set out in Article 22 EUMR to the Commission to obtain legal certainty.
This landmark case has significantly increased the scope and potential impact of the EU Commission’s regulatory reach, making it an influential precedent in the evolution of antitrust enforcement. The decision is likely to spur considerable debate and possible legal challenges as its implications for merger control and the broader competition landscape become more apparent. Businesses now face growing uncertainty about potential regulatory interventions, highlighting the need for clearer guidance and greater legal certainty to navigate the changing regulatory landscape effectively.
The potential implications of this case on businesses and the M&A landscape are enormous. While it gives regulators a tool to catch more “killer acquisitions”, it also puts an extra burden on companies to notify transactions that could meet Article 22 EUMR. Therefore, this decision has added a new level of complexity to the M&A and competition law arena.
The CJEU’s decision in Towercast can be seen as a continuation of the trend towards broadening the scope of merger control. The judgment handed down concluded that Art. 21(1) EUMR does not limit the application of Art. 102 TFEU in cases where a concentration is not subject to either European or national ex-ante merger control mechanisms. The ruling underscored that the hierarchy of norms positions primary EU law (Art. 102 TFEU) above secondary EU law (EUMR).
The Court also clarified the application of Art. 102 TFEU to such a case, stating that the mere finding that the merger strengthened the dominant position was not sufficient to establish an abuse of dominance. It must be established that the degree of dominance achieved by the merger substantially hinders competition.
However, the CJEU did not directly address the question of whether Art. 102 TFEU can be applied to transactions that have already been cleared.
“We currently find ourselves in a period of regulatory inflation, where interventionist activities have become the norm. Landmark cases like Illumina Grail and Towercast have had significant implications on the M&A landscape, adding new complexities to competition law. There is a dire need for clearer guidance and greater legal certainty to help businesses effectively navigate this changing landscape.” – Frederik Wiemer
Impact on National Legislation: The Case of Germany
In response to political developments, amendments to national laws, such as the 11th amendment to the German ARC, have been introduced. This amendment addresses issues around market structures hindering competition, such as limited suppliers, parallel pricing, and restricted market access. It enhances the national authorities’ competencies, allowing them to intervene in areas like data access, agreements’ design, and even prompting organizational split-ups and divestments under Section 32f of the ARC, if the markets are not functioning properly, even if there is no violation of antitrust laws.
Antitrust Enforcement and Information Exchange
Another significant trend is the decrease in leniency applications due to private damages actions, prompting antitrust authorities to publish new policies and enforcement priorities. For example, the German Federal Cartel Office (BKartA) and the US Department of Justice (DOJ) have made clear their focus on price increases and information exchanges among competitors, respectively.
This has put an immense responsibility on companies’ legal and compliance departments, intensifying the scrutiny of compliance activities.
The issue of information exchanges within the supervisory board has also become increasingly delicate. With supervisory board members often serving executive roles in competing companies, the possibility of sharing pricing strategies or other sensitive data during board meetings is concerning. Therefore, antitrust laws and corporate confidentiality duties must be carefully balanced to ensure compliance.
“Antitrust regulation must strike a delicate balance. On the one hand, it aims to prevent monopolies and ensure healthy competition. On the other, it needs to avoid hindering innovation and growth. The key to achieving this lies in an adaptable, forward-looking approach to regulation that is firmly grounded in economic realities.” – Frederik Wiemer
The current geopolitical tension and economic challenges have driven an era of “regulatory inflation,” with interventionist activities becoming the norm. Antitrust enforcement remains a significant concern, especially regarding information exchanges and M&A activities. National agencies are under-resourced, yet they strategically tackle this by focusing on pilot cases, imposing deterrent fines, and encouraging civil damages. Therefore, companies must be more proactive and strategic in their compliance activities, particularly within their legal and compliance departments.
“Companies must be proactive in their approach to antitrust compliance. It’s not just about understanding the laws as they stand today, but anticipating regulatory shifts and ensuring their strategies and practices can adapt. This means a concerted effort to cultivate a strong compliance culture, one that places a premium on ethical business practices and regulatory foresight.” – Frederik Wiemer