Key Developments — March/April 2023

The “European Antitrust Bimonthly Bulletin” breaks down the major European antitrust developments into concise and actionable takeaways for clients with operations in Europe. For any questions, please contact Jindrich Kloub, Beau Buffier, Deirdre Carroll, Thomas Pflock, or any other attorney from the European Antitrust team (see the full list of attorneys at the end of the Bulletin).

UK Competition and Markets Authority (CMA) Prohibits Microsoft/Activision Blizzard Merger
Despite earlier signs showing the CMA retreating from its broader console-related concerns and backing off from the preliminary conclusion that a divestiture was necessary, the CMA prohibited Microsoft’s $68.7 billion acquisition of Activision Blizzard, warning the deal would harm “the future of the fast-growing cloud gaming market.” The prohibition decision underlines the CMA’s unpredictable stance post-Brexit and its deep skepticism towards behavioral remedies—the agency emphasized that Microsoft’s offer to license Activision games to rival streaming cloud gaming services over a 10-year period would amount to a “regulatory intervention” of a “rapidly changing market” that would require consistent monitoring and could harm organic innovation. (See Wilson Sonsini Alert.)

Clients should consider factoring in these current enforcement dynamics in the UK into any initial M&A discussions. There is increasing divergence between the UK and both EU and global authorities, resulting in a much slower and more costly regulatory process. Vertical or conglomerate deals will not escape scrutiny and clients should anticipate and prepare for nonhorizontal (and nontraditional) theories of harm in innovation-driven technology markets, including through the early consideration of appropriate remedy packages.

EU Adopts Reforms to Simplify Merger Procedures
The merger control simplification package adopted on April 20, 2023, will streamline and simplify the review process for unproblematic deals and provides for electronic submissions. The new rules will come into effect on September 1, 2023. The package expands the categories of cases treated under the simplified procedure, including cases in which i) the combined market shares upstream are below 30 percent and the combined purchasing share is below 30 percent; or ii) the combined market shares are below 50 percent and there are multiple rivals in both the upstream and downstream markets. The European Commission (EC) will also have the discretion to treat the following cases under the simplified procedure: i) for horizontal overlaps, where the combined shares are 20-25 percent; ii) for vertical links, where shares are 30-35 percent or where shares do not exceed 50 percent in one market and 10 percent in another related vertical market; and iii) joint ventures with turnover and assets between €100 million and €150 million in the European Economic Area (EEA). The package also introduces a new category of “super-simplified” cases, covering ex-EEA joint ventures and cases where there are no horizontal overlaps or nonhorizontal relationships. The package also introduces a new notification form (“tick-the-box” Short Form CO) for simplified cases. This form includes primarily multiple-choice questions and tables and streamlined questions on both the jurisdictional and substantive assessment of cases. A Q&A document from the EC is available here.

Clients contemplating M&A in the EU should assess whether they can benefit from the new simplified filing procedures. Careful consideration will be required, particularly for investors, as simplified case can switch back to the regular procedure depending on input around noncontrolling shareholdings, cross-directorships, expansion plans, and other topics.

EU's Top Court Rules that Mergers Can Be Challenged Under Abuse of Dominance Rules
In its recent judgment in Towercast, the EU’s top court ruled that a deal which does not meet the EU or national merger thresholds could still be subject to an ex-post review under abuse of dominance rules. If the deal is found to substantially impede competition, dominant companies could face fines, structural or conduct commitments, and damages claims. This ruling is yet another warning that otherwise nonreportable deals may still be scrutinized in the EU, adding to the European Commission’s (EC’s) renewed Article 22 policy to refer below-threshold deals to the EC (see Wilson Sonsini Alert) and an upcoming Digital Markets Act requirement that deals by gatekeepers are reported to the EC (see Wilson Sonsini Alert). Less than a week after the court’s ruling, the Belgian regulator opened a probe into a possible abuse of dominance by a telecom operator Proximus in its proposed acquisition of edpnet.

Clients contemplating M&A in the EU should consider front-loading substantive assessments in any filing analysis and factor in the impact of an ex-post review or court challenge (whether by a national regulator or third-party complainant) where there is a risk of dominance in the EU.

Dawn Raids on the Rise in the EU
In the past two months, the European Commission conducted unannounced dawn raids in the premises of companies active in three different sectors: i) fragrance manufacturing, ii) energy drinks, and iii) fashion. While few details are available at this stage, it is worth noting that the fragrance manufacturing cartel investigation was launched ex officio and is being coordinated with the U.S. Department of Justice, the UK CMA and the Swiss Competition Authority, which are also conducting their own investigations into the conduct. Another point worth highlighting is the EU’s continued focus on the fashion sector with three ongoing EU investigations that have been launched within the last two years. Finally, EU officials continue to signal the increased use of proactive detection methods (ex officio) in launching investigations,such as market monitoring, procurement data analysis and anonymous whistleblowers, and greater frequency of dawn raids at individuals’ homes as a result of the recent shift to remote work.

Clients should be alert for unexpected agency inspections, particularly in sectors that have been receiving consistent attention from authorities (e.g., fashion) and ensure that any internal dawn-raid guidance is up to date.

EU Updates Its Dominance Abuse Guidance and Announces More Comprehensive Overhaul in 2025
The European Commission (EC) partially amended its guidance paper from 2008, incorporating recent EU case law and at the same time launched a consultation seeking feedback on the adoption of new Guidelines on exclusionary abuses of dominance. In the amendments, the EC adjusted its approach on the concept of “anti-competitive foreclosure,” clarifying that a mere weakening of competition can be sufficient for a treatment under Article 102 TFEU and underlining that profitability of the abuse is not a requirement for prosecution. The revised guidance also backs away from its previous focus on judging potentially abusive conduct by the effects on and behavior of “as-efficient-competitors” (AECs), giving way to other methods for assessing price-based exclusionary conduct. Finally, the revised guidance clarifies that in a situation where a dominant makes access to its products/services subject to unfair conditions (constructive refusal to supply) or engages in a margin squeeze, it is not necessary to demonstrate indispensability of the input to find an abuse.

Clients may consider aligning their internal manuals or antitrust training decks with the revised guidance.

EC Renews Its Motor Vehicle Block Exemption Regulation (MVBER) Until May 2028
Companies active in the EU automotive sector may continue to benefit from a prolonged block exemption for vertical agreements relating to supply agreements for spare parts or repair and maintenance services for motor vehicles. Notably, the European Commission now emphasizes in its supplementary guidelines that repairers should have access to in-vehicle data on equal footing, emphasizing the general antitrust trend in the EU of considering access to data as an important factor of competition. Block exemption notifications provide legal certainty to some types of agreements by exempting them from an application from the EU rules on anticompetitive agreements.

Clients not just in the automotive sector should be aware of the increased competitive relevance of data access that comes with increased means to enforce such access under EU and national antitrust rules.

EU Puts Forward a Proposal for New Standard Essential Patent (SEP) Framework
On April 27, 2023, the European Commission released its draft of a new SEP Regulation that reforms the EU’s existing SEP and seeks to add transparency and allow for more efficient means for parties to agree on FRAND terms. The draft regulation establishes a centralized "SEP-authority" at the European IP Office (EUIPO) which will manage and organize: i) a centralized EU SEP-register; ii) random essentiality checks for SEPs; iii) an out-of-court dispute resolution mechanism to determine FRAND terms; and iv) a process for aggregate royalty determination. The draft has drawn heavy criticism particularly from by rightsholders who will, inter alia, be barred from enforcing royalties before national courts prior to establishing FRAND terms and it remains to be seen if, and subject to what changes, it will pass through the legislative process.

Both SEP holders and implementers with activities in the EU should carefully follow the further legislative process and consider at an early stage how their licensing processes will need to be adjusted to the new framework.

UK Publishes a Bill to Tackle Large Tech Platforms and Revise Merger Control Thresholds
After a series of delays, the UK government finally published its draft regulatory regime to tackle the largest tech companies, together with broader updates to UK competition law and the Competition and Market Authority’s (CMA’s) consumer law powers. The Digital Markets, Competition and Consumers Bill, which is expected to be approved by the parliament in Spring 2024, would empower the CMA’s Digital Markets Unit (DMU) to designate tech companies generating at least £25 billion (approx. $32 billion) in global turnover or £1 billion (approx. $1.25 billion) in the UK, as having “strategic market status” (SMS) in respect of “digital activities” linked to the UK. Unlike the EU’s Digital Markets Act (DMA) regime, designation will only occur after an investigation, after which the DMU can impose tailored rules of conduct to SMS companies, including the very broad categories of fair dealing, open choice, and transparency orders. The DMU will also be able to issue, following an investigation, orders ranging from conduct remedies to structural breakups (“procompetitive interventions”). Noncompliance could see fines of up to 10 percent of global turnover and the imposition of personal liability on senior managers. The bill would also update merger thresholds, with: i) UK turnover thresholds increased from £70 million to £100 million (approx. $125 million); ii) a safe harbor created for transactions involving parties that have a UK turnover of less than £10 million (approx. $12.5 million); iii) a new threshold, whereby the UK agency could assert jurisdiction where one party has over 33 percent share in the UK and UK turnover above £350 million (approx. $437 million), and the other is a UK business or active in the UK. SMS firms will also be required to report deals worth at least £25 million (approx. $32 million) (including stakes above 15 percent).

Clients should be aware of the potential divergence in Europe in terms of digital enforcement—while the EU’s DMA imposes a blanket set of obligations on all so-called “gatekeepers” (see previous Wilson Sonsini alert here), the UK is opting for a regime potentially resulting in tailored codes of conduct for specific firms.

Germany Publishes a Bill Introducing Sweeping Antitrust Law Amendments
Proposed changes to German antitrust laws that the government proclaimed as “one of the biggest reforms of competition law in recent decades” were recently announced. Once formally adopted, the updated Competition Act will provide the German Federal Competition Office (FCO) with sweeping new powers to impose “any remedies of a behavioral or structural nature necessary” and M&A filing obligations on undertakings following a sector investigation, irrespective of individual antitrust violations. The proposed new toolkit will also provide the FCO with sharpened disgorgement powers for (mostly) dominance abuse cases, establishing a presumption that an infringer generated an economic benefit of at least one percent of its German sales.

Clients with activities in Germany should consider the potential impact of the draft new rules, which, if adopted, may likely be used in the tech sector in line with the German authority’s enforcement focus.

The EU Draft Chips Act Seeks to Assert the EU's Place in the Tech Race
On April 18, 2023, the EU legislators reached a provisional agreement on rules to bolster Europe’s semiconductor ecosystem and ensure security of supply in order to reduce the bloc’s dependency on external suppliers. The EU aims to mobilize more than €43 billion in public and private investments to double its current global market share to 20 percent by 2030 and to this end the Chips Act seeks to i) support large technological capacity building, ii) create a framework to assure the security of supply and resilience by attracting investment, and iii) create a crisis monitoring response system to prepare for potential supply shortages and provide the respective responses. While the Chips Act does not contain any sector-specific rules for antitrust enforcement in the semiconductor sector, the European Commission may well use the Act’s political momentum to increase their antitrust enforcement against semiconductor companies that are found to threaten the competitive environment in the European chips sector.