General
Our merger control report finds that antitrust authorities are stepping up their scrutiny of M&A
Despite a fall in global M&A in 2022, antitrust authorities adopted increasingly aggressive approaches to enforcement.
Our latest Global trends in merger control enforcement report reveals when and how authorities have intervened in transactions and looks at what dealmakers should expect in the months ahead.
We analyse data on merger control activity in 2022 from 26 jurisdictions, focusing on the EU, UK, U.S. and China.
The report identifies eight key trends:
- Aggressive merger control enforcement causes a rise in frustrated deals
- Gun-jumping and breaching merger remedies generate heavy sanctions
- Fast track and simplified reviews lead to quicker review periods
- Surge in antitrust and FDI intervention means appropriate deal provisions are vital
- Evolving foreign direct investment regimes add yet more hurdles for M&A
- Scepticism over remedies results in rejected behavioral commitments and bolstered conditions
- Scrutiny of tech deals remains a priority with PE and labour markets in the spotlight
- Below-threshold deals increasingly face reviews
Antitrust enforcement remains a top priority in China
Last year brought important changes to the Chinese Anti-Monopoly Law. These included amendments to the merger control and anti-competitive behavioral rules, greater fining powers for China’s antitrust authority – the State Administration for Market Regulation (SAMR) – and a reinforced focus on certain sectors, such as digital.
Recent antitrust developments demonstrate that enforcement levels remain high and continuing to strengthen antitrust policy is a key priority.
Merger control: behavioral commitments fix SAMR’s concerns
While a number of antitrust authorities are keen to point out that they strongly favour structural remedies over behavioral commitments to address concerns identified in merger control reviews (see our Global trends in merger control enforcement report for commentary on this), SAMR has not followed suit, yet. In fact, all five of its conditional merger control clearances in 2022 involved the parties agreeing to behavioral conditions, either on their own or combined with one or more divestments.
In SAMR’s most recent remedies decision, issued right at the end of 2022, it conditionally cleared Korean Air’s acquisition of a 63.9% stake in Asiana Airlines. To address concerns that the deal was likely to harm competition on 15 air passenger routes between Korea and China and reinforce the market power of the combined entity, SAMR accepted commitments from the parties to transfer certain flight slots and return traffic rights.
The parties have also committed to a number of other measures, including ensuring future services on certain routes, renewing air passenger transportation agreements and guaranteeing auxiliary services. The commitments will be in place for ten years. A number of the remedies agreed align with those accepted by the Korean Fair Trade Commission in its conditional approval of the deal. Reviews are ongoing elsewhere, eg in the EU and U.S.
RPM remains in the spotlight
Like many other jurisdictions across the globe, in recent years, resale price maintenance (RPM) has been an important enforcement priority in China.
In January, for example, the Beijing Municipal Administration for Market Regulation imposed a CNY34.4m (EUR4.7m) fine on the Chinese subsidiary of medical device company Straumann for fixing resale prices and setting minimum resale prices of dental implant products. The authority found that the company punished dealers that did not stick to the minimum prices by measures including increasing their purchase price, restricting their authorized areas and disqualifying their rating.
Abuse of dominance enforcement continues
SAMR continues to investigate and fine companies for abusing their dominant position.
In late December, in response to calls from the academic community in China, it imposed a CNY87.6m (EUR12m) fine on China National Knowledge Infrastructure (CNKI) for abusing its dominant position in the market for online databases of Chinese academic literature by imposing unreasonably high prices and exclusivity provisions. The fine amounted to 5% of CNKI’s 2021 revenue in mainland China.
Provincial antitrust authorities have also been active in this area recently, particularly in the life sciences/pharmaceutical sector.
The Liaoning provincial Administration for Market Regulation fined Northeast Pharmaceutical Group CNY133m (EUR18.1m) for selling the active pharmaceutical ingredient (API) levocarnitine at excessively high prices. The company reportedly increased prices for the API by nearly 400% during the infringement period.
Turning to the energy sector, gas supplier Chongqing Yongkang Gas was fined CNY2.4m (EUR330,000) by the Chongqing market regulator for abusing its dominant position by forcing customers to purchase products and insurance services or face the firm refusing to supply gas to them.
More amendments to come
2023 looks set to be another eventful year for Chinese antitrust policy. SAMR has announced its key tasks for the months ahead, including oversight of the platform economy, increasing enforcement in areas relating to people’s livelihood as well as intellectual property, and strengthening cooperation with international counterparts.
We also expect to see progress on further planned changes to the Chinese antitrust rules, many of which are intended to give the regime even more teeth:
- Proposals to introduce a new merger control filing threshold aimed at capturing killer acquisitions are being watched closely by businesses and their advisers.
- Draft amendments to the Anti-Unfair Competition Law are out for consultation, including provisions to bolster SAMR’s powers to tackle companies that abuse their superior market position and to regulate anti-competitive practices in the internet industry.
- The Supreme Court has released draft judicial interpretations for antitrust disputes, a number of which are expected to be reconciled with SAMR’s guidelines.
Watch this space for further updates.
EU draft Foreign Subsidies implementing regulation sets out far-reaching notification requirements
The European Commission (EC) is consulting on draft rules and forms setting out the arrangements for notifying transactions and public tenders in the EU that have received certain levels of foreign financial contributions.
The draft notification forms require parties to provide the EC with a significant amount of detailed information and supporting evidence, including on the sources of finance to fund transactions and the nature, purpose and economic rationale for foreign financial contributions.
However, the EC proposes certain measures designed to alleviate the notification burden, for example the ability to make waiver requests during pre-notification.
You can read about the new regime more generally in our January 2023 alert.
Bid-rigging continues to be an enforcement target worldwide
Bid-rigging is one of the most commonly enforced forms of cartel conduct. Just this month, antitrust authorities in a number of jurisdictions have targeted companies and individuals or moved the conduct up their enforcement agenda. The penalties for engaging in a bid-rigging cartel are becoming increasingly severe.
APAC
In Japan, the Japan Fair Trade Commission (JFTC) has been investigating suspected criminal collusion in the bids for “test events” held in the run up to the 2021 Tokyo Olympics. We reported on the dawn raids carried out towards the end of last year in our January edition of Antitrust in focus. This month, the JFTC filed a criminal complaint against advertising agencies, event planning companies, a TV-production company, six individuals from these firms and a former member of the Olympics organising committee.
Another Japanese bid-rigging case has also seen significant recent developments. In October 2022, the JFTC concluded administrative proceedings against 11 computer and IT service companies for fixing tenders held for public school PCs in Hiroshima. The firms were fined a total of JPY56.8m (EUR400,000), with some larger players also ordered to take extra preventative measures, including drafting guidelines and employee education. Further penalties have materialised this month: the Ministry of Economy, Trade and Industry (METI) suspended all 11 companies from receiving subsidies for between two to six months. The majority of the companies were also suspended from receiving METI contracts for set terms.
Elsewhere in APAC, the Australian Competition and Consumer Commission (ACCC) launched Federal Court proceedings against a technology company for agreeing with a competitor to rig bids and fix prices for the supply of technology infrastructure at Pilbara mining camps in Western Australia. The ACCC alleges that, for five projects, the two firms acted beyond the scope of any sub-contracting relationship.
The U.S.
In the U.S., an individual was sentenced to 15 months’ imprisonment and ordered to pay over USD1m in restitution for his role – as co-owner of an insulation contractor – in bid-rigging and fraud schemes. The Department of Justice (DOJ) notes that this is the seventh sentencing arising out of its probe into the insulation contracting industry.
In a second case, the DOJ secured a guilty plea from a former salesman for his leading role in a scheme to rig bids for the sale of digital interactive whiteboards to the New York City Department of Education Public Schools. He will be sentenced in due course.
Both instances of enforcement signal success for the DOJ’s Procurement Collusion Strike Force (PCSF), a joint U.S. law enforcement effort which has consistently targeted bid rigging conduct in public contracts since its creation in 2019. Meanwhile, towards the end of last year the PCSF welcomed four new partners, demonstrating the continued commitment of U.S. agencies and offices to detect, prosecute and deter antitrust violations that target government procurement, grants and funding.
EMEA
In Saudi Arabia, a Riyadh court has reportedly upheld the national antitrust authority’s SAR10m (EUR2.4m) fine - potentially its highest-ever for bid-rigging - against a company that colluded to rig a tender for construction services at Arar Domestic Airport. Four other companies have also been fined and the authority’s probe is ongoing.
The German Federal Cartel Office has fined four road-construction firms nearly EUR1m for colluding on hundreds of tenders by the City of Dortmund. A fifth company was granted immunity from fines because it submitted a leniency application which triggered the investigation. The firms met regularly to decide which of them would make the best offer in a particular tender procedure.
In Poland, the antitrust authority has taken enforcement action against a bidding consortium. It fined seven companies over EUR1.5m for entering into a consortium to avoid competition when bidding on 15 contracts in the collection, transportation and management of municipal waste in the city of Pozna?. Crucially, the authority concluded that, absent the collusion, the companies would have been able to bid for the contracts separately or by forming partnerships with fewer partners. One firm received a 50% uplift in its fine for its leading and instigating roles in the conspiracy.
In the Czech Republic, three companies and a self-employed individual face penalties of CZK3.16m (EUR133,000) for colluding on a tender for the renovation of an apartment building. The parties benefitted from reduced sanctions after entering into settlement agreements.
Finally, President of the Spanish antitrust authority Cani Fernández has announced that tackling collusion in public sector tenders is her first priority for 2023. Other EU Member States are likely to take a similar approach as they too prepare to distribute funds from the EU’s Covid-19 recovery package.
Future approach to enforcement
Looking ahead, we can expect antitrust authorities to take steps to ensure early detection of any potential bid-rigging collusion, cooperating closely with public procurement bodies and contracting entities, as well as making increased use of AI screening tools.
Look out for more commentary on bid-rigging cases globally in our upcoming Global antitrust enforcement report.
UK court curbs extraterritorial reach of CMA’s investigatory powers
In a significant ruling, the UK Competition Appeal Tribunal (CAT) has found that the Competition and Markets Authority (CMA) does not have the power to compel companies with no UK territorial connection to respond to information requests in antitrust investigations.
The judgment relates to the CMA’s ongoing antitrust probe into the recycling of end-of-life vehicles. The CMA sent formal requests for information to a number of companies, including to the BMW and VW groups. These notices were issued under section 26 of the Competition Act 1998, which enables the CMA to require “any person” to produce documents or information in relation to an investigation.
In particular, section 26 notices were addressed to BMW AG and VW AG – German-domiciled parent companies with no presence in the UK – as well as to their UK subsidiaries and “any other legal entities within the same undertaking”.
VW AG challenged its section 26 notice on judicial review grounds. BMW AG appealed the CMA’s decision to fine it GBP30,000 (plus a GBP15,000 daily penalty) for non-compliance with its notice.
The CAT focused on the interpretation of “any person” in section 26. It disagreed with the CMA’s arguments that the section 26 notices could have extraterritorial application.
The CAT concluded that “any person” can extend to an “undertaking”. However, given that “undertaking” is an economic concept, the CMA must direct a section 26 notice to a specific natural or legal person within the undertaking:
- Provided the natural/legal person to which the section 26 notice is directed has a UK territorial connection, it is obliged to respond. This covers any responsive documents it holds abroad or via controlled subsidiaries.
- That person must notify the rest of the undertaking of the section 26 notice.
- Any other persons within the undertaking with a UK territorial connection are also obliged to respond.
- Crucially, however, overseas persons with no UK territorial connection are under no obligation to respond.
The judgment is a significant blow for the CMA, limiting its ability to obtain overseas documents and information at a time when, post-Brexit, it no longer benefits from the cooperation arrangements in place between EU Member State antitrust authorities and the European Commission.
However, the ruling leaves some questions unanswered. What amounts to a “UK territorial connection”, for example, is not explicitly dealt with by the CAT. There will likely be much debate around this concept between the CMA and parties under investigation in the context of future section 26 notices.
Indeed, the CAT itself noted that the issues in the cases were “by no means straightforward”. It is therefore no surprise that the CMA has announced it will appeal, stating that the ruling “substantially risks undermining [its] ability to investigate, enforce against and deter anti-competitive conduct”. In the meantime, it will be interesting to see if the UK government makes any moves to give the CMA the extraterritorial investigatory powers it seeks as part of the hotly anticipated draft legislation to reform the UK competition regime.
Saudi Arabia competition authority issues fine for obstructing dawn raid
On 27 February 2023, the General Authority for Competition in Saudi Arabia (GAC) announced that it had imposed a SAR13 million fine (approx. EUR3.3m) on medical company Medical Supplies and Services Company Limited (MediServ) for obstructing a dawn raid.
The inspection was conducted as part of the GAC’s investigation into whether certain entities violated Saudi Arabia’s competition law by restricting the supply of goods or services during the Covid-19 pandemic.
The GAC has not published the details of the obstruction. The authority’s press release notes only that MediServ breached Saudi Arabia’s competition law.
Under this law an entity “may not prevent a law enforcement officer or investigator from carrying out a task assigned to him in accordance with the powers conferred upon him by this Law, nor may it withhold information, provide misleading information, or conceal or destroy documents that benefit the investigation”. Breaches could lead to fines of up to 5% of the entity’s annual sales or up to SAR5m (approx. EUR 1.3m) if the sales value cannot be calculated.
Notably, the Administrative Court of Appeal in Riyadh has already dismissed an appeal against the GAC’s decision.
After an unsurprising lack of raids during the Covid-19 pandemic, there has been a surge of inspections across the globe in the last year. Interestingly, a shift to home and hybrid working has also opened up the possibility of inspections at domestic premises. This enforcement decision is evidence that the GAC has joined the ranks of authorities conducting antitrust raids.
In light of the global trends, the decision of the GAC also serves as a timely reminder of the consequences of obstructing a raid.
A body of precedents shows that antitrust authorities take a zero-tolerance approach and may impose heavy fines where companies fail to cooperate. For example, in 2008, the European Commission (EC) fined energy company E.ON EUR38m for breaking a seal affixed by the EC during a dawn raid. In 2012, Czech companies EPH and its subsidiary EP Investment Advisors were fined EUR2.5m by the EC for changing passwords on blocked accounts and attempting to redirect emails from key personnel inboxes. In 2019, the UK Competition and Markets Authority imposed its first ever fine for obstructing a dawn raid. The guitar manufacturer Fender was fined GBP25,000 (approx. EUR29,400) for hiding notebooks during the inspection.
These cases also illustrate that the obstruction may take different forms and that authorities have taken an expansive approach to what may be considered obstructive conduct.
Overall, it is clear that companies and their employees must be adequately prepared for inspections. It is essential to ensure that dawn raid manuals are in place and up-to-date and that the relevant staff (including senior management, receptionists and the IT team) are trained on what to expect, how to answer the relevant authority’s questions and, crucially, what kind of behavior may be considered as a dawn raid obstruction.
Digital & TMT
Korea’s antitrust authority penalises use of covert algorithm manipulation to favour affiliated taxi drivers
Over the last few months, improving competition in the online platform market has been a priority for Korea’s Fair Trade Commission (KFTC).
Most recently, the authority has taken aim at Kakao Mobility (South Korea’s ride-hailing app operator), alleging that it abused its dominance in the general taxi ride-hailing market to grant preferential treatment to its affiliated Kakao T Blue app drivers over non-affiliated drivers.
In particular, the KFTC claims that Kakao Mobility “secretly implemented” an algorithm to assign calls from users requesting drivers to its affiliates, even if there were closer empty non-affiliated taxis. The algorithm was also allegedly designed to reduce the number of shorter, less profitable rides for Kakao-affiliated cabs.
The KFTC states that this discriminatory treatment excluded rivals, reduced diversity in the taxi franchise market, resulted in a significant increase in Kakao T Blue’s market share and allowed Kakao Mobility to raise both passenger and driver fees.
Kakao Mobility - which disputes the KFTC’s decision - has been given a provisional fine of KRW25.7bn (EUR18.9m). It has also been ordered to suspend its discriminatory conduct, report to the KFTC and notify drivers, consumers and rival taxi service providers of the decision.
To date there have been few examples of antitrust enforcement action in relation to the use of algorithms. However, some authorities – including those in France, Germany and the UK – have undertaken studies on the potential for algorithms to harm competition and consumers. Papers have identified how algorithms could be used to implement illegal price fixing and generally encourage the formation of cartels.
This Korean case serves as a reminder that, in case of regulatory intervention, firms should keep records explaining how their algorithmic systems work and be ready to be held responsible for the impact their algorithms have on markets.
In terms of enforcement against self-preferencing in digital markets, authorities are likely to look to alternative preventative regulatory tools, whether in place of or in addition to rules against abusive conduct by dominant firms.
In the EU, under the new Digital Markets Act, core platform services providers designated as “gatekeepers” will be subject to a number of obligations that will likely require changes to business practices. Included in the list is an obligation not to treat the gatekeeper’s own services or products more favourably than similar services or products of third parties in ranking and related indexing and crawling, and to apply transparent, fair and non-discriminatory conditions to such ranking. Our alert describes the roadmap for the Digital Markets Act’s implementation.
Labour markets
UK CMA shows focus on labour markets by issuing antitrust guidance to employers
Antitrust authorities are increasingly scrutinising conduct that may negatively impact competition in labour markets.
In recent months, we have seen enforcement action and ensuing debate on both sides of the Atlantic.
In the U.S., the Department of Justice secured its first no-poach/wage-fixing conviction against a healthcare staffing company. The Federal Trade Commission (FTC) proposed a ban on employee non-compete agreements and took enforcement action against specific companies over their use of such agreements.
In Europe, the Polish authority issued its first decision on no-poach, relating to an agreement between basketball clubs (supported by the Polish Basketball League) not to pay players’ wages and to terminate their contracts after a season ended early due to the Covid-19 pandemic.
Now, the UK Competition and Markets Authority (CMA) has issued guidance reminding employers of “their legal obligations to avoid collusion when it comes to employee pay, working conditions and the hiring of staff”.
The CMA identifies three main types of anti-competitive behavior in labour markets, all of which amount to cartel conduct: (i) no-poaching agreements, (ii) wage-fixing agreements, and (iii) sharing sensitive information about the terms and conditions that a business offers to employees.
Importantly, the authority notes that the practices - which could extend to informal verbal agreements - might cover freelance and contracted workers as well as permanent salaried staff.
The CMA stated in its draft Annual Plan for 2023/24 that it will clamp down on cartels and other collusive behavior that interfere in labour markets, especially in light of the fact that household finances are currently under particular pressure. This latest guidance reinforces that message.
Businesses (and recruiters) can, however, take certain steps to avoid antitrust labour market infringements. The CMA recommends that recruitment staff are trained on antitrust law and specifically how it applies in the recruitment context. It also highlights the importance of ensuring that robust internal reporting processes are in place, and that staff are aware of these and how to use them.