Article

Antitrust in focus - September 2024

Published Date
Sep 27 2024
This newsletter is a summary of the antitrust developments we think are most interesting to your business. James Webber (partner based in London) and Jess Bowring (counsel based in London) are our editors this month. They have selected: 

Top EU court frustrates European Commission’s push to review below-threshold mergers

While the U.S. never had any difficulty reviewing deals that fall outside the HSR thresholds, many other countries treat their merger filing notification thresholds as jurisdictional limits. This approach creates difficulties as to how to review potentially anticompetitive deals that do not trigger merger control filing obligations. 

Rather than lower the thresholds, the European Commission (EC) found a workaround by essentially “calling in” such deals—albeit by a somewhat circuitous route. This workaround has now been struck down by the European Court of Justice (ECJ).

The workaround relates to the EC’s revised referral policy under Article 22 of the EU Merger Regulation. This allowed the EC to invite EU Member States to refer transactions to the EC for review even where EU and national merger control filing thresholds are not met. The aim was to enable the EC to assess acquisitions of start-ups or innovative players (often called “killer acquisitions”) where the turnover of at least one of the parties does not reflect its competitive potential.

Illumina/GRAIL was the first transaction reviewed under the revised policy.

The parties challenged the EC’s jurisdiction to review the transaction. The General Court (GC) confirmed the EC’s approach, which on a literal reading of Article 22 was unsurprising. However, the ECJ disagreed, ruling that, despite the literal reading of Article 22, the EC in fact has no ability to review transactions under Article 22 that do not meet EU and national merger control thresholds.

The ECJ considered that the Article 22 referral mechanism has only two primary objectives: (i) to allow scrutiny of transactions that could distort competition in EU Member States that do not have national merger control rules (only Luxembourg falls into this category today), and (ii) to enable a single review by the EC of M&A notifiable in several Member States (i.e., avoiding multiple national filings). There was therefore no room for the EC to adopt an approach that went beyond these goals—even if Article 22 itself was so narrowly drafted.

The ECJ emphasized the need for merger control thresholds to be effective, predictable and to give legal certainty to merging parties. It said that parties must be able to easily and quickly determine whether their deal is subject to mandatory review.

Our alert tells you more about the case and the ECJ’s reasoning, as well as exploring its practical implications.

In short, the judgment will be music to the ears of merging parties. A great deal has been made of the uncertainty caused by the EC’s revised Article 22 policy—including whether the EC might accept a referral request to review a deal post-closing. Even though such a situation has always been possible in the U.S., thanks to the ECJ it now falls away for merging parties in the EU.

For the EC it raises a dilemma: how to ensure that potentially problematic deals escaping the EC’s turnover-based merger control jurisdiction are effectively scrutinized. Current Competition Commissioner Margrethe Vestager has set out various options, although notes that none seems optimal. These include:

  • Lowering the EU merger control filing thresholds (though this risks catching many non-problematic transactions and increasing administrative burden for merging parties).
  • Adopting a deal value threshold, as already established by Austria and Germany. This approach also risks netting deals raising no concerns and may still miss anticompetitive mergers. 
  • Introducing a power to call in transactions when the EC has “indications of competition risks” (this would create uncertainty similar to that caused by the revised Article 22 policy—although would effectively align the EU with the U.S.).
  • Revising Article 22 to enable the referral of below-threshold deals in defined circumstances.
  • Relying on Member States to expand their own powers to review deals—eight Member States already have the ability to call in transactions that do not meet their filing thresholds and more are seeking this ability (the Netherlands being a key example: see here). This is the most likely outcome—since it requires no EU-level legislation—and is likely to erode any legal certainty created by the ECJ’s judgment over the medium term as more Member States grant themselves this power.

Ultimately, however, Vestager notes that it will be for the next Competition Commissioner to decide which path(s) to tread. Read our article below on how the new EC is shaping up and what may be in store for EU antitrust law more generally.

In the meantime, the EC has withdrawn various decisions made against Illumina and GRAIL, including the order to unwind the transaction and, significantly, the record EUR432m fine for gun jumping. The ECJ’s ruling has also thwarted the EC’s ability to review other deals. Shortly after the judgment, the authority announced that Member States had withdrawn their requests for the EC to review Microsoft’s AI partnership with Inflection AI (see below for more on this).

Nomination and mission statement for new EU Competition Commissioner unveiled

EC President Ursula von der Leyen has announced her nominations for the top posts in the new EC, which is due to take office in December 2024.

She has put forward Spanish socialist Teresa Ribera to take over responsibility for the “Competition” portfolio. Ribera is also nominated as “Executive Vice President for a Clean, Just and Competitive Transition”. This will involve coordinating the EC’s initiatives towards decarbonization and furthering the goals of the European Green Deal.

Ribera has already received her “mission letter” from von der Leyen. She is tasked with modernizing EU competition policy “to ensure it supports European companies to innovate, compete and lead world-wide” and contributes to wider objectives “on competitiveness, sustainability, social fairness and security”.

On merger control, following the ECJ’s Illumina/GRAIL ruling (see above), Ribera is instructed to “address risks of killer acquisitions”. But her mission goes even further. Ribera must also review the EC’s guidelines on horizontal mergers to ensure they give adequate weight to resilience, efficiency and innovation.

These are all themes featuring prominently in a recent report by Mario Draghi on the future of European competitiveness. Draghi also calls for an “innovation defense”, enabling merging parties to prove that their deal increases the ability and incentive to innovate, even if it raises antitrust concerns. It remains to be seen if this suggestion, as well as others put forward by Draghi (e.g., to facilitate consolidation in the telecoms and defense sectors) will make it into the EC’s rulebook under the new Commissioner.

Beyond the field of merger control, the Draghi report appears to have been similarly influential in shaping Ribera’s mission letter. This includes her instructions to simplify the State aid process—which is already significantly looser than historical norms—in particular in relation to large transnational research projects called Important Projects of Common European Interest (IPCEIs), speed up enforcement of antitrust rules and ensure vigorous enforcement of the Foreign Subsidy Regulation and Digital Markets Act.

We will keep you posted as the EC nomination process progresses.

EU State aid tax ruling appeals: one step forward and one step back for the European Commission

The EC scored a significant victory this month after the ECJ upheld the authority’s decision that Apple received EUR13 billion in illegal State aid from the Irish government.

The case relates to two tax rulings issued by Ireland in favor of two companies in the Apple Group. In 2016, the EC found that these rulings enabled Apple to avoid paying tax in Ireland on profits generated by IP rights held by the two subsidiaries. It said that the rulings attributed these profits to head offices outside Ireland, which were “stateless”, meaning the profits were not taxed anywhere. According to the EC, the tax rulings therefore gave Apple a selective advantage and amounted to unlawful State aid. The EC ordered Ireland to recover the back tax it assessed would have been owed had this approach not been taken plus interest from Apple. This amounted to an extraordinary EUR13bn windfall for the Irish government.

On appeal, the GC overturned the EC’s decision, ruling that the authority had not shown there was a selective advantage in Ireland arising from the tax rulings.

The ECJ disagreed with the GC’s reasoning and reinstated the EC’s decision. It held that the GC was wrong to find the EC made erroneous assessments of normal taxation under Irish tax law. It confirmed the EC was correct to conclude that the profits from the IP licenses should have been allocated to the Irish branches.

The EUR13bn sum—placed by Apple in escrow pending the outcome of the ECJ appeal—must now be released to the Irish government.

Outgoing Competition Commissioner Vestager is delighted with the judgment. She says it is “a win for the level playing field in the Single Market, and for tax justice”.

However, just over a week later, the ECJ decided on another tax ruling case—this time siding with the U.K. and various companies and annulling the EC’s decision.

At issue in this case were tax breaks granted by the U.K. to certain multinational groups that exempted them from paying tax on profits of their “controlled foreign companies” (CFCs). The ECJ struck down the EC’s reference framework for assessing the tax rulings, holding that the authority was wrong to examine whether the exemptions were selective based solely on the CFC rules. It backed the U.K.’s argument that the relevant reference framework was the whole of the U.K. general corporation tax system (of which the CFC rules form part).

Both judgments highlight the fundamental analytical challenge of using State aid in these situations. The EC tries to use State aid to challenge exceptions or exemptions to the general system of taxation as well as the interpretation thereof. But tax systems are full of exemptions by their very nature. Is a particular exemption just part of the system or is the exemption outside the reference framework? In both cases, the provisions in question were considered to be part of the general taxation framework, but their application/interpretation by the ECJ has led to drastically different outcomes.

The EC’s win in the Apple case falls among a string of defeats in tax ruling cases.

Since the EC started to investigate tax rulings, there has been a steady debate about how far the EC can (and should) interfere with Member States’ fiscal sovereignty. The ECJ rulings have generally pushed back the EC’s attempts to take an expansive view of State aid and created quite a high bar for interference in Member State fiscal sovereignty, yet the position is still not entirely consistent or clear.

In her remarks on the Apple judgment, Vestager acknowledges that “Member States have the exclusive competence to define their corporate taxation system” but that the EC can exercise control to prevent companies receiving unfair tax advantages through rulings that derogate from those rules, domestic case law, or administrative practice. Ultimately, she says that the EC’s investigations have contributed to a “mind shift” among Member States, helping to trigger or accelerate regulatory and legislative reforms. Vestager is clear that the EC “will continue its work on harmful tax competition and aggressive tax planning”.

Watch out for our upcoming commentary, which will discuss the Apple and CFC judgments in more detail and examine what they mean for the EC’s work in this area going forward.

U.K. government clarifies timing of new merger control thresholds, digital markets regime, and antitrust and consumer reforms

The Digital Markets, Competition and Consumers Act 2024 was enacted in May 2024. As a reminder, it introduces significant changes in four main areas:

  1. Merger control: updated merger control thresholds include a new test enabling the CMA to more easily review non-horizontal transactions, including purchases by large players of start-ups or small innovative firms. The Act also introduces procedural improvements to in-depth reviews. Read more here.
  2. Digital markets: a new digital markets regime will impose conduct requirements on digital firms designated as having “strategic market status”. The Competition and Markets Authority (CMA) will also be able to intervene in digital markets to address the root causes of barriers to competition and will have tough powers of enforcement. Learn about the regime here.
  3. Antitrust: the prohibition on anticompetitive agreements will be expanded to cover agreements implemented outside the U.K. that have effects within the U.K., and the CMA will gain more robust powers to investigate and enforce the rules. Find out more here.
  4. Consumer protection: in what may become the most consequential change in the Act, the CMA’s powers will be dramatically strengthened, enabling it to directly enforce U.K. consumer protection rules and impose fines of up to 10% of annual global turnover for infringements. There will be new rules on fake reviews, hidden fees and drip pricing, and subscription traps. Read about the refoms here.

The new rules were initially expected to take effect around October 2024. However, a change of government has inevitably led to delays.

Now we have (at least some) clarity. The U.K. Government has announced its intention that the digital markets, merger control and antitrust provisions of the Act will take effect in December 2024 or January 2025. Businesses can expect to receive at least 28 days’ notice before the exact commencement date. Ahead of this, relevant secondary legislation will be laid before Parliament for scrutiny and the CMA will publish new and updated guidance on how it will use its powers (public consultation on many of these guidance documents is already underway).

Due to the scale of the change, the new consumer protection rules will take longer to come into force. The Government expects to implement the CMA’s new enforcement powers, and the provisions which replace the current unfair trading regulations, in April 2025. There is little detail on when the other consumer provisions will commence, although the Government does mention a couple of areas: the revised rules on subscription traps, for example, will not take effect before Spring 2026.

We will keep you updated as we learn more.

CMA review of Microsoft/Inflection team hire and licensing deal demonstrates the long arm of U.K. merger control

In previous editions of this newsletter, we have discussed the growing appetite for antitrust authorities to scrutinize AI partnerships under merger control rules.

The U.K. CMA has been a frontrunner in this area. It has considered Microsoft’s relationship with Mistral and Amazon’s partnership with Anthropic (in each case concluding that it did not have jurisdiction to review the arrangements under the U.K. regime), and is considering reviews of other AI partnerships.

Most recently, the CMA reviewed and cleared Microsoft/Inflection AI. The CMA ultimately concluded that the relationship did not raise antitrust concerns, finding that, in the markets for consumer chatbots and the development and supply of foundation models, Inflection did not exert a material competitive constraint on Microsoft or other rivals.

But the authority’s decision to take jurisdiction over the deal will be considered closely by participants to similar partnerships in the AI sector.

The arrangements consisted of Microsoft hiring several former Inflection employees and entering into a series of other arrangements with Inflection, including a non-exclusive licensing deal to use Inflection IP. It marked the first time the CMA has reviewed the hiring of rival’s staff under the U.K. merger control regime.

The CMA considered whether this combination of assets amounted to at least part of Inflection’s pre-transaction business and enabled “a degree of economic continuity” in Inflection’s activities. It concluded that it did—the combination of the core Inflection team and the other assets was “key to the value” of the transaction and enabled the former Inflection team to continue its pre-transaction “roadmap” for product development with Microsoft. Given that the share of supply test was also met (based on the parties overlapping supply of chatbots in the U.K. and globally), the transaction was therefore a “merger” for the purposes of the U.K. regime.

Here, the combination of employees and additional assets triggered the CMA’s jurisdiction. However, in its summary decision the CMA indicated that hiring the team alone may have been enough. It noted that “acquiring a team with relevant know-how—even without further assets—may fall within the CMA’s merger control jurisdiction”. This is not a new principle: it is set out in existing CMA guidance. But it may well focus the minds of parties considering how to frame future AI partnerships.

The case can be contrasted with the CMA’s review of Microsoft/Mistral. The CMA determined that it did not have jurisdiction as the partnership would not give Microsoft the relevant level of control (“material influence”) over Mistral. It concluded that:

  • Microsoft’s potential shareholding in Mistral was less than 1% and it was unlikely to be able to influence Mistral’s policy at shareholders’ meetings or by otherwise influencing the Mistral board.
  • While an agreement to provide “compute infrastructure” to a foundation model developer may result in an acquisition of material influence in some circumstances (e.g., where the developer is locked into an exclusive supply arrangement), Mistral was committing to using Microsoft for only a relatively modest proportion of its compute requirements.
  • Distribution agreements between a foundation model developer and a cloud service provider may result in an acquisition of material influence where they create a “dependency” on the cloud service provider, but the distribution agreement between Microsoft and Mistral was non-exclusive and did not otherwise give Microsoft the ability to influence Mistral’s commercial policy.

From these two CMA decisions, a picture is starting to emerge of when the CMA is likely to assert its ability to review a partnership in the AI sector. The Inflection case shows that the CMA’s jurisdiction can have a broad reach. But this is not without limit, as demonstrated by the Mistral decision.

The U.K. is not the only jurisdiction where AI partnerships are in the antitrust spotlight.

At EU-level, shortly after the CMA’s decision in Microsoft/Inflection, the EC announced that the partnership would fall in the scope of the EU merger control regime. It noted that the transaction involves “all assets necessary to transfer Inflection’s position in the markets for generative AI foundation models and for AI chatbots to Microsoft” and, following Inflection’s announcement that the ‘new Inflection’ would shift its focus to its AI studio business, the Microsoft/Inflection agreements amounted to a structural change in the market.

Despite this, the EC was unable to review the arrangements under the EU merger control rules. The EC noted that the transaction did not meet EU and national merger control filing thresholds and the EC invited Member States to request that the EC review the deal under Article 22 of the EU Merger Regulation. Seven Member States made a request, but following the ECJ Illumina/GRAIL ruling on Article 22 (see above), these requests have now been withdrawn.

A recent Policy Brief (written by EC staff and not representing a formal position of the authority) confirms that, “from the merger control viewpoint”, the EC continues to monitor AI investments and partnerships between large digital players and generative AI developers, as well as transfers of highly skilled employees. To the extent that such transactions do not meet the EU turnover thresholds, the Policy Brief notes that EC will work with Member States to assess whether they can be reviewed under national merger control rules or referred to the EC (subject to the Illumina/GRAIL ruling).

In the U.S., the antitrust agencies are considering various AI partnerships. DOJ Head Jonathan Kanter has reportedly emphasized the importance of looking at “substance over form” when considering arrangements of any form. We expect to see further scrutiny across the globe.

Latest U.K. annual report on investment screening reveals longer initial processing periods

The U.K. government has published its third annual report on the functioning of the U.K.’s investment screening regime.

During the reporting period of April 1, 2023, to March 31, 2024:

  • The Investment Screening Unit (ISU) dealt with an uptick in notifications (906, compared to 865 during 2022/23), of which the vast majority (83%) were mandatory filings.
  • Fewer deals were called in for an in-depth review (41, down from 65).
  • In five cases, the government imposed conditions (down from 15 in 2022/23).
  • There were no prohibitions (compared to five in 2022/23).

In terms of timing, while the government dealt with over 95% of cases in the initial 30-working day review period, there was an increase in the time the ISU took to accept both mandatory and voluntary notifications (averaging six working days and eight working days, respectively, up from four in 2022/23). As a result, parties should build in extra time for all national security reviews.

In terms of origin of investment, investment from Chinese affiliated entities continued to receive the highest degree of scrutiny. 41% of deals called in for in-depth review related to Chinese investors despite representing only around 1% of mandatory notifications. In addition, the majority of withdrawals were linked to China, suggesting a preference on the part of Chinese investors to abandon a transaction rather than face an in-depth review and possible intervention.

Read our alert for additional commentary, covering data on notifications, intervention rates, review timings, sector focus and origin of investment.

First final decision under Foreign Subsidy Regulation shows EC willing to accept commitments

The EC has announced its final decision in the first (and to date, only) in-depth investigation of a proposed acquisition under the EU Foreign Subsidy Regulation (FSR).

The authority has conditionally approved the acquisition by e& of PPF Telecom Group (excluding its Czech business). e& is a telecoms company controlled by the Emirates Investment Authority (EIA), a UAE sovereign wealth fund.

The EC found that e& and EIA received foreign subsidies from the UAE. These took the form of an unlimited guarantee to e&, and grants, loans and other debt instruments to EIA.

The EC was concerned that these foreign subsidies could have led to a distortion of competition in the EU internal market post-transaction. It noted that, under the FSR, unlimited state guarantees fall in the category of “most likely to distort the internal market”. This led the authority to conclude that the foreign subsidies granted to e& and EIA could artificially improve the capacity of the merged entity to finance its EU activities and increase its indifference to risk.

The EC gave an example of how this may come about—the combined firm could engage in investments (such as spectrum auctions or acquisitions) that could distort the level-playing field relative to other market players and expand its activities “beyond what an equivalent economic operator would engage in absent the subsidies”.

Importantly, the EC had no concerns that the foreign subsidies had any negative effects on competition in the acquisition process. It found that e& was the sole bidder and had sufficient resources to perform the acquisition, which reflected the target’s value.

The EC has accepted the following package of commitments, which will stay in place for ten years (with a possible extension):

  • That e&’s articles of association will not deviate from ordinary UAE bankruptcy law—the EC says this will remove the unlimited State guarantee.
  • A prohibition on EIA or e& financing PPF’s EU activities (with some exceptions, e.g., for emergency funding), as well as a requirement for transactions between the companies to be on market terms—this is designed to ensure that e& and EIA cannot channel foreign subsidies to the EU activities of the merged firm post-transaction.
  • A requirement for e& to inform the EC of all future acquisitions, even if not notifiable under the FSR—this will give the EC monitoring mechanisms.

The decision sheds (at least some) light on how the EC will investigate and assess foreign subsidies using its new powers. We will know more when the full decision is published. For now, and importantly, the case demonstrates that the EC is willing to accept remedies to address its concerns. From a timing perspective, the fact that the review was wrapped up two and a half months ahead of the EC’s deadline is also positive news (the review took five months from the date of notification).

The EC has no other in-depth FSR probes on its desk. e&/PPF was the only investigation under its merger review tool, and two in-depth public procurement reviews were terminated after the firms involved withdrew their tender offers. However, the EC has an ongoing probe into Nuctech (see below) and, looking ahead, we expect more FSR activity to come, especially with vigorous enforcement under the new regime (to what end it’s unclear) being marked as a core objective for the new EC.

Court decision on FSR probe highlights challenges for non-EU companies faced with information requests

The EC carried out its first dawn raids under the FSR in April 2024. It inspected the premises of Dutch and Polish subsidiaries of Nuctech, a Chinese-owned security equipment firm, on suspicion that Nuctech may have received foreign subsidies that distorted the EU internal market.

During the raid, the EC sought access to the mailboxes of certain (Chinese citizen) employees, which were stored on servers located in China and managed by a Chinese parent company.

Nuctech challenged the EC’s decision to carry out the raids and requested interim measures to suspend the EC’s request for the mailboxes. It argued that giving access to the mailboxes would infringe Chinese laws and could result in administrative or criminal penalties.

The GC denied Nuctech’s request for interim measures. It rejected Nuctech’s claims that its Dutch and Polish entities had no access to the servers located in China and that Chinese law prevented the subsidiaries from responding to the EC’s requests.

The GC also found that Nuctech failed to establish that it would suffer serious and irreparable harm—in the form of administrative penalties—to justify suspension of the access request. In relation to criminal penalties, the GC concluded that Nuctech failed to show that the EC’s requests compelled it to commit a criminal offense.

The case highlights the difficulties faced by non-EU companies operating in the EU that are subject to data disclosure requests alongside conflicting cross-border data transfer restrictions under non-EU laws. In the Nuctech case, it was not enough to assert that to provide the data would breach non-EU laws. Instead, the GC implies that Nuctech should have taken additional steps, e.g., to request exemptions from Chinese authorities or potentially even to seek alternative ways to provide the data. This makes “foreign blocking statute” type defenses to FSR investigations difficult—but may place many non-EU companies in an invidious position in their domestic jurisdiction—a further consideration before such companies engage in EU M&A and procurement.

Having rejected the interim measures application, the GC will now consider Nuctech’s request to annul the EC’s decision to carry out the raids. In the meantime, we may see the EC take investigatory steps in relation to other companies that it suspects of receiving foreign subsidies that could distort the internal market.

Read more about the Nuctech case, and the implications for non-EU companies faced with similar EC data access requests, in our alert.

U.S. DOJ seeks rare USD3.5m gun jumping penalty

For the first time since 2017, a U.S. antitrust agency has brought an action for “gun-jumping”. In August, the Antitrust Division of the Department of Justice (DOJ) filed a civil lawsuit and proposed a settlement in court against Legends Hospitality, a global sports and entertainment venue services company.

The complaint relates to Legends’ acquisition of ASM. The deal triggered a Hart-Scott-Rodino (HSR) merger control filing and was notified by Legends. The DOJ issued a Second Request, but ultimately the HSR waiting period expired and the transaction closed without challenge.

HSR pre-merger notification requirements require merging parties to continue to operate as independent entities during the relevant waiting period. According to the DOJ, Legends violated these requirements by obtaining beneficial ownership of ASM’s business before the HSR waiting period had expired, and therefore engaged in illegal gun jumping. In particular, the DOJ alleged that:

  • Legends made key decisions on behalf of ASM by determining that ASM would continue to service a contract to manage an arena that Legends had won, pre-signing, in competition with ASM.
  • Legends sought to discuss competitive bidding strategies with ASM, including coordinating joint bids for contracts to manage arenas.
  • The parties exchanged competitively sensitive information to construct these joint bids.

While some of the conduct set out in the complaint occurred pre-signing, the DOJ’s proposed settlement limited the alleged HSR violation to post-signing conduct.

Legends has agreed to pay a USD3.5m civil penalty. The settlement, if approved by the court, will also require Legends to take other action, including refraining from certain conduct, appointing an antirust compliance officer, implementing an antitrust training and compliance program, and submitting regular compliance reports to the DOJ.

The complaint is a reminder that U.S. antitrust agencies are on the lookout for, and willing to bring, standalone HSR Act enforcement actions even when the transaction in question does not raise antitrust concerns. Merging parties should ensure they are aware of their procedural obligations and should carefully review pre-closing covenants and any integration planning steps for potential antitrust risks.

Find out more about the complaint, and how merging parties can act to mitigate gun jumping risk, in our alert. The case is also featured in our Need-to-Know Litigation Weekly publication (see below).

Individuals, as well as companies, can face U.S. enforcement action. The Federal Trade Commission recently announced that GameStop CEO Ryan Cohen agreed to pay a penalty of nearly USD1m to settle charges that his failure to file an HSR form and abide by the relevant waiting period before closing his acquisition of shares in Wells Fargo violated the HSR Act. Our commentary gives you the key takeaways from the case.

The U.S. is not the only jurisdiction keen to take enforcement action for breaches of merger control procedures. Antitrust authorities across the globe continue to clamp down on procedural infringements and fines can reach eyewatering levels.

The European Commission is a notable example—its recent court loss that led to the withdrawal of its record gun jumping fine against Illumina (see above) is unlikely to dampen its appetite to police its rules.

Also this month, China’s State Administration for Market Regulation (SAMR) imposed a CNY1.75m (approx. USD250,000) fine on Maoming Urban and Rural Construction Investment and Development Group for completing the share transfer registration of its acquisition of a 51% stake in Guangdong Zhongyuan Investment during the public comment period. While this is only the second gun jumping fine publicly announced by SAMR since 2022, it is a sign that the authority is willing to use its recently beefed-up powers to impose higher fines for procedural breaches.

We will continue to bring you the latest news on procedural merger control enforcement.

Australia’s proposed merger notification thresholds set to affect deal-making

As part of its plan to shift from a voluntary merger control filing regime to a mandatory and suspensory system from January 1, 2026, the Australian Government has published its proposed notification thresholds.

The draft thresholds combine revenue, transaction size and share of supply tests. Notification will be required if at least one of the “monetary” or “market concentration” threshold limbs are met and there is a material connection to Australia (e.g., the target is located or generating revenue in Australia, or supplying goods/services to Australian customers).

As currently drafted, the proposed thresholds will result in more deals requiring notification to the Australian Competition and Consumer Commission (ACCC)—particularly for entities that already have a material Australian presence—irrespective of any impact on competition. Serial acquisitions could face greater scrutiny, due to proposed rules to aggregate acquisitions over a three-year period.

Additional thresholds may be adopted for transactions in certain sectors. This could, for example, include sectors such as supermarkets or retail petrol stations, where there is a high consumer interest.

The proposals mark a major change to merger control in Australia. Parties to deals with an Australian nexus will need to get to grips with the new regime well in advance of the January 1, 2026 implementation date, as transitional provisions start to kick in from July 2025. The consequences of not getting it right could be severe—the ACCC can impose heavy fines for failure to notify.

Our alert sets out the proposed thresholds in detail and gives you our predictions on how deal-making will be affected.

Draft EU guidelines on exclusionary abuse tighten enforcement by relying on presumptions

The EC has published for consultation its much-anticipated draft guidelines on when exclusionary conduct can amount to an abuse of a dominant position in breach of EU antitrust rules (the Draft Guidelines).

The EC is proposing an important shift away from the “effects-based” assessment set out in earlier enforcement priorities. Instead, the Draft Guidelines take a more legalistic approach—they set out presumptions that certain types of conduct amount to exclusionary abuse, shifting the burden of proof onto the businesses under investigation.

The Draft Guidelines propose a two-step test for assessing exclusionary abuse:

  1. Does the dominant company’s conduct depart from “competition on the merits” (i.e., normal competition based on price, choice, quality or innovation)? The Draft Guidelines set out various factors that the EC will consider, e.g., whether consumers are prevented from exercising their choice based on the merits of products. Conduct satisfying certain specific legal tests (exclusive dealing, tying and bundling, refusal to supply, predatory pricing and margin squeeze) or “naked restrictions” (as described below) will also fall outside the scope of competition on the merits.
  2. Is the conduct capable of having exclusionary effects? Here, the Draft Guidelines identify three categories of exclusionary conduct:
  • Naked restrictions. These are types of conduct that have no economic interest for the dominant company other than restricting competition (e.g., paying customers to delay the launch of products based on products of a dominant firm’s rival). They are presumed to have exclusionary effects, and only in exceptional circumstances will the dominant company be able to show the contrary.
  • Conduct with a high potential for producing exclusionary effects. These are: exclusive supply or purchasing agreements, rebates conditional upon exclusivity, predatory pricing, margin squeeze in the presence of negative spreads, and certain forms of tying and bundling. Again, exclusionary effects are presumed, and the dominant firm will have to prove that the conduct is not capable of having such effects or can be objectively justified. Note that these presumptions do not fully coincide with the categories of conduct for which a specific legal test exists.
  • Other conduct. Here, the EC bears the burden of proving exclusionary effects.

The Draft Guidelines, once finalized, will not be legally binding—especially not on the courts. However, we expect them to significantly influence business practice in the EU, shaping the EC’s enforcement of the abuse of dominance rules and acting as a reference framework for national competition authorities and courts.

Read our alert to find out more about the Draft Guidelines and what they will mean for dominant firms. The consultation runs until October 31, 2024. The EC aims to publish the final Guidelines in 2025. A&O Shearman will be submitting a response in due course.

Spanish antitrust authority imposes record fine on Booking.com

In late July, the Spanish antitrust authority (CNMC) fined Booking.com a total of EUR413.24m for abuse of a dominant position over a five-year period. The authority found that Booking.com was dominant in the Spanish market of online booking intermediation services to hotels by online travel agencies (alleging it holds a market share of around 70-90%) and grouped the company’s conduct into two separate forms of abuse.

First, the CNMC concluded that Booking.com exploited its dominant position by imposing a number of unfair commercial conditions on hotels located in Spain:

  1. A price parity clause that prevented the hotels from offering rooms on their own websites below the price offered on Booking.com, with Booking.com reserving the right to unilaterally lower the price that hotels offer through its website or application.
  2. Clauses under which only the English version of Booking.com’s General Delivery Terms (GDT) is legally binding, Dutch law governs the GDT and only Amsterdam courts have jurisdiction in the event of a dispute between the parties.
  3. Insufficient transparency on the impact and cost-effectiveness of subscribing to Booking.com’s “preferred” schemes—these allow participating hotels to improve their Booking.com ranking in exchange for a higher commission or room discounts.

The authority argued that these unfair trading conditions prevented hotels from offering cheaper prices for their rooms on their own websites, led to unequal litigation costs and prevented hotels from making informed decisions on whether to subscribe to Booking.com’s preferred schemes.

Second, the CNMC found exclusionary abuse, concluding that Booking.com restricted competition from rival online travel agencies by:

  1. Using the total number of bookings of a hotel through Booking.com as a criterion in Booking.com’s default ranking results.
  2. Using a performance requirement based primarily on each hotel’s profitability for Booking.com as a criterion for entering and staying in its preferred schemes.

The authority stated that these practices encouraged hotels to consolidate their online bookings solely through Booking.com, thereby preventing competitors from entering or expanding.

Booking.com was fined EUR206.62m for each infringement—a record penalty for the CNMC. The CNMC also imposed a number of behavioral remedies to be implemented by Booking.com within certain deadlines in order to prevent similar conduct in the future. Finally, the CNMC imposed a debarment sanction (i.e., a procurement ban) on Booking.com, with a scope and duration to be fixed in further proceedings.

The company reportedly secured a discount of around EUR75m for making prior adjustments to its parity clause policy and other terms and conditions. The amendments were also in part a direct consequence of the company needing to comply with the EU Digital Markets Act, demonstrating how a designated firm’s obligations under the DMA might interact with antitrust enforcement.

Booking.com has said it will challenge the Spanish decision.

August also saw the company seek to wrap up similar cases elsewhere. Price parity commitments have been accepted as part of a settlement in Booking.com’s appeal against remedies imposed by the Competition Commission of South Africa following its online intermediation platforms market inquiry. Back in the EU, the Italian antitrust authority is considering whether to accept commitments and close an abuse of dominance probe opened in March.

Finally, this month the ECJ has ruled on questions from an Amsterdam court in relation to an action by Booking.com seeking a declaration that its parity clauses are valid. The ECJ noted that the provision of online hotel reservation services by platforms such as Booking.com has had a neutral, or even positive, effect on competition. However, it went on to rule that it has not been established that price parity clauses are objectively necessary to ensure the economic viability of the platform or are proportionate.

Need-to-Know: updates on U.S. antitrust litigation

Our Need-to-Know Litigation Weekly publication analyzes notable U.S. litigation decisions, orders, and developments. From an antitrust perspective, we have featured the following cases over the past month:

District Courts split on Federal Trade Commission’s Non-Compete Clause Rule (read here)

Health care company secures antitrust victory with jury verdict in its favor (read here)U.S. DOJ seeks rare USD3.5m “gun jumping” penalty for alleged pre-closing conduct in violation of Hart-Scott-Rodino Act (read here)

Fifth Circuit dismisses U.S. Anesthesia Partners appeal, declining to hear constitutional claims under collateral order doctrine (read here)

Court grants motion to dismiss in antitrust case alleging boycott conspiracy of crop protection products (read here)

You can access Need-to-Know Weekly in full here. If you would like to be added to the distribution list, contact us at litigation_weekly@aoshearman.com.

A&O Shearman Antitrust team in publication

Recent publications by members of the team include:

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