Antitrust in focus - April 2022

General

• Italian Court annuls EUR10.9 million fine for abuse of dominance in the context of completed mergers
• Antitrust authorities seek ways to better detect cartels
• UK merger block marks first major divergence from EU
• Significant changes to UK competition and merger control rules set to put the UK on a separate path from the EU
• Ukrainian authority clarifies current merger control practices
• Enhanced cooperation between antitrust authorities in the MENA region

Digital & TMT

• EU institutions announce political agreement on proposed rules for ‘gatekeeper’ digital platforms

Transport

• Italian ferry operator fined for excessive and unfair pricing

General 

Italian Court annuls EUR10.9 million fine for abuse of dominance in the context of completed mergers

At the end of March, the Regional Administrative Court of Lazio (RAC) annulled the decision of the Italian Competition Authority (ICA) finding that CTS Eventim-TicketOne group (TicketOne) abused its dominant position on the Italian market for the sale of tickets for pop and rock music concerts.

In 2021, the ICA fined TicketOne EUR10.9m for implementing what it called a “complex strategy” aimed at preventing competing ticketing operators from selling tickets for live pop and rock music events.

According to the ICA, part of TicketOne’s strategy was the acquisition of four national live music event promoters. These transactions, which were not reviewed under merger control rules as they fell below the EU and Italian notification thresholds, allegedly enabled TicketOne’s event promotion business to boycott rival ticket sellers.

A number of companies from the TicketOne group separately appealed the decision on various grounds. The RAC annulled the ICA’s decision. It concluded that the ICA had failed to prove to the requisite legal standard the existence of a single exclusionary strategy against competing ticketing operators.

In particular, the RAC focused on the acquisition of the four national promoters, holding that mergers can only be assessed within the EU or domestic merger control framework and cannot be considered as an element of any alleged exclusionary strategy. The RAC found that the ICA had made a procedural error by rejecting TicketOne’s argument that the acquisitions were a legitimate business response to the expansion of its main competitor.

Importantly, the RAC also noted that the 1973 judgment of the European Court of Justice (ECJ) in Continental Can, where the acquisition of a rival was held to amount to an abuse of dominance, was rendered obsolete when the European Commission adopted a merger control regime. It added that if mergers could be analysed for antitrust purposes outside the merger control mechanism, the protection system set up in the legislation would be irremediably compromised in violation of the principle of legal certainty and the freedom to engage in economic activity.

This is not the first time that the question of how to assess non-notifiable mergers has been raised in the past year. Last July, the Paris Court of Appeal sent a preliminary ruling request to the ECJ asking whether the prohibition of abuse of dominance applies to mergers that do not meet notification thresholds. The case concerns a complaint to the French Competition Authority (FCA) by towerCast (a radio and television transmission company) related to Télédiffusion de France (TDF)’s acquisition of Itas, a competitor in the terrestrial broadcasting market. towerCast referred to Continental Can in support of its argument that TDF’s acquisition was used to reinforce its dominant position. The FCA disagreed. The ECJ’s ruling is eagerly anticipated.

Emilio acted for CTS Eventim in the Italian case.

Antitrust authorities seek ways to better detect cartels

How best to detect potential cartels – which by their nature are usually secret – is a perpetual issue for antitrust authorities. Companies coming forward to report anti-competitive behaviour through leniency programmes has historically proved particularly fruitful. But faced with a general decline in leniency applications over recent years, authorities have been considering ways to boost detection levels.

In the U.S., the Antitrust Division of the Department of Justice (DOJ) has sought to revitalise its leniency programme by revising its policy and updating guidance in the form of Frequently Asked Questions. In our alert we consider the key changes, including adjustments to the application process, the introduction of an obligation to “promptly report” illegal activity and the DOJ’s approach to restitution, remediation and compliance. We also look at cooperation credit in circumstances where leniency is not available.

At EU level, there have been reports that the European Commission (EC) is considering how to improve its leniency regime. It has also reportedly seen an increase in activity under its whistleblower programme. This tool encourages individuals (anonymously if they prefer) to approach the EC with information on business practices they suspect are anti-competitive.

We understand that the EC regularly shares information it receives with other antitrust authorities. A recent Spanish CNMC investigation into steel producers over suspected information exchange is a good example. The CNMC originally learned of the conduct after the EC passed on an anonymous complaint received through the whistleblower tool. Ultimately the CNMC imposed fines of EUR24m (see our March 2022 edition of Antitrust in focus).

We have also seen a recent surge in the number of dawn raids being conducted by antitrust authorities across the globe. After an unsurprising lack of raids during the height of the Covid-19 pandemic, it now appears that authorities are keen to get back to 'business as usual'.

In the past few weeks alone there have been a number of antitrust dawn raids across European jurisdictions. This includes the EC carrying out inspections in the natural gas sector in Germany, as well as raids by antitrust authorities in Austria, Belgium, France, the Netherlands, Portugal and Slovakia. Outside Europe there have been reports of inspections in Brazil, India, Israel and Japan.

Significantly, the shift to home and hybrid working is likely to prompt dawn raids at domestic premises. An EC official has confirmed that the authority recently raided the home of an employee at the same time as it searched the offices of the employer. She noted that the EC is likely to make more use of this power in the future, although she acknowledged that the EC will not issue press statements when it does so, in order to protect the privacy of the individuals.

We are aware that some other antitrust authorities (including in France) have also been carrying out domestic raids. In the UK, the Government has announced plans to give the UK authority “seize and sift” powers when carrying out raids at domestic premises on the basis that relevant documents are more likely to be located in private homes.

We will keep a close eye on whether this practice develops into a broader trend across jurisdictions and/or necessitates other changes to procedures to accommodate raids at private premises.

For more commentary on these trends and themes, see our Global antitrust enforcement report.

UK merger block marks first major divergence from EU

Post-Brexit, the UK Competition and Markets Authority (CMA) is reviewing complex international transactions in parallel with the European Commission (EC). The authorities generally coordinate with each other when carrying out these investigations.

But consistent outcomes are not guaranteed. In the first major divergence in approach, the CMA has blocked the planned USD5 billion merger between Cargotec and Konecranes, just weeks after the EC cleared the deal with remedies.

Cargotec and Konecranes are both large players in the provision of container handling equipment and services to port terminals and industrial customers across the globe. It was therefore unsurprising that the deal attracted close scrutiny from a number of merger control authorities. Concerns were mainly centred on the lack of remaining competitors in the relevant markets, and the potential impact of the deal on global and/or national supply chains.

To address these concerns, the parties offered to divest various assets belonging to each of them. In February, the EC concluded that these divestments were sufficient and conditionally cleared the transaction. Other antitrust authorities, including in South Africa, also approved the merger subject to the same remedies.

But the CMA did not agree. It concluded that the asset packages “lacked important capabilities”, meaning that the purchaser would not be able to compete as strongly as the parties do at the moment. It also said that the process of carving out the assets from the parties’ existing operations, and “knitting them together” into a new combined business, would be “complex and risky”. For the CMA, short of the divestment of the entire relevant division of one of the parties, prohibition was the only way to address its concerns.

The UK authority was not alone in its view. The U.S. Department of Justice (DOJ) announced that it had (the day before the CMA’s prohibition decision) informed the parties that it would reject their proposal for remedies to deal with U.S.-related concerns and had threatened to sue to block the deal. While it had not come to a final conclusion before the transaction was abandoned by the parties, the Australian Competition and Consumer Commission (ACCC) had released a Statement of Issues that outlined its preliminary competition concerns. Announcing the discontinuation of its review of the proposed merger, ACCC Chair Gina Cass-Gottlieb said that “Australia customers had expressed concerns that the proposed divestiture remedy may not have been sufficient” to address concerns and that it was unclear that the “mix and match” assets from both companies included everything required for the divested business to function successfully.

There has been much discussion about the reasons for the diverging conclusions.

Executive Vice-President Margrethe Vestager has vigorously defended the EC’s decision. She notes that the remedies package was market tested twice, with positive feedback from customers and competitors. The EC also sought to mitigate any risks to the divestment process by putting in place an upfront buyer requirement, meaning the authority had to approve suitable purchasers of the divestment businesses before the parties could complete the merger. Ultimately, she says, the EC had no discretion but to accept the remedies.

Interestingly, she has also reportedly stated that a divergence in outcome between the EC and CMA should be the exception rather than the rule. In theory this provides some level of comfort for parties to international transactions. But how often the authorities will reach a different final result in practice remains to be seen, particularly as the CMA (along with some of its international counterparts) is showing signs of being more sceptical about whether any merger remedies can adequately address antitrust concerns.

The CMA’s prohibition also adds to the authority’s growing tally of merger control interventions in 2022.

In addition to Cargotec/Konecranes, so far this year we have seen Nvidia abandon its acquisition of ARM as a result of UK antitrust and national security concerns (as well as antitrust concerns in the EU and U.S.). In an unusual phase 1 case, the CMA is considering clearing a completed vet merger on condition that the acquirer sells off the whole target business. And adverse provisional findings in the CMA’s in-depth review of CHC/Babcock look set to result in further intervention. After a slight dip in intervention levels in 2021, all signs are that the CMA is set to keep up its tough approach going forward.

For more commentary on merger control intervention levels and the growing scepticism of certain antitrust authorities to remedies, see our Global trends in merger control enforcement report.

Significant changes to UK competition and merger control rules set to put the UK on a separate path from the EU

This month there have been some major developments in initiatives to amend UK competition and merger control rules. First, the UK Government has announced which reforms to the UK competition and consumer laws it plans to take forward. Second, there has been significant progress with the adoption of UK rules on vertical agreements and horizontal cooperation agreements. We discuss each in turn.

It is also worth mentioning that the new UK subsidy control regime received Royal Assent at the end of April. It sets out the post-Brexit framework for the grant of subsidies by UK public authorities. The Government expects it to come into force in Autumn 2022. We will provide further updates on the new regime in due course.

Government confirms reforms to UK competition and consumer laws

In July 2021, the UK Government published wide-ranging proposals for reform of the competition and consumer rules. Now, it has announced which proposals it intends to implement. Our alert comments on the key changes. These include:

• Merger control: significant amendments to the jurisdictional thresholds, including a new threshold designed to enable the CMA to review killer acquisitions more easily.
• Market inquiries: greater flexibility, particularly in relation to the CMA’s ability to accept binding commitments and to review and amend existing remedies.
• Anti-competitive conduct: facilitating stronger and faster enforcement, eg by bringing anti-competitive agreements implemented outside the UK (but with an effect in the UK) into the scope of the Chapter I prohibition and giving the CMA greater evidence-gathering powers.
• Tougher sanctions for non-compliance: including for failing to comply with investigations and remedies.

Our commentary on the reforms to consumer law will be available shortly.

New UK rules on vertical agreements and horizontal cooperation agreements

EU regulations exempting certain categories of agreement from the prohibition on anti-competitive agreements were retained in UK law post-Brexit. However, with some of these block exemptions due to expire this year, the European Commission (EC) and the UK Competition and Markets Authority (CMA) have been undertaking separate in-depth evaluations. Both have been consulting on whether to extend the block exemptions and, if so, how they and associated guidance should be updated.

For businesses operating across the UK and the EU, diverging antitrust regimes means increased compliance costs. The CMA’s approach to its review has therefore been to balance the advantages of divergence from the EU to address peculiarities of UK markets and better protect UK consumers with the benefits of consistency between the EU and the UK block exemptions. The end result is likely to be a great deal of similarity in the rules interspersed with some key differences in approach.

Most imminently, the Vertical Block Exemption Regulation will expire on 31 May 2022. The UK and the EU propose to renew the block exemption in amended form. Both jurisdictions also plan to issue guidance which will cover how businesses should apply the block exemptions as well as how they should assess vertical arrangements that do not fall within the scope of the block exemptions.

Our alert on the CMA’s draft verticals guidance sets out the main changes in approach from the current rules. In particular it looks at parity obligations, dual distribution, the distinction between active and passive selling, online sales and advertising bans, dual pricing, agency agreements, RPM and non-competes. Crucially, where relevant, it compares the UK position with the EC’s planned approach. You can also read about how the EU rules on vertical agreements have been enforced in Central and Eastern Europe (and what to expect going forward) in our separate commentary.

The two Horizontal Block Exemption Regulations relating to R&D and specialisation will expire on 31 December 2022. Again in line with the EC, the CMA is proposing to recommend that these are replaced with similar but improved block exemptions, and accompanied by guidance that also addresses other categories of horizontal agreement and issues not covered by the block exemptions themselves. Our alert on the EC’s proposed guidance focuses on sustainability agreements and data sharing. At this stage, without draft UK guidance, we await the CMA’s thinking on these points.

The good news is that businesses are likely to be granted 12-month transition periods. This should give them sufficient time to consider the subtle divergences in approach and, where necessary, adapt ongoing agreements to ensure compliance beyond the end of the transition period.

Ukrainian authority clarifies current merger control practices

In the last edition of Antitrust in focus we discussed various antitrust developments in connection with Russia’s invasion of Ukraine. In particular, we noted that the Antimonopoly Committee of Ukraine (AMC) had suspended consideration of all active merger control and behavioural antitrust cases.

The AMC has now issued further guidelines on the enforcement of Ukrainian merger control practices during the current period of martial law.

Most significantly, the AMC has confirmed that merging parties remain obliged to obtain merger control approval from the AMC where the relevant notification thresholds are met. However, it sets out some changes to the notification process and timing:

1. Applications can be made in simplified form. Parties may, for example, choose not to provide information on relevant markets. Any information not provided at the time of filing will need to be submitted to the AMC within three months after martial law is lifted. Information about the parties’ connections to Russian companies or individuals must, however, be provided when the application is filed.
2. Applications must be submitted at least 15 calendar days before closing. The parties can submit the application and supporting documents by email, if the submission of hard copies is not possible. The AMC’s review of the filing will at that point be suspended, and will resume within three months of the termination of martial law once the AMC has received all the required information about the transaction.
3. Transactions that have been notified but closed before receiving AMC approval will be subject to fines. But these will be at a significantly lower level than under the standard Ukrainian merger control rules – around EUR1,600 for deals filed in line with the process/timings above and that do not give rise to grounds for prohibition. However, if one of the parties to the transaction is ultimately controlled by Russia or Russian citizens supporting the military aggression against Ukraine, or if the AMC reasonably suspects a divestment of assets or shares aimed at avoiding international sanctions imposed for the military aggression against Ukraine, the AMC will impose statutory maximum fines.

We will keep you updated of any other major developments in this area.

Enhanced cooperation between antitrust authorities in the MENA region

Cross-border coordination between antitrust authorities, both in terms of policy and on specific cases, has been a recurring theme in recent editions of Antitrust in focus. It also featured as a hot topic in each of our annual global trends reports on merger control and antitrust enforcement.

In the latest major cooperation initiative, antitrust authorities in the Middle East and Africa (MENA) have officially launched the Arab Competition Network (ACN).

Its formation follows a significant growth in antitrust cases in the MENA region, together with an increased awareness of antitrust laws.

The ACN aims to bolster cooperation between Arabic-speaking antitrust authorities and to support jurisdictions seeking to adopt their own antitrust rules and undertake enforcement activities. An immediate objective is to assist its members in investigating and monitoring sectors that have been affected by the Covid-19 pandemic and Russia’s invasion of Ukraine.

Overall, the ACN could result in a stronger regulatory landscape and more rigorous antitrust enforcement policies in the MENA region. Our alert tells you more about the ACN and its potential implications.

Digital & TMT

EU institutions announce political agreement on proposed rules for ‘gatekeeper’ digital platforms

The need for rules regulating Big Tech and the extent of those rules continues to be debated across the globe.

In the EU last month, new legislation imposing requirements on online platforms that act as ‘gatekeepers’ ‒ the Digital Markets Act (DMA) ‒ took a significant step towards becoming reality. The exact scope and application of the DMA has been heavily negotiated since the European Commission (EC)’s original December 2020 proposal. But the Council of the EU and the European Parliament have now reached a provisional political agreement on rules that will impose significant obligations on those defined as gatekeepers. These could become applicable in early 2023.

Our alert details the reported changes to the draft DMA including amended ‘gatekeeper’ thresholds, an SME carve-out, provision for ‘emerging gatekeepers’ to be in scope, amended core obligations and restrictions and harsher sanctions for non-compliance. Significantly, the EC has maintained its position as sole enforcer of the DMA as well as an ability to use a market investigation tool.

Our alert also considers how the DMA will interact with national-level digital market regulation, antitrust law and merger control rules.

Executive Vice-President Vestager hopes the DMA will “inspire all over the planet”. Businesses will certainly do well to keep abreast of what could become a ‘patchwork’ of regulatory approaches as other jurisdictions finalise their own proposals.

Transport

Italian ferry operator fined for excessive and unfair pricing

Excessive pricing cases are relatively rare. They are notoriously tricky to prove.

The Italian Competition Authority (ICA), however, remains undeterred. At the end of March, it fined Caronte & Tourist EUR3.7m for unjustifiably charging excessive rates on a ferry route across the Strait of Messina.

The ICA found that the ferry operator is the only company to offer passenger and vehicle transport on the route and that the majority of motorists favour it over other routes. The ICA also found a “significant disproportion” between the operator’s costs and revenues, and that prices were unreasonably high in comparison to international benchmarks given the operator’s poor quality of service.

Until this case, ICA excessive pricing enforcement has focussed on the pharmaceutical sector. Indeed, the ICA is expected to reach a decision next month on whether Leadiant Biosciences charged excessive prices for an “orphan drug”. Likewise, the European Commission (EC) and the UK’s Competition and Markets Authority have enforced against excessive pricing in the industry. See, for example, our February 2021 article on behavioural commitments agreed between the EC and Aspen.

With health services under financial pressure in the wake of the Covid-19 pandemic, the pricing practices of dominant pharmaceutical companies will remain under scrutiny. But we may also now see excessive pricing enforcement spill over into other sectors, in particular in light of the recent joint statement by the European Competition Network on the application of competition law in the context of the war in Ukraine (discussed in the March edition of Antitrust in focus), which notes that “it is of utmost importance to ensure that essential products (for example energy, food, raw materials) remain available at competitive prices”. Antitrust authorities, including the ICA, will use rules against excessive and unfair prices as part of the armament of antitrust laws to deter firms from taking advantage of the current economic crisis.

A&O antitrust team in publication

Recent publications by members of our global team include:

• Emilio De Giorgi (partner, Milan) and Marco Lupoli (associate, Milan): Antitrust e legal privilege secondo la Cassazione francese: quali impatti per l’Italia? / Antitrust and legal privilege according to the French Supreme Court: what impact for Italy?, il Quotidiano Giuridico, 7 April 2022
• Noah Brumfield (partner, Washington, D.C. and Silicon Valley): What DOJ’s shifting stance on IP means for SEPs, mergers, originally published on law360, March 2022
  
  

Spotlight on Emilio

A typical working day in Milan… involves an espresso to start the day and five more to make it through the day and quite often a nice walk through the old town to reach the Court.

If I hadn’t become an antitrust lawyer, I would… be a football player leading Juventus to a well-deserved win of the Champions League.

The best career advice I’ve been given is… to be honest, improving yourself rather than blaming others.

The most interesting matter I’ve worked on… involved obtaining immunity in a cartel case that lasted three years and turned my hair white.

For me, being a good lawyer/advisor means… caring for my clients as if it were me bearing the consequences.

Something I’d like to do but haven’t yet done is… to run the Venice marathon (but I suspect it will remain a dream).

My ideal weekend in two sentences… is watching my son’s football match on the Saturday and training with him on the Sunday. But also some culture which is typically going to a theatre with my wife Agnese.

My typical weekend in two sentences… luckily tends to match my ideal week-end with, unfortunately, some work in the way.

Something that might surprise you about me is… that every year I propose to my wife that we go camping at the seaside (but she always turns me down).

My top tip for visitors to Milan is… to definitely go to La Scala, a unique experience!