Antitrust in focus - March 2024

Out now: our latest global antitrust enforcement report

Antitrust authorities worldwide continued their enforcement against anti-competitive conduct in 2023.

Our report explores the latest trends in the global enforcement landscape. We analyse data from over 30 jurisdictions and identify the key developments and themes shaping authorities’ activities.

We examine cartels and non-cartel conduct, including vertical restrictions (eg resale price maintenance and online sales restrictions) and abuse of dominance (eg self-preferencing and leveraging). We identify the sectors and types of conduct facing continuing regulatory scrutiny and highlight issues posing particular risks. These include digital markets, sustainability and labour market issues.

We also consider the key themes at play in private damages enforcement across the EU and the UK, including the scope for forum shopping and the evolution of collective proceedings.

Explore our ten key insights:

1. Mixed picture for antitrust enforcement continues but change is on the horizon
2. Cartel enforcement tops the antitrust agenda
3. Authorities take a more conciliatory approach to enforcement against vertical and other non-cartel conduct
4. Abuse of dominance enforcement declines as new forums emerge
5. Immunity and leniency pipeline continues general decline
6. Dawn raids bounce back, international cooperation flourishes
7. Digital markets remain a focal point for antitrust enforcement
8. Sustainability and antitrust weave a regulatory patchwork
9. Surge in EU and UK private antitrust damages actions continues
10. Regional snapshots for antitrust enforcement fines in 2023

If you or your teams would like a discussion on any of these topics or a training session to run through the report’s highlights, please get in touch with your usual A&O contact.

EU Advocate General challenges European Commission’s power to review below-threshold mergers 

This month we have seen a much-anticipated Advocate General (AG) opinion in Illumina/GRAIL. It relates to the European Commission (EC)’s revised referral policy under Article 22 of the EU Merger Regulation, which encourages EU Member States to refer transactions to the EC for review even where EU and national merger control filing thresholds are not met. The EC’s aim was to review more “killer acquisitions”, ie purchases by large players of start-ups or small innovative firms that would often escape merger control review due to the target having little or no turnover. 

Illumina/GRAIL was the first transaction reviewed under the revised policy. Illumina appealed the EC’s decision to take jurisdiction, but the General Court (GC) confirmed the EC’s approach. The deal was ultimately blocked by the EC, but Illumina persisted in appealing the GC’s ruling.

In the latest step in the saga, the AG has recommended that the European Court of Justice (ECJ) overturn the GC’s judgment and find that the EC has no jurisdiction to examine transactions that fall below both EU and national notification thresholds.

In the AG’s view, the GC wrongly interpreted Article 22, considering the history, context and purpose of the provision as well as the logic of the EU merger control system and fundamental principles of EU law. 

He notes that the EC and GC’s interpretation of Article 22 would significantly extend the scope of the EU merger regime. It would give the EC the power to review almost any deal, occurring anywhere in the world, regardless of the parties’ turnover, their EU presence and the value of the transaction. This would include assessing transactions well after they had closed. The AG believes this would create significant uncertainty for merging parties. 

The AG’s opinion is non-binding, and it is now up the ECJ to reach its own conclusion in the case. If the court follows the AG’s recommendation, it will be a significant blow to the EC and will have implications for ongoing Article 22 referral cases.

Watch out for our upcoming alert, which discusses the AG’s views and the wider implications for EU merger control.

South Korean authority blocks education merger marking its first prohibition in eight years

The Korean Fair Trade Commission (KFTC) has prohibited education firm MegaStudy’s acquisition of rival ST Unitas. The authority concluded that the deal would harm competition in the market for civil-service exam preparation academies by combining the two leading market players.

In particular, the KFTC raised concerns that the transaction could lead to a concentration of instructors and students at the combined firm, and that this may result in higher tuition fees or other adverse impacts on students. It might also be difficult for rival firms to respond.

The authority found that remedies could not address these concerns and instead decided to block the deal. The case is significant in being the first merger block by the KFTC in eight years.

Despite its prohibition record, the KFTC has shown its willingness to intervene in M&A in recent years. It imposed remedies in a number of cases, most recently requiring behavioural commitments in Broadcom/VMware and Hanwha/DSME. The current South Korean remedy process is different to many other merger control systems – only the KFTC can design and impose remedy packages. This is set to change. Amendments to the regime, due to take effect in August 2024, will enable parties to themselves offer remedies to the authority. This should ultimately create a more efficient process and one more aligned with international standards.

Read more about the merger control enforcement trends impacting M&A in our Global trends in merger control enforcement report.

Consumer enforcement at the heart of the UK CMA’s 2024 annual plan

2024 will be a year of unprecedented change for UK consumer enforcement. The Digital Markets, Competition and Consumers Bill (DMCC Bill) – set to make sweeping reforms to the regime – will receive Royal Assent in April and is expected to come into force before the end of the year.

The Competition and Markets Authority (CMA) will gain the power for the first time to directly enforce consumer law itself. The CMA will be able to launch investigations against companies that are perceived as deploying unfair trading practices and will have the power to require changes to trading practices and impose financial penalties without recourse to the courts. There is potential for very significant fines – up to 10% of annual global turnover – for companies that breach unfair trading rules (mirroring the CMA’s powers when enforcing antitrust laws).

This month, the CMA published its 2024/25 Annual Plan, which places consumer protection at the heart of its strategic priorities.

The annual plan makes clear that the CMA will continue its consumer work with vigour, acting in areas of essential spending and where people are under financial pressure. The CMA’s investigations relating to online sales practices will continue, with the authority preparing to broaden its work to protect consumers from harmful online choice architecture and misleading pricing practices.

The types of unfair practices are due to expand under the DMCC Bill. Novel selling practices in the digital arena deemed to cause consumer harm are particularly in the spotlight, including:

• Drip pricing: hidden fees will be prohibited, requiring businesses to advertise all mandatory fees and charges upfront.
• Subscription traps: companies will be required to simplify how consumers are able to bring automatically renewing contracts to an end and notice provisions are being enforced. 
• Fake reviews: commissioning, hosting or offering fake reviews will be automatically considered an unfair trading practice. 

A third of the CMA’s ongoing consumer protection cases relate to consumer harms arising out of misleading online selling practices. The CMA is probing Emma Sleep, Wowcher and Simba Sleep for their use of countdown clocks and reference pricing. Businesses should take heed of the CMA’s proactivity – with its new powers, we expect a surge in the number of consumer enforcement cases in this area.

Broader enforcement action is also likely. Misleading environmental and sustainability claims are already on the CMA’s radar. It has secured undertakings from certain players in the fashion sector to change the way they display, describe and promote their green credentials and has an ongoing investigation into Worcester Bosch. We expect this to be a hot area going forward. 

Businesses should take steps now to prepare for the DMCC Bill. To avoid lengthy investigations and potentially significant fines, appropriate risk mitigation strategies and training for staff will be vital to ensure all consumer-facing dealings are compliant with the new regime.  

Apple’s EUR1.8 billion abuse of dominance fine shows unprecedented European Commission approach to deterrence 

The European Commission (EC) has fined Apple a total of EUR1.8bn for abusing its dominant position in the market for the distribution of music streaming apps to iOS users through its App Store.

The EC concluded that “anti-steering provisions” imposed on music streaming app developers prevented them from informing iOS users within their apps of alternative and cheaper music subscription services outside the app. App developers were also banned from including links in their apps leading users to their website on which alternative subscriptions could be bought and contacting newly acquired users to inform them about alternative prices after they set up an account.

According to the EC, this amounted to unfair trading conditions that were neither necessary nor proportionate for the protection of Apple’s commercial interests in relation to the App Store.

The result was that many iOS users may have paid significantly higher prices for music streaming subscriptions – Apple’s 30% commission fee on app developers is typically passed on to consumers. The EC said users also suffered non-monetary loss in the form of a “degraded user experience”. They either needed to carry out a “cumbersome search” to find relevant offers outside the app or did not subscribe to any service because they could not find one.

The EC’s decision is significant for three key reasons.

1. An unprecedented fine

The way the EC determined the amount of the fine is unprecedented. Using its standard calculation methodology, the basic fine was reported to be EUR40m (which included a 20% uplift as a result of Apple submitting incorrect information during the investigation). This was described by Competition Commissioner Margrethe Vestager as a “parking ticket” for Apple. The EC therefore added on a lump sum of EUR1.8bn, bringing the total to 0.5% of Apple’s global turnover.

We have never before seen the EC add a lump sum of this magnitude. The authority said it was to ensure deterrence, so that Apple and other companies would think twice before engaging in similar infringements. It also noted that the additional amount was needed because a significant part of the harm was non-monetary and therefore not accounted for by the standard revenue-based method of calculating fines.

The EC relied on a provision of its fining guidelines that enables it to depart from the usual approach to fine calculation where justified by the particularities of the case or to achieve deterrence. It is the first time it has used this provision in an abuse of dominance case. It sets an important precedent for future abuse cases, particularly those involving non-monetary harm and/or where the EC believes there is a real likelihood of the same or similar conduct by firms with considerable resources.

2. Resurgence of exploitative abuse cases

The decision is an example of the EC’s increasing focus on “exploitative” abuses of dominance, ie behaviour that exploits market power and harms consumers.

This is new. Previous enforcement had focused almost exclusively on exclusionary abuse whereby conduct by dominant firms forecloses competitors from the market in question. As recognised by Vestager in a recent speech, this is now changing, particularly given the EC’s recent enforcement action in digital and pharmaceutical markets.

3. Interaction with digital regulation

The case is an early indication of the interaction between the EU’s antitrust rules and the new Digital Markets Act (DMA). The EC’s decision came just days before the DMA’s obligations on digital “gatekeepers” kicked in (see our article below). These obligations prohibit the types of anti-steering provisions for which the EC sanctioned Apple. Going forward, therefore, it can be expected that the DMA will be the primary regime used to police such conduct by large digital firms.

But that does not mean the EU antitrust rules are now redundant. Vestager talks about them being complementary and working “hand in hand”. She notes that not every type of conduct will fall within the DMA’s prohibitions and that “antitrust enforcement will continue to break new ground in digital markets”.

Apple plans to appeal the EC’s decision. In a statement it argues that there is no evidence of consumer harm, and that the EC was trying to enforce the DMA before it came into force.

Apple is also facing headwinds in the U.S. The Department of Justice (DOJ) and a coalition of 16 state and district attorneys general have filed a landmark lawsuit accusing the firm of illegally maintaining a monopoly over smartphones. 

The complaint is far reaching. It alleges that Apple’s anti-competitive conduct consists of imposing contractual restrictions on, and withholding critical access points from, developers. This includes, says the complaint, blocking innovative “super apps”, restricting the development of mobile cloud streaming services, excluding or limiting cross-platform messaging apps, diminishing the functionality of non-Apple smartwatches and limiting third party digital wallets. According to the suit, as a result Apple is able to extract more money from consumers, developers, content creators, artists, publishers, small businesses, merchants and others.

Apple has said it will “vigorously defend” the lawsuit, saying it sets a “dangerous precedent” by empowering the government to “take a heavy hand in designing people’s technology”. 

EU Digital Markets Act gatekeeper obligations kick in

The EU Digital Markets Act (DMA) became applicable in May 2023. Its objective is to ensure that digital markets are fair and contestable.

The DMA applies to large online platforms that are designated as “gatekeepers”. In September, the European Commission (EC) designated six companies as gatekeepers in relation to 22 core platform services (CPSs). This list will likely evolve over time. The EC is currently assessing notifications from several online platforms that they meet the criteria to be designated. It will also review the list of gatekeepers each year.

The DMA requires gatekeepers to comply with wide-ranging obligations and prohibitions. These include limitations on their ability to process and use personal user data, restricting how they determine the ranking of their own and related third parties’ products and service offerings, and certain access obligations. Gatekeepers are also required to inform the EC of any planned transaction that relates to the digital sector or enables the collection of data.

The DMA obligations kick in six months after the EC issues a gatekeeper designation decision. They therefore became fully binding on the current gatekeepers on 7 March.

On that day, the gatekeepers submitted to the EC reports on their compliance with the obligations as well as an audited description of all consumer profiling techniques. These must be updated at least annually. The EC will now analyse the compliance reports and assess if the measures implemented by the gatekeepers achieve the DMA’s objectives.

In relation to this, the EC has already opened five non-compliance investigations, for example concerning self-preferencing and steering rules. The EC intends to conclude these proceedings within 12 months. It has also launched other investigatory steps, including relating to Apple’s new fee structure for alternative app stores. 

If the EC finds a breach of the DMA, it can impose penalties of up to 10% of the company’s global turnover (or 20% in case of repeated infringements). Systematic infringements face remedies, such as a business disposal or ban on M&A activity.

Each year, the EC will report on the implementation of the DMA and the progress made towards achieving its objectives. It has just published the first of these, where it summarises the first designation decisions, market investigations and its cooperation with relevant national authorities. The authority  also held a series of public workshops, enabling each gatekeeper to present its proposed measures and interested third parties to ask questions.

We will keep you posted with further DMA developments. 

European Commission opens unprecedented abuse of dominance probe in animal medicines sector

The European Commission (EC) has opened a formal antitrust investigation into whether animal health company Zoetis has breached EU antitrust law by preventing the market launch of a competing novel biologic medicine used to treat chronic pain in dogs.

The EC notes that Zoetis’ Librela is the first and only monoclonal antibody medicine approved in Europe to treat osteoarthritis-associated pain in dogs. It explains that at the same time as developing Librela, Zoetis acquired a rival late-stage pipeline product. This product was set to be exclusively commercialised in the EEA by a third party.

The EC is concerned that Zoetis may have engaged in exclusionary behaviour by terminating the development of this alternative product and refusing to transfer it to that third party.

It is the first time that the EC has opened a formal investigation into a potential abuse relating to the exclusionary termination of a pipeline product which was to be commercialised by a third party.

The development sends a warning right across the life sciences sector and adds to the novel forms of potential abuse that the EC is currently investigating. Our alert on the EC’s investigation into Teva outlines the EC’s allegation that the company abused its dominant position for the treatment of multiple sclerosis by misusing patent procedures and engaging in a disparagement campaign.

The EC’s Zoetis investigation follows a complaint and, fairly unusually for an abuse of dominance case, a dawn raid. It is indicative of the fact that authorities worldwide are prioritising work in markets impacting household expenditure – the animal health sector falls firmly within that remit in many jurisdictions. In announcing the probe, Competition Commissioner Margrethe Vestager notes that “competition in veterinary medicines ensures pet owners can choose between different safe, innovate and affordable medicines”. In the UK, the Competition and Markets Authority has provisionally decided to launch a formal market investigation into competition in the UK veterinary sector.

U.S. agencies launch inquiry into private equity ownership of health care businesses

The U.S. antitrust agencies, together with the U.S. Department of Health and Human Services, have jointly initiated a public inquiry into PE and other corporations’ control of health care businesses.

They have issued a request for public comment with the aim of understanding whether certain transactions in the sector increase consolidation and generate profits for firms at the expense of patients, health care workers and taxpayers. Significantly, the request covers information on deals that fall below U.S. merger control reporting thresholds.

Comments must be submitted by 6 May 2024. The responses will help the agencies set their future enforcement priorities and policies.

The launch of the inquiry is the latest step in a trend towards greater antitrust scrutiny of PE acquisitions. Federal Trade Commission (FTC) Chair Lina Khan notes that, through the inquiry, the FTC will continue to look closely at PE roll-ups, “strip-and-flip” tactics and “other financial plays that can enrich executives but leave the American public worse off”.

The U.S. antitrust agencies are not the only ones to zero in on acquisitions by PE firms.

Over the past year the UK Competition and Markets Authority (CMA) has also closely reviewed PE deals. It investigated two sets of completed PE-backed roll-ups in the vet sector, requiring each acquirer to sell off a number of the target businesses it had purchased. The CMA then opened a market review into concentration levels in the sector. As noted above,  it has now provisionally decided to open an in-depth market investigation. It wants to fully investigate its initial concerns, including that concentrated local markets may be leading to weak competition in some areas. 

You can read more about antitrust scrutiny of PE deals in our recently published Global trends in merger control enforcement report.

Collaborations on low-carbon solutions face diverging antitrust approaches and continued uncertainty

Businesses seeking a global solution to decarbonisation will need to ensure their collaboration meets the strictest competition law standards that any relevant authority may apply.

This may not be an easy task. Inevitably, while some antitrust authorities have provided detailed formal sustainability guidelines and/or offer informal advice on specific projects, there is divergence in crucial aspects of the antitrust assessment. The approach taken in other key jurisdictions remains unclear.

Our article looks at whether antitrust law is a barrier to decarbonisation initiatives. We argue that the climate transition will drive the need for greater collaboration across industries, and that more effort is therefore needed to enhance and, to a degree, harmonise antitrust laws and exemptions to facilitate effective cooperation. The piece forms part of our 10 lessons in sustainability regulation in which sustainability regulation experts from across Allen & Overy have contributed their views on how to create an effective regulatory framework to deliver Net Zero.

In the UK specifically, the Competition and Markets Authority is making good on its “open-door” policy commitment. Most recently, it provided informal guidance on a proposal for an extension of the “WWF Basket” scheme, under which some UK supermarkets would commit to reduce greenhouse gas emissions in their supply chains by increasing the number of their suppliers setting science-based, net zero targets by an agreed date.

A&O Antitrust team in publication

Our global antitrust team has had two articles shortlisted for the Concurrences 2024 Antitrust Writing Awards. Read and vote for them at the following links:

• Hugh Hollman, Charles Pommiès, Nicholas Putz, The EC’s New Merger Referral Policy and the Transatlantic Reverberations of Illumina/GRAIL on the FTC’s Administrative Process, Antitrust (Nov. 2023)
• Hugh Hollman, Elaine Johnston, Nicholas Putz, Parties are More Willing Than Ever to ‘Litigate the Fix’ in the United States, Global Competition Review – Merger Remedies Guide (5th Edition, Oct. 2023)

Other recent publications by members of the team include:

• Emilio De Giorgi (partner, Milan): L’ordinanza della Cassazione sul caso Euribor: tanto rumore per nulla? (The Italian Supreme Court’s ruling on the Euribor case: much ado about nothing?) (in Italian), 13 March 2024, Dealflower.it
• Marco Lupoli (associate, Milan): La direttiva sul greenwashing (The greenwashing directive) (a video, in Italian), 28 February 2024, Report Plus Energia, Il Sole 24 Ore

ABOUT YOUR EDITOR 

Tom has over 15 years’ experience advising clients on complex international, EU and UK merger clearances, including some of the highest-profile M&A transactions in the market in recent years.

He also has an established track record of advising on cartel and abuse of dominance investigations, national security / foreign direct investment reviews and market investigations. Tom’s practice spans a broad range of sectors, with particular expertise in infrastructure, life sciences and TMT.

Tom is listed in the Legal 500 directory as a “rising star” and a “superb competition lawyer”. He is also ranked as “future leader” by Who’s Who Legal, who note that he “combines deep industry knowledge with top-drawer intellect to solve client problems.”