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Insurers Settle Irish Signalling Investigation by Agreeing to Compliance Programmes
On 20 August 2021, the Irish competition regulator Competition and Consumer Protection Commission (CCPC) announced that six insurers had agreed to reform their internal competition law compliance programmes. As a result, the CCPC closed an investigation into alleged price signalling practices by the companies.
The CCPC opened the investigation following public statements which appeared to forecast with confidence that premiums would rise. At the time, consumers were reporting increases in their premiums and the CCPC was concerned that these statements could be considered price signalling and, along with other communications about pricing, a breach of competition law.
The parties denied that they were in breach of competition law and pointed to their existing compliance programmes and measures. However, the CCPC took the view that “the existence of a compliance programme is of little value unless, when tested, a business and all of its employees can demonstrate that compliance is an integral part of the culture and working practices of the company.” The CCPC did not accept that adequate compliance measures were in place in these businesses, as robust compliance programmes would have identified and flagged the behaviours under investigation.
To settle the investigation, the companies therefore agreed to maintain or enhance their programmes to provide for, amongst other matters, internal monitoring and reporting mechanisms, appointment of a compliance officer reporting to the board and regular training on illegal pricing practices and communications. These requirements, along with others such as provisions to incentivize compliance and disciplinary measures for failure to comply, are commonly seen by regulators around the world (including in the U.S. and China, as well by the European Commission for the purposes of EU competition law) as forming part of an adequate competition law compliance programme.
The CCPC’s decision is particularly interesting in that it to an extent codifies the requirement for a company to have an adequate competition law compliance programme in place that contains at least the elements required by the CCPC.
The scope and reach of merger control continues to expand worldwide, and nowhere is this clearer than in the EU. In March 2021, the European Commission adopted a controversial communication which “encourages” EU member states to send (“refer”) certain transactions to the Commission for review and approval under the EU Merger Regulation (EUMR) when the member state does not itself have jurisdiction under its own merger control rules (and the Commission would not automatically have jurisdiction instead of the member states since the parties also do not meet EUMR turnover thresholds for jurisdiction). This “referral” is carried out by making use of Article 22 of the EUMR.
The communication upends the previous assumption, which provided a good level of legal certainty, that where the parties to an M&A transaction do not meet the EUMR and national thresholds, the transaction would not be subject to review in the EU since Article 22 would not be used. Instead, where such a transaction is seen as raising prima facie concerns, and even if the target in an acquisition has little or even no revenue in the EU, there is now a risk that the transaction will be sent to the Commission for review and approval. This risk arises particularly, but not exclusively, in the digital and pharma sectors.
This dramatic policy U-turn is impacting the analysis of many deals and the contractual protections which are required. However, it has had the most practical impact on one: Illumina’s acquisition of GRAIL. The target in that case (GRAIL) reportedly has no turnover in the EU and the transaction therefore did not fall subject to review in the EU at the EU or member state level. Nevertheless, several member states referred it to the Commission using Article 22, and the Commission accepted the referral.
Although, following the referral, Illumina formally notified the transaction to the Commission for approval, it in any event decided to close prior to receiving approval. This was on the basis that the Commission does not have jurisdiction (the new interpretation of Article 22 as set out in the communication being, in Illumina’s view, invalid). The Commission is very keen to defend its merger control processes and has therefore started an investigation which could result in a fine on Illumina for closing without clearance under the EUMR. It may also adopt interim measures to ensure separation of GRAIL from Illumina while the merger review process continues (something Illumina had largely done voluntarily anyway).
Illumina/GRAIL is an exceptional case, particularly since the consideration was extremely high for a target with limited revenue, thus demonstrating there is value for Illumina and perhaps justifying the prima facie substantive concerns. It is, nevertheless, symptomatic of the increasing difficulties worldwide in managing a merger review process, particularly where substantive concerns may be raised. Regulators often have wide powers to review transactions (including minority acquisitions and joint ventures and sometimes even non-structural agreements) under compulsory filing rules and in many cases also have ex officio powers to call in transactions which are not subject to a filing obligation. The analysis of transactions needs to start early and consider all of these aspects.
On 22 September 2021, the EU General Court (GC), the EU’s second-highest court, upheld a Commission decision to fine cable and telecoms company Altice for gun-jumping.
The case arose out of Altice’s acquisition of Portuguese telecoms and multimedia operator PT Portugal, which transaction was filed for Commission review and approval under the EUMR. In the normal way, the share purchase agreement (SPA) included provisions on how PT Portugal’s business was to be managed in the period between signing and closing.
After approval and then closing of the transaction, the Commission become aware from press comments that Altice may have “gun-jumped” — illegally implemented all or part of the acquisition prior to closing. It investigated and imposed a fine of €125 million for this activity.
The Commission concluded that Altice had had the possibility of exercising decisive influence or had exercised control over PT Portugal prior to the adoption of its clearance decision and, in some instances, even prior to notification of the acquisition. In particular, some of the clauses in the SPA gave Altice a right to veto the appointment of senior management of PT Portugal, its pricing policy, commercial terms agreed with clients and a veto over it entering into, terminating or amending a wide range of contracts. In addition, those clauses were implemented on a number of occasions, which involved Altice intervening in the day-to-day running of PT Portugal. Further, the Commission noted that sensitive information concerning PT Portugal was exchanged as from the date of signing the SPA.
The GC agreed with this analysis, although it reduced Altice’s fine by 10 percent since Altice had informed the Commission of the transaction pre-signature and had also engaged with the Commission immediately after signing (although these are standard steps and it’s not clear why they should be exculpatory).
For practical purposes when considering what companies can do pre-clearance, the key points of the judgment are that partial implementation of a merger or acquisition is captured by the standstill rules and that the exchange of sensitive information can also constitute gun jumping.
The Altice/PT Portugal case was in reality an egregious breach of the rules, but the Commission and other regulators consider the standstill obligation a cornerstone of merger control law. For this reason, and also since the general rules on anticompetitive agreements in any event apply up to closing, companies need carefully to consider how they interact prior to clearance in suspensory jurisdictions and also up to closing.
Precedent Setting: Yet Another Suspension of UK Competition Law
Following news reports of a small number of UK petrol stations closing due to limited supplies, from 24 September 2021 panic buying took hold and many stations ran out of supplies. On 26 September, the UK government, as part of its reaction to the crisis, announced that it would “implement a measure to temporarily exempt industry from the [UK] Competition Act 1998 for the purpose of sharing information and optimising supply” (i.e., partially suspend the application of UK competition law to agreements in the sector). This measure was referred to as the “downstream oil protocol.”
The idea is that this partial suspension will allow the government to work together with fuel producers, suppliers, hauliers and retailers to minimise further disruption.
The basis of the suspension of UK competition law is unclear, but the downstream oil protocol which will be enacted is probably a "qualifying protocol" under the The Competition Act 1998 (Public Policy Exclusion) Order 2012. Under that legislation, an otherwise anticompetitive agreement concerning "the distribution of fuel in the event of a fuel supply disruption" (a qualifying protocol) may be excluded from UK competition law if it is activated by a decision of the Secretary of State. The qualifying protocol must provide that it will "only remain activated for the duration of the fuel supply disruption." It is notable that a situation in September 2000 was dealt with in an agreement which the UK Office of Fair Trading (OFT), now UK Competition and Markets Authority, blessed by way of an individual exemption in 2001 (not a general statutory exclusion) and was therefore removed from the scope of UK competition law.
The decision to make the exclusion was political — the government had to be seen as “doing something” — and it’s not clear whether it was necessary or will make any difference. Nevertheless, it’s part of a concerning trend of suspending the application of UK competition law by way of an exclusion order; in effect, a government decision just to set the law aside, as opposed to a substantive review of the merits such as that carried out by the OFT in 2000/2001.
During 2020, several exclusion orders addressed COVID-19-related problems (e.g., allowing food retailers to cooperate), as reported in the McGuireWoods European Competition Law Newsletter – May 2020. Those may have been justified in that exceptional circumstance. However, in 2021, the trend spread to cover the world’s richest football competition (the Premier League), which seems likely to benefit from another exclusion order allowing it and its broadcast rights holders to extend the Premier Legue’s UK broadcast agreements without a competitive tender process due to concerns about the level of fees which would be paid in current circumstances. The Premier League is operating normally now, so it seems there would not be a risk of reduced income from rights holders (even if that is a good justification). It is probably too late to change that decision, but the UK government needs to stand firm on future exclusions and consider the precedent that is being set each time.
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