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Check Merger Control Filing Obligations Worldwide: Austria Fines Facebook
The scope and complexity of merger control filing requirements worldwide continue to increase. It is essential to carry out a full review for any acquisition, joint venture or minority investment whether it relates to a corporate entity or assets.
This was demonstrated on 7 June 2021 when the Austrian Federal Competition Authority (AFCA) announced that it is seeking agreement from the Austrian Cartel Court to impose a fine on Facebook for not filing its acquisition of GIPHY under Austrian merger control law. Facebook should have filed and waited for clearance before closing the transaction. The company has agreed to settle the investigation and pay a EUR 9.6 million fine.
The AFCA became aware of the acquisition in the course of its general market and media monitoring. Since the transaction had not been notified in Austria, the AFCA started its investigation. Facebook provided “extensive documentation” and also waived confidentiality in relation to its exchanges with other regulators to which filings were made.
One of these other regulators is the UK Competition and Markets Authority (CMA), which is currently investigating the transaction. The AFCA said it is cooperating with the CMA, and no doubt this will continue as Facebook now must make a filing seeking approval in Austria in the normal way. This could be a drawn-out process, since the CMA has identified potential concerns in the UK and has started a phase II detailed review.
It is not known whether Austria was overlooked when Facebook considered in which countries it should make filings or whether a “view” was taken on the risk of not filing there or there was some other reason a filing was not made. It is possible that the issue was a misinterpretation of the transaction-value jurisdictional threshold under Austrian merger control law. The value of the transaction must be at least EUR 200 million for this to be met, but it also requires amongst other criteria that the target has significant Austrian activities.
The AFCA concluded GIPHY has significant activities in Austria, since direct use of GIPHY's own website and app must be taken into account as well as the activities of users of other services, third-party websites and apps that integrate GIPHY by using application programming interfaces (e.g., Facebook, Signal, Snapchat).
The case shows that regulators are on the lookout for companies failing to file for clearance under merger control laws and that the consequences can be serious.
UK Publishes Details of New Subsidy Control Regime
On 30 June 2021, the UK government published its detailed proposal for a new subsidy-control regime. This will replace the EU state aid regime, which, following the end of the EU/UK transitional period on 31 December 2020, no longer applies to the UK save in relation to certain aspects relating to Northern Ireland (set out in the Northern Ireland Protocol agreed between the EU and UK). It is designed to be consistent with the UK’s commitments on subsidy control in its free trade agreements, notably with the EU (including in relation to Northern Ireland) and the World Trade Organization rules on subsidies.
The new regime will start from the basis that subsidies are permitted if they follow UK-wide principles on delivering good value for the UK taxpayer. There will be a statutory duty for public authorities to consider these principles and award a subsidy only if the subsidy is consistent with these principles.
Public authorities granting more complex subsidies (subsidies of interest and subsidies of particular interest) will go through a more rigorous process. The latter will require input from a new Subsidy Advice Unit within the UK Competition and Markets Authority (CMA) and a short standstill (cooling off) period. A limited set of subsidies will be exempt from the control principles, such as those required for safeguarding national security and subsidies granted temporarily to address emergencies such as flooding.
When announcing the proposal, the government repeatedly emphasised the problems of the EU state aid system and that the UK regime will significantly depart from it. For example, the press release states: “Under the EU system, all subsidies except those under a ‘Block Exemption Regulation’ had to undergo a lengthy bureaucratic process of being notified to and approved by the European Commission in advance, delaying vital funds from reaching viable businesses in good time.”
This is pure political posturing. The government did not point out when announcing the proposals (and never has done) the particular projects or businesses that it (or predecessors) would like to have supported when the UK was subject to the EU regime but was not able to do so. This includes business support arising out of the COVID-19 pandemic. Further, the UK is and will remain limited by its various existing commitments. Although a regime is needed, it is therefore far from clear that UK citizens and businesses will see a dramatic shift in the scale, scope or direction of UK government spending on projects and investments.
What is clear, however, is that whatever subsidies are granted will be extensively litigated. Interested parties (including competitors and even various competing parts of the UK) will be able to challenge subsidy decisions on judicial review grounds in the UK Competition Appeal Tribunal (CAT). The CAT is familiar with economic regulation, but it’s also notorious for its forensic analysis of legal and procedural issues, which requires the input of swathes of lawyers. Proposed subsidies will be held up and granted subsidies will be appealed in great number, since that will be the only real check on awards.
EU and UK Reviews of Rules on Vertical Agreements Continue Apace
The most important day-to-day piece of competition law legislation for most companies active in the EU is the Vertical Agreements Block Exemption Regulation (VABER). The UK equivalent — the “retained VABER” — is in effect the same and equally important.
These instruments apply to vertical agreements such as distribution, agency, franchising and supply arrangements and provide automatic safe harbour protection from competition law if their terms are satisfied. In both jurisdictions, the competition law regime applying to vertical agreements is currently under review and there have been important recent developments.
In the UK, the CMA published on 17 June 2021 a consultation document on the retained VABER. The CMA’s proposed recommendation to the UK government is that the retained VABER should be replaced when it expires on 31 May 2022 with a UK Vertical Agreements Block Exemption Order (UK VABEO).
The UK VABEO would be largely on the same terms as the retained VABER, but would introduce certain changes to the list of “hardcore” restrictions (which automatically disapply the retained VABER if included in an agreement and are the types of restrictions likely to give rise to fines). In particular, the CMA plans to:
- clarify the boundary between “active” and “passive” sales, in light of market developments such as the growth of online sales;
- in relation to indirect measures restricting online sales, remove the prohibition of dual pricing and the requirement for overall equivalence between online and offline sales from the list of hardcore restrictions; and
- add wide parity obligations (“most favoured nation” clauses) to the list of hardcore restrictions.
On the EU side, the European Commission’s consultation on the regime to put in place once the VABER and its related guidance expires — also on 31 May 2022 — has been running since early 2019. The most recent publications are two expert reports on various aspects of the current rules.
One report covers cases dealing with online sales and online advertising restrictions at EU and national levels. This includes territorial restraints or prohibitions on online selling, restrictions on selling via a third-party platform or marketplace, prohibitions on the use of price comparison websites, restrictions on online advertising and dual-pricing provisions affecting online selling. The other report covers active sales restrictions in different distribution models and combinations of distribution models.
There will be further developments during 2021 in relation to both the EU and UK reviews, and companies should monitor these and consider the impact on existing and new agreements.
European Commission Warns Against Restricting Access to Data Sharing Systems
On 18 June 2021, the European Commission announced that it sent a statement of objections (preliminary statement of case) to Insurance Ireland, an association of Irish insurers. The Commission alleges that Insurance Ireland breached EU competition law rules by imposing certain conditions of access to the Insurance Link platform, a data sharing system, which Insurance Ireland administers.
Insurance Ireland covers over 90 percent of the Irish motor vehicle insurance market. It administers and sets the conditions of access to Insurance Link, which comprises a non-life insurance claims data pool and a facility for Insurance Link users to request certain data about such claims. Insurance Link enables its users — companies offering motor vehicle insurance — to better assess risk and to detect and defend themselves against potential fraud.
The Commission alleges in its preliminary findings that Insurance Ireland arbitrarily delayed or de facto denied the access of certain insurers and their agents to Insurance Link. Since at least 2009, access has been linked to membership in the association. Thus, applicants must first be eligible for membership, meet membership criteria and go through an unpredictable application process. For several years, certain types of insurers and their agents were not eligible for membership and were therefore effectively denied access. The obligatory membership criteria delayed access for some companies for several years.
The Commission considers that lack of access to Insurance Link has the effect of placing companies at a competitive disadvantage on the Irish motor vehicle insurance market, in comparison to companies that have access to the database, and therefore may give rise to an EU competition law infringement.
This case shows that, although data pooling and data sharing between competitors can be done for legitimate reasons, they need to be careful how that is done and in particular not to restrict competition by restricting access to the data. This is particularly the case when the companies account for a significant proportion of the market in question.
The Commission is actively reviewing guidance on this issue generally. In the roadmap for the impact assessment of the revision of the Guidelines on the applicability of Article 101 TFEU to horizontal cooperation agreements, the Commission recently announced that it intends to include guidance assisting stakeholders in the self-assessment of data pooling and data sharing arrangements.
Additional European competition law news coverage can be found in our news section.
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