European Competition Law Newsletter – June 2020

June 3, 2020

Table of Contents

  • EU, UK Competition, State Aid and Public Procurement Law During COVID-19
  • A Filip for Dealmakers; EU General Court Overturns Four-to-Three Merger Block
  • UK CMA Blocks Retail Merger Despite Pandemic

EU, UK Competition, State Aid and Public Procurement Law During COVID-19

While not the most important concern, EU and national antitrust/competition law, plus the state aid and public procurement rules, continue to apply in the EU and UK during the crisis. So far as the UK is concerned, it is subject to EU law until at least 31 December 2020 while the post-Brexit transition period is running. In any event, the UK has its own national competition law which remains in force.

McGuireWoods has distributed seven separate client alerts on these topics:

  • EU, UK Governments and Antitrust Regulators Permit Limited Competitor Cooperation Due to COVID-19
  • EU, UK Antitrust Regulators Monitor Price Increases Resulting From COVID-19 Demand
  • Don’t Overlook EU, UK Antitrust Issues With Vertical Arrangements During the COVID-19 Pandemic
  • Government Funding or State Aid in the EU, UK During the COVID-19 Pandemic
  • UK Guidance on Application of Competition Law to Business Cooperation in Response to COVID-19
  • New EU Guidance: Applying Competition Law to Business Cooperation During COVID-19
  • EU, UK Guidance on Public Procurement Rules During COVID-19

The most recent major COVID-19-related developments in the UK and EU are as follows:

  • The UK Competition and Markets Authority (CMA) published a second update on the work of its COVID-19 task force. This shows very little actual enforcement in relation to competition law. The update says that in relation to “unjustifiable price rises,” the CMA has requested information from various businesses, engaged with online retail platforms and written to trade associations. Perhaps most importantly, it has also “advised government on legislative changes that would enable a faster and more robust response to unjustifiable price rises.” This latter likely refers to proposed additional consumer law powers, since competition law catches only excessive pricing/price gouging by dominant firms.
  • In relation to price gouging, according to later newspaper reports, the UK government was in fact not minded to introduce new legislation even during the height of the pandemic and the related concerns about pricing behaviour by some retailers and other suppliers. With the pandemic apparently waning in the UK, and panic buying long finished, there seems little likelihood of anything now being introduced.
  • The UK government published the list of agreements notified to it under its statutory competition law exclusion orders, which allow for the disapplication of UK competition law in certain sectors during the pandemic — provided the restrictive conditions are satisfied. This includes agreements entered into by Waitrose, Asda, Co-op, Sainsbury’s, Tesco, Iceland and others in the grocery sector. Nothing is shown in the dairy sector. There are also agreements in the Solent maritime crossings (ferries) and health sectors.
  • The European Commission continued to approve, under state aid rules, a range of EU member state and UK measures providing funding and other support to businesses. The Commission also published a second amendment to the EU, UK state aid temporary framework, which includes a push on the climate change agenda. The requirements when aid is provided are left up to the individual countries (as they must be, by law), but there is clear encouragement on this front, such as “… [the] Commission notes that designing national support measures in a way that meets the EU’s policy objectives related to green … transformation of their economies will allow for a more sustainable long term growth, and promote the transformation to the agreed EU’s objective of climate neutrality by 2050.”

Please contact us if you would like to discuss these topics or any other legal issues arising out of COVID-19 in the EU, UK or United States. McGuireWoods has established a COVID-19 Response Team.

A Filip for Dealmakers; EU General Court Overturns Four-to-Three Merger Block

The EU General Court overturned the European Commission’s block of a “four to three” merger in the mobile telephony industry in the UK. This is a remarkable and comprehensive defeat for the Commission, which has significant implications for the antitrust analysis of mergers generally.

The Commission was found to have analysed the effects of the transaction incorrectly in relation to its impact on competition at the retail level, as well as on network sharing agreements and the wholesale market. There is a lot for the Commission to reflect on as it mulls an appeal to the EU Court of Justice and a lot for companies and their advisers to use as they seek approval for future mergers.

The original merger decision was adopted in May 2016, with the Commission blocking the proposed acquisition of Telefónica UK (trading as “O2” in the UK) by Hutchison 3G UK (trading as “Three”). According to the Commission, that acquisition would have removed an important competitor on the UK mobile telephony market and the merged entity would have become the market leader and faced competition only from two mobile network operators (hence, it was a “four to three” merger). The Commission considered that the reduction from four to three competitors probably would have led to an increase in prices for mobile telephony services in the UK and a restriction of choice for consumers. The acquisition likely also would have had a negative influence on the quality of services for consumers, hindering the development of mobile network infrastructure in the UK. Lastly, it would have reduced the number of mobile network operators wishing to host other mobile operators on their networks.

The analysis of the first issue is of most general relevance. The court found fault with all the key parts of the Commission’s analysis. It held that in this type of transaction in a concentrated market, the mere effect of reducing competitive pressure on the remaining competitors is not, in principle, sufficient in itself to demonstrate a significant impediment to effective competition and therefore to justify a merger block (the relevant legal test). The Commission had also been wrong to classify Three as an “important competitive force” even though it did not stand out from its competitors in terms of its impact on competition.

In addition, although Three and O2 are relatively close competitors in some segments of the market, that factor alone did not prove a sufficient elimination of competition between them. Finally, the court found that the Commission’s quantitative analysis of the effects of the concentration on prices did not establish, with a sufficiently high degree of probability, that prices would increase significantly following the merger.

UK CMA Blocks Retail Merger Despite Pandemic

On 6 May 2020, the UK CMA blocked a completed merger between two UK “sports-fashion” retailers. In doing so, it took no account of the impact of the pandemic on the market and the fact that both parties’ physical stores were closed at the time (as required by law).

The CMA looked at a range of standard evidence during its investigation. It analysed more than 2,000 of the companies’ own internal strategy and decision-making documents, which showed that the two companies — JD Sports and Footasylum — monitor each other’s activity closely. Additionally, the CMA conducted two large surveys of more than 10,000 of the companies’ customers. These surveys showed that many shoppers at stores for one of the two companies viewed the other firm as their next best alternative. The CMA also found that Footasylum store openings negatively impacted footwear and clothing sales at nearby JD Sports stores. According to the CMA, the evidence generally showed a consistent picture: JD Sports and Footasylum are close competitors.

The CMA decided that, although JD Sports is a larger retailer than Footasylum, they have millions of customers in a fast-growing sector, and therefore, the loss of competition between them is important. Both companies are among a small number of retailers that sell the latest sports-inspired casual footwear and clothing across the UK, typically to younger, trend-conscious consumers. The CMA recognised that shoppers can buy footwear and clothing from other retailers and suppliers, but it found that these alternatives were not likely to prevent shoppers from being worse off after the merger.

Much to the annoyance of the companies, the huge impact of the COVID-19 pandemic on the UK retail sector at the time of the decision — and going forward — was not considered relevant. The CMA said:

“The extent and duration of the impact of COVID-19 in the medium to long term is uncertain. All retailers are subject to the same change in market conditions, although it is difficult to predict the effect on different retailers and how each will respond to the circumstances. While the sector is clearly being impacted by COVID-19, it is not clear that either of the Parties is being hit harder relative to other retailers, such that either would be in a much weaker competitive position in comparison to each other and other retailers, or that other competitors would become significantly stronger… we do not consider that it will significantly increase the constraints on the Parties now or in the foreseeable future, such that there would no longer be competition concerns from the Merger. The Parties have not told us that either of them will go out of business”

Each case turns on its facts, but this shows that competition regulators will look closely at COVID-19-related arguments. With lockdowns easing, it may even be that these arguments have already lost potency.

Additional European competition law news coverage can be found in our news section.

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