Table of Contents
- European Commission Adopts New Rules on Horizontal Agreements in the EU
- UK CMA Increases Reward for Whistleblowing on Third-Party Cartels
- EU Foreign Subsidies Regulation Starts to Apply
- UK National Security and Investment Act 2021 Continues to Impact Transactions
On 1 June 2023, the European Commission adopted important new rules concerning the treatment under EU competition law of horizontal cooperation agreements that impact the EU. Horizontal cooperation agreements are agreements between actual or potential competitors dealing with a commercial relationship between them concerning products, services or technologies.
The new rules, replacing those applicable since 2011, include block exemption regulations on research and development (R&D) and specialisation agreements (HBERs), as well as revised horizontal guidelines. The HBERs automatically exempt qualifying R&D and specialisation agreements from the basic prohibition on anti-competitive agreements impacting the EU, which is contained in Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). The rules thus provide for a safe harbour — automatically applying Article 101(3) of the TFEU — for such agreements.
The HBERs are useful where they apply, but in practice, the most important document is the one outlining horizontal guidelines. This sets out a detailed consideration of how to apply Article 101(1) and Article 101(3) of the TFEU to those horizontal cooperation agreements that do not fall within the HBERs. In addition to R&D and specialisation agreements not covered by the HBERs, such agreements include, for example, purchasing agreements, commercialisation agreements, information exchange arrangements, standardisation agreements, agreements on standard terms and sustainability agreements.
The analysis of sustainability agreements between competitors is of particular interest. These agreements pursue sustainability objectives (a broad range, not only those concerning climate change issues). The new guidance contains a broad definition of sustainability objectives, based on the UN sustainable development goals, and it lists various examples of sustainability agreements that generally fall outside the scope of Article 101(1) of the TFEU. The new rules also provide a soft safe harbour for sustainability standardisation agreements that meet certain conditions. They further clarify how a sustainability agreement can be exempted by describing types of benefits that may be taken into account.
Also of particular importance and practical use is the new chapter on information exchange, which was almost entirely rewritten. This includes additional guidance on: (i) the concept of commercially sensitive information; (ii) the types of information exchange that may constitute automatic restrictions of competition; (iii) potential pro-competitive effects of data pools; (iv) indirect forms of information exchange, including hub-and-spoke arrangements; (v) anti-competitive signalling via public announcements; and (vi) practical measures companies can take to avoid infringements, such as limiting the scope of the exchange, using clean teams or independent trustees, and public distancing.
In an effort to strengthen its enforcement work against illegal cartels in the UK, the UK Competition and Markets Authority (CMA) increased its reward for individuals who blow the whistle.
The CMA now offers up to £250,000 to people who tell the CMA about unlawful cartel activity by third parties, which they have witnessed. The reward is separate from the CMA’s leniency programme, where an individual or a business that participated in a cartel may escape sanctions if it comes forward with information about the cartel.
Under the CMA’s leniency policy, a company or individual that confesses its involvement in a cartel can gain complete civil and criminal immunity from sanctions provided certain conditions are met. The CMA does not consider that an individual in such circumstances should ordinarily also gain a financial reward. However, the CMA has indicated that, in some cases, it will consider a reward in addition to immunity from sanction under the leniency policy. This most likely will be considered where the role of the person in the cartel was relatively peripheral — for example, that of an employee who occasionally was directed by his superiors to attend a cartel meeting and who did not take an active part in decision-making about the cartel.
The CMA’s whistleblowing reward has been in place since 2017, when the maximum figure was set at £100,000. It is not known how many individuals have obtained a reward under the scheme or the level of any rewards.
On 12 July 2023, the EU Foreign Subsidies Regulation (EU FSR) will start to apply. Under the EU FSR, the European Commission will have the power to investigate financial contributions granted by non-EU (i.e., “foreign” and therefore including, inter alia, the UK and United States) governments to companies active in the EU. If the Commission finds that such financial contributions constitute distortive subsidies, it can impose measures to redress their distortive effects.
The EU FSR will introduce three tools:
- A notification-based tool to investigate mergers, acquisitions and joint ventures involving financial contributions granted by non-EU governments, where the acquired company, one of the merging parties or the joint venture generates an EU turnover of at least €500 million and the transaction involves foreign financial contributions of more than €50 million.
- A notification-based tool to investigate bids in public procurement procedures involving financial contributions by non-EU governments, where the estimated contract value is at least €250 million and the bid involves a foreign financial contribution of at least €4 million per third country.
- A general tool to investigate all other market situations (such as greenfield investments), where the Commission can start a review on its own initiative (ex-officio).
With respect to the two notification-based tools, the parties will have to notify the Commission of financial contributions received from non-EU public authorities prior to concluding a concentration or a public procurement procedure above the relevant thresholds. The Commission can also request ad-hoc notifications for smaller concentrations and public procurement procedures if it suspects the existence of distortive subsidies. Pending the Commission’s review, the concentration in question cannot be completed and the investigated bidder cannot be awarded the contract.
The EU FSR introduces a potential third filing regime for transactions (along with applicable merger control and foreign direct investment rules). Many difficult issues arise from it. One important practical jurisdictional point is that the commercial sale of goods and services to a foreign public body at market price gives rise to a “financial contribution” and is therefore relevant for determining whether the notification thresholds are met. This is a different issue from whether such financial contribution has to be reported in any required notification (but the financial contribution still has to be identified on a groupwide basis in the first place in order to determine whether the notification thresholds are met). In many cases, this will not be an easy task.
So far as concerns transactions, if the agrement concludes on or after 12 July 2023 and the transaction closes on or after 12 October 2023, then the EU FSR will apply if the thresholds are met.
The national security elements of the UK’s foreign direct investment (FDI) regime are now contained in the UK National Security and Investment Act 2021 (NSI Act), which came into force on 4 January 2022. A recent case shows its very wide scope and potential impact.
The NSI Act potentially catches both share and asset acquisitions with no turnover or size of asset limitation. It can apply to entities (wherever located) that only supply goods or services to people in the UK and to assets (wherever located) that are simply used in connection with the supply of goods or services to people in the UK. It can apply to internal corporate reorganisations and to indirect acquisitions. The government can block, unwind or impose conditions on relevant transactions or acquisitions.
Certain acquisitions of entities or interests in them must be notified to the UK government for approval prior to completion. Failure to do so means the transaction is void. There are civil and criminal penalties for completing a notifiable acquisition without gaining the necessary approval.
The most recent case in which the UK government imposed conditions shows the very wide scope of the regime. That concerned the acquisition of assets belonging to the University of Southampton (UK) by Voyis Imaging Inc. (Canada). Full details are not available, but it appears that Voyis gained control of the assets under a licence and this was not subject to a mandatory notification but instead was reviewed by the government outside the mandatory notification regime.
The government took the view that the licence gave rise to a risk to national security “as a result of potential military uplift to foreign states through gaining access to the licensed [asset].” As a result, Voyis is required to carry out due diligence checks on all new customers wanting to purchase the asset and to report to the government details of all new customers of the asset on an annual basis.
This is not an isolated example of the government intervening in a perhaps unexpected way under the NSI Act. It should be considered as part of the FDI analysis of any UK or non-UK acquisition of an entity or assets.
Additional EU and UK competition law news coverage can be found in McGuireWoods’ news section.