Facebook/Giphy: Big Tech, completed deals and UK merger control
Global | Video | April 2022 | 8:05
Video Details
| Ian Giles | Richard, really good to see you. Today we are talking about Facebook/Giphy, the CMA prohibition decision, the first prohibition decision of one of the transactions involving the so-called GAFA firms. Before we get into the detail of the case, there were some procedural issues in this case. I wondered if you would like to talk to us about those quickly. |
| Richard Whish QC | Well, yes, it is a very interesting case. Facebook had acquired Giphy and the CMA, as happens in these cases, it imposes an initial enforcement order and Facebook asked if they could have a derogation from that, which is something anyone is entitled to ask for, and the CMA didn’t give them what they wanted and they appealed that to the Competition Appeal Tribunal. First time there has ever been an appeal of that kind, and the CAT, I must say, were very sympathetic to the CMA in that case and stressed the importance of the hold separate function, as it were, and emphatically upheld the CMA. Facebook then went to the Court of Appeal and the Court of Appeal, I would say, gave even shorter shrift to the appeal than the CAT had done. |
| Ian Giles | This is in a context where the CMA’s use of IEOs and the derogation procedures around them are getting a huge amount of attention, but that is a landmark fine. Turning to the substance… |
| Richard Whish QC | Well, Ian, may I interrupt you for a moment, because there was also a fine for infringing the IEO. So there’s a further procedural bit to this story, which is the CMA said that Facebook had infringed it and imposed a fine of £50 million, which is pretty considerable, and furthermore that Facebook had changed its Compliance Officer twice, and that was an additional infringement because they should have sought the consent of the CMA, so there was a £0.5 million pound fine for that as well. So there’s quite a lot of procedural stuff to think about here. |
| Ian Giles | Indeed and it’s interesting because… The question I was going to ask was around getting into the substance. This is a case following Sabre/Farelogix where the “share of supply” test has been found to apply in the context of the acquisition of a US business, with US assets, no UK revenue etc. And you’ve got both horizontal and vertical theories of harm which are quite interesting. Do you want to talk a little bit about that? |
| Richard Whish QC | Well, it is very interesting because, in a sense, this is one of these nascent competition type cases or “killer acquisitions”, sometimes people call them that which is a bit of a pejorative label, so let’s say nascent competition. Of course, in those cases there’s a jurisdictional issue and there’s a substantive issue. The jurisdictional issue is, is there jurisdiction even to examine the case? Now the CMA does have this share of supply test which, shall we say, is flexible and adaptable and we saw it used in Sabre/Farelogix where the CMA prevailed on appeal to the CAT. And my understanding is that this case was based on the share supply test as well, so that gave jurisdiction. Then you get into the substance of the case and the CMA had two theories of harm, one being that Giphy might have emerged as a competitor in display advertising, so that’s the horizontal concern. Also there was a vertical concern that the merged entity might then not have an incentive to supply GIFs to other downstream operators of social media platforms. So that’s the theory of harm leading ultimately to prohibition. It’s interesting to see the chorus of disapproval that this led to and there are numerous submissions to the CMA and I’ve had a look at them. One, to give you a flavour of what some people say, is an intervention by Americans for Tax Reform who don’t like the theories of harm and say: “This is yet another example of weaponised antitrust agencies that target American companies… The CMA’s investigation into the Facebook/Giphy merger is the exact type of discriminatory over-enforcement that leads to capital flight, depresses economic growth and harms innovation now and in the future”. So I infer from that that they didn’t approve of the decision. |
| Ian Giles | It’s interesting isn’t it, because when you take a step back and look at the broader context of this decision, clearly competition authorities – well beyond just the CMA – have for a long time been trying to change their rules to get access. We’ve obviously had the Article 22 discussion in Brussels, we’ve had the value-based thresholds in Germany and Austria, so all kinds of changes to get access to these deals. And then to look at novel theories of harm, theories of harm around potential competition and looking at how markets might develop, because of this concern that regulators can’t move fast enough to keep up with the market power, and the market shares that Facebook has in the key markets here are sky high, so this is something which is a big public policy concern. And we’ve got, obviously, the new regime coming in the UK, we’ve got the Digital Markets Act, there’s a lot of things going on. What’s your thoughts, because this is on appeal, do you think… |
| Richard Whish QC | Well, I think various things. One is that there is certainly something about certain acquisitions by powerful platforms, shall I say, that merits being investigated and there is a certain amount of novelty to some of the theories of harm. But I think competition authorities have to look at these things, and various reports have suggested that it’s worthwhile being experimental, if you like, with the theories of harm, and indeed sometimes being more speculative than one would normally be just to test the outer bounds of what is and is not allowed and the Lear Report that the CMA commissioned, Ex post Assessment of Merger Control in Digital Markets, actually said explicitly in terms that it’s worthwhile perhaps losing a few cases, if that’s the best way of finding out the limits of what can and cannot be done. So I think the spotlight is on the CAT now, as this is a hugely interesting appeal. |
| Ian Giles | And it’s one where, because we have the horizontal theory of harm, that they were essentially blocking the development of Giphy as a market rival, and then you’ve got the vertical theory of harm that they are preventing their competitors from accessing these GIFs. If the CMA doesn’t prevail on the horizontal theory of harm and you’re just left with the concern about the vertical theory of harm, you would think an access remedy might… |
| Richard Whish QC | Well, I think that’s right. So looking at the totality of the theories of harm, the CMA says we have to prohibit this. I think if the horizontal bit goes, the argument for divestiture is much, much weaker and in that case it may be that a behavioural remedy would be adequate, yes. |
| Ian Giles | Which would be very interesting because it really goes to how these things are positioned when looking at potential competition. Right, lots to watch in this space Richard, as ever. Thank you very much. |
Head of Antitrust and Competition, Europe, Middle East and Asia
Email
ian.giles@nortonrosefulbright.com