"Below threshold" mergers, jurisdictional creep and abuse of dominance
Global | Video | October 2022 | 09:44
Video Details
| Ian Giles | Richard, fantastic to see you again. We are going to be talking in our video today about the very recent opinion of Advocate General Kokott in the Towercast reference to the Court from the Paris Commercial Court, which is about the application of Article 102, abuse of dominance rules, to transactions which have fallen outside or underneath merger control. Do you want to start us off just by talking us through what the Advocate General said? |
| Richard Whish KC | Well, yes, I think it is a really interesting case. So, we've got Towercast and two other broadcasting companies in France, let's call them X and Y. X acquires Y. Towercast says this is anti-competitive, this should not be allowed, goes to the French Competition Authority which says this is a merger, it is below the thresholds of French merger control, so we can't look at it under French merger control. We could, theoretically, refer to the European Commission under Article 22 of the Merger Regulation, but we're not going to do that either, so there's nothing we can do for you. Towercast then go to the French Court and say, well, even if this is below any relevant merger threshold, for X to acquire Y is an abuse of a dominant position. The French Authority say they're not interested in that, but is it possible for such a transaction to infringe Article 102? And the French Court says, that's quite tricky actually, we'd better send it up to the Court of Justice. So, the Court of Justice has got the case, Advocate General Kokott gave her opinion last week, and basically she says Article 102 is directly applicable, it always has been, the Merger Regulation can’t render a Treaty Article non‑directly applicable. And there's very well established law going back to 1973, pre‑the Merger Regulation, Continental Can v the Commission, which said that for X to acquire Y, thereby significantly impeding effective competition, could be an abuse of a dominant position. Therefore, she says, it is perfectly possible that Article 102 is applicable in these circumstances.
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| Ian Giles | As you say, there is case-law that goes back quite a long way establishing this, pre-Merger Regulation. |
| Richard Whish KC | Nearly 50 years. |
| Ian Giles | Nearly 50 years. Before my time, Richard, almost before yours as well! |
| Richard Whish KC | Not before mine! |
| Ian Giles | And the Commission have recognised this. So, when they did their consultation on minority shareholdings in 2016 they recognised the case-law that allowed them to apply both 101 and 102 in merger control contexts where the EUMR thresholds weren't triggered or national thresholds. But, to apply that practically, obviously both 101 and 102 are ex‑post tools, so you're looking at transactions which have already happened. Do you think, assuming the Court follows what Advocate General Kokott has said, that this is something that the authorities, the Commission or courts will actually use? |
| Richard Whish KC |
Well, yes I do. Let's leave aside 101 for the time being, because that raises a whole series of other issues. |
| Ian Giles | It’s a different question, indeed. |
| Richard Whish KC |
But on the 102 question, I have to say, that as we have had the debate about “killer acquisitions”, I have repeatedly suggested, privately and publically, to people that I think Article 102 has a vitality here. Because if the problem of a killer acquisition is that I acquire you, precisely because I can see that you might, one day, topple me from my perch… at the moment you have no relevant turnover or very little turnover, you are below the relevant thresholds, so I get it, merger control does not apply, unless we change the jurisdictional criteria of merger control. But, nevertheless, could it not be abusive, for example, if I as the DomCo had a strategy of acquiring each and every start‑up that I think potentially threatens me, could that not be regarded as abusive behaviour? I have thought, in principle, for a long time that it was certainly arguable and now, frankly, what she says here is consistent with that. Do remember, in her opinion, she specifically talks about killer acquisitions. She knows exactly what the agenda is here. |
| Ian Giles | And that's really interesting isn't it, because in that killer acquisition context the dominance trigger, which is obviously in many cases quite difficult to establish, is largely considered to be reasonably obvious. |
| Richard Whish KC |
Well, it's going to be obvious that this DomCo is dominant and, of course, application of 102 does not depend on any relevant turnover, because it is an irrelevant consideration. |
| Ian Giles | What she then said, which I thought was really curious in that context when you consider this tool, is that she didn't expect in applying 102 in these situations, that it would result in structural remedies. She says something in, I think it's para 63, there would not usually be a threat of a subsequent dissolution of a merger, it would usually be dealt with by a fine. |
| Richard Whish KC |
Yes, I don't find that terribly convincing I have to say. Well, leave aside what she says, let's think of Article 7 of Regulation 1, which is the provision that deals with infringements, and it says that the Commission can adopt an infringement decision, and can impose behavioural or structural remedies. Now, there are provisions about when structural remedies can be used and they never have been used except in one settlement case, ARA Foreclosure, in Austria, the recycling case. But, I would have thought, that if the abuse was structural, to have acquired a competitor thereby significantly impeding effective competition, to my mind, when you look for a proportionate and appropriate remedy it has to be the reversal of that acquisition. So, I have to say, I'm not really quite sure why she said that. |
| Ian Giles | Yes, because otherwise you're left with a situation where, in theory… and as you know, in these innovative markets quite often the dominant companies are buying up potential start‑ups, which may or may not be the next big thing, but they see them as useful bolt‑ons to their businesses. But having a remedy where they could suddenly be facing fines for all of those is interesting. I guess you would still need to show some kind of harm? |
| Richard Whish KC |
Well, yes, of course, you would. I think we ought to say in all of this, incidentally, that even if it becomes established when we get the judgment that 102 can be applied, in particular to killer acquisitions, I don't think we should imagine that there would be many such cases. I think it would be incredibly rare. However, at least we would know that potentially the power is there. As to what is the appropriate remedy, well, of course, it does depend on the case, but I think in some circumstances it would have to be the case that the remedy is to order divestiture. Just look at our CMA in this country. In the last 12‑18 months there have been five completed mergers sent to the CMA where the CMA found an SLC, and in all five of those cases divestiture was ordered because it’s the logical response. |
| Ian Giles | Indeed, indeed. And, again, I guess using this tool as an ex‑post tool you would hope that, if it were applied, it could be done in a slightly more expedited fashion than some of the 102 cases we've seen. |
| Richard Whish KC |
Well, I think it would have to be, not least because of the problem of unscrambling the egg. I suppose, actually on that, interim measures would become quite important as in Illumina/GRAIL where inter alia the Commission did impose interim measures to prevent any further intermingling of the assets pending the outcome of the eventual decision. |
| Ian Giles | And, Illumina/GRAIL, as you say, is a reference for how the Commission has sought to tackle killer acquisitions in another context using the Article 22 powers. I guess the takeaway from all of this is, where there is harm to competition that has been identified, then there are tools that the Commission could find to address that. |
| Richard Whish KC |
Well, I think so. And, your clients, I think probably won't like it, but I do have the sense, basically, that if there is a significant competition problem, an authority is likely to be able to find jurisdiction somewhere to deal with it. That might be under antitrust, might be under merger control, but I think where there’s a will there's a way. |
| Ian Giles | It is something that you won't be surprised to hear, clients prefer legal certainty and that's not necessarily what... |
| Richard Whish KC | Well, the legal certainty is that, if there is a problem, it can be investigated. |
| Ian Giles | So, another interesting opinion from Advocate General Kokott, but we'll see how that plays out. But certainly something really important for people to be thinking about. |
| Richard Whish KC | Absolutely. |
| Ian Giles | Thank you very much, Richard. |
| Richard Whish KC | Pleasure. |
Head of Antitrust and Competition, Europe, Middle East and Asia
Email
ian.giles@nortonrosefulbright.com