In summary
This article discusses the key jurisdictional, procedural and substantive developments in EU merger control from May 2023 to April 2024.
Discussion points
- Jurisdictional developments
- Procedural developments
- Substantive developments
Referenced in this article
- Council Regulation (EC) No 139/2004 of 20 January 2004
- Commission Implementing Regulation (EU) 2023/914 of 20 April 2023 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings and repealing Commission Regulation (EC) No 802/2004 and its annexes (Form CO, Short Form CO, Form RS and Form RM)
- Commission Notice on a simplified treatment for certain concentrations under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings
- Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market
- Regulation (EU) 2022/1925 of the European Parliament and of the Council of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (the Digital Markets Act)
- Commission Notice on the definition of the relevant market for the purposes of Union competition law
- Illumina/Grail
- Qualcomm/Autotalks
- EEX/NASDAQ
- Microsoft/OpenAI
- Booking/eTraveli
- Amazon/iRobot
- Adobe/Figma
- Korean Air lines/Asiana Airlines
- Lufthansa/ITA Airways
- IAG/Air Europa
- CK Telecoms UK Investments v European Commission
Introduction
EU merger statistics
Global deal value and volume continued their downward trend in 2023, down 26 per cent and 23 per cent respectively compared to 2022. This is primarily due to a persistently challenging macroeconomic environment, tighter borrowing costs and rising geopolitical tensions.
Echoing this downward trend, the number of deals notified to the European Commission (the Commission) in 2023 dropped to 356 (from 371 in 2022), but nonetheless remained at a high level. A total of 91 notifications were submitted to the Commission in the first quarter of 2024. Most of these cases were notified under the simplified procedure.
The Commission issued one prohibition decision in 2023 compared to two in 2022 and adopted decisions following an in-depth Phase II examination in nine cases compared to eight in 2022. In terms of remedies, the Commission cleared nine transactions subject to remedies (four at Phase I and five at Phase II), fewer than in 2022. Five deals were withdrawn prior to a decision, four at Phase I and one at Phase II. This is significantly less than in 2022, when a total of 12 cases were withdrawn.
Key highlights
Key developments in EU merger control for the period of May 2023 to April 2024 include those set out below.
A notable area of focus continues to be the use of article 22 of the EU Merger Regulation (EUMR) to review transactions that do not meet national merger thresholds. In the Qualcomm/Autotalks and EEX/NASDAQ cases, the Commission intervened even though the transactions did not meet national thresholds. The Illumina/Grail saga also continues, with Advocate General Emiliou holding in March 2024 that the General Court erred in law in upholding the Commission’s extended scope of review, and the Commission imposing fines on Illumina and Grail in July 2023 for prematurely implementing their merger.
The changes to the Implementing Regulation and Notice on Simplified Procedure entered into force on 1 September 2023. They aim to simplify the merger notification process, reduce administrative burdens and clarify the types of cases eligible for the simplified procedure. Additionally, a new super-simplified treatment has been introduced for certain cases, which purports to reduce the complexity and costs associated with merger notifications.
The application of the notification system under the Foreign Subsidies Regulation since 12 October 2023 marks a significant jurisdictional development. This regulation requires pre-notification of transactions that meet specific thresholds, introducing a parallel review mechanism alongside the EUMR to address the competitive effects of foreign subsidies.
From a substantive perspective, the adoption of the long-awaited revised Market Definition Notice and the continued focus on digital markets and ecosystems are key highlights, as is the Commission’s tougher approach to remedies in the airline sector.
In this article, we consider the above in more detail and discuss additional jurisdictional, procedural and substantive developments.
Jurisdictional developments
Article 22 EUMR: The Commission continues to cast a wide net
In previous editions, we reported on the article 22 EUMR referral of Illumina’s acquisition of Grail, which was initiated by the French Competition Authority, joined by other national competition authorities, and accepted by the Commission.In 2022, the General Court endorsed the Commission’s revised approach to article 22 EUMR by holding that the Commission could accept referrals for transactions that did not meet national merger control thresholds. An appeal is pending before the Court of Justice. On 21 March 2024, Advocate General Nicholas Emiliou handed down his opinion. He held that the General Court erred in its interpretation of article 22 EUMR when it confirmed the Commission’s competence to examine the acquisition of Grail by Illumina and that the broad interpretation of article 22 EUMR gives rise to a very significant extension of the scope of the Commission’s jurisdiction. The Commission has indicated that it will use its powers under article 102 Treaty on the Functioning of the European Union (TFEU) to deal with below-threshold mergers should the Court of Justice endorse the Advocate General’s approach.
After an in-depth investigation, the Commission blocked the deal in September 2022 due to concerns about vertical foreclosure in the market for NGS-based cancer detection systems, estimated to be worth €40 billion by 2035. Illumina’s appeal against the prohibition decision is pending before the General Court.
On 12 July 2023, the Commission fined Illumina and Grail approximately €432 million and €1,000 respectively, for implementing their proposed merger before approval by the Commission, in breach of the standstill obligation. On 12 April 2024, the Commission approved Illumina’s plan to unwind its acquisition of Grail, following the Commission’s decision of 12 October 2023 ordering Illumina to unwind this transaction. Illumina has appealed both the gun-jumping decision and the decision ordering it to unwind its acquisition of Grail. Both appeals are pending before the General Court.
In 2023, the Commission accepted further article 22 EUMR referral requests regarding the Qualcomm/Autotalks and EEX/NASDAQ transactions. In Qualcomm/Autotalks, the Commission accepted the referral request submitted by 15 EU member states, after having invited member states to refer the transaction. The transaction was ultimately abandoned amid increased scrutiny from competition authorities around the world (it was under review in the European Union, United States and United Kingdom). The EEX/NASDAQ transaction was referred by three EU member states and one EFTA member state. The parties emphasised that the Commission calling in their merger risked increasing the ‘unpredictability’ of new EU guidance designed to capture below-threshold transactions.
Another recent example of a referral under article 22 EUMR, even though not falling in the same category as the previously mentioned cases since the deal did not fall below national thresholds, is the Adobe/Figma transaction. The parties notified the transaction in Austria and Germany. However, these two member states together with other member states believed the transaction should be scrutinised by the Commission and referred the case to the Commission. After an in-depth review by the Commission and the UK Competition and Markets Authority, the parties ultimately decided to terminate the deal.
The practice of scrutinising mergers falling below certain thresholds is not limited to the Commission. It is gaining attention from national competition authorities as well. For instance, the Irish Competition Authority has the power to call in deals that do not meet the Irish merger review thresholds but might pose a risk to competition. Further, on 2 January 2023, the Italian Competition Authority issued guidelines regarding its recent ability to request notification of mergers that do not meet Italy’s turnover thresholds. Additionally, the Dutch Competition Authority has been advocating for broader merger control capabilities to evaluate mergers that are not notifiable or fall below pre-defined thresholds.
This emerging trend adds an additional layer of uncertainty for companies contemplating a merger. However, it is not the only development in merger control this year that is likely to increase uncertainty. The Commission recently launched a consultation on competition in virtual worlds and generative artificial intelligence, and is currently assessing whether the Microsoft/OpenAI partnership can fall under the EUMR. However, recent actions by regulatory bodies, such as Germany’s Federal Cartel Office and the UK’s Competition and Markets Authority, suggest growing concerns about the extent of Microsoft’s influence over OpenAI.
‘Gatekeepers’ under increased scrutiny
As mentioned in the previous edition, on 24 March 2022, the EU Council and Parliament reached an agreement on the Digital Markets Act (DMA), an important step towards the regulation of digital platforms. While the DMA does not significantly alter merger control, it does have some implications:
- it requires gatekeepers to inform the Commission of any proposed concentration ‘where the merging entities or the target of concentration provide core platform services or any other services in the digital sector or enable the collection of data, irrespective of whether it is notifiable to the Commission under that Regulation or to a competent national competition authority under national merger rules’; and
- the Commission may, for a limited period of time, prohibit gatekeepers from making acquisitions in the specific sector that is affected by so-called systemic non-compliance with the obligations under the DMA.
On 5 September 2023, the Commission designated the first six gatekeepers under the DMA (Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft) and listed their core platform services, 22 in total, which it considers are individually an important gateway for business users to reach end users.
ByteDance, Meta and Apple have appealed their designation as gatekeepers under the DMA to the General Court, but these appeals do not suspend their DMA obligations. ByteDance’s request for interim measures was dismissed for lack of urgency. The Commission opened market investigations into Microsoft’s and Apple’s claims regarding certain services (Apple’s messaging service, iMessage and Microsoft’s online search engine, Bing; web browser, Edge; and online advertising service, Microsoft advertising), but ultimately concluded that they should not be designated as gatekeepers for those services. Additionally, a market investigation was initiated to assess whether Apple should be designated as a gatekeeper for iPadOS, despite not meeting quantitative thresholds, based on qualitative considerations. This investigation could take up to 12 months.
Foreign Subsidies Regulation now in full force
In the previous edition, we covered the introduction of the Commission’s latest regulatory instrument, the Foreign Subsidies Regulation (FSR). It entered into force on 12 January 2023 and has been applicable since 12 July 2023. The FSR aims to create a level playing field between EU market players and their non-EU counterparts, who are not bound by EU state aid rules. The FSR achieves this by introducing new control mechanisms that empower the Commission to tackle foreign subsidies. These mechanisms include a notification-based tool specifically designed to address potentially subsidised mergers and acquisitions.
As of 12 October 2023, the Commission requires an FSR filing prior to the implementation of transactions that meet the FSR thresholds.
On 1 February 2024, the Commission published a policy brief on the first 100 days since the start of the obligation to notify qualifying concentrations under the new FSR regime, covering the period from 12 October 2023 to 20 January 2024. During that period, the Commission engaged in pre-notification discussions and allocated case teams to 53 cases, leading to 14 notifications and nine initial investigations. Among these cases, 33 involved cross-border EU to non-EU transactions, seven were intra-EU, seven were extra-EU and six were domestic transactions within the European Union. Most cases (42 out of 53) underwent parallel assessments under the EUMR, and five were subject to national merger control procedures. Notably, around one-third of the cases involved an investment fund as a notifying party. During these first 100 days, the Commission did not initiate any detailed second phase investigation.
On 3 April 2024, the Commission announced the opening of two in-depth investigations under the FSR. These relate to two bids from Chinese companies for the design, construction and operation of a photovoltaic park in Romania. A few days later, on 9 April 2024, the Commission announced its first investigation under its ex officio powers. Under scrutiny are Chinese companies supplying wind turbines for parks in Spain, Greece, France, Romania and Bulgaria.
Procedural developments
Revised Merger Implementing Regulation and Notice on Simplified Procedure in force
In the previous edition, we outlined the Commission’s revised Notice on Simplified Procedure, effective from 1 September 2023. The revised Notice on Simplified Procedure expands and clarifies the types of cases that can benefit from the simplified procedure (meaning that the information requirements in the notification form are significantly reduced as compared to those applicable in the normal, non-simplified procedure).
- Vertical concentrations: under the revised rules, two additional types of vertical mergers will qualify for a simplified procedure, provided certain conditions are met. The first condition applies where the combined market share and purchasing power of the merging parties are both below 30 per cent. The second condition applies if the combined market shares, together with the market concentration index, are below specific thresholds, and the smaller entity maintains consistent market share positions in both upstream and downstream markets.
- Flexibility clauses: the revised Notice on Simplified Procedure introduces flexibility clauses, allowing certain concentrations outside typical parameters to undergo simplified review upon request by the notifying parties and at the Commission’s discretion. These include mergers with horizontal overlaps at a combined market share of 20–25 per cent, vertical relationships with market shares of 30–35 per cent, market shares not exceeding 50 per cent in one market and 10 per cent in another, and joint ventures with EEA turnover and assets between €100 million and €150 million.
The revised Notice on Simplified Procedure also introduces clearer guidelines on when the Commission may opt for a standard investigation instead of the simplified treatment, outlining specific circumstances as safeguards and exclusions. It also introduces a ‘super-simplified treatment’ for certain cases, such as extra-EEA joint ventures or those lacking horizontal overlaps or non-horizontal relationships, allowing parties to expedite the process by notifying the Commission directly without pre-notification discussions using an updated ‘tick the box’ form that streamlines questions relating to the substantive assessment of the merger, thus streamlining the process further.
Additionally, for market shares falling within specified ranges, the simplified procedure applies if certain conditions, such as the Herfindahl-Hirschman Index, are met.
The revised Implementing Regulation also includes a revised version of the Form RS (relating to referrals) with some similar changes to the Form CO, and a revised Form RM (relating to remedies), which also includes some additional questions.
The latest reforms mark a significant change, with the Commission acknowledging the burdensome nature of EUMR notifications. Consequently, they aim to streamline the process by prioritising essential information needed to assess jurisdiction and review transaction substance. This overhaul aligns with the Commission’s broader objective of simplifying regulatory reporting requirements and reducing the associated burden by 25 per cent, as recently outlined.
However, the ‘tick the box’ mechanism, while intended to simplify processes, also presents drawbacks. Its rigidity often necessitates more extensive explanations compared to older forms, which can paradoxically counteract the aim of streamlining.
Longer merger review timelines in problematic cases
While, as mentioned before, with the new Simplification Package the Commission aims to simplify the examination of unproblematic deals, it has been increasingly taking a closer look at complex deals, which now face longer merger review periods.
There has been a notable trend: while conditional clearances at Phase I have been declining lately (only four cases in 2023 against 10 in 2022), there has been an increase in Phase II conditional clearances compared to 2022 (five cases in 2023 against two in 2022). This pattern indicates that, in complex cases, the Commission is using the extended time frame provided by the Phase II procedure to thoroughly assess whether the proposed remedy package adequately resolves its concerns.
The duration of ‘stop the clock’ periods in Phase II merger investigations has been increasing in large, complex cases. Although the suspensions have long been part of the transaction review process, they have become more common in recent years, contributing to longer merger review proceedings.
Substantive developments
New Market Definition Notice adopted
In the previous edition, we mentioned the Commission’s plan to adopt a New Market Definition notice. This is now a reality since, on 8 February 2024, the Commission adopted its revised Market Definition Notice, the first revision of the Market Definition Notice since its adoption in 1997.
The revised Market Definition Notice reflects the significant developments since 1997, in particular the increased digitalisation and the new ways of offering goods and services, as well as the interconnected nature of commercial exchanges.
The main changes introduced by the revised Market Definition Notice concern the following.
Market definition
The revised Market Definition Notice emphasises that market definition is a crucial part of the competitive assessment process but clarifies that it is not obligatory for every evaluation. Market definition serves as an interim stage and should reflect current conditions and case-specific details. While past Commission rulings on a particular market could offer valuable insights, they do not constrain the Commission, which remains open to revising definitions based on contemporary factors such as digitalisation, alterations in value chains or customer sourcing patterns, and the influence of globalisation.
Product market
The revised Market Definition Notice discusses three key factors in competition: demand substitution, supply substitution and potential competition.
Demand substitution is pivotal for defining the product market, evaluated through consumer product substitutability. While the methodology aligns with the 1997 approach, it allows for flexibility, particularly in non-price competition, clarifying the Small but Significant Non-transitory Increase in Price (SSNIP) test as a conceptual framework. Potential competition, although not used directly in product market definition, is considered in the assessment, emphasising factors such as the likelihood of market entry. In quality or innovation-driven markets, qualitative tests such as the Small but Significant Non-transitory Decrease in Quality (SSNDQ) are employed, despite quantification challenges. Supply substitution is also considered, especially in markets with varying product qualities or custom-made offerings. The Commission evaluates diverse factors such as innovation and sustainability to comprehend customer preferences, allowing for a nuanced understanding of competition dynamics.
Geographic market
The revised Market Definition Notice also elaborates on various factors that contribute to defining geographic markets, including market shares, prices, customer preferences, purchasing behaviour, switching costs, barriers to supply in different areas, transport costs and trade flows.
Additionally, it highlights the consideration of structural changes affecting specific markets, such as those related to globalisation. For instance, anticipated regulatory changes may warrant a broader geographic market definition when applicable.
Market definition in specific circumstances
In cases of significant product differentiation, the Commission may identify distinct relevant markets. Such differentiation may include design, brand, technical specifications, durability and service levels, as well as geographic factors.
Price discrimination among customers can also lead to the definition of narrower, separate relevant markets under certain conditions, such as clear customer group identification and lasting price discrimination. In industries with substantial R&D investments, market definitions may consider uncertainties in innovation outcomes, such as the progress of pipeline products.
Multi-sided platforms pose unique challenges for market definition, where relevant markets may be delineated for the platform as a whole or separately for each side, considering factors such as free services and substitutability.
For after-markets, bundles and digital ecosystems, market definitions may vary depending on the circumstances, considering factors such as network effects and switching costs.
Novel (or recycled?) theories of harm
In 2023, the Commission has focused on emerging theories of harm, especially regarding non-horizontal transactions within the digital sector.
Ecosystems
In a notable development, the Commission has for the first time blocked a deal due to concerns related to the ‘ecosystem’. This occurred in the Booking/eTraveli case. The Commission’s decision was primarily marked by its dismissal of Booking’s proposed behavioural remedies and its reliance on an ecosystem theory of harm.
Instead of solely applying the conglomerate analytical framework, the Commission assessed both horizontal and non-horizontal aspects of the transaction. Ultimately, it blocked the transaction because it believed that the merger of the two complementary businesses would strengthen Booking’s purported dominant position in the online hotel travel agency market.
The Booking/eTraveli case is significant because it highlighted Booking’s potential to expand its ‘ecosystem’ of travel services through the acquisition (Booking being the leading hotel OTA and eTraveli being active as a flight booking OTA). Ecosystem considerations have been present in recent merger investigations, such as Microsoft/Activision Blizzard, which examined how acquiring Activision’s games catalogue could enhance Microsoft’s standing in cloud gaming and operating systems. Similarly, in Amazon/iRobot (see below), the Commission investigated how iRobot’s user data could bolster Amazon’s dominance in the marketplace.
The Commission has been exploring the ecosystem theory of harm for a while, as seen in its evaluations of Meta’s acquisition of Kustomer and Google’s acquisition of Fitbit, which we reported on in previous editions. However, it had not encountered a significant merger case to apply this theory until now. Booking’s transaction marks the first instance where the Commission has utilised this rationale to block a deal. Booking has appealed the prohibition decision before the General Court.
Self-preferencing
Since the Commission’s landmark Google Shopping decision in June 2017, self-preferencing theories of harm have become central to European competition enforcement in digital markets.
One recent case involves Amazon’s acquisition of iRobot.
The Commission initiated a Phase II investigation into the transaction due to concerns that it could allow Amazon to impede competition in the robot vacuum cleaners (RVCs) market and strengthen its position as an online marketplace provider. According to the Commission, Amazon would be able to foreclose iRobot’s rivals by reducing the visibility of rival RVCs in both non-paid (ie, organic) and paid results (ie, advertisements) displayed in Amazon’s marketplace. Amazon did not offer remedies and the Commission announced its intention to prohibit the deal. In reaction to this, the parties announced their mutual decision to abandon the deal.
Potential competition
In 2020, Adobe announced plans to acquire Figma, a company known for its cloud-based design and collaboration tools. Adobe’s move was seen as a strategic way to expand its product range and strengthen its market position. As mentioned above, after a referral from various member states, the deal was notified to the Commission in June 2023.
The Commission opened an in-depth investigation into the transaction voicing concerns that the deal would prevent ‘Figma’s potential growth into an effective competitor to Adobe’s asset creation tools’. In particular, the Commission:
- expressed concerns over Figma’s dominant market position and Adobe’s role as one of its primary rivals;
- highlighted the close rivalry between Adobe and Figma, underscoring the potential decline in competitive dynamics post-merger;
- raised apprehensions about the deal’s potential impact on specific product lines; the Commission was particularly concerned that the acquisition might lead to the discontinuation of Adobe XD and any prospective successor products, potentially constituting a ‘reverse killer acquisition’; and
- emphasised the risk of removing Figma as a competitor to Adobe’s flagship software offerings, including Illustrator and Photoshop, which could further diminish competition in the relevant markets.
Standard of proof
In July 2023, the Court of Justice issued its judgment in CK Telecoms UK Investments v European Commission, which dealt with key issues such as the applicable standard of proof, unilateral effects in ‘gap cases’, the scope of judicial review in competition law, and the definitions of ‘closeness of competition’ and ‘important competitive force’.
The Court of Justice endorsed Advocate General Kokott’s opinion and overturned the judgment of the General Court, which had adopted a novel interpretation of these concepts and applied a more stringent standard of proof. The Court of Justice’s judgment confirms that the standard of proof should be consistent across different types of mergers and that the Commission must demonstrate a likely significant impediment to effective competition under the EUMR.
Scrutiny in the airline sector
In 2023 the Commission has shown a tougher approach to remedies. This trend was particularly observed in airline mergers.
Korean Airlines and Asiana, the largest airlines in South Korea, notified their merger to the Commission on 13 January 2023. A month later, the Commission opened an in-depth investigation. It was concerned that the merger between these two airlines may harm competition in passenger and cargo transport services between South Korea and the EEA, potentially reducing consumer choice and raising concerns about monopolistic behaviour.
After a 13-month review, the Commission cleared the transaction subject to a fix-it-first remedy (for air passenger services) and an upfront buyer commitment (for air cargo services).
Two of the on-going Phase II merger investigations are in the airline sector:
- Lufthansa/ITA Airways: the Commission opened an in-depth investigation into the transaction in January 2024. It considers that, given that Lufthansa and ITA Airways are strong and close competitors, the transaction may reduce competition in the market for passenger air transport services on several short-haul and long-haul routes. In addition, the Commission considers that the transaction could create/strengthen ITA Airways’ dominant position at the Milan-Linate airport. The parties have now proposed a set of remedies to the Commission which is currently reviewing them.
- IAG/Air Europa: on 24 January 2024, the Commission announced the opening of an in-depth investigation into the proposed acquisition of sole control of Air Europa Holding, SL (Air Europa) by International Consolidated Airlines Group, SA (IAG), based on concerns that the transaction may reduce competition in various markets for passenger air transport services, particularly within Spain and between Spain and other European and international destinations. IAG controls the Spanish carrier Iberia and the Spanish low-cost carrier Vueling Airlines, as well as the UK carrier British Airways and the Irish carrier Aer Lingus. Concerns focus on routes where both parties offer direct connections, potentially limiting consumer choice and affecting competitors’ access to slots and networks. The Commission will further examine the impact on slot portfolios, indirect connections, and access to domestic and short-haul networks before reaching a decision by 7 June 2024.
The remedies imposed in Korean Airlines/Asiana are expected to serve as a blueprint for future EU merger reviews in the airline sector, including the two above-mentioned on-going Phase II investigations.