New European case law in Towercast

The ECJ has decided that “the prohibition of abuse of a dominant position laid down by the Treaties permits an ex-post control, at national level, of a concentration of undertakings with a non-Community dimension” [1]

In other words, the point of view adopted by Advokate General Kokott in her Opinion – which we have discussed here – has been generally adopted by the European Court of Justice (the “ECJ” or the “Court”).

In brief, in its decision dated 16 March 2023 issued in Case C‑449/21 (the Towercast Decision), the Court notes the following:

1. The fact the EU Merger Regulation[2] constitutes a “one stop shop” for assessing concentrations within the EU ex ante (meaning prior to their completion) does not preclude Art. 102 of the TFUE from being applied by national competition authorities to concentrations which lead to an abuse of dominance ex post (meaning after they have completed) on national markets;

2. The fact the respective concentration has led to a consolidation of the acquirer’s dominance on the relevant market is not automatically equivalent to finding that an abuse of dominance has occurred. Abuse of dominance following the concentration has to manifest at least in the sense that “the degree of dominance thus reached would substantially impede competition, that is to say, that only undertakings whose behaviour depends on the dominant undertaking would remain in the market”.[3]

3. As regards the temporal effects of the Towercast Decision, the Court has clarified once again that, as a rule, its interpretation of European law produces effects for situations occurring prior to rendering of new case-law and that such effects shall be limited only for future situations only if: (i) “those concerned must have acted in good faith”; and (ii) “there must be a risk of serious difficulties” in implementing the new case law to the old facts.[4] In Towercast, the Court found none of the two cumulative conditions to be applicable.

This new case-law casts a brand-new light on how mergers and acquisitions need to be assessed from a competition law perspective by counsels and parties looking at such transactions. Assessing a proposed merger or acquisition from the perspective of notification requirements is quite straightforward and clear. How about doing an assessment by looking at what the completion of the transaction will generate – abuse of dominance by any chance? Because if this is the case, then potentially the transaction could be challenged both by the national competition authority and by competitors looking to gain benefit from such transaction being wound up. Practice will tell.

[1] ECJ press release on Towercast Decision: https://curia.europa.eu/jcms/upload/docs/application/pdf/2023-03/cp230046en.pdf [2] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation). [3] The Towercast Decision, para. 52. [4] Idem, para. 57.

Killer Acquisitions– Brief overview on concept

We mentioned the concept “killer acquisitions” in a previous article. The topic raises great interest at the moment at international level due to the impact that it may have on competition in emerging product markets (especially technology related ones).[1]

Let’s clarify: ”Killer acquisitions” refer to cases where incumbent companies with important market shares acquire start-ups or smaller players with significant business potential in terms of the products or services that they provide with the purpose to “discontinue the development of the targets’ innovation projects and pre-empt future competition”.[2]

As shown by research,[3] the extent to which a potential acquisition may be qualified as a “killer acquisition” most times escapes the scrutiny of competition authorities, because the parties involved in such acquisitions do not meet the turnover thresholds for merger clearance (by assumption, the thresholds are not met, because the acquired company is new to the market and/or has a market share well below the relevant thresholds).

In this case, the questions arise: how can competition authorities identify “killer acquisitions” and, moreover, how can it be proven from the onset (i.e. from the acquisition date) that the intention of the acquirer is to “kill” the future competitor or its product, when the result of the acquisition can actually be seen some time after its completion?

The answers to these questions appear to be yet under discussion amongst competition law experts. For the time being, however, it appears that a post-factum review would be the only tool available for competition authorities. This idea appears to be supported by a recent opinion expressed by the Advocate General with the European Court of Justice (of which we have written here). For sure this topic will gain ground as more start-ups launch into innovation and efficiencies which would benefit consumer and competition, thus attracting the appetite for acquisitions of established players.

[1] The OECD allocated a whole panel to the topic in 2020 - https://www.oecd.org/daf/competition/start-ups-killer-acquisitions-and-merger-control.htm. Also, other sources have recently evoked this concept - see: https://insights.som.yale.edu/insights/wave-of-acquisitions-may-have-shielded-big-tech-from-competition [2] Cunningham, C., Ma, S. and F. Ederer (2018). “Killer Acquisitions,” https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3241707, cited in OECD (2020), Start-ups, Killer Acquisitions and Merger Control www.oecd.org/daf/competition/start-ups-killer-acquisitions-and-merger-control-2020.pdf [3] OECD (2020), Start-ups, Killer Acquisitions and Merger Control, www.oecd.org/daf/competition/start-ups-killer-acquisitions-and-merger-control-2020.pdf

Concentration Analysis pre-M&A to Involve Abuse of Dominance Conditions Assessment?

In Case C‑449/21 (“Towercast”) (currently pending), the European Court of Justice (the “ECJ”) was required to assess and rule upon a preliminary question of whether a concentration which does not meet the relevant turnover-related thresholds of Regulation (EC) No 139/2004 (the “Merger Regulation”) and national merger control law and, as a result, did not undergo ex ante assessment with any national or European authority can be reevaluated following its completion in view of Article 102 from the Treaty on the Functioning of the European Union (the “TFEU””) on abuse of dominance.

In other words, the question raised by the inquiring national court (in this case, the Court of Appeals in Paris, France) opened the discussion as to whether a concentration which, at first sight does not even raise the issue of clearance (by not meeting the legal notification thresholds), may trigger additional ex post review based on legal grounds concerning abuse of dominance.

Advocate General Kokott issued their opinion in this case[1] and their conclusion is that indeed, such review could take place. The arguments brought forward in this regard are in brief the following:

1. applying national law provisions or the Merger Regulation with respect to clearance requirements for mergers does not preclude the application of Article 102 on abuse of dominance following the completion of the concentration, given the prevalence of treaty provisions. However, to the extent that a concentration meeting the thresholds for notification has been declared compatible with the internal market, “could not as such be qualified (any longer) as an abuse of a dominant position within the meaning of Article 102 TFEU, unless the undertaking concerned has engaged in conduct which goes beyond that and could be found to constitute such an abuse.”[2]

2. subsequent control under Article 102 TFEU can only concern concentrations carried out by an undertaking with a dominant position.[3]

3. legislation on merger clearance establishes a rebuttable presumption that, in case certain thresholds are met, a proposed concentration may raise competition concerns and, hence, require the preliminary review of competition authorities. However, lack of reaching such thresholds (and absence of the presumption) does not preclude Article 102 from applying and the relevant competition authority from assessing post concentration completion if abuse of dominance occurred.

4. in order to effectively protect competition, especially in acquisitions in highly concentrated markets, competition authorities should be able to use the tool made available by Article 102, where the aim of such acquisitions is to eliminate competitors (the so-called killer acquisitions - more on the concept here).

The case is still pending and the ECJ is yet to rule on it. However, if the Court's judgment follows AG Kokott's opinion and reasoning, it would probably require a partial reconfiguration of how some purchases will be dealt with, in the context of which the notification thresholds are not met:

• the standard assessment of notification thresholds carried out before any deal is signed will have to be followed by an assessment of the potential abuse of dominance resulting from the concentration. The absence of such extensive assessment could lead to negative consequences after the completion of the M&A in the form of fines or the retroactive dismantling of the transaction. In her Opinion, AG Kokott suggest that the adequate sanction would not be the dismantling of the transaction (given the primacy of behavioral remedies and the principle of proportionality), but “only” the imposition of fines[4]; and

• the agreements that give effect to the acquisitions (sale purchase agreements (SPAs)) will either have to contain warranties as to the absence of grounds of post-closing abuse of dominance, to the extent that a finding of such abuse would result in the dismantling/termination of the transaction.

Article to be continued based on the expected ECJ decision.

[1]https://curia.europa.eu/juris/document/document.jsf?text=&docid=267143&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=44949 [2] Paragraph 60 of the Opinion of Advocate Kokott delivered on 13 October 2022 in the “Towercast” case (the Opinion). [3] Paragraph 62 of the Opinion. [4] Paragraph 63 of the Opinion.