On 22 April 2020, the UK Competition and Market Authority (“CMA”) published its guidance on ‘Merger assessments during the Coronavirus (COVID-19) pandemic’ (“the guidance”). Prior to the publication of the guidance, there was some speculation about whether the CMA would be more willing to accept ‘failing firm’ arguments as the economic impact of COVID-19 hit home. However, while the CMA has, as it acknowledged, “been working closely with the government to relax competition law where appropriate”, the guidance and a number of recent CMA cases make it clear that the CMA is not relaxing its merger assessments in response to COVID-19.
On 16 July 2020, the European Commission (“Commission”) announced that it has launched an antitrust sector inquiry into “consumer-related products and services that are connected to a network and can be controlled at a distance, for example via a voice assistant or mobile device.”
Commission Executive Vice President and Competition Commissioner Vestager said that “[t]he sector inquiry will cover products such as wearable devices (e.g. smart watches or fitness trackers) and connected consumer devices used in the smart home context, such as fridges, washing machines, smart TVs, smart speakers and lighting systems. The sector inquiry will also collect information about the services available via smart devices, such as music and video streaming services and about the voice assistants used to access them.” Connected cars are outside of the scope of the inquiry.
Commissioner Vestager noted that the Internet is increasingly embedded in consumer devices (around 180 million devices in 2023 with an estimated value of around Euro 22 billion), and that: “[t]he consumer Internet of Things is expected to grow significantly in the coming years and become commonplace in the daily lives of European consumers […] There are indications that certain company practices may structurally distort competition. In particular, there are indications relating to restrictions of data access and interoperability, as well as certain forms of self-preferencing and practices linked to the use of proprietary standards. Internet of Things ecosystems are often characterised by strong network effects and economies of scale, which might lead to the fast emergence of dominant digital ecosystems and gatekeepers and might present tipping risks. Therefore, through this competition sector inquiry, the Commission will gather market information to better understand the nature, prevalence and effects of these potential competition issues, and to assess them in light of EU antitrust rules.”
Commissioner Vestager also indicated that the key focus areas of the sector inquiry are expected to be:
- Data: “…access to large amounts of user data appears to be the key for success in this sector, so we have to make sure that market players are not using their control over such data to distort competition, or otherwise close off these markets for competitors. This sector inquiry will help us better understand the nature and likely effects of the possible competition problems in this sector”;
- Risk of gatekeepers and “tipping” markets: the Commission wants to establish if/to what extent IOT markets face such risks. Commissioner Vestager mentioned that the risk markets reaching a “tipping point” must be avoided.
- Interoperability: the Commission wants to ensure that smart devices are truly interoperable and able to communicate with each other. Commissioner Vestager emphasised that “[i]nteroperability is of the essence if we want to make this market accessible“
- Devices including voice assistants: Devices, including voice assistants are interfaces between consumers and products and can have an impact on consumers’ purchasing behaviour. The Commission is concerned about possible self-preferencing/foreclosure.
The Commission will send requests for information (RFIs) to around 400 players from around the world, covering all levels of the supply chain (e.g. patent holders, software developers, smart device manufactures, and related service providers).
The RFIs should be circulated in the next days according to Commissioner Vestager (or weeks according to the Commission’s press release). Commission Vestager also indicated that the Commission is currently aiming at issuing a preliminary report in spring 2021.
The sector inquiry runs parallel to the other steps taken by the Commission in the context of its digital strategy, such as the consultation on the New Competition Instrument, the Digital Services Act (see https://ec.europa.eu/digital-single-market/en/digital-services-act-package), and other regulatory initiatives related to artificial intelligence, data and digital platforms (see https://ec.europa.eu/digital-single-market/en/content/european-digital-strategy).
Finally, Commissioner Vestager also indicated that this sector inquiry “sends an important message to powerful operators in these markets that we are watching them and that they need to do business in line with competition rules“.
What are sector inquiries
The Commission describes sector inquiries – https://ec.europa.eu/competition/antitrust/sector_inquiries.html – as:
“investigations that the European Commission carries out into sectors of the economy and into types of agreements across various sectors, when it believes that a market is not working as well as it should, and also believes that breaches of the competition rules might be a contributory factor.”
They typically take several years from initial inquiry to final report, so the Commission’s goal of issuing a preliminary report by the Spring of 2021 indicates that it will seek to expedite the inquiry; follow up investigations into specific companies, however, can start at any time and some will usually start before the sector inquiry as a whole is finalised.
What can companies expect
Imminently, around 400 companies at all levels of the value chain can expect to receive requests for information and documents, asking for some combination of opinion-type input to help identify issues, information on contracts and disputes, and other internal documents.
Although the Commission will already have an initial idea of the issues it wants to investigate, the replies to these requests for information and other contacts between the Commission and companies will help to shape the sector inquiry and the future cases that the Commission intends to take.
For example, with the e-commerce sector inquiry, Commission officials have said that they were surprised by the number of contracts they found that contained clauses that the Commission felt were well-established as unlawful, such as market partitioning clauses.
How Covington can help
With antitrust attorneys in Brussels, the US and China, Covington provides global expertise in handling major inquiries, as well as in-depth experience of relevant technology issues, including through our Internet of Things Task Force.
Our roster of ex regulators can provide detailed insight into how such inquiries work, and how companies can identify and pursue their business objectives in relation to the inquiries.
|Johan Ysewyn +32 2 549 52 54 firstname.lastname@example.org
Kevin Coates +32 2 549 52 32 email@example.com
Andrea Zulli +32 2 549 52 80 firstname.lastname@example.org
On 25 May 2020, the European Commission (“Commission”) has published its Final Report of the support studies for the evaluation of its Vertical Block Exemption Regulation (“VBER”) and the accompanying Guidelines on Vertical Restraints (the “Final Report”). The Final Report was published following a public consultation from 4 February to 27 May 2019 to gather views on the VBER’s functioning in the digital age. This was inspired by the growing importance of e-commerce and the interest in various online companies. This evolution has affected distribution and pricing strategies for both manufacturers and retailers, which the Commission decided warranted an evaluation of some of the current rules. Continue Reading
On June 22, 2020, the UK Government introduced legislation to Parliament that further strengthens its ability to intervene in transactions on national security and other public interest grounds.
Specifically, the UK Government has sought additional powers to intervene in transactions where there is need to preserve the capability of the UK to respond to a public health emergency or mitigate its effects. These new powers relating to public health emergencies came into effect on June 23, 2020. This development in the UK is the latest in a line of measures introduced in other European jurisdictions to tighten foreign direct investment (FDI) screening rules in the context of the COVID-19 pandemic.
In addition, the UK Government took this opportunity to propose expanding the list of sectors for which lower intervention thresholds apply in the UK, to include artificial intelligence, cryptographic authentication technology and advanced materials. These measures relating to critical technology sectors will come into effect at a later date, following Parliamentary debate and approval by both Houses of Parliament.
The European Commission (”Commission”) is preparing the ground for a new competition enforcement tool. This new tool could substantially extend the competition authority’s current enforcement powers and allow for far-reaching intervention where the Commission identifies structural competition concerns. In particular, following the proposal, the standard for intervention could be lowered significantly as the Commission may no longer be required to establish dominance in order to impose behavioural or structural remedies on a company.
Executive Vice-President Margrethe Vestager, in charge of competition policy, explained “that there are certain structural risks for competition, such as tipping markets, which are not addressed by the current rules.” She stated that the Commission “is seeking the views of stakeholders to explore the need for a possible new competition tool that would allow addressing such structural competition problems. Continue Reading
On 17 June 2020 the European Commission (“Commission”) published a White Paper on new enforcement powers regarding foreign subsidies. This initiative pursues two objectives, first it sets out a general policy approach for foreign subsidies, and second, it provides a number of proposals to address a perceived regulatory gap. More specifically, the White Paper suggests new tools to manage what the Commission regards as unfair competition and other distortions of competition within the internal market caused by foreign subsidies.
The White Paper proposes these new review powers of the Commission and/or other competent authorities in addition to already existing tools such as antitrust and merger control, State aid and FDI screening. As such, the Commission outlines a complementary toolbox aimed to facilitate transparency regarding foreign subsidies and maintain a level playing field within the EU internal market. Continue Reading
On 28 May 2020, the EU’s General Court (“GC”) annulled the European Commission’s (“Commission”) decision of 11 May 2016 in which the Commission had prohibited the acquisition of Telefónica UK (“O2”) by Hutchison 3G UK (“Three”). It is the first time the EU Courts interpreted the EU Merger Regulation in so-called “gap-cases”, i.e., concentrations in oligopolistic markets which do not result in the creation or strengthening of an individual or collective dominant position.
In the days following the judgment, a number of commentators already emphasised the importance of the GC’s ruling. This post intends to carry out a measured review of the judgment, assess the GC’s findings with respect to each of the Commission’s three theories of harm, and probe whether the judgment is indeed a landmark one. Continue Reading
The FDI space in Europe remains dynamic. Less than five months from the entering into force of the EU FDI Regulation, and just two months since the European Commission asked the Member States to both strengthen and “vigorously” implement the tools available to them and, where appropriate, introduce new FDI screening mechanisms –on which we reported in our previous alert –the past week manifested a number of legislative activities across Europe.
In this blog, we consider the changes proposed or made to laws in Germany, Hungary, Poland and Austria. Overall, we observe a further tightening of the legislative field, lowering the intervention thresholds / filing requirements, while increasing the sectors covered.
Besides the jurisdictions covered in the following, a new FDI law was also proposed in the Czech Republic in April and will be discussed and debated in the Czech Parliament in the coming weeks – watch this space for further updates. Continue Reading
The Covington US and EU Competition/Antitrust teams will be updating you regularly, through the Covington Competition blog, on the competition/antitrust law implications – both procedural and substantive – of the COVID-19 crisis in the US and the EU. This is our update for Friday 29 May 2020. Today’s new updates as compared to the previous update are highlighted – these are the headlines:
- Today’s US update:
- The FTC’s Director of the Bureau of Competition published a blog post on the failing firm defense. Skip to relevant section.
- Today’s EU updates:
- The Commission has cleared a further number of State aid requests by Member States. Skip to relevant section.
At a time when COVID-19 is having direct and indirect effects on the reduction of greenhouse gas (“GHG”) emissions and ensuing global warming, eight French regulators, including the French Competition Authority, issued on 5 May 2020 a joint working paper in which they highlight the need to take into account the “climate emergency” in defining and carrying out their missions, and describe their levers for action.