On 22 June 2022, the EU’s General Court (“GC”) fully dismissed thyssenkrupp’s appeal against the European Commission’s (“Commission”) decision to block its proposed joint venture (“JV”) with Tata Steel in 2019.

This is the first time that the GC has considered the prohibition of a “gap” case under the EU Merger Regulation (“EUMR”) since it annulled the Commission’s prohibition of CK Hutchison’s proposed acquisition of Telefónica UK (O2) in 2020 (“CK Hutchison”) (see our previous blog post here). A “gap” case is a merger in an oligopolistic market that does not result in the creation or strengthening of an individual or collective dominant position. Rather, it risks causing a “significant impediment to effective competition”.

This result may indicate a return to a more traditional approach by the GC as regards “gap” cases than that demonstrated in the CK Hutchison judgment. The judgment also provides helpful guidance on the interpretation of the EUMR and other legal instruments (such as the Market Definition Notice and the Notice on Remedies). The key findings are:

  • Standard of proof: In order to block a “gap” merger, the Commission must show with a sufficient degree of probability that the transaction significantly impedes effective competition in the internal market or in a substantial part of it.
  • SSNIP test: The Commission is not required to apply the SSNIP (small but significant and non-transitory increase in price) test when assessing substitutability between products — it is only one of the methods available to the Commission when defining the market.
  • Remedies: When assessing remedies, it is not necessary to demonstrate that the remedies remove the entire overlap between the merging parties or re-create fully the pre-merger structure in affected markets.
  • Requests for Information (“RFI”): There is no procedural error where the Commission fails to take additional steps (beyond sending systematic reminders) to ensure that recipients respond to an RFI.
Continue Reading EU General Court Upholds Tata Steel/thyssenkrupp JV Prohibition

On 30 June 2022, the Council of the EU (the “Council”) and the European Parliament (the “Parliament”) reached a much awaited agreement on the proposal of the European Commission (the “Commission”) for the Regulation on foreign subsidies distorting the internal market (the “FSR”) (see our alert on the proposal). This political agreement swiftly concludes the trilogue discussions initiated in the beginning of May this year, after the Council (see our blog post) and the Parliament (see our blog post) each adopted their own positions. The agreement has been approved by the Permanent Representatives Committee (“COREPER”) of the Council on 13 July and the Committee on International Trade of the European Parliament on 14 July.

The FSR grants substantial new powers to the Commission and “will help close the regulatory gap whereby subsidies granted by non-EU governments currently go largely unchecked”, according to remarks from Executive Vice-President of the Commission, Margrethe Vestager. It will be deeply transformative for M&A and public procurement in the EU.

The agreement on the FSR did not lead to any major changes in the proposal made by the Commission. The most notable points of discussion between the Parliament and Council and the outcome of this agreement are:

  • The thresholds above which companies are obliged to inform the Commission about their foreign subsidies remain unchanged compared to the Commission’s proposal;
  • The time period in which the Commission has to investigate foreign subsidies in large public procurement has been reduced. In the same way, the retroactive application of the FSR has been limited to foreign subsidies granted in the five years prior to the application of the regulation;
  • The Commission will issue guidelines on the existence of a distortion, the balancing test and its power to request notification of non-notifiable transactions, at the latest three years after the entry into force of the FSR; and
  • A commitment to a multilateral approach to foreign subsidies above the FSR and the possibility for the Commission to engage in a dialogue with third countries has been included.
Continue Reading The Council of the EU and the European Parliament agree on the Foreign Subsidies Regulation

The European Commission (“Commission”) has repeatedly urged EU Member States to set up foreign direct investment (“FDI”) screening mechanisms. To date, 18 out of 27 Member States have adopted FDI screening powers, providing for the review of M&A transactions and other investments on national security and public policy grounds. Recently, Belgium and Ireland have each announced draft proposals which, once implemented, will enlarge the group of Member States reviewing transactions on FDI grounds.

Against this background of increasing FDI screening for local and global M&A transactions, some voices call for broader reforms. The European Parliament has launched an initiative aimed to address a future EU international investment policy and recently adopted a resolution with far-reaching proposals for FDI screening in Europe.

We provide an update on these developments in this blog post and consider the current outlook for FDI screening.

Continue Reading Belgium and Ireland to introduce new FDI screening powers – European Parliament calls for broader reforms

When its Anti-Monopoly Law (“AML”) went into effect in August 2008, China immediately became a significant antitrust enforcer on the world stage.  On June 24, 2022, the National People’s Congress, China’s top legislature, passed the Amendment to the Anti-Monopoly Law of the PRC (the “Amendment”), the first significant changes to the AML in nearly fourteen years.  The Amendment, which was signed into law by President Xi Jinping and published on June 24, will become effective on August 1.  It marks a major milestone in antitrust enforcement in China.

The more significant aspects of the Amendment include:

  • significantly enhanced penalties for AML violations, including the introduction of fines for individuals;
  • the introduction of a discretionary “stop-the-clock” mechanism for merger reviews;
  • the codification of a burden-shifting framework created by China’s courts that gives companies the opportunity to defend resale price maintenance agreements; and
  • new safe harbor and burden of proof provisions for matters involving vertical agreements.

Consistent with trends in other jurisdictions around the world, the Amendment also features a special focus on key economic sectors such as the digital economy.

Following the publication of the Amendment, the State Administration for Market Regulation (“SAMR”), China’s lead antitrust enforcement authority, released six sets of draft implementing regulations for public comment.  These cover subjects such as merger control and notification thresholds, anti-competitive agreements, abuse of a dominant market position, and the abuse of intellectual property rights to exclude or restrict competition.  SAMR is accepting comments on these regulations until July 27, 2022.

How Covington Can Help

Covington’s global antitrust and competition practice guides clients through the often-complex web of antitrust and competition laws around the world to help them secure their most important business objectives. Our team, which includes many attorneys who have served in senior leadership roles at government enforcement agencies and in in-house positions, has decades of collective experience advising clients regarding their global antitrust and competition concerns.  If you have any questions concerning the material discussed in this client alert, please contact any of the following members of our Antitrust/Competition practice: Jim O’Connell, James Marshall, and Alexander Wang.

This communication is intended to bring relevant developments to the attention of Covington & Burling LLP’s clients and other interested colleagues. It is not intended as legal advice. Readers should seek specific legal advice before acting with regard to the subjects mentioned herein. Please send an email to unsubscribe@cov.com if you do not wish to receive future emails or electronic alerts.

Continue Reading Significant Changes to China’s Anti-Monopoly Law to Take Effect in August

The UK government has reported a successful start to the implementation of the National Security and Investment Act 2021 (the “NSIA” or “Act”). During the first three months (Jan-March 2022) in which the new NSIA regime has been active, the Investment Screening Unit (“ISU”) received 222 filings and reviewed 17 transactions in depth. Of those 17 transactions, three have been cleared unconditionally, with the other 14 transactions still under review at the end of the reporting period.

Mandatory NSIA filings, which represented 196 of the total flings, were most commonly made in six sectors: defence, military and dual-use, critical suppliers to government, artificial intelligence, data infrastructure and advanced materials.  There were significantly fewer filings in other sectors, with fewer than five filings per sector in areas such as synthetic biology, civil nuclear, advanced robotics and transport.

Collectively, these figures and other data suggest that the NSIA regime is operating, so far, broadly in line with expectations. While there are fewer filings than expected overall, this may reflect a broader global slowdown in M&A and investment activity. The ISU further reports that it is meeting, and often working well within, the maximum statutory time periods for the assessment of filings. The ISU indicates its willingness to complete reviews expeditiously where possible, including for in-depth assessments.

Continue Reading UK National Security and Investment Regime Working Well

On 30 May 2022, the European Union (“EU”) adopted the revised Regulation on guidelines for trans-European energy infrastructure (No. 2022/869) (the “TEN-E Regulation 2022”), which replaces the previous rules laid down in Regulation No. 347/2013 (the “TEN-E Regulation 2013”) that aimed to improve security of supply, market integration, competition and sustainability in the energy sector. The TEN-E Regulation 2022 seeks to better support the modernisation of Europe’s cross-border energy infrastructures and the EU Green Deal objectives.

The three most important things you need to know about the TEN-E Regulation 2022:

  • Projects may qualify as Projects of Common Interest (“PCI”) and be selected on an EU list if (i) they fall within the identified priority corridors and (ii) help achieve EU’s overall energy and climate policy objectives in terms of security of supply and decarbonisation. The TEN-E Regulation 2022 updates its priority corridors to address the EU Green Deal objectives, while extending their scope to include projects connecting the EU with third countries, namely Projects of Mutual Interest (“PMI”).
  • PCIs and PMIs on the EU list must be given priority status to ensure rapid administrative and judicial treatment.
  • PCIs and PMIs will be eligible for EU financial assistance. Member States will also be able to grant financial support subject to State aid rules.
Continue Reading The European Union adopted new rules for the Trans-European Networks for Energy

On 22 March 2022, the European Court of Justice (“ECJ”) issued two separate preliminary rulings – Bpost and Nordzucker – which clarify how the protection against double jeopardy (“non bis in idem principle”) should be applied in instances where an identical competition law infringement is sanctioned in parallel investigations, either by different regulatory authorities of the same EU Member State or by multiple national competition authorities (“NCAs”) from different EU Member States.

The key takeaways from the two judgments are as follows:

  • the non bis in idem principle applies to competition law due to the criminal aspect embedded in the relevant administrative penalties;
  • the non bis in idem principle only applies if the facts are identical – a mere reference to a fact in a decision is not sufficient to demonstrate that an authority has ruled on that element;
  • different national authorities can impose fines for an identical infringement if the legislation on which they rely pursues complementary objectives;
  • the non bis in idem principle also applies to situations where an NCA has granted leniency to a company such that only a declaratory finding infringement (without fine) can be made.
Continue Reading European Court of Justice clarifies scope of protection against double jeopardy in successive antitrust investigations

In Enel, a judgment of 12 May 2022 (C-377/20), the Court of Justice of the European Union (“CJEU”) complemented the framework for analysing exclusionary abuses developed in earlier case-law, notably where it applies to a context of market liberalisation:

  • Abuse: The concept of “abuse” relates to conduct that departs from “competition on the merits”. Conduct that an equally efficient competitor can replicate is generally not abusive (“equally efficient competitor test”).
  • Anti-competitive effects: While it is not necessary to demonstrate actual anti-competitive effects or the company’s intention to carry out an exclusionary strategy, such factors are relevant in assessing whether the conduct is abusive or not.
  • Harm: Conduct that harms consumers indirectly as a result of its effect on the structure of the market is per se abusive; it is not required to demonstrate an actual or potential direct harm to consumers.
  • Objective justification: The prohibition set out in Article 102 TFEU does not prohibit   conduct that is objectively justified and proportionate, or where the behaviour is counterbalanced or outweighed by pro-consumer efficiency-benefits.

The judgment largely endorses the opinion of Advocate General Rantos (see our blog post), but adds some important nuance.

Continue Reading The CJEU sets out an analytic framework on exclusionary abuses in the context of market liberalisation

On 4 May 2022, the General Court of the European Union (the “General Court”) upheld the decision of the European Commission (the “Commission”) approving the rescue aid granted by Romania to the Romanian airline TAROM (T-718/20). With this judgment, the General Court clarifies the concepts used by the Commission when assessing whether aid can be authorised under the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty (“R&R Guidelines”).

The judgment is noteworthy as it interprets for the first time the starting point of the 10-year period during which it is forbidden to provide anew rescue or restructuring aid to an ailing company (the so-called “one time, last time” principle).

Continue Reading The General Court offers useful guidance to interpret the “one time, last time” principle when granting restructuring aid

On 4 May 2022, the Council of the EU (the “Council”) formally adopted its position on the proposal of the European Commission (the “Commission”) for a Regulation on foreign subsidies distorting the internal market (the “Foreign Subsidies Regulation”) (see our alert on the proposal). On the same day, the European Parliament (the “Parliament”) also adopted its position on the Foreign Subsidies Regulation (see our blog post). The Council’s adoption confirms the Commission’s initial proposal of the regulation while seeking to limit the Commission’s power to investigate foreign subsidies.

The three most important things for you to know about the recent amendments to the Foreign Subsidies Regulation:

  • The thresholds above which companies are obliged to inform the Commission about their foreign subsidies have been increased, reducing the scope of the new rules to a narrower set of acquisitions, mergers and public procurements. In addition, foreign subsidies of less than EUR 5 million would not be subject to notification and foreign subsidies of less than EUR 200,000 would escape any scrutiny.  
  • The time period in which the Commission has to investigate foreign subsidies in large public procurements has been reduced. Furthermore, the “retroactive” application of the Foreign Subsidy Regulation is limited to foreign subsidies granted in the five years prior to the application of the regulation.
  • The application of some concepts (e.g., the power to request prior notification) will be subject to further guidance by the Commission.
Continue Reading The Council of the EU endorses the European Commission’s proposal on the Foreign Subsidies Regulation