On Episode 20 of Covington’s Inside Privacy Audiocast, Dan Cooper, Co-Chair of Covington’s Data Privacy and Cyber Security practice, and Christian Ahlborn, Partner in Covington’s Competition practice, discuss the recently enacted EU Digital Markets Act (DMA) in the first part of our “Competition and Privacy” mini series.

For more information on the DMA, we refer you to Covington’s EMEA Tech Regulation Toolkit, which provides information on new regulations in the EMEA region (including the DMA), and includes a video series, key takeaways, and links to relevant blog posts and articles.

Covington’s Inside Privacy Audiocast offers insights into topical global privacy issues and trends. Subscribe to our Inside Privacy Blog to receive notifications on new episodes.

On January 5, 2023, the Federal Trade Commission (“FTC”) issued a groundbreaking proposed rule that would, if finalized:

  • prohibit most employers from entering into non-compete clauses with workers, including employees and individual independent contractors;
  • prohibit such employers from maintaining non-compete clauses with workers or representing to a worker that the worker is subject to a non-compete clause; and
  • require employers to rescind any existing non-compete clause with workers by the compliance date of the rule and notify the affected workers that their non-compete clause is no longer in effect.

The FTC’s notice of proposed rulemaking explains that the FTC considered possible limitations on the rule—such as excluding senior executives or highly paid employees from the ban—but it ultimately proposed a categorical ban on non-competes.  The only exception is for non-competes related to the sale of a business.  However, even this exception is unusually narrow: it would only apply to selling business owners who own at least 25% percent of the business being sold.  (The proposal also would not apply to most non-profits, certain financial institutions, common carriers, and others who are also outside the scope of FTC regulation.)

As discussed in Covington’s January 5 client alert, the FTC explained that it issued the proposed rule due to its belief that non-competes reduce wages, stifle innovation and business, and are exploitative and unnecessary. 

Continue Reading FTC Proposes Rule to Ban Most Non-Competes

Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market (FSR) entered into force on 12 January 2023 and will start to apply as of 12 July 2023.

The FSR creates a brand new instrument to fill a regulatory gap, by preventing foreign subsidies from distorting the European Union (EU) internal market. Whereas companies receiving public support in the EU are subject to strict State aid rules, companies obtaining public support outside the EU are generally not. This was perceived as putting companies in the EU at a disadvantage compared to companies that obtained subsidies outside the EU, but that also engaged in economic activity in the Union.

The FSR’s scope extends far beyond the obvious State support, to cover common types of benefits that are granted all over the world, including in countries driven by a market economy. Its obligations will inevitably place an additional administrative burden on companies engaging in an economic activity in the EU. Acceptance of a foreign subsidy distorting the EU internal market may have far-reaching consequences for the company. The FSR places additional compliance obligations on companies, and for many will entail a thorough assessment to identify and justify foreign subsidies received. For companies considering transactions in the EU, the FSR effectively creates a third layer of deal conditionality, besides merger control and Foreign Direct Investment laws. This is adding a further unique set of thresholds, timings and factual considerations, to be included in companies’ strategies to invest in the EU. This will require expertise in EU antitrust and State aid law, and a good understanding of the details of the FSR.

Key things you need to know:

  • As under EU State aid law, a foreign subsidy includes any form of public support granted by a third country, e.g., direct grants, capital injections, interest-free or low-interest loans, etc., but also support such as tax exemptions or reductions, and exclusive rights without proper remuneration.
  • From 12 October 2023, when acquiring control of a company in the EU or participating in a public tender in the EU, companies will have to notify the European Commission (Commission) of foreign subsidies received, if the relevant thresholds are met, or if the Commission so requests. Notifications have suspensive effect. Failure to notify may lead to severe sanctions.
  • The Commission may launch ex officio investigations into other market situations that are not already caught by other legislation.
  • If the Commission deems that a foreign subsidy distorts the internal market, the beneficiary may need to apply remedies, such as reducing its market presence. If these remedies are not effective, the Commission may prohibit a concentration or the award of a public procurement contract that is not yet closed.
Continue Reading The EU Foreign Subsidies Regulation enters into force

On 4 January 2023, the UK’s new subsidy control regime came into force, implementing a new subsidy regulation framework designed for the post-Brexit era.  Underpinned by the Subsidy Control Act 2022 (the “Act”), related statutory instruments and government guidance, the new regime aims to grant public authorities the power to design and award subsidies in an agile way while complying with the UK’s international commitments on subsidy control.   Key things you need to know:

  • The UK’s new subsidy control regime seeks to provide a framework that allows public authorities to award subsidies efficiently, while ensuring that such subsidies do not distort the domestic market or fall foul of the UK’s international commitments on subsidy control.
  • Public authorities are responsible for self-assessing a proposed subsidy or scheme’s compliance with the regime’s requirements.
  • Proposed Subsidies and Schemes of Interest (“SSoIs”) and Particular Interest (“SSoPIs”), i.e. subsidies above certain thresholds or of certain importance, are subject to referral – voluntary (for SSoIs) and mandatory (for SSoPIs) – to the Competition and Market Authority’s Subsidy Advice Unit (“SAU”), which will provide non-binding advice regarding the proposed subsidy. The Government can exercise a “call-in” referral power, i.e. refer a subsidy or scheme to the SAU for review.
  • Subsidies that qualify for assessment under a “Streamlined Route” (“SR”), i.e. subsidies that are less likely to cause distortions on the market and meet the relevant criteria set out by legislation, will not be subject to referral or the Government’s call-in powers.
  • An awarded subsidy can be challenged in court, though during a relatively short (in many cases 30-day) window. A range of remedies are available to challenging parties, including prohibition, injunctions and recovery orders.
Continue Reading The UK’s new subsidy control regime comes into force

On 19 October 2022, the European Commission (the “Commission”) adopted its new State aid Framework for research, development and innovation (the “2022 RDI aid Framework”). This instrument governs Member States’ investment in RDI activities. It is an important response to the 2020 Commission Communication on a new European Research Area for Research and Innovation (the “ERA Communication”), aiming at strengthening investments and reaching a 3% GDP investment target in the field of RDI. The 2022 RDI aid Framework is a revision of the previous version of 2014.

The three most important things you need to know about the 2022 RDI aid Framework are:

  • The Commission’s approval is subject to a set of criteria to determine whether the aid is justified and can be authorised, and compliance with recent EU objectives such as the EU Green Deal and the EU Industrial and Digital Strategies will have a positive influence on the Commission’s assessment;
  • RDI activities now explicitly include digitalisation and digital technologies; and
  • Member States can grant aid for testing and experimentation infrastructures which predominantly provide services to undertakings for R&D activities closer to the market.
Continue Reading The Commission has revised its framework for State aid for research and development and innovation

On October 26, 2022, the German government permitted (with conditions) an investment by Chinese state-owned COSCO Shipping Group (“COSCO”) in one of Hamburg’s four shipping container terminals. Pursuant to foreign direct investment (“FDI”) laws, the German Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, “BMWK”) had been notified of the proposed acquisition by COSCO of a 35% minority interest in the port terminal, a strategic location on the German coastline. The BMWK ordered that COSCO’s acquisition of voting rights must remain below 25%. The details of the decision remain confidential, but the BMWK justified its partial prohibition on the grounds that the acquisition of 35% as notified would constitute a “threat to public order and security”. According to the BMWK’s press release, the partial prohibition decision prevents COSCO from acquiring a ‘strategic’ shareholding, and reduces the acquisition to a mere financial participation. As a safeguard in this respect, the decision contains provisions prohibiting COSCO from acquiring any additional influence, for example, through a grant of rights that would be atypical for a holder of a less than 25% interest. Furthermore, under the German FDI regime, any follow-on acquisition of additional voting rights by COSCO would be subject to a new notification requirement.

Continue Reading COSCO FDI Review: Germany partially prohibits Chinese investment in a Hamburg container terminal – Spotlight on minority investments

On 28 October 2022, the European Commission (the “Commission”) adopted the  second amendment to its Temporary Crisis Framework for State Aid measures to support the economy following the aggression against Ukraine by Russia (the “Framework”). The second amendment to the Framework extends its duration by one year until 31 December 2023.

The four most important things you need to know about this amendment are:

  • Maximum aid amounts have been increased;
  • Guarantees or subsidised interests can now cover larger amounts of loans when taken by large energy utilities companies that provide financial collateral for trading activities on energy markets. Exceptionally, guarantees can also be provided as unfunded financial collateral directly to central counterparts or clearing members to cover the liquidity needs of energy companies, to clear their trading activities on energy markets;
  • To achieve the EU targets of reducing electricity consumption in response to high energy prices, Member States may provide compensation for genuine reductions in electricity consumption; and
  • State recapitalisations are not subject to detailed rules as under the COVID-19 Temporary Framework, however the Commission highlights the general principles it will use to assess them on a case-by-case basis. 
Continue Reading The Commission prolongs and amends its Temporary Crisis Framework relaxing State aid rules to support the economy following the aggression against Ukraine by Russia

On September 29, 2022, the U.S. House of Representatives passed a package of three antitrust bills (H.R. 3843) by a vote of 242-184. The package includes: (1) the Merger Filing Fee Modernization Act; (2) the Foreign Merger Subsidy Disclosure Act; and (3) the State Antitrust Enforcement Venue Act.

Continue Reading U.S. House of Representatives Passes Antitrust Legislative Package

Over the summer, the UK Secretary of State for Business, Energy and Industrial Strategy (“BEIS”) delivered the first decisions, in the form of final orders, under the National Security and Investment Act 2021 (“NSIA”).  We consider these decisions and other cases in the context of the first nine months of the UK’s new (quasi) Foreign Direct Investment (“FDI”) regime.

Key takeaways:

  • The NSIA has broad reach, and BEIS has shown willingness to exercise the powers to review transactions that can stretch beyond mergers and acquisitions, for example, to licensing agreements.
  • NSIA review involves the weighing of a number of factors relating to the target, the acquirer and the level of control being obtained.  Early decisions suggest that target’s products/services and activities are just as important a factor as the acquirer’s identity, among the cases that have engaged the attention of the Investment Security Unit (“ISU”).
  • “Behavioural” undertakings, e.g. involving implementation of security controls or granting of audit rights to regulators appear to be a continuation of trends seen in the predecessor UK ‘public interest’ regime, and similar to other EU FDI procedures.
Continue Reading UK FDI: Decision-making practice emerging under the National Security and Investment Act

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