2023 EU Merger Simplification Package

On 20 April 2023 the EC adopted a new legislative package aimed at further simplifying its procedures for reviewing transactions under the European Merger Control Regulation (EUMR) (Merger Simplification Package). The Merger Simplification Package is comprised of (i) a revised Implementing Regulation, (ii) a revised Notice on Simplified Procedure and (iii) a Communication on the transmission of documents.

These new rules will apply as of 1 September 2023 with the view to have more uncomplicated transactions merely requiring a cursory review fall within the scope of the simplified procedure, thus reducing overall reporting requirements by 25%. In addition, the new rules allow for the electronic submission of merger notifications and the submission of digital signatures, practices which emerged since the COVID-19 epidemic outbreak in 2020.

Firstly, the EC has added new categories of transactions that can benefit from the simplified procedure, namely:

  • in the context of vertical relationships, transactions where (i) the individual or combined upstream market share of the merging parties is below 30% and the purchasing share of upstream inputs is below 30% or (ii) the individual or combined upstream and downstream market shares of the merging parties are below 50%, the HHI delta market concentration index is below 150, and the company with the smallest market share is the same in the upstream and downstream markets;
  • in the case of an acquisition of joint control of a joint venture (JV), transactions where the JV has less than €100 million turnover in the EEA at the time of notification and where it's turnover is also expected to remain below €100 million in the EEA during three years following notification; and
  • transactions (i) involving the acquisition of joint control over a JV located outside the European Economic Area (EEA) and (ii) those where there are no horizontal overlaps or non-horizontal relationships between the merging parties to the transaction, can proceed with a super-simplified procedure (for which parties are invited to notify directly without engaging in exchanges with the EC before formal notification).

The EC will also have discretion to allow for the following transactions to be subject to simplified procedure: (i) horizontal overlaps where the combined market shares of the parties are below 25%, (ii) vertical relationships where the individual or combined upstream and downstream market shares of the merging parties are below 35%, (iii) vertical relationships where the individual or combined market shares of the merging parties are lower than 50% in one market and less than 10% in the other vertically related market, and (iv) EEA-based JVs with €100-150 million of turnover and assets.

In addition, the Merger Simplification Package provides for new possible exclusions by way of a broad "non-exhaustive" list of "examples unconcerned by the simplified procedure, such as for those transactions involving a "significant minority shareholdings" or "other competitively valuable assets" (e.g., IP rights).

Taking into account the fact that the EU merger notification process is generally considered to be quite burdensome, new simplified forms have also been introduced in the Merger Simplification Package, namely the new Form CO for non-simplified procedures and the new "tick the box" Short Form CO, with primarily multiple-choice questions and tables, and streamlined questions on both the jurisdictional and substantive assessment of cases.

New EU sustainability rules in the EC's revised horizontal guidelines

On 1 June 2023, following a public consultation whereby the appropriate methods for assessing sustainability agreements were heavily debated, the EC issued an updated iteration of its Horizontal Guidelines (along with revisions to the Specialisation and R&D Block Exemption Regulations and related guidelines),1 introducing new rules on sustainability agreements (Sustainability Chapter).

The new Horizontal Guidelines will enter into force upon their publication in the EU Official Journal (and the new Horizontal Block Exemption Regulations on 1 July 2023). Overall, the Sustainability Chapter seeks to support the green and digital transitions by making it easier for businesses to cooperate towards "greening" their transactions without antitrust rules standing in the way.

In this respect, the Sustainability Chapter contains a broad definition of sustainability objectives, based on the UN Sustainable Development Goals. A "soft safe harbor" is also set to apply, subject to six cumulative conditions, for agreements between competitors aiming at adopting new industry standards to meet new economic, environmental, or social goals. The new Chapter also lists certain types of sustainability agreements generally falling outside the scope of Article 101(1) TFEU for guidance.

Lastly, the Sustainability Chapter recalls companies willing to be bound a sustainability agreement that they can seek informal guidance on novel questions from the EC to ensure compliance with EU competition rules, including on specific types of sustainability collaborations.

Microsoft-Activision Deal blocked on Cloud Gaming concerns in the UK but cleared by the EC

Activision Blizzard ("Activision") is a U.S. video game holding company behind the creation of several popular game series. In January 2022, Microsoft proposed to acquire Activision for $68.7 billion. The acquisition was submitted to merger control review in numerous jurisdictions, including by the Competition and Markets Authority ("CMA") in the UK, the European Commission ("EC"), and the U.S. Federal Trade Commission.

On 26 April 2023, the CMA became the first regulator to block the transaction on, inter alia, the following grounds:

  • Microsoft held 60 to 70% of shares in the global cloud gaming services; and
  • there was a potential risk that Microsoft made access to Activision's video games portfolio exclusive to its own cloud gaming service, hence substantially reducing competition in this developing market to the detriment of cloud gaming users ("[a]llowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities.").

In September 2022, the CMA proceeded to an in-depth assessment of the Microsoft-Activision transaction, with its findings being issued in February 2023. In response to the concerns raised by the CMA, Microsoft had offered to make some of Activision's games available to users through other cloud gaming platforms belonging to third-party competitors for a 10-year duration, and to do so on a royalty-free basis. In parallel, Microsoft had also offered remedies in the gaming console market, including content licensing agreements with its competitors.

In its decision, the CMA opined that such a licensing was insufficient, qualifying it as "behavioral" remedy in application of its practice guidelines. Accordingly, the CMA found that blocking the merger was the only proportional remedy to safeguard competition in the cloud and console gaming services market. On 24 May 2023, Microsoft filed an appeal before the Competition Appeal Tribunal (CAT), which review is limited to judicial grounds, that is a clear and unequivocal error is necessary on the CMA's end for the CAT to set aside the CMA's decision in whole or in part for the CMA's reconsideration.

In contrast, and despite raising similar concerns about the potential restriction on competition in the targeted market, the EC approved the transaction shortly after on 15 May 2023. In this context, the EC confirmed that the licensing remedy proposed by Microsoft was sufficient to the extent that licensing in such a way would in fact bolster the cloud gaming market sector for the benefits of all stakeholders.

ECJ Case No. C-449/21, Towercast

On 16 March 2023, the ECJ issued its judgment in the Towercast case, following a preliminary ruling requested by the Paris Court of Appeal on the interplay between the EUMR and Regulation 1/2003, the latter governing the powers of the EC and local regulators to investigate abuses of dominance under Article 102 TFEU. In particular, the French court had asked whether Article 21(1) of the EUMR precluded the application of Article 102 TFEU to mergers that (i) fall below the notification thresholds set at national and EU levels and (ii) were not referred to the EC in accordance with Article 22 EUMR. In its opinion dated October 2022, Advocate General Kokott had opined that Article 102 TFEU could be applied by national regulators in the context of these mergers.

In line with the Advocate General's opinion, the ECJ ruled that national competition authorities (and national courts) can apply abuse of dominance rules, that is Article 102 TFEU, to such mergers. However, the ECJ specified that the acquisition by a dominant company is not sufficient in itself for Article 102 TFEU to apply. Instead, "it must be established that the degree of dominance reached through the acquisition would substantially impede competition, that is to say, that only undertakings whose behaviour depends on the dominant undertaking would remain in the market" (para. 52). In other words, the relevant test for a finding of an abuse entails that the acquisition triggers a material change in the competitive landscape, resulting in a quasi-elimination of competitors. Of note, since Regulation 1/2003 does not apply, such reviews must be carried out on the basis of national procedural rules.

The consequences of the Towercast ruling are manifold. More importantly, per the ECJ itself, the temporal effect of its judgment is not limited retrospectively. As such, transactions that closed before 16 March 2023 could be reviewed under Article 102 TFEU. In addition, transactions not meeting the thresholds for prior merger control under the EUMR or the applicable national law, which were also not referred to the EC under Article 22 EUMR, may now be scrutinized under Article 102 TFEU by national authorities.

Introduction of Recent Publications

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