Competition & Regulatory Newsletter (24 March - 13 April 2021)

BACKGROUND

The evaluation launched in August 2016 and sought to review the functioning of the EU merger control regime within the context of evolving market realities. Two topics in particular were focussed on within this broader remit: first, the “effectiveness of turnover-based jurisdictional thresholds in capturing concentrations which may have a significant impact on competition in the internal market”^[2] (including the functioning of the case referral mechanisms), and second, the effectiveness of the simplification measures introduced into the EU merger control procedure in 2013. Following public consultation, the Commission published its findings in the SWD which subsequently resulted in the Commission publishing two further publications tied to the focus areas above: (i) a Communication containing guidance on the application of the referral mechanism set out in Article 22 of the EUMR to certain categories of cases (Guidance), and (ii) a four-page impact assessment setting out a roadmap to further simplification of EU merger control procedures (Impact Assessment).

“JURISDICTIONAL ASPECTS”: GUIDANCE ON ARTICLE 22 OF THE EUMR

Article 22 allows Member States to request the Commission examine a concentration notwithstanding the fact that the concentration does not have an EU dimension (and so does not satisfy the turnover thresholds under the EUMR) if that concentration affects trade between Member States and threatens to significantly affect competition within the territory of the Member State(s) making the request (irrespective of whether the transaction is notifiable in the referring Member State). Historically the Commission has discouraged Member States from referring requests under Article 22 where that Member State does not itself have jurisdiction over the transaction at stake. However, the SWD found that while the Commission’s turnover-based jurisdictional thresholds combined with this approach to the Article 22 referral mechanism has generally been effective in capturing significant transactions within the EU internal market, increasingly transactions involve “firms that play or may develop into playing a significant competitive role in the markets despite generating little or no turnover at the moment of the concentration”, creating a risk that potentially competitively significant mergers may not be reviewed by either the Commission or the relevant Member State(s). 

The Guidance, therefore, states that the Commission henceforth intends to both encourage and accept referrals in certain circumstances even in cases where the transaction is not notifiable under the laws of the referring Member State; this, it suggests, will “permit Member States and the Commission to ensure that additional transactions that merit review under the Merger Regulation are examined without imposing a notification obligation on transactions that would not warrant such review”. The Guidance envisages that the kind of sectors where such referrals are likely to arise include (but are not limited to) the digital economy, pharmaceuticals and biotechnology, in instances where (little or no) turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential. It then goes on to suggest that appropriate cases for such referrals would include those where an undertaking:

• is a start-up or recent market entrant with significant competitive potential but yet to develop a business model generating significant revenues;
• is an important innovator or researcher within the sector;
• is an important (actual or potential) competitive force;
• has access to competitively significant assets (such as raw materials, infrastructure, data or IP rights); and/or
• provides products or services that are key inputs for other industries.

The Guidance, which also provides details on certain procedural aspects, makes clear that this is only a change in practice and requires no amendment to the EUMR itself, and the decision to refer any merger under Article 22 remains in the hands of the relevant Member State (though the Commission may in certain circumstances invite a Member State to make a referral). The Guidance also emphasises that it complements the 2005 Commission Notice on Case Referral.^[3]  

“PROCEDURAL ASPECTS”: IMPACT ASSESSMENT AND PUBLIC CONSULTATION ON FURTHER SIMPLIFYING MERGER PROCEDURES

The SWD contains a detailed review of the effectiveness of the simplification process which the EU merger control regime has undergone in recent times, with particular focus on what is referred to as the “2013 Simplification Package”: a series of measures which sought to further streamline the simplified procedure for merger notification and review introduced by the Commission in the year 2000, including by the publication of the Commission Notice on a simplified procedure for treatment of certain concentrations^[4] (2013 Notice on Simplified Procedure). While the Commission found in its SWD that the 2013 Simplification Package had broadly succeeded in focussing the Commission’s resources on the most relevant cases and yielding cost savings for all parties without negatively impacting on the efficacy of EU merger control, it ultimately determined that “there may be additional cases that are typically unproblematic which are currently not captured by the simplified procedure” and that “information requirements may be too extensive in certain circumstances”.

The Impact Assessment is a response to this determination. It states that the Commission plans to assess policy options for potential revisions of both the Merger Implementing Regulation^[5] and the 2013 Notice on Simplified Procedure, seeking to achieve further simplification and targeting of the EU merger control rules via four potential avenues:

• Expanding and clarifying the categories of simplified cases: the Commission has identified two possible policy options: either introducing a flexibility clause into the 2013 Notice on Simplified Procedure affording the Commission discretion to treat cases under the simplified procedure in certain circumstances, or adding new categories of simplified cases for certain vertical links (for instance cases with highly asymmetric market positions upstream and downstream, or cases with limited increments to a pre-existing vertical integration).

• Streamlining the review of simplified cases: the Commission has proposed three policy options (potentially to be introduced cumulatively) which seek to either replace the current Short Form CO with a streamlined “tick-the-box” form or otherwise reduce information requirements and pre-notification discussions.

• Streamlining the review of non-simplified cases: the Commission has proposed two policy options (potentially to be introduced cumulatively), the first of which would modify the structure of the current Form CO and the second of which would identify opt-out sections in the Form CO to be waived by the Commission at the request of the parties on a case-by-case basis.

• Introducing electronic notifications permanently: this would place the Covid-19 related permission currently granted by the Commission for electronic notification on a permanent footing, either by allowing electronic notifications to be followed by originals on paper without delay or by allowing fully digital notifications (including digital signatures).

The Impact Assessment has instigated the Commission to launch a public consultation on the policy options set out above, inviting responses by no later than 18 June 2021. The Commission aims to publish draft reforms of the Merger Implementing Regulation and the 2013 Notice on Simplified Procedure for stakeholder comment in the second half of 2021.