A new risk in transactional practice?

In brief

Belgian Competition Authority reviews transaction under abuse of dominance aspects

On 22 March 2023, the Belgian Competition Authority (BCA) published a press release (No. 10/2023) according to which it investigates whether Proximus had abused a dominant position by acquiring edpnet. Although the acquisition did not have to be notified, the BCA feels compelled, with reference to the European Court of Justice’s (ECJ) landmark Towercast judgment (C-449/21), to review the transaction under abuse of the aspect of dominance.

The BCA is thus following up on recent considerations regarding more effective control of so-called “killer acquisitions”, i.e., the protection of competition against innovation-inhibiting mergers of large, strong companies with small, innovative competitors, which do not require merger control notification due to the low turnover of the target company.

Towercast

In Towercast, the ECJ ruled that competition authorities are not precluded from reviewing transactions under abuse of dominance aspects, which:

Are not subject to the European merger control regime due to their lack of Community dimension (Art. 1 ECMR (Reg. 139/2004))
Do not meet the merger control notification thresholds of the respective Member State
Have not been referred to the European Commission (“Commission“) (Art. 22 ECMR)

In such case, the National Competition Authorities may review whether the strengthening of a dominant position through the transaction constitutes an abuse of dominance (more precisely: abuse of market structure).

The idea of reviewing a non-notifiable transaction under Art. 102 TFEU is not new: Since the Continental Can judgment (Case 6-72) in 1973, the ECJ clarified that transactions can be reviewed under Art. 102 TFEU. What is new, however, is that National Competition Authorities are increasingly claiming to actually review non-notifiable transactions as an abuse of market structure. The competition authorities seem to be driven by the fear that large companies with a strong market position could increasingly take over small, innovative competitors to secure market positions thereby dampening competition.

Art. 22 ECMR

In addition to the Towercast decision, Art. 22 ECMR must be taken into account which, according to the European Commission, can also establish jurisdiction to examine transactions that are not notifiable at the Member State level.

Art. 22 ECMR allows Member States to have transactions reviewed by the European Commission even if they do not have Community dimension. The Commission’s guidance on the application of Art. 22 ECMR, published in March 2021, clarifies that the Commission also accepts such referrals “in cases where the referring Member State does not have initial jurisdiction over the case”. The Commission can therefore – according to its own interpretation – also review such concentrations under the conditions of Art. 22 ECMR, which do not need to be notified at Member State level.

Illumina and the Commission are currently disputing this controversial interpretation at the ECJ. The key question is whether the Commission was entitled to review Illumina’s acquisition of Grail after a request for refusal under Art. 22 ECMR was filed by France, among others.

The Commission initially prohibited Illumina to close the transaction prior to any merger control clearance. Illumina nevertheless closed the transaction. The Commission therefore initiated a fine proceeding for a breach of the prohibition on implementation (“Gun Jumping”). On 6 September 2022, the Commission then prohibited the transaction. The European Court of First Instance (Case T-227/21) confirmed the Commission’s view in the first instance, in particular the possibility of referral despite the lack of Member State jurisdiction. The case is currently pending at the ECJ (C-611/22 P – Illumina v. Commission).

Whats next?

Even if a transaction does not need to be notified with the competition authorities, it can be reviewed by the Commission under the abuse of dominance provisions or by the Commission following a referral from one or more Member States pursuant to Art. 22 ECMR.

A particularly high risk exists in the case of the acquisition of small, innovative competitors. In such a case, the acquirer should review in any case whether a dominant position exists.
The possibility of referral under Art. 22 ECMR should also be taken into account, if possible, as part of the Share Purchase Agreement (e.g., concerning the long stop date).

With regard to internal company communication, the legal department should already point out at an early stage – ideally as part of the evaluation of the transaction – the risks arising from proceedings under the abuse of dominance provisions or a referral under Art. 22 ECMR by the competition authorities (in particular to the board of directors or the management).

Click here to access the German version.