10 key themes
The Changing Face of Antitrust
IN BRIEF
Antitrust enforcement is in a period of flux as it grapples with a mounting political perception that it is not doing enough to address some of the world’s more pressing problems. Major reforms and shifts in enforcement priorities are taking place in response, and antitrust authorities are increasingly emboldened to pursue cases that they might not have undertaken a few years ago. The results of these changes in 2023 will be yet more unpredictability in merger review and new types of conduct being captured by antitrust enforcement rules. Companies will have to be nimble in responding to these changes.
...the antitrust community confronts an inflection point. People who had never before heard of the antitrust laws are realizing the costs of underenforcement.
Jonathan Kanter
Assistant Attorney General, US Department of Justice - September 2022
Merger control is becoming more aggressive and less predictable
There is broad consensus amongst antitrust authorities that now is the time to strengthen aspects of their merger control regimes and ensure that existing regulatory tools are being utilized to their fullest extent. Their prevailing belief is that carrying out M&A activity should be more challenging than it has been in the past and, accordingly, that deals should be easier to review, investigations more comprehensive and standards of review even stricter (particularly with respect to the assessment of remedies) (see Theme 2).
We live in unpredictable times and merging parties can no longer assume convergence between competition authorities reviewing the same deal. The US antitrust agencies, the European Commission and the UK Competition and Markets Authority will continue to assert themselves in global cases involving parallel review – and that presents both opportunities but also some risks for companies surveying the M&A landscape.
|
Thomas McGrath
Antitrust Partner, London
|
The perceived need to strengthen enforcement in the digital space will make this a particular area of focus in 2023. However, those same reforming impulses will spill over into other industries as well. Despite these challenges, transactions of all sizes and across all industries remain deliverable with the right planning and execution, albeit companies may need to be prepared in some deals to offer creative remedies to address concerns raised by antitrust authorities or to litigate to defend the transaction.
Introduction of new tools – and regimes – to deal with problematic corporate conduct
In addition to stronger enforcement in the M&A space, antitrust authorities around the world are in the process of obtaining and utilizing new or enhanced investigative tools (or regimes) to deal with problematic aspects of corporate conduct and in strengthening the penalties for noncompliance. 2023 will see many of these tools/regimes come into force, with profound implications for businesses – particularly in the digital space.
Along with the European Commission’s (EC) determination to reinvigorate traditional cartel enforcement, completely new enforcement tools are coming into play, including the Foreign Subsidies Regulation (see Theme 10), which can be also used to deal with the impact of non-EU subsidies on business strategy and conduct.
Then there is the Digital Markets Act (DMA), which entered into force in November 2022. Companies falling within the “gatekeeper” designation have until July 2023 to notify the EC and commence DMA compliance. This may lead to parallel enforcement action, with the conduct of the big digital players subject to action under both the DMA and antitrust law. Similar developments can be seen at the national level, with new Austrian and German digital market powers already in use and the creation of the UK’s Digital Markets Unit (DMU), which is to be given power to impose bespoke conduct requirements on digital firms with “strategic market status.”
…it was Heraclitus who said, ‘the only constant in life is change’…We have completed or are about to complete major reviews of all our rules. And these reviews are resulting in important changes.
Margrethe Vestager
Executive Vice President, European Commission - March 2022
Sea change in the United States
In the United States, the changes are arguably even more profound. The Biden administration has signaled a desire to move beyond the traditional notion of a consumer welfare standard (which focuses intervention on the basis of harms to consumers) and toward a more expansive view of competitive harm to combat a perceived failure of merger enforcement over the past decades. Federal Trade Commission (FTC) Chair Lina M. Khan stated that merger control is one immediate area of enforcement that can become stricter because it is the “first-line defense” and more cost effective than antitrust enforcement.
The US Department of Justice (DOJ) Antitrust Division plans to increase scrutiny over private equity deals (see Theme 4) and US agencies have also started challenging mergers based on perceived harm to workers, including reducing employment options for existing employees or jobseekers. Businesses now face close reviews of non-solicits, no-hire provisions and non-competes, the latter being the subject of an FTC proposed rulemaking announced on January 5, 2023, that if implemented, would institute a near total ban on such clauses, with a limited exception for certain non-competes executed in M&A transactions.
While the US enforcers are increasingly skeptical of consolidation and believe the public should not bear the risk of harm where the competitive effects of a deal may be ambiguous, the cases litigated by the DOJ and FTC in the past year have brought mixed results. While aggressive agency enforcement is bound to continue in 2023, the courts currently look likely to impose limits on the agencies’ new approach.
US enforcers intend to police conduct just as aggressively as deals. The most striking evidence of this is the FTC’s November 2022 Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the FTC Act. This potentially threatens enforcement against a range of conduct that would not previously have been considered to raise antitrust risk but now may be attacked under the rules prohibiting “unfair methods of competition.”
The recent FTC policy statement on ‘unfair methods of competition’ introduces an expansive new interpretation of the law, which on its face could apply to a broad range of behaviors, including conduct previously viewed as lawful. It remains to be seen whether the courts will support the FTC’s attempt to breathe new life into antitrust law.
|
Jan Rybnicek
Antitrust Partner, Washington, D.C.
|
Increased jurisdictional uncertainty – and a new mandatory regime – in Europe
In Europe, new laws aimed at strengthening merger control enforcement are being adopted and authorities are seeking to expand their jurisdiction to have greater flexibility to review potentially problematic transactions. At the forefront of these developments are the EC through the referral mechanism provided by Article 22 of the EU Merger Regulation (EUMR) and the UK’s Competition and Markets Authority (CMA) through its application of the share of supply test and “rebalancing” of merger control (see Theme 2).
In addition, the EU’s new Foreign Subsidies Regulation will add a layer of review to deals where companies involved have received subsidies granted by non-EU countries. Notification obligations will arise from September 2023 (see Theme 10).
Also in 2023, EC Executive Vice-President Margrethe Vestager will continue the thorough review of almost all aspects of the competition rules, including EC Regulation 1/2003, which covers the implementation of the rules on competition, and also new guidance on market definition.
Reflecting a global trend in this direction, the Italian competition authority has recently acquired the power to call in transactions (post-closing) that do not trigger the jurisdictional thresholds. The expectation is that the authority will carefully select the cases where such power will be used, but it increases the uncertainty for the parties and requires careful planning to frontload potential issues.
|
Ermelinda Spinelli
Antitrust Partner, Milan/Rome
|
The UK government is poised to introduce extensive reforms to the competition and consumer law regimes in 2023, committing to a “more active pro-competition strategy” to strengthen competition in UK markets. New rules aimed at more effective market inquiries, as well as stronger and faster enforcement against illegal anticompetitive conduct, will see more streamlined market investigations and the ability to impose fixed penalties for failure to comply with investigative measures, including failing to comply with an information request, as well as for noncompliance with orders imposed or undertakings and commitments accepted by the CMA.
A mix of reforms in the Asia-Pacific region
Many antitrust authorities in the Asia-Pacific region (APAC) are also seeing their enforcement powers broadened. The recent reset of the Chinese antitrust regime introduced, among other things, higher fines for noncompliance with the law, personal liability and a punitive “superfine” for the most serious violations. The new law empowers the State Administration for Market Regulation (SAMR) to provide “safe harbors” for certain vertical agreements, introduces a prohibition of “hub and spoke” conspiracies, and dedicates particular attention to the role of data in the digital sector and the risks of abuse via the use of data, algorithms, technology and platform rules. It also introduced a “stop the clock” mechanism and codified SAMR’s power to “call in” transactions that do not meet the notification thresholds, increasing the potential for unpredictable review timetables. SAMR also introduced a pilot program allowing some transactions to be reviewed by designated local authorities, adding a further layer of unpredictability in 2023 and beyond.
The Australian government has long been concerned that average and maximum penalties in Australia were substantially below those in comparable jurisdictions and risked being seen by some large companies as an “acceptable cost of doing business.” New laws came into effect in November 2022, increasing the maximum penalties a court can order by five times the previous limits. The new federal government is also expected to consider the Australian Competition and Consumer Commission’s (ACCC) 2021 proposals to replace its voluntary merger control regime with a mandatory and suspensory regime as well as a “call in” power for acquisitions that fall below the thresholds but give rise to potential antitrust issues.
In China, antitrust remains a key enforcement tool for the government, and the recent reforms give more teeth to the Chinese competition authority to enforce the law. Elsewhere in APAC, enforcement is also set to increase, as mature regimes (such as Australia, Korea, Japan, Singapore and Taiwan) expand their powers and shift enforcement priorities while emerging regimes (such as Hong Kong, Malaysia, Philippines and Vietnam) step up enforcement activity. A regional mindset and nimble teams will allow companies to adapt to and navigate the evolving enforcement landscape.
|
Ninette Dodoo
Antitrust Partner, Beijing
|
Meanwhile, in Japan, the Japanese Fair Trade Commission (JFTC) is facing the dilemma of how far it can push the boundary of the existing antitrust law regime and rely on “voluntary” processes (e.g., to review digital mergers that do not trip the filing thresholds) while avoiding judicial review. In contrast to its formal cartel investigations, the JFTC has recently implemented a “softer” approach to abuse of dominance investigations where it does not initiate formal investigations but instead solicits voluntary information requests and on-site inspections to collect information. As the JFTC does not disclose much detail on these informal investigations, it is difficult for other market players to interpret the takeaways and manage expectations (both on procedure and substance). These investigations are expected to result in voluntary commitments by the investigated companies, which so far have been mainly big technology companies.
Looking ahead in 2023
- Plan ahead in order to be able to execute complex cross-border M&A in an integrated way. Increasing unpredictability presents opportunities for well-organized merging parties; the same is also true for interested third parties looking to disrupt a transaction.
- Follow closely how new legislation and policy changes may affect your business and how they are implemented in practice, as they may create opportunities for well-prepared companies.
- Several consultations on new legislation and guidance that may affect your business will open or continue in 2023. Make sure you have your say on aspects that concern you.
With thanks to Joanna Goyder, Jan Jeram, Kailun Ji, Natalie Pettinger Kearney and Kara King for their contributions to this theme.
Back to top.
