General Court annuls European Commission prohibition of Hutchison 3G UK/ Telefonica UK merger

General Court annuls European Commission prohibition of Hutchison 3G UK/ Telefonica UK merger

In a breath-taking judgment, the General Court has upheld an appeal by CK Telecoms UK Investments to challenge the European Commission's 2016 EU Merger Regulation decision prohibiting the proposed acquisition of Telefónica Europe Plc (O2) by Hutchison 3G UK (Three).

The Commission found that the merger would have removed an important competitor on the UK mobile market, reducing the number of operators from four to three.  The merged company would have occupied around 40% of the retail market.

The General Court considered the Commission’s application of the ‘significant impediment to effective competition’ (SIEC) test.  It found that the mere effect of reducing competitive pressure on the remaining players in an oligopolistic market is not of itself sufficient to demonstrate a SIEC based on non-coordinated effects.

The General Court found that the Commission had committed a number of errors in finding that Three was an ‘important competitive force’ on the retail market.  Although the parties were close competitors in some segments of the market this was not sufficient to prove the elimination of important competitive constraints to establish a SIEC.

The General Court also found errors in the Commission’s analysis of the effects of the merger on the network-sharing agreements and infrastructure provision in the UK.

This may well be one of the most significant merger control decisions that the General Court has issued in the last fifteen years.  The Commission will need to take a root and branch look at how it appraises mergers in oligopolistic markets and where it bases its theory of harm on non-coordinated effects falling short of creation or strengthening of a dominant position.  It is expected that the Commission will appeal the judgment given its wide implications.

CK Telecoms UK Investments Ltd v European Commission (T-399/16), ECLI:EU:T:2020:217)

European Commission sends Air Canada-Transat to Phase II

European Commission sends Air Canada-Transat to Phase II

The European Commission has launched second phase proceedings in its review of the proposed acquisition of Transat by Air Canada.

The Commission is assessing whether the transaction “would lead to higher prices, reduced quality or less choice for travellers flying over the Atlantic”.

The Commission has acknowledged that the aviation sector is facing challenging times due to the impact of coronavirus.  While the launch of a phase II investigation does not seal the fate of the deal, the Commission will have to take a long hard look at the scope for competition on a sustainable basis.  It has said that “a return to normal and healthy market conditions must be based on markets that remain competitive.”

The merging airlines compete between 33 city pairs, 29 of which are direct routes and four are indirect. 10 European countries are affected: Belgium, Croatia, France, Greece, Ireland, Italy, Netherlands, Portugal, Spain and the UK.

The Commission has until 30 September to issue a final decision. 

Future EU-UK relationship: UK draft texts and the level playing field

Future EU-UK relationship: UK draft texts and the level playing field

The government has published its draft legal texts to support its policy paper, The future relationship with the EU, which was published on 27 February 2020.

The EU stated its position on18 March 2020 in a draft agreement on the new partnership

The government is aiming for a Canada-style free trade agreement (FTA).

The UK’s proposal provides for zero tariffs and zero quotas on goods; however, this is not the position in any of the existing EU FTAs cited as comparators.  The proposal includes quite weak level playing field provisions, including on state aid.

This is in a marked contrast with the position of the EU which contemplates an overall governance framework on all areas of economic and security co-operation and where the Court of Justice of the EU would be the sole arbiter of EU law.  It foresees strong and enforceable level playing field commitments, including in the area of state aid.

https://www.gov.uk/government/publications/our-approach-to-the-future-relationship-with-the-eu

Court of Appeal rules against recovery of costs in successful antitrust appeal

Court of Appeal rules against recovery of costs in successful antitrust appeal

The Court of Appeal has found that it is not in the public interest for the Competition and Markets Authority (CMA) to pay the costs of a successful party in an appeal against a CMA decision.

The Court made its ruling in appeals by Pfizer and Flynn against the decision of the CMA fining them for abuse of dominance by charging excessive prices for phenytoin sodium capsules.

The CAT concluded that it was appropriate to award the parties a proportion of their costs to reflect their overall success.

The Court found that the CAT had erred in applying BT v Ofcom (a regulatory case where BT successfully challenged an Ofcom decision, but the CAT did not order Ofcom to pay costs).  The CAT had given no weight to the position of the CMA as a public authority carrying out public interest functions.

The Court found that the starting point is that no order for costs should be made against a regulator who has brought or defended proceedings in the CAT acting purely in its regulatory capacity.

The CAT decided not to remit the costs matter to the CAT and made no order as to costs in respect of the CAT proceedings.

Flynn Pharma Ltd and Flynn Pharma Holdings Ltd v Competition and Markets Authority [2020] EWCA Civ 617

CMA blocks JD Sports-Footasylum

CMA blocks JD Sports-Footasylum

The Competition and Markets Authority has prohibited the merger of JD Sports and Footasylum.

The CMA has ordered JD Sports to divest the Footasylum business that it acquired last year, finding that the merger would substantially lessen competition in the national sports-inspired casual footwear and clothing market.

JD Sports argues that the CMA’s merger investigation did not properly take into account the “dynamic and rapidly evolving competitive landscape” and the impact of covid-19 on sportswear retailers.

The CMA has recently stated that it will consider the impact of the pandemic during merger reviews under its normal “failing firm” framework.   However, neither JD Sports nor Footasylum established that they would go out of business absent the deal, so the failing firm defence was not made out in this case.

The prohibition represents the fourth merger that the CMA has blocked in the last year.  It blocked Sabre/Farelogix in April 2020, required Tobii to divest Smartbox in August 2019 and ordered Ecolab to divest 90% of Holchem in October 2019.

https://assets.publishing.service.gov.uk/media/5eb185f0d3bf7f6534faf114/Summary_of_final_report.pdf

European Commission refuses to suspend State aid rules due to COVID-19

European Commission refuses to suspend State aid rules due to COVID-19

The European Commission has rejected a request from Austria to pause EU State aid rules in the outbreak of the coronavirus pandemic.

Austria urged the Commission to relax the State aid rules on a blanket basis.  It said that this would be helpful for business at a time of economic crisis and where the strict application of State aid rules presents an unnecessary and inflexible burden.

The Commission has said that the current rules can be applied flexibly in a targeted manner while minimising the risk of competitive distortion.  In March it adopted a temporary framework to allow member states to give up to EUR800,000 in aid to businesses without the need for an individual notification and the framework has since been extended.

The Commission’s response is not surprising.  Similar requests for a halt to State aid rules came during the 2008 financial crisis but were not accepted.  The Commission adopted similar targeted measures for the financial sector as well as the real economy, but it did not want to give a green light to member states to prop up ailing industries that had no reasonable rescue prospects.

If the Commission were to accede to Austria’s request, this would likely require additional legislation to implement.