CMA makes final prohibition in order in Microsoft-Activision merger and opens a Phase 1 investigation into restructured deal

The CMA has made a final order prohibiting the anticipated acquisition by Microsoft Corporation of Activision Blizzard, Inc.

In April 2023 the CMA concluded on its final report that the acquisition may be expected to result in a substantial lessening of competition in the market for the supply of cloud gaming services in the UK.

The CMA has not been satisfied that any change in circumstances warrants a different conclusion to that reached in its final report.  Accordingly, its 22 August 2023 Order prohibits, except with the prior written consent of the CMA, Microsoft from acquiring an interest (as a means of conferring control) in Activision or any entity holding an interest in Activision for 10 years.  Activision is subject to the same prohibition in relation to Microsoft.

Meanwhile Microsoft and Activision have entered into a new, restructured transaction, under which Microsoft will not acquire cloud streaming rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years (this excludes the EEA.  Instead, the rights will be divested to Ubisoft Entertainment SA (Ubisoft) prior to Microsoft's acquisition of Activision

The CMA has said that the restructured transaction is “substantially different from what was put on the table previously”.

The CMA has opened a new Phase 1 investigation to examine the new deal. The CMA invites comments by 1 September 2023.

The unfolding saga of events in this case is not what many observers expected.  It seems that the revised deal is more of a ‘fix-it-first’ remedy with a prior divestment to a named third party than a revised transaction structure as such.  What matters is whether this will be sufficient to address the concerns raised by the CMA in the final report, principally around vertical foreclosure in cloud streaming services.

 

https://www.gov.uk/government/news/microsoft-submits-new-deal-for-review-after-cma-confirms-original-deal-is-blocked

CMA gives unconditional clearance to Broadcom’s acquisition of VMware

 

The Competition and Markets Authority (CMA) has cleared Broadcom’s acquisition of VMware without remedies.

Broadcom is a US technology company that designs, manufactures and supplies a broad range of hardware and infrastructure software solutions.

VMware supplies virtualisation software that is mainly used either in data centres or in private clouds.

In its in-depth investigation the CMA examined whether the merged entity would be able to harm competing manufacturers of storage adapters and fibre channel switches by reducing interoperability between VMware's virtualisation software and competitors' hardware and switches.

The CMA confirmed its provisional findings that any potential financial gain to Broadcom and VMware of reducing interoperability of rival products would not outweigh the potential financial cost in terms of lost sales.

The European Commission conditionally cleared the transaction in July after Broadcom agreed to commitments allowing competitors access to VMware’s cloud computing software. The transaction has been cleared in Australia, Brazil, Canada, Israel, South Africa and Taiwan.  The US Federal Trade Commission has yet to conclude its own in-depth investigation.

The CMA’s decision may be viewed as a welcome antidote to concerns that its merger review procedure, in the wake of its prohibition decision in Microsoft/Activision, is insufficiently flexible to deal with tech mergers.

https://www.gov.uk/cma-cases/broadcom-slash-vmware-merger-inquiry

No equitable jurisdiction to award compound interest in all fraud cases

 

No equitable jurisdiction to award compound interest in all fraud cases

The Court of Appeal has dismissed an appeal against the strike out of part of a "follow-on" damages claim concerning an infringement of EU competition law in the market for LCD panels. The Court ruled that there is no basis to invoke the equitable jurisdiction to award compound interest.  The ruling is a set-back for LCD cartel claimants – here all in liquidation.

The equitable jurisdiction to award compound interest is not available in every case of fraud. The Court ruled that such jurisdiction is available only where the defendant has retained the claimant's funds and used them for their own benefit.

Moreover, the Court found that even if there was such jurisdiction to expand the scope of damages, it would not be appropriate in this case.  The claimants could recover compound interest at common law post-insolvency, if they could plead and prove loss.  In this case the claimants accepted that they had not suffered such losses, other than being kept out of the damages suffered pre-insolvency.

A five-week trial is scheduled for October 2023.

Granville Technology Group Ltd (in liquidation) and others v LG Display Company Ltd and another [2023] EWCA Civ 980

Competition Appeal Tribunal upholds CMA’s pharmaceuticals excess pricing decision

 

 

Competition Appeal Tribunal upholds CMA’s pharmaceuticals excess pricing decision

The Competition Appeal Tribunal (CAT) has ruled that the CMA was correct in its July 2021 decision finding infringements of the Chapter II prohibition of the Competition Act 1998 by Advance Pharma and its parent companies in relation to the supply of a thyroid drug, liothyronine.

The CMA had that Advanz had abused its dominant position by charging excessive prices for supplying 20mcg liothyronine tablets, between 2009 and 2017. The CMA found that the prices for the packs increased by 1,110% from £20 in 2009 to £248 in 2017.  The CMA imposed total fines of over £100 million, of which Advanz Pharma was liable for over £40 million.

The CAT upheld the CMA’s findings on infringement.  It dismissed all the appellants’ arguments that that the CMA had erred in its assessment using a costs-plus methodology and that the CMA should have used alternative comparators in determining that the prices charged were unfair.

The CAT also concluded that there was no error in the CMA’s assessment that there was no objective justification for the price increases and that the purpose of the pricing was to exploit the lack of regulatory and competitive constraints, resulting in a significant and adverse impact on pricing to the NHS.  The CAT reject the appellants’ submissions that there had been acquiescence by the NHS in the price increases.

The CAT rejected most of the challenges to the CMA’s calculation of penalties but concluded that in this case there was no basis to impose an uplift for deterrence.  It therefore reduced the fine imposed on Hg Capital to £6.2 million and on Cinven to £37.1 million.   Advanz Pharma received no further reduction as its fine was already reduced by the statutory cap.

The judgment is likely to clear the ground for the NHS to seek damages.

Hg Capital LLP, Cinven Capital Management (V) General Management Limited and others and Mercury Pharmaceuticals Limited and others v Competition and Markets Authority [2023] CAT 52

Supreme Court rules that litigation funding agreements are ‘damages based agreements

 

Supreme Court rules that litigation funding agreements are ‘damages based agreements’

By a 4 to 1 majority, the Supreme Court has upheld an appeal by truck manufacturer DAF challenging the litigation funding agreements (LFAs) in two separate follow-on collective claims against members of the EU trucks cartel.  The judgment renders those arrangements unenforceable until certain conditions are met.

At the heart of this case is the definition of a damages-based agreement (DBA), derived from one legislative context  - the Compensation Act 2006 (the CA 2006) - and its use in a different legislative context (section 58AA of the Courts and Legal Services Act 1990 (CLSA 1990)).

Section 58AA(1) and (2) CLSA 1990 provide that a DBA will be unenforceable unless certain conditions are satisfied. Shortly after the insertion of section 58AA, the Damages Based Regulations 2013 (the "DBA Regulations 2013") came into force. These set out further requirements which must be satisfied if a DBA is to be enforceable. It is accepted that the LFAs in this appeal would not satisfy these conditions.

The relevant part of the definition of DBA in this appeal, pursuant to section 58AA(3), is whether the LFAs involve the provision of “claims management services".

The Court held that claims management services are capable of covering LFAs when “read according to their natural meaning”.

As a result, the claimants’ funding arrangements fall under the scope of the DBA Regulations 2013 since damages-based funders provide “client management services” and would be paid based on how much the tribunal awarded as damages.

The judgment has been seen as a setback to the burgeoning litigation funding industry.  Existing and future collective competition claims within the scope of the judgment will need to structure their funding arrangements to be compliant.

It may be questioned whether LFAs where the funder’s return is not linked to the damages awarded will be immune from the same strictures.  However the court noted that the 2013 Regulations defined “claims management services” as providing advice “or other services in relation to the making of a claim” and gave this a wide construction.                              

Early reactions to the judgment suggest, however, that the judgment – though unwelcome – will not sound a death knell to the growing body of funded collective competition law claims.  Funding agreements will need to be revised to reflect the ruling but certain of the more prominent funders in the industry have reacted to say the judgment will not stem their appetite to fund a claim with merit. 

While the highest court in the land has ruled on the issue, this may not be the end of the matter. But reversing this position would require legislative change.

R (on the application of PACCAR Inc and others) (Appellants) v Competition Appeal Tribunal and others (Respondents) [2023] UKSC 28

Microsoft to face new European Commission investigation in to bundling of Teams

 

Microsoft to face new European Commission investigation in to bundling of Teams

As the European Commission and other competition and regulatory bodies intensify their interest in the technology sector, Microsoft is facing a new antitrust probe into bundling of its Office products with its Teams services.

Media reports, including in the Financial Times, have suggested that a formal probe could be launched as early as the coming week, if suitable remedies cannot be found.

The Commission’s antitrust concerns follow a complaint first made by Slack in 2020, now part of Salesforce.  German supplier Alfaview has raised similar concerns. The complaints allege that Microsoft has abused its dominant position by bundling of the two services – Office and Microsoft Teams – such that rival suppliers of video conferencing services cannot compete on the merits where users have the bundle of services automatically installed on their devices.

This is not the first time that Microsoft has faced antitrust scrutiny over bundling practices. 

The General Court’s 2007 decision upheld the Commission’s 2004 decision that Microsoft had unlawfully tied its Media Player (“WMP”) with the Windows Operating System (WOS) thereby foreclosing innovation and limiting consumer choice. The case involved technical tying through the technical integration of one product (WMP) into another (WOS).  Four years after the Commission’s 2004 decision, it fined Microsoft EUR899 million for failure to comply with the part of the decision that required Microsoft to licence its interoperability information for a reasonable fee.

A second major competition law probe in relation to Microsoft concerned an allegation of foreclosure contrary to Article 102 on the basis that Microsoft was tying its browser (Internet Explorer) to the WOS. Rather than the case being resolved with an infringement decision under Article 7 of Regulation 1/2003, Microsoft offered commitments under Article 9.  These involved commitments to (1) make available a mechanism in its Windows 7 (and subsequent) operating systems within the EEA enabling Internet Explorer to be turned off and on; and (2) to distribute a software update to EEA users of WindowsXP, Windows Vista and Windows 7 to introduce a Choice Screen to give consumers a choice of competing web browsers.  No fine was imposed to resolve the Commission’s investigation but in 2013 Microsoft was fined EUR561 for violating its commitments.

Microsoft is understood to be in discussions with the Commission to seek to resolve the pending investigation.

Case COMP/C-3/37.792 Microsoft, decision of 24 March 2004

Case T-201/04 Microsoft Corporation v Commission [2007] ECR II-3601

Case COMP/39.530 — Microsoft (Tying), decision of 16 December 2009

US Court allows Microsoft/Activision transaction to proceed while UK appeal is on hold

 

US Court allows Microsoft/Activision transaction to proceed while UK appeal is on hold

A US Court has refused a request by the Federal Trade Commission (FTC) to temporarily restrain Microsoft’s acquisition of Activision.

Meanwhile, the merging parties are understood to be renewing discussions with the UK Competition and Markets Authority (CMA) regarding a possible solution.

The US District Court for the Northern District of California rejected the FTC’s claim that the acquisition by Microsoft of Activision would provide it with the incentive to denigrate the quality of games such as Call of Duty.  In refusing to grant the preliminary injunction, the judge concluded that there would be “no foreclosure of Call of Duty” if the deal is not immediately blocked. The judge found “the merger will enhance, not lessen, competition in the cloud-streaming market.”

The judge has made some modifications to the temporary restraining order to expire on 14 July unless the FTC obtains a stay pending an appeal to the US Court of Appeals for the Ninth Circuit. The deadline to close the transaction is currently 18 July. 

In April 2023 the CMA had prohibited the transaction outright finding that no remedies could be found to avert the substantial lessening of competition that it found.  The UK’s Competition Appeal Tribunal was due to start hearing an appeal against that decision on 28 July.  In a turn of events following the US Court judgment, the CMA has agreed to a stay of the appeal of its prohibition decision. This is intended to allow for discussions to be renewed regarding possible structural fixes.

Case No. 23-cv-02880-JSC:  https://storage.courtlistener.com/recap/gov.uscourts.cand.413969/gov.uscourts.cand.413969.305.0_4.pdf