The UK Competition and Markets Authority’s (CMA) Digital Taskforce, commissioned by the government earlier this year to provide advice on digital regulation, may recommend the introduction of a new parallel merger control regime for certain tech mergers. The CMA flagged in the summer that it is considering the policy justification for a special regime, and in a speech on Friday the CMA’s CEO, Dr Andrea Coscelli confirmed its "current thinking". It remains early days for the proposed reforms: the CMA first needs to give its formal report to government (due by December), and the proposed changes would require primary legislation, for which it is unclear if there is political appetite or capacity. But if the proposal became law, it would represent the most significant change to UK merger control since its inception 30 years ago.
The proposal would make it mandatory for companies with “Strategic Market Status” to notify every acquisition they make to the CMA (with limited exemptions). In addition, the CMA is considering whether to recommend that the “standard of proof” for establishing a substantial lessening of competition – i.e. for the CMA to block a deal (or require remedies) – be lowered from the current “balance of probabilities” (which currently applies at Phase II; the test at Phase I is already a lower and deliberately cautious "realistic prospect" standard). Such a new regime could also accommodate a separate assessment of non-competition concerns such as data protection. The proposals come at a time when governments around the world are considering a range of reforms to competition law and beyond to tackle the tech giants' power, and when the European Commission is asking the ECJ to overturn a General Court ruling that a "significant impediment to effective competition" needs to be shown to be a "strong probability" to ground intervention in EU merger probes.
There are many crucial details of the proposal that remain unknown: precisely which companies would be considered to have “Strategic Market Status” (the CMA has previously said it would – at a minimum – include Google and Facebook), what “limited exemptions” would exist, whether the regime would allow a deal to close before the CMA review is complete, how competition and non-competition effects would be weighed, and critically, what the new – lower – standard of proof would be. On this last point, the Furman Report (a report on competition in digital markets by independent experts, commissioned by the government and concluded in 2019) suggested a "balance of harms" test, but another senior CMA official suggested earlier this year that using the Phase I test of a "realistic prospect of a substantial lessening of competition" at Phase II would be more appropriate.
So how much would the proposals really change? In making notification mandatory, perhaps not that much. The CMA’s current practice is to “call in” for review any high profile acquisition by one of the “GAFAs” that is not proactively notified. This year so far the CMA has reviewed Google’s acquisition of Looker Data (cleared unconditionally at Phase I after a more than six-month review), Amazon’s investment in Deliveroo (cleared unconditionally after an in-depth Phase 2 probe which lasted over 13 months) and Facebook’s acquisition of GIPHY (where the CMA’s review is ongoing, alongside litigation in the Competition Appeals Tribunal over the CMA’s hold separate order). From 2021 the CMA will also be able to – and undoubtedly will – review bigger deals that were previously within the European Commission’s sole competence.
But a change to the standard of proof would be very significant. The current "balance of probabilities" standard will have likely prevented the CMA prohibiting mergers on more speculative "theories of harm", especially where the target business is relatively nascent and there is uncertainty about how it would grow absent the merger (Facebook's acquisition of Instagram being the "poster child" case). Perhaps most critically, lowering the standard of proof would make it (even) easier for the CMA to block global tech deals than many of its peer merger control agencies around the world. The CMA has already shown its willingness to do so, even where there is a limited UK nexus – e.g. Sabre’s now abandoned acquisition of Farelogix, which had no UK revenues or assets. If the proposed reforms become law, we could see UK (perhaps only) prohibitions of global tech deals become a regular occurrence.
For more on how this fits into broader trends, visit our new hub for everything UK merger control related: Platypus.
the inherent uncertainty that often characterises developments in these digital markets, combined with the increased risks of consumer harm where the acquirer already has Strategic Market Status, may justify the use of a more cautious standard of proof than the ‘balance of probabilities’ threshold under the standard regime