Another bullet to dodge for tech M&A? EU Advocate General opines unreviewed deals can be pursued as abuse of dominance

Acquisitions which escape merger control can be tackled by abuse of dominance enforcement, according to a recent non-binding opinion by EU Advocate General (AG) Juliane Kokott. If confirmed by the ECJ, this would appear to open the door for acquirers to be fined – up to 10% global turnover – for historical acquisitions (in theory a deal could be unwound, but the AG's opinion indicates a fine is most likely). 

Is this yet another risk to consider for tech M&A? Perhaps, but given other recent measures taken to ensure so called “killer acquisitions” do not escape merger control scrutiny, it may be that the practical implications of the AG’s opinion largely belong to a bygone era of merger control history.

The Towercast case

The opinion has been issued in response to a referral from the French Cour d’appel, asking whether the prohibition on abusing a dominant position can be used to fill gaps in merger control. The key question is whether competition authorities in the EU can investigate a deal ex post where it was not able to do so under its relevant turnover thresholds for ex ante review.

The case arises from a complaint by French company Towercast, based on the allegation that TDF Infrastructure Holdings’ (TDF) 2016 acquisition of Itas S.A.S constituted abuse of a dominant position. Towercast alleged that TDF’s acquisition hindered competition on the upstream and downstream wholesale markets for digital transmission of terrestrial television services by significantly strengthening its dominant position on those markets. Since the acquisition fell below the relevant national and EU-wide turnover thresholds, no merger control investigation was triggered at the time of the deal. The AG’s opinion expresses the view that the existence of a merger control regime does not preclude authorities using Article 102 where the relevant conditions are met, but indicates that this should be an either/or investigation (so where a deal has been cleared, it can’t later be pursued as an abuse of dominance).

Practical implications for tech deals

So does this mean that where an acquisition falls under merger control thresholds it should be reviewed through an abuse of dominance lens? The short answer is yes. But how much should this change how deal-doers think about risk in 2022? Perhaps not much.

The scene for the Towercast case was set in 2016, as debates over so-called “killer acquisitions” were just gathering pace. Fast-forward to 2022 and European merger control has received its fair share of steroids over the intervening six years. The recent Illumnia/Grail case confirmed that the European Commission has almost unlimited jurisdiction to receive referrals of acquisitions which fall below the notification thresholds of the EU and the relevant national competition authorities. In addition, from next year when the DMA comes into force, any firms designated as “gatekeepers” will be under an obligation to report all M&A activity to the Commission.  And of course in the UK, the CMA has long had elastic jurisdictional rules, and has in recent years shown its willingness to use them to single-handedly block global deals it considers to harm competition.

So in 2022, even before the AG’s opinion, it would be foolhardy to disregard the potential competitive impact of a deal just because it falls under the thresholds. The opinion could however change incentives to actively encourage Member States to make referrals to the European Commission in order to remove the risk of an ex post Article 102 investigation. The concept of deliberately bringing a deal under merger control scrutiny is not new: it is common to deliberately structure JVs to ensure that they are notifiable transactions and therefore benefit from the certainty of a clearance decision, rather than needing to be assessed as an agreement between competitors.

Ex post review is possible, but prevention is better than a cure

Of course the suggestion tech deals might be subject to ex post review and enforcement is not entirely novel in a global context either. In the US, the FTC issued a report last year into certain tech platforms’ historic, unnotified acquisitions and it has a revamped Merger Retrospective Program currently underway to assess the impact of unnotified deals in the US. It can’t be ruled out that an EU competition authority could follow suit, but whether this is an enforcement priority remains to be seen. After all, with the new approach the jurisdiction, you might expect authorities to live by the mantra that prevention is better than a cure. What the opinion does underscore however is the importance of considering competition implications of every tech deal, no matter how small.