[co-author: Edoardo Crosetto]
Antitrust and Competition
The Court of Justice of the European Union Finds That the European Commission Lacks Jurisdiction to Review Transactions That Fall Below the EU and National Merger Filing Thresholds
On 3 September 2024, the Court of Justice of the European Union (CJEU) overturned the judgment of the General Court of 13 July 2022 and annulled the European Commission (Commission) decisions to review a transaction that was not reportable at both EU and national Member State level (Transaction). The Commission’s ability to review the Transaction was premised on a radical change in policy in the interpretation of Article 22 of the EU Merger Regulation (EUMR) where the Commission “start[ed] accepting referrals from national competition authorities of mergers that were considered worth reviewing at the EU level whether or not those authorities had the power to review the case themselves.” On that basis, the Commission first invited and then accepted referral requests from several member states where the Transaction did not meet the national merger filing thresholds. The Commission’s new policy was adopted to address a perceived enforcement gap to allow the Commission to investigate below-threshold “killer acquisitions” in sensitive sectors such as pharmaceutical, biotech, digital, and generative artificial intelligence, where the competitive importance of a nascent business may not be fully represented by its revenues.
In its judgment, the CJEU held that the Commission did not have the authority to encourage or accept referrals of transactions from Member State that are not competent to review these under their own merger control regimes. In particular, the CJEU emphasized that the turnover-based thresholds are an important guarantee of predictability and legal certainty for businesses. The court highlighted that companies must be able to determine easily whether their transactions must be the subject of a preliminary examination and, if so, by which authority and subject to which procedural requirements.
The CJEU’s judgment also refers to the possibility to review below-threshold transactions ex-post under the abuse of dominance rules on the basis of the Towercast judgment. However, to prohibit a merger under Article 102 of the Treaty on the Functioning of the European Union, the transaction must involve a company that already holds a dominant position before the merger takes place. As such, the practical impact of Towercast remains limited to companies that are dominant.
The Commission remains determined to close the perceived enforcement gap with respect to below-threshold transactions concerning “killer acquisitions.” The Commission’s Executive Vice-President Margrethe Vestager stated that, in compliance with the CJEU’s judgment, the Commission will continue to accept referrals made under Article 22 of the EUMR by Member States that have jurisdiction over a transaction under their national rules or that do not have a national regime at all, which remains the case only for Luxembourg. In this respect, several Member States (including Italy, Ireland, Hungary, Denmark, Latvia, Lithuania, Slovenia, and Sweden) have introduced provisions allowing them to review transactions that do not meet the national merger filing thresholds. Other Member States are likely to adopt such “call-in” powers in the near future. The Commission may rely on such mechanisms to review these transactions through Article 22 EUMR.
Following the CJEU’s ruling, there is also the opportunity for the Commission to seek a legislative reform of the EUMR by lowering the turnover thresholds or introducing value-based transaction thresholds for deals that pose competition concerns. However, any potential change needs to be carefully considered to avoid increased administrative burden and red tape for businesses by inadvertently capturing unproblematic transactions. Also, the Member States—whose approval for any EUMR reform is needed—may have different views on the proposals.
Following this landmark judgment, transactions falling below the EU thresholds and national merger control rules will no longer be subject to the Commission’s review under the extensive interpretation of Article 22 EUMR. It remains to be seen how the growing number of Member States’ new thresholds to review “killer acquisitions” will impact the deal timeline. The Commission has already emphasized that these powers may be the path that the Commission wants to pursue to address the perceived enforcement gap for “killer acquisitions.”
Financial Affairs
Draghi Report on Future of European Competitiveness: Focus on Financial Services and Banking
On 9 September, the Commission published the report on the future of European competitiveness offering key recommendations for financial services. The report, coordinated by former European Central Bank (ECB) President Mario Draghi, consists of two sections: i) a competitiveness strategy for Europe (Part A); and ii) a detailed analysis and sector-specific recommendations (Part B). The findings are intended to inform mission letters to the incoming Commissioners and contribute to the development of the Commission’s new Clean Industrial Deal for competitive industries.
From a financial services perspective, the report highlights the fragmentation of European capital markets, which hampers the flow of savings into national markets and hinders financial intermediation. Despite the Commission’s efforts to establish a Capital Markets Union, progress has been slow. This is due to the absence of a unified securities market regulator, a fragmented clearing and settlement system, and differing tax and insolvency laws across Member States. To address these issues, the report recommends expanding the powers of the European Securities and Markets Authority to create a centralized regulator where its governance would be aligned with the structure of the ECB’s Governing Council. It also proposes to create a central counterparty platform and a single depository for all securities trades while calling for the removal of tax barriers that discourage cross-border investments. Additionally, the report suggests increasing capital flow by encouraging retail investment through pension schemes and other long-term saving products.
From a banking perspective, the report urges the completion of the Banking Union, with a particular emphasis on adopting the European Deposit Insurance Scheme. It stresses the need to adjust prudential regulations, particularly those arising from the Basel III reforms, to strengthen the international competitiveness of EU banks. This includes reducing capital requirements for certain simple and transparent financial products and creating a separate regulatory framework for European banks with significant cross-border operations.
The report also addresses sustainability and corporate responsibility issues in the European Union, focusing on the challenges posed by the implementation of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D). In relation to CSRD, the report points out the disproportionate regulatory burden on smaller companies, particularly in terms of compliance and investment costs. Further, it notes that CS3D’s complex rules risk over-compliance and further increasing administrative costs for businesses. To ease these burdens, the report proposes the introduction of a Vice-President for Simplification, who would oversee a thorough review of existing regulations. This would involve running stress tests on regulations across sectors to ensure they do not unnecessarily hinder business competitiveness.
In a related development, on 17 September, the Commission’s President, Ursula von der Leyen, announced the candidates to form the new College of Commissioners (College). Maria Luís Albuquerque, former finance minister of Portugal, was nominated as Commissioner for Financial Services and the Savings and Investment Union. The mission letter sent to each candidate informs Albuquerque of the tasks she’ll need to accomplish throughout her mandate, including leveraging private savings, designing simple and low-cost saving and investment products at EU level, scaling up sustainable finance, identifying a way forward on the Banking Union, and reviewing the regulatory framework to ensure innovation and access to finance for companies. Each candidate will have to go through approval by Members of European Parliament, who will provide an opinion under each responsible committee and will then vote in a plenary session for the overall new College composition. Further to that, the European Council will formally appoint the new College.
Sanctions
The Court of Justice of the European Union Clarified the Notion of Prohibited Legal Advisory Services
On 5 September 2024, the CJEU clarified the scope of the EU sanctions prohibition to provide legal advisory services to the Government of Russia and to legal persons, entities, or bodies established in Russia.
The case, C-109/23, Jemerak, related to the refusal of a German notary to authenticate a contract for the sale of an apartment situated in Berlin and owned by a Russian company. This was due to the notary’s concerns that the authentication may infringe the prohibition on the provision of legal advisory services to legal persons established in Russia provided by Council Regulation (EU) No 833/2014.
The CJEU confirmed the advocate general’s opinion, (on which we have reported previously), that notarial authentication of a contract is not covered by the prohibition on the provision of legal advisory services to Russian persons. The CJEU clarified that this is because the term “legal advisory services” should be understood as the pursuit of an activity of an economic nature based on three factors: firstly, a relationship between a service provider and his or her client; secondly, the purpose of which is the provision of legal advice; and thirdly, by which a provider delivers advice on questions of law to persons seeking that advice.
Since a German notary acts for the purpose of authentication in a public capacity entrusted to him or her by the State, independently and impartially, and does not provide legal advice intended to promote the specific interests of the parties, the provided services are not captured by the ban on the provision of legal advisory services. For the same reason, an interpreter acting in the context of notarial authentication does not provide legal advice. Therefore, his or her services are not covered by the prohibition either.
Energy
The European Commission Presents the 2024 State of the Energy Union Report
On 11 September 2024, the Commission released its annual State of the Energy Union Report. The document highlights the European Union’s progress in reducing energy demand, increasing the use of renewable energy, cutting fossil fuel imports, and enhancing energy security. It provides a comprehensive overview of the European Union’s efforts to achieve its climate and energy goals, offering insights into the Europe’s transition towards a net-zero future. Some of the findings for 2024 include:
Renewable energy
By the first half of 2024, renewables generated 50% of electricity in the European Union. The installed renewable energy capacity in the European Union has hit another record with 56 gigawatts (GW) of new solar and 16 GW of new wind (onshore and offshore) capacity installed in 2023. Wind also surpassed natural gas to become the European Union’s second-largest source of electricity behind nuclear.
Hydrogen
European industrial consumers have launched procurement tenders for around 1 million tons of renewable and low-carbon hydrogen since September 2023. Nevertheless, the Commission cautions that still too few projects move past final investment decision on the supply side, notably due to lower than anticipated demand for green hydrogen.
Natural gas
The European Union continues driving its demand for natural gas. The demand fell by 18% from August 2022 to May 2024 with 138 billion cubic meters (bcm) of gas saved. Imports of Russian gas (pipeline and liquified natural gas (LNG)) dropped from a 45% share of overall EU gas imports in 2021 to only 18% in the first half of 2024 (from 150.2 bcm to 25.4 bcm).
LNG
Between 2022 and 2024, 12 new LNG terminals and six expansion projects have been commissioned. Collectively, these developments are projected to boost the European Union’s LNG import capacity by 70 bcm by the end of 2024. As of June 2024, Norway and the United States have emerged as the European Union’s largest suppliers of gas, contributing 34% of pipeline imports and 18% of LNG imports, respectively.
Greenhouse gas (GHG) emissions
From 1990 to 2022, the European Union achieved a 32.5% reduction in GHG emissions while its economy expanded by approximately 67%. This reflects a successful decoupling of emissions from economic growth.
The report also highlights several key challenges faced by the EU Energy Union, such as rising energy costs, challenges on industrial sectors, the need to support Ukraine’s energy infrastructure, and ensuring access to critical raw materials vital for advancing the green energy transition.
