Summary of Key Developments — March/April 2024
The “European Antitrust Bimonthly Bulletin” breaks down the major antitrust developments in Europe during the past two months into concise and actionable takeaways, divided into thematic sections focusing on i) mergers, ii) cartels, iii) abuse of dominance, iv) the DMA, v) artificial intelligence, and vi) others.
For any questions or suggestions, please contact Jindrich Kloub, Deirdre Carroll, or any other attorney in the European Antitrust team listed at the end of the Bulletin.
Advocate General Proposes to Quash EC’s Below-Threshold Merger Referral Policy
On March 21, 2024, Advocate General (AG) Emiliou delivered an advisory opinion to the EU’s highest court, the European Court of Justice (ECJ), suggesting it set aside a previous judgment from the General Court (GC). The GC had ruled on July 13, 2022, that the European Commission (EC) was entitled to accept referrals from EU Member States to review Illumina’s acquisition of GRAIL under its new interpretation of Article 22 of the EU Merger Regulation (EUMR), even though the transaction did not meet the merger thresholds of either the referring Member States or the EUMR itself.
The AG criticized the EC’s revised Article 22 EUMR policy, noting that the GC’s ruling would give rise to a “very significant extension” of the EC’s jurisdiction, with the EC being able to “review almost any concentration, occurring anywhere in the world.” While AG Opinions are not binding on the ECJ, they have been followed in the majority of cases. If the ECJ were to follow the AG’s Opinion, it would invalidate the basis for the record €432 million (approx. US$467 million) gun-jumping fine, as well as the EC’s prohibition decision and divestment order (with the EC recently approving Illumina’s divestment plan for GRAIL). Two subsequent Article 22 EUMR referral cases will also be impacted. An ECJ ruling can be expected before the end of 2024 and may result in a return to legal certainty in Europe for dealmakers.
Companies contemplating M&A transactions impacting the EU and United Kingdom (UK) should consider front-loading substantive assessments in any filing analysis and factor in the impact of EU and UK reviews on deal terms, timetables, and risk allocation—even if they generate little or no revenue in Europe—given the increasing risk of being "called in" for review. Even if the EC's revised Article 22 policy is struck down, many jurisdictions are implementing below-threshold review powers.
For more details on the AG Opinion and the case generally, see our Wilson Sonsini Alert.
EC Closes Cartel Investigation into High Fashion
On April 2, 2024, the EC closed an investigation into an alleged collusion in the fashion industry to delay sales periods for new clothing collections to allow for more full-price selling and reduce discount percentages. In 2020, an open letter to the fashion industry was published on the internet and signed by more than 750 designers, brands, retailers, and consultants to reshape the fashion industry in a more sustainable way and respond to the detrimental impact of the COVID-19 pandemic. The EC conducted unannounced inspections at the premises of several companies active in the fashion industry on May 17, 2022, and sent out requests for information. The EC cited "priority reasons" for closing the probe.
Companies are advised to review their compliance policies to ensure they are up to date and effective, and should engage with counsel at an early stage when considering publications and/or discussions with competitors, including in the context of sustainability collaborations.
UK Competition and Markets Authority (CMA) Wins Challenge to Its Private Residence Search Warrant
In October 2023, the CMA announced an investigation into suspected anti-competitive conduct involving construction chemicals, in the context of which it sought warrants from the Competition Appeal Tribunal (CAT) to search business and domestic premises. On October 12, 2023, the CAT granted the business premises search warrants, but denied the domestic one, requiring more evidence beyond mere suspicion of document destruction based on the suspicion of cartel conduct.
The CMA applied for judicial review of this decision in the High Court, which on April 22, 2024, found in favor of the CMA. The High Court accepted that there may be cases where the position of an individual in an undertaking, or the extent of their involvement in a suspected cartel, "will mean that inference is enough to justify the issue of a warrant without some additional evidence of propensity," but ultimately that will depend on the circumstances of each case. It held that the CAT made an error of law to the extent that it tried to lay down a principle that "something more" must be shown when applying for warrants for domestic premises. In a statement, the head of the CMA stressed that it is essential for it to be able to search domestic premises to secure evidence, given the increase in remote working and electronic communication.
The CMA's construction chemicals probe is ongoing. The CMA is working closely with the EC, which has also launched an investigation into this sector. In addition, it is in contact with the U.S. Department of Justice.
Companies should know that the CMA is becoming increasingly assertive in exercising its investigatory powers, and the High Court ruling may see it leverage its dawn raid tools against private homes more frequently in the future.
EC Fines Apple More Than €1.8 Billion over App Store Rules
On March 4, 2024, the EC announced that it had fined Apple €1.84 billion (approx. US$2.0 billion) for allegedly abusing its dominant position for the distribution of music streaming apps to iPhone and iPad users through its App Store. The EC found that Apple restricted the developers of music streaming apps from informing their users about cheaper ways to purchase music subscriptions and services outside of Apple's ecosystem ("anti-steering provisions"). Such restrictions were considered by the EC as neither necessary nor proportionate for the protection of Apple's commercial interests and having caused both monetary (i.e., higher prices for music subscriptions) and non-monetary (i.e., degraded user experience) harm to iPhone/iPad users. Notably, the EC found Apple's anti-steering provisions to amount to unfair trading conditions, which is an exploitative form of abuse of dominance prohibited by Article 102(a) of the Treaty on the Functioning of the EU (TFEU).
While the EC's 2021 statement of objections focused on Apple's conduct requiring app developers to use Apple's own in-app purchase system, which includes a commission fee of up to 30 percent on transactions, the EC subsequently narrowed its investigation to anti-steering only. Using its revenue-based fining guidelines, the EC initially calculated a fine of only €40 million (approx. US$72 million). Considering this sum to lack deterrent effect and to not properly represent the non-monetary harm caused by the anti-steering provisions, the EC increased the fine by €1.8 billion, relying on a rarely used provision of the fining guidelines. Apple noted its intent to appeal the decision.
Companies should be aware that this case demonstrates the EC's renewed willingness to pursue exploitative conduct cases even outside excessive pricing cases in the pharmaceutical sector. As recently noted by a senior EC official, exploitative abuses are no longer the "unloved child" of EU antitrust enforcement.
EC Launches Investigation Alleging Shutdown of Animal Medicine Pipeline
On March 26, 2024, the EC announced that it had opened an antitrust investigation into animal health company Zoetis. Zoetis's medicine Librela is currently the only monoclonal antibody medicine approved in Europe to treat pain in dogs with osteoarthritis. The EC is concerned that Zoetis may have abused its dominant position by acquiring a late-stage pipeline medicine for the same type of pain relief for which a third party had exclusive commercialization rights in the European Economic Area (EEA), and then terminated this development of the pipeline medicine while refusing to transfer it to the third party.
The EC noted that this was its first formal investigation into an alleged abuse of dominance consisting of terminating a pipeline medicine that was to be commercialized by a third party. The EC acted following a 2020 complaint by Virbac, a French animal health company.
Companies in industries such as healthcare and pharmaceuticals, which heavily rely on intellectual property (IP), should carefully consider whether their licensing and commercialization approach to IP is consistent with antitrust rules. We can assist by assessing licensing policies and appropriately reducing risk. Equally, we can assist with challenging such conduct.
EC Investigating Bundling of Security Software by Microsoft
On February 27, 2024, it was publicly reported that the EC was probing Microsoft's practices regarding authentication services. The investigation concerns Microsoft software called Entra ID, previously known as Azure Active Directory. Through this software, users can authenticate themselves and companies can control which users log into their apps. The EC is trying to understand whether companies are able to use competing software, or whether they are bound to Microsoft's Entra ID.
According to the reporting, several companies have complained to the EC about Microsoft's practices, and the EC has approached several companies about their experiences.
Companies should consider whether they are facing any barriers because of conduct by dominant or incumbent firms in Europe. We can assist in identifying possible opportunities and formulating the appropriate strategy for obtaining relief. Equally, we can assist with defending against such claims.
Microsoft to Offer Teams Separate from Office Suites Globally
On April 1, 2024, Microsoft announced that it would unbundle its service Microsoft Teams from its other services commonly licensed together as part of the Microsoft 365 and Office 365 suites on a global basis. Existing customers could keep their suites that include Microsoft Teams, while new customers would have to buy separate licenses for Microsoft's suite of productivity software and Microsoft Teams. This change follows similar changes for users in the EEA and Switzerland announced in August 2023 and effective from October 1, 2023.
At that time, Microsoft explained that its changes were an attempt to address the EC's investigation into its practices involving i) the tying of Teams with Office 365 and Microsoft 365, and ii) alleged restrictions on the integration and interoperability with third-party products (competing video conference services in particular). The EC's investigation is still ongoing and formal charges are expected in the coming months.
Companies should consider whether they are facing any barriers because of conduct by dominant or incumbent firms in Europe. We can assist in identifying possible opportunities and formulating the appropriate strategy for obtaining relief. Equally, we can assist with defending against such claims.
EC Investigates Licensing Changes Following Broadcom/VMware Merger
On March 19, 2024, the trade association Cloud Infrastructure Services Providers in Europe (CISPE) publicly complained about Broadcom unilaterally canceling all licenses for VMware software and raising prices. CISPE argued that Broadcom is "holding the [cloud] sector to ransom by leveraging VMware's dominance of the virtualisation sector to enforce unfair licence terms and extract unfair rents from European cloud customers." It also called for Broadcom to be regarded as a gatekeeper under the Digital Markets Act (DMA). Tech hardware company Broadcom had previously acquired VMware, a provider of software used for cloud computing, in 2023. To gain EC approval of the deal, Broadcom had committed to providing access and interoperability for certain connectivity components called fiber channel host-bus adapters (FC HBAs). CISPE called upon regulators, legislators, and courts across Europe to "swiftly scrutinize" Broadcom's conduct. Four associations of chief information officers (CIOs) followed suit with an open letter to the EC on March 28, 2024.
On April 15, 2024, Reuters reported that the EC had reacted by sending requests for information to Broadcom over the allegations that it was unilaterally changing customer contracts. On the same day, Broadcom confirmed that it would keep moving VMware from perpetual licenses to a subscription-based business model and that it would continue to provide some support to licensees who did not wish to change to a subscription.
Companies should consider whether they are facing any barriers because of conduct by dominant or incumbent firms in Europe. We can assist in identifying possible opportunities and formulating the appropriate strategy for obtaining relief. Equally, we can assist with defending against such claims.
Pharma Company Offers Commitments to Settle EC Disparagement Investigation
On April 19, 2024, pharma company Vifor offered conduct commitments in a bid to end the EC's investigation into its suspected abuse of dominance in the market for intravenous iron medicine involving the disparagement of a competing product, Monofer, to protect the position of its own intravenous iron medicine.
To settle the investigation, Vifor offered to publish factual clarifications to healthcare professionals in the national markets impacted by its alleged conduct, including in medical journals and on its website, to allow Monofer's supplier Pharmacosmos to use these materials when contacting healthcare professionals, and to limit its communications about Monofer's safety. If accepted by the EC after market feedback, the conduct commitments would bind Vifor for a period of 10 years.
Companies should know that the EC is actively focusing on abuse of dominance issues in the healthcare sector, and is open to investigating based on innovative theories of harm, such as the disparagement alleged in this case. Companies should consider whether they are facing any barriers because of conduct by dominant or incumbent firms in Europe. We can assist in identifying possible opportunities and formulating the appropriate strategy for obtaining relief. Equally, we can assist with defending against such claims.
Digital Markets Act: EC Designates Apple's iPad Operating System
On April 29, 2024, the EC announced that it had designated Apple as a gatekeeper under the DMA for its iPad operating system (iPadOS). On September 5, 2023, the EC had designated Apple as a gatekeeper under the DMA for its operating system (iOS), its browser (Safari), and its App Store. At the same time, the EC opened a market investigation to determine whether Apple's iPadOS constituted an important gateway for business users to reach end-users and should therefore be designated as a gatekeeper, despite not meeting the necessary quantitative thresholds.
The EC's investigation found that the business user numbers for the iPadOS exceeded the quantitative thresholds; that it could be expected that the end-user numbers would exceed them soon, too; and that business users and end-users were locked in to using iPadOS. As a result of the designation, Apple now has six months to ensure compliance with the DMA with respect to iPadOS.
Companies should know that the EC can designate core platform services (CPSs) under the DMA, even when they do not meet the quantitative thresholds, but are deemed important gateways for business users to reach end-users.
Digital Markets Act: Booking, ByteDance, and X Notify Potential Gatekeeper Status to the EC
On March 1, 2024, the EC stated that Booking, ByteDance, and X (formerly known as Twitter) had notified their potential gatekeeper status due to the thresholds under the DMA being met. ByteDance has already been designated by the EC as a gatekeeper for its TikTok CPS, but has now notified TikTok Ads. If designated, Booking and X will become gatekeepers with respect to their online intermediation and social networking services, respectively. The EC now has 45 working days to decide on designation. If designated, the platforms will have a period of six months to become compliant with the DMA requirements.
Our European team has extensive experience with the DMA and unique insight into the EC's enforcement practice, and can assist with DMA compliance or assessing third-party intervention opportunities.
Digital Markets Act: EC Opens Non-Compliance Investigations into Alphabet, Apple, and Meta
On March 25, 2024, the EC announced that it had opened its first DMA noncompliance investigations, targeting Alphabet, Apple, and Meta. Several services of these gatekeepers were designated as CPSs on September 6, 2023, which triggered a six-month DMA compliance countdown until March 7, 2024.
The EC alleged that Apple's rules on anti-steering in the App Store and various user choice obligations, Meta's "pay or consent model," and Alphabet's rules on anti-steering in Google Play and self-preferencing on Google Search could constitute violations of the gatekeepers' requirements under the DMA. Sanctions for noncompliance can include fines of up to 10 percent of global annual turnover or even structural break-ups for repeat offenders.
On April 30, 2024, the EC announced the launch of a new whistleblower tool to allow anonymous complaints against infringements of the DMA.
Our European team has extensive experience with the DMA and unique insight into the EC's enforcement practice, and can assist with DMA compliance or assessing third-party intervention opportunities.
The EC, UK, and French Authorities Continue Artificial Intelligence (AI) Inquiries
The EC, French, and UK competition authorities are continuing their close scrutiny of AI, which involves both general inquiries into the sector and investigations of specific partnerships.
The EC recently closed a call for voluntary contributions as part of its inquiry into generative AI and is currently evaluating the submissions, which will also be published on its website. The inquiry is expected to last at least several months and will inform the EC's understanding of the sector and its application of antitrust rules to it. In parallel, the EC has been investigating whether specific partnerships raise competition concerns or may be reviewable under merger rules, but so far, no partnership has been identified as falling under merger review rules. However, the EC noted that changes to the merger rules may be required to capture a possible repeated practice of acqui-hiring and that the speed of development of AI technologies may compel the EC to start using interim measures in its antitrust investigations, a power used rarely so far.
In the UK, on April 11, 2024, the CMA published an updated report on advanced AI foundation models. The CMA found an "interconnected web" of over 90 partnerships involving only six large tech companies and outlined its concerns around consolidation, access to critical inputs, and leveraging of market positions. The CMA will also publish a joint statement with the UK's privacy regulator, the Information Commissioner's office, in Spring 2024, covering areas of crossover among competition, consumer, and data protection objectives. On April 24, 2024, the CMA confirmed it had opened "invitations to comment" for interested parties to provide views on whether certain partnerships fall under the UK's merger control rules.
In France, on March 19, 2024, the President of the French Competition Authority (FCA) noted that the FCA's recently opened inquiry into competition and AI had already identified concerns about "major digital players... consolidating – or leveraging – their current market power upstream in the generative AI value chain." This includes access to cloud computing, public and non-public data used to train AI models, and access to funding and a trained workforce. The President added that most investment into companies developing AI models appears to have been made via commercial partnerships that have not been reviewed by competition authorities as to the substance.
Companies should know that competition authorities are extremely interested in investments in and partnerships with companies developing AI models. Companies should carefully consider how they communicate about partnerships and their impacts on competition. From a merger control perspective, European and UK agencies will carefully assess whether there is a change of control or material influence at play, with the CMA able to take jurisdiction over minority equity stakes in certain circumstances.
New Investigations and the First Dawn Raid Under Foreign Subsidies Regulation
The EC continued developing its in-depth investigations under the Foreign Subsidies Regulation (FSR). On March 26, 2024, the EC took note of Chinese train manufacturer CRRC Qingdao Sifang Locomotive, a subsidiary of state-owned CRRC Corporation, withdrawing from a tender to supply electric trains to Bulgaria. The EC had opened an in-depth investigation into this bid under the FSR on February 16, 2024.
On April 3, 2024, the EC announced two in-depth investigations into separate bids to design, construct, and operate a photovoltaic park in Romania, targeting two consortia, including the European subsidiaries of Chinese companies Longi and the Shanghai Electric Group, respectively. On April 9, 2024, the EC announced the launch of its first ex-officio investigation, which focuses on Chinese wind turbine manufacturers and how they compete for the development of wind parks in Bulgaria, France, Greece, Romania, and Spain.
On April 23, 2024, the EC informed that it had conducted an unannounced inspection of the premises of a company producing and selling security equipment in the EU. Chinese company Nuctech confirmed to reporters that its offices in the Netherlands and Poland had been inspected.
The FSR gives the EC new powers to police subsidies from non-EU countries, complementing the EC's powers to control state aid from EU Member States. This includes i) M&A transactions involving companies active in the EU that meet certain turnover and foreign financial contribution (FFC) thresholds; and ii) bids for large tenders in the EU by companies that have received FFC above a specified threshold.
Clients should be aware that the FSR adds yet another potential regulatory filing to the approval checklist for M&A transactions and creates a new regulatory hurdle for companies bidding for large public contracts in the EU. For the moment, investigations have focused on cases involving Chinese entities.
For more information about the FSR, see the Wilson Sonsini Fact Sheet EU Foreign Subsidies Regulation.
Tech Companies' Financial Services Activities Under Scrutiny
In a speech on April 22, 2024, the chief executive of the UK Financial Conduct Authority (FCA) suggested that "Big Tech" firms may become the "primary access channel" for retail financial services, squeezing out innovation from smaller players and discouraging legacy institutions from investing. Highlighting the intersection between antitrust and finance, chief executive Nikhil Rathi also referred to data asymmetry, to Big Tech's place in financial services supply chains, to the U.S. case against Apple in relation to its payments software, and to the increasing prevalence of AI in financial markets, and emphasized that it is "crucial" for regulators to collaborate in the face of such developments. Both the FCA and the CMA are doing so through the UK's Digital Regulation Cooperation Forum (DRCF). He also hinted that while the UK had not created separate regulations to apply to AI "[f]or now," a British version of the EU's new AI regulatory framework cannot be ruled out (this is reportedly already being considered).
In a related development, on April 18, 2024, a committee of the European Parliament (EP) voted to prohibit companies designated as gatekeepers under the DMA from becoming Financial Information Services Providers (FISPs) under a draft regulation for financial data access. This vote merely defines the position the EP will take when negotiating the draft regulation with the Council, which must agree to any proposed law. It is expected that the draft regulation will only be taken up again after the elections for the EP in June 2024, with the resulting possibility of changes.
Companies should be aware of the increasing collaboration between antitrust and financial services regulators in the UK and the EU, and of the possibility of enforcement measures being taken under both regulatory regimes. The regulators will continue to scrutinize partnerships between financial services providers and large tech companies.
