Antitrust enforcement is shifting, with the competition world working under in a shadow of uncertainty. 2023 has brought with it a host of geopolitical challenges including the rising cost of living, the energy crisis and political instability. Against this backdrop, antitrust authorities, armed with greater resources and an increasingly interventionist attitude, have grown increasingly confident pursuing cases that may have been overlooked in previous years. These shifts have intensified unpredictability in merger reviews and expanded the scope of behaviour subject to antitrust enforcement rules.
David Little, a partner in Latham & Watkins’ London and Brussels antitrust teams, explains: ‘There’s always ebbs and flows, but we’re very much in a phase of greater antitrust enforcement.’
At a national level, the UK Competition and Markets Authority (CMA) has embraced a position of intensified scrutiny, as it navigates the uncharted post-Brexit terrain. Rikki Haria, a partner in the competition practice at Freshfields, observes: ‘There are many important areas of the competition and antitrust landscape undergoing significant reform both in the UK and globally. This means in-house lawyers need to keep on top of a rapidly changing competition and antitrust landscape in order to advise internal stakeholders effectively.’
Companies need to be agile in navigating these developments warns Little, who adds: ‘we are in the eye of the storm in terms of antitrust scrutiny.’ With so many uncertainties at play, in-house counsel need to be aware of the challenges they face and the trends they should prepare their business for in the coming year.
Merger control: the perils of uncertainty
Increased merger scrutiny has been a global trend for a few years and, as 2023 unfolds, there are no signs of this abating. Partners argue that having bid farewell to the European Union, the UK is at a pivotal juncture, with the CMA’s post-Brexit position creating a landscape that is rife with uncertainty and challenges for companies.
Marc Israel, partner in the global antitrust practice based in London at White & Case, notes: ‘One of the biggest, if not the biggest issue that people are facing is in merger control and the uncertainty and unpredictability that’s coming up – particularly with the CMA, which is often taking quite an expansive view. The risk of divergent outcomes from regulators in different parts of the world needs to be navigated.’ Jenine Hulsmann, London antitrust head at Weil echoes these concerns saying, ‘with merger control, the UK environment has become very unpredictable.’
Demonstrating this problem has been the CMA’s position on Microsoft’s planned $75bn combination with videogaming giant Activision Blizzard. Microsoft president Brad Smith declared the UK to be ‘closed for business’ after the CMA initially blocked the union, despite the European Commission’s prior approval. The deal received renewed hope in July when the CMA said it might consider approving it if the companies agreed to restructure. This came after the US Federal Trade Commission failed in its initial attempt to block the deal in the US.
The Cargotec/Konecranes merger is another example of the EC and the CMA differing in their approaches. In this instance, despite both regulators voicing concerns about the potential impact of the merger, the EC approved the transaction with proposed remedies but the CMA blocked it, concluding that the remedies offered did not go far enough to address its concerns.
At times, this disparity in approach is less overt. For example, in the case of the S&P/IHS merger both the EC and the CMA cleared the deal in Phase I but each asked for different remedies. The pair ultimately had to offer a broader remedy package to address each regulator’s concerns. Haria stresses: ‘in-house lawyers need to be alive to heightened and less predictable enforcement, which can make it more challenging to provide predictable advice to internal stakeholders.’
The heightened scrutiny in antitrust enforcement is not limited to Europe, with the US taking a similar line. As Little confirms: ‘We’re seeing a wave of more interventionalist enforcers, such as [FTC chair] Lina Khan and [assistant attorney general for the Department of Justice Antitrust Division] Jonathan Kanter in the US. These leaders come from a slightly different background and have more progressive ideas about enforcement.’
Is tech the victim?
While there may be uncertainty about the stance each regulator is going to take, there’s much more clarity about the industries that have been bearing the brunt of the decisions. Deals involving tech giants – like the Microsoft/Activision merger – have faced significant scrutiny. As Greg Olsen, head of the competition team at Clifford Chance succinctly puts it: ‘Large tech companies remain in the crosshairs of competition authorities concerned about market exclusion across both behavioural matters as well as mergers.’
Haria echoes these concerns asserting: ‘Digital markets and innovative industries continue to be a strategic priority area for antitrust authorities, which means tech companies and life sciences need to be alive to heightened antitrust scrutiny and how they could be impacted by new regulatory regimes.’
Governments worldwide are attempting to take steps to curb the influence of the ‘big five’ tech leaders – Alphabet, Amazon, Apple, Meta, and Microsoft. In the US, a series of probes have unfolded this year, including FTC v Facebook, FTC v Meta/Within, FTC v Microsoft and US v Google (Alphabet), to name but a few. It’s a similar story in Europe, where Margrethe Vestager, the European Commissioner for Competition, continues to lead a charge against tech monopolies through the groundbreaking Digital Markets Act (DMA), which officially came into force on 2 May 2023.
And many national governments are also introducing new digital markets regulation. For example the upcoming Digital Markets, Consumer and Competition Bill, which is expected by October, will empower the Digital Markets Unit to investigate specific digital activities to determine whether businesses operating within these have Strategic Market Status.
But tech isn’t the only sector in the firing line. While big tech may be the regulators’ focus, the rules created to target them cast a far wider net, catching far more companies and sectors.
As Little points out: ‘There are principles that have been developed for large tech companies that extend much further and now implicate a new set of companies that are using tech in their processes, be it internal or external.’ He continues, ‘tech is the most obvious industry facing heightened antitrust scrutiny, but most businesses and sectors now have a significant tech component.’
He picks out the DMA as one example of this, explaining, ‘The Digital Markets Act is the best example in Europe where you have a piece of legislation that is designed to affect only a small number of companies but that now impacts a whole series of areas where those companies operate.’
Power unleashed: the expanding authority of the regulators
And the same progressive impulses that have driven regulatory change in tech may also extend to other industries in line with the broader trend of increased regulation and scrutiny across the board. As Haria asserts, ‘we are seeing heightened antitrust scrutiny across sectors generally, which presents challenges for in-house lawyers across the board.’
Hulsmann explains, ‘the CMA does cast a really broad net if you look at the range of cases they do.’ This viewpoint is shared by Haria who notes: ‘Authorities are taking a more holistic and outcomes-based approach when deciding which of their various tools to use in order to achieve a particular outcome – for example, the UK CMA has the ability to investigate businesses using its antitrust enforcement powers, consumer protection powers or markets study/investigation powers.’
The turbulence stemming from economic instability is also throwing up additional hurdles for in-house counsel. Take the cost-of-living crisis, where regulators have prioritised businesses operating in essential spending sectors, recognising the financial strain faced by individuals. As Olsen astutely observes, ‘the food sector is also a potential focus not least from a political perspective given the cost-of-living crisis and geopolitical issues [such as the Ukraine war] which have increased costs and put a lot of pressure on pricing practices.’ Israel agrees, adding: ‘With the cost-of-living crisis anything that is essential is facing scrutiny. The CMA proposal in relation to fuel prices coming out of its market study is a good example. So, if you’re an inhouse lawyer working for a company that is mass consumer-facing the risk of a market study is something you need to be aware of.’
Meanwhile over in Brussels, the EC is developing new antitrust enforcement guidelines on the application of Article 102 TFEU to exclusionary conduct, the first significant policy move on abuse of dominance since 2008. The Commission explained, ‘Article 102 TFEU is one of the few areas of European competition law where no Guidelines clarify its application.’ Although the adoption of revised guidance is anticipated in 2025, the Commission made certain amendments to its 2008 Guidance in March 2023, offering some insight into the forthcoming antitrust approach. The commission’s pursuit of increased discretion and leeway in its investigations is evident in these new guidelines. Companies must be vigilant about the already implemented changes to enforcement priorities but will be able to influence future policy direction in 2024.
FDI controls: adding to the storm of concerns
Alongside traditional competition enforcement, a notable global trend in recent years has been the growing number of jurisdictions reforming their rules regarding foreign direct investment (FDI). Geopolitical challenges have led many countries to embrace policies that prioritise protectionism. ‘We have seen many countries across the world introduce new FDI regimes or expand existing FDI regimes over recent years,’ observes Haria, before concluding: ‘Governments may have the power to intervene and review investments and transactions even where, on its face, there appears to be a limited link or nexus to the particular country.’
Israel further warns: ‘Navigating some new FDI regimes, particularly in certain sectors, is another thing that inhouse lawyers have to be aware of. They have to factor in and explain to their internal stakeholders, for example, that in the UK a mandatory filing may be needed under the National Security and Investment Act (NSIA) for any intragroup transfers. That might happen in the context of moving subsidiaries around for the purposes of preparing for a deal if it’s in the one of the 17 so-called sensitive sectors covered by the NSIA. That can catch people out so the in-house legal team need to be aware of that.’
Staying ahead of the curve
It’s not all doom and gloom though. Despite the challenges outlined above, with careful planning and effective execution, transactions of any scale and across all industries can be successfully completed.
Little urges in-house lawyers to: ‘demand of your external counsel what the authorities would demand of you.’ He continues: ‘Often we come across advice from external counsel that is narrowly focused on antitrust issues alone, without considering issues more holistically; it is now not enough for an antitrust lawyer to focus solely on traditional antitrust concerns, you need to take into account the regulatory overlay, adjacent areas of law and how they interact with antitrust, and think about the enforcement practice of the authorities as it is, rather than just how the law ought to be applied.’ Olsen meanwhile explains: ‘a little bit of expense on your compliance programme will pay for itself in terms of avoiding the huge risk that comes from enforcement.’
Additionally, Hulsmann stresses the importance of ‘helping your CEO to put not just a shareholder lens on but a consumer lens on.’ She continues: ‘If a deal is done because there are efficiencies that you can pass on in part to consumers, you’re going to have a much better chance of explaining the deal to regulators.’
By keeping all these factors in mind, it is possible to effectively navigate and ultimately triumph over the competition storm.