ANTITRUST AND COMPETITION

European Union General Court Confirms the European Commission’s Ability to Review Certain Transactions Even When They Fall below the European Union and Member States’ Merger Filing Thresholds 

On 21 September 2020, a U.S. company active worldwide in genomic sequencing (Buyer) announced the proposed acquisition of a U.S. start-up specializing in multi-cancer early detection tests (Target). As the Target is not active in Europe, the Transaction was not reportable to the European Commission (Commission) or national competition authorities of the member states. In March 2021, the Commission decided to change its referral policy under Article 22 of EU Regulation 139/2004 (EUMR) and encouraged national competition authorities to refer certain transactions to the Commission’s review even where such transactions fall below the merger filing thresholds of the referring member states. This policy change was prompted by a perceived enforcement gap regarding the review of certain transactions (so-called “killer acquisitions”) that fall below the European Union or member state merger filing thresholds. Killer acquisitions typically involve established players’ acquisitions of start-ups or nascent competitors that might otherwise have played a significant competitive role in the market, particularly in the pharma and digital sector. Because these target companies have no or limited turnover, their acquisition is unlikely to trigger a merger filing and hence they could escape antitrust review. 

Following a complaint by a market player, the Commission considered that the Transaction—which did not meet the European Union and national merger control thresholds—could be referred pursuant to Article 22 EUMR. As a result, the Commission sent a letter to the national competition authorities inviting them to request referral under Article 22 EUMR (Letter).

Further to the French, Greek, Belgian, Icelandic, Norwegian, and Dutch competition authorities’ referral request, on 19 April 2021 the Commission adopted a decision in which it accepted the referral under Article 22 EUMR (Decision). The Transaction is currently under the Commission’s review as to its possible negative effects on competition. 

In parallel, the Transaction is also subject to an investigation before the Commission for gun-jumping. Indeed, transactions that are reportable to the Commission must be notified and cannot be implemented before clearance. Gun-jumping violations can entail the imposition of fines up to 10% of the global turnover of the concerned company in the last financial year.

The Buyer and the Target brought an action for annulment of the Letter and the Decision before the European Union General Court. On 13 July 2022, the European Union General Court dismissed the action in its entirety and confirmed the Commission’s jurisdiction over the Transaction (Judgment). In particular, the European Union General Court ruled that:

• The Commission has jurisdiction over “any concentration” which, even if it does not meet the European Union and national turnover thresholds, nonetheless deserves review at European Union level;
• The referral request was submitted in time, as the Buyer did not provide evidence that the delay of the referral affected its right to defense; and 
• The principles of protection of legitimate expectations and legal certainty were not violated, as the Buyer failed to demonstrate the existence of precise, unconditional, and consistent assurance leading to well-founded expectations.

The Buyer has two months to appeal the Judgment before the European Union Court of Justice and such appeal would be limited to points of law only. The Judgment significantly strengthens the Commission’s power to review potentially problematic transactions that otherwise could escape review. At the same time, it poses challenges to businesses and dealmakers who will have to address and anticipate the risk of a potential referral. Companies will therefore have to carefully allocate the risk of referral in the transaction documents. The full ramifications of the Commission’s new policy for Article 22 EUMR remain to be seen but it is hoped that the new policy will be used for specific cases under strict conditions. 

DIGITAL AFFAIRS

MiCA, the New Regulatory Standard for Digital Assets

On 30 June, the Council of the European Union and the European Parliament reached a provisional agreement on a regulatory standard for digital assets, the Market in Crypto Assets Bill (MiCA).

The new regulatory framework sets industry standards, defines investor safeguards, and protects consumers against the risks associated with investing in crypto-assets, including fraudulent schemes. With the new rules, crypto-asset service providers (i.e., apps that allow cryptocurrency users to store and retrieve their digital assets) will have to protect consumers’ cryptocurrency wallets and become liable in case of loss of investors’ assets. MiCA will also cover market manipulation and insider dealing.

The Commission proposed MiCA in September 2020 in response to the attempt of Meta, Facebook’s parent company, to introduce a payment system with stablecoins. Stablecoins are tokens that are tied to a national currency to keep their value steady. 

Under MiCA, the European Banking Authority will supervise stablecoins that have more than 10 million users or a reserve of assets that is worth more than €5 billion. The European Central Bank will be able to veto any stablecoin that it does not want integrated in the market.

Furthermore, different national authorities will be responsible for supervising crypto companies and the assets such companies issue or handle. The authorities will have to share with the European Securities and Market Authority (ESMA) the data collected on companies that have more than 15 million users. ESMA will issue opinions on how to promote supervisory convergence, and it can ban crypto assets or services that are a threat to investors, market integrity, or financial stability. 

ESMA will also name the crypto companies that fail to comply with the new rules and include them on a roster. This ‘blacklist’ goes beyond failure to comply with the new standards and may include companies that have not fulfilled the obligation to register with national authorities.

There has been much debate over how to lower the carbon footprint of cryptocurrencies, given the amount of energy needed to process and record crypto transactions on decentralized ledgers, e.g., blockchain. Most crypto assets run on software that requires great amounts of electricity and there are more energy-efficient alternatives on the market. Under the new rules, crypto companies will have to disclose to the authorities what type of blockchain they are using in an informational document, called a whitepaper.

Decentralized finance and non-fungible tokens have largely been left out of MiCA, although there is a review clause that will likely lead to specific regulatory regimes at a later stage. MiCA does however include some direct references to the two fields and any company that decides to service digital assets that stem from decentralized finance will have to comply with the legislation.

As for non-fungible tokens (or NFTs), MiCA excludes them from its scope of application (unless the issuer creates a “collection” of assets for purchase) to avoid having artists being buried in regulatory administration. Companies behind NFT collections, however, will have to provide a whitepaper that explains what their product is and how they operate on the blockchain. 

Commission Unveils New European Innovation Agenda

On 5 July, the European Commission adopted a new European Innovation Agenda (Agenda), a list of 25 dedicated actions under five flagships aimed at reinforcing the European Union’s role in shaping the green and digital transitions and prepare the European Union for the “deep-tech” wave, e.g. innovation rooted in science, technology, and engineering. 

The Agenda focuses on tackling problems such as access to funding, hiring of talent, the East-West innovation gap (i.e. the innovation gap between richer and poorer regions), and supporting policy tools. Amongst the initiatives is the creation of the GovTech Incubator in 2023 (an agreement for cross-border collaboration between digitalization agencies for the deployment of innovative digital government solutions through the Digital Europe program). 

The five flagships actions of the Agenda focus on:

• Improving access to finance for European start-ups and scale-ups (e.g., by mobilizing sources of institutional as well as private capital and simplifying listing rules);
• Improving the conditions to allow innovators to experiment with new ideas through experimental regulatory approaches (e.g., regulatory sandboxes, test beds, living labs, and innovation procurement);
• Accelerating the creation of “regional innovation valleys” that will strengthen and better connect innovation projects throughout Europe, including in regions lagging behind;
• Attracting and retaining talent in Europe (e.g., by training one million deep tech talents, increasing support for women innovators, launching an innovation intern scheme, and introducing start-up employees’ stock options); and
• Improving the policy framework, through usage of comparable data sets and shared definitions, indicators, and data sets, and providing policy support to member states.

The Agenda is the European Union’s latest policy action in the innovation area, which European Union lawmakers consider crucial.

INTERNATIONAL TRADE/COMPETITION

Political Agreement Reached by the European Union Institutions on the Foreign Subsidies Instrument

On 30 June, the Council of the European Union (Council) and the European Parliament (Parliament) reached a provisional political agreement on a common text for the regulation on foreign subsidies distorting the internal market¹ (Regulation). The agreed final text was published on 13 July.

The Regulation was proposed by the Commission in May 2021 and designed to combat the potential distortive effects of foreign subsidies in the European Union single market and strengthen the European Union’s trade defense instruments. Its objective is to ensure that subsidies provided by non-EU countries are subject to the same thorough control as subsidies granted by European Union member states. 

The Regulation introduces three new tools allowing the Commission to investigate non-European Union subsidies granted to companies operating in the European Union single market. 

Two of those tools rely on ex-ante notification obligations: (i) where concentrations involve a buyer that has received non-European Union subsidies and (ii) where companies that have received non-European Union subsidies participate in public procurement bids. In both situations, the parties will have to notify the Commission in advance regarding the subsidies received by the non-European Union governments, subject to the operation reaching a certain threshold. 

For concentrations, the notification will be triggered when the European Union turnover of one of the merging parties or the joint venture reaches €500 million and the transaction involves a foreign financial contribution of at least €50 million. As for bids in public procurement, the notification is triggered when the estimated contract value is at least €250 million and the bid involves a foreign financial contribution of at least €4 million.

The third tool provides the Commission with a power to investigate all other market situations, as well as concentrations or public procurement procedures that have not reached the threshold for the notification-based tools. This tool works as an ex-post mechanism whereby the Commission can start investigations on its own initiative and request ad-hoc notifications.

The enforcement of the Regulation lies exclusively with the Commission. In the event that subsidies granted by non-European Union governments are considered distortive for the European Union market, the Commission will be able to impose redressive measures or will negotiate and accept commitments from the relevant companies to rectify the situation.  

The next step is for the full Parliament to formally approve the Regulation, which is likely to happen at the November plenary. The Parliament’s adoption will then be followed by the Council’s formal adoption of the final text. The Regulation will enter into force 20 days after publication in the Official Journal of the EU and the Commission’s expectation is for the new rules to apply from mid-2023.

TRANSPORT

Airline Slots: European Commission Proposes More Flexible Exceptions Regime and Targeted Relief to Airlines

Recent events, notably the COVID-19 pandemic and the Ukraine crisis, have shown that the current slot rules are not sufficiently resilient to large-scale disruptions, and that airlines’ ability to meet normal slot use requirements can be severely and durably affected by unforeseen events. Against this background, the Commission has put forward a proposal amending the so-called ‘Slot Regulation‘, which lays down rules on the allocation of slots at European Union airports. 
Article 10 of the Slot Regulation sets out the ‘use-it-or-lose-it’ rule, according to which air carriers must use at least 80% of slots in an allocated slot series in a given scheduling period (summer or winter), to retain their entitlement to the same slot series in the next equivalent scheduling period. The ‘use-it-or-lose-it’ rule was suspended from 1 February 2020 to 27 March 2021. 

In light of the current recovery of air-traffic demand, the Commission proposes to return to the standard slot use rate of 80% as of 30 October 2022 (from currently 64% under the summer 2022 scheduling season), while extending the possibility of using the safeguard tool created during the COVID-19 pandemic, which consists of ‘justified non-use of slots’ (or JNUS) exceptions. These exceptions provide additional relief in specific cases where an airline cannot operate a flight because of measures imposed by public authorities to mitigate the spread of COVID-19 (e.g., flight bans or lockdowns). Airlines would be able to use them in situations such as epidemiological emergencies, natural disasters, or widespread political unrest with a disruptive effect on air travel.  

In addition, if air traffic levels fall below 80% (as compared with 2019 figures, based on data published by Eurocontrol) for four consecutive weeks due to COVID-19, another epidemiological situation, or as a direct result of the Ukraine crisis, the Commission will be empowered to lower the use rate. 

The proposal, subject to the ordinary legislative procedure, will be urgently discussed by the European Parliament and the Council. If adopted, the relief provisions will apply as from 30 October 2022, and will last until 26 March 2024, when air traffic is estimated to have reached full recovery.