Can antitrust agencies be expected to deliver political objectives whilst maintaining independence?
In 2015, the European Commission, US antitrust authorities and UK CMA all felt compelled to defend their independence publicly, insisting they had sufficient checks in place to withstand political interference. In this increasingly politicised environment, the perceived independence and broader policy objectives of competition authorities remains a key issue for businesses.
“Unbowed by political pressure, Margrethe Vestager has made it clear that respect for procedural fairness, impartiality and legal certainty are her foremost priorities in antitrust enforcement. We are likely to see more investigations being closed where the evidence does not support continued action, and more decisions to provide greater legal clarity, which should be welcomed by the business community.”
Frank Montag, Partner, Brussels
The Commission follows the Juncker Commission’s Ten Principles and the Commission’s Work Programme. Stated objectives include: (i) the push for an “ever-closer union” whether via a Digital Single Market, Energy Union or a unified telecoms regulatory framework; (ii) driving innovation to stimulate the EU economy in the long-term; and (iii) enforcement activities which deliver significant, tangible consumer benefits.
In the US, broader policy objectives are not established in a formal document, but the US antitrust authorities have described their enforcement objectives as focused on promoting consumer welfare and protecting vigorous competition. Although sector-specific regulators generally are susceptible to political pressures, the US antitrust agencies are in many ways insulated from such influence because of: (i) the agencies’ focus on economic evidence in considering competition issues; and (ii) the necessity of persuading independent federal courts.
In the UK, “strategic steers” issued by Government and the CMA’s annual report to the UK Parliament help ensure that the CMA is aligned with Government policy to deliver open and competitive markets, with minimal regulation and maximum consumer empowerment and engagement.
“As it approaches its second birthday, the UK CMA has been conscious of the need to meet its broader policy objectives of promoting competition and consumer choice in key sectors while remaining independent and impartial in its conduct in all cases. We should expect continued focus on driving competition, innovation and productivity, particularly in new emerging markets, in the year ahead.”
Simon Priddis, Partner, London
In France, the political objectives of the Macron Act are aimed at improving the ability of smaller companies to compete. The Macron Act is an example of politically popular legislation being implemented, parts of which arguably overlap with areas already dealt with by existing antitrust rules.
Overall, these broader policy objectives have manifested themselves in a number of recent antitrust proceedings:
- The online marketplace: the Commission’s political aim is to prevent geo-blocking and other devices that prevent a European Digital Single Market (see further Theme 7). It has opened a sector inquiry into e-commerce, with a particular focus on cross-border online trade of goods and services. It is also monitoring merger activity closely and pursuing high-profile enforcement cases in the sector, such as those against Google. These investigations will all drive the Commission’s rapidly developing approach towards competition in the online marketplace.
- Energy: in Europe, the Commission, national competition authorities (NCAs) and national sectoral regulators are working to address national and supranational issues in the energy sector. The Commission has opened a sector inquiry concentrating on state aid and national capacity mechanisms and implications for European Energy Union. NCAs’ investigations have tended to be broader, assessing both the wholesale and retail segments, with a particular focus on consumer engagement. In the US, continued consolidation in the oil and gas industry has led the FTC to scrutinise such deals and their impact on consumers.
- Telecoms: consolidation in the telecoms sector is politically sensitive and mergers face close scrutiny by all relevant authorities and regulators. In September 2015, the proposed Telenor/TeliaSonera merger in Denmark was abandoned after the parties failed to reach agreement with the Commission on acceptable conditions that would allow the merger to proceed. This contrasts with the Hutchison cases in Austria and Ireland, where the Commission accepted the entry of new mobile virtual network operators (MVNOs) as a remedy. Consolidation in the US cable industry and concerns that content providers may be disadvantaged by internet service providers has garnered significant attention and will continue to be a key focus of the antitrust agencies and Federal Communications Commission.
- Pharmaceuticals: the US FTC has focused more closely on heavy transactional flow, reverse payment agreements and drug “product hopping” issues in the pharmaceutical industry. The inability of consumers, employers and federal and state governments to contain the rising cost of healthcare has made the pharmaceutical industry a key focus of the agency’s work. In Europe, the Commission and CMA have conducted in-depth reviews of high profile pharmaceutical deals, as well as potential abuse of dominance regarding the prices of key drugs. In its pharmaceutical merger cases, the Commission has focused on the effects of the merger on innovation, with a view to safeguarding future competition in the sector.
- The Macron Act and online hotel bookings: the Macron Act is being used to pursue the French Government’s policy of protecting small and medium sized enterprises. In the online marketplace, the Macron Act essentially prohibits the use of most favoured nation clauses (MFNs) by online travel agencies (OTAs), reflecting a recent decision by the French Competition Authority. French hotels are now free to offer any rebates or other pricing incentives they want. Clauses in agreements with OTAs that prevent this are automatically null and void (see further Theme 7).
- Focus on innovation: a renewed focus on innovation is impacting merger reviews. The Commission, DOJ, FTC and CMA are looking beyond price effects in their merger reviews: innovation (and R&D) were key parameters in the GSK/Novartis, Pfizer/Hospira and GE/Alstom Commission decisions and in the FTC’s failed challenge of Steris/Synergy. In the UK, improving productivity and innovation through competition remains a key Government priority. This increased scrutiny and the influence of industrial policy point towards a lower threshold for intervention on these grounds.
- Tax harmonisation in Europe: the Commission is arguably using state aid enforcement as a means of pushing its political goal of tax harmonisation across the European Union. This cuts across a lack of legislative consensus on tax harmonisation among Member States. The Commission has deemed both a Netherlands tax ruling for Starbucks, and a Luxembourg tax ruling for Fiat Finance and Trade to be illegal state aid. Additional cases are pending and further investigations are expected, reducing legal certainty in tax matters for companies world-wide.
Politics impacts different cases in different ways. In some jurisdictions, political influence is felt more strongly.
“We were pleased to be involved in the Macron Act, which is a hugely important political development in France, not only because of the many measures it puts in place, but because of its underlying policy aim of opening markets, simplifying regulation and expediting administrative procedures.”
Jérôme Philippe, Partner, Paris
For example, authorities in China and South Africa have explicit powers that allow them to incorporate public policy considerations in their merger control work. This has led to concerns that antitrust enforcement may have been used as a means of imposing non-competition remedies under political pressure. Criticism has tended to focus on remedies that target foreign companies and could relate to the protection of regional and/or national job security, the desire to protect national champions, national defence or other political aims.
Looking ahead to 2016:
Developments in 2015 suggest that businesses should anticipate the possibility of increased political influence in antitrust proceedings in 2016, particularly in sensitive or strategically important sectors:
- Awareness of geopolitical developments: Businesses will need to understand the relevant local or regional environment and politics. This requirement is particularly important in a year that will see elections in the US, France and Germany and a referendum on membership of the EU in the UK.
- Politically sensitive sectors: Business operations in politically sensitive sectors such as digital, energy, telecoms, pharmaceuticals and healthcare can expect increased scrutiny with substantial requests for information. Mergers in these sectors may also attract particularly close attention.
- Procedural fairness in individual cases: Businesses should be prepared to ensure that antitrust regulators that pursue policy objectives maintain a sharp focus on impartiality and procedural transparency.
- Unpredictable outcomes: Businesses and their advisers should be prepared to look beyond the narrow prism of competition when assessing whether a deal will be cleared by merger authorities. Under some antitrust regimes, merger review outcomes may be less certain and increasingly influenced by political preferences. Less transparent criteria make it more likely that deals, especially in sectors raising national interests - such as defence and deals involving national champions - may meet resistance.
- Lead-in times to sensitive deals: Businesses will need to factor in longer preparation periods for sensitive deals to ensure that: (i) interactions with the local competition authorities and government (where necessary) are correctly calibrated; and (ii) advisers can assess the proposed transaction in light of wider policy objectives in the relevant jurisdictions.
- Engagement with government and agencies: In countries where politics plays a bigger role, businesses should be prepared to employ lobbyists and public relations teams to further their cause (where permitted). In certain circumstances this can help parties anticipate early on whether they may need to offer remedies to overcome non-competition concerns.
“2016’s US election campaigning has already seen considerable debate on merger activity and the role of government in industry. The US antitrust agencies generally tend to focus on genuine issues of competition and consumer welfare, but it is nevertheless critical to be aware of potential political influence and to plan appropriately.”
Paul Yde, Partner, Washington DC