2019 saw the CMA testing the scope of its jurisdiction with more frequency and vigour than ever before. This is undoubtedly a deliberate policy, which has largely focused on mergers in digital and other innovation-based sectors, where the CMA perceives there to have been historical underenforcement. The CMA’s elastic jurisdictional rules make it perhaps uniquely placed to intervene in these sectors – especially in “incumbent-challenger” cases, where the challenger has limited turnover. This blog post serves as a refresher on what makes the CMA’s jurisdiction unique and highlights three key takeaways from 2019.
What is so special about the CMA’s jurisdiction?
Three factors are key:
- The CMA can review the acquisition of a “material influence” – a much lower threshold than the EU’s control test (followed in most EU Member States and other major jurisdictions worldwide).
- The “share of supply” threshold allows the CMA to review any transaction which leads to an increment on a share of supply of 25% or more in any plausible frame of reference (not necessarily an economic “market”).
- At Phase I, the CMA need only establish it “is or may be the case” that the jurisdictional (as well as the substantive) threshold for a Phase II reference is met, such that conclusions on jurisdiction (and most appeal scenarios) must wait until the end of a Phase II process – typically at least a year into the CMA process.
Together, these factors give the CMA the power to review cases that other regimes (in particular, regimes with thresholds based on local turnover/assets alone) cannot capture.
Three key takeaways from jurisdictional skirmishes of 2019
Where there is industry expertise, a “material influence” can arise without a significant shareholding
2019 saw the CMA take jurisdiction in two cases representing the smallest equity stakes over which CMA has assumed jurisdiction in a merger case (albeit at levels consistent with previous decisional practice of the CMA’s predecessors). In both cases, the industry experience of the acquirer was considered critical.
- In E.ON / RWE the CMA found that a shareholding of 16.67% was sufficient to give RWE material influence over E.ON. The CMA emphasised that the RWE’s shareholding compared with other shareholders, combined with its industry status and expertise, would be sufficient to give it an influence over E.ON’s commercial policy.
- In Amazon / Deliveroo, the CMA asserted jurisdiction over Amazon’s acquisition of an approximately 16% stake in Deliveroo. Amazon’s industry expertise in “operation of online marketplaces, logistics networks and subscription services” (notably not Deliveroo’s primary market of food delivery) was critical.
Share of supply stretched ever further
The CMA’s broad discretion in applying the share of supply test is not new, but 2019 saw the concept of a share of supply stretched perhaps the furthest yet in two cases:
- In Sabre / Farelogix, the target (Farelogix) did not have a material UK presence and did not meet the turnover threshold. Jurisdiction was established on share of supply to (i) a single customer, British Airways, and (ii) travel agents. Farelogix had no travel agent customers in the UK, but the CMA considered that Farelogix’s supply of services was inherently two sided, and therefore indirectly served travel agents in the UK.
- In Roche / Spark, while the CMA’s decision is yet to be published, it is understood that jurisdiction was established based on the share of supply test, but in relation to a pipeline (and therefore non-revenue generating) drug.
No proportionality-based safe harbour for a limited UK nexus
Historical jurisdictional skirmishes have largely arisen in cases which are either UK-centric, or the parties’ activities have a substantial UK nexus in absolute terms and relative to the global picture.
One striking key theme from the cases mentioned here – as well as other major CMA Phase II cases of 2019 (e.g. Thermo Fisher / Roper; Illumina / Pacific Biosciences, both of which were abandoned at Phase II) – is that the CMA has shown a willingness to intervene in transactions where the UK nexus as a proportion of the parties’ global sales or assets appears limited. And potentially where over 90% or indeed 95%+ of sales are outside the UK.
The CMA has also open investigations regarding merger effects on what appear to be global markets even where other authorities have cleared the deal. For example, in December 2019 the CMA opened an on-going investigation into Google LLC / Looker Data Sciences, an apparently US-centric cloud computing deal, at a time when it had already been cleared in the US and Austria.
In one sense, these cases simply confirm long-held wisdom that there is no safe harbour from CMA jurisdiction. However, the CMA’s willingness to assert jurisdiction in non-UK centric cases – and to intervene, especially in digital and innovation-based sectors – reflects a clear ambition to secure the CMA’s position as a formidable leading global merger control authority. With the days of the one true safe harbour – the EU’s One Stop Shop – now numbered, the CMA has positioned itself to ensure it cannot be side-lined by global dealmakers, now or post-Brexit.