The European Commission (“Commission”) is yet again set to review a transaction in the technology sector which does not meet the EU merger notification thresholds but that is likely to have cross-border effects in the EU. On 6 February 2018, the Commission announced it had accepted a request from seven European countries to assess the proposed acquisition of a UK developer and distributor of music recognition applications by a U.S.-based global technology company.

At EU level, a transaction must be notified to the Commission if the merging parties reach the turnover-based thresholds set in the EU Merger Regulation (“EUMR”). There are two alternative sets of thresholds. In particular, a transaction will be reportable to the Commission if the merging parties’ combined global turnover is more than EUR 5 billion and each of at least two of the parties concerned has an EU-wide turnover of more than EUR 250 million in the last financial year. Transactions that do not meet the above-referenced thresholds will nevertheless be reportable to the Commission if: (i) the parties’ combined aggregate global turnover is more than EUR 2.5 billion; (ii) in each of at least three Member States, the parties’ combined aggregate turnover is more than EUR 100 million; (iii) in each of at least three Member States mentioned in point (ii), the aggregate turnover of each of at least two of the parties concerned is more than EUR 25 million; and (iv) the aggregate Union-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million. However, a transaction will not be reportable if each of the merging parties concerned achieves more than two-thirds of its EU-wide turnover in one and the same Member State.

The EU thresholds are purely jurisdictional in nature and apply irrespective of any substantive competition issues between the merging parties’ activities. They can apply to transactions with little or no EU connection so long as the merging parties’ level of sales exceeds the thresholds. At national level, even though certain Member States (e.g. Spain and Portugal) also rely on the merging parties’ market shares to assert jurisdiction over a transaction, the merger filing thresholds are generally based on the level of sales of the merging parties in a given country.

However, even if a transaction does not meet the EU thresholds, it may still be reviewed by the Commission, thanks to the referral procedure set out by the EUMR. Under this procedure, one or more Member States may request the Commission to review the transaction as it affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States requesting the referral.

This is what happened in this case, as the transaction did not meet the EU merger filing thresholds but the merging parties’ level of sales exceeded the national thresholds in Austria where it was initially notified. Austria then decided to submit a request for referral to the Commission. The request was joined by Iceland, Italy, France, Norway, Spain and Sweden. The Commission accepted the referral request since “it is the best placed authority to deal with the potential cross-border effects of the transaction”.

This is not the first case where a transaction in the technology sector ends up for review before the Commission as a result of the referral procedure. Back in 2014, this is how the Commission was able to examine the acquisition of a consumer communications services provider by a U.S. company offering a social networking platform. These cases add to the ongoing debate about whether the current EU thresholds based exclusively on the merging parties’ level of sales are sufficient to ensure review of transactions that may fall short of the EU thresholds but that may have nevertheless a significant competitive impact in the EU. A possible solution could be to amend the EUMR so as to incorporate a complementary threshold based on the value of the transaction, i.e. a deal size threshold. A similar debate in Germany gave rise to a merger reform in 2017 that provided for the inclusion of the transaction value as one of the merger filing thresholds in addition to turnover-based thresholds. However, at EU level any reform of the EUMR would require the Member States’ consensus which at this stage does not appear to be crystallized enough as to the existence of a perceived enforcement gap in the EUMR that would require the amendment of the thresholds.