The European Commission (“Commission”) announced on May 18, 2017, that it was fining Facebook €110 million for providing misleading or incorrect information during the review of the social network’s acquisition of WhatsApp in 2014. This is the largest-ever fine for a transgression of this nature, dwarfing the previous record of €90,000.
This sends a very clear message to businesses notifying transactions to the European antitrust regulator: statements regarding the parties’ capabilities cannot be accepted at face value but must be grounded in a detailed understanding of how the business actually works.
Obligation to supply correct information
Parties notifying mergers under the EU Merger Regulation (“EUMR”) are required to make full and accurate disclosure to the Commission of the facts and circumstances which are relevant for reviewing the likely impact on competition of their contemplated transaction. The obligation applies regardless of whether the incorrect information might have an impact on the substantive assessment of the transaction.
To incentivise compliance, the EUMR foresees that, when supplying incorrect or misleading information notably in a notification form or in response to a request for information, the relevant undertaking(s) may be fined up to 1% of their respective aggregate annual worldwide turnover in the financial year preceding the submission of misleading information.
Commission’s clearance of WhatsApp acquisition in 2014
In 2014, the Commission looked at the potential strengthening of network effects as a consequence of Facebook’s proposed acquisition of WhatsApp. It highlighted that such strengthening might occur if, post-transaction, the Facebook and WhatsApp user networks were to be combined into a unique and substantially larger network.
Both in its notification and in response to a subsequent request for information, Facebook contended that such integration would, in practice, be technically difficult. It said that this would require matching WhatsApp user profiles with their profiles on Facebook, and that this could not be done automatically, but would require a manual intervention from users.
The Commission cleared the transaction unconditionally, taking the view that, even assuming that some integration between the two platforms might occur post-transaction, the consequences would be mitigated by the fact that most of WhatsApp’s users were already Facebook users before merging the two businesses, and an integration of that nature would result only in limited new members for Facebook.
The infringement proceedings before the Commission
In December 2016, the Commission issued Facebook with a Statement of Objections in which it alleged that, either intentionally or negligently, Facebook had submitted incorrect or misleading information during the merger review.
Facebook cooperated and acknowledged the infringements by admitting that the technical ability to automatically link both platforms had in fact existed in 2014. Facebook waived its procedural rights to have access to the file and to an oral hearing, thereby allowing the Commission to finalize its infringement proceedings within five months. The Commission found that Facebook had provided it with incorrect information twice during the review process: at the initial stage in the notification form and in response to a request for information.
Lessons for companies filing for antitrust clearance in Europe
Facebook’s record-breaking fine is a stark reminder of both the importance of cooperation in EUMR filings and the need to have effective processes for ensuring compliance.
While the amount of the fine is impressive at €110 million, if Facebook had not fully cooperated during the investigation, the EUMR would have allowed the Commission to fine it more than twice that. The Commission can potentially also revoke a merger clearance decision if it later finds it was based on incorrect information, but that was not the case here.
EUMR filings include both hard data (turnover, asset values and the like) as well more qualitative statements about the capabilities and business plans of the merging firms. Both are subject equally to the requirement that they be accurate and complete. Compiling the more qualitative information requires an integrated effort between lawyers who understand the business operations and business people who understand that legal context. In our experience, as a check on the accuracy of the representations to be made, this integration often entails some degree of redundancy among both the legal and business inputs. This can be very challenging, given the significant volume of material required when notifying transactions, and the broad nature of many requests for information issued by the regulator.
The fine makes clear that the European antitrust regulator is not going to let factual misrepresentations go unchecked. Competition Commissioner Vestager has already said that four other merger cases involving misleading/incorrect information are currently being examined. Merging parties can expect continued rigorous scrutiny of all factual assertion in EUMR filings.