In January 2018[1], Commissioner for Competition Margrethe Vestager, announced that the Commission were preparing a set of best practices on requests for internal documents in merger cases, on the strength of internal documents having assisted the European Commission reach its conclusions in three major cases.

Surprisingly, of the three cases referred to in this speech, only one (Dow/DuPont) was actually a merger case. The other references were to internal documents obtained from Apple in the Commission's Qualcomm investigation which Commissioner Vestager noted “gave us an understanding that we could never have achieved just by looking at prices and costs” while the internal documents also played a vital role in the Google search investigation (in which the Commission fined Google €2.42 billion fine last year for illegally promoting its own shopping service ahead of other rivals in its search results). As regards the only merger case referred to, Commissioner Vestager pointed to internal documents used to prove that the Dow/DuPont deal would reduce the newly merged entity’s incentive to innovate.

Of course, reliance on internal documents can go both ways. So, while in Dow/DuPont, the companies’ own documents helped to prove that the merger would reduce their research efforts, conversely, internal documents in the earlier 2016 merger between Wabtec and Faiveley demonstrated that that merger wasn't likely to reduce competition for complete train braking systems[2].

The 2013 package of EU merger reforms revised Form CO to encourage notifying parties to provide a description of quantitative economic data collected and stored in the ordinary course of business operations and expanded the range of internal documents that must be provided with notifications (section 5.4 Form CO). These changes to Form CO, together with the Commission’s increasing readiness to request large numbers of internal documents during its administrative procedure, has tended to lengthen the merger clearance timeframe, in particular in complex Phase II cases. Sweeping requests for documents has become the new norm in complex cases, resulting in mass productions of thousands and sometimes several hundreds of thousands of documents, often already at the pre-notification stage. The Commission uses sophisticated algorithms to search thousands of emails, internal notes, presentations etc. to analyse the competitive dynamics of the markets and the rationales for merging.

By its very nature, merger review is a prospective analysis of potential harm to consumers, while antitrust cases such as Apple/Qualcomm and Google are all about finding (and proving) infringements that have already occurred. Antitrust investigations face no formal deadlines while merger cases are subject to set timetables with businesses facing serious time pressures, the possibility of encountering diverse and sometimes unexpected reactions in different jurisdictions, while shareholders and stock markets add additional pressures to getting the deal through. Unlike examining past/current business practices, the antitrust authority has an opportunity to consider the proposed deal in advance of its implementation and to decide whether it warrants outright prohibition, divestments/other remedies or a straightforward clearance.

The following issues are likely to raise controversy:

  • Using sledge-hammers to crack nuts

    In contrast with other jurisdictions (such as the US) that do not require a long and detailed notification form at the outset of a transaction, the Commission's focus on internal documents is in tension with the short timeframes prescribed by the EU Merger Regulation. This may lead to situations in which, while the transaction does not merit extensive document production, the parties, nonetheless, are given just a few working days to comply with US second request-type document productions. Compliance with the requirement of completeness (i.e., submit all documents) is extremely challenging and may result in suspensions of the review period spanning several months. For example, in 2017, the EC suspended Phase II proceedings in Dow/DuPont and Qualcomm/NXP Semiconductors for a total period of two months and 4.5 months respectively.

  • How to handle legal professional privilege ("LPP")?

    Broadly framed document requests have also created concerns for the merging parties that the protection of legal professional privilege may be compromised. There is no case law or EC guidance (yet) on the scope of LPP in merger proceedings and the Commission currently applies the stringent standards set out by the EU Courts in antitrust cases (AM&S, Akzo and Hilti). It takes the view that legal advice from external counsel unrelated to the competition proceedings, such as advice on tax or corporate issues or, presumably, alternative transactions, is not protected by LPP. This has led to disputes over the scope of legal professional privilege and was a point of dispute between the Commission and the parties in Dow/DuPont.

    It is understood that as regards LPP documents, parties may be required to submit a "privilege log" using a particular template that requires identification and explanation for each document (or part of a document) for which LPP is claimed. A wide definition applies to the notion of "document" and it includes all computer files (so word processing files, spreadsheets, presentations, PDFs, emails and instant message files including any attachments). A document marked "privileged & confidential" or "from external counsel" would not suffice and DG Comp would review and could reject unsubstantiated LPP claims. In each case, the parties would have to identify under which category of LPP each document falls (using the existing categories set out in the AM&S, Hilti and Akzo cases). It is legitimate to question whether the application of the existing caselaw is sufficiently clear in the specific context of merger control proceedings. It is also questionable whether the additional work required to compile this "privilege log" really is proportional to the Commission's needs. At the same time that additional burdens are placed on merging parties, consideration should be given to mechanisms to protect the rights of the defence (see below).

    It is also unclear what the Commission intends to do as regards communications with non-EU qualified lawyers. In the EU, strictly speaking, LPP applies only to external EU qualified lawyers. When you consider how many mergers take place on a global level, differences in application of LPP starts to get quite messy. The new "privilege" log could result in a new layer of complexity, review and specific justifications being required for large numbers of documents, further complicating and delaying the merger process, without any clear upside.

    Another useful clarification would be to understand how joint defence and common interest agreements are to be dealt with. These are entered into for the purpose of allowing the exchange of documents and information so as to enable the external counsel of each party to provide legal advice to their respective clients as regards the merger control aspects of the transaction.

    Under his current mandate, the Hearing Officer is not competent to examine whether a document is covered by LPP in merger cases (other than in proceedings that could result in the imposition of a fine). The explanation for the less extensive role of the Hearing Officer in merger cases is to be found in the non-criminal nature of merger proceedings and the need for speed. In light of the increased significance of LPP and frequent disputes between the case teams and the parties, consideration should be given to expanding the Hearing Officer’s mandate. Another issue is what can be done in the case of an inadvertent disclosure of an LPP document to the Commission. Here again, the Hearing Officer has no mandate to assist (on the basis that the document has already been disclosed). There is no equivalent to the US clawback mechanism. If additional burdens will be placed on merging parties, their rights of defence may also warrant additional protection.

  • The risks and consequences of non-compliance

    As to sanctions, the Commission has in recent years shown an increasing readiness to enforce its procedural rules and to discipline companies that do not observe those rules. In May 2017, the Commission fined Facebook €110 million for providing incorrect or misleading information during its 2014 investigation of its acquisition of WhatsApp. The size of this fine dwarfed penalties imposed for similar past infringements. This has sent a clear message to companies that they must comply with all aspects of EU merger rules, including the obligation to provide correct information.