UK’s Competition and Markets Authority: Digital Mega-Watchdog?
In the wake of Brexit, the UK’s Competition and Markets Authority (CMA) has been flexing its muscles as the world’s “mega-watchdog” competition enforcer. The CMA has lately been extremely active, widening its territorial jurisdiction, with a renewed focus on merger control in digital markets.
In the words of the CMA’s Chief Executive, Dr Andrea Coscelli, the UK is “in a very strong position to lead” global competition enforcement, “because the upside [of leaving the EU] is that you take back control – genuinely – of the decisions.” Given the CMA’s global ambitions, Brexit provides the opportunity: the CMA now has jurisdiction over merger cases that were previously reserved to the European Commission.
Extended Jurisdictional Scope
The CMA’s global ambitions have resulted in a series of cases stretching the boundaries of its jurisdictional thresholds. The UK’s “share of supply” test is inherently flexible, looking for only an “increment” in a “share of supply” where one party has an existing presence of significance. It is designed to allow intervention where revenue-based thresholds may fall short. That being said, the CMA can now be said to routinely investigate cases even where one of the merging parties has no UK sales of relevance.
In each of Sabre/Farelogix (2020) and Roche/Spark (2020), the acquired company had no UK revenues. In the former case, the acquired company had no direct UK customers (and the parties ultimately took the CMA to court over the issue, though ultimately losing). In the latter, the CMA established the threshold “share of supply” based on the share of specialist researchers employed by the parties in the UK. More recently, in Facebook/GIPHY (2021), not only did the target have no UK revenue, it was not even a horizontal competitor to the acquirer (and in fact was a long-standing and contractually bound supplier). The CMA is clearly willing (and able) to find the “share of supply” test met by looking up and down the value chain in the relevant industry to find an overlap and an “increment”.
Increased Merger Control
The CMA has intervened in eight mergers in 2019, ten mergers in 2020 and six in 2021. Over 80% of cases that required an in-depth investigation did not make it through unscathed (they were either abandoned, prohibited, or had remedies imposed).
The CMA has also been active from a policy perspective. In March 2021 it issued its revised merger guidelines giving the CMA more flexibility and discretion in evaluating mergers, particularly with respect to the counterfactual, the “but for” world of what would happen in the absence of the transaction. What this means in practice is that the CMA has shown itself to be more suspicious of mergers in the digital sector, and more willing to intervene to prevent a speculative risk of future harm. In the words of the CMA: “uncertainty as to the future should not necessarily mean that potentially anticompetitive mergers are cleared because of that uncertainty”. This embrace of uncertainty of course largely ignores the very real cost of prohibiting pro-competitive transactions.
Focus on Digital Markets
The CMA has decided to focus its enforcement on the digital economy. While digital markets no doubt pose new challenges for competition law enforcement, that doesn’t mean markets aren’t working well for consumers, nor does it necessitate a return to blunt form-based rules or per se prohibitions. Advancing an understanding of dynamic, disruptive, innovation-based competition that tends to redefine markets is a more future-proof approach. The CMA’s proposed Digital Markets Unit could help get the UK enforcement regime there. But at present, the CMA appears to be following a precautionary approach of seeing dangers and risks where there are none. Or perhaps it’s just trying to make up for criticism it’s received in the past, by over-enforcing today. This doesn’t help today’s companies seeking legal certainty in merger reviews, and may put some in a bit of an unsolvable situation. But practitioners and industry certainly can’t claim they haven’t been warned of the CMA’s new role as digital mega-watchdog.