1. Sustainability Considerations in EU Merger Control

On 10 September 2023, European Commission's (EC) DG Competition made public its approach to sustainability in EU merger control from various angles including market definition, competitive assessment, remedies and vigilance on "green" killer acquisitions. The EC further elaborated on several recent cases as an illustration of how these tools are applied in recent merger enforcement. The wider context here is the EC's key goal of transitioning towards a climate neutral, resourceefficient and competitive economy as part of the 'green transition' and the EC's European Green Deal.1

Market Definition

Stronger demand by consumers, businesses, and society as a whole for more sustainable products and sustainability-related targets has prompted the EC to take sustainability considerations increasingly into account when defining relevant markets. In recent cases, the EC has on many occasions looked into whether environmental regulations, emission reduction targets, green technologies and sustainable development considerations, in conjunction with other factors, have given rise to a separate market or are at least whether such factors affect the definition of the relevant product and geographic markets. 

The EC has taken into account these new market realities on a case-by-case basis. For example, in Norsk Hydro/Alumetal2, the EC found that a growing trend in customers' preferences has rendered the low-carbon dimension of solid advanced aluminum foundry alloys an element of differentiation (as against non-low carbon aluminum foundry alloys) at the product market definition level, although it did not go as far as deciding that it constitutes a separate product market based on such considerations. Whereas in KPS Capital Partners/Real Alloy Europe3, the EC's investigation indicated that customers' preference for recycled aluminum over non-recycled aluminum as a material of aluminum cans due to their lower carbon footprint and lower cost justifies a separate competitive assessment between the parties' position in both the overall salt slag recycling market and in the narrower market for salt slag recycling through zero-waste technology only. The EC did, however, not go as far as defining a separate market for the different types of salt slag recycling (depending on whether they use zero-waste technology or not).

Competitive Assessment

In recent case practices, the EC has considered factors such as emission (as part of technical specifications for products), innovation and R&D (including green R&D) capabilities, market preference for less environmentally costly products when assessing closeness of competition between the merging parties and their competitors.

The EC has also been pursuing so-called 'innovation' theories of harm to ensure that mergers do not significantly impede green innovation, including by considering whether a merger poses risks of discontinuation of overlapping lines of research or reduction of incentives and ability to achieve the same level or type of innovation.

From the merging parties' perspective, positive effects on sustainability may be submitted as efficiencies that compensate the anti-competitive harm stemming from the transaction. These efficiencies must be substantiated enough to meet the requisite standard, have to benefit consumers, be merger-specific and be verifiable, and in principle need to occur within the markets where competition concerns are found. These bars could prove to be rather high. In Aurubis/Metallo4, the EC eventually rejected the efficiencies submitted by the parties on grounds that a mere possibility of efficiencies materialising is not sufficient and that the efficiencies were not adequately substantiated.

Remedies

While the EC has no power to intervene in merger cases in the absence of harm to competition, where sustainability factors come into play as an important parameter of competitive assessment, the design of remedies may need to reflect such considerations. 

In Sika/MBCC5, the EC's investigations showed that the geographic markets for the relevant product, chemical admixtures, were likely national. However, in the case of main suppliers who operate at a global scale, such as the merging parties, their R&D and in-house production of crucial raw material had an international dimension. The EC concluded that the merging parties' strong R&D capabilities and in-house production of raw material had set them apart from other competitors. It was also pointed out that innovation in this product has a growing importance to the construction industry's transition to meet low-carbon emission goals. To address the EC's concerns that the transaction may reduce incentives to innovate, especially on sustainability, the final remedy package included the divestiture of MBCC's chemical admixture business in the EEA and other jurisdictions, including its global research and development facilities (so as to ensure that the divestment business would compete effectively with the merged entity). The same concerns also required that certain criteria were set out for the purchaser, inter alia, that the purchaser must have an incentive to continue investing in the R&D of the divestment business. 

"Green" Killer Acquisition

DG Competition further indicated that Article 22 EUMR, which gives Member States the right to refer below-threshold cases to the EC, a view that is currently being appealed before the European Court of Justice6, could be used to bridge the enforcement gap for acquisitions involving green innovators with small or nil turnover in the EEA. How the "recalibrated" approach to Article 22 EUMR will turn out and its effects on sustainability related cases remain to be seen.

Overall it can be said that the EC does not lack the willingness, and has equipped itself with numerous tools under the current legal framework, to take into account sustainability considerations in merger enforcement. The EC's recent case practice give businesses some useful pointers as to in what manner a translation may face EC scrutiny from the sustainability perspective and how such concerns may be addressed.

2. EC's Vertical Restraints Decision in the Video Game Case Upheld by the General Court

In its 27 September 2023 judgment, the General Court (GC) upheld the EC's decision to impose fines on Valve, owner of the online gaming platform Steam, together with five video game publishers (Bandai, Capcom, Focus Home, Koch Media and ZeniMax) for a total of 7.8 million Euros for participating in anti-competitive agreements or concerted practices intended to restrict cross-border sales of approximately 100 PC video games by geo-blocking Steam activation keys outside certain EEA countries. Under such practices, games were sold at lower prices and thereby preventing the publishers' distributors to passively sell the games to users of certain EEA countries (restricting passive sales within the EEA territory is a hard core restriction of EU competition law).

The GC found that,

(1) based on the fact that Valve had chosen to put in place territorial control functionalities between EEA countries, had informed the publishers of such a possibility, had complied with the publishers' requests to geo-block the video games, could not have been unaware that the geo-blocking was intended to restrict parallel imports, had promoted the use of geo-blocking for such purposes, and had not distanced itself from such practice, the EC was correct to conclude that there was a concurrence of wills, and consequently the existence of an agreement or of concerted practices, between Valve and the publishers to restrict passive sales within the EEA territory;

(2) the body of evidence relied on by the EC to establish the infringement, viewed as a whole, was firm, precise and consistent;

(3) the EC did not err in concluding that there was sufficiently solid and reliable experience to support a finding that, in principle, the agreements or concerted practices in question had an anti-competitive object, and therefore there was no need to investigate their effects; and

(4) there was no circumstance in the legal or economic context of such agreement or concerted practices to support the conclusion that they are not liable to harm competition, in particular, (i) copyright does not justify the conduct at issue because the geo-blocking did not pursue an objective of protecting the publishers' copyright but was used to eliminate parallel imports in order to protect sales and higher royalties, and (ii) the pro-competitive effects submitted by Valve were general and unsubstantiated.

3. EC Names First Gatekeepers Under the DMA

The Digital Market Act (the "DMA"), which was introduced in previous EU Law newsletters7, is the EU's recent regulatory attempt to make the EU digital market fairer and more contestable. It seeks to identify large digital platforms providing core platform services as "gatekeepers" and oblige them to comply with the dos and don'ts listed in the DMA (the "Obligations").

The DMA came into force on 1 November 2022 and became applicable on 2 May 2023. For designation of gatekeepers, the DMA sets out certain qualitative requirements and quantitative thresholds in terms of turnover and number of end users, and requires platform services providers who meet the quantitative thresholds, the potential gatekeepers, to notify the EC of the their status and submit the relevant information within two months after the application date of the DMA or after a core platform service subsequently satisfies these thresholds. Potential gatekeepers may also present arguments together with the notification to demonstrate that while the quantitative thresholds are met, certain services provided by them do not satisfy the qualitative requirements. The EC will then make a decision in 45 business days as to whether to define a certain undertaking as a gatekeeper. Even if a service does not meet all quantitative thresholds, the EC may still designate the provider as a gatekeeper if it finds, following a market investigation, that the service satisfies the qualitative requirements.

The first batch of gatekeepers and core platform services were designated by the EC on 5 September 2023. These are Alphabet (Google Maps, Google Play, Google Shopping, Google Search, YouTube, Google Android, Google Chrome and Google (ads)), Amazon (Amazon Marketplace and Amazon (ads)), Apple (App Store, iOS and Safari), ByteDance (TikTok), Meta (Meta Marketplace, Facebook, Instagram, WhatsApp, Messenger and Meta (ads)) and Microsoft (LinkedIn and Windows PC OS). The EC accepted arguments submitted by Alphabet, Microsoft and Samsung regarding Gmail, Outlook and Samsung Internet Browser, all of which meet the quantitative thresholds, that these services do not qualify as gateways for the respective core platform services. The EC has launched market investigations regarding Microsoft's Bing, Edge and Microsoft Advertising and Apple's iMessage to further assess whether these services qualify as gateways. In addition, the EC has also opened an investigation with respect to Apple's iPadOS even though it does not meet the quantitative thresholds.

The identified gatekeepers have until March 2024 to fully comply with the Obligations. These obligations include allowing inter-operation with third-party services, allowing end users to link to business outside the gatekeepers' platform, allowing uninstalling pre-installed apps, not tracking end users outside the gatekeepers' platform for targeted advertising purposes without effective consent and etc. Failing to comply could subject the gatekeeper to fines up to 10% of its total worldwide turnover, which can go up to 20% in case of repeated infringement.

4. Introduction of Recent Publications

  • Merger Remedies Guide - Fifth Edition (Japan chapter)
    November 2023（Authors: Vassili Moussis, Yoshiharu Usuki, Kiyoko Yagami）
  • 'Chambers Global Practice Guides' on Cartels 2023 - Law & Practice
    June 2023（Authors: Shigeyoshi Ezaki, Vassili Moussis, Yoshiharu Usuki, Takeshi Ishida）
  • Market Intelligence - CARTELS IN JAPAN- 2023
    April 2023（Authors: Shigeyoshi Ezaki, Vassili Moussis, Takeshi Ishida）

Footnotes

1. The European Green Deal (europa.eu)

2. M.10658 Norsk Hydro/Alumetal, press release of 4 May 2023.

3. Case M.10702 – KPS CAPITAL PARTNERS / REAL ALLOY EUROPE, 19/10/2022.

4. CASE M.9409 – AURUBIS / METALLO GROUP HOLDING, 4/5/2020.

5. M.10560 Sika/MBCC, press release of 8 February 2023.

6. See the December 2022 (Issue 14) and the March 2023 (Issue 15) AMT EU Law newsletters on this topic.

7. See the March 2022 (Issue 11) and the August 2022 （Issue 13） AMT EU Law newsletters on this topic.

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