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Increasing Level of EU Fines For Procedural Infringements in Mergers?

By Alexandra KamerlingSarah Smith | Sam SzlezingerDLA PIPER

Introduction

The fines imposed by the European Commission (the “Commission”) for substantive breaches of competition law have been steadily increasing in recent years, culminating in the high fines imposed on Intel (€1.06bn), Google (€2.42bn) and the participants in the trucks cartel (totalling €3.8bn). However, the Commission is also increasingly enforcing procedural competition law rules, particularly in the context of the European Merger Regulation (the “EUMR”), imposing fines for breaches, the most recent example being the €124.5m fine on Altice for implementing its acquisition of PT Portugal before receiving merger clearance.

Commission decisions concerning procedural infringements

The following sections provide an overview of the Commission’s recent activity in enforcing the procedural rules of EU competition law, with a particular focus on the EUMR and the rule preventing merging parties from implementing a transaction before receiving clearance from the Commission (so called “gun jumping”) .

Procedural infringements in the EUMR context

On 24 April 2018, the Commission imposed a fine of €124.5m on Altice, a Dutch telecoms company, for implementing its acquisition of PT Portugal, ahead of receiving clearance from the Commission in breach of the standstill obligation set out in Article 7(1) EUMR. The parties notified the transaction in February 2015 and, after offering divestment remedies, received clearance from the Commission in April 2015. However, the parties were subsequently sent a Statement of Objection in May 2017 setting out the Commission’s concerns that the transaction had been implemented prior to the April 2015 clearance decision.

In imposing the fine, the Commission noted the following:

  1. The purchase agreement gave Altice decisive influence over PT Portugal by, for example, granting it veto rights over PT Portugal’s business; and
  2. Altice had actually exercised its decisive influence on certain occasions, including by:
    1. instructing PT Portugal on how to carry out a marketing campaign; and
    2. seeking and receiving PT Portugal’s commercially sensitive information outside of applicable confidentiality agreements.

The Commission has confirmed that the decision to impose a fine for breach of the standstill provisions did not affect its substantive assessment on the merger itself, and indeed was issued after the clearance decision. Altice has indicated its intention to appeal the fine.

In May 2017, the Commission imposed a total fine of €110m (imposed as two separate fines of €55m) on Facebook for providing incorrect or misleading information, both in its Form CO and in response to requests for information from the case team, in relation to its acquisition of WhatsApp. In particular, Facebook informed the case team that it would be unable to automatically match Facebook and WhatsApp user accounts. However, following an announcement by WhatsApp in August 2016 regarding the possibility of linking WhatsApp users’ phone numbers with Facebook identities, the Commission issued a Statement of Objections. The Commission subsequently found that the technical possibility of matching users already existed in 2014, contrary to the parties’ prior statements, and fined Facebook.

The Commission has also imposed fines on parties for failing to notify transactions, and for implementation prior to clearance, as illustrated by its €20m fine on Marine Harvest (a Norwegian seafood company) for acquiring competitor Morpol without clearance. Marine Harvest acquired a 48.5 percent shareholding in Morpol in December 2012, but only notified the transaction some eight months later when it acquired the remaining shares. The Commission found that the initial acquisition gave Marine Harvest de facto sole control over Morpol (in light of its majority at shareholders’ meetings) and that the transaction should therefore have been notified earlier.

It is clear that the Commission is becoming more vigilant in enforcing the procedural rules set out in the EUMR. In particular, it sent Statement of Objections in July 2017 to Merck and Sigma-Aldrich (alleging that the parties failed to provide information relevant to the remedy package) and to General Electric and LM Wind (alleging a failure to provide information in relation to the wind turbine market). At the same time, the Commission also issued Statement of Objections to Canon, alleging that it used a two-step process, involving an interim buyer, to acquire Toshiba Medical Systems Corporation prior to obtaining the relevant merger approvals (a so-called “warehousing” process).

Fines for procedural infringements outside of the EUMR

The Commission is also active in monitoring and enforcing procedural rules outside of the EUMR context. For example, it imposed a fine of €38m on E.ON in 2008 for breaching a seal during an inspection and, in 2012, it fined EPH €2.5m for failure to block an e-mail account and divert incoming e-mails during an inspection.

Conclusion

The Commission’s recent activity in this area, and in particular the substantial fines levied on Altice and Facebook, demonstrates the crucial importance for merging parties to be fully aware of, and comply with, the procedural rules set out in the EUMR.

In order to comply with the EUMR, parties must:

  1. assess whether, and when, their contemplated transaction gives rise to a notification obligation under the EUMR and/or applicable national regimes (as demonstrated by the Marine Harvest case);
  2. ensure that they do not provide incorrect or misleading information to authorities (e.g. the Facebook/WhatsApp, Merck/Sigma-Aldrich and General Electric/LM Wind cases); and
  3. (avoid taking steps to implement a transaction before it has been notified and received the appropriate merger clearances (as illustrated by the recent Altice judgment).

In many cases, it is not entirely straightforward to determine whether a transaction should be notified or whether particular actions might amount to prior implementation of a transaction before merger clearance (as opposed to legitimate integration planning). DLA Piper has an experienced team of competition lawyers with substantial practical experience in helping clients navigate the EUMR (and national merger control regimes) in compliance with the applicable procedural rules.

Compliments of  DLA PIPER, a member of the EACCNY