THE INNOVATION ECONOMICS CONFERENCE FOR ANTITRUST LAWYERS
1 March 2019 King’s College London
SPONSORS MEDIA SPONSOR 151 ATTENDEES
35 CORPORATIONS 25 LAW FIRMS
st 21 Century Fox KBC Group Allen & Overy Hogan Lovells American Express Services Kelly Services Baker Botts Holman Fenwick Willan Argus Media Group Lietuvos energija Lloyds Banking Group Auka Baker McKenzie Legance - Avvocati associati Openreach Barclays Bank BBLM Avocats Linklaters PSA International British Airways Safran Clifford Chance Luiss Guido Carli Channel 4 Samsung Cooley Norton Rose Fulbright DEPA Sky Quinn Emanuel Urquhart Direct Line Group Sumitomo Electric DLA Piper Telefonica & Sullivan Equifax ELIG Gürkaynak Tesco Federation of German Attorneys-at-Law Shearman & Sterling Industries (BDI) The LEGO Group Eversheds Sutherland Skadden General Electric Three TMC Taylor Wessing GPI Freshfields Bruckhaus Uber Deringer HSBC White & Case Visa Intesa Sanpaolo ZX Ventures Herbert Smith Freehills Yulchon
15 ENFORCEMENT AGENCIES
Comisión Nacional de los Mercados y la Competencia DG COMP Competition and Markets Authority European Central Bank Competition Appeal Tribunal Financial Conduct Authority Competition Council of the Republic of Lithuania OFGEM Competitive Council of Latvia Scottish and Southern Energy Competitive Council of Latvia Single Source Regulations Office Danish Competition and Consumer Authority UOKiK
1 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 PROGRAM
9:00 COFFEE & REGISTRATION 13:30 POST-MORTEM
9:15 WELCOME ANALYSIS OF CLEARED Gillian DOUGLAS | Executive Dean, King’s College London MERGERS: WHERE IS THE INNOVATION?
10:00 Richard WHISH QC (Hon) | Emeritus Professor, King’s College London BANKING AND BIG DATA: Colin RAFTERY | Senior Director of Mergers, CMA, London SHOULD INCUMBENTS Alvaro RAMOS | Senior Director - Head of Global Antitrust GET ACCESS TO Qualcomm, San Diego James AITKEN | Partner, Freshfields Bruckhaus Deringer, London
FINTECHS’ DATA? Justin COOMBS | Executive Vice President, Compass Lexecon, London Adam LAND | Senior Director of Remedies Business Moderator: Maria IOANNIDOU | Senior Lecturer in Competition Law and Financial Analysis CMA, London Queen Mary University of London Sheldon MILLS | Director of Competition Financial Conduct Authority, London 15:30 COFFEE BREAK Natalia PRZYSTASZ | Head of Legal, Auka, Oslo
Matthew READINGS | Partner, Shearman & Sterling, London/Brussels 16:00 Stefano TRENTO | Vice President, Compass Lexecon, London/Madrid KILLER ACQUISITIONS:
Moderator: Ingrid VANDENBORRE | Partner, Skadden, Brussels CAN THEY BE PREVENTED? Colleen CUNNINGHAM | Assistant Professor of Strategy 12:00 LUNCH KEYNOTE and Entrepreneurship London Business School Peter FREEMAN | Chairman, Competition Appeal Tribunal, London Giulio FEDERICO | Head of Unit - Chief Economist Team DG COMP, Brussels
Sarah HARPER | Director - Competition Law, Visa, London 12:30 LUNCH Lorenzo COPPI | Executive Vice President, Compass Lexecon London/Brussels
Jacquelyn MACLENNAN | Partner, White & Case, London/Brussels
Moderator: Renato NAZZINI | Professor, King’s College London
18:00 RECEPTION
THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 2 KEYNOTE ADDRESS PETER FREEMAN
eter Freeman* (Chairman, Competition Appeal Restrictive Practices Court and deferential judicial review Tribunal) delivered the lunch keynote speech about by the general courts. For merger and market decisions, P the appeal system for competition infringement where the Commission acted as an independent ‘phase cases. 2’ authority, judicial review was deemed to provide a sufficient level of accountability. However, for competition Mr. Freeman started by noting that the conference’s topics infringement appeals, a full merits approach was needed, are drawn from the array of challenges that the digital given the quasi-criminal nature of infringement decisions economy has brought to competition law at the age of and in order to provide the recourse to an impartial and fast-moving innovation, big data and the growth of IT-based independent tribunal. companies, emphasizing that the United Kingdom is proactive in that regard. Furthermore, Mr. Freeman addressed the reproach made by those who have regarded the system as imposing an Mr. Freeman referred to the Consumer Green Paper, unnecessary second tier, substantive assessment, that it published in April 2018 by the Department for Business, allows the CAT to conduct a complete re-hearing of an Energy and Industrial Policy, which discusses a wide range authority’s decision, using evidence not available to the of issues relating to consumer law, digital markets, and the authority, and those who said that the CAT substitutes its regulated sectors. A proposal “to reinvigorate the UK’s own decisions, thus thwarting the effectiveness of the competition regime, to safeguard the interests of consumers enforcement system. According to Mr. Freedman, these in the modern economy, while improving public confidence criticisms are greatly over-stated and do not accord with in competitive market” has been put forward by the Chairman the facts. of the CMA, Lord Andrew Tyrie in the form of a letter in response to a request from the Secretary of State for advice. Mr. Freeman made clear that the CAT is required to determine Mr. Freeman specified that the proposal, which covers a the appeal on the merits by reference to the grounds of wide range of issues, focuses on enhancing the CMA’s appeal. It is not able to roam freely over the subject matter commitment to consumer interests and making competition of the decision; appeals are often on quite narrow and law more relevant to current economic conditions. This specific points and even on those specific issues. proposal is in line with the material set out in the Green The process is adversarial not inquisitorial. The CAT’s Paper and justifies serious consideration. approach is conditioned by the case that is being made to it. Mr. Freeman also mentioned that the CAT gives due Mr. Freeman then reminded that some have stated that weight to the authority’s findings that are properly and the appeal system for competition infringement cases is reliably arrived at, eventually stating that the CAT is merely not fit for purpose and should be in some way curtailed, *This summary and holding the decision-maker to account. the views expressed or lightened, or reduced. Mr. Freeman explained that the cannot be deemed Appeal Tribunal (CAT) results from the need for a system Mr. Freeman raised as a key point the fact that in merits to reflect the position of the speakers’ of accountability that would replace the previous system appeals, unlike judicial review, the CAT considers not only institutions. of Ministerial decisions or approvals, decisions by the whether the decision was reached fairly, legally and rationally,
3 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 but also whether it was right. Mr. Freeman identifies that complex and devious; and the economics of market power sometimes elusive possibility as providing the essential and abuse have become ever more abstruse. safety valve for a prohibition system. However, other things have not changed. Mr. Freeman Finally, Mr. Freeman explained that bringing successful concluded by emphasizing that the challenge for a competition cases to the point of decision has certainly competition authority remains to act fairly and effectively become more difficult, as has hearing appeals from such decisions. Competition assessments have become more to promote competition. According to Mr. Freeman, the sophisticated, driven by data and analytical techniques; need for a robust appeal system is not diminished by the competition decisions have become longer, buttressed by challenges of applying competition law in the digital economy; economic evidence; cartel behavior has become more if anything, the need is greater.
THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 4 PANEL 1 BANKING AND BIG DATA: SHOULD INCUMBENTS GET ACCESS TO FINTECHS’ DATA?
he first panel of the conference, moderated by Regarding remedies to tackle these issues, Mr. Land argued Ingrid Vandenborre I 1 I (Partner, Skadden, Brussels), that divestiture and break-ups would increase the number of T dealt with specific competition issues related to financial providers, and gave the example of Lloyd’s Banking Group, technology (“FinTech”, i.e. technological innovation in the which, following the financial crisis, was required by the financial sector, including lending and borrowing, retail banking, European Commission to break off TSB in the UK. TSB became money payments, investment management, etc.), with a a competitor. Mr. Land mentioned that more direct regulation particular focus on the banking sector. Ms. Vandenborre started of outcomes, e.g. overdraft charges, is also an option. by reminding that the European Parliament initiated a study Mr. Land emphasized that the CMA chose to introduce a framing some competition issues related to financial technology data-based remedy, i.e. open banking, as the central element and challenges raised by FinTech. Ms. Vandenborre emphasized of its remedy package. Mr. Land explained that, when money specific difficulties in defining markets in the banking sector is spent using a banking account, data about consumption shaped by FinTech, as well as difficulties in assessing market patterns is generated, this data being a valuable asset held power, given that traditional indicators such as market shares, by banks. Through open banking and similar issues, regulators prices and profitability fail at explaining the relationship between can implement rules and adopt practices which allow supply and demand in the provision of FinTech services. customers to take control of their own data in order to According to Ms. Vandenborre, competition rules may be compare and choose between different banking services insufficient to preserve competition in FinTech-related sectors. providers, and benefit from new and innovative services. Ms. Vandenborre noted that the use of big data can cause Important changes are underway. The European framework harm, thus identifying a risk that technology and innovation provided the background on which the CMA decided that it was develop too quickly at the disadvantage of consumers. necessary to intervene further. According to Mr. Land, relying Ms. Vandenborre explained that, when it comes to data sets, exclusively on the second directive on payment services in the the competition analysis reasoning focuses on indispensability internal market (PSD2), and on uncoordinated actions by providers, and market barriers. However, if a given data set can be would have been missing opportunities. Mr. Land explained that replicated, then it will not be identified as indispensable. the CMA took the view that a better path forward was to intervene It raises the question of the relevance of competition regulation, directly and require the largest UK banks to put in place common among others, such as the questions of the specificities of application programming interfaces (APIs), data and security the financial sector in relation to data access issues, and the standards to facilitate entry by new digital competitors whilst question as to whether competition law is the right tool to ensuring high levels of consumer protection and security. address these issues. Mr. Land pointed out that it is quite unusual for the CMA, Adam Land I 2 I (Senior Director of Remedies Business and or any competition authority, to oversee large technology Financial Analysis, Competition and Markets Authority, London) projects, explaining that the CMA created a new body, the highlighted that, in the context of its 2016 market investigation Open Banking Implementation Entity (OBIE), to drive forward into retail banking competition, the Competition and Markets these changes, with the CMA providing strategic direction Authority (CMA) had the opportunity to look at related markets and enforcement action, if necessary, to support the work holistically, to assess competitive structures and practices, of the OBIE. Mr. Land commented on the focus adopted and to intervene using a broad range of options. The issues by the CMA on the quality of the consumers’ experience which were identified by the CMA related to high concentration with open banking services in prioritizing its interventions. levels, barriers to entry and expansion, demand-side characteristics—e.g. low levels of customer switching—and Sheldon Mills I 3 I (Director of Competition, Financial pricing complexity. Mr. Land thus reminded that there was a Conduct Authority, London) remarked that competition was clear need for change. added by the Financial Conduct Authority (FCA) to other
5 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 1 2 3 4
5 6
objectives (market integrity and consumer protection), to enable distinguishes two approaches: the reactive approach—the the FCA to consider how the process of rivalry works in financial prohibition of anticompetitive agreements and abuses of dominance, services as consumers can benefit from the promotion of effective associated with sanctions, allows to intervene to stop unlawful competition in financial services markets. misconduct—and a more regulatory approach. More specifically, Market investigations and studies, which are interventions geared Mr. Mills emphasized that, although financial services are very towards optimal market functioning, consist in a more regulatory diverse, a common feature, however, is data collection. Mr. Mills explained that regulators are interested in data because it is a approach led by the question as to how competition should work. core element of the functioning of business and it informs about Mr. Readings warned that one should keep in mind that a consumption patterns. Mr. Mills underlined that the FCA also competitive advantage hindering competitors is not necessarily deals with financial crime, financial fraud, cybersecurity, etc., all a competition law problem. According to Mr. Readings, leveling of which may relate to data manipulation. the playing-field is not necessary.
Mr. Mills noted that data is increasingly used to more accurately Mr. Readings also focused, among the key features of financial price products and that, from a regulatory perspective, it results services which can result in entry barriers and other competition in some benefits, e.g. inclusion. Data provides companies with law problems, on the need to have access to data to compete additional, numerous opportunities to meet the demand. For with incumbents, platform technologies and interoperability. example, in the lending space, innovative companies can process Regarding access to data, Mr. Readings pointed out it could data to evaluate more precisely what consumers can afford and result in over-transparency, which, linked with artificial intelligence, specify consumers risk profiles (potentially providing lower interest can cause a wide range of problems. As for interoperability (i.e. rates that would otherwise be the case). companies need to use a specific technology to compete), Matthew Readings I 4 I (Partner, Shearman & Sterling, London/ Mr. Readings identified a solution, namely standardization, Brussels) then aimed attention at the competition tools that are specifying that it can nevertheless result in chilling the innovation available and can be used to promote the objectives. Mr. Readings incentives of incumbents.
THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 6 Mr. Readings explained that the behavior of market incumbents they collect allows them to identify potential customers (e.g., coordinating their action to block access to market entrants can users visiting a car dealer, users about to buy a product online). be targeted using article 101 of the Treaty on the Functioning of Second, they can also screen out borrowers with high default the European Union. For example, the European Commission risks using digital footprint that users leave online or on their intervened in relation to standard-setting for an e-payment system mobile devices. Recent research shows that the informative as it considered that the collective action would result in excluding content of such digital footprint, and in general of big data, to entrants. assess default risk is huge.
Furthermore, Mr. Readings underlined that, in practice, most According to Mr. Trento, big tech companies are likely to enter issues can be comprehended as dominant position issues, consumer credit markets and, in the short term, such entry will concluding that abuse of dominance rules can be used to give be beneficial to consumers in terms of increased competition entrants forced access to infrastructure (interoperability) provided and expanded access to credit. He pointed out that, however, that the indispensability test is met. In 2010, the French Competition some analysts have identified medium to long term concerns in Authority intervened as GDF Suez, previously a monopoly provider terms of financial stability. First, big tech companies may exploit of gas supply, had gathered unique consumption data from their data advantage in loan origination and borrower screening consumers, which gave it a real advantage at targeting its offers to originate loans and auction them out to banks, so that the when competing with other providers. Similarly, the German bank that offers the best loan (e.g., in terms of low interest rate) Competition Authority also leveraged the abuse of dominance will get to supply the loan. Banks’ profit margins would then rules in the Facebook case to address data access issues. decline significantly, as banks turn into wholesalers that accept Natalia Przystasz I 5 I (Head of Legal, Auka, Oslo) explained deposits and fund loans originated by big tech companies in a that the directive 2015/2366 of 25 November 2015 on payment very competitive environment. Second, it is well known that the services did not change the mobile payment business model, originate-and-distribute model creates moral hazard problems. but it made it easier, pointing out that it took out one of the Large tech companies may not have an incentive to provide the constraints, that related to API (application programming interface). right amount of credit, but an incentive to provide as much credit as possible. Mr. Trento mentioned that the distorted incentives Ms. Przystasz emphasized that, in fast-paced moving sectors, it is important to be proactive rather than reactive. According to of the originate-and-distribute model were possibly the main Ms. Przystasz, regulators involved with FinTech actors should factor behind the recent subprime crisis. initiate discussions across countries. After considering this scenario and the fact that banks would Sheldon Mills stressed that having a competition objective assists have to share their data with authorized third parties, including the FCA in fostering innovation. According to Mr. Mills, the possibly big tech companies, Mr. Trento raises the question as existence of a multiplicity of regulatory regimes requires that to whether FinTech tech companies should reciprocate and share regulators intervene jointly as much as possible. Mr. Mills deplored their data with banks. Mr. Trento argued that, while this may help that, usually, the competition law tool box will be used by other level the data playing field, it is not clear that it would allow banks regulators when they do not have any other satisfying option, to compete head-to-head with large tech companies: even if and urged regulators to adopt a holistic approach to all the banks had access to FinTech companies’ data, they would need regulatory issues raised by FinTech. the ability to process and extract value from it, which cannot be acquired overnight. Stefano Trento I 6 I (Vice President, Compass Lexecon, London/ Madrid) pursued the discussion by indicating that big tech Answering to a question about what units of measurement are companies are likely to enter the markets for consumer lending available for valuing data and a question as to whether the law and small business lending, giving the example of Amazon. should incorporate such quantitative measurement and its Amazon has started lending money to merchants who sell assessment, Sheldon Mills suggested that it depends what the products through Amazon. Mr. Trento stated that data will be the underlying objective of measuring the value of data is, such as key asset for competition between large tech companies and assessing market power. Mr. Mills reminded that, in merger traditional banks. control, the current focus is on the value of deals, which include Mr. Trento highlighted that the data advantage of traditional banks, data. Mr. Mills also pointed out that another issue with valuing namely bank accounts information, which can be used to screen data is that the value of a piece of data depends on the context out borrowers who are likely to face repayment difficulties and and a same piece of data can be valuable in very different contexts, default. Some analysts have compared the default rates of thus emphasizing that the value of data is inherently subjective. consumers who borrow from their own bank (with which they Mr. Mills also alluded to aggregate data and its aggregate value, have a pre-existing bank account) and of consumer who borrow whose measurement is fascinatingly challenging, and concluded from another bank (with which they do not have a pre-existing that quantitative metrics are not sufficient to value data. bank account). The default rates of the second group of consumers Considering the policy issue as to whether access to the data are almost twice those of the first group of consumers. Mr. Trento collected by tech companies should be given for free or whether showed that bank account data is therefore very valuable to banks should pay a royalty fee, and that as to whether access screen out risky borrowers, because banks can use this data to should be given to raw data or also the related know-how and monitor the evolution of expenses and income and adjust credit identified patterns, Stefano Trento asserted that it would depend limits if they spot unusual behavior. on the regulations which would require sharing the data. Mr. Trento Mr. Trento explained that the data-related advantages of big tech mentioned that another important question is whether data should companies are different. First, regarding loan origination, the data be shared in real time or periodically.
7 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 PANEL 2 POST-MORTEM ANALYSIS OF CLEARED MERGERS: WHERE IS THE INNOVATION?
1 2 3 4
5 6
aria Ioannidou I 1 I (Senior Lecturer in Competition new methods, ideas or products. Ms. Raftery emphasized that Law, Queen Mary University of London) chaired the not only businesses, but also authorities, have to challenge M second panel of the conference, dedicated to the themselves to innovate, reminding that there is an on-going impact of merger control on innovation and the opportunity of debate about merger control in fast moving industries, in the ex-post assessment of completed mergers. After noting the lack context of a broader debate about how competition law should of consensus on the appropriate role of innovation in merger be enforced. control, Ms. Ioannidou pointed out that trying to decipher the impact of merger control on innovation is very topical, especially Ms. Raftery mentioned a number of specific challenges raised in the light of recent criticisms against competition authorities by competition analysis in digital sectors. First, the M&A activity and competition policy both in the UK and internationally that is very intense. Second, prospective analysis is particularly there has been a perceived increase in concentration and lessening important, as markets are fast moving, but also difficult, given of competition in many markets over the past few years. the rapid development of technology. Different theories of harm Ms. Ioannidou asserted that retrospective analyses of completed and substantive questions have been applied and raised in mergers are very useful in that regard, mentioning that studies previous cases: what is the role of direct and indirect network reveal that competition enforcers are often more lenient that they effects? ; how to measure quality and innovation? ; how to assess should and that remedies are not as effective as expected. the potential detriment to consumers? ; what approach to multihoming should be adopted? ; etc. Colin Raftery I 2 I (Senior Director of Mergers, Competition and Markets Authority, London) started by defining innovation as According to Ms. Raftery, traditional models focusing on price making changes in something established, especially by introducing effects are largely irrelevant to address these questions, and
THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 8 practice reveals that it should be looked at internal documents worldwide license of intellectual property—was already deemed to understand the rationales underlying transactions, i.e. strategies. necessary to address related competition issues. Ms. Raftery highlighted that focusing on the markets also allows Justin Coombs I 5 I (Executive Vice President, Compass Lexecon, to identify patterns and thus understand the companies’ London) started by noticing that focusing on innovation does not expectations about the sector. necessarily mean that a new theory of harm or paradigm is After pointing out that the Competition and Markets Authority adopted; focusing on innovation can be required while conducting has been at the forefront of efforts to address the widespread conventional analyses within the well-known framework of concerns about antitrust in digital markets, together with the horizontal merger control: companies do not only compete on European Commission and the Federal Trade Commission, prices. In Mr. Coombs’ view, innovation is just another dimension James Aitken I 3 I (Partner, Freshfields, London) focused on a of competition. few key points, which he prompts to keep in mind. Mr. Coombs then focused on potential competition which, Counterfactual. According to Mr. Aitken, mergers should be however, raises different issues, identifying as the most interesting assessed considering the markets conditions at the time of the situation that in which companies do not compete at all but might transaction, rather than assessed in light of how markets have both develop a product in the future and become competitors. developed. Ex post synergies, efficiencies, etc., should be isolated Mr. Coombs explained that getting the evidence is a difficult task: to identify the potential of the company on a standalone basis. how to identify that companies might become competitors through For example, in the Instagram/Facebook case, it was noted that research and development, in the absence of any competing Instagram had thirteen employees and no turnover at the time product at the time of assessment? the acquisition by Facebook was undertaken. Alvaro Ramos I 6 I (Senior Director – Head of Global Antitrust, Evidence. Mr. Aitken noticed that all antitrust cases in digital sectors Qualcomm, San Diego) emphasized that, although the substance are about evidence. Documentary evidence is critical and the of the analysis is not new, three procedural aspects should authorities have huge powers to gather it. Mr. Aitken identifies as however be noted. a key concern whether the authorities has been careful enough Reportability. Mr. Coombs prompted competition authorities to regarding the potential for entrants to become competitors. assess whether their current filing thresholds based on the parties’ Coherence and balance. Mr. Aitken observed that concerns volume of sales allows them to review large deals (deal value) regarding potential entry are common. Merging parties frequently where the target has limited sales. The relevance of the thresholds argue that they are subject to competitors’ constraints from may need to be revised. potential entry. Also, the standards applied are high; timely, likely Burden of proof. According to Mr. Coombs, there should be no and sufficient entry is required. Mr. Aitken urged competition presumption of illegality on deals where there is a reduction in authorities to ensure that the system is not imbalanced. the number of innovators since, when the concern is not related Richard Whish QC I 4 I (Emeritus Professor, King’s College to an existing market but to potential innovation, market structure London) argued that although they seem new and topical, the (e.g. a 4 to 3 deal) is not necessarily an indicator of potential issues raised by antitrust in digital markets take place in a fairly antitrust concerns. well-established legal order. In the Dow/Dupont case, the European Impact in other jurisdictions. After stressing that the scope of discretion Commission came up with apparently new theories of harm, of authorities in merger control is quite wide, notably outside of the seemingly in a context of legal uncertainty. However, the approach European Union and the United States, Mr. Coombs explained that taken was not innovative. Another example is the Siemens/Alstom this is why more robust and sophisticated agencies ought to ensure case. Regardless of the excitement surrounding this case, it that they apply a high burden of proof and warned that using any raised concerns and debates similar to those related to the presumption of anticompetitive effect in relation to innovation markets Aerospatiale/Alenia case back in 1991. Also, in 1985, when the may result in other agencies abusing their discretion. European Commission adopted the first block exemption on a research and development agreement, it aimed to encourage Richard Whish ended the discussion by focusing on the standard research and development activities, although the importance of proof and the burden of proof, starting by reminding that they of the existence of independent research and development poles are established by the General Court, not by the Commission. was already emphasized in the regulation. Similarly, the current Mr. Whish asserted that nothing can be concluded from the Dow/ Dupont case with regard to the standard and burden of proof, block exemption (Regulation n°1217/2010 of 14 December 2010) especially as it resulted in commitments and thus the decision provides that “in certain circumstances (...) such as where the was not appealed. Mr. Whish addressed a related question, parties agree not to carry out other research and development namely how to apply the innovation theory of harm in practice in the same field, thereby forgoing the opportunity of gaining when it requires assessing theoretical research and development, competitive advantages over the other parties, such agreements concluding that it would be reasonable to require that specific may fall within Article 101(1) of the Treaty.” The theory of harm evidence is found to support the case. thus articulated in 2010 can be traced back to 1967. Finally, after reminding that the Merger Regulation (Regulation n° 4064/89 of Mr. Whish insisted that judicial review is critically important 21 December 1989) came into force in 1990, Mr. Whish pointed regarding the standard and burden of proof. After explaining that out that the question as to the existence of a technology market the power of competition authorities is tremendous in that regard, had already been raised in a number of cases dated from the Mr. Whish urged courts that hear appeals/judicial reviews not to early 1990s. It was debated for several years. Mr. Whish explained be too deferential to the European Commission. The General that the European Commission first defined a technology market Court has reacted and is beginning to exercise a more robust in the Shell/Montecatini case in 1994; a remedy—a non-exclusive judicial review.
9 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 PANEL 3 KILLER ACQUISITIONS: CAN THEY BE PREVENTED?
1 2 3 4
5 6
he third panel of the conference, opened by Renato Jacquelyn MacLennan I 3 I (Partner, White & Case, London/ Nazzini I 1 I (Professor, King’s College London) focused Brussels) addressed the question as to how killer acquisitions T on killer acquisitions, which occur when incumbents can be prevented—killer acquisitions can be prevented either acquire nascent startups solely to shut down their technology by using existing tools, or by changing the tools—as well as and pre-empt potential future competition. the question as to whether killer acquisitions should be prevented, thus asking whether the situation requires changing the law. Colleen Cunningham I 2 I (Assistant Professor of Strategy and Some companies aim to acquire targets with pipeline products Entrepreneurship, London Business School) presented empirical (or related research and development) to take the products out research on evidence of the existence and prevalence of killer of markets, or starts-up to close it down. In other situations, acquisitions. Ms. Cunningham’s research led her to identify that i.e. zombie acquisitions, companies aim to acquire targets with approximately 6% of all acquisitions in the pharmaceutical industry potential competing products to continue but restrain or prevent are pure killer acquisitions and that such acquisitions occur their development. According to Ms. MacLennan, these situations disproportionately just below the thresholds for anti-trust scrutiny. are rather unlikely: technology is moving tremendously fast; Along with the opportunity of lowering thresholds, Ms. Cunningham it is difficult to predict how successful a product will be. This considered other policy options, since killer acquisitions can be led Ms. MacLennan to raise another question, namely, aren’t of companies without any turnover. Ms. Cunningham emphasized companies more likely to proceed and market different products that, because of potential negative innovation-related effects, to see which succeeds rather than kill or restrain their killer acquisitions raise important concerns. development?
THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 10 Ms. MacLennan argued that killer acquisitions might not be an that, as long as there is an incentive and the investment in issue of the magnitude that would justify the changes that are innovation is maintained, the ideas will keep coming. thought about. One change suggested is to revise the thresholds Furthermore, Ms. Harper stressed that the real value of an in some jurisdictions, for example to move away from revenue-based acquisition is unknown until it is materialized, considering that it thresholds to adopt value-based thresholds. But is this necessary? cannot be evaluated at the outset as consumers needs are Ms. MacLennan gave as an example the fact that, in Germany, constantly and very quickly changing and developing. Fast-paced where the thresholds according to which transactions are or are moving markets are thus characterized by high levels of uncertainty. not subject to filing requirements have been modified in 2017, Ms. Harper explained that a lot of assumptions have to be made and where one third of the filed deals were in the tech sector, one third in the pharmaceutical sector and one third in other to assess the impact of killer acquisitions, given that markets are sectors, none of these cases raised substantive concerns. Ms. not static, and that it results in a lot of challenges for competition MacLennan thus concluded that lowering the thresholds and authorities. increasing the filing burdens on companies and work for competition Also, Ms. Harper identified that, beyond merger control, policy authorities may not be justified. The other legal test which has concerns relate to the ability of large companies to become huge been focused on for change is the burden of proof. Ms. MacLennan innovation centers, mentioning that killer acquisitions may eventually reminded that, at the moment, it is considered that companies benefit consumers. should be allowed to merger or acquire other companies unless a regulatory authority has proved that this results in anticompetitive Finally, Ms. Harper stated that reversing the burden of proof effects. Should it be assumed that in some defined circumstances would be a significant step but reminded that it would require mergers should not happen unless the parties prove that their deciding whether absence of enough evidence, a merger should transaction is not anticompetitive? The case for such a radical be allowed or prohibited. move has not yet been made. Lorenzo Coppi I 5 I (Executive Vice-President, Compass Lexecon, According to Ms. MacLennan, the tools for competition authorities London/Brussels) focused on the burden of proof regarding to deal with the so-called killer acquisition problem are already effects on competition, which, according to him, should not be available as the law stands. reversed. Mr. Coppi argued that, from a policy perspective, the burden of proof should not be reversed unless the standard of Sarah Harper I 4 I (Director – Competition Law, Visa, London) proof on efficiencies is lowered, or it would result in a large number referred to the vast literature on the pharmaceutical sector and of prohibitions. Mr. Coppi commended to keep in mind that large raised the question as to whether the findings can be applied to companies compete with each other; blocking acquisitions by other sectors, especially fast-paced moving industries. Ms. Harper large tech companies may prevent them from competing with defined fast-paced moving markets as markets characterized other large tech companies and thus impede pro-competitive by specific features. First, they are highly innovative. What is effects. incentivizing this continuous circle of innovation? Entry barriers are often very low, and reaching a very informed consumer base Giulio Federico I 6 I (Head of Unit – Chief Economist Team, DG is made possible and easy by connectedness. New entrants can COMP, Brussels) then dealt with network effects. In some digital grow really fast. Second, these markets are often global. Technology markets, large platforms benefit from network, winner-takes-all can be developed across borders and consumers can be targeted effects. Protecting competition in these markets can be difficult. internationally. Third, a given innovation is usually not unique to Mr. Federico explained that merger control remains an instrument one start-up. The discussion led Ms. Harper to raise the question to make sure that at least some threats to competition are as to whether it is possible to kill a good idea, and to conclude mitigated.
11 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 PRESS REPORTS
ANTITRUST OFFICIAL WARNS U.K. COMPETITION REGULATOR ABOUT PLANS Jonathan Browning > Bloomberg, 1 March 2019
he chairman of a specialty competition week suggested changes to the way that its He said that the standard of review for compe- court warned the U.K.’s antitrust regulator competition decisions are reviewed. tition decisions should be altered. The appeal T against overreaching with its plan to process has "diverged" from the original intentions overhaul enforcement. "I find it curious to see proposals to weaken the when the CAT was set up, he said. rigor of judicial scrutiny," Freeman said at a The caution came from Peter Freeman, the Concurrences antitrust conference in London. chairman of the Competition Appeal Tribunal, who said the current system of appeals worked Andrew Tyrie, the new chairman of the CMA, this well. The Competition and Markets Authority this week unveiled proposals to modernize enforcement.
CMA OFFICIAL SAYS INTERNAL DOCS MAY COMPENSATE LACK OF TRADITIONAL EVIDENCE IN DIGITAL SECTOR MERGER REVIEWS Soa Okun and Francesca Micheletti > PaRR, 1 March 2019
nternal documents may be a valid tool to the companies’ strategy, Raftery said. They can to explore potential damage to innovation compensate the lack of traditional data in the also help understand the target's value, he added. competition. I review of digital sector deals, said Colin Raftery, senior director of mergers at the UK Competition The CMA also talks to investors in the tech sector, An overlap in research and development (R&D) and Markets Authority (CMA), at a recent venture capitalists and other third parties to indicates that the merging parties are developing conference in London. understand the patterns of these acquisitions, products that can compete in the future, Raftery said. threatening innovation competition, noted Justin The official was speaking on a panel at Concur- Coombs, an executive vice president of Compass rences’ conference at King’s College in London The official noted that Facebook [NASDAQ: FB], Lexecon. (1 March) on how to assess mergers in the digital Amazon [NASDAQ: AMZN] and Google [NASDAQ: GOOGL] have made around 300 acquisitions in sector. Digital companies’ business models tend In the landmark Dow/Dupont review, the recent years, and these deals have mostly to offer limited evidence for a traditional type of European Commission (EC) examined early managed to avoid merger review due to small analysis, for example on price effects, the stage research projects to find signs of poten- panelists agreed. target size. tial damage to innovation competition at industry Internal documents help the authority understand Raftery said that the CMA also looks at how level, as Richard Whish, an emeritus professor the rationale of a deal, the acquirers’ intentions and companies’ products may evolve in the future, at King’s College, noted during the panel.
THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 12 CMA OFFICIAL SAYS STRUCTURAL REMEDIES LIKELY PREFERRED IN DIGITAL MERGER REVIEWS Francesca Micheletti > PaRR, 5 March 2019
tructural remedies are likely to be a difcult in fast moving digital markets, so Behavioural remedies also failed in getting preferred solution to address compe- parties will end up tapping into a classic approval for the ICE/Trayport tie-up, the S tition concerns around deals in digital divestment remedy, he said. official recalled. A behavioural remedy offered markets, CMA mergers director Colin Raftery by the parties to remedy vertical concerns The official cited the recent Clearscore/ said at a conference in London today (1 March). would have failed to allow foreclosed Experian deal, which was abandoned due The official was speaking at a panel on customers to seek justice in a timely manner, to difficulties in reaching an agreement with mergers and innovation at the Concurrences he said. the CMA. The parties had put together a conference on Innovation Economics. complex behavioural remedy, whereas the There is room for parties to be creative only solution to remedy the CMA’s compe- when looking for remedy solutions, Raftery tition concerns would have been a divest- said. But behavioural remedies are quite ment, Raftery said.
UK CAT CHAIR HITS BACK AT CRITICISM FROM CMA HEAD Jacob Parry and Jack Aldane > PaRR, 1 March 2019
he Chairman of the UK’s Competition He went on to say that there is a risk that by CMA should address the “twin challenges” Appeal Tribunal (CAT) today (1 March) hit the time all appeal levels are exhausted in a posed by the digital economy and declining T back at criticism of the court levied by the case, the harm caused by the infringement public condence in competition. head of the country’s competition authority. has done so much damage that a CMA decision will be ineffective. Freeman questioned why an assessment of “These criticisms are, in my view, greatly overs- whether the appeal system is “not fit for tated, and they simply don’t accord with the Tyrie also criticised the CAT’s “extensive” use purpose and should be curtailed” was facts,” Peter Freeman said in a speech at a of evidence of oral witnesses and cross- connected to the digital economy. Concurrences’ conference at King’s College in examination, which he London. The Chairman said that there is a “perennial said prolongs hearings on a single case often tendency” in some parts of government, On Monday (25 February), Andrew Tyrie, chair to four weeks or more. He added that regu- including competition authorities, to question of the Competition and Markets Authority (CMA), lation should be amended in a way to either whether the court-based appeals system is proposed a raft of competition enforcement shift from the current “full merits” review of “too heavy, lengthy or necessary at all”. reforms in a letter to British business secretary appeals to a judicial review standard or to Greg Clark. some new standard that sets the grounds of He added that in 2012 the UK government a permissible appeal. The letter also challenged some of the CAT’s had considered moving to a prosecutorial functioning. Tyrie at one point said that the appeal In his speech at King’s, the chairman of the system that would have cut out the need for system had diverged from the “tightly controlled CAT questioned the reason as to why the an administrative decision through an appeal, procedural regime” envisaged when the CAT was head of the agency had included remarks on but that it eventually rejected the idea on basis first established. the appeals process in his letter on how the that it was "too drastic".
13 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 VIDEOS
During the conference, some of the speakers summarised their speeches in short videos. These can be watched at concurrences.com (Conferences, Innovation Economics Conference for Antitrust Lawyers, 1 March 2019).
James AITKEN Colleen CUNNINGHAM Maria IOANNIDOU Freshfields Bruckhaus Deringer London Business School Queen Mary University of London
Adam LAND Renato NAZZINI Ingrid VANDENBORRE CMA King’s College London Skadden
Richard WHISH QC King’s College London
THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 14 TESTIMONIALS
A very timely discussion along Highly interesting and thought- with a brilliant organisation. “ provoking insights delivered by tier-1 expert panelists “ IGNE GRAZYTE CMA MARTIJN VAN WANROIJ DLA Piper
It was a very well organised conference. Relevant topics Great event! Very well organized! “ discussed and looking forward MARCO CLAUDIO CORRADI to many more. “ University of Oxford DUSAN MITROVIC BDK Advokati
Excellent event showing that economic understanding of legal concepts is integral for future complaw. “ JANIS RACKO Competitive Council of Latvia
15 THE INNOVATION ECONOMICS CONFERENCE - King’s College London - 1 March 2019 CONCURRENCES LIVRES / BOOKS 2 019
WWW.CONCURRENCES.COM THE NEW CONCURRENCES GLOBAL OFFER
4 databases, 15 years of archives
Concurrences Review Conferences 10 500 articles 300 presentations and syntheses
e-Competitions Bulletin Books 14 500 articles 10 000 pages
www.concurrences.com [email protected] Concurrences Review: 10 500 articles since 2004. EU and French competition law
e-Competitions Bulletin: 14 500 case comments since 1911 until today. 55 countries
Conferences: 300 ppt presentations, syntheses, videos and transcripts
Books: 25 eBooks available
Unlimited multi-user access by office
IP address recognition access
PRICES: Quotation on request to [email protected]
And also
BASIC
Concurrences Review print 615,00 € w/o tax 1 year - 4 issues