Welcome to Ph.D. Voices, a monthly series in which Ph.D. candidates share their research with the antitrust world. This month’s voice is Esat Çınar, Ph.D. candidate at the University of Hamburg.
On 11 September 2020, competition commissioner Margrethe Vestager announced a change of approach in case referrals to the Commission under Article 22 of the merger regulation (EUMR). Accordingly, member states may refer to the Commission concentrations that do not meet the notification thresholds but give rise to competition concerns for various reasons.1‘European Commission Announces New Approach to Merger Review Referrals Falling Below Thresholds’ (The National Law Review) <https://www.natlawreview.com/article/european-commission-announces-new-approach-to-merger-review-referrals-falling-below> accessed 31 December 2020. Six months after the announcement, the Commission issued its guidance on the new application.2Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, Brussels, 26.3.2021 C(2021) 1959 final. The Commission admitted the previous negative approach to referrals for cases below the national thresholds and promised a change. The Commission also explained the grounds for such action, including changes in digital markets, the pharmaceutical sector, and innovative advantages of some start-ups that may blunder the competition in the single market.3Ibid.
Merger control and competition are complex issues. Merger control and competition involving 27 nation-states are even more complicated. A well-defined system is thus vital for the competition regime. For a flexible and justifiable system, a theoretical scheme would be helpful. The ordoliberal school assigns a ‘price-taker’ role to the undertakings and, most crucially for this paper, views the state as a rule-setter rather than a player.4Roger J Van den Bergh, Comparative Competition Law and Economics (Edward Elgar Publishing 2017) 31; Peter Behrens, ‘The Ordoliberal Concept of “Abuse” of a Dominant Position and Its Impact on Article 102 TFEU’ in Fabiana Di Porto and Rupprecht Podszun, Abusive Practices in Competition Law (Edward Elgar Publishing 2018) 11–12 <https://www.elgaronline.com/view/edcoll/9781788117333/9781788117333.00008.xml> accessed 28 July 2021. This paper evaluates the latest development in the referral mechanism for merger review from an ordoliberal lens. The evaluation includes the feasibility of the referral system and potential risks of legal uncertainty,5Nicholas Levy, Andris Rimsa and Bianca Buzatu, ‘The European Commission’s New Merger Referral Policy: A Creative Reform or an Unnecessary End to “Brightline” Jurisdictional Rules?’ (2021) 5 CoRe 364. along with the reasoning behind the new approach to merger referrals.
II. Ordoliberal Theory and Merger Control
The Ordoliberal School of economics was founded by one economist and two lawyers.6Viktor J Vanberg, ‘The Freiburg School: Walter Eucken and Ordoliberalism’ 27, 1. Hence it is natural to expect an economic approach based on rules and clarity. The school sees law as an instrument useful to reach the economic goals of a market used by the rule setters – the states.7Bergh (n 8) 31. This view indicates that competition law is an instrument to reach a competitive market via creating an atmosphere for the undertakings in which they can breathe as well as conduct their activities according to the rules. Despite the opposition8Pinar Akman and Hussein Kassim, ‘Myths and Myth-Making in the European Union: The Institutionalization and Interpretation of EU Competition Policy*’ (2010) 48 JCMS: Journal of Common Market Studies 111. and discussions9ibid; David J Gerber, ‘Constitutionalizing the Economy: German Neo-Liberalism, Competition Law and the “New” Europe’ (1994) 42 The American Journal of Comparative Law 25; Behrens (n 8). on its impact, the Ordoliberal School of Germany is seen as the theory behind competition policies. The Ordoliberal School sees the freedom to compete as its goal and does not aim for perfect competition.10Ignacio Herrera Anchustegui, ‘Competition Law through an Ordoliberal Lens’ (2015) 2 Oslo Law Review 139, 152. Instead, it suggests a set of rules that ensure consistency and coherence in the application and interpretation of competition rules and in determining when conduct is harming competition.11ibid 141. The founding father of the Ordoliberal School saw the market as a constitutional order guided by normative rules.12Vanberg (n 10) 3. The School sees states as the market makers and the markets as constitutive entities with specific rules.13Philip G Cerny, ‘In the Shadow of Ordoliberalism: The Paradox of Neoliberalism in the 21st Century’ (2016) 3 ERIS – European Review of International Studies 78, 86–87. These rules do not redistribute wealth or create an outcome-oriented approach for the market but try to clarify the road in a designed way.14ibid.
The reflection of ordoliberalism on European merger control is visible in the merger regulation. The precise rule-setting and the constitutive order create the order part of the structure. In addition, member states and the Commission are constrained by thresholds and time limits in a constitutive sense. The former approach to Article 22 EUMR also contained ordoliberal sides by excluding the referrals that do not fall within the rule-setting.
In conclusion, ordoliberal thinking carries with it a constitutional order. One vital element of a prominent legal order is to provide predictability for the order it creates through reliable rules. It must not be a rigid order but a framework that provides certainty and a feeling of stability.15Elina Paunio, ‘Beyond Predictability – Reflections on Legal Certainty and the Discourse Theory of Law in the EU Legal Order’ (2009) 10 German Law Journal 1469, 1469–1470. The predictability element should, therefore, be preserved along with flexibility to the extent that it does not harm the binding nature of the rules.
III. New Referral Mechanism
The Guidelines explain the rationale behind the new referral mechanism and its application. The new approach entered into force immediately after the announcement. The main goal is to fight ‘killer acquisitions’, especially in the pharma and tech sectors, including the digital sectors.16Levy, Rimsa and Buzatu (n 9). The concerns regarding killer acquisitions mainly stem from the fact that innovative start-ups with promising prospects are being acquired by big corporations without antitrust scrutiny because the transactions remain below the thresholds.17Václav Šmejkal, ‘CONCENTRATIONS IN DIGITAL SECTOR – A NEW EU ANTITRUST STANDARD FOR “KILLER ACQUISITIONS” NEEDED?’ (2020) 7 InterEULawEast : journal for the international and european law, economics and market integrations 1, 2–4. Start-ups can positively affect competition and society with innovation and their products but sometimes get acquired by large companies, and their potential may be consumed by an already strong entity.18ibid.
Whereas transactions above the national thresholds can be referred to the Commission in the case of competition concerns, the ones below are to be referred after the concentration is ‘made known’ to the national authorities.19Gavin Bushell, ‘How Illumina-Ting: The EU Merger Regulation and the Brutal Operation of Power under Article 22 EUMR’ (Kluwer Competition Law Blog, 20 April 2021) <http://competitionlawblog.kluwercompetitionlaw.com/2021/04/20/how-illumina-ting-the-eu-merger-regulation-and-the-brutal-operation-of-power-under-article-22-eumr/> accessed 22 July 2022. The ‘made known’ development triggers a 15 days deadline for the member states to refer the case.20ibid. When the 15 days have passed, the Commission gives other member states 15 days to decide if they want to join the procedure.21Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, Brussels, 26.3.2021 C(2021) 1959 final, para 29. Afterwards, the Commission has ten more days to refuse the case; if not, the case will be reviewed by the Commission.22Ibid. Para 30.
Not only future transactions can be reviewed but closed transactions in the last six months as well, taking into account the time after the completion of the transaction.23Levy, Rimsa and Buzatu (n 9) 378. However, if the competitive concerns are big enough, the Commission can make exceptions and review the case even if the six month-period has passed.24ibid. At first glance, this limitation seems like a precise rule setting by means of a clear timeline and a procedure map. However, reviewing a merger whenever the Commission feels like it without a clear rule does not provide certainty to undertakings. Moreover, providing flexibility only for the controlling side contradicts the ordoliberal applications and legislations so far. Ordoliberal thinking does not mean setting bureaucratic rules; it requires actual aim-oriented rules.
The new approach ends the old order from an ordoliberal perspective. Rule changes are to be expected in a developing system but removing the certainty and broadening the definitions to the extent that it is impossible to predict is not what the Ordoliberal School proposes. The first problem regarding the order is the loss of predictability due to the change from binding to non-binding rules for the authorities. The change removes the predictability of the system for the undertakings concerned, meaning for all undertakings with a concentration potential. The second – and even bigger – issue is the non-binding timeframes, which do not help business operations. The Guidelines lack clarity for undertakings, declare the end of the old order and help the national authorities create their orders.
The Illumina/Grail case is an early example of the new referral mechanism in which several member states joined the procedure.25‘Mergers: In-Depth Investigation’ (European Commission – European Commission) <https://ec.europa.eu/commission/presscorner/detail/en/IP_21_3844> accessed 30 September 2022. The case reflects the tendency of member states to enjoy the disappearance of the old order and refer cases according to their own concerns. Illumina acquired Grail, a cancer detection test producer.26‘Commission Prohibits Acquisition of GRAIL by Illumina’ (European Commission – European Commission) <https://ec.europa.eu/commission/presscorner/detail/en/ip_22_5364> accessed 27 September 2022. The Commission accepted the referrals, although the transaction did not meet the thresholds.27Bushell (n 24). The Commission stated that the competitive significance of Grail is not observable in its turnover, but the transaction would harm innovation in the vital sector of cancer detection tests.28‘Mergers: In-Depth Investigation’ (n 30). The investigation resulted in a negative decision for the transaction and may even lead to a dissolution decision by the Commission.29Jay Modrall, ‘Illumina/Grail Prohibition: The End of the Beginning for EU Review of “Killer Acquisitions”?’ (Kluwer Competition Law Blog, 8 September 2022) <http://competitionlawblog.kluwercompetitionlaw.com/2022/09/08/illumina-grail-prohibition-the-end-of-the-beginning-for-eu-review-of-killer-acquisitions/> accessed 27 September 2022. On top of that, Illumina may face gun-jumping penalties.30‘Remarks by Executive Vice-President Vestager’ (European Commission – European Commission) <https://ec.europa.eu/commission/presscorner/detail/en/speech_22_5371> accessed 30 September 2022.
The case marks a significant milestone for the theoretical basis of EU merger control. The non-ordoliberal aspect is evident from the existing and potential outcomes of the decision. A non-threshold concentration has faced a block, and the undertakings may suffer financial losses due to (unpredictable) penalties. These penalties would not have occurred if the old approach was still in force. The decision contains new aspects for merger control without clarifying the new order prior to the decision: (i) the undertakings are not based in the EU, (ii) the transaction does not meet the thresholds, and most seriously, (iii) the decision may be followed by severe consequences for the undertakings. This shows that predictability and legal certainty in the ‘order’ of EU merger control are endangered.
In conclusion, the new approach brings many new aspects for more efficient competition enforcement in merger control. On the other hand, it may come at the expense of the ordoliberal clarity and predictability of the competition rules within the EU. It is compelling that the change is motivated by the expeditious development of the digital sectors. The pharmaceutical sector existed before the European Steel and Coal was administered. Innovation has been a human trait since we can control steam or even know how to start a fire. Digitalisation and high-tech have been sci-fi since H.G. Wells and Isaac Asimov but are now reality and influence markets at an unprecedented speed. The Commission probably wanted to provide member states with a more efficient and competent institution than national agencies to control the unknown reality. However, in the end, it seems a red flag for undertakings to be prepared for any intervention. This drastic change in the Commission’s practice breaks the ordoliberal habits.
The new referral mechanism harms the clarity and predictability of merger control by allowing authorities to act against regular business conduct that is not prohibited and not subject to initial review. The new direction goes so far that the new tools can even be used retroactively against completed and overseas concentrations. The undertakings may even face penalties for transactions they were not obliged to notify before.
The Ordoliberal School has influenced the order of the European competition rules up to now. Even if the EU had problems down the road, the core of the early regulation developed into a very comprehensive set of rules with an order, including a predictable threshold system that is bound by European legislation. These thresholds created a safe space for concentrations that did not meet them and provided a warning sign for the ones above. The recent change and the Illumina/Grail case raise concerns for undertakings in innovative sectors when they intend to concentrate. Removed predictability is causing disruption and obstruction of business conduct.
In summary, digitalisation and its unpredictable future drove the change in merger control. Nonetheless, the panic shall not cause the sacrifice of the predictable rule-based nature of the merger control. In the end, if the authorities are competent to review a concentration, they should be able to provide quantitative or qualitative thresholds to determine the faith of the case. If not, their hypothetical concerns may remove the liberal order from the market. This practice may cause an obstacle to the natural development of markets and shape them according to the design of the Commission and member states. A case-by-case analysis that also differs from the tendencies of different agencies within the EU does not fit the constitutional order that ordoliberal thinking aims for.
|Citation: Esat Çınar, The New Approach to Article 22 Referrals through an Ordoliberal Lens, Network Law Review, Fall 2022.|