Fried Frank Antitrust & Competition Law Alert
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Fried Frank Antitrust &
Competition Law Alert®
Reinvention of the Dutch Clause: The European
Commission Takes Merger Control Jurisdiction
Over Non-Reportable Deals
In March 2021, the European Commission (the “Commission”) released new guidance (the “Art. 22
Guidance”)1 on how it intends to assert jurisdiction over mergers that to date have been non-reportable to
the Commission nor to EU Member States. The mechanism used is a “re-interpretation” of an existing yet
largely dormant referral mechanism under Art. 22 of the European Merger Regulation (the “EUMR”)2 and
signals a major expansion of the Commission’s remit over mergers. Such ex-post review of non-
reportable mergers is unprecedented in Europe.3 What all European regimes (and, indeed, most merger
control regimes worldwide, with the exception of the United States and to a lesser degree Canada) have
in common was the — commendable — notion that non-reportable mergers cannot be reviewed by
antitrust agencies.
There are a number of concerns with this change in policy. Not least: the Art. 22 Guidance: (1) largely
circumvents the views of EU Member States as to which deals — by reference to the size of their
respective economies — pose a threat to competition; (2) consequently, imposes resource burdens on
Member States by quasi-deputizing them as the Commission’s de facto merger monitoring unit (i.e., to
proactively review the market for non-reportable deals) for mergers that their governments did not task
them to review; (3) potentially conflicts with the EU’s principle of subsidiarity by enabling the
Commission’s review of deals that are too insignificant to be caught by national regimes; (4) collides with
the principle of legality by defining a sanctionable filing obligation by effectively amending the EUMR
through guidance; and (5) creates practical and enforcement challenges for parties, third parties, and
agencies.
Against this background, a restrictive interpretation of the Art. 22 Guidance is required to align it with the
Commission’s stated function as a mere “safety net”4 for exceptional mergers in the digital and pharma
1
Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain
categories of case (26 March 2021). The Commission’s intention is that the new Art. 22 Guidance complement the existing
Commission Notice on Case Referral in respect of concentrations, which remains in force.
2
Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings.
3
The UK has the power to review a merger that completed four months prior to a reference, provided it is within its jurisdiction.
The Art. 22 Guidance gives the Commission review powers for mergers outside its jurisdiction.
4
Guillaume Loriot, Director, Commission Competition Directorate, speaking at a webinar “The European Commission’s Article
22 Policy: A New EU Approach to Non-Notifiable Deals” on 8 April 2021.
Fried Frank Antitrust & Competition Law Alert® No. 21/04/16
Copyright © 2021 Fried, Frank, Harris, Shriver & Jacobson LLP. All Rights Reserved.
04/16/21sectors only. In fact, to avoid unprecedented burdens for parties and agencies, the Art. 22 Guidance
should not be viewed as self-granted permission to review any merger, no matter how small, and
especially where the merger has already closed. In particular, as the Commission acknowledges, where
revenues of the parties reflect their “actual or future competitive potential”, an EU review will not be
appropriate.5
In any event, for the time being, parties will want to err on the side of caution and consider the
implications of this policy change, especially for digital and pharma mergers. Regrettably, the Art. 22
Guidance will add potential delay (expected to be around 40 working days), unless parties manage to
implement their deals prior to the launch of a Commission review (the lookback period for which extends
several months beyond closing). For mergers that could be a candidate for Commission review, parties
will need to consider mitigating steps and contractual protections (as further explained below).
Context — the perceived “enforcement gap”
The Commission’s Art. 22 Guidance is borne of a debate as to whether an “enforcement gap” exists,
whereby antitrust agencies cannot review certain mergers that under-fly the widely used jurisdictional
revenue thresholds in Europe, in particular in the digital sector and other innovative or nascent markets.
Here, enforcers cite “killer acquisitions” as their concern, where a purchaser buys and “kills off” an
innovative product (e.g., a new pharma product yet to be released onto the market) or then ceases
developing its own. Such mergers are typically characterised by the target having little to no revenue yet,
but with the potential to become a significant player. The majority of Member States use revenue
thresholds to determine whether a merger is reportable. Historically, only three Member States could
assert jurisdiction on the basis of market share/share of supply thresholds: the UK,6 Spain and Portugal.
Yet, in 2017, Germany and Austria introduced HSR-like size of transaction thresholds that also allowed
review of deals with targets that had no revenues.7 While it was expected that the EU would follow suit,8
the Art. 22 Guidance indicates that the Commission has now opted for a rather surprising route.9
The New Art. 22 Guidance (the re-invention of the Dutch Clause)
Under the EUMR, a merger comes within the Commission’s jurisdiction if the parties’ revenues exceed
the EUMR jurisdictional thresholds. When these are not met, Member States can nevertheless refer a
merger up to the Commission for review under Art. 22(1) EUMR:
One or more Member States may request the Commission to examine any concentration […] that does
not have a Community dimension […] but affects trade between Member States and threatens to
significantly affect competition within the territory of the Member State or States making the request.
Until now, Art. 22 has rarely been used. Since its inception in 1989, it has been used 42 times (for
perspective, the Commission reviewed more than 8,000 cases during the same period). Part of the
5
Art. 22 Guidance, para 19.
6
Following Brexit, the UK is no longer an EU Member State.
7
See prior Fried Frank alert A Revised Merger Control Regime for Germany–Buyer Beware.
8
The Commission held a public consultation in 2017 covering (inter alia) introducing a size of transaction test.
9
The Commission indicated its paradigm shift on its referral policy in September 2020, when Commissioner for Competition,
Margarethe Vestager, announced that it intended to start accepting referrals from Member States, regardless of whether they
had the power to review the case (full speech available here).
Fried Frank Antitrust & Competition Law Alert® No. 21/04/16
04/16/21 2reason is that Art. 22 has been interpreted as requiring a merger to first be reportable under Member
State jurisdictional thresholds (if such a local regime exists).10 Indeed, to date, all Art. 22 requests have
been initiated by Member States that either then lacked a domestic merger control regime11 or were
reportable in the respective Member States. The Art. 22 Guidance now reverses this policy.
By expanding the EU review to non-reportable mergers, the Art. 22 Guidance arguably (1) extends Art. 22
beyond its original purpose (i.e., to cover Member States without regimes in place at all) and
(2) undercuts Member States own deliberately chosen thresholds.
Which mergers does it apply to?
The Commission will accept referrals by Member States if a merger:
(i) affects trade between Member States (which is interpreted broadly, including the location of
potential customers, the availability and offering of the products concerned, the collecting of data
in several Member States); and
(ii) threatens to significantly affect competition within the territory of the Member State(s) making the
request (which implies an upfront substantive assessment, prior to the actual assessment which
will happen post-referral).
In particular, the Art. 22 Guidance identifies mergers as appropriate for referral where they under-fly
Member States thresholds but where the revenues of one of the parties “does not reflect its actual or
future competitive potential”.12 Listed examples include, e.g., where one party is: (1) a start-up or recent
entrant with significant competitive potential that has yet to develop/implement a business model
generating significant revenues; (2) is an important innovator or is conducting potentially important
research; (3) is an actual/potential important competitive force; (4) has access to competitively significant
assets (e.g., raw materials, infrastructure, data or intellectual property rights); and/or (5) provides products
or services that are key inputs/components for other industries.13 The Commission may further consider
the transaction value in its assessment, and the degree to which it is reflective of current target revenues.
The Art. 22 Guidance could be read as allowing for any merger falling into the above non-exhaustive
categories to be a referral candidate. But helpfully, Commission officials have clarified that the Art. 22
Guidance focus will be on digital and pharmaceuticals — its intended use is as a “safety net” not an
“indiscriminate catch-all”.14 Yet still the Commission reserves its position to extend the reach of Art. 22 if
required, noting it has been used previously in “a wide array of economic sectors”.15
First referral cases under new policy
There have already been two cases under the new Art. 22 policy, one non-reportable deal in the pharma
sector (Illumina/Grail) and one reportable deal in the digital sector (Facebook/Kustomer):
10
See the Commission’s 2005 notice on referrals, according to which Art. 22 is intended to be used after a merger has been
notified to a Member State.
11
Indeed, Art. 22 is more colloquially known as the “Dutch clause”, namely referring to the period when the Netherlands did not
have a merger control regime.
12
Art. 22 Guidance, para. 19.
13
The Commission may also consider the transaction value in its assessment.
14
See footnote 4 above.
15
Art. 22 Guidance, para. 7.
Fried Frank Antitrust & Competition Law Alert® No. 21/04/16
04/16/21 3In March 2021, pharmaceutical company Illumina’s planned acquisition of Grail, a cancer testing start-up,
was referred up to the Commission by France.16 Since Grail had no sales in Europe, the merger was not
notifiable to either the Commission or Member States. Illumina is currently considering appealing the
legality of the referral to the EU General Court, 17 where it is expected to argue that a Member State
cannot make a referral unless it has jurisdiction to review the merger in the first place. 18
In April 2021, the Austrian competition authority referred Facebook’s planned acquisition of customer
chat-bot Kustomer to the Commission under the new Art. 22 policy. Unlike Ilumina/Grail, the
Facebook/Kustomer merger was notifiable in Austria.
How will mergers be caught?
Commission invite: Where the Commission becomes aware of a potential candidate, it will “invite”
Member States to make a referral request. A Member State is not obligated to act upon such “invite”, and
it remains to be seen how this will pan out in practice. Importantly, the Commission is not precluded from
investigating under Art. 22, even if there is a parallel review ongoing by a Member State that is not a party
to the referral request. Thus, the Art. 22 Guidance opens up the possibility of multiple reviews in the EU,
contrary to the “one-stop-shop” principle that underpins European merger control.
Commission and Member State monitoring: via its Art. 22 Guidance, the Commission expects Member
States to collaborate with it in monitoring and identifying potential candidates. It remains to be seen how
enthusiastically Member States will take up their new role as the EU’s merger monitoring unit.19 Further,
worryingly, third parties (e.g., complainants) are invited to approach the Commission or Member States
with details of a merger and put forward substantiated arguments for why it is a candidate for referral,
potentially leading to frivolous delay strategies by competitors.
Voluntary approaches: The parties are also invited to voluntarily come forward with information about
their proposed merger. Caution is advised here: first, to date the Commission’s track record in refusing a
referral request is minimal; since the implementation of the EUMR in 2004, the Commission has refused
only four cases.20 Second, there is no time limit in which the Commission needs to give its preliminary
assessment, necessarily causing uncertainty. Third, a preliminary assessment is likely to be non-binding.
Indeed, it is difficult to see how the Commission could bind the Member States from still trying to refer a
merger at a future date. Fourth, as set out above, Art. 22 limb (ii) requires that the merger “threatens to
significantly affect competition”. As such, if the parties are expected to argue that the Commission has
jurisdiction under Art.22, then they are necessarily self-incriminating themselves as to the competitive
effects of the merger.
16
Interestingly, the French date of the referral was 9 March 2021, more than 2 weeks before the publication of the Commission’s
new Art. 22 Guidance, suggesting the Commission had been implementing its new policy for a period before public guidance
was issued. The referral was supported by the Netherlands, Belgium, Iceland and Norway.
17
At the time of writing, Illumina had unsuccessfully challenged referral under the French and Dutch courts and it is anticipated
that Illumina may appeal to the EU General Court.
18
Illumina made this argument (unsuccessfully) in the Dutch court, citing the EUMR at recital 15 — that "other member states
which are also competent to review the concentration should be able to join the request" (emphasize added).
19
Agencies carefully consider the level of staffing required matching anticipated caseload. For example, the UK’s CMA increased
its capacity by 40% to deal with the expected increase in workload resulting from Brexit.
20
In the last 9 years, the Commission did not refuse a single referral request, suggesting a rather generous interpretation of their
jurisdictional reach.
Fried Frank Antitrust & Competition Law Alert® No. 21/04/16
04/16/21 4What is the timeframe for a referral?
The referral process may take an additional 40 working days, on top of the Commission’s normal review
timeline and any time that may be required upfront to ensure the merger is “made known” to the Member
States.
Member States have 15 working days from when the merger is “made known” to them — the
Art. 22 Guidance does not explain what “made known” means beyond that it should provide
“sufficient information” — leaving parties in some uncertainty now as to the degree of publicity
they should give their deals.21 The fact that a merger might only be “made known” after it has
closed does not preclude a referral - post-close reviews are possible under the new policy.
Once a referral request has been made, the Commission will without delay inform the parties and
other Member States, who then have 15 further working days to decide to join in the referral.
The Commission then has 10 further working days to decide whether to investigate.22
If the Commission does investigate, then the normal phase 1 and 2 review periods apply. Once
the Commission has informed the parties that a referral request is being considered, then the
parties are not allowed to close an anticipated merger.
The above timeline — materially longer than for “standard” EU cases that satisfy the high revenue
thresholds — places an obvious burden on small mergers, where the focus is on target companies that
likely have little income (and therefore spending power) on lengthy review processes.
Post-close reviews: the Art. 22 Guidance allow for a 6-months retroactive review 23 of a closed merger
(from closing or when the merger was “made public”, whichever is the later). This is a sharp departure
from the existing merger regimes of its Member States, and more generous than the position under the
UK regime, which has a statutory 4-month look-back limitation. Fortunately, consummated mergers do not
fall under the suspensory obligation and the Commission does not possess powers under the EUMR to
impose interim measures24 or, indeed, to prevent an onward sale of the target during an ongoing review
(unless such onward sale triggers an EU filing requirement).
Mitigation steps
The Commission’s policy shift significantly expands the remit of the Commission’s scope of merger
review, especially for certain digital and pharma mergers. Below are some practical steps to consider:
(1) Complex risk assessment: it is no longer sufficient for parties to just consider the bright line
revenue thresholds to determine EU filings. Instead the parties will need to undertake a more
qualitative analysis, creating further deal uncertainty.
21
The requirement for “sufficient information” may mean considerable back and forth between the parties and the Member State
occurs before the 15 working days start.
22
If the Commission does not decide on the formal referral request in time, “it will be deemed to have adopted a decision to
examine the transaction” (Art. 22 Guidance, para 30 and Art. 22(3) EUMR).
23
With the ability to extend beyond that in “exceptional circumstances”.
24
The EUMR allows the Commission to impose interim measures under Art. 8(5) but only if the transaction has breached the
suspensory obligations, has been implemented contrary to commitments, or has been implemented following prohibition. It is
difficult to see how the Commission could rely on these provisions in the context of a deal that has legitimately closed prior to
review.
Fried Frank Antitrust & Competition Law Alert® No. 21/04/16
04/16/21 5(2) Contractual protections: Purchase agreements will need to cater for a potential referral under Art.
22, for example whether to build in condition precedents, and to consider appropriate long-stop
dates (and/or their extensions).
(3) Deal publicity & agency outreach: Member States have the ability to refer non-reportable mergers
that are “made known” to them - parties will need to consider, and address in their purchase
agreements, the merits and drawbacks of a voluntary outreach.
Conclusion — a power grab at the expense of parties and Member States
Through a simple tweak in its policy, the Commission has affected a major change of its merger control
regime. The consequence of the reform for Member States and transacting parties are significant. Such
ex-post review of non-reportable mergers is unprecedented in the EU, and the legality of such “power
grab” seems questionable for various reasons (as noted above). Member States face a scenario in which
they are being asked to act as the Commission’s de facto merger monitoring units, including for deals
their Governments didn’t ask them to review and with national thresholds being circumvented.
Furthermore the change creates a potential further filing obligation, punishable by penalties, as well as
practical challenges.
Against this background, a restrictive interpretation of the Art. 22 Guidance is required to align it with the
Commission’s stated function as a mere “safety net” for exceptional mergers in the digital and pharma
sectors only. In particular, an EU review will not be appropriate where targets’ revenues reflect their
“actual or future competitive potential”. Nevertheless, for the time being, parties will want to err on the
side of caution and consider the implications of this policy change, which has the potential to cause
considerable regulatory uncertainty (not least due to an ex-post lookback period) and burden on parties
and agencies alike.
* * *
Fried Frank Antitrust & Competition Law Alert® No. 21/04/16
04/16/21 6Authors:
Dr. Tobias Caspary
Neda Moussavi
Annalie Grogan
This alert is not intended to provide legal advice, and no legal or business decision should be based on its
content. If you have any questions about the contents of this alert, please call your regular Fried Frank
contact or the attorneys listed below:
Contacts:
London
Dr. Tobias Caspary +44.20.7972.9618 tobias.caspary@friedfrank.com
Washington, DC
Bernard (Barry) A. Nigro Jr. +1.202.639.7373 barry.nigro@friedfrank.com
New York
Nathaniel L. Asker +1.212.859.8566 nathaniel.asker@friedfrank.com
Aleksandr B. Livshits +1.212.859.8524 aleksandr.livshits@friedfrank.com
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Fried Frank Antitrust & Competition Law Alert® No. 21/04/16
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