Recent initiatives impacting the digital sector
7 min to read

Recent initiatives impacting the digital sector

Recent months have seen a veritable flurry of legislative, regulatory and soft law initiatives and proposals. The measures often tackle similar sectors – all things digital often being in the eye of the storm – and contain seemingly similar measures.

Below we briefly answer some of the questions we regularly receive, by putting the main elements of the most important recent initiatives together… so you don’t have to!

Will the EU tackle foreign industrial champions which receive subsidies?

Relevant measure: proposed Regulation on Distortive Foreign Subsidies

Status: Proposal published on 5 May 2021; not yet adopted

Summary: The Commission proposes three new tools to address distortions caused by foreign subsidies in the Single Market (to complement existing FDI/State aid/merger control/antitrust enforcement systems):

  • Concentrations: Mandatory and suspensory pre-notification mechanism (which would apply to all sectors, unlike FDI rules, see below) for foreign companies seeking to take over EU businesses, if they have received more than EUR 50 million in non-EU State aid and the company they want to acquire has a turnover greater than EUR 500 million.
  • Public Procurement: Compulsory and suspensory notification system for foreign companies participating in public tender procedures within the EU involving contracts worth over EUR 250 million.
  • All other market situations: Ex officio review of foreign subsidies which would allow the Commission to investigate foreign State aid granted to companies active in the EU and impose measures on them, e.g. divestment or repayment of subsidies received. This tool also applies to concentrations and tenders that do not meet the mandatory thresholds, allowing the Commission to request an ad-hoc notification.

Several factors will be used to determine if a subsidy is distortive, including a threshold of EUR 5 million granted “over any consecutive period of three fiscal years.” Subsidies below that value will be presumed to be non-distortive.

Next steps: The proposals will now be discussed by the European Parliament and the Council. A public consultation on the proposal will be open for the next 8 weeks.

Further reading: “Will the EU “Level the playing field” on foreign subsidies in 2021?” (12/2020)

We thought the EU already had new powers to screen foreign investments?

Relevant measure: FDI Screening Regulation (2019/452)

Status: In force (as of 11 October 2020)

Summary: The FDI Screening Regulation:

  • enables coordinated screening of FDI from third countries that could affect public order/security and allows the Commission to advise Member States to take into account the effects on particular sectors e.g. critical infrastructures and technologies, media and sensitive information etc.
  • introduces: (i) minimum screening requirements for EU Member States; (ii) peer-review mechanism amongst EU member states and the Commission; and (iii) special rules for foreign investments likely to affect “the Union interest”.
  • However, unlike its US equivalent, there is no power to ‘veto’ or to refer proposed transactions to the Commission. The Commission can issue non-binding opinions but the powers to screen and enforce remain national.

What about any new EU policy for killer acquisitions?

Relevant measure: Commission Staff Working Document – Evaluation of procedural and jurisdictional aspects of EU merger control / Art 22 EUMR Commission Guidance

Status: published on 26 March 2021 (soft law)

Summary: In the SWD, the Commission concludes that the current merger control tests based on financial thresholds have generally proved effective in capturing significant transactions in the EU internal market:

  • the Commission confirmed that it would not be expanding the test to capture acquisitions of non-controlling minority shareholdings.
  • It is not in favour of introducing additional thresholds relating to the value of the transaction concerned, for fear that this would result in the requirement to notify deals which in reality were unproblematic.

While no change was recommended to jurisdictional thresholds, the Commission did note that “a number of transactions which could potentially have an impact on competition in the internal market have not been reviewed by the Commission or, in some cases, by any Member State.” It therefore Guidance on Article 22 of the Merger Regulation:

  • Art 22 EUMR allows for one or more Member States to request the Commission to examine any concentration that does not have an EU dimension but affects trade between Member States and threatens to affect competition within the territory of the Member State significantly.
  • From now on, the scope of Article 22 will be wider, as the Commission will also welcome referrals from Member States of concentrations that fall below national thresholds (and therefore would not have been notifiable either nationally or at EU level.)
  • The Guidance specifically states that is intended to catch “in particular, transactions in the digital and pharma sectors” and that transactions targeted are those where “the turnover of at least one of the undertakings concerned does not reflect its actual or future competitive potential.”

Next steps: The Commission also launched an impact assessment on further simplifying merger control procedures aiming to reduce the administration burden on companies by further simplifying its merger control procedures. The consultation seeks to determine whether the scope of the current ‘simplified merger procedure’ is sufficiently wide, or whether it can be expanded to cover further categories, such as e.g. asymmetrical vertical transactions, and whether further streamlining of its review process is possible. The feedback period in the public consultation runs until 18 June 2021.

But in the EU Germany and Austria tackle killer acquisitions, right?

Relevant measure: revised national merger rules with transaction-value thresholds

Status: in force

Summary: Germany and Austria have introduced a transaction-value threshold which is meant to capture acquisitions of targets which do not have significant turnover yet but exhibit significant competitive potential.

  • In Germany, transactions which do not meet the turnover thresholds may nonetheless be notifiable if they meet the following cumulative criteria:
  • Combined worldwide turnover of all companies exceeds EUR 500 million;
  • One of the parties to the transaction has a turnover in Germany of more than EUR 25 million;
  • The value of the consideration for the transaction exceeds EUR 400 million; and
  • The target is active in Germany to a considerable extent
  • In Austria, transactions which do not meet the turnover thresholds may nonetheless be notifiable if they meet the following cumulative requirements:
  • Combined worldwide turnover of all undertakings concerned exceeds EUR 300 million;
  • Combined Austrian turnover of all undertakings concerned exceeds EUR 15 million;
  • Value of consideration exceeds EUR 200 million
  • Target has significant operations in Austria – Guidance provided states that to meet this requirement, the target must have ‘market-oriented’ activities, which includes sales but can also include R&D if the research results are likely to be marketed in Austria.

There’s a lot of talk of additional obligations on Big Tech – where does this come from?

Relevant measure: Digital Market Act proposal

Status: proposal published on 15 December 2020; not yet adopted

Summary: The proposal aims to address the negative consequences arising from certain behaviours by platforms acting as digital “gatekeepers” to the single market.

  • Gatekeepers are currently defined as platforms that have a significant impact on the internal market, serve as an important gateway for business users to reach their customers, and which enjoy, or will foreseeably enjoy, an entrenched and durable position. The Commission has set out quantitative thresholds to determine which companies will be presumed gatekeepers but reserves the power to designate companies as gatekeepers following a market investigation.
  • The proposal sets out a number of obligations which will be placed on gatekeepers, including interoperability requirements, a ban on self-preferencing, etc. Gatekeepers will also be required inform the Commission about any concentrations. However, this is only a mechanism to keep the Commission informed and does not constitute a separate merger control mechanism.
  • The Commission can impose sanctions for non-compliance, which could include fines of up to 10% of the gatekeeper’s worldwide turnover, and for recurrent offenders, structural remedies.

Next steps: The DMA proposal is currently before the European Parliament, with the Internal Market and Consumer Protection (IMCO) Committee taking the lead. Negotiations are expected to be drawn-out but rapporteur Andreas Schwab (German, EPP) has stated he wants to finalise the DMA during the French presidency of the Council (first half of 2022.)

Further reading: “European Commission publishes landmark package to regulate digital platforms and services” (12/2020)

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Written by
Hein Hobbelen
Hein Hobbelen
Belgium
I am a partner in our Competition and EU practice, dividing my time between Brussels and The Hague, With over 20 years' experience, I am a well-known practitioner for all key pillars of EU competition, trade and sector-specific laws.
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Baptist Vleeshouwers
Baptist Vleeshouwers
Belgium
As an associate in our Competition & EU Law practice in Belgium, I provide advice to our clients on a wide range of matters in EU and Belgian competition law. In addition, I assist clients in trade defence matters.
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Kiliane Huyghebaert
Kiliane Huyghebaert
Belgium
I am an associate in the international trade department in Brussels, where I advise clients on trade defence matters and trade regulatory matters.
View profile
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