1. Increased Merger Control Risk for Below-Threshold Transactions – The European Court of Justice (ECJ)'s ruling in the Towercast case has increased the risks for parties to an M&A transaction regarding whether and to what extent a transaction can be subject to competition law investigations despite not having reached the relevant revenue thresholds to formally trigger merger control. The March 2023 judgment held that competition authorities can apply abuse of dominance rules to mergers that did not trigger EU and national merger thresholds. Thus, acquisitions by market dominant companies that are not notifiable to any competition authority can still be investigated – and ultimately prohibited – as a potential abuse of dominance by a competent competition authority. This decision adds another layer to the uncertainty created by the EU Commission's interpretation of the so-called "Article 22 process." Article 22 of the EU Merger Regulation allows a national competition authority to ask the EU Commission for a merger control review of an M&A transaction if such transaction affects trade between Member States and threatens to significantly affect competition. The Commission has decided to accept such referral requests even if neither the referring Member State nor the Commission have jurisdiction to review the merger under their respective competition law regimes. These departures from past formal standards will likely require companies considering mergers and acquisitions to conduct more thorough assessments of the substance of their proposed transactions.
  2. Greater Antitrust Enforcement of Labor Markets' No-Poach Agreements at Both EU and Member States Levels – In recent years, competition authorities across Europe have been increasingly vigilant in identifying and addressing anti-competitive practices among employers to restrict worker mobility through no-poach agreements. The agreements, which prevent companies from hiring each other's employees or fixing employee wages, have been criticized as significantly hindering competition in the labor market and depriving workers of opportunities for career advancement and higher wages. Over the last three years, competition authorities have intervened in no-poach cases, e.g., in Croatia, Hungary, Lithuania, Portugal, and Poland. No-poach agreements are also under European Commission scrutiny.

    In specific cases, no-poach clauses may be justified when they associate other forms of cooperation between employers as joint ventures, R&D collaboration, M&A transactions, or outsourcing contracts. However, naked no-poach agreements not associated by any other form of cooperation are considered detrimental to labor market dynamics (especially talents mobility, investment in human capital) and may stifle innovation and lower quality of products and services. Decisions on no-poach agreements will vary based on the specific circumstances and require case-by-case analysis. If a no-poach clause is found to constitute an anti-competitive agreement, companies may face sanctions, including fines on companies or managers, termination of the agreements, other legal remedies to restore competition, or claims for damages. Therefore, it is critical for companies operating in Europe to review their employment practices and ensure compliance with competition law. This includes refraining from entering into or enforcing no-poach agreements that could restrict competition in the labor market.
  3. Impact of Vertical Block Exemption Regulation (VBER), Vertical Guidelines, and Horizontal Block Exemption Regulation (HBER) – With VBER and its new guidelines in effect since July 2023, many companies have been reviewing their distribution agreements under EU competition law, particularly for compliance with rules governing the combination of numerous distribution systems, dual distribution, dual pricing, and parity obligations. As the VBER modernizes vertical competition law in line with digital market developments and ECJ caselaw, companies positioned for these changes should benefit from them provided they are cognizant of the economic realities governing their markets and regulators' intensified scrutiny of parties' roles and information exchange.

    The European Commission recently also revised the HBER on R&D and Specialization Agreements, along with updated Horizontal Guidelines. Effective from July 1, 2023, these changes offer clearer guidance on assessing the compatibility of horizontal cooperation agreements with EU competition rules. The revised R&D BER facilitates joint R&D and technology exploitation agreements, simplifying market share threshold calculations and ensuring a two-year grace period for agreements not meeting initial conditions. It aims to safeguard innovation competition, while empowering authorities to withdraw exemptions if concerns arise. The updated SBER broadens its scope, covering more unilateral specialization agreements, and provides guidance on intermediary products. It also allows authorities to withdraw exemptions in concentrated markets. The Guidelines now elaborate in more detail on purchasing, commercialization, information exchange, and sustainability agreements, distinguishing joint purchasing from buyer cartels; provide insights on output limitations; and emphasize the risks associated with information exchange. A new chapter on sustainability agreements highlights the expanded definition of sustainability and introduces a soft safe harbor for sustainability standards.

    The comprehensive guidance on information exchange covers key aspects such as commercially sensitive information, types of exchange restricting competition, pro-competitive effects of data pools, and measures for companies to prevent infringements. The revised sustainability chapter includes a broad perspective on benefits and outlines criteria for permissible sustainability standardization agreements. Existing agreements may need amendments for compliance, and new agreements should align with the updated regulations to benefit from the new regime.
  4. EU Digital Markets Act (DMA) and Digital Services Act (DSA)– The EU DMA, which took effect in May 2023, aims to ensure fair and contestable digital markets. In September 2023, the European Commission designated for the first time six companies as so-called "gatekeepers" under the DMA. Being designated a gatekeeper comes with various obligations to maintain fair and effective competition. By March 2024, gatekeepers must have adjusted their businesses to comply with the DMA. In the meantime, some gatekeeper companies have appealed their designations. More gatekeepers may be designated by the Commission in 2024. The case law resulting from the different proceedings will likely shape the Commission's DMA enforcement in 2024 and the years to come.

    The EU DSA intends to create a safer digital space where users' fundamental rights are protected, and to establish a level playing field for businesses. The DSA already applies to designated online platforms and search engines and will apply to all regulated companies as of February 2024. In December 2023, the Commission adopted a second set of designation decisions under the DSA, designating three large online platforms. These designations follow a first set of designation decisions of 19 large online platforms and search engines in April 2023. Some have already challenged their designation.
  5. Effects of EU Foreign Subsidies Regulation (FSR) and Foreign Direct Investment Regulation (FDI) Regimes in EU Member States – EU Regulation 2022/2560 FSR became applicable July 12, 2023. As of Oct. 12, 2023, companies are required to notify the European Commission of mergers and public contracts, above certain thresholds, involving direct or indirect financial contributions from non-EU governments. In summary, under the FSR, the Commission has the power to investigate, also ex officio, financial contributions made by non-EU governments to companies active in the EU. If the Commission finds that these financial contributions constitute distortive subsidies, it may block the transaction or impose measures to eliminate the distortive effects.

    Following the entry into force of the Regulation (EU) 2019/452 on screening of Foreign Direct Investment (FDI) in 2020, almost all EU Member States have introduced or are in the process of introducing national FDI screening systems. Filings are made with each Member State concerned, which carries out its own assessment. At the EU level, there is only a mechanism for the exchange of information and possible non-binding opinions by the Commission and other Member States. This fragmentation may produce uncertainty for investors, also with respect to the relationship with merger control rules and FSR. Recently, the ECJ ruled that the instrumental use of national FDI regimes to block investments that are not strategic to the national interest is unlawful (Xella case, C-106/22). The Commission also recently intervened in relation to a transaction that had received merger control clearance from the Commission itself but was then blocked by the Hungarian FDI screening authority, declaring the merger review system prevailing (case M.10494 – VIG/AEGON CEE). The Commission recently announced a reform of the FDI Regulation, the outcome of which is expected during 2024, in order to further harmonize national screening mechanisms and increase cooperation between Member States, especially in the case of multi-jurisdiction transactions.

    Finally, the Commission recently announced, in the context of a wide set of initiatives on EU economic security, the launch of a consultation process with Member States and stakeholders to assess the appropriateness of introducing rules on outbound investments of European companies in third countries in specific sectors, mainly related to military and intelligence capabilities. To this end, the Commission also intends to conduct a one-year monitoring period of these types of investments. Further details on this initiative are expected in the next few months.

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