Published on Mar 06, 2023
A coup for Microsoft/Activision at the EC? Microsoft (MSFT) is set to receive a notable boost from the European Commission in connection with its planned $68.7 billion takeover of Activision Blizzard (ATVI), according to a report. The EC, the report said, is expected to approve the merger without requiring Microsoft to divest assets.
Approval by the Brussels-based regulator with a formal remedy giving rivals access to popular video games, including Activision’s Call of Duty, would be a reasonable enough outcome given commission decisions in recent complex mergers to accept non-divestiture remedies. Think Google/Fitbit and LSEG/Refinitiv.
But at this stage of the Microsoft/Activision review, an EC determination to accept Microsoft’s licensing offer and approve the transaction would appear to be premature at best. At worst, such a conclusion could represent an abuse of process.
Microsoft hasn’t yet offered a formal remedy to the commission. If the company does submit an offer, as expected, it must do so by midnight on March 16. The remedy would then be sent for third-party feedback through a market test. Only at that point would the commission’s competition department be able to definitively conclude whether the deal should be approved.
Even so, The Capitol Forum is aware of influential voices within the EC that believe the deal should be approved with non-divestiture conditions. That view may well end up being correct, but an important and indispensable part of the EC process must first play out.
The commission last Wednesday agreed to extend its phase 2 review by 10 working days. That move gives Microsoft additional time to offer a formal remedy. Prior to the extension, Microsoft had until midnight on March 2 to submit its offer. Remedy discussions between Microsoft and the EC are said to have taken place, and the topic was covered at a closed-door oral hearing on February 21.
A spokesperson for the commission declined to comment on the review.
A Microsoft spokesperson said the company is “committed to offering effective and easily enforceable solutions that address the European Commission’s concerns,” adding that the “commitment to grant long term 100% equal access to Call of Duty to Sony, Steam, Nvidia and others preserves the deal’s benefits to gamers and developers and increases competition in the market.”
Meanwhile, Microsoft last week participated in a “response hearing” in London at the Competition and Markets Authority. The UK watchdog has set out various ways the company could attempt to address misgivings about the Activision merger, including asset divestitures and an access remedy. All these options are said to have been discussed at last week’s meeting, and Microsoft is said to have been buoyed by the amount of time the regulator spent discussing the access remedy option. The CMA, though, is obliged to consider each remedy it has proffered.
Still, the UK authority remains a staunch defender of its position that behavioral remedies should only be accepted in the most exceptional circumstances, putting the Activision deal at significant risk of being blocked.
CMA Chief Executive Sarah Cardell last week doubled down on that behavioral remedies position. In a speech at the UK Competition Law Conference, she said, “We have been clear that the bar to show that…a remedy can address a competition concern is high.”
Behavioral remedies to resolve concerns in dynamic markets are particularly problematic for the CMA. Cardell also said last week that “one particular challenge is that a remedy can become ineffective or be circumvented as market conditions change, particularly in a sector where technology or business models are changing quickly.”
Microsoft will nevertheless continue to push for CMA approval with an access remedy. The company is also said to have challenged certain conclusions reached by the CMA in its provisional findings, released on February 8.
CISPE takes further aim at Microsoft/Activision. Beyond the procedural intrigue at the EC, Auke Haagsma, a strategic advisor to the trade group Cloud Infrastructure Service Providers in Europe (CISPE) and a former EU official, has written that the transaction exposes anticompetition problems that transcend the issue of access to the blockbuster game Call of Duty. The proposed merger is part of a decades-long quest by Microsoft to dominate online usage and commerce, Haagsma said in a Feb. 27 op-ed in Euractiv.
Much enforcement concern around the Microsoft/Activision deal has centered on whether competing, non-XBox consoles would have access to Call of Duty. But Haagsma said gaming is moving away from consoles and physical discs to online play and downloads, and the latter combination is dependent on the cloud.
By buying Activision, Haagsma argued, Microsoft would “bolster the scale and capability of its own Azure cloud whilst locking millions of gamers into its ecosystem.”
He added that CISPE individual cloud providers filed complaints late last year with the EU saying that Microsoft is seeking to “lock customers” into Azure through software licenses that Haagsma said were unfair.
Microsoft’s aim, Haagsma said, is dominance in three aspects of the digital economy: cloud, gaming and artificial intelligence. “Controlling any of these three presents significant competition issues – controlling all three will effectively make Microsoft the operating system of the entire digital economy for decades,” he said.
EU refocuses music-streaming probe of Apple. The EC last week said it is now focusing its ongoing antitrust investigation into Apple (AAPL) on the company’s practice of restricting the ability of app developers to inform iPhone users of alternative music subscription services. The restrictions Apple imposes on developers represent “unfair trading conditions” in breach of EU competition law, the Brussels enforcer said.
The commission said it is revising its Statement of Objections and will no longer investigate whether Apple’s practice of imposing its own in-app purchase payment technology on developers violates the law. “We refocused our competition concerns on the direct consumer impact,” EU competition chief Margrethe Vestager said. The case dates back to June 2020. The EC sent its original SO to Apple in April 2021.
“We’re pleased that the Commission has narrowed its case and is no longer challenging Apple’s right to collect a commission for digital goods and require the use of the in-app payment systems users trust,” an Apple spokesperson said.
Spotify, which originally complained about Apple’s tactics, said the revised SO sends a “clear message” that the firm’s practices have harmed consumers. “We urge the commission to reach a swift decision in this case,” Spotify General Counsel Eve Konstan said.
Why new CMA guidance is unlikely to spur green accords. Last week, the CMA followed in the steps of the EC and published draft guidance on deals that might help fight climate change and produce greener products. The document spells out a more flexible approach than the EC in the way it assesses agreements that pursue sustainability goals.
But the guidance is unlikely to encourage companies to cooperate because of the lack of international alignment among antitrust enforcers, according to a senior compliance counsel at oil company Baker Hughes and an antitrust senior associate at the global law firm Clifford Chance. They spoke at Informa’s UK Competition Law Conference in London on February 27, a day before the CMA published its draft guidance.
In a speech last month, CMA chief Sarah Cardell outlined the broad sustainability themes on which the agency plans to consult, including an expansion of the concept of a “fair share” of an agreement’s benefits to consumers.
The CMA’s draft guidance, published last Tuesday, covers environmental sustainability agreements generally, which can benefit from antitrust exemption, and offers a more permissive approach to accords that address climate change. In analyzing climate change deals the enforcer plans to take into account “the totality of the benefits to all UK consumers arising from the agreement, rather than apportioning those benefits between consumers within the market affected by the agreement and those in other markets.”
But even with the CMA’s more flexible approach, there is skepticism that many companies will cooperate on sustainability initiatives.
“It’s helpful to have that guidance, but in practice I’m not so sure it’s something we necessarily have appetite for,” Senior Compliance Counsel Ilaria Filippi Swint of Baker Hughes said. “That may change in the future. We need certainty.”
Filippi Swint said that Baker Hughes’ main customers are Shell, BP and governments and explained that any potential sustainability deals would be with customers and not rivals.
“I don’t want to be in a position where I have to advise the business about efficiency analysis every time I think about this type of agreement,” she said. “We need more certainty globally because we’re a global business. I don’t want to have to think about whether the EU guidance is in convergence with the UK one and other national competition authorities in Europe.”
Antitrust Senior Associate Cintia Aguila Flores of Clifford Chance, who just returned from a temporary assignment at Shell, said that while the CMA’s approach is welcome, internal compliance teams look for predictability of outcome and precedents, international cooperation among agencies and the credibility of the authority.
“In the current economic and social environment, there is a trend towards interventionism, and antitrust and competition are always in the crossfire as a tool to address some of these issues,” Aguila Flores said. “That can be quite concerning from a compliance perspective.”
To encourage sustainability initiatives, the CMA says it will have an “open-door policy,” where it can give informal guidance on proposed initiatives before they are implemented. The enforcer is seeking public views on its draft guidance by April 11.
CMA is close to clearing inflight Wi-Fi deal. The CMA on Wednesday provisionally cleared the pending Viasat/Inmarsat deal following a phase 2 investigation. The UK competition regulator said that while the companies are close rivals in supplying satellite connections for inflight Wi-Fi, the deal ultimately doesn’t “substantially reduce” competition for services provided on flights used by UK customers.
The satellite industry is likely to continue expanding “rapidly” due to growing demand for Internet access, the regulator determined, highlighting competitive pressure from newer players like Starlink, as well as from more established companies such as Panasonic and Intelsat. The deal is also pending before the EC, which launched an in-depth review last month.
UnitedHealth/Emis faces further information request. The CMA has requested further information from the parties following a phase 1 state-of-play meeting, The Capitol Forum has learned. The CMA has until March 17 to conclude its review of UnitedHealth Group’s (UNH) plan to buy health care software and systems provider Emis Group (EMIS: LN) for $1.5 billion.
Procedurally, the parties at this stage will probably know whether the CMA has taken issue with their deal.
Spokespeople for UnitedHealth and Emis declined to comment on the CMA review.
The companies had tried to avoid a formal CMA review by submitting to the authority’s mergers intelligence unit a “briefing paper” that attempted to explain why the deal doesn’t raise competition concerns. That effort failed, and Emis disclosed on November 1 that the parties were in the process of finalizing a merger notice with the London-based regulator.
Both UnitedHealth’s UK arm, Optum, and target company Emis supply software technology used by the UK’s National Health Service, a sensitive area for the British government and one the CMA watches closely.
Dutch competition chief calls for tool to tackle tacit collusion. The EC should put forward a new competition instrument to enable it and national authorities to tackle tacit collusion, Martijn Snoep, chairman of the Dutch Authority for Consumers and Markets, said during Keystone Europe’s conference in Brussels last week.
Tacit collusion occurs when companies in an oligopoly coordinate their actions despite not having an explicit cartel agreement. EU competition law can only prohibit explicit collusion.
“We, as a competition authority, cannot do much against tacit collusion with our regular equipment,” Snoep said. “But it is a problem both in upstream markets like labor and in downstream markets, both in business-to-consumer markets and business-to-business markets.”
In 2020, the EC considered a New Competition Tool that could have dealt with tacit collusion, but it quickly replaced it with the Digital Markets Act, which doesn’t address the practice.
The EC declined to make an immediate comment.
Google faces EU charges over ad tech practices. EU antitrust officials are preparing to send Google (GOOG) a Statement of Objections in relation to allegations that it may have illegally favored its own online display advertising technology to the detriment of competitors, according to a Politico article last week. The EC has been investigating Google’s ad tech practices since June 2021.
The probe encompasses a complaint filed last year by the European Publishers Council, which represents Axel Springer, New York Times and Guardian among others. The EC recently asked Google’s ad tech rivals, such as online publishers and advertisers, to submit nonconfidential evidence, according to Politico.
“Thousands of European businesses use our advertising products to reach new customers and fund their websites every single day,” a Google spokesperson said in response to a request for comment. “They choose them because they’re competitive and effective. We will continue to engage constructively with the European Commission to answer their questions and demonstrate the benefits of our products to European businesses and consumers.”
Deutsche Bahn sees success in cartel detection. Deutsche Bahn (DB), Germany’s national railway company, has had “several successes” in detecting anticompetitive behavior among its suppliers using its own algorithmic cartel-screening tool, Senior Manager Oliver Gannon said.
Speaking at Informa’s UK Competition Law Conference in London last week, Gannon said that Deutsche Bahn has used the tool for the last two to three years. “There is ample ground for cooperation” between companies and competition agencies, he added.
Deutsche Bahn, which has felt the negative impact of large cartels over the last decades, says on its website that it expects its suppliers to comply with competition law, including abstaining from bid-rigging and anti-competitive agreements on prices or territories.
Vestager’s Weekly Calendar
To view EC Commissioner for Competition Margrethe Vestager’s schedule for the week, click here.
In Their Own Words
Vestager says that the EC remains cautious about mergers involving large platforms and that diverging decisions are to be expected. From a March 2 speech at Keystone Europe’s antitrust conference in Brussels.
“In the last few years, the scrutiny of tech mergers has certainly increased as has the frequency of interventions, definitely signaling a new posture towards such deals. And with the DMA, we will have a more systematic overview of gatekeeper acquisitions. So we will remain vigilant on deals that involve large platforms with market power.
“As competition authorities, we share a common passion for preserving opportunities, innovation and consumer choice. But we also face differences in our legal systems, with different constraints, different procedures or sometimes different standards. It is also true that consumer preferences or competitive dynamics are not exactly the same in different geographies. For these many reasons, it is to be expected that sometimes we will end up with different choices – for example on whether to accept commitments – or we will end up with different outcomes. What is important is that we cooperate as authorities, that we exchange and that we learn from one another.”
In the same speech, Vestager said the EC has its eye on the metaverse and has already started work in this space.
“Let me conclude with the final shift – the shift to a digital economy. This should be the shift with most opportunities created. And yet we have seen over the years that dominance, entrenched positions and abuses have rather been the norm. It’s disappointing to have to say it, but digital markets have not fulfilled their promise for small businesses to achieve scale and greater reach with fewer physical barriers to get in their way.
“We have certainly not been too quick to act – and this can be an important lesson for us in the future. We need to anticipate and plan for change, given the obvious fact that our enforcement and legislative process will always be slower than the markets themselves. For example, it is already time for us to start asking what healthy competition should look like in the Metaverse, or how something like ChatGPT may change the equation.”
March 6 at 3 a.m. EST (9 a.m. CET): An EC stakeholders’ workshop on the DMA, “The DMA And App Store-related Provisions,” in Brussels and online.
March 9 at 3 a.m. EST (9 a.m. CET): Global Competition Review’s “Telecoms, Media & Technology” conference in London. Scheduled speakers include Olivier Gerent, director-general of the EC’s Directorate-General for Competition (DG Comp); John Newman, deputy director of the FTC’s Bureau of Competition; Andrea Coscelli, former CMA chief executive and a partner at Keystone Strategy.
March 14-15 at 3 a.m. EST (9 a.m. CET): Informa’s “Competition Law Nordic,” an in-person conference in Stockholm. Scheduled speakers include Maria Jaspers, director of Cartels at DG Comp; Rikard Jermsten, director general of the Swedish Competition Authority; Timo Mattila, deputy director general of the Finnish Competition and Consumer Authority; Jakob Held, director general of the Danish Competition and Consumer Authority.
March 15 at 4:30 a.m. EST (10:30 a.m. CET): A Concurrences’ in-person conference in Paris, “Articulation Between Competition Law and Policy and Industrial Policy: What Perspectives?” Scheduled speakers include Olivier Gerent of DG Comp; competition specialist Emmanuel Coombe, professor at University Paris 1 Panthéon-Sorbonne.
March 15 at 10 a.m. EST (4 p.m. CET): British Institute of International and Comparative Law’s event titled “Recent Developments in UK Mergers” in London. Scheduled speakers include Mike Walker, CMA chief economist, and Sorcha O’Carroll, senior director of the CMA’s mergers department.
April 20 at 4 a.m. EST (10 a.m. CET): Informa’s “EU Competition Law,” an in-person conference in Dublin. Scheduled speakers include John O’Flaherty, senior legal advisor at Ireland’ Commission for Communications Regulation; Judy O’Connell, senior competition and regulatory affairs manager at Three Ireland.
April 25-26 at 4 a.m. EST (10 a.m. CET): Informa’s “Advanced EU Competition Law,” an in-person conference in London. Scheduled speakers include Michael Grenfell, executive director of the CMA; Juliette Enser, CMA senior director, cartels; Jacques Steenbergen, president at the Belgian Competition Authority; Konrad Ost, vice-president at Germany’s antitrust agency, the Bundeskartellamt.
German decision about Apple’s dominance just ahead. A decision in the German competition authority’s ongoing effort to bring Apple under the scope of new domestic rules for large digital companies is “on the way,” Bundeskartellamt President Andreas Mundt said last week at Keystone’s conference in Brussels.
The agency opened a procedure in June 2021 to designate Apple as having paramount significance for competition across markets under Section 19a of the German Competition Act. Google, Meta and Amazon have already received such a designation, although Amazon is appealing that decision.
Regulator accepts remedy offer for airlines tie-up. The CMA on Wednesday accepted Korean Air’s offer to facilitate the entry of Virgin Atlantic Airways as a competitor on the Seoul-London route for both passenger and air cargo services. Korean Air’s deal with Asiana also faces an in-depth probe from EC regulators, who are scrutinizing four routes between Seoul and various European destinations. As The Capitol Forum reported last month, the challenge for Korean Air is said to be finding high-quality replacements for the routes.
Portuguese enforcer investigates ‘no-poach’ cases. The Portuguese Competition Authority’s first “no-poach” case, which last April sanctioned 31 soccer teams for preventing the recruitment of players who unilaterally ended their employment contracts, has created “a very interesting pipeline of cases that we’re pursuing in no-poach,” the agency’s president, Margarida Matos Rosa, told Keystone Europe’s antitrust conference on Thursday. She said that following its first case, the enforcer received tip-offs from employees and even leniency requests from companies.