Approaches in other jurisdictions
Recognising this need, different competition regulators have begun exploring possible avenues to gauge transactions currently escaping scrutiny. Four such examples are considered below.
First, in December 2020, the EU floated a new proposal, called the Digital Markets Act (“DMA”), as a targeted intervention to deal with anti-competitive behaviour by entities labelled by the proposal as digital gatekeepers.
This framework applies to the Core Platforms run by Digital Gatekeepers providing services to business users established in the EU or end users located/established in the EU. A digital gatekeeper is defined as a provider of core platform services designated pursuant to Article 3 of the DMA. In order for a core platform service provider to qualify as a gatekeeper, the following three conditions must be met:
• Having a significant impact on the internal market;
• Operating a Core Platform Service which serves as an important gateway for business users to reach end users; and
• It enjoys, or will foreseeably enjoy, an entrenched and durable position in its operations.
Pertinently, Article 12 clarifies that a Digital Gatekeeper has to inform the European Commission of any intended concentration involving another provider of core platform services or of any other services provided in the digital sector irrespective of whether it is notifiable to a Union competition authority under the EU Merger Regulation or to a competent national competition authority under national merger rules.
Such a notification must set out the specified details, such as the target company’s annual turnover in the European Economic Area and some indicators of the acquirer’s level of activity.
Second, in the United States, the House Judiciary Committee’s Subcommittee on Antitrust launched an investigation to “examine the rise and use of market power online and assess the adequacy of existing antitrust laws and current enforcement levels in digital markets.”
After cataloguing the practices that digital gatekeepers engage in to consolidate their power, the Subcommittee outlined some potential solutions to remedy the status quo. Pertinently, it suggested flagging up any acquisition by a dominant undertaking as being ‘presumably anti-competitive’ so as to subject it to merger scrutiny.
To operationalise the Subcommittee’s recommendations, in June 2021, the House Judiciary Committee approved six bills. One of the bills, H.R. 3826, the Platform Competition and Opportunity Act of 2021, prohibits acquisitions, total or partial, by Covered Platforms of the stocks or assets of any person engaged in or implicating commerce. The Bill outlines criteria for designating a digital platform as a ‘Covered Platform’.
Third, in the United Kingdom, the Strategic Market Status (“SMS”) proposal singles out some entities for special treatment. It has to be determined, based on an economic evidence-based assessment, whether the entity has “substantial and entrenched market power” in relation to a specific digital activity and, second, whether that power provides the entity with a strategic position.
The determination of such power is to be based on a multifactorial assessment. Relevant factors include: availability of alternatives, scope for entry and expansion of new players, degree of innovation in the market and the ease of switching for consumers. The assessment of SMS is to be made with reference to specific activities undertaken by comparable entities that have a similar function or which, in combination, fulfil a specific function.
Whether an entity has strategic position depends on such factors as the entity’s size and scale, its bargaining power in a specific market segment, its gatekeeping function, its ability to define the rules of the game within its own ecosystem and also in practice for a wider range of market participants and the extent to which the entity can leverage its market position from one market segment to another through the development of an ecosystem of services. As per the proposed regime, SMS entities are required to report acquisition of de jure or de facto control.
However, the most promising solution for India, at present, appears to be the adoption of a DVT which has been implemented in Germany and Austria. As per Section 35(1a) of the German Competition Act, subject to the prescribed turnover-based requirements, if an acquisition is valued more than EUR 400 million and the target undertaking has “substantial operations” in Germany, such transaction is subject to the merger control review of the German competition regulator. Germany has also issued a Guidance Note which clarifies a series of operational issues connected with implementing this framework.
Source: Barandbench
