31 March 2017
On 6 December 2016, the European Commission approved the acquisition of LinkedIn by Microsoft, conditional on compliance with a series of commitments. The full text of the decision has recently been published, affording some useful insight into the Commission’s reasoning. The merger is one of a number of high profile technology cases in which data is the key asset. Cases such as this are challenging the Commission’s relaxed attitude to the potential effects on competition of deals involving significant volumes of data (for example, the Commission’s 2014 clearance decision of Facebook’s acquisition of WhatsApp – now the subject of an investigation into whether Facebook provided misleading information in the context of that merger review).
Similarly, in the LinkedIn / Microsoft decision, the Commission’s assessment was that the post-merger combination of data (such as the individual career information, contact details and professional contacts of users) did not raise competition concerns.
The Commission identified two potential concerns:
- The combination of data may increase the merged entity’s market power in the data market or increase barriers to entry / expansion for competitors who need this data in order to compete – forcing them to collect a larger dataset in order to compete with the merged entity; and
- Even if the datasets are not combined, the companies may have been competing pre-merger on the basis of the data they control and that this competition could be eliminated by the merger.
These concerns were dismissed by the Commission on a number of grounds, the most interesting being that the combination of their respective datasets is unlikely to result in raising the barriers to entry / expansion for other players as there will continue to be large amounts of internet user data available for advertising purposes which are not within Microsoft’s exclusive control.
The Commission’s approach contrasts with that of some commentators (and indeed some of the Commission’s own non-merger enforcement activities) which have highlighted the potential for platforms to gain an unassailable advantage over competitors in relation to data.
Concerns of data ‘tipping points’ were among the reasons why French and German competition authorities have published a joint paper on data and competition law.
Germany has amended its domestic competition law to increase the legal tools available to prevent market dominance and abuses in relation to data. These changes will come in to force later this year and include:
- controversially) amending the German merger thresholds to require notification of deals involving innovative companies (like start-ups) with a transaction value of EUR 400 million; and
- introducing specific criteria for reviewing market power in (digital) multi-sided markets, for example allowing the Bundeskartellamt (BKA) to consider: concentration tendencies; the role of big data; economies of scale; user behaviour; and the possibilities to switch a platform.
The additional merger threshold is intended to allow the BKA to review mergers in which the transaction value is high but the parties’ turnover in Germany is below the existing EUR 25 million threshold; for example, when Facebook’s acquisition of WhatsApp for USD 22 billion was not notifiable in Germany (although it was reviewed by the Commission).
France and Germany’s robust approach to competition concerns in relation to data is in contrast with the less interventionist position in the UK. This is demonstrated by recent UK government report on digital platforms which found that, “In many sectors, e.g. search engines or social networks, firm behaviour and survey evidence suggests that in the event of even a modest hike in costs users would expect to find an alternative and cease using the service. It is difficult to reconcile this behaviour, and this finding, with the sense that there is an important “moat” which prevents users switching to alternative services over time. Any moat that does exist only seems to be enough to keep them in one place if the platform continues to be free and improve its service over time.”
Given the moves towards ex ante regulation of data in France and Germany, and given the ex post investigation into Facebook/WhatsApp, it remains to be seen whether future merger investigations will take a similarly permissive approach.