The case manager on the European Commission’s review of the Dow/DuPont merger has said the enforcer applied principles similar to those in the US antitrust agencies’ guidelines.
Thomas Deisenhofer, the head of unit for mergers in basic industries, manufacturing and agriculture, said the much-criticised “innovation spaces” that his enforcer sought to preserve comes from EU guidelines inspired by US policy. He spoke in his personal capacity at GCR Live IP & Antitrust in Brussels earlier this month.
“Innovation spaces is just another word for something which was introduced in the US in 1995, in the tech transfer guidelines and which was called an innovation market,” Deisenhofer said – but the European Commission’s Directorate-General for Competition was loath to refer to them as innovation “markets” as nothing is bought or sold in them.
Such spaces are upstream of actual product markets, he said, “and that’s why we used that concept which is exactly the same, as has been used in the literature by the authorities throughout the world, which is also in all guidelines and which is in the US guidelines.”
In addition to the EU’s merger guidelines, which require looking at innovation effects, Deisenhofer noted that DG Comp’s research and development cooperation and technology transfer guidelines both mention innovation competition. They “speak about concepts very similar to the innovation spaces in the US, and are based on a similar concept: in a very concentrated setting with few innovators, if you have too much concentration, if you have mergers, there may be a risk to innovation.”
Deisenhofer noted that the number of agrichemical companies researching and bringing to market new pesticides has fallen from 40 to five, and that investment into research and development as a percentage of the companies’ revenues has fallen as consolidation increased.
“All of this is not rocket science; it comes actually from the US. We imitated the US guidelines, which were started since ’95 – the tech transfer guidelines, R&D cooperation guidelines. And most importantly, if you look at the US horizontal merger guidelines, there is a full section on innovation which has exactly these principles,” he said.
Deisenhofer also denied that Dow/DuPont was a “new case” in EU merger reviews, saying it had product overlaps and innovation overlaps – similarly to General Electric/Alstom, Deutsche Börse/ NYSE Euronext and Halliburton/Baker Hughes. He cited the US Department of Justice’s challenge to AT&T/T-Mobile as an example of innovation concerns, saying the Antitrust Division sought to block the mobile carriers’ merger on the grounds that “T-Mobile in the US was the most active innovator in bringing new tariff plans to the market.”
While all of this is fact-specific, he cautioned that Annex 4 of the commission’s Dow/DuPont decision, “Implications of the economic theory on mergers, competition and innovation”, must be understood as a rebuttal to theoretical arguments by the companies, “which is good for a discussion but it is not the legal test for future cases.”
The agrichemical industry specifically is one “where innovation is path-dependent,” in which companies have track records building on prior discoveries, Deisenhofer said. “You are not going to be Google and start innovating in pesticides tomorrow.”
Deisenhofer was joined on the panel by Gregory Crawford, an economics professor at the University of Zurich; Susan Jones, head of antitrust for Novartis; and Baker Botts partner Stephen Weissman. Conference co-chair Theon van Dijk of E.CA Economics moderated the discussion.