“Hot docs” approach has come to EU, observers say

Pallavi Guniganti

10 July 2018

The European Commission has become increasingly reliant on merging companies’ internal documents to substantiate competition concerns, lawyers and economists have said. Pallavi Guniganti at GCR Live Brussels

Speakers at GCR Live Brussels yesterday noted that the EU enforcer’s recent use of theories of harm such as innovation, coordinated effects and data accumulation – as seen in Dow/DuPont, Qualcomm/NXP and Microsoft/LinkedIn – has been supported in large part by citing the companies’ internal documents, and not necessarily through strong economic modelling.

Concerns about an over-emphasis by the European Commission on using internal documents to analyse the likely competitive effects of mergers is not entirely new.

For example, counsel to the New York Stock Exchange criticised the commission in 2012 for blocking its merger with Deutsche Börse “based largely on qualitative assessment of internal documents and responses to questionnaires and interviews with market operators”, while using “very little real empirical analysis”.

However, blocking a merger by citing allegedly anticompetitive statements in the companies’ documents has been a strategy more associated with the US antitrust agencies, which have to prove their claims before a non-specialist judge to obtain an injunction against a deal.

Makan Delrahim, head of the US Department of Justice’s antitrust division, complained last month that the DOJ had not been permitted to introduce, in its failed challenge to AT&T/Time Warner, certain pre-transaction documents that he said demonstrated an anticompetitive motive for the deal.

Nonetheless, European Commission competition officials acknowledged earlier this year that internal documents played a significant role in high-profile deal reviews such as Dow/DuPont, where the enforcer last year used business plans about expenditures on research and development as evidence that the deal would lessen competition in innovation. The commission earlier this year promised guidance on information requests in merger cases.

Joan de Solà-Morales, an economist at RBB Economics, said at GCR Live Brussels yesterday that after the controversial General Electric/Honeywell merger block in 2001, the European Commission became more structured in its analysis of conglomerate effects. But recently he has seen “increased reliance on the part of the commission on internal documents,” he said.

This trend coincides with the enforcer putting forward other previously uncommon theories of harm, Solà-Morales said, for which “the economics are inconclusive or at least very difficult.” Therefore, the commission looks instead to internal documents, he said.

Solà-Morales said he did not think the agency’s substantive economic analysis of conglomerate effects has changed, but with the commission more reliant on internal documents, it has recently become more active in raising such concerns than it had been in the prior decade.

Ingrid Vandenborre, a partner at Skadden Arps Slate Meagher & Flom in Brussels, said that the European Commission is demanding increasingly heavy document discovery, which has drawn complaints. She noted a statement by EU competition commissioner Margrethe Vestager that acknowledged the agency’s reliance on internal documents to draw conclusions, rather than an economic assessment.

“I think that’s a worrying development,” Vandenborre said.

With the US setting the tone for how to use documents, she said, the EU will probably not lag behind. The commission apparently takes the view when it has documents to back its theories of harm that it doesn’t “need to do new robust economic models”, Vandenborre said.

But she did not frame the problem as purely a lack of economics, pointing out “a certain level of acceptance that documents do play a role, even from the chief economist’s perspective.”

The commission’s chief competition economist has said that high profit margins are relevant to merger enforcement, which Vandenborre said is “from an economic perspective, kind of the impressionist equivalent” of lawyers’ basing theories of competitive harm on internal documents.

Matthew Readings, a partner at Shearman & Sterling in London, added that internal documents only seem to be used negatively by the commission. When documentation explaining the rationale for a deal shows no element of foreclosure or harming competitors, “my experience is that that gets ignored,” he said.

He, Vandenborre and Solà-Morales spoke yesterday alongside Vincent Verouden of E.CA Economics on a panel moderated by Linklaters partner Jonas Koponen. GCR Live Brussels: the Bigger Picture ended today.

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