EU Antitrust Continuity Potentially Threatened by Brexit

06 February 2017 Dashboard Insights Blog
Authors: Howard W. Fogt Alan D. Rutenberg

Our second antitrust outlook-focused post reflects on how we expect 2017 to continue to shape up as a year in which competition policy and enforcement will face increased uncertainty and complexity, specifically with respect to the EU where competition policy may be forced to change, or to include more actors.

In a June 23, 2016, referendum, a majority of voters in the United Kingdom (UK) decided that the UK should exit the European Union (EU). While the outcome has been subject to substantial comment, suffice to say, there has long been growing political, social, cultural, and economic restiveness in the UK about EU policies, rules, and membership obligations leading up to the vote to “leave” the EU, which the UK joined in 1973. The process of Brexit will formally begin early in 2017.

The EU was created through a series of treaties that aimed at increasing economic, social, and political integration. That process of integration enshrined four so-called essential “freedoms” — the free movement of people, goods, services, and capital within a common market. It should be evident that the majority of UK voters favoring Brexit rejected, at least implicitly, many of the founding principles on which the EU was based — harmonization of laws across an ever-increasingly level economic playing field, freedom of business and people to move across national boundaries to work and live, and, most profoundly, the notion that Europeans shared a common destiny.

While competition policy was not the most important priority precipitating Brexit, common competition policy was a fundamental goal in the creation of the European Community and, ultimately, the European Union. That common competition policy is now threatened as the UK exits the EU. A number of examples of such uncertainty may be cited. At the heart of the European merger control is the European Merger Control Regulation (EMCR). As a regulation, it has direct effect throughout the EU (including the UK, of course). The EMCR confers exclusive jurisdiction on the European Commission to investigate and prohibit anticompetitive mergers, acquisitions, and concentrative joint ventures that had a “community dimension.” The EMCR provided for “one-stop” shopping that made merger control in Europe for certain types of transactions more efficient, less costly, and more uniform. Brexit may, depending on the negotiated terms of the exit, reduce the utility or availability of the one-stop shop.

The current EMCR provides a mechanism for the European Commission to take jurisdiction over deals not having a community dimension under certain stated circumstances. The UK exit may diminish the value of this provision and will likely result in parallel proceedings in the UK and the EU, with the potential for conflicting outcomes (as reflected in the different enforcement approaches in the EU and the United States on the unilateral conduct of certain major technology companies).

This same kind of problem arises with respect to international cartel enforcement. Like the United States, the EU has had a very aggressive and effective enforcement campaign. Total fines over the five years have exceeded € 8.6 billion, with over € 3 billion in 2016. Brexit makes continued cartel enforcement more complex. There is a risk of dual prosecution of the same alleged illegal activity, the possibility of multiple fines and penalties being imposed, and the risk of inconsistent outcomes in these parallel proceedings. In addition, there are serious questions of procedure and policy. It is unclear how investigations will be conducted, documents and information collected, confidentiality protected, etc. Open questions relate to the potential conflicting criminal and civil regimes, lenience, and lenience plus, as well as the potential erosion of the protections of the attorney-client privilege.

Finally, Brexit may well make more complex rules, regulations, and enforcement of vertical arrangements. The EU has pursued a rigorous (some say inflexible) approach on exclusive dealing in its efforts to create and foster a single common economic market. A major issue on the EU radar screen at present relates to restrictions in online markets. EU rules on such restrictions have increasingly become stricter as the size and economic importance of online marketplaces have grown. However, many manufacturers (particularly of luxury goods) restrict retailers from selling online. There is a major case pending before the EU Court of Justice that focuses squarely on this issue. Here again, Brexit may undercut the ability to achieve a common enforcement approach on this significant sector of economic activity.  Recently, the UK Prime Minister announced that the UK intended to make a clean and definitive “hard exit” from the EU.  This prospect, coupled with announced plans of a number of other member states to reconsider their respective relations with the EU during 2017, raises further the level of uncertainty and risk of increased costs/inconsistent enforcement for competition matters in Europe.

For Additional Information About These Developments and More

Foley’s experienced Automotive Industry Team has prepared a full report, entitled “Top Legal Issues Facing the Automotive Industry in 2017,” that examines the road ahead regarding antitrust, security, labor and employment, M&A, and more. Download it today.

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