Competition | UK Regulatory Outlook July 2023
Published on 26th Jul 2023
EU Foreign Subsidies Regulation | Competition and Markets Authority procedural reviews | Standard essential patents and competition law
EU Foreign Subsidies Regulation
Following on from last month's Regulatory Outlook on the Foreign Subsidies Regulation (FSR), the Commission adopted an implementing regulation for the FSR on 10 July. Please see our recent international Insight for a high-level summary of the FSR.
In an effort to reduce the administrative burden of the FSR, the implementing regulation makes a number of changes to the new reporting requirements. Companies are only required to submit detailed information on the financial contributions most likely to distort competition in situations where these amount to at least €1 million over the past three years.
Summary information only is required for all other financial contributions of at least €1 million and only in relation to countries which have granted parties to the transaction at least €45 million in the past three years or €4 million to the notifying parties in public procurement cases.
These changes will not only help companies with their notification forms, but also the Commission with its review. The regulator has indicated that it is short on staff to enforce the law, with only a small portion of the manpower it said it needed to carry out its task properly. As a result, it has issued a tender worth €3 million for consultants to help it enforce the FSR. The tender document specifically requests knowledge of Chinese, Arabic and Russian – giving a hint of the expected focus of the Commission's work.
Commission officials are also encouraging companies to engage early in prenotification talks to smooth out the process and have also introduced waiver requests to exempt companies from notifying non-problematic subsidies.
However, EU officials could ask for more concrete information on any foreign financial contributions they want, so the implementing regulation does not exempt companies from establishing an exhaustive monitoring system to have all the data ready in case it is required.
It is important for businesses currently operating or looking to operate in the EU to ensure that any state assistance and/or public funding they receive from third countries complies with the requirements of the FSR, to avoid facing sanctions from the Commission.
Sanctions include fines of up to 10% of the parties' aggregate worldwide turnover in cases of failure to notify a notifiable transaction or public tender, the unwinding of a completed transaction or the prohibition of the award of a public contract.
Businesses must also factor in the time and cost of maintaining compliance with the FSR into day-to-day business activities as well as into the due diligence process for M&A deals and public tenders.
Competition and Markets Authority procedural reviews
The Competition and Markets Authority (CMA) is looking for stakeholder input on two changes to its processes and procedures.
The first of these is a call for information in relation to the Phase 2 investigation process of its merger control function. This call for information runs until 25 August.
The CMA is collecting views from authorities, businesses and advisors on whether the merger control regime could be improved by providing greater opportunities for companies to engage with decision makers on their proposed transaction. This is largely in response to recent high-profile cases where it has been accused of lacking transparency in its investigative process. Businesses have argued they were not given a chance to address outstanding concerns over transactions and that the blocking of transactions by the CMA was based on a faulty understanding of the relevant markets.
It has also issued a consultation on its proposed updated case prioritisation principles. These principles are used in determining its allocation of resources. This consultation runs until 3 August.
The proposed updated principles explain that the CMA focuses its efforts and resources on matters that deliver the greatest beneficial impact to people, businesses, and the UK economy, in line with the its strategic priorities set out in its Annual Plan.
Both the call for input and the consultation provide an opportunity for businesses to influence the future direction of the CMA's enforcement methods and priorities. The changes that come out of these developments have the potential to affect the competitive landscape within the UK. Consequently, it is important for all businesses to remain aware of these developments even if they choose not to respond to the CMA in relation to them at the current stage.
Standard essential patents and competition law
The UK Intellectual Property Office (IPO) has published the executive summary and next steps in relation to its consultation on standard essential patents and innovation. This consultation investigated whether the ecosystem around standard essential patents (SEPs) was functioning effectively.
There has previously been little consensus on how to make the licensing of SEPs more efficient and there is little sign of change to this state of affairs.
Of particular note are calls for changes to the horizontal guidelines and for investigations by the CMA. According to the IPO, there are a similar number of submissions calling for the status quo to remain. Some SEP holders said implementers derive power from the requirement to offer fair, reasonable and non-discriminatory (FRAND) terms. Most implementers said that SEP holders exercise market power, while some argued that SEP holders used the threat of injunctions to coerce implementers to accept non-FRAND licences.
Similarly, a mixture of views were expressed on whether there were wider issues related to competition and market functioning. These included barriers to entry and market exclusion; “tying and bundling” of patents; and negative impacts of UK courts determining global licensing terms.
Given the breadth of issues raised and the divergence of the views on the case for government intervention, the IPO has stated that it needs a further period of assessment. During this period, it has stated that it will engage with businesses and others to ensure it has understood their concerns and seek further evidence.
The IPO aims to report its findings to UK ministers in 2023. Any significant policy intervention is expected to be subject to specific consultation. As a result, SEPs necessary for the development of next-generation cars and connected devices are unlikely to see intervention from the UK government any time soon.
On 27 April 2023 the European Commission proposed new regulations on standard essential patents, compulsory licensing of patents in crisis situations and the revision of the legislation on supplementary protection certificates. These draft proposals are aimed at creating a more balanced licensing system for SEPs. There has been both praise and criticism of these proposals which has resulted in the Commission's chief competition economist urging SEP stakeholders to lower their expectations for a "perfect" licensing system.
Stakeholders in the SEP regulation debate should remain aware of developments in this space as changes could have a significant impact on the licensing of SEPs.
EU Digital Markets Act: potential gatekeepers notify the Commission
The potential gatekeepers under the EU Digital Markets Act (DMA) had until 3 July to notify the European Commission if they meet the thresholds for gatekeepers established by the Act. The Commission received notifications from a number of companies by the deadline. Now the Commission has 45 working days, until 6 September, to assess whether they meet the relevant threshold and whether to designate them as gatekeepers. Following such designation, gatekeepers will have six months to comply with the requirements in the DMA, at the latest by 6 March 2024.
Update on UK Digital Markets, Competition and Consumers Bill: CMA publishes its written evidence
Call to action
On 12 July 2023, the European Commission gained new powers to investigate whether a business active in the EU may have gained a competitive advantage through the receipt of subsidies from non-EU countries. International businesses active in the EU who have received any foreign contributions since 12 July 2018 should check whether the EU Foreign Subsidies Regulation could potentially affect their activities.
As from 12 October, a new mandatory notification system takes effect, which will require international businesses who have received non-EU financial contributions over a certain threshold to notify the Commission.