The Competition Appeal Tribunal (CAT) (Hodge Malek QC, Tim Frazer and Timothy Sawyer CBE) today handed down its first substantive judgment on the issue of granting derogations from initial enforcement orders (IEOs) in merger cases.
The application arose in the context of the CMA’s ongoing investigation into Facebook’s completed acquisition of GIPHY, Inc. For completed mergers, the CMA generally imposes a standard form IEO, from which the merging parties can then seek derogations. The CMA thus imposed an IEO at the outset of its investigation, in June 2020. Facebook subsequently requested various derogations from that initial enforcement order, which Facebook contended was in a standard form impractical for a business of its nature and scale. The CMA considered it was unable to assess Facebook’s requests in the absence of further information from the merging parties.
Facebook challenged that decision, which it characterised as a failure to grant its derogation requests, by way of an application under section 120 of the Enterprise Act 2002. Facebook contended that the CMA’s decision lacked a rational connection to the statutory purpose of preventing pre-emptive action, was disproportionate, and infringed the principle of legal certainty.
In its judgment handed down today, the CAT dismissed Facebook’s application, finding that the CMA acted reasonably in requesting further information in order to consider Facebook’s derogation requests with a view to narrowing the IEO. The CAT emphasised, in its judgment, (1) the breadth of the concept of pre-emptive action, (2) the precautionary purpose of IEOs; (3) the wide margin of appreciation which the CMA has to decide what information it requires to discharge its statutory functions; and (4) and the importance of undertakings under investigation cooperating with the CMA when it determines IEO derogation requests. Although the Tribunal observed that, in light of the submissions and evidence, Facebook would appear to have good grounds for submitting that the IEO is unnecessarily wide and burdensome, the approach it had followed did not enable the CMA to decide what derogations from that order were appropriate.
The judgment is here.
Robert O’Donoghue QC, Gerard Rothschild and Tom Pascoe represented Facebook, instructed by Latham & Watkins (London) LLP.
Marie Demetriou QC and Emma Mockford represented the Competition and Markets Authority, instructed by their in-house legal team.