Tech Giants Face (The) Book!

Failing to reply to a legally enforced order from the Competition and Markets Authority does not tend to go down well. How has tech giant Facebook fared?

What has happened?

On the 20th October 2021 the Competition and Markets Authority handed down a ￡50.5 million fine to social media giant Facebook for deliberately reducing the regulator’s power or ability to stop, check or rectify any matter s of anti-competitive practices. This followed an investigation into the purchase of Giphy which occurred in June 2020.?

In June 2021 the Competition and Markets Authority commenced an investigation into the merger, having warned Facebook about its conduct on numerous occasions.?? ?

What Does This Mean??

By issuing this fine, the CMA have set their stall out by delivering a ‘warning ’ to companies who perceive themselves as ‘above the law ’. This is significant because it marks the first occasion in which the regulator has concluded that an Initial Enforcement Order has been breached and has then issued a fine to the company for “consciously refusing to report all required information ”. The factors that pushed the Competition and Markets Authority to impose such a high level of fine was the “deliberate failure ” to comply, despite numerous warnings . The regulator emphasised that it had warned Facebook that the refusal to provide important information was a breach of the order.???????

However, Facebook are seemingly no stranger to this kind of controversy. In 2020 the company faced criticism from the Competition Appeal Tribunal and the Court of Appeal over its “risky strategy” of failing to comply with the investigation and provide the regulator with updates.?

The conduct of Facebook has contributed to the distortion of competition within the market, their sheer size means their purchase of other companies allows them to dominate new markets by pricing out innovative competitors.

What Impact Could This Have on the Legal Profession?

This case clarifies the retrospective procedure the Competition and Markets Authority uses to investigate a completed acquisition, it also underlines the importance of open communication and disclosure. Under normal circumstances the regulator invariably sends an “initial enforcement order” or IEO with the aim of preserving the status quo of companies. Legally, it is then seen as though the transaction between the parties never took place . The Senior Director of Mergers at the regulator described these orders as a “key part ” of the UK’s voluntary merger control regime . It means that throughout the investigation, businesses can continue to compete in a healthy way and the process of combining their resources is temporarily suspended.

Clients entering acquisitions need to be as cooperative as is reasonably possible with the CMA by communicating openly on a regular basis, providing all the required information, setting out the steps they are taking to adhere to the enforcement order and meeting all deadlines. Information which may be required is the company accounts or company performance in certain markets (to determine whether there is an unfair impact on competition within a market) etc.

However, the decision to impose a fine of this level is not the end of the road for the matter as the Competition and Markets Authority clarified, “no decision has been made in relation to the merger” and “the investigation is “ongoing ”. In the spirit of cooperation it confirmed it will work “constructively ” with both Facebook and Giphy as the matter proceeds.??

Clients involved in these transactions should not lose sight of the important merger and acquisition issues. It is imperative that all parties ensure that all terms have been agreed, be clear on what happens if there is a change of control (in a business) and ensure that matters such as tax and employment law are considered carefully. It will also be important to notify any regulators such as the European Commission while also ensuring precedents are satisfied. If handled correctly from the outset the transaction can proceed to a satisfactory conclusion more efficiently, minimising the risk of a delay.

Assessing firms

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This Article Was Written Using the Following Sources:

[Source 1] CMA fines Facebook over enforcement order breach – 20 October 2021 - CMA fines Facebook over enforcement order breach - GOV.UK (www.gov.uk)

[Source 2] Facebook, Inc / Giphy, Inc merger inquiry – 12 June 2021 - Facebook, Inc / Giphy, Inc merger inquiry - GOV.UK (www.gov.uk)

[Source 3] Tech Law for Everyone – CMA fines Facebook over ￡50 million for breach of enforcement order - ?SCL: CMA fines Facebook over ￡50 million for breach of enforcement order – 31 October 2021?

[Source 4] Facebook could be forced to sell Giphy over UK anti-trust ruling, (Forbes, 12th August 2021)-?https://www.forbes.com/sites/iainmartin/2021/08/12/facebook-could-be-forced-to-sell-giphy-over-uk-antitrust-ruling/

[Source 5] Facebook faces two antitrust enquires in Europe (NY Times, June 4th 2021) https://www.nytimes.com/2021/06/04/business/facebook-eu-uk-antitrust.html