Keeping an eye on the competition

The full results of the implementation of the Competition Act 2002 have yet to be seen, but with its strict regulations, there are likely to be fireworks in Ireland. Helen Kelly reports

A new merger control regime came into force in Ireland on 1 January as a result of Part 3 of the Competition Act 2002. To date, just seven mergers have been notified under the new rules governing mergers in Ireland. Six of these have been cleared in phase one, while the Competition Authority made a formal request for a referral of the proposed acquisition by General Electric of Agfa's NDT business to the European Commission pursuant to Article 22 of the EC Merger Regulation.

Under the new regime, there are several situations under which a merger or acquisition is deemed to occur. The first is if two or more undertakings, previously independent of one, another merge. There is also deemed to be a merger if one or more individuals or other undertakings that control one or more undertakings acquire direct or indirect control of the whole or part of one or more other undertakings. Another situation is if an acquisition by one undertaking of the assets, including goodwill, of another undertaking results in the first undertaking being placed in a position to replace the second undertaking in the business or, as appropriate, the part concerned of the business in which that undertaking was engaged immediately before the acquisition. A final situation is if a joint venture is created that performs, on an indefinite basis, all the functions of an autonomous economic entity.

Mandatory notification

Mergers coming within the scope of the Competition Act must be notified to the Competition Authority within one month of the conclusion of the agreement or the making of a public bid. All of the undertakings involved in a transaction, excluding the vendor, must notify the authority, and joint notification is acceptable. The Competition Authority has the sole power to approve all notified mergers except media mergers, in which the Minister for Enterprise, Trade & Employment retains the power to make the final decision. At the time of writing, no media mergers had been notified.

Test of jurisdiction

There are thresholds that trigger the obligation to notify. One is if two or more of the undertakings involved in the acquisition carry on business in any part of Ireland. There also must be notification if any of the undertakings involved has turnover in the state of more than €40m (£27.9m). Organisations must notify if the worldwide turnover of at least two of the undertakings involved is more than €40m.

The Competition Authority defines 'turnover in the state' as sales made or services supplied to customers within the state. It believes that any sales in Ireland will trigger jurisdiction, even if the level of sales is low.

The thresholds have been disapplied in respect of media mergers, which are notifiable regardless of the turnover of the undertakings involved.

Parties may submit a voluntary notification to the Competition Authority where a transaction falls below the threshold levels, but nonetheless could substantially lessen competition. If a merger is notified to the Competition Authority and cleared by it, it is immune from subsequent challenge by third parties under Sections 4 and 5 of the Competition Act. Such a notification is dealt with in the same way as a mandatory notification.

The substantial lessening of competition test

The test used by the Competition Authority to assess a merger or acquisition is whether the merger or acquisition would substantially lessen competition in markets for goods or services in the state – this is known as the SLC test and is the same test as that used in the UK under the Enterprise Act. The Competition Authority interprets the SLC test in terms of consumer welfare and, in particular, in terms of whether a merger would be likely to result in a price rise to consumers.

The two-phase examination process

The Competition Authority publicises the fact of receipt of notification on its website within a few days of its receipt, thus providing competitors, customers and consumers the opportunity to express their views on the merger.

The Competition Act provides for a two-phase examination process for mergers. Phase one allows the Competition Authority to make a determination within one month of notification that the transaction may be put into effect on the grounds that it would not substantially lessen competition. This one-month period may be extended by 15 days if the parties and the Competition Authority negotiate undertakings or commitments to secure measures that would ameliorate the effects of the merger. In phase one, the Competition Authority can make a formal request for further information to be provided. If a formal request is made, the clock is stopped and only begins to run again when the information has been submitted. To date, all mergers notified have been cleared in phase one, with the exception of the General Electric/Agfa merger.

If there are significant competition concerns, a phase two investigation is initiated. In such cases, the Competition Authority has four months from notification or from the response to an information request within which to investigate the merger and decide whether it should be cleared, blocked, or cleared subject to conditions. A phase two investigation involves a more detailed investigation of the market and may involve an oral hearing if the parties so wish. In phase two, the Competition Authority can also negotiate undertakings or commitments with the parties.

Consequences of failure to notify

A merger that comes within the jurisdictional tests described above must not be implemented before clearance has been obtained. Failure to notify is a criminal offence punishable by fines and any merger that purports to be put into effect in contravention of the provisions of the Competition Act is void. The Competition Authority reviews newspapers and websites that comment on the merger for evidence of possible implementation.

Cartels and behavioural investigations

The Competition Authority recently published its 'Annual Report 2002'. The report outlines the Competition Authority's decision to initiate criminal proceedings in two matters that the Cartels Division had investigated. These are the first decisions to bring criminal proceedings since 1999. Undertakings that are party to 'hard core' offences of price-fixing, market-sharing or output limitation can be fined up to 10 per cent of their turnover under the Competition Act and officers of those undertakings could face five years imprisonment. Currently, the Cartels Division has 79 open investigational files.

The Competition Authority is undertaking various market studies to assess the extent of anticompetitive practices or other constraints on competition. In September 2002, the Competition Authority embarked on an initiative study of non-investment banking in the state. The next month, the Competition Authority, in conjunction with the Department of Enterprise, Trade & Employment, launched a study on the non-life insurance market in Ireland, with particular reference to motor insurance, employers' liability and public liability insurance. These studies are expected to take up to one year to complete.

The Competition Authority recently published a report into competition in eight professions: engineers and architects in the construction sector; medical practitioners, veterinary surgeons, dentists and optometrists in the medical sector; and solicitors and barristers in the legal sector. The Competition Authority has indicated that it will complete its studies of the professions by issuing individual reports on each profession on a phased basis.

The Competition Authority has yet to review a merger giving rise to serious competition concerns in Ireland, but it is taking its new role in merger control review very seriously. We await with interest its scrutiny of mergers giving rise to complex issues and the outcome of criminal proceedings in the competition cases currently with the Director of Public Prosecutions.

Helen Kelly is a partner and head of the EC, competition and regulatory group at Matheson Ormsby Prentice