Expansion of Joint Ventures and Merger Control
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Introduction
The Competition and Consumer Protection Commission (the “CCPC”) announced in July that it had opened an inquiry in the GAAGO Media online streaming service (a full-function joint venture between RTÉ Commercial Enterprises DAC and the Gaelic Athletic Association) (“GAAGO”). An interesting feature of this case is the fact that the CCPC had previously approved the GAAGO joint venture, which at the time was set up to provide a streaming service to customers outside of Ireland. The expansion of that service to the domestic market earlier this year followed by confirmation from RTÉ before the Joint Committee on Tourism, Culture, Arts, Sport and Media that the service was currently operating without clearance from the CCPC raised the question as to whether that expansion triggered a new merger notification requirement to the CCPC. While the inquiry is ongoing, it does provide an opportunity to look at the circumstances in which the expansion of an existing joint venture might trigger a new merger notification requirement.
The requirement to notify Full-Function Joint Ventures
Under Irish law, media mergers[1] and mergers or acquisitions which satisfy certain thresholds[2] must be notified in advance to the CCPC (and, in the case of media mergers, the Minister for Tourism, Culture, Arts, Gaeltacht, Sport and Media) and cannot be implemented until either clearance is received or, in the case of notifications to the CCPC, the statutory investigation periods expire without a determination being made.
In addition to the typical mergers and acquisitions of businesses and companies, the term “merger or acquisition” also includes the creation of full-function joint ventures. Full-function joint ventures are such joint ventures that perform all the functions of an autonomous economic entity on a lasting basis such that they constitute a merger for the purposes of the Irish competition law. They are full function in the sense that they operate as a standalone business which trades as an independent entity from either of its contributors. Such a joint venture will usually have its own assets and employees and can sue and enter contracts in its own right.
Where a joint venture lacks the necessary elements of full functionality (often referred to as a “co-operative joint venture”) no requirement to notify will arise but its operation and structure will remain subject to the general rules of competition law prohibiting anti-competitive arrangements between undertakings and abuse of dominant position.[3]
Changes in the activities of Full-Function Joint Ventures
The CCPC inquiry into GAAGO serves as a reminder that changes in the scope of a joint venture can trigger a new notification requirement.
In the case of co-operative joint ventures, a restructuring of the affairs of that joint venture could lead it to acquire full functionality and trigger a merger notification requirement.
In relation to full-function joint ventures, an expansion or enlargement to the activities of that joint venture can give rise to a new “merger or acquisition” for the purposes of section 16 of the Competition Act 2022. There is no official guidance in Irish competition law as to what level of expansion will trigger a notification requirement, but the CCPC is likely to follow the guidance of the European Commission as set out in the Commission’s Consolidated Jurisdictional Notice under Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings (the “CJN”). The circumstances in which a change in activities can trigger a notification requirement are set out in paragraphs 106 to 109 of the CJN which are, in brief:
- (106) Where the parent companies decide to enlarge the scope of the activities of the joint venture by acquiring the whole or part of another undertaking from the parents.
- (107) Where the parent companies transfer significant additional assets, contracts, know-how or other rights to the joint venture and these assets and rights constitute the basis of an extension of the activities of the joint venture into other product or geographic markets which were not the object of the original joint venture, provided the joint venture performs such activities on a full-function basis.
- (108) Regarding the scenario set out in para. 107 above, if the scope of a joint venture is enlarged without additional assets, contracts, know-how or rights being transferred, no concentration will be deemed to arise.
- (109) Where there is a change in activity of an existing non-full function joint venture such that a full-function joint venture is created.
The above paragraphs from the CJN contemplate two distinct scenarios that give rise to a change in the activities of a full-function joint venture such that a notification requirement would arise:
- The first scenario involves a transfer of the whole or part of an undertaking from one or more of the parents to the joint venture. This is a classic merger or acquisition scenario with the joint venture acquiring control of another undertaking.
- The second scenario is where the scope of the joint venture is extended into product or geographic markets which were not the object of the original joint venture. In this scenario, such an extension will effectively amount to the creation of a new full-function joint venture for the purposes of section 16(4) of the 2002 Act if the following conditions are fulfilled:
- the parent companies must transfer significant additional assets, contracts, know-how or other rights to the joint venture – if there is no enlargement without additional assets or rights, no merger or acquisition will be deemed to arise;
- these assets or rights transferred must constitute the basis or nucleus for an extension of the activities of the joint venture into other product or geographic markets which were not the object of the original joint venture; and
- the extended activities are to be performed by the joint venture on a lasting basis.
It is clear from these scenarios that minor changes to the activities of a full-function joint venture will not give rise to a notification requirement; only significant expansions of activities are likely to result in a notification requirement. In addition, the financial thresholds for notification would need to be met other than where the merger or acquisition was also a media merger.
The result of the CCPC inquiry into the expansion of activities of GAAGO is of particular interest in relation to the issue of notification requirements, given the context of RTÉ’s assertion that no notification requirement arose due to the short-term nature of GAAGO’s expansion of activities (a two-year term). As set out above, the CJN contemplates a change in activities in the second scenario when those extended activities are to be performed on a lasting basis, and so the CCPC’s determination on this matter will be highly instructive on Irish treatment of the notification requirements.
As is the case with co-operative joint ventures, where an expansion of activities in a full-function joint venture falls short of a notification requirement, the terms surrounding that expansion will nonetheless remain subject to scrutiny under the general competition law rules.
Consequences for failure to notify a notifiable expansion in activities
Where an extension of activities of a full-function joint venture triggers a notification requirement as detailed above, failure to notify that expansion can result in serious consequences for the parties involved.
Failure to notify a notifiable transaction is a criminal offence and both the companies and individuals in control of the businesses can be prosecuted. Successful prosecution can result in fines of up to €3,000 on summary conviction, (with a maximum daily default fine of €300) and €250,000, on conviction on indictment (with a maximum daily default fine of €25,000). This is something that the CCPC actively monitors, and the Director of Public Prosecutions brought the first criminal prosecution in 2019, which resulted in the defendants entering guilty pleas.
In addition, any merger subject to mandatory notification obligations cannot be put into effect before it is approved by the CCPC and, in the case of a media merger, the Minister for Tourism, Culture, Arts, Gaeltacht, Sport, and Media". This is known as the ’standstill obligation’ and breach of the standstill obligation results in that transaction being void as a matter of Irish law.
Enhanced CCPC powers against gun-jumping under the Competition (Amendment) Act 2022
The CCPC powers to prosecute gun-jumping are due to be enhanced by the Competition (Amendment) Act 2022 (the “2022 Act”), which was the subject of a recent commencement order designating the 27th of September 2023 as the commencement date for the 2022 Act. The 2022 Act implements the ECN+ Directive (Directive (EU) 2019/1) to ensure that the national competition authority (the CCPC) will have similar powers for investigations and enforcement as those across the EU.
The 2022 Act widens the parameters of the “standstill obligation” set out in the 2002 Act such that implementation of a notifiable merger or acquisition before the CCPC has issued a clearance decision authorising them to do so, in addition to being void, will also be a criminal offence carrying the same penalties as failure to notify.
In addition, the 2022 Act also gives the CCPC the power to bring summary proceedings in the District Court where parties have failed to notify a merger or acquisition that meets the applicable financial thresholds, or the parties have failed to respond to a request for information.
Perhaps the most significant change being implemented by the 2022 Act is the new power of the CCPC to direct parties to notify so-called “below threshold” mergers where the CCPC considers that it may have “an effect on competition in markets for goods or services in the State.” We discussed this enhanced power of the CCPC in a previous insight which can be viewed here.
Conclusion
The CCPC’s inquiry into GAAGO’s expanded activities coupled with the enhancement of the CCPC’s powers to prosecute “gun-jumping” offences is a helpful reminder that parties to joint ventures need to carefully consider possible merger notification requirements when expanding or changing the activities of that joint venture. The outcome of the inquiry should also provide some guidance as to the CCPC’s formal position on this topic and the circumstance it considers an expansion will trigger a notification requirement.
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[1] A ‘media merger’ is (a) a merger or acquisition in which two or more of the undertakings involved carry on a media business in the State, or (b) a merger or acquisition in which one or more of the undertakings involved carries on a media business in the State and one or more of the undertakings involved carries on a media business elsewhere.
[2] The parties involved having a combined turnover in the State of €60 million or more and at least two the parties involved having turnover in the State of €10 million or more.
[3] Sections 4 and 5 of the Competition Act 2002 and Articles 101(1) and 102 of the Treaty on the Functioning of the European Union.