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Antitrust regulators emphasize importance of innovation for merger control assessment – Commission considering revision of EU merger control thresholds

Antitrust regulators around the globe reinforce the importance of innovation for the assessment of mergers and acquisitions.

The European Commission this month published a policy brief on the role of innovation in merger control within the European Union (EU) outlining the Commission’s approach to the assessment of innovation in the context of merger control. In addition, EU Commissioner Vestager in a speech on 18 April 2016, in line with previous announcements, signalled the Commission’s intention to re-examine its thresholds for notification with a view to enabling the Commission to examine the acquisition of innovators with “a lot of good ideas but not yet much in the way of sales.”

The Commission’s approach is largely mirrored by recent practice of the FTC and the DOJ when assessing the impact of a merger on innovation.  The US agencies often focus on the effect that a pending transaction will likely have on innovation, even if the competitive significance of the target company is not fully reflected by its current sales.


The importance of innovation as a factor in merger control has risen in recent years. Because technological development is now fundamental to the running of a successful business across many industries innovation will play a key role in the assessment of future transactions.

In both the EU and the US, the framework for merger control allows the authorities to assess the impact of mergers and acquisitions on innovation within the industry concerned. The authorities can regard the potential competitive harm caused by a reduction in innovation in the market as equal to or greater than the potential harm caused by increased prices and reduced output. In an increasingly tech-savvy legal environment, innovation can therefore play a key role in the assessment of mergers as the Commission’s policy brief underlines.

The role of innovation in merger control

The policy brief explains the fact that the effect on innovation is a key concern for the Commission in its merger investigations. The brief explicitly acknowledges that the potential loss of innovation in the market often goes to the heart of the anti-competitive effects of a merger. The Commission states that, with regard to horizontal mergers, the innovation potential of the merging companies is taken into account regardless of their market shares based on sales revenue. This position can make it more difficult to achieve merger clearance if the merging parties are significant competitors in innovation, but it may also help the merging parties convince the Commission (and the US authorities) that the competitive significance of other companies whose current market shares are low should be given more weight in the analysis.

Commissioner Vestager reiterated the Commission’s approach in a speech this week when she noted that one of the simplest defences against innovation is to buy up rivals that are working to develop innovative products.  The Commissioner’s comments on innovation thus complement the approach set out in the policy brief by focusing on innovation as a key competitive concern in EU merger control.

Also in the US, the DOJ and the FTC in recent decisions have focused on both current competition and future competition for next-generation products yet to be developed. This means that in dynamic markets, a relatively small competitor may be a much more significant competitive constraint than its current market share would indicate. This can be the case, for example, where the smaller player has promising pipeline products.  Innovation can also affect the definition of the relevant product market – if the industry is rapidly evolving, the relevant product market may be broader than a static snapshot of the current offerings available to consumers.


The Commission, like the US antitrust agencies, also considers the potential positive effects of a merger (efficiencies), and will take any potential improvements in innovation into account in cases where these positive effects may also lead to benefits for consumers and are specific to the merger at hand. In analysing efficiencies, the Commission will examine the rationale behind the deal. For example, the merged entity may combine research and development (R&D) programs that will lead to more innovation on the market.

However, the merging parties carry the burden of proving that the claimed efficiencies. It can be difficult to substantiate innovation-based efficiencies claims as efficiencies should be evident in the short-term and innovation success is often difficult to predict. Moreover, innovation efficiencies can be viewed by the antitrust agencies as reductions in innovation competition, so merging parties must be very careful in describing such cost reductions.

Difficulties in defining innovation

Despite the authorities’ regular practice in including innovation amongst the factors to be considered when assessing a merger, difficulties with the current framework still remain. Innovation can be complicated to assess correctly. This problem is exacerbated by the fact that the EU and US legal frameworks for merger control do not at present precisely define the concept of innovation.

In industries such as life sciences, innovation can be assessed in a relatively objective manner through the examination of clinical trials. In recent cases in this industry the Commission was able to quantify the effects of merger on innovation by analysing recent developments in R&D by the merging parties.

However, in other industries, providing evidence of the effects of a transaction on innovation is less straightforward. Nevertheless, the Commission’s policy brief is a clear indication of a willingness to consider all available evidence in assessing potential effects on innovation. This evidence is of critical importance, and the Commission examines the internal documents of the parties to a transaction in order to gain an insight into their own view on innovation and potential future market trends. If necessary, the Commission will also obtain advice and insight from neutral experts in the industry field affected by the transaction at hand.


Parties to a potential merger are best advised to consider the Commission’s approach to innovation long before beginning the notification and filing process. The importance that the Commission and other antitrust authorities give to innovation in assessing the competitive effects of a merger should not be underestimated.

In particular, internal documents often play a key role in the authorities’ investigations and decision-making, and thus the drafting of any documents that concern the innovative landscape of a market should be carefully considered. In particular, the fact that these documents may ultimately form the basis for the antitrust authorities’ decisions should be kept in mind at all times.

Finally, large-scale international mergers triggering merger control review in Asia, as well as in Europe and the USA, require a truly global strategy. In Asia, antitrust, industrial policy, and protectionism are often intertwined and innovation and IP issues are often at the forefront of high tech mergers. In addition, merging parties should be aware that authorities throughout the world cooperate and exchange information increasingly often during merger investigations. Accordingly, companies need to develop innovative merger control strategies when dealing with innovation and merger control.