The Competition Appeal Tribunal (CAT) and Court of Appeal have upheld decisions of the Competition and Markets Authority (CMA) in two significant merger cases. These judgments endorse both the CMA’s assertive approach to establishing jurisdiction over transactions with limited UK nexus and its policy of imposing global hold separate orders over both parties in completed mergers, and underline the broad discretion that the courts will allow the CMA in deciding how to carry out merger investigations.

In Sabre v CMA, the CAT dismissed Sabre’s appeal against the CMA’s decision that the transaction qualified for review in the UK, even though the target company (Farelogix) had no UK sales.[1] In Facebook v CMA, the Court of Appeal upheld the CMA’s decision (which had already been endorsed by the CAT) to impose an initial enforcement order against Facebook on a global basis during its investigation of Facebook’s acquisition of Giphy.[2] These judgments are the latest in a line of jurisprudence confirming CMA decisions and policy in merger cases.

Judicial Review in Merger Cases

Decisions by the CMA in UK merger cases are subject to review by the CAT. When hearing an application, the CAT must “apply the same principles as would be applied by a court on an application for judicial review.”[3] This means that the CAT can quash a decision by CMA’s if that decision was unlawful (ultra vires), irrational, procedurally unfair or disproportionate. The CAT will not interfere in questions of substantive assessment or the exercise of the CMA’s discretion unless the relevant decision is irrational. Irrationality is a high threshold. It requires the applicant to show that the CMA’s decision was so unreasonable that no reasonable competition authority could have reached the same decision in the same situation. In practice, the CAT has been extremely reluctant to interfere in the CMA’s substantive decision making in this way, allowing the CMA a broad margin of appreciation when exercising its discretion.[4] Judgments by the CAT can in turn be appealed to the Court of Appeal but only on points of law and only if either the CAT or the Court of Appeal grants permission to appeal.

In cases where the courts overturn a CMA decision, the transaction is usually remitted to the CMA for further investigation. Remittal is not, however, automatic. In Tobii/Smartbox, for example, the CAT overturned some of the findings in the CMA’s final report (on the basis that the CMA did not have a sufficient evidential basis to support those findings), but did not remit the case to the CMA because the remainder of the CMA’s findings were sufficient to justify its overall conclusion on the merger and its decision to require the divestment of the target business. In cases where a merger has been remitted, the CMA has more often than not reached essentially the same conclusion after further investigation.[5]

Sabre v CMA

Sabre’s appeal related to the CMA’s decision of 9 April 2020 to prohibit its proposed $360 million acquisition of Farelogix. Sabre provides technology solutions to airlines and travel agents, including a Global Distribution System (GDS) that distributes airline information to travel agents. Farelogix supplies technology solutions to airlines, including merchandising services that assist airlines in managing their operations.

Following an in-depth phase 2 investigation, the CMA prohibited the merger on the ground that Sabre would have less incentive to innovate and develop its own merchandising services for airlines following the merger. Sabre appealed the CMA’s decision to the CAT. It originally challenged both the CMA’s jurisdictional and substantive assessment but ultimately narrowed its appeal to grounds relating to the CMA’s assessment of jurisdiction.

The CMA’s jurisdiction over the merger depended on the application of the “share of supply” test.

The CMA can intervene in mergers where either a turnover or share of supply test is met. The share of supply test is met where the parties’ activities overlap in the supply or purchase or goods or services of the same description and they have a combined share of at least 25% in the UK or a substantial part of the UK.

The parties argued, amongst other things, that their products were not goods or services of the same description and that, in any event, Farelogix made no sales in the UK and so there was no increment to Sabre’s share or supply.

The CMA found that the test was met because both Sabre and Farelogix provided IT solutions with overlapping functionality to airlines that operated in the UK; on that basis, their combined UK share of supply was between 30% and 50%.[6] Even though Farelogix had no direct customers in the UK, the CMA found that British Airways had access to Farelogix services through an interline agreement with American Airlines and that Farelogix was entitled to receive a fee from British Airways for each British Airways Interline Segment that was marketed using Farelogix’s service. On this basis, it concluded that Farelogix was supplying services in the UK even if it made no direct sales in the UK.

Sabre challenged these findings before the CAT, which dismissed the appeal. In doing so, the CAT emphasised that the law “provides the CMA with a broad discretion as to the setting of criteria which identify services of a particular description and distinguish them from services of a separate description.”[7] The CAT concluded that the CMA’s approach was neither unlawful nor irrational: the CMA was entitled to conclude that the parties’ products had “common functionality” and that this was relevant for the purposes of applying the share of supply test.

The CAT further found that the CMA had broad discretion in deciding whether, on the facts, the services that could be used by British Airways amounted to supply in the UK. Absent an error of legal construction, the CAT could consider only whether the CMA’s conclusion was irrational: “Even if this cannot be said to be an assessment involving matters of expert economic judgment, we review the CMA’s finding in accordance with standard principles of judicial review. It is not for us to consider the question afresh.”[8]

In reaching this conclusion, the CAT dismissed Sabre’s argument that the CMA’s assessment in matters of jurisdiction (as opposed to substantive assessment) should be held to a higher standard of review: “There is no warrant for the contention that because the CMA’s assessment is in relation to a question of jurisdiction, the Tribunal’s review under judicial review principles should be more intensive than normal.”[9]

In short, the CAT reconfirmed that, absent an error or law of procedure, it will not intervene in assessing CMA decisions on questions of fact – including questions that relate to the assessment of jurisdiction – unless those decisions are irrational. The CMA has a broad discretion when carrying out merger investigations and the courts will not re-open the merits of its decisions unless there is clear evidence that the CMA acted irrationally.

Facebook v CMA

The CMA opened an investigation into Facebook’s completed acquisition of Giphy in June 2020.

Consistent with its usual practice, the CMA imposed a global hold separate order shortly afterwards. This initial enforcement (“IEO”) not only required Facebook to maintain the Giphy business and hold it separate, it also prevented Facebook from making changes to its own business, again consistent with CMA’s usual practice. Facebook immediately sought a number of derogations from the IEO. These included a derogation to limit the scope of the IEO so that it would not apply to the parts of Facebook’s business that were unrelated to Giphy’s activities (the supply of GIFs).

The CMA did not immediately grant this derogation but requested a “ fully specified, reasoned and evidenced request” explaining why the derogation would be appropriate and demonstrating that the derogation would not allow Facebook to take pre-emptive action (action that might prejudice the outcome of the CMA’s investigations or its ability to impose remedies). Facebook did not provide this evidence but argued that “absent the CMA granting the derogations requested, it would be impossible for Facebook to carry on its ordinary course business activities unrelated to Giphy or GIFs.”[10] The CMA therefore refused to grant the derogation.

Facebook appealed the CMA’s decision not to grant the derogation on the grounds that the CMA’s refusal was irrational and disproportionate. Facebook argued that the global nature of the IEO was disproportionate and that the requested derogation – carving out unrelated businesses – would not have prevented the CMA from taking any remedial action that it might wish to take (e.g., requiring a divestment of the Giphy business).

The CAT dismissed Facebook’s appeal, finding that the CMA “has a wide margin of appreciation to decide what information is needed” and is not “bound to accept assertions made by merging parties without verification.”[11] The CAT found that the CMA had not acted irrationally or disproportionately in imposing a global IEO covering all of Facebook’s business or in refusing to grant Facebook’s derogation request based on the evidence before it.

Facebook appealed the CAT’s judgment to the Court of Appeal, arguing that the CAT’s decision was based on an error of law. Under the relevant statutory provisions, the CMA can impose an IEO only to prevent “pre-emptive action.” Facebook argued that the CMA had interpreted this definition too broadly and that pre-emptive action ought to be limited to steps that might prejudice the CMA’s ability to impose remedies at the end of its investigation (e.g., the CMA’s ability to require a divestment of the target business, if needed) or that might prejudice the CMA’s ability to carry out its investigation.

The CMA argued that the concept of pre-emptive action was broader, and also encompassed “action which the merging parties may take in connection with or as a result of the merger that alters the competitive structure of the market during the course of the CMA’s investigation, but which may be irremediable at the conclusion of the investigation.”[12]

On 13 May 2021, the Court of Appeal handed down its judgment. The Court dismissed Facebook’s appeal, upholding CAT’s judgment and the underlying decision by the CMA. In doing so, the Court emphasised that pre-emptive action must be interpreted broadly and was not limited to protecting the target business in case it should need to be divested. The Court pointed out that a divestment may not resolve competition concerns flowing from a merger if, for example, the acquirer had failed to preserve its own competing business in the meantime. It also reiterated that, given the prospective nature of merger control and the UK’s voluntary merger regime, the CMA may be required to act quickly and on a precautionary basis; the CMA is therefore justified in applying a broad standard-form IEO “intended to hold the ring whilst the CMA obtains the information that it inevitably lacks” before granting derogations.[13]

On the critical question of what constitutes pre- emptive action, the Court agreed with the CAT in finding that “the CMA had power to regulate any activity which the merging parties might take in connection with or as a result of the merger that had the potential to affect the competitive structure of the market during the CMA’s investigation.” Moreover, the Court emphasised that the CMA had a broad discretion to decide what fell into this category: “Importantly, the CMA’s statutory power is to prohibit “things which [it] considers would constitute pre-emptive action”, giving it a wide margin of appreciation.”[14]

In short, the Court of Appeal re-confirmed the courts’ reluctance to interfere in the exercise of the CMA’s discretion in merger cases, endorsing the CMA’s policy of imposing a standard-form IEO in completed mergers, covering all of the merging parties’ activities on a global basis unless and until the parties provide the CMA with sufficient information to justify granting a derogation.

Conclusion

These judgments extend the CMA’s margin of discretion beyond matters of substantive assessment into questions of jurisdiction. The CAT’s judgment in Sabre confirms that it is for the CMA to decide whether a transaction qualifies for review or not. Where that decision involves any degree of assessment, the courts will not interfere in the substance of that assessment unless the CMA acts irrationally.[15] The Facebook judgment confirms that, although the CMA may impose an IEO to guard against pre-emptive action, it is for the CMA to decide what constitutes pre-emptive action and what measures are needed. Together, these judgments confirm the limited scope to challenge CMA merger decisions and endorse the CMA’s expansive approach to asserting jurisdiction and preventing pre-clearance integration of companies subject to merger control in the UK.

[1] Sabre Corporation v CMA [2021] CAT 11.

[2] Facebook, Inc. and Facebook UK Limited v CMA [2021] EWCA Civ 701.

[3] Enterprise Act 2002, section 120.

[4] See, for example, Ecolab v CMA [2020] CAT 12, Tobii v CMA [2020] CAT 1, Ryanair v CMA [2014] CAT 3 and [2015] EWCA Civ 83.

[5] See, for example, Eurotunnel/Sea France, Intercontinental Exchange/Trayport, FNZ/GBST.

[6] CMA Final Report, paragraph 5.70.

[7] CAT judgment, paragraph 141.

[8] Paragraph 220.

[9] Paragraph 85.

[10] Facebook v CMA [2020] CAT 23 (paragraphs 54 and 55).

[11] Paragraphs 128 and 149.

[12] Court of Appeal judgment, paragraph 3.

[13] Paragraph 46.

[14] Paragraphs 55 and 56.

[15] This contrasts with decisions that allow no room for discretion. See, for example, Lebedev Holdings Limited and Independent Digital News and Media Limited v Secretary of State for Digital, Culture, Media And Sport [2019] CAT 21, in which the CAT found that the decision to make a phase 2 reference had been issued after the statutory period had expired.