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Big Tech braces for breakups as UK opens new era of enforcement

For all the outrage directed at Big Tech over the past decade, regulators have shied away from the nuclear option of actually breaking up a major platform.

Until this week, that is.

By ordering Facebook to part with Giphy, a GIF creation platform it acquired in 2020, the U.K.’s Competition and Markets Authority broke a global taboo and ushered in a brave new world of tech enforcement.

The move has taken center stage at a gathering of competition authorities from G7 countries, and is likely to cheer prominent proponents of breaking up Big Tech, like U.S. Senator Elizabeth Warren and U.S. antitrust chief Lina Khan — while giving pause to skeptics like the EU’s digital czar, Margrethe Vestager.

“This is a defining moment for merger control in Europe and worldwide,” said Björn Herbers, a competition lawyer at law firm CMS. “The CMA is testing the ground for other authorities.”

As lawyers and politicians digested the news, several pointed out that the CMA’s move fits in with a global trend toward tougher enforcement of antitrust and other rules.

In Washington, Khan’s appointment as head of the Federal Trade Commission signaled bolder moves against Silicon Valley giants. In the EU, officials are rolling out new rules to limit giants’ expansion. And in China, authorities are cracking down on the tech sector, fining dozens of companies that didn’t seek approval for past deals.

Yet the CMA has gone further than any of these authorities, who despite their tough talk have waved through dozens of major Big Tech acquisitions over the past few years, including Google’s heavily-scrutinized acquisition of wearable tech-maker Fitbit, which Vestager approved in December of last year.

Now, these enforcers will be watching the CMA to see if they are able to pull off what promises to be a messy decoupling — and deciding whether they should follow in its footsteps.

Among the potential targets: an acquisition of cancer-test startup Grail by U.S. gene-sequencing giant Illumina, which will be examined by the European Commission by February 4; U.S. chipmaker Nvidia’s planned $40 billion acquisition of Britain-based chip designer Arm; and Facebook’s proposed acquisition of customer interaction platform Kustomer.

High-risk surgery

On the first score, the CMA is in for a complex operation.

“Divestiture of the Giphy business poses particular challenges arising as a consequence of the completion of the merger, and Facebook’s related actions,” the CMA said in its final report on the decision.

In June last year, the authority issued an order aimed at keeping the company separate while the merger investigation was ongoing. However, before the order, Facebook had already taken some actions, such as transferring Giphy’s back-office functions to Facebook and moving almost all Giphy staff on Facebook employment contracts.

Now, all of that will have to be undone and reversed — including by offering incentives to former Giphy employees to go back to Giphy, recruiting new people to replace key staff who decide not to move, and giving the company enough financial resources to stand on its own feet — confronting the CMA with a task that goes well beyond its habitual probes and monitoring of remedies.

Facebook, which has four weeks to appeal the CMA’s decision, will spare no effort or billable hour to try to stop the breakup order from being carried out.

Meanwhile, the CMA will have to stay focused even as public criticism of the breakup order grows louder, and Big Tech’s defenders rally around the orthodoxy that allows thousands of tech mergers to occur largely unchallenged.

One salient criticism concerns the CMA’s justification for the breakup, which targets a relatively small Meta property compared to a revenue engine like, say, WhatsApp.

“The CMA’s justifications to me seemed thin,” said Sam Bowman, director of competition policy at the International Centre for Law and Economics.

He zoomed in on the authority’s claim that Giphy would one day become a competitor to Facebook as difficult to stand up in court.

Giphy: A genuine Facebook competitor?

Even so, Bowman did say the CMA’s move amounted to writing on the wall for large platforms.

“If Giphy represents a significant potential challenger to Facebook, then lots and lots of other companies must also represent a significant potential challenger to Facebook,” he said.

Andreas Aktoudianakis, Digital Policy expert at the European Policy Centre, pointed out that, while tech companies have proved remarkably effective in persuading antitrust authorities around the world to approve their mergers, Facebook failed to do so in this case.

“Facebook had difficulty justifying to the CMA how the acquisition would benefit the wider platform ecosystem,” he said, adding that the age-old trope of large firms justifying mergers by saying they will benefit consumers has passed its sell-by date.

“In the U.S. private sector, there is a tradition of talking about the importance of consumer benefits, but in Europe, we are more interested in consumer rights,” he added.

If the CMA is successful, other controversial mergers may yet come up for review. These include Facebook’s acquisition of Instagram in 2012 and WhatsApp in 2014. The deals, which helped the company build its social media empire, are at the center of a legal battle between the company and the U.S. FTC, which wants a court to order the sale of the two businesses.

But even if the CMA fails, a powerful signal has already been sent that won’t soon be forgotten.

Facebook has already paid a substantial price for its $315 million acquisition of Giphy, including a £50.5 million fine from the U.K. regulator for flouting an order designed to prevent the two firms from merging, and a €9.6 million fine from the Austrian competition authority over a failure to notify the decision.

Further jolts may yet come, as the merger is still subject to an ongoing investigation in Austria, where the country’s Cartel Court is expected to come to a decision in early 2022, a spokesperson from the authority confirmed.

The CMA’s decision this week came as competition authorities from G7 countries met in London to discuss how to improve collaboration in digital markets. 

The U.K. authority will hope that its decision may have had some sort of a bearing on the approaches from colleagues the world over. A joint document published in the context of the talks noted how “there are widely held concerns about historic underenforcement against digital mergers.” 

“Everywhere, antitrust authorities understand more about the industry and the clear risks that come with the dominance of these companies,” said Jo Seldeslachts, professor of competition policy at Belgium’s KU Leuven university.

“It’s clear that the winds have changed for big tech companies, but we’ll have to wait to understand what the CMA’s decision means in practical terms,” he added.

CORRECTION: A previous version of this report misstated the purchase price of Giphy. It is $315 million.

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https://ift.tt/eA8V8J December 03, 2021 at 08:47PM
Samuel Stolton, Pietro Lombardi

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