Short Reads

Recent European Commission merger decisions signal an increased focus on innovation

Recent European Commission merger decisions signal an increased focus

Recent European Commission merger decisions signal an increased focus on innovation

03.07.2017 EU law

On 27 March 2017, the European Commission approved a merger between chemical companies Dow and DuPont subject to major remedies, including the divestment of DuPont's global R&D organisation. In this case, the Commission's review extended to the merger's potential impact on innovation "at the overall industry level". 

The Commission considered that innovation is a key competitive parameter in the pesticides industry. According to the Commission, post-merger, only three integrated players could effectively compete with Dow/DuPont at a global level throughout the entire (R&D) value chain (from discovering new active ingredients, to the manufacture and sale of final products). The Commission relied on evidence showing that the parties intended to cut back on R&D expenditure, and that the merged entity would have less incentives to innovate than Dow and DuPont would have separately. As a result, the Commission found that the merger would have significantly reduced "innovation competition" for pesticides, and called for the divestment of the vast majority of DuPont's global R&D organisation.

The importance of "innovation" as an assessment parameter under EU merger control law is not particularly new and is reflected in the Commission's horizontal merger guidelines (the Guidelines). The Guidelines, for example, recognise that a merger between two important innovators developing competing "pipeline" products (in a specific product market) may, under certain conditions, impede competition.

The assessment of such "pipeline overlaps" has played a role in numerous pharmaceutical merger decisions over the years. Traditionally, the Commission focused its review on pipeline products that have entered late phase (phase III) clinical trials. Such products have a higher likelihood of entering the market within a reasonably foreseeable timeframe. In recent years, however, the Commission has extended its review to products in the early stages of development, many of which may never be marketed. In Novartis/GSK Oncology, for example, the Commission analysed the merger's potential impact on the parties' overall clinical research programmes for ovarian and skin cancer treatments, including very early phase (phase I) pipeline products. More recently, on 9 June 2017, the Commission cleared a merger between J&J and Actelion, subject to commitments ensuring that the parties' phase II pipeline products would not be delayed or discontinued.

These developments show that – at least in innovation intensive industries – the Commission will continue to review the merging parties' full R&D portfolios in detail. This may require significant additional preparatory work (e.g. in terms of document collection and preparing economic analyses) before mergers are filed.

This article was published in the Competition Law Newsletter of July 2017. Other articles in this newsletter:

  1. Google gets a record EUR 2.42 billion antitrust fine for its shopping service
  2. ACM fines Dutch rail operator (NS) for an alleged abuse of dominance
  3. New Belgian Act on damage claims for competition law infringements

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