Court of Appeal concludes that the CMA’s approach to merger derogation requests made by Facebook was lawful

13/05/21

The Court of Appeal (Sir Geoffrey Vos MR, Sir Julian Flaux C and Lord Justice Phillips) has today dismissed an appeal brought by Facebook against an earlier decision of the Competition Appeal Tribunal (CAT).

The proceedings related to derogations sought by Facebook from an initial enforcement order (IEO) imposed by the Competition and Markets Authority (CMA) in connection with Facebook’s completed acquisition of GIPHY Inc. In accordance with its general practice, the CMA imposed a standard form IEO at the outset of its investigation into the Facebook/GIPYHY merger. Facebook subsequently requested various derogations from that IEO, which it contended was impractical for a business of its nature and scale. The CMA considered it was unable to assess Facebook’s requests in the absence of further information from the merging parties.

Facebook challenged that decision, which it characterised as a failure to grant its derogation requests, before the CAT by way of an application for review under section 120 of the Enterprise Act 2002. Facebook contended that the CMA’s decision lacked a rational connection to the statutory purpose of preventing pre-emptive action, was disproportionate, and infringed the principle of legal certainty. In its November 2020 judgment, the CAT dismissed Facebook’s application, finding that the CMA acted reasonably in requesting further information in order to consider Facebook’s derogation requests with a view to narrowing the IEO (see here). 

That decision was today upheld by the Court of Appeal, which emphasised the breadth of the CMA’s statutory powers to prevent pre-emptive action. Those powers were held to include the ability 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. The Court further held that Facebook’s case was based on three misapprehensions. First, it proceeded on an unduly restrictive view of the CMA’s final remedial powers which are not limited, as Facebook had submitted, to requiring divestiture of the target business (in this case, GIPHY). Secondly, the central problem in this case was entirely of Facebook’s own making.  As the Tribunal found, Facebook did not properly engage with the CMA. Thirdly, a consequence of the UK merger regime being prospective is that the CMA is required to act quickly in appropriate cases. The broad template IEO, the use of which Facebook did not challenge, was intended to hold the ring whilst the CMA obtained information from the parties.

The judgment is here.