Breaking down killer acquisitions: The rise of below-threshold merger scrutiny
Picture this: a small but innovative company has just developed a new technology that has the potential to disrupt the market. The company is on the verge of becoming a major player in the industry, but before it can take off, a larger competitor swoops in and acquires it. A good example of this is the acquisition of WhatsApp by Facebook in 2014. Prior to the acquisition, WhatsApp had an annual turnover of less than USD 10 million. However, Facebook was willing to pay a purchase price of USD 19 billion. The acquisition is not caught by traditional merger control rules because the small company has a low turnover. But the larger company’s real motivation for the acquisition is to eliminate a potential competitor and protect its dominant position in the market. This is what’s known as a “killer acquisition,” and it’s a growing concern in the world of competition law.
The recent Towercast ruling  has brought renewed attention to the issue of killer acquisitions, providing yet another avenue for competition authorities to scrutinize mergers that fall below traditional merger thresholds. The European Court of Justice (the ECJ) established that national competition authorities (NCAs) and courts have the power to scrutinize acquisitions by dominant entities, even if that transaction is not subject to notification under EU or national merger control laws. The Illumina/Grail case  set an earlier precedent demonstrating how Article 22 of the EU Merger Regulation (EUMR) can be used to tackle killer acquisitions. This provision allows Member States to request the European Commission (the Commission) to examine transactions falling below the financial thresholds for a traditional merger review. These cases signal a shift towards a more proactive and holistic approach to merger control, as competition authorities seek to ensure that no transactions can undermine competition and innovation in the marketplace.
Facts and judgment of the ECJ
Telediffusion de France (TDF), a French broadcaster, purchased its competitor Itas in October 2016. The transaction did not undergo a review under either the French or EU merger control rules because it did not meet the applicable jurisdictional thresholds. A year later, Towercast filed a complaint with the French Competition Authority (FCA) alleging that TDF’s acquisition of control over Itas was aimed at eliminating its only remaining competitor and strengthening its position in the market. Towercast cited the Continental Can case to argue that the acquisition constituted an abuse of TDF’s dominant position and hindered competition in both the upstream and downstream wholesale markets for digital terrestrial television services. In the 1973 Continental Can-case the court reviewed a concentration on the basis of Article 86 ECC (now Article 102 TFEU). In its ruling, the court stated that an “abuse may […] occur if an undertaking in a dominant position strengthens such position in such a way that the degree of dominance reached substantially fetters competition.” The FCA rejected the complaint, claiming that Continental Can was obsolete after the implementation of the current EU merger control regime – the EUMR. Towercast appealed the decision to the Paris Court of Appeal, which referred the case to the European Court of Justice (ECJ) for a preliminary ruling.
The Paris Court of Appeal sought guidance from the ECJ on the interplay between EUMR and Regulation 1/2003 (which governs the powers of the Commission and NCAs to investigate abuses of dominance under Article 102 TFEU). Specifically, the Paris Court of Appeal inquired whether Article 21(1) EUMR, which excludes the application of Regulation 1/2003 to concentrations, prevents NCAs from reviewing mergers under Article 102 TFEU when the mergers have not been notified or reviewed under any national merger control regime or the EUMR.
In its judgment, the ECJ followed Advocate General Kokott’s conclusion  to interpret Article 21(1) EUMR in such a way that it does not limit the application of Article 102 TFEU to cases where a concentration is caught by neither European nor national ex-ante merger control mechanisms. The ECJ agreed with Kokott’s argument regarding the hierarchy of norms, affirming that primary EU law (i.e. Article 102 TFEU) takes precedence over secondary EU law (i.e. EUMR).  The ECJ emphasized that while the EUMR provides a centralized examination of transactions, it does not render irrelevant the control carried out at the national level of a concentration under Article 102 TFEU. Ultimately, this means that in principle, each under-threshold merger or acquisition can be reviewed to determine whether or not it violates Article 102 TFEU.
The ECJ further clarifies that simply establishing that a company strengthens its dominant position through the acquisition of a competitor, is not enough to conclude an abuse. With this, the ECJ emphasizes the need to demonstrate that the level of dominance attained through the acquisition would substantially impede competition, leading to a scenario where only undertakings whose actions rely on the dominant company would remain in the market.  In other words, the transaction must create significant impact on the competitive landscape, resulting in a near-total elimination of independent market players who can’t survive without relying entirely on the dominant company. Unfortunately, the ECJ fails to offer additional clarity regarding the analytical framework required to determine the level of ‘dominance’ and ‘reliance’ that would meet this threshold.
Potential conflicts in Dutch merger control
The Towercast ruling clarifies that Article 102 TFEU can be directly applied in national cases. This raises questions about the relationship between national and EU competition law, and the potential for conflicts or inconsistencies. One such example is the Dutch merger regime.
The Dutch merger regime, for example, has a provision under Article 24(2) of the Dutch Competition Act (DCA) that conflicts with EU competition rules and court rulings. Specifically, it states that creating a concentration shall not be considered an abuse of a dominant economic position. This is evidently not in line with the Towercast ruling providing that transactions that do not meet the thresholds but could have an interstate effect may be considered abusive under Article 102 TFEU. Ultimately this would mean that a Dutch court or competition authority may consider an under-threshold concentration with interstate effect abusive under Article 102 TFEU, but not under Article 24(2) DCA. Furthermore, the ECJ’s reasoning regarding the hierarchy of legal norms  – highlighting that Article 102 TFEU, as primary law, cannot be limited by the EUMR, which is secondary law – cannot be applied to the situation in the Netherlands. This is due to the absence of hierarchy between Article 24(1) DCA and Article 24(2) DCA.
Following the above, two potential outcomes can be identified. Firstly, the Netherlands may need to amend its law to align with EU competition rules and the jurisprudence of the European courts. Alternatively, the DCA may be interpreted and applied in such a way that under-threshold concentrations cannot be regarded as abusive under Article 24 DCA but may be considered abusive under Article 102 TFEU.
The judgment has opened a new avenue for reviewing past and future mergers carried out by dominant entities. With the Commission’s newfound authority, courtesy of the Article 22 referral mechanism, it can contest mergers that fall outside national or EU merger control review. Now, the Towercast judgment has confirmed that both NCAs and private parties can also challenge these below threshold transactions based on the Article 102 TFEU abuse of dominance rules, even post-completion. Both cases highlight the need for NCAs to take a more comprehensive approach when assessing mergers and to consider factors beyond just market share and turnover. They also emphasize the importance of protecting competition and innovation, particularly in fast-paced industries such as technology and healthcare.
The Towercast ruling bears both advantages and disadvantages for competition authorities, merging parties, and third parties. The ruling clarifies that concentrations below the jurisdictional thresholds can still be reviewed under Article 102 TFEU if they have the potential to create a dominant position and harm competition. This development allows NCAs to scrutinize potentially problematic mergers that would have otherwise gone unnoticed. Furthermore, it allows for a more comprehensive analysis of mergers beyond just market share and turnover, which could lead to more nuanced assessments of the competitive effects of a merger. Secondly, the ruling strengthens the position of third parties, such as competitors and customers, who may be better positioned to challenge mergers that they believe could harm competition, given that the courts are now willing to consider a broader range of factors. This could lead to more effective and competitive markets, ultimately benefiting consumers.
On the other side, the ruling increases uncertainty for both merging parties and third parties as they navigate through the merger review process. Merging parties will need to be mindful of their market power and the impact of their transaction on competition, regardless of whether their turnover exceeds the jurisdictional thresholds. Consequently, undertakings that may have a dominant position must carefully evaluate the potential legal and competitive implications before proceeding with a merger, taking into account the possibility of third-party challenges or assessments by competition authorities. They must also consider that, if found guilty of Article 102 TFEU infringement, courts may impose damages for any losses suffered by the plaintiff as a result of the anticompetitive merger.
Overall, the Towercast ruling implies that dominant firms should consider the potential risks and legal uncertainty that may arise when conducting their transactions.
 ECJ 16 March 2023, Case C-449/21, ECLI:EU:C:2023:207 (Towercast).
 General Court 13 July 2022, Case T-227/21, ECLI:EU:T:2022:447 (Illumina/Grail).
 ECJ 21 February 1973, Case C-6/72, ECLI:EU:C:1973:22 (Continental Can), point 26.
 Opinion of Advocate General Kokott 13 October 2022, Case C-449/21, ECLI:EU:C:2022:777 (Towercast).
 ECJ 16 March 2023, Case C-449/21, ECLI:EU:C:2023:207 (Towercast), point 50-51; Opinion of Advocate General Kokott 13 October 2022, Case C-449/21, ECLI:EU:C:2022:777 (Towercast), point 30-31.
 ECJ 16 March 2023, Case C-449/21, ECLI:EU:C:2023:207 (Towercast), point 52.
 ECJ 16 March 2023, Case C-449/21, ECLI:EU:C:2023:207 (Towercast), point 50-51