EU Merger Control and Harm to Innovation—A Long Walk to Freedom (from the Chains of Causation)

• Author: Mario Todino,Lucia Stoican,Geoffroy van de Walle
• DOI: 10.1177/0003603X18816549
• Date: 01 March 2019
• Published date: 01 March 2019

Article

EU Merger Control and Harm to

Innovation—A Long Walk to

Freedom (from the Chains

of Causation)

Mario Todino*, Geoffroy van de Walle*, and Lucia Stoican*

Abstract

In a string of recent merger decisions, culminating in the Dow/DuPont case, the European Commission

has profoundly revisited its traditional analysis of innovation and, ultimately, introduced what some

authors have labeled “a novel theory of harm in EU merger policy.” According to this theory, the

Commission does not look at harm to innovation on a specific product market in which parties are

developing similar pipeline products, but adopts a general assessment of harm to innovation, unrelated

to a specific product market and without considering potential anticompetitive effects on this basis.

The purpose of this article is to show that over the last few years, the European Commission has been

progressively departing from a “traditional” theory of harm in its assessment of mergers affecting

innovation. In particular, we argue that the novel theory of harm developed in Dow/DuPont, based on a

generic prejudice to innovation, is the landing place of a long journey through which the Commission

has progressively altered the analytical framework applicable to traditional cases affecting pipeline

products/potential competitors. And while this stance may be inspired by a legitimate policy goal, it

brings the Commission on a collision route with the principles of causation and symmetry governing

European Union merger control analysis.

Keywords

Dow/DuPont, innovation, harm to innovation, novel theory of harm, mergers affecting innovation, SIEC,

R&D poles, potential competition, Johnson & Johnson/Guidant Medtronic/Covidien,Novartis/GSK Oncology

Business, innovation spaces , asymmetric approach, doubl e standard, pipeline products , innovation

competition

Introduction

The impressive acceleration of technological progress, combined with the ascent of the internet and the

digital economy, have put the issue of innovation at the (controversial) center of the current antitrust

*Jones Day, Brussels, Belgium

Corresponding Author:

Mario Todino, Partner, Jones Day, Rue de la R´

egence, Regentschapsstraat 4, Brussels 1000, Belgium.

Email: mtodino@jonesday.com

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2019, Vol. 64(1) 11-30

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DOI: 10.1177/0003603X18816549

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debate. Innovation is increasingly seen by the European Commission as a key parameter of compe-

tition, as businesses increasingly compete on research and development of new products or entirely

new business models. This has in turn shifted the antitrust enforcement priorities of the enforcer, and it

is no wonder that the rhetoric of innovation has become dominant in European Union (EU) merger

control analysis.

In a string of recent merger decisions, culminating in the Dow/DuPont case,

1

the European Com-

mission has profoundly revisited its traditional analysis of innovation and, ultimately, introduced what

some authors have labeled “a novel theory of harm in EU merger policy.”

2

According to this theory,

the Commission does not look at harm to innovation on a specific product market in which parties are

developing similar pipeline products but adopts a general assessment of harm to innovation, unrelated

to a specific product market and without considering potential anticompetitive effects on this basis.

The purpose of this article is to show that over the last few years, the European Commission has

been progressively departing from a “traditional” theory of harm in its assessment of mergers affecting

innovation. In particular, we argue that the novel theory of harm developed in Dow/DuPont,

3

based on

a generic prejudice to innovation, is the landing place of a long journey through which the Commission

has progressively altered the analytical framework applicable to traditional cases affecting pipeline

products/potential competitors. And while this stance may be inspired by a legitimate policy goal, it

brings the Commission on a collision route with the principles of causation and symmetry governing

EU merger control analysis.

This article is structured as follows: (1) In the first section, we set the stage by highlighting the

factors that have led innovation to become the center piece of the Commission’s merger inter-

vention. (2) In Section II, we briefly describe the traditional analytical framework the Commis-

sion has employed to assess innovation in merger control and provide a short overview o f some

illustrative cases in point. (3) We then describe the Commission’s “new” approach in the Med-

tronic/Covidien,

4

Novartis/Glaxosmithkline Oncology Business [GSK],

5

and Dow/DuPont

6

cases.

(4) In the last section, we explain how certain parameters relevant for the assessment of potential

competition in merger cases have been altered and why these developments bear far-reaching

implications.

I. Background—Technological Progress and Digital Economy—Innovation

as the Antidote to Market Power

A. Innovation Is the Source of Technological Progress

According to a number of distinguished scholars, over the past five decades, the evolution of global

markets has been essentially driven by “competition in the market” whereby firms used to compete on

traditional parameters (price and quality), while disruptive innovation remained relatively infrequent.

Over the last few years, this landscape has completely changed. The rise of the Internet era has tilted

1. EUR.COMM’N,CaseM.7932,Dow/DuPont, Decision C(2017), htt p://ec.europa.eu/compe tition/mergers/cases/ decisions/

m7932_13668_3.pdf (hereinafter, Dow/DuPont).

2. Nicolas Petit, Significant Impediment to Industry Innovation: A Novel Theory of Harm in EU Merger Control? SSRN (Feb. 4,

2017), https://ssrn.com/abstract¼2911597.

3. Dow/DuPont, supra note 1.

4. EUR.COMM’N, Case M.7326, Medtronic/Covidien, Decision C(2014)9215, http://ec.europa.eu/competition/mergers/cases/

decisions/m7326_20141128_20212_4138173_EN.pdf (hereinafter, Medtronic/Covidien).

5. EUR.COMM’N, Case M.7275, Novartis/Glaxosmithkline Oncology Business, Decision C(2015)538, http://ec.europa.eu/

competition/mergers/cases/decisions/m7275_20150128_20212_4158734_EN.pdf (hereinafter, Novartis/GSK).

6. Dow/DuPont,supra note 1.

12 The Antitrust Bulletin 64(1)