In a string of recent merger decisions, culminating in the Dow/DuPont case, the European Commission has profoundly revisited its traditional analysis of innovation. Under this new approach, 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.

This article – available here – shows 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, and altered the analytical framework applicable to traditional cases affecting pipeline products/potential competitors.

Sector I describes the factors that led innovation to become central to the Commission’s merger interventions.

The rise of tech giants is associated with market developments that have led to competition in the market being progressively replaced by competition for the market leading to near-monopolies until the next disruptive digital innovation model is invented. Alongside digitalisation, industrial consolidation appears to be another irrepressible trend of the modern economy. The question of whether persistent, high market shares and profit margins in the new market economy are detrimental to consumers and innovation is one that has agitated competition debates and enforcers. It is against this background that innovation is being regarded as one of the main antidotes against market power accumulation, thus becoming a priority of the European Commission’s merger control enforcement activity.

Section II briefly describes the traditional analytical framework the Commission has employed to assess innovation in merger control.

According to the European Commission’s Horizontal Merger Guidelines (HMG), innovation is a key parameter of competition and merger control in Europe, alongside price and output. However, the HMG focus on pipeline products, and they do not set out a framework of analysis for harm to innovation in other scenarios.

Until recently, the Commission’s practice had followed the Guidelines, and the Commission had not investigated mergers impacting innovation based on theories of harm other than the traditional one relating to potential competition generated by pipeline products. In effect, under the Commission’s traditional approach, the assessment of mergers impacting innovation is typically conducted from the angle of identified pipeline products resulting in potential competition, that is, by evaluating whether the merger would remove pipeline products of the merging parties, capable of exerting a significant competitive constraint in the market. In this respect, only specific products in a late stage of development come into the picture, for only those products whose market entry is imminent can be found to exert—as potential competitors—significant competitive constraint over existing products of the acquiring party.

In particular, a merger with a potential competitor can have horizontal anticompetitive effects if two cumulative conditions apply: first, the potential competitor significantly constrains the behaviour of firms active in the market; and second, there is not a sufficient number of other potential competitors, capable of maintaining post-merger sufficient competitive pressure. The first condition can be met in two different situations: either the potential competitor (a) already significantly constrains the behaviour of firms active in the market; or (b) it is likely to enter the market in a relatively short period of time, after which it would constrain the behaviour of firms currently active in the market.

Under this traditional approach, time to market was supposed to occur in a short time horizon, at the most within two to three years; prospects of successful market entry should be proved based on particularly cogent evidence collected throughout the market investigation; and closeness of competition should be very carefully investigated, especially in a context where the pipeline product has not yet entered the market. Importantly, a symmetric approach was applied when assessing potential competition from third parties and potential competition stemming from the merging parties. All in all, a very high standard of proof was required for the Commission to prove that a merger raised concerns by removing a potential competitor capable of exerting a significant competitive constraint.

Section III describes the Commission’s “new” approach to innovation.

The first signs of the Commission gradually revisiting its traditional approach by lowering the intervention thresholds are visible in a string of cases dating back to 2014 to 2016, namely, Medtronic/Covidien, Novartis/GSK, and Pfizer/Hospira. This trend reaches its apex in Dow/DuPont, where harm to innovation is looked at from an “overall industry” level. In this merger, the Commission raised concerns with respect to overlapping lines of research in innovation of pesticides, without assigning these R&D activities to a particular product market. The Commission found that it was likely that the merger would have restricted competition, not only because of reduced competition on existing products, but also because of its adverse effects on future efforts to innovate.

This decision triggered extensive debate and soul-searching. From an economic point of view, critics have argued that predicting the success of innovation efforts is by definition uncertain and thus not conducive to solid merger control decisions. In addition, it has been argued that the decision does not calculate the innovation diversion ratio; nor does it discuss efficiency gains, which would be required to determine whether the merger is anticompetitive. From a legal point of view, it has been argued that this decision marks a new development in the Commission’s legal analysis, for it takes into account R&D activities unrelated to specific products in the antitrust analysis and speaks of “innovation competition” and “innovation spaces,” instead of, respectively, product and price competition and clearly defined product markets.

While Dow/DuPont keeps attracting a lot of criticism, the lines that were crossed during the journey leading to this decision have gone largely unnoticed. Medtronic/Covidien raised an issue of standard of proof: the Commission upheld the claim that the target’s product could constitute a potential competitor based on the authors’ consider to be poor evidence. Novartis/GSK raised a related issue of causation: the authors think that the Commission overstretched the timeframe relevant to assess when a pipeline product can grow into a competing product. And Pfizer/Hospira raised an issue of symmetry: according to the authors, the Commission applied a double standard when analysing potential competition coming from a third party in comparison to potential competition from one of the merging parties.

The principles the Commission has endorsed in such cases raise much more serious concerns than Dow/DuPont from a legal standpoint, and carry potentially more far-reaching and troubling implications than the novel theory of harm developed in that merger. They alter some of the key features of the traditional analytical framework the Commission applies to assess horizontal mergers involving issues of potential competition: the standard of proof necessary to demonstrate the existence of competition concerns, that is, the quantity and quality of evidence necessary to support the finding that a potential competitor would likely turn into a significant competitive constraint; the related issue of causation, which requires a rigorous analysis of the chains of cause and effect aimed at predicting whether future post-merger events are likely to materialise; and the symmetry principle guiding the Commission when assessing the issue of potential competition, be it from the merging parties or from third parties.

  • Section IV concludes.

The choice to raise the level of care by protecting not only innovation which translates into tangible goods or services soon to enter the market and able to exert a competitive constraint, but also innovation as a value in itself, may be a sensible one. These developments, though, should not occur to the detriment of legal certainty. However revolutionary the new theory of harm set forth in Dow/DuPont might appear, it is in fact less troubling than the gradual revisiting of the Commission’s traditional treatment of potential competition in merger control under way for several years.

A careful reading of the Dow/DuPont decision reveals the standard of proof applied by the Commission to prove its case to be quite high – including a detailed analysis of the overlap of innovation spaces and evidence proving the intent to discontinue some of DuPont’s R&D activities. Instead, it is the increasing tendency to challenge traditional mergers involving pipeline products by applying a lower standard of proof, disregarding the need to establish causation, or by applying a double standard in assessing potential competition depending on whether this argument is used as a sword (by the Commission) or as a shield (by the parties), that may give rise to judicial challenges down the road.


This paper, by a number of Big Law firm lawyers, is a critique of developments in the European Commission’s approach to innovation in merger control. Regardless of one’s view on the Commission’s practice, the authors provide a useful overview of recent developments in how the European Commission has approached innovation concerns in merger control – and this will be helpful in following the debate I will be describing in coming weeks.  

The paper is also particularly good in discussing matters concerning evidence, and the role such matters play in merger control. This touches on the evidence necessary to establish necessarily speculative theories of harm under applicable evidentiary standards; the related need to establish, to the requisite standard, suitable causal links between the merger and the prospective anticompetitive effects; and whether evidence of harm and of efficiencies should be taken symmetrically. These are all matters that underlie the raging debate (mainly between economists) on how to address innovation concerns created by horizontal mergers.  

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