Recognising that innovation is essential to driving growth in Europe, the European Commission (EC) has made it one of the central themes in the modernisation of the EU merger control framework. The EC recognises that mergers can impact innovation in both directions—either fostering or hindering it—depending on the specific circumstances of each case. The EC has historically focused on identifying mergers that can be a threat to innovation competition, which has been exemplified by vigorous enforcement against so-called "killer acquisitions". By contrast, the merging parties' claims relating to the beneficial effects of mergers on innovation and investments have typically been rejected as speculative and uncertain. The EC is now considering a revised framework for assessing innovation effects as part of the ongoing review of its EU Merger Guidelines.
Innovation rising: Political priorities
Current political priorities are increasingly geared toward EU competitiveness and productivity and giving innovation considerations greater prominence within EU merger control. Such considerations may be vital to the direction of merger control policy. In parallel to European reform, the UK government focus on "growth" is leading to adjustments to the UK's merger control review process.1 We are also seeing a change in direction of merger control enforcement in the US with the Trump administration enforcers indicating that they may be more open to M&A activity than the previous administration.2
The Draghi report3 called on the EC to strengthen the competitiveness of European companies by enhancing their ability to invest, innovate and become more efficient. The number one action identified by Draghi for European competitiveness is closing the "productivity gap" with the US and China, especially in advanced technologies. Draghi suggests that the underlying reasons are significantly lower corporate R&D investment and difficulties that European start-ups face in scaling up and exiting profitably, which in turn is partly blamed on the regulatory barriers. The report recommends that "competition policy should continue to adapt to changes in the economy so that it does not become a barrier to Europe's goals", and that competition enforcement should endeavour to facilitate market entry into priority sectors. The report recommends the following specific measures:
- An emphasis on "the weight of innovation and future competition in DG COMP decisions".
- Updated merger guidelines that should explain "how the authority assesses the impact of competition on the incentive to innovate" and "what evidence merging parties can present to prove that their merger increases the ability and the incentive to innovate, allowing for an innovation defence".
EC President von der Leyen has endorsed the recommendations concerning the role of innovation in the Draghi report. In her mission letter to Teresa Ribera4 (Executive Vice-President for a Clean, Just and Competitive Transition), von der Leyen calls on her to "modernise the EU's competition policy to ensure it supports European companies to innovate, compete and lead world-wide". The mission letter instructs Ribera to review the horizontal merger guidelines. She also asked to rethink how innovation is handled in the context of merger control, and whether European companies are supported in their efforts to innovate, compete and lead worldwide.
Equally, the EU's Competitiveness Compass5 places a similar focus on innovation at the heart of its strategy to restore Europe's economic dynamism. It recognises the need for "a fresh approach, better geared to common goals and allowing companies to scale up in global markets" which "should be reflected in revised guidelines for assessing mergers so that innovation, resilience and the investment intensity of competition in certain strategic sectors are given adequate weight in light of the European economy's acute needs". Despite these policy statements, stakeholders are debating how these considerations will work in practice. Creating a clear and predictable legal framework which allows for the positive impact on investments in innovation to be taken into account in merger review is vital for these broad statements to have an impact on deal making.
The EC’s treatment of innovation in its past precedents
When looking at innovation as part of its merger review, the focus of the EC has traditionally been on the negative effects of a transaction on innovation. The first EU merger cases assessing the impact of mergers on innovation competition focused on the effects of the transaction on competition in late-stage pipeline products within clearly defined relevant product markets.6 In later cases, the EC's approach expanded to considering early-stage R&D and broader "innovation spaces" (a cluster of R&D activities not tied to specific products7). The EC reached a highwater mark in Dow/DuPont,8 where it first articulated an "industry-level innovation theory of harm". The EC did not identify specifically which early pipeline products or lines of research the merging parties would likely discontinue, but concluded that, in a market with few innovators, one party's R&D programme could be abandoned, and that the merged entity would have lower incentives to invest in innovation generally and therefore that there would be less innovation in the industry.
The EC's concern about the negative impact of mergers on innovation is also reflected in its recent consideration of theories of harm related to killer acquisitions9 (where a company acquires a competitor to "kill" its pipeline product) and reverse killer acquisitions (where a company acquires a target company that has an early stage product or service and intends to continue it, i.e. not "kill" it but "keep it alive" – with the concern being that it ceases to be an independent player, and possibly ceases to evolve into a major competitor that may "tip" the market10).
At the same time, the EC has been generally sceptical about the positive effects that M&A activity may have on innovation, R&D investments and, more broadly, incentives to invest in new products, processes or capacity. The assessment of any such positive effects is typically done after the EC finds that a merger will result in a significant impediment to effective competition and considers whether the merger results in efficiencies that could outweigh such negative effects. The burden of proof to show efficiencies is on the merging parties, and prevailing with an efficiencies defence is typically very challenging. The EC considers that many efficiencies are irrelevant to its assessment because they do not meet the strict "efficiency test", pursuant to which only efficiencies that are verifiable, merger specific and will be passed on to consumers are seen as relevant. Accordingly, the EC has shown limited openness to consider merging parties' arguments about the benefits of scale and fixed-cost savings for investments in R&D and new products, out-of-market efficiencies, or efficiencies that can be plausibly achieved by other ways than a full-scale merger.11 The EC has also imposed a high standard of proof on merging parties to demonstrate quantifiable merger-specific efficiencies if they occur in a longer-time frame. As such, only a fraction of savings that a merger can create is recognised as relevant "efficiencies" for merger control purposes.
To be sure, the EC has in the past engaged with the efficiencies arguments presented with the parties and there were several cases where it has recognised that the merger would result in significant cost-savings.12 But, as explained, merging parties often struggle to satisfy the current rigid efficiencies test and proving future positive effects on innovation, which by their very nature typically occur in a longer time frame and may be difficult to quantify, is challenging under the current framework.13
Review of the EU Merger Guidelines
In May 2025, the EC launched a public consultation of its Horizontal and Non-horizontal merger guidelines (see our alert here), which includes a Focus Paper C on "Innovation and other dynamic elements in merger control".
Focus Paper C notes that mergers (mergers between head-to-head competitors, but also non-horizontal mergers) can impact innovation competition in both directions: "they may increase the ability of the merged firm to innovate but also harm innovation competition and thus the incentives to invest in R&D". The EC therefore considers that any revised framework should enable a thorough evaluation of both the positive and negative effects that mergers may have on innovation.
The consultation seeks views specifically on:
- the circumstances in which a merger may increase, or on the contrary, stifle competition in innovation;
- how far in the future the EC should look when assessing the impact of a merger on competition (e.g. whether companies will invest or innovate post-merger). The EC notes that the effects of mergers on innovation are often more difficult to predict than on prices;
- a 4-pronged framework14 for the assessment of innovation in horizontal mergers. This framework is particularly relevant for review of killer acquisitions and reverse killer acquisitions;
- how to distinguish between future rival entry as a countervailing factor and the elimination of a potential competitor as a theory of harm; and
- the competitive impact of perceived entry (where a merging party is constrained by the perception that a rival may enter).
The need for a balanced approach
The recognition in both the Draghi Report and the Competitiveness Compass that the impact on innovation should be an important consideration in merger control review, and that mergers can impact innovation competition not just negatively but also positively, is a welcome development. There should be no presumption that mergers diminish incentives to innovate or benefit innovation. Instead, a case-by-case assessment15 is essential to properly evaluate the impact on innovation.
Merging parties should face a balanced and evidence-based review by the EC. In this context, placing a disproportionately high burden on the parties to demonstrate innovation efficiencies is counter-productive and may jeopardise the achievement of the broader policy objectives that the EC pursues.
Rather than compartmentalising the assessment of the impact of the merger on the market and the efficiencies defence, the EC should consider holistically both the potential benefits (e.g. the likelihood of an increase in innovation) and theories of harm in its forward looking assessment of the likely effects of the merger and the counterfactual. All effects of a merger on innovation incentives—including positive spillovers such as knowledge sharing and the integration of R&D capabilities—should be incorporated into the central competitive analysis. The same applies to the benefits that scale has for innovation and funding R&D investments. Scale should not be just considered neutral or negative, as it currently is in the case. The benefits of scale should be recognised. Indeed, it is key to have scale to fund the ever more expensive R&D in a situation where returns on investments are increasingly uncertain also due to the changing regulatory framework.
This is also an opportunity for the EC to adopt a more forward-looking and balanced approach to genuinely considering efficiencies claims. The revised Merger Guidelines could provide a clearer and more flexible framework for parties to present credible efficiency claims, particularly those related to innovation. This should include broader recognition of "out-of-market" efficiencies (efficiencies outside the markets directly affected by the transaction) and benefits that may be difficult to quantify or that materialise over a longer time horizon. Furthermore, the EC should reconsider the requirement for merging parties to provide evidence that no conceivable alternative arrangement could deliver the same efficiencies. Given the evidentiary challenges involved in quantifying innovation effects, parties should be provided with some allowance for the evidentiary hurdles. By way of an example, in the assessment of merger specificity, the EC should look at whether the efficiency is likely to realise absent the merger, and if there is insufficient evidence that the efficiency will arise (e.g. an R&D investment would happen), the default outcome should be to accept the efficiency as merger specific.
Finally, the EC should consider innovation in remedies, and whether it is appropriate in specific circumstances to accept investment commitments, especially investment in R&D, to address concerns of reduced innovation incentives.
The importance of innovation narratives
With the growing emphasis on innovation in EU merger control, merging parties should ensure that innovation considerations are fully integrated into their merger control clearance strategy and, in particular, any positive effects on innovation are properly thought through.
Historically, the EC has shown reluctance to acknowledge that mergers may enhance innovation, particularly as a basis for clearance. However, this stance appears to be evolving, and innovation arguments are increasingly being used in merger notifications where they may prove influential in securing clearances. A recent example is Nokia/Infinera16 cleared in January this year, where Nokia submitted that the merger would lead to "increased operating margins" enabling it to achieve R&D levels comparable to players in the US and China, thereby delivering "faster innovation" at an "improved cost structure". The transaction also received positive feedback during market testing, with one customer specifically noting that it would "improve Nokia's capacity for innovation vis-à-vis the competition".
A compelling innovation narrative can significantly influence the EC's overall perception of a transaction. While such a narrative may be challenging to quantify, it can nonetheless shape the EC's approach to its theories of harm—potentially leading to a less definitive stance. A holistic strategy that includes consideration of innovation effects should ultimately support a finding that the transaction does not, on balance, raise substantive competition concerns.
1 The UK government's pro-growth agenda has led the UK Competition and Markets Authority (CMA) to strive for greater efficiency and flexibility in its merger control review process. Since January 2025, the CMA has been attempting to roll out its 4Ps (pace, proportionality, predictability and improved process) across it merger control review process (e.g. by reducing pre-notification periods and review periods for straightforward Phase 1 cases; consulting on new jurisdictional guidance; and exploring the relationship between competition and investment with the publication of a new literature review). See: Speech by Sarah Cardell, the CMA's Chief Executive, delivered at the BVCA Summit on 10 September 2025.
2 In April 2025, Andrew Ferguson, the chairman of the US Federal Trade Commission, when asked about the difference between the antitrust philosophy of Trump 2.0 and the Biden Administration, criticized his predecessor for having an "ideological predisposition against M&A". See: Antitrust in the Trump 2.0 Era: Ferguson and Slater Discuss', Fgs Global (15 April 2025).
3 M.Draghi, The future of European competitiveness, September 2024. See here.
4 U. von der Leyen, Mission Letter to Teresa Ribera Rodríguez, September 17, 2024. See here.
5 EU's Competitiveness Compass, published in January 2025. See here.
6 In one of its early cases, Pasteur Mérieux/Merck (IV/34.776), for instance, the EC reviewed the effects of the transaction on specific future products in an advance stage of clinical trials for which the parties had overlaps in their actual R&D portfolio.
7 Dow/DuPont, Case M.7932
8 Dow/DuPont, Case M.7932
9 However, following its setback in Illumina/Grail, the EC has yet to establish a framework for reviewing killer acquisition cases that do not meet national turnover thresholds (see here our client alert on below-threshold mergers for more details).
10 This theory is especially relevant in digital markets.
11 For example, in many mergers in the telecommunications industry, efficiencies related to combining the merging parties' networks were dismissed on the basis that similar efficiencies could be generated by the parties entering into a network sharing agreement.
12 See e.g. CASE M.7630 – FEDEX / TNT EXPRESS, at paras. 586-590.
13 See for instance recitals 513-528 in Dow/DuPont for the EC position that the innovation efficiencies put forward by the parties were difficult to substantiate, due to their speculative nature and lack of verifiable evidence.
14 This consists of assessing the effects of a merger throughout the lifecycle of innovation including the risk of harm arising from (a) overlaps between existing products, (b) overlaps involving advanced pipeline products, (c) a discontinuation, delay or redirection of early-stage pipelines, or (d) a loss of innovation competition from a structural reduction in the overall level of innovation.
15 On 11 September 2025, as part of its efforts to contribute to the UK government's priority mission to drive economic growth, the UK Competition and Markets Authority published a new literature review by its Microeconomics Unit exploring the relationship between competition and investment. The report notes that "[h]orizontal mergers can…affect the direction and scope of innovation, but the net impact of these changes is often ambiguous"; and that "vertical mergers can have positive impacts on investment, but effects are industry- and merger-specific" (p.60).
16 Nokia/Infinera, Case M.11663. The EC ultimately found no competition concerns in that case and therefore did not need to assess the innovation benefits
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2025 White & Case LLP
