Europe again has the technology sector in its target zone
Guidance for Taiwanese companies
2020 witnesses a year filled with significant changes to all of our professional and personal lives.
Businesses and individuals worldwide are witnessing significant geopolitical fractures that have resulted in significant changes to various aspects of the global legal landscape, such as financing, trade, sanctions, foreign direct investment (FDI), intellectual property and antitrust. The COVID-19 pandemic has also negatively affected many aspects of deal-making, with general corporate finance transactional activity levels significantly lower than last year. On the other hand, distressed M&A, restructuring and financing activities are on the upswing, as is the case for investments in sectors that are primed to take center stage in a post-COVID-19 world.
Taiwanese companies and financial institutions are not immune to these global developments. Indeed, Taiwan's unique positioning in the global supply chain and other areas warrants special attention to some of these issues faced by other players globally.
While the COVID-19 pandemic has prevented us from seeing clients in person in Taiwan this year, we continue to focus on the latest legal issues and trends affecting our Taiwanese clients and other contacts globally. Through a series of webinar presentations and online meetings, our objective this year is to deliver to you updates on the following key topics of interest:
We hope this report and our recent webinars are helpful in navigating a swiftly changing landscape.
Guidance for Taiwanese companies
For many years, the European Commission (the Commission) has been the global leader in applying antitrust law to the technology sector. This year is no exception. Indeed, there have been a number of new European enforcement initiatives in 2020, with the technology sector a primary focus of the Commission's enforcement activity right now.
Understanding the Commission's current approach to antitrust scrutiny can help Taiwanese companies both avoid becoming the target of an enforcement investigation and identify potential sources of help if they suffer anti-competitive or abusive conduct from others.
This article provides a summary of key recent antitrust developments in Europe, including high-profile cases, the Commission's new powers to stop subsidized foreign acquisitions and foreign direct investment (FDI) and how Europe's debates on FRAND no longer center around mobile phones, but are increasingly about cars.
Given its enforcement activity over the last two decades, the European Union (EU) became known as the global technology sheriff.
This began with two major EU cases:
The Commission has remained equally active in recent years, adopting important decisions in cases involving Google and Qualcomm:
In addition to its casework, the Commission is very active on the policy front. Since the start of 2020 alone, it has published "Communication on Shaping Europe's digital future, a White Paper on AI and a Communication on a European strategy for data." This shows that the technology sector continues to be an area of enforcement focus in Brussels, as several recent cases highlight.
In June 2020, the Commission formally opened an investigation to assess whether Apple's rules for app developers on the distribution of apps via the App Store violate EU competition law. The investigation's concern, in particular, is the mandatory use of Apple's own proprietary in-app purchase system and restrictions on the ability of developers to inform iPhone and iPad users of alternative cheaper purchasing possibilities outside of apps.
In June 2019, the Commission opened proceedings into alleged anticompetitive practices by Broadcom, covering both exclusivity arrangements and IP/interoperability issues. In October 2019, the Commission imposed interim measures that prevented Broadcom from imposing exclusivity and quasi-exclusivity arrangements on six of its main customers for Systems-on-a-Chip (SoCs) for TV set top boxes, xDSL modems and fiber modems.
In April 2020, Broadcom offered a package of commitments in order to address the Commission's competition concerns about the exclusivity arrangements. These commitments would lead to the case in relation to the exclusivity arrangements being closed, based on Broadcom respecting the undertakings it has given for five years. But although the commitments would bring a speedy end to the exclusivity part of the case, they do not address the other aspect of the investigation into IP/interoperability.
In July 2020, the Commission opened a sector inquiry on the Internet of Things (IoT), covering products such as wearable and connected consumer devices used in the smart home context. It has sent out multiple questionnaires, based on its concern that certain practices may structurally distort competition, by restricting data access and interoperability. It is also examining self-preferencing and practices linked to the use of proprietary standards. A preliminary report is due in spring 2021—and then could be followed by investigations into specific companies.
In March 2020, the Commission issued Guidelines to coordinate the EU's approach to FDI screening in light of the COVID-19 crisis and to protect the EU's critical assets and technologies from potential hostile takeovers and investments by non-EU companies. The technology sector is one of the key sectors in which the Commission suggests increased use of new FDI screening mechanisms.
In addition, the Commission published a June 2020 white paper about a proposed new tool to control the acquisitions and activities of foreign-subsidized companies in the EU. The proposed tool contains three elements: (i) an ex post control mechanism to review competitive distortions; (ii) a mandatory ex ante notification mechanism that would allow the Commission to review foreign subsidized acquisitions, including certain minority investments; and (iii) the possibility to exclude bidders that have received distortive foreign subsidies from public contracts. This proposed tool is still far from becoming law, but the technology sector will likely be a key area of focus for the second pillar of the tool.
The debates in Europe about FRAND license terms are now firmly anchored in the automotive sector. One debate is about whether FRAND licenses for components used in cars should be offered to any company in an automotive manufacturer's supply chain. Carmakers filed an antitrust complaint with the Commission based on Nokia's refusal to grant a license to automotive suppliers, arguing that it is an abuse of a dominant position.
The Commission's ruling on this topic will obviously be of great relevance to the technology sector, as the Commission has not previously answered this question in a pure technology context. Nokia responded by seeking royalties and an injunction against certain car manufacturers and suppliers. This case is ongoing, and while Nokia recently won an initial ruling, the carmakers have appealed. What is clear is that the rules on FRAND will increasingly be driven by cars, not phones!
Since the Commission continues to focus its antitrust enforcement efforts and scrutiny on the technology sector, Taiwanese companies need to keep Europe in mind when thinking about antitrust. This can both help them avoid becoming caught up in an investigation and serve as a source of assistance if they are victimized by anti-competitive or abusive conduct by others.
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