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Managing Volatility: Considerations for Taiwan investors and businesses

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Key legal developments in 2022 and their implications for Taiwan

Executive Summary

After withstanding the impact of COVID-19 in 2020, 2021 witnessed a sharp rebound globally across capital markets, private equity, finance and other corporate deal-making. The rebound was expected—the combination of the pressure to deploy significant amounts of raised capital and pandemic-driven asset value distortion presented attractive value propositions for many stakeholders. The magnitude of the rebound, however, was unexpected. 

The exuberance carried over into early 2021, but when the Ukraine conflict started in February 2022, it exacerbated ongoing geopolitical fractures and economic decoupling, quickly dampening any optimism for sustained deal-making in 2022. The security of energy, food and other commodities became a key risk theme in 2022.

However, volatility is not necessarily a bad thing. With careful planning (many steps ahead) on how to manage the current volatility, we believe investors and businesses in Taiwan will be in a prime position to capitalize on Taiwan's critical role in global trade once normalcy resumes.

Following our 2022 Taiwan webinar series in September and October, we hope this year's report for Taiwanese businesses and investors provides helpful guidance during a volatile time.

We begin with an overview of the current state of affairs related to global regulatory developments in foreign direct investment (FDI). Various black swan events in 2022 drove, and will continue to drive, geopolitical fractures and economic decoupling globally. In addition, global FDI regulatory regimes have rapidly matured to the point where it is critical for Taiwanese investors and businesses to ensure maximum deal certainty by considering FDI analysis as probably the most important task they need to manage before embarking on any cross-border investments relating or peripheral to critical infrastructure and technologies.

We then summarize recent European Union court judgments that established what is deemed anti-competitive behavior in the context of exclusivity rebates. Taiwanese businesses trading in dominant positions in the EU should carefully weigh the impact of these judgments on trading practices.

Next, we provide our thoughts on the trends and headwinds in M&A and corporate transactions relating primarily to Taiwan and the rest of the Asia-Pacific region. We hope the thematic investment developments, changing jurisdictional focus and the excess liquidity data points flagged in the overview will help guide investors and businesses in their quest for low-beta high-alpha investments.

To underscore emerging thematic investment developments and value discovery in Taiwan and globally, this year we introduced a webinar session focusing on ESG. This is a rapidly evolving theme which, given its growing importance in the capital markets, financing and corporate transactions, is driving increasing regulatory regimes globally. Because of differing ESG compliance standards globally, investors and Taiwanese businesses should carefully consider the complexities in structuring a compliant and bankable ESG-focused transaction. 

This year, we also introduced a webinar session focusing on fund formation. In our report, we summarize the concept of a continuation fund, a fund product that may be of interest amid volatility, and which has affected fund exits.

And finally, we summarize the state of affairs in global sanctions. The CHIPS and Science Act, which came into force in August 2022, is particularly relevant to Taiwan semiconductor companies. Given Taiwan's dominant position in the global semiconductor industry, this legislation has significant impact on the industry's supply chain and economics.

We look forward to discussing these and other issues with you.


Taiwanese businesses and investors must weigh foreign direct investment considerations

While most FDI regimes encourage foreign investment, the growing number and greater sophistication of regimes can add to transaction uncertainty.


European courts clarify the law on anti-competitive rebates

Key 2022 judgments apply a five-factor analysis outlined by the EU's highest court in 2017.

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M&A headwinds and tailwinds

How Taiwanese and other firms have weathered 2021’s perfect storm and its aftermath.

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Sustainable finance: The road so far and a look ahead

As stakeholders embrace ESG considerations, risks, opportunities and challenges to integration remain


Continuation funds emerge as attractive options for PE fund managers and investors

These funds create opportunities, but can present legal and business challenges.

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Trade: Taiwanese businesses must manage competing US and mainland Chinese demands

Understanding the recent ban of certain chips to China and the new semiconductor-related export controls

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European courts clarify the law on anti-competitive rebates

Key 2022 judgments apply a five-factor analysis outlined by the EU’s highest court in 2017

6 min read

The past year has seen a number of judgments by the General Court of the European Union (GC)—the EU's court of first instance—concerning the topic of exclusivity rebates. 

Under European competition rules, exclusivity rebates granted to customers by companies in a dominant position will be considered anti-competitive if, but only if, they are capable of excluding rivals who are at least as efficient—something which must be established by conducting an effects analysis. Recent GC judgments in Intel (January 2022), Qualcomm (June 2022) and Google (Android) (September 2022) have cemented this understanding. 

An effects-based analysis is required

The 2017 Intel judgment

While 2022 was indeed a prolific year for the GC when it came to assessing exclusivity rebates, it is necessary to look back five years, to better grasp this year's case law.

In 2017, the Court of Justice of the European Union (CJEU)—the EU equivalent of the US Supreme Court—found that the GC failed in a number of aspects to assess the legality of a 2009 European Commission (EC) decision fining Intel for granting exclusivity rebates to a number of customers. Specifically, the GC failed to assess whether the EC had properly conducted an analysis of the effects of the rebates. 

While the decision in question did contain an effects analysis, the CJEU held that the GC did not sufficiently consider Intel's criticisms of the analysis. To establish whether an exclusivity rebate is capable of having anti-competitive effects, the CJEU identified five elements to consider and requested the GC review its judgment to verify whether the decision had properly assessed these elements:

  • Dominance: What is the extent of the dominant position held by the undertaking?
  • Coverage: What is the share of the market that the rebate covers?
  • Conditions: What are the duration and the level (percentage) of the rebate?
  • Strategy: Is there a clear strategy to exclude rivals?
  • As-efficient competitor price/cost test: The court must analyze any criticisms raised by the defendant concerning the price/cost assessment in the decision  

The 2022 Intel judgment

Armed with the CJEU's 2017 judgment, on its second go at judicial review, the GC annulled the EC's 2009 decision, finding that the EC had erred on a number of fronts. 

First, it assumed that the rebates in question were anti-competitive by their very nature (i.e., mistakenly concluding that since these were exclusivity rebates, they were intrinsically anti-competitive). The GC clarified that, in order to find conduct anti-competitive, the capability of those rebates to restrict competition must be proven. In other words, an effects test was necessary.

Second, the GC found a number of errors in the decision's as-efficient competitor analysis. In particular, the decision contained errors concerning the market coverage (which the decision failed to analyze or establish) and the level and duration of the rebates.

The GC insisted that exclusivity rebates cannot be presumed to be an abuse of dominance absent evidence of anti-competitive foreclosure. Companies should be entitled to rely on economic analyses to assess the antitrust compliance of their rebate schemes, and the EC must carefully consider such evidence.

The 2022 Qualcomm judgment

The GC this year was also called to assess the legality of the 2018 decision fining Qualcomm approximately €1 billion for granting exclusivity payments to Apple, on the condition that it sourced the chipsets used in its iPhones and iPads exclusively from Qualcomm. According to the decision, such payments precluded other competitors from competing for Apple's business. 

On the substance, the GC found that the analysis of whether conduct is capable of foreclosing as-efficient competitors must consider “all the relevant factual circumstances” and “cannot be purely hypothetical.” Qualcomm was the sole supplier capable of meeting Apple's technical requirements, and therefore Apple would have sourced all of its chipset requirements from Qualcomm, regardless of the payments, so there was no restriction of competition in the first place. The counterfactual scenario was therefore the key to Qualcomm's victory. 

The 2022 Google (Android) judgment

The Google (Android) judgment was the latest episode in the 2022 exclusivity rebates saga.

In 2018 the EC fined Google €4.34 billion for abusing its dominant position via a series of allegedly anti-competitive agreements. Google won the exclusivity rebates portion of the appeal (the legality of the revenue share agreements), which resulted in a fine reduction of approximately €217 million.

The decision found that Google's granting of rebates over a portfolio of devices, in exchange for exclusive pre-installation of search, was abusive. Interestingly, in this case, the EC had carried out a detailed as-efficient competitor analysis.

However, the GC found two key errors in the decision. First, it found that the decision never analyzed the market coverage of the conduct and that, nonetheless, the market coverage was too low (less than 5 percent) to restrict competition by foreclosing rivals, especially given there was no accusation that the rebates covered a strategic segment of the market.

Second, the assessment of whether hypothetically as-efficient competitors could have offset Google's conduct, was not carried out properly.

As concerns the as-efficient competitor test, the GC agreed with Google that the EC failed in a number of respects: (i) it did not look at Google's actual costs; and (ii) the decision focused on the ability of actual competitors as opposed to hypothetically as-efficient competitors. The GC also identified additional factual and methodological errors.

Due process issues are also considered

In both Qualcomm and Google (Android), the GC found that the EC had made a number of procedural violations that affected the defendants' rights of defense.

In Qualcomm, the EC failed to take accurate notes of meetings with third parties. The GC accepted that the interviews at hand "could have related" to matters concerning the investigation, such as the competitors' capacity to supply Apple, their willingness to challenge the agreement with Qualcomm and the relative merits of Qualcomm's chipsets. Likewise, knowledge of these interviews “could have proved relevant” to Qualcomm's defense and “could have enabled” it to tweak its defense strategy accordingly.

In addition, while the EC had initially investigated conduct in two separate markets, its decision only found an abuse in the market for LTE chipsets. The EC accepted certain arguments raised by Qualcomm and included in its decision a revised economic analysis. The court found that Qualcomm should have been given the opportunity to review the final economic analysis (which differed as it only covered one market, not two) and been allowed to present its views.

In Google (Android), the EC presented the as-efficient competitor test to the parties via two letters of fact (as opposed to including it in its statement of objections). The implication of presenting the test in this piecemeal fashion was that Google was not entitled to an oral hearing to debate what would become a key element of the decision. The GC agreed with Google that an as-efficient competitor test is sufficiently important to warrant a supplementary statement of objections and thus an oral hearing at which the test could be debated between economic experts.

More rebates may be granted

As this year's decisions make clear, Europe now judges exclusive rebates on whether they will have the effect of foreclosing as-efficient rivals. This will enable the granting of more rebates. From a macro-economic perspective, this is a good outcome at a time when Europe is entering an era of high inflation.

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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.

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