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

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 this “traditional” market model and has brought forward disruptive innovation. ⁷ Online markets are characterized by “competition for the market,” rather than “competition in the market,” such that a dominant platform can easily be overturned by an entrant or rival with better technology, higher quality, or a different business model. ⁸ Digitalization has generated new business models in many sectors, and rendered previously existing markets obsolete. The rise of tech giants, the “Rockefellers” of our times, is best illustrated through Schumpeter’s economic model, whereby competition for the market results in near-monopolies until the next disruptive innovation model will be invented.

B. Consolidation Is a Noticeable Trend in Many Industries

Alongside digitalization, industrial consolidation appears to be another irreversible trend of our modern times: 10% of the world’s public companies generate 80% of all profits. The annual number of mergers and acquisitions is more than twice of what it was in the 1990s. Figures show that all over the world more firms are dying than being born. ⁹

In the United States, over the past decades, many industries have become increasingly concentrated, and a trend towards higher profit margins is clearly emerging. ¹⁰ Several economic studies argue that, at least in the United States, the increase in market power is associated with an increase in concentration and with a relatively permissive competition enforcement. ¹¹

Also in Europe, research indicates that there is a consolidation trend under way, although less pronounced. ¹²

C. The Response of Antitrust Enforcers Across the World

Interestingly, the question whether persistent, high market shares and profit margins in the new market economy are detrimental for consumers and innovation has triggered different reactions in the EU as opposed to the United States. While in the United States, certain scholars (dubbed the “neo-Brandeis” movement or “hipster antitrust” by its detractors) have been in vain advocating a more interventionist enforcement policy from antitrust agencies, ¹³ the EU is actually the one who walks the talk.

Enforcement action against tech giants best epitomizes the fundamental differences between the two sides of the Atlantic. ¹⁴ While the U.S. agencies have been substantially inactive, European competition authorities have taken significant enforcement action in a string of landmark cases. ¹⁵

The European Commission’s appetite for intervention is also evident in merger control, where an increasingly tougher stance is becoming discernible in the treatment of (1) the so-called “gap” cases ¹⁶ and (2) horizontal mergers involving differentiated products, to the extent that the removal of a close competitor—instead of the closest competitor—appears to suffice to establish harm to competition; ¹⁷ mergers giving rise to coordinated effects; ¹⁸ and mergers raising vertical and conglomerate issues, where the level of scrutiny and attention has significantly increased, although not yet translated into a higher rate of intervention. ¹⁹

It is against this background that innovation is being regarded as one of the main antidotes against market power accumulation, thus becoming the priority of the European Commission’s merger control enforcement activity.

A. The Commission’s Traditional Approach to Mergers Impacting Innovation

Under the Commission’s traditional approach as set forth in the HMG, 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 behavior of the firms active in the market; and second, there is not a sufficient number of other potential competitors, capable of maintaining postmerger sufficient competitive pressure. ²⁶ The first condition can be met in two different situations: either the potential competitor (1) already significantly constrains the behavior of the firms active in the market; or (2) it is likely to enter the market in a relatively short period of time, after which it would constrain the behavior of firms currently active in the market. ²⁷

This well-established practice of analyzing potential competition through pipeline products is illustrated in numerous past cases. ²⁸ J&J/Guidant ²⁹ is one of the cases that best illustrates the way the Commission used to apply the “traditional” theory of harm to innovation.

J&J was active in the very concentrated market for drug eluting stents (DES), with only one other major supplier active worldwide—Boston Scientific—plus a number of imminent entrants such as Guidant, Medtronic, and Abbott, which were all developing stage III pipeline products. The Commission had to assess whether by eliminating Guidant as a potential competitor in the DES market, the merger would remove the major competitive constraint in the DES market, with the other new entrants being unable to compensate for the loss of competition resulting from Guidant’s elimination from the market.

The Commission’s market investigation revealed that the proposed merger would eliminate one of the potential entrants with the best prospect of success in the market for DES, which was at the “forefront of innovation,” ³⁰ could rely on numerous assets, and “would have acted as a major competitive constraint in such a market.” ³¹ However, the Commission also acknowledged the existence of equally credible “potential” competitors, Medtronic and Abbott, who were also about to enter the market and therefore could compensate for the loss of competition resulting from J&J’s acquisition of Guidant. ³²

To reach this conclusion, the Commission relied upon a substantive amount of documentary evidence, such as review of clinical evidence, assistance from a pool of eminent physicians who had been involved in clinical trials, and studies prepared by specialized consultants. Moreover, and perhaps more importantly, the Commission took a symmetric approach to assess potential competition from third parties and potential competition stemming from the merging parties. Potential competition stemming from third parties therefore played an important role in the competitive assessment and was likely one of the reasons why the merger was cleared without commitments in the DES market. ³³

B. The “New” Approach

To recap, under the traditional analytical framework applied by the Commission in a great number of past cases and well exemplified in J&J/Guidant: ³⁴ harm to innovation should inevitably be linked to late-stage pipeline products (e.g., Phase III drugs or medical devices). Hence, time to market was supposed to occur in a short time horizon, at the most within two to three years; prospect for a 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.

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, ³⁵ Novartis/GSK, ³⁶ and Pfizer Hospira. ³⁷

C. Medtronic/Covidien (2014)

Medtronic/Covidien ³⁸ impacted the market for drug-coated balloons (DCB) to treat vascular diseases, where Medtronic was market leader and Covidien had a promising pipeline product. ³⁹ Competitors were scarce, with only Bard being perceived as a close competitor to Medtronic, while other DCB suppliers could not rely on robust clinical data to compete with Medtronic and Bard, the competitive pressure on Medtronic being thus limited. The pipeline product of the target company, Stellarex, was in Phase III of development, but the prospect of a successful entry was uncertain because of the lack of sufficient clinical data on efficacy. ⁴⁰ Nonetheless, the Commission held that the transaction would have eliminated a credible competitor and might have undermined innovation in the market for DCB.

What is striking in this case is that the Commission reached the conclusion that Covidien pipeline product constituted a credible potential competitor capable of exerting an important constraint, despite very mitigated feedback from physicians, while the competitive pressure coming from already existing products from established competitors was altogether discarded. The Commission concluded that the existing competitors (Bard, Biotronik and Eurocor) would not be in a position to exert sufficient competitive pressure on the merged entity on the DCB market post-Transaction, even though Bard, for example, was Medtronic’s closest competitor and the only one with comparable clinical data to Medtronic. ⁴¹

The Commission’s reasoning and conclusions are in stark contrast with the findings in J&J/Guidant, ⁴² which displays resemblances with the Medtronic/Covidien ⁴³ case, in terms of market features and competitive landscape (cardiovascular devices). For instance, in the latter case, the Commission discounted the fact that no sufficiently solid clinical data was available to prove the efficacy of the pipeline product. It also downplayed opinions of physicians indicating that the target’s product could not really be compared with Medtronic’s product at this stage due to the lack of clinical data. ⁴⁴ In contrast to the J&J/ Guidant case, ⁴⁵ where abundant evidence about clinical trials and availability of angiographic parameters proved the prospect of success of the target and the other pipeline products, in Medtronic/Covidien, ⁴⁶ the Commission only relied on statements from two surgeons and on the parties’ internal documents to conclude that the pipeline product could exert a sufficient competitive constraint on Medtronic. ⁴⁷ Conversely, the relevance of actual and potential competition coming from third-party suppliers was restrained by applying a higher standard of care in assessing the reliability of the evidence.

In sum, the amount of documentary and statistical evidence used by the Commission to support the claim that the target’s product could constitute a potential competitor appears to be unconvincing in absolute terms, and much poorer in relative terms as opposed to J&J/Guidant case, ⁴⁸ with the prognostic analysis typical of a merger assessment slipping towards a speculative guess unsubstantiated by objective factors. ⁴⁹

Admittedly, there are two apparent mitigating factors possibly explaining the Commission’s decision.

First, J&J/Guidant ⁵⁰ is a Phase II decision, as opposed to Medtronic/Covidien, ⁵¹ which is a Phase I decision where the legal test to raise concerns relates to “serious doubts about the compatibility of the transaction with the common market.” However, as clarified by the case law, the standard of proof for decisions under Article 6 of the European Union Merger Regulation (EUMR) is just the same as for those adopted under Article 8. ⁵² Accordingly, the “serious doubts” test should nonetheless be interpreted as meaning that, based on a balance of probabilities judgement, sufficiently cogent evidence should be collected to demonstrate that the transaction is likely to significantly lessen competition; the difference with a finding of a significant impediment of effective competition (SIEC) in a Phase II case possibly being only a matter of quantity of evidence collected in the investigation (in principle less significant in the first phase) rather than quality of evidence.

Secondly, the Commission seems to have found internal evidence hinting to the parties planning to discontinue the pipeline product. It is apparent that whenever the Commission finds internal evidence proving discontinuation of pipeline products, it does not seem keen to engage in a solid demonstration of what real prospect of success the pipeline product would have when hitting the market in the first place. ⁵³ In other words, to the extent there is evidence that some harm to innovation is likely to materialize, this finding appears to be sufficient for the Commission to truncate its analysis. However, the enforcer cannot be exempted from running a proper qualitative assessment as to whether the pipeline product under threat of discontinuation could ever become a serious contender of the incumbent players.

D. Novartis/GSK (2015)

In the Novartis/GSK case, ⁵⁴ Novartis intended to acquire from GSK’s portfolio three potential blockbuster anticancer drugs. Both Novartis and GSK had advanced pipeline products (Phase III) for the treatment of skin and ovarian cancer. ⁵⁵ In terms of the competitive landscape, only one additional competitor was present with a marketed or advanced pipeline drug. Moreover, the same inhibitors were being tested by both Novartis and GSK for the treatment of other cancers based on the same mechanism of action (in early development stages; Phase I and II, respectively), for which only one additional competitor had a late-stage competing pipeline product (Roche).

The Commission feared that Novartis would stop developing its pipeline products given that, postmerger, Novartis would acquire drugs with the same mechanism of action from GSK and given that the duplication of clinical programs is lengthy and costly. ⁵⁶ Complex structural and behavioral remedies were implemented to address these concerns.

Importantly, rather than limiting itself to pipeline products in advanced stages of clinical development like it did in earlier cases, the Commission looked at all phases of clinical research and concluded that the transaction would have caused a reduction of innovation; that is, Novartis would have abandoned both the late-stage clinical trial programs (Phase III) for the two drugs for skin and ovarian cancer, as well as the early-stage clinical trial programs (Phases I and II) for the other types of cancer.

The novelty of this case lies in the fact that for the first time the Commission stretched the timeframe relevant to assess successful market entry by pipeline products and ventures in a territory where the prognostic analysis becomes very speculative; for the higher we climb the “pipeline,” the more difficult and uncertain a prediction about market entry becomes. ⁵⁷

Moreover, it is also visible that for the first time the Commission begins to distance itself from a traditional analysis anchored to specific products and brings the discussion about harm to innovation at a higher level, by discussing the merger’s chilling effect on the parties’ “incentive to innovate,” ⁵⁸ and about “competition in innovation” as such. In this respect, Novartis/GSK ⁵⁹ is the prelude to Dow/DuPont ⁶⁰ and the new theory of harm that will be fully developed later.

E. Pfizer/Hospira (2015)

In this case, the transaction gave rise to an overlap in relation to biosimilars used to treat some autoimmune diseases (rheumatoid arthritis). ⁶¹ Only one reference biological drug based on the molecule infliximab was available on the market and marketed by MSD (Remicade), and only one biosimilar was available on the market, developed by Celltrion and comarketed independently and under competing brands by Hospira and Celltrion. Samsung Bioepis was at an advanced stage of development of a competing biosimilar based on the same molecule (infliximab) and planned an imminent entry, while Pfizer was also developing a competing biosimilar although it was still a number of years away from entry. ⁶²

Despite limited information about clinical evidence proving the efficacy of Pfizer pipeline biosimilar, the Commission raised nonetheless concerns that, postmerger, Pfizer would have delayed or discontinued development of its pipeline biosimilar drug to focus on Hospira’s product, which would mean a loss of significant competition in view of Pfizer biosimilar’s good prospect of a successful market entry. A full divestment of Pfizer’s infliximab biosimilar drug ⁶³ was required in order to preserve future innovation in biosimilars.

This case not only confirms the new tendency of the Commission to truncate the qualitative assessment about the prospect of success of the pipeline product to the extent there is a threat of discontinuation of such a product, but also shows the insurgence of a double standard when assessing the relevance of potential competition: when it comes to a third-party potential competitor, the Commission sticks to the traditional short timeframe (generally two years) in order to assess whether such company can become a competitive force in the foreseeable future. ⁶⁴ When potential competition concerns one of the merging parties, the Commission takes into account a much longer timeframe—six to eight years for Pfizer to develop infliximab in the present case—and does not consider itself to be bound by the two-year period. ⁶⁵

F. Dow/DuPont (2017)

The tendency to assess harm to innovation in an increasingly “intangible” manner culminates in the “wholesale” approach taken in Dow/DuPont, ⁶⁶ where harm to innovation is looked at from an “overall industry” level.

The Commission’s Phase II investigation in Dow/DuPont ⁶⁷ concerned the parties’ activities in pesticides, where the merger would create the number one seed and pesticide company in the world.

In addition to standard horizontal unilateral effects, the Commission also raised concerns with respect to overlapping lines of research in innovation of pesticides, that is, the likelihood of negative effects of the transaction on the parties’ research and development (R&D) lines, as well a reduction in the overall incentives to innovate postmerger. The Commission’s assessment of how the merger would chill innovation was based on several elements, such as (1) the market features, that is, high barrier to entry; (2) the importance of the merging parties as innovators, in particular DuPont; (3) how close the parties competed in innovation; (4) the likely negative effects on innovation stemming from the transaction; and (5) whether the remaining competitors could compensate for the loss of innovation competition.

From a qualitative point of view, the Commission analyzed the parties’ internal documents to identify the characteristics of research targets, R&D capabilities, and pipelines at the research stage, without assigning these R&D activities to a particular product market. Indeed, the Commission acknowledged that “it may not be able to identify precisely which early pipeline products or lines of research the Parties would likely discontinue, defer or re-direct.” ⁶⁸

The investigation showed that the merging parties had (1) some overlapping R&D capabilities; (2) some overlapping lines of research in the discovery stage, where the parties had a number of promising competitive pipeline products; and (3) other overlaps across the different stages of a product lifetime (e.g., discovery-to-development pipelines overlaps and discovery-to-existing product overlaps).

Based on the analysis of patent data related to crop protection, the Commission then inferred the high importance of both merging parties as innovators, the high degree of concentration in research for new active ingredients (AIs) (discovery stage), and the significant combined share of research for new AIs accounted by the merging parties, notably in selective herbicides and insecticides. ⁶⁹ On this basis, the Commission found that there was a concentrated “innovation market,” with five players on a global level—a higher level of concentration than in the product market.

The Commission’s investigation concluded that innovation was an important parameter of competition in the crop protection sector, that the parties were head-to-head competitors in terms of innovation in specific crop protection areas, and that they were planning to cut back their R&D efforts postmerger.

Based on this, the Commission found that it was likely 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. The theory of harm to innovation was phrased as “removing the parties’ incentives to both pursue parallel R&D and bring new products to the market.” ⁷⁰

Unlike the cases exposed above, where innovation concerns related to transactions in which pipeline products were overlapping, Dow/DuPont ⁷¹ involves therefore the effects on innovation at earlier stages, that is, on early R&D efforts of the parties that have not yet taken the shape of concrete products. ⁷² Such R&D efforts may target an existing product market or take place upstream of actual product markets in wider innovation areas. ⁷³

G. Dow/Dupont and Its Critics

The Dow/DuPont ⁷⁴ case has sparked an incessant “search for meaning” with respect to the theory of harm employed by the Commission from both economists and legal scholars.

From an economic point of view, critics have argued that predicting the success of innovation efforts is by definition uncertain and that it is thus not well-suited for a solid merger control decision. ⁷⁵ In addition, it has been argued that the decision does not calculate the innovation diversion ratio; nor does it discuss efficiency gains. ⁷⁶ Such efficiency gains can materialize through incentives to streamline R&D by shutting down certain less-efficient research units in the postmerger entity and focusing their efforts on others. ⁷⁷ The merging parties can therefore benefit of the avoidance of replication of discovery, increasing the ultimate returns on R&D. ⁷⁸

From a legal point of view, it has been argued that Dow/DuPont ⁷⁹ 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. ⁸⁰ This would mark a shift in the Commission’s analytical framework, whereby a new “significant impediment to effective innovation competition” test is established and the scope of the merger review is expanded to early stage R&D efforts, where products are several years away from reaching the market. ⁸¹

The case raises indeed legitimate legal questions, such as whether the theory of harm to innovation in a generic sense (on the industry level) is supported by the Commission’s guidance, in the HMG or in other legal sources.

As said, the HMG mention innovation as a dimension of competition on the same footing with prices, but fail to set out a framework for analyzing generic harm to innovation unconnected to a specific product or technology market, contrary to the well-established practice of analyzing potential competition through pipeline products. ⁸² Even though the Commission has tangentially mentioned the importance of preserving innovation pressure already since early cases, ⁸³ it traditionally refrained from assessing longer-term effects of innovation as a specific concern and, instead, focused on the shorter-term impact of mergers as regards innovation concerns. ⁸⁴

Outside of merger control, the guidelines ⁸⁵ on horizontal cooperation agreements deal with R&D and to this end clarify that the impact on competition coming from such agreements should be assessed primarily with reference to existing products and technologies, that is, analyzing whether these products or technologies are close substitutes and whether the parties have market power. In connection instead with innovation involving entirely new products or technologies for which, by definition, no market currently exists, the guidelines clarify that “the effects on competition in innovation are important in these situations, but can in some cases not be sufficiently assessed by analysing actual or potential competition in existing product/technology markets.” If so, two scenarios can be distinguished: either the innovation process is structured, and innovation “poles” can be identified, as is typically the case in the pharmaceutical industry, or the process is not structured and no specific R&D poles can be identified.

In the first case, the Commission proposes to analyze competition between the R&D poles and assess the closeness of competition between the parties and the existence of other competing poles. In doing so, the Commission would take into account

the nature, scope and size of any other R&D efforts, their access to financial and human resources, know-how/patents, or other specialised assets as well as their timing and their capability to exploit possible results. An R&D pole is not a credible competitor if it cannot be regarded as a close substitute for the parties’ R&D effort from the viewpoint of, for instance, access to resources or timing. ⁸⁶

By contrast, when R&D poles cannot be clearly identified, the Commission “would not try to assess the impact of a given R&D co-operation on innovation, but would limit its assessment to existing product and/or technology markets which are related to the R&D co-operation in question.” ⁸⁸

Similarly, in its guidelines concerning technology transfer, the Commission explains that “the Commission will normally confine itself to examining the impact of the agreement on competition within existing product and technology markets,” even though

in a limited number of cases, however, it may be useful and necessary to also analyse the effects on competition in innovation separately. This is particularly the case where the agreement affects innovation aiming at creating new products and where it is possible at an early stage to identify research and development poles. ⁸⁹

In that sense, the relevant question is to what extent the “innovation spaces” identified in the Dow/DuPont ⁹⁰ case are structured enough to be qualified as R&D poles and can therefore allow a robust legal analysis. The overlapping “innovation spaces” were identified as being development-to-development overlaps and development-to-products overlaps with respect to herbicides, insecticides, and fungicides. From a quantitative point of view, the Commission assessed these “innovation spaces” by carrying out a very detailed analysis of patent data, which confirmed the high importance of both merging parties, and in particular one merging party, as innovators and the significant combined share of research for new active ingredients accounted by the merging parties, notably in selective herbicides and insecticides. ⁹¹

In sum, the Commission did indeed employ a structured approach when defining “innovation spaces,” which could therefore be qualified as R&D poles. It is hence fair to say that even though the theory of harm to innovation in a generic sense is in no way backed by the HMG, the competitive assessment employed by the Commission could potentially be anchored in the Guidelines on horizontal cooperation agreements, at least on a conceptual basis. ⁹²

A. Standard of Proof

The standard of proof incumbent upon the Commission when assessing a merger is to do with the amount and the quality of evidence the Commission needs to gather in order to assess a concentration and come to a decision, be it a clearance, a conditional clearance, or a prohibition. ⁹⁹ In the field of merger control, because of the prognostic nature of the assessments, coupled with the relevant role that economics play in such analysis, the Commission has traditionally advocated a wide margin of discretion, which in turn would entail a restrained judicial scrutiny. The EU judges, though, in a sting of famous precedents (see inter alia Airtours/First Choice, ¹⁰⁰ Schneider/Le Grand, ¹⁰¹ Tetra Laval/Sidel, ¹⁰² and GE/Honeywell ¹⁰³ ) have set a high standard, noting that

the quality of the evidence produced by the Commission in order to form a sound basis for a decision declaring a concentration incompatible with the common market is particularly important, since that evidence must support the Commission’s conclusion that, if such a decision were not adopted, the economic changes envisaged by it would be plausible.

Symmetrically, the standard of review to which the European General Court (EGC) is entitled is very broad and thorough. It is for the EGC to verify primarily whether facts are accurate. Here, there is no room for discretion for the Commission. The EGC checks then very intensively whether conclusions that are drawn from such facts are correct and whether the evidence brought in support of a claim by the commission is sufficiently solid; that is, the evidence is complete, abundant, and consistent. Moreover, the intensity of the review clearly varies depending on the complexity of the theory of harm put forward by the Commission. The control is much more intense with respect to those situations whereby harm is foreseen as a result of a more complex chain of events and interplay, like in cases of coordinated effects, in conglomerate mergers, and, one could add, in cases dealing with harm to innovation.

B. Causation

Rigorous causation in merger control is a corollary of the high standard of proof that has been endorsed by the EU courts. Merger control entails a prospective analysis of future market events requiring a prognostic exercise of great accuracy, which must be based on sufficiently reliable predictions. Assessing a merger impacting innovation further complicates the exercise, for it requires a prognostic effort that stretches well into the future. ¹⁰⁴

As the EGC stated in GE v. Commission, ¹⁰⁵ relying on Tetra Laval v Commission, ¹⁰⁶

Conglomerate-type concentrations give rise to certain specific problems, in particular inasmuch as, first, the assessment of such a transaction may involve a prospective analysis covering a period of time stretching well into the future and, second, the specific conduct of the merged entity may determine to a great extent what effects the concentration has. Thus, the chains of cause and effect following a merger may be dimly discernible, uncertain and difficult to establish. ¹⁰⁷

C. Symmetry

The EU merger control system is governed by a general principle of symmetry. ¹⁰⁸ This entails that under the EU merger control system there is no presumption of either legality or illegality of a merger transaction. Under this system, the Commission is required to either approve or prohibit a concentration following a judgment in favor of one or the other outcome based on a balance of probabilities, the latter in turn depending on the evidence collected in the investigation.

But the same standard of balance of probabilities applies across the board, that is, to any finding of the Commission in connection with its assessment, including the likely occurrence of postmerger developments in a counterfactual scenario. And while the burden of proof may shift (who is bound to bring the evidence in support of a claim), the threshold applicable for standard of proof purposes—that is, amount of quantitative and qualitative evidence required to demonstrate that an event projected in the future is more likely than not to materialize—cannot change depending on whether potential competition is an offensive or a defensive argument in the context of a merger assessment.

Against this background, it is difficult to reconcile the stretched time frame of several years over which the potential for success of the merging parties’ pipeline products is evaluated, with the short timeframe (two years) the Commission considers in order for third-party potential competitors to be treated as credible future entrants capable of exerting a significant competitive constraint. ¹⁰⁹

The same problem of symmetry applies to the assessment of the verifiability of efficiencies in the context of an efficiency defense, notably a very challenging test. In fact, according to the HMG, verifiability is supposed to be demonstrated based on a rigorous causation of events, ¹¹⁰ which however should not be different from what is required in connection with potential competition coming from the merging parties.

The asymmetric approach is magnified in the context of the assessment of innovation efficiencies, ¹¹¹ since the merging parties are actually faced with an impossible test to meet; for the criteria that the Commission has established for an efficiency defense to succeed with respect to product and price competition simply cannot apply to innovation competition, where it is impossible to prove and quantify the pass-on.

D. Investigative Issues and Remedial Actions

There are also related practical problems resulting from this new approach that should not be underestimated.