On 24 September 2019 the UK Competition and Markets Authority (CMA) imposed its largest ever fine for a single breach of an interim enforcement order (IEO) on Paypal, in the context of its acquisition of iZettle.
This record fine is the latest in a series of recent fines which have underscored the CMA’s commitment to enforcement of its procedural merger control rules, in line with the increasingly strict approach taken to “gun-jumping” offences by other competition authorities around the world.
IEOs are now routinely imposed in almost all completed mergers investigated by the CMA (and, occasionally, in anticipated mergers), preventing any further integration of the merging businesses pending completion of the CMA’s investigation. The rationale behind such orders is to avoid any action being taken which might prejudice the CMA’s investigation, or affect its ability to impose effective remedies.
In the Paypal case, the CMA had agreed to a derogation from the IEO in respect of international integration planning outside the UK, including conducting cross-selling pilot campaigns involving non-UK businesses, on the basis that such activities would not affect the UK. This sort of derogation is fairly common where the CMA is satisfied that the activities in question would not risk prejudicing its review or impede the implementation of any remedies ultimately deemed necessary.
However, a Monitoring Trustee appointed to ascertain the level of compliance with the IEO and monitor ongoing compliance identified that Paypal had conducted three waves of cross-selling pilot marketing campaigns in France and Germany, promoting the iZettle offline point-of-sale solution to a sample of existing PayPal customers, which led to PayPal also contacting potential customers in the UK.
The CMA considered that this breached the IEO in several ways:
- it risked impairing the ability of iZettle and Paypal to compete independently;
- it risked undermining the separate sales or brand identities of Paypal, Paypal Here (its mobile point of sale service) and iZettle; and
- it meant that Paypal was not operating the customer lists of the two businesses in the UK separately.
In reaching its conclusion, the CMA emphasised repeatedly that the precautionary purpose of an IEO seeks to protect against the possibility of prejudice to the CMA’s investigation. It is not necessary to show that such prejudice has arisen, or even that it is likely to arise. The CMA notably rejected Paypal’s argument that a materiality threshold is applicable when determining whether an IEO has been breached, below which a “possibility” of prejudice to the CMA’s investigation is too remote to constitute an infringement.
In light of the seriousness of the breach, and the need to achieve general deterrence, the CMA concluded that a penalty of £250,000 was appropriate.
Exactly where the line is drawn between permissible transition planning and prohibited early implementation can be a complex issue, which depends on the facts and circumstances of the individual transaction. This latest decision is a reminder of the importance of having clear and practical guidance in place as to what is and is not permissible pending a clearance decision, and the need for ongoing oversight and internal monitoring of compliance.
For a more detailed consideration of the CMA’s fining decision in this latest case please see our e-bulletin here.