Facebook, Inc. & Anor v The Competition And Markets Authority

“Pre-emptive action” under section 72(8) of the Enterprise Act 2002 is not confined to conduct threatening a final divestiture remedy. It includes action which merging parties may take in connection with or as a result of the merger that has the potential to affect the competitive structure of the market during the CMA’s investigation. The CMA may impose broad interim measures affecting the acquirer’s existing business where necessary to preserve competition and prevent harm that later remedies may not cure. Initial Enforcement Orders may be framed broadly while information is obtained and derogations considered. Merging parties must answer reasonable questions. Review of information requests is by rationality, with a wide margin of appreciation.

Facebook acquired GIPHY, after which the CMA imposed an Initial Enforcement Order under the Enterprise Act 2002. Facebook sought carve-outs from the order and challenged the CMA’s refusal to determine those requests without further information.

The Competition Appeal Tribunal rejected Facebook’s challenges based on irrationality, proportionality and legal certainty. Facebook appealed on four grounds concerning the meaning of pre-emptive action, the breadth of the order, the specific obligations imposed and the CMA’s information requests. The central issue was whether the statutory regime permitted the CMA to regulate conduct affecting the competitive structure of the market during its investigation.

Sir Geoffrey Vos MR delivered the leading judgment. Sir Julian Flaux Ch and Phillips LJ agreed.

1. Meaning of pre-emptive action. The thresholds in sections 22(1) and 72(1) of the Enterprise Act 2002 are low. The CMA need not conclude that prejudice to the reference is likely; a risk or possibility is sufficient. Section 72(8) is broad. Pre-emptive action includes conduct which merging parties may take in connection with or as a result of the merger that has the potential to affect the competitive structure of the market during the investigation. The court declined to formulate any exhaustive definition.
2. Scope of interim and final powers. Section 72(2) permits the CMA to prohibit conduct it considers pre-emptive and to impose obligations concerning activities or assets. Sections 41(2) and Schedule 8 give the CMA final remedial powers extending beyond divestiture and capable of affecting the acquirer’s existing business. Interim measures protect the pre-merger competitive structure and may prevent irremediable harm to competitors, suppliers or customers. Ernst & Young was distinguished because it concerned a different regulatory regime.
3. Derogations and cooperation. The CMA may impose a broad template Initial Enforcement Order while it obtains information and then considers derogations under sections 72(3C) and 72(7). It was lawful to withhold release from specific obligations until Facebook answered reasonable questions. Facebook’s failure to engage constructively justified the CMA’s approach.
4. Review of information requests. The applicable standard was rationality, equivalent in this context to asking whether the requests were manifestly without reasonable foundation. The CMA had a wide margin of appreciation, and the Tribunal was not required to second-guess what information was sufficient.

All four grounds failed. The appeal was dismissed and the Tribunal’s judgment upheld.

• Court of Appeal (Civil Division): dismissed Facebook’s appeal and upheld the Tribunal’s judgment.
• Competition Appeal Tribunal: rejected Facebook’s challenge to the CMA’s refusal to determine the requested carve-outs without further information.