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

The Court of Appeal upheld the Competition Appeal Tribunal's decision refusing Facebook's challenge to the CMA's handling of carve-out requests to an Initial Enforcement Order made under section 72 of the Enterprise Act 2002. The court construed the definition of "pre-emptive action" in section 72(8) broadly, holding that it covers action which the merging parties might 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 court emphasised that the statutory threshold for issuing Initial Enforcement Orders is low, that the CMA has wide powers under section 72(2), section 41(2) and Schedule 8 (including remedies beyond divestiture), and that the Tribunal was entitled to give the CMA a wide margin of appreciation in determining what information it needed. The Tribunal's findings that Facebook failed to cooperate and that the CMA's information requests were rational were upheld.

Background and parties:

• Facebook acquired GIPHY on 15 May 2020. The Competition and Markets Authority made an Initial Enforcement Order on 9 June 2020 and appointed monitoring arrangements to preserve GIPHY as a going concern and to prevent integration with Facebook.
• Facebook sought specific derogations (carve-outs) from the IEO. On 26 August 2020 Facebook applied to the Competition Appeal Tribunal for judicial review of the CMA's refusal to grant those derogations, arguing irrationality, disproportionality and lack of legal certainty. The Tribunal rejected Facebook's challenges.

Nature of the claim and procedural posture:

• This was an appeal from the Competition Appeal Tribunal's decision. Facebook raised four grounds of appeal: (1) statutory meaning of "pre-emptive action" in section 72(8); (2) that the IEO was excessively broad because the CMA's only realistic final remedy would be divestiture of GIPHY; (3) that specific IEO obligations applying to Facebook's entire business were irrational and disproportionate; and (4) that the CMA's information requests were disproportionate and the Tribunal should have applied a more intensive review.

Issues framed by the court:

1. Whether the Tribunal erred in construing "pre-emptive action" to include acts altering the competitive structure of the market during the investigation.
2. Whether the CMA had power to impose IEO terms affecting the acquirer's wider business beyond the target when divestiture was argued to be the sole realistic remedy.
3. Whether paragraph 5 specific obligations of the IEO were irrational or disproportionate in addition to general prohibitions.
4. Appropriate standard of review of the CMA's information requests and whether those requests were irrational or disproportionate.

Court's reasoning and disposition:

• The court rejected Facebook's narrow construction of section 72(8). It held the CMA's powers under sections 22, 35, 41 and 72 and Schedule 8 are broad; the section 72(8) definition using "might" sets a low threshold suitable for a precautionary regime. The Tribunal was entitled to view pre-emptive action as including conduct that could affect the competitive structure during the investigation.
• The court held that remedies available under Part 3 are not limited to divestiture and that interim measures must be capable of preserving the pre-merger competitive structure, including to protect third parties that may suffer irremediable harm absent intervention.
• The Tribunal's factual findings that Facebook failed to engage constructively with information requests and that the CMA had a rational basis for those requests were upheld. Given those findings and the low statutory threshold, the Tribunal did not err in applying a rationality/"manifestly without reasonable foundation" standard and concluding the information requests were reasonable.
• The court therefore dismissed Facebook's appeal in its entirety.

Appeal dismissed. The Court of Appeal held that the Tribunal was correct: section 72(8) should be read broadly so as to allow the CMA to prevent "pre-emptive action" that might affect the competitive structure of the market during an investigation; the CMA's IEO and its information requests fell within the wide statutory powers and margin of appreciation afforded to the CMA; and the Tribunal rightly found Facebook had failed to cooperate and that the CMA's requests were rational.