The CAT judgment in Meta Platforms, Inc. v Competition and Markets Authority: ‘dynamic competition’ upheld?
On 14 June 2022, the Competition Appeal Tribunal (“CAT”) delivered an important judgment in the proceedings brought by Meta Platforms, Inc. (“Meta”) for review of the decision by the UK Competition and Markets Authority (“CMA”) regarding its acquisition of GIPHY, Inc. (“GIPHY”). The judgment discusses the application of the CMA’s revised 2021 Merger Assessment Guidelines (“2021 MAG”), and in particular the concept of ‘dynamic competition’ which is likely to be key – although far from straightforward – in the context of merger control in digital markets going forward.
Meta completed the acquisition of GIPHY in May 2020. The acquisition was then subject to a merger enquiry by the CMA, following which the CMA concluded in its Final Report dated 30 November 2021 (the “Decision”) that Meta should be required to divest itself of GIPHY. The CMA found that the merger resulted or may be expected to result in a substantial lessening of competition in (a) in the supply of display advertising in the UK due to horizontal unilateral effects from a loss of dynamic competition (“Horizontal SLC”) and (b) in the supply of social media services worldwide (including in the UK) due to vertical effects resulting from input foreclosure (“Vertical SLC”). In order to address the Horizontal and Vertical SLCs, the CMA required Meta to, amongst other remedies, sell GIPHY in its entirety to an independent purchaser with the capability and a demonstrable commitment to developing and providing GIF-based advertising in the UK and GIFs to social media platforms.
In December 2021, Meta filed an application with the CAT for review of the Decision under section 120 of the Enterprise Act 2002 (“EA 2002”), relying on six appeal grounds which were both procedural and substantive in nature.
The CAT judgment
The CAT rejected all of Meta’s substantive grounds of review; and all but (part of) one of Meta’s procedural grounds.
Ruling on Meta’s substantive grounds
In summary, Meta argued the following by its three substantive grounds of appeal:
- (a) the CMA misdirected itself in law or misapplied the test in section 35(1)(b) of the EA 2002 in its finding that a Horizontal SLC arose from a loss of dynamic competition, or (b) the CMA’s finding of a Horizontal SLC was unreasonable;
- the CMA’s finding of a Horizontal SLC contradicted or was inconsistent with the CMA’s definition of the relevant market; and
- the counterfactual used by the CMA did not rationally follow from the CMA’s findings of fact and was inadequately specified.
The CAT dismissed all of those arguments, holding that the CMA had properly directed itself as to the relevant test when assessing the impact of the merger on dynamic competition and finding “no hesitation in concluding that the decision made by the CMA was one that it was entitled to make”. In the course of upholding the CMA’s assessment, the CAT outlined a framework for the interpretation and application of the concept of dynamic competition as set out in the 2021 MAG.
According to the CAT, ‘static’, ‘potential’ and ‘dynamic’ competition cannot be assessed in isolation, and the starting point should generally be an assessment of the state of static competition in any given market(s). The CAT acknowledged that, with the rise of digital platforms serving multiple markets, the analysis may well involve consideration of static competition in more than one market, given that dynamic competition ultimately involves much more fluid competition, with the potential for disruptions and incursions from participants in different markets. Next, potential competition should be considered before moving on to dynamic competition. Whilst the CAT acknowledged that the line between the two concepts is “impossible to draw clearly” and they should not be treated as too distinct, it explains that potential competition involves “an extrapolation of existing trends”, whereas dynamic competition involves “an assessment in relation to something that is inherently unpredictable”. Ascertaining the dynamic element which will likely manifest itself in the future will therefore be a difficult exercise, which the CAT considers may be informed by, amongst other factors: the motives of the merging firms; the market value attached to the dynamic element; the contestability of the market; and the monetisation potential of the dynamic element.
On market definition, Meta’s argument was, in essence, that the CMA’s finding of a Horizontal SLC contradicted the CMA’s definition of the market on which it said that Meta competes. In particular, Meta challenged the CMA’s conclusion that GIPHY's Paid Alignment advertising model (i.e. advertisers paying GIPHY to make the advertisers’ GIFs more prominent in search results) was a close substitute for the display advertising services offered by Meta. The CAT dismissed this noting that the regulator has a margin of appreciation in defining markets, which the Tribunal will respect even in the case of an ‘on the merits’ review, and that market definition is no more than a tool forming part of a larger test. The CAT also suggested that defining markets in the context of an assessment of dynamic competition affords the regulator an even greater margin of appreciation than would ordinarily be the case, as interconnections and synergies between markets are “the stuff of dynamic competition”. As to the counterfactual, the CAT held that the CMA’s findings were unassailable on the basis they related to the static competition position, whereby absent the merger GIPHY would have continued its old business and sought to develop and expand it; and Meta would have continued using GIPHY’s services as it previously had done.
By way of a constructive comment the CAT noted that, for future cases, because these types of theories of harm require difficult questions of judgment, the CMA should spend more time cross-checking its analysis, by asking itself what the position would be if the CMA’s assessment of the impairment to dynamic competition was wrong.
Ruling on Meta’s procedural grounds
Meta’s only successful ground of appeal related to redactions to the CMA’s provisional findings and Decision concerning commercial information of a third party competitor of Meta, Snap. In summary, the CAT considered that the CMA was more focused on protecting third party material and failed to properly balance the protection of confidential information with the necessity of disclosure to Meta. The CAT noted that the successful ground of review “prima facie undermines the entirety of the CMA’s decision” but held that it needs to hear submissions from the parties on the consequences of the procedural failure identified, including whether it should remit the decision to the CMA to be made again, before making a determination in this regard.
Whilst the judgment leaves open the possibility that the Decision may be remitted back to the CMA for fresh consideration on procedural grounds, it is a resounding endorsement by the CAT of the substance of the CMA’s assessment, and the first judicial treatment of the novel concept of dynamic competition which will no doubt play an increasingly important role in merger control going forward. The CAT’s reasoning may be of relevance also outside of the merger context, to the extent that the concept of dynamic competition is relied on in future Competition Act cases or market studies.
There is, admittedly, still some way to go in terms of defining the criteria for ascertaining whether an SLC has resulted from a loss of dynamic competition – for example, the judgment does not provide clear guidance on the timeframe within which the impairment to dynamic competition should be expected to manifest itself, and the distinction with the concept of potential competition (if any) remains hard to grasp in many respects and difficult to apply in practice.
Nonetheless, the judgment sets the threshold for finding an SLC, and therefore for the CMA to intervene in a merger in this context, quite low. It is clear that the CAT will be slow to interfere with the CMA’s assessment, and with its efforts to combat “killer acquisitions” such as this one – powerful tech platforms should take note.
*Shortly after publication of this article, on 15 July 2022, the CAT ordered (following agreement by the parties) that the CMA’s Decision be quashed and the case remitted to the CMA for reconsideration in light of the CAT’s judgment. See here for further information on the remittal.
 This is the EA 2002 provision which gives the CMA the power to decide whether the creation of that situation has resulted, or may be expected to result, in a SLC within any market or markets in the United Kingdom for goods or services.
 See paragraph 126 of the judgment.
 Paragraph 101 of the judgment.
 Paragraph 103 of the judgment.
 See paragraphs 106-109 of the judgment.
 See paragraph 64 of the judgment.
 Paragraph 68 of the judgment.
 Paragraph 67 of the judgment.
 See Paragraphs 78-83 of the judgment.
 Paragraph 128 of the judgment.
 See paragraphs 157-159 and 167-171 of the judgment.