On 6 September 2018, the European Commission ("Commission") unconditionally cleared Apple's acquisition of Shazam after a Phase 2 review, concluding that the transaction would not adversely affect competition in the European Economic Area.
| What you need to know – key takeaways |
- The transaction did not trigger the turnover thresholds under the EU Merger Regulation ("EUMR"), but it was notified in Austria.
- The Commission's jurisdiction to review the transaction was triggered by a case referral request made by seven Member States pursuant to Article 22(1) of the EUMR, even though the transaction only met the national merger control thresholds of one of them (Austria).
- This case is a reminder that transactions that do not trigger the EUMR thresholds are capable of raising prima facie competition concerns justifying a decision to open an in-depth Phase 2 investigation.
|
The proposed acquisition was initially notified to the Austrian competition authority as the transaction did not meet the turnover thresholds prescribed by the EUMR. Following a referral request by Austria, France, Iceland, Italy, Norway, Spain and Sweden, the transaction was notified to the Commission in March 2018.
Following a preliminary investigation, the Commission concluded that Apple and Shazam offer complementary services and are not direct competitors. In particular, the Commission identified that Apple Music is the second largest music streaming service in Europe after Spotify, while Shazam is the market leader in the supply of music recognition apps.
On 23 April 2018, the Commission decided to open a Phase 2 investigation due to the risk that the transaction could result in a reduction of choice for users of music streaming services. The main concern was that, as a result of the transaction, Apple would obtain access to commercially sensitive data held by Shazam relating to its competitors' customers, which it could use to encourage those customers to switch to Apple Music.
After considering further evidence obtained from stakeholders during its Phase 2 investigation, the Commission concluded that the transaction would not raise competition concerns. In particular, the Commission found that:
- the acquisition would not enable Apple to foreclose competing providers of digital music streaming services either (a) as a result of having access to commercially sensitive information about Shazam's customers or (b) by restricting access to the Shazam app. These findings hinge on the fact that the transaction will not materially increase Apple's ability to target music enthusiasts and any attempt to make customers switch would not have a significant impact on the market;
- there was lack of evidence that the Shazam app functions as an entry point to music streaming services; and
- Shazam's data is not unique and Apple's competitors would still have the opportunity to access and use a similar database. Therefore, the Commission concluded that Apple's access to Shazam's data would not provide a unique advantage to the merged entity in the markets in which it operates.
This decision raises a couple of interesting issues:
- Firstly, it is an example of the Commission grappling with the impact on competition of a company obtaining access to data relating to potential customers. This has been a recurring issue in recent cases, including the recent decision by the Commission to open an antitrust investigation concerning Amazon's use of digital information. In the Apple/Shazam case, the Commission appears to have got sufficiently comfortable that access to data would not give rise to competition concerns. However, interestingly, the Commission's press release includes an express reminder that "a merger decision does not release companies from respecting all relevant data protection laws".
- Secondly, the case (once again) raises the question as to whether or not the jurisdictional thresholds under the EUMR remain fit for purpose, particularly in the context of acquisitions of tech companies with significant commercial value but limited turnover. In particular, this case demonstrates that such transactions are, at least in principle, capable of having a significant impact on EU-wide competition. Whilst the referral mechanisms under the EUMR meant that the Apple/Shazam transaction could be reviewed by the Commission, this will not necessarily be the case in all similar cases. In this regard, the Commission is reliant on (a) national merger control thresholds being engaged and (b) Member States or, as was the case in Facebook/Whatsapp, the notifying parties seeking the referral of such cases to the Commission.
For further comment on some of the key issues and themes which are commonly encountered when dealing with data-related transactions, and whether competition authorities are changing the way they assess data mergers, see the Ashurst March 2018 article "If data has become the "new oil", what are the key issues that are arising in M&A transactions?".
With thanks to Camille Ammeloot of Ashurst for her contribution
