Price gouging during COVID-19: what’s happening in the APAC region?

As part of Reed Smith’s three -part global price gouging podcast series, this week our regulatory enforcement lawyers Dora Wang and Asha Sharma analyse the rules and regulations designed to tackle price gouging in the People’s Republic of China, and to deal with anti-competitive conduct in Hong Kong. In the episode, Dora and Asha also consider how one can report price gouging/anti-competitive conduct, as well as defend oneself against antitrust risks or price gouging claims.

You can also access our previous episode here, where our regulatory enforcement lawyers Danielle Stewart, Michelle Mantine and Jennifer Driscoll provide an update from a U.S. perspective.

U.S. price gouging during COVID-19: A changing landscape

Our U.S. team members recently joined Reed Smith’s Countering the Crisis podcast to provide an overview of the U.S. laws around price gouging in light of COVID-19. The episode addresses various ways to spot and report alleged price gouging, as well as ways to protect against price gouging claims. Our team also shares their thoughts on pending legislation and what clients can expect in today’s changing landscape. This is the first of a three-part podcast series relating to global price gouging laws—stay tuned for more.

Regulatory aspects of investing in Germany – German legislator further extends foreign investment control regime

On 18 June 2020, the German Parliament agreed to further rules on tightening foreign investment control by adopting the First Act on the amendment to the Foreign Trade and Payment Act (Außenwirtschaftsgesetz – AWG). The first amendment to the AWG was published in the Federal Gazette on 16 July 2020 and entered into force on 17 July 2020.

The amendment to the AWG is unique as it introduces for the first time a standstill obligation that is linked to a criminal sanction and administrative penalty. In addition, the amendment to the AWG implements a catalogue identifying actions that are prohibited during the period of review of a notifiable transaction, as well as unifies time-periods of cross-sectoral and sector-specific reviews.

The first amendment to the AWG is just one of various amendments to German foreign investment control in recent years and the second one after the 15th amendment to the Foreign Trade and Payments Ordinance (Außenwirtschaftsverordnung – AWV), which entered into force in June this year.

I. Significant changes within the amendment to the AWG are as follows:

1. Criminal sanction for violation of the standstill obligation

  • The first amendment to the AWG provides for an overall standstill obligation: each transaction requiring notification is now provisionally suspended for the duration of the screening.
  • Pending clearance, the following activities may not be carried out to the benefit of the acquirer:
    • enabling to exercise voting rights,
    • granting distribution of profits associated with the acquisition,
    • providing information linked to the activities of the target that triggers the obligation to notify the acquisition
    • providing company-related information that the Federal Ministry for Economic Affairs and Energy has classified in an order as being important for the essential security interests of Germany or for public safety and order in Germany.
  • The first amendment to the AWG provides for an implementation of a criminal sanction of up to five years or a fine if the parties violate the provisions mentioned above.

2. Tightening up the sector-specific review

The sector-specific review is now being tightened up to cover not only companies that produce or develop military equipment and specific IT products for classified information, but also those companies that modify or have factual control over them.

3. Extension of the scope of ministerial oversight

The amendment to the AWG provides for an extension of the scope of ministerial oversight, insofar as foreign investment control reviews are now triggered where there is a likelihood that a foreign investment will impair security or public order. Previously, restrictions related to foreign investments required an actual threat to public security or order.

4. Focus on both European as well as German security interests

The scope of the Federal Ministry for Economic Affairs and Energy’s review is no longer limited to German security interests. The assessment also now focuses on the impact on other EU Member states and EU programmes, as well as EU projects.

5. Setting up a national contact point for EU-wide cooperation on foreign investment control

The Federal Ministry for Economic Affairs and Energy will establish – like other EU-Member States – a national contact point for EU-wide cooperation on foreign investment control to exchange information between Member States and the Commission, as well as to create the possibility for the Commission and Member States to issue opinions and comments on specific transactions.

6. Standardisation of time-periods for cross-sectoral and sector-specific reviews

So far, the time-periods for cross-sectoral and sector-specific reviews have not been consistent. The amendment now standardises these time-periods:

  • Instead of the previous time-period of three months for cross-sectoral investments in the context of preliminary reviews, the Federal Ministry for Economic Affairs and Energy is now required to decide within two months from when it gains knowledge of an acquisition whether to open a formal investigation (but no longer than five years after signing).
  • If the Federal Ministry for Economic Affairs and Energy opens a formal investigation, the first amendment to the AWG introduces a uniform time-period of four months from receipt of the complete documents. Within these four months, the Federal Ministry for Economic Affairs and Energy must then decide whether to clear the notification, or whether to prohibit or restrict the acquisition.
  • For the first time, the first amendment to the AWG introduces a provision whereby the period is suspended if the Federal Ministry for Economic Affairs and Energy requests further information or documents on the acquisition. To date, requests for information have restarted the time-period. The Federal Ministry for Economic Affairs and Energy may extend the time-period by three months if the review proceedings involve particular difficulties of a factual or legal nature. Further extensions of the time-period is possible if agreed by the purchaser and the seller.
  • The newly introduced time-periods apply to all transactions of which the Federal Ministry for Economic Affairs and Energy gained knowledge after the first amendment to the AWG entered into force.

II. Legal framework for German foreign investment control

The AWV and the AWG provide the legal basis for foreign investment control in Germany.

The AWV differentiates between cross-sector reviews pursuant to sections 55-59 of the AWV and sector-specific reviews pursuant to sections 60-62 of the AWV.

1. Rules governing sector-specific reviews

The German Ministry for Economic Affairs and Energy can commence a sector-specific review when:

(1) a non-German purchaser (including from another EU Member State) acquires at least 10 percent of the shares and voting rights in a domestic company; and

(2) the target company develops or produces:

  • goods that are listed in a detailed annex to the Military Weapons Control Act (Kriegswaffenkontrollgesetz – KWG);
  • products with IT security features that are used to process government-classified information; or
  • certain products that fall within the scope of specific foreign trade regulations.

2. Rules governing cross-sector reviews

The AWV authorises the German Ministry for Economic Affairs and Energy to review acquisitions by any purchaser from outside the EU (or EFTA) of 10 percent of the voting rights in a domestic company active in a security-critical industry such as:

  • operators of critical infrastructure;
  • developers of software for the operation of critical infrastructure;
  • companies active in the telecommunications and surveillance technology sectors;
  • providers of certain cloud computing services;
  • companies active in the area of telematics; and
  • media companies that are in a position to influence public opinion through broadcasting, other media services or print products that provide news and services of a topical nature and have a broad social impact. The following amendments were implemented:

The threshold of 25 percent is applicable to acquisitions of companies in the public sector that do not fall under section 55 paragraph 1 sentence 2 of the AWV, but whose activities relate to public safety or order.

a) Changes under the fifteenth amendment to the AWV

Due to the COVID-19 pandemic, the Federal Ministry for Economic Affairs and Energy considered it necessary to accelerate the implementation of those parts of the European provisions relating to the health care sector, and in particular infection prevention and control. The Federal Ministry for Economic Affairs and Energy highlighted the fact that, due to the COVID-19 outbreak, it had become clear that  Germany’s health care sector was highly sensitive and required explicit regulation.

On 20 May 2020, the federal cabinet adopted the amendment to the AWV. The amendment entered into force upon its publication in the Federal Gazette on 3 June 2020.

The 15th amendment broadens the scope of application of cross-sector reviews. In particular, the development and manufacture of the following products are covered by the cross-sectoral reviews:

  • personal protective equipment, such as face masks;
  • essential medicines such as vaccines (and including raw materials and active ingredients);
  • medical products used for diagnosing, preventing, monitoring, predicting, forecasting, treating, or alleviating life-threatening and highly contagious infectious diseases; or
  • in vitro diagnostics that are used to provide information on physiological or pathological processes or conditions, or for determining or monitoring therapeutic measures in connection with life-threatening and highly contagious infectious diseases.

Manufacturing facilities or technologies, as well as components or primary products used in the manufacture of these critical products, are not subject to the  15th amendment to the AWV.

The amendment authorises the Federal Ministry for Economic Affairs and Energy to review the planned acquisition by any purchaser from outside the EU (or EFTA) of 10 percent or more of the voting rights in any domestic health care company active in the sectors mentioned above. Under the amendment, companies are required to notify the Federal Ministry for Economic Affairs and Energy of any such planned acquisition.

b) Changes within the AWV that are not related to the COVID-19 pandemic

In addition, the amendments to the AWV also provide for new rules that are unrelated to the COVID-19 pandemic. In particular:

  • companies that provide services necessary to ensure the continuity and functioning of state communication infrastructure are considered as security-critical infrastructure for the purposes of cross-sector reviews;
  • asset deals are now also explicitly covered by the AWV; and

when assessing public safety or order, the Federal Ministry for Economic Affairs and Energy shall take into account whether (i) the purchaser is directly or indirectly controlled by governments, state bodies or armed forces, (ii) the purchaser has been involved in activities that have a detrimental effect on Germany or any other EU Member State, or (iii) the purchaser has been found in violation of the AWG, the German Military Weapons Control Act, or offences which would lead to an exclusion from public procurement tenders under section 123 of the German Competition Act.

The amendments to the AWV and the AWG are based on the EU Screening Regulation, which was adopted in 2019 and will fully apply as of 11 October 2020. It is the first time that rules relating to foreign investment control have been adopted at the European level to promote the exchange of information and cooperation between EU Member States in the field of foreign investment control.

III. Further changes within the 16th amendment to the AWV

The German Federal Government intends to further tighten German foreign investment control rules through the 16th amendment to the AWV by adding companies that are operating in the area of critical-technologies, such as artificial intelligence, robotics, semiconductors as well a biotech and quantum technology. The amendment is expected to enter into force in autumn 2020.

How can businesses ensure competition compliance?

Though competition compliance programmes may differ across jurisdictions, having one is widely regarded as essential. A way to ensure competition rules are effectively followed is to ingrain competition compliance into company culture. In our latest client alert, we consider the Competition and Markets Authority’s recent initiatives, and what steps businesses can take to foster a competition compliance culture.

Amazon/Deliveroo – when small shareholdings can lead to big issues

At a Glance:

  • The CMA’s conclusion that it has jurisdiction to review Amazon’s 16% shareholding in Deliveroo serves as a reminder that control can arise even at low levels of shareholding.
  • Minority shareholders who enjoy significant influence on the company’s policy direction and strategic commercial decisions may be considered to have sufficient control to trigger a merger review.
  • Jurisdictional tests vary between jurisdictions and care should be taken with minority shareholdings to ensure that merger filings are not missed.

Amazon/Deliveroo – an overview

On 4 August 2020, the UK Competition and Market Authority (CMA) published its final report, clearing Amazon’s 16% investment in Deliveroo following a detailed Phase 2 merger review. The investment was initially cleared based on a provisional finding that Deliveroo was a ‘failing firm’ that would have exited the market without the investment due to the impact of COVID-19.

A subsequent detailed assessment of Deliveroo’s financial position, as lockdown progressed, led the CMA to reverse this provisional finding and conclude that the company was not, in fact, likely to exit the market in the absence of Amazon’s investment. This meant that in its second provisional finding as well as the final report, the CMA focused on the effect on competition resulting from Amazon’s investment.

Minority shareholdings and merger control

The investigation is of interest because the CMA concluded that Amazon’s 16% shareholding, along with other factors, was sufficient to trigger jurisdiction for a merger review. For this purpose, the CMA considered the size of Amazon’s shareholding (both in absolute terms and relative to other shareholders), its right to appoint a director and observer on Deliveroo’s board as well as the possibility of current and future commercial relationships. It also considered Amazon’s position as a strategic investor with additional rights, which included a higher liquidation preference and ranking, that the CMA considered could allow Amazon to exert influence over any potential sale. In addition, the CMA found that Amazon’s status and expertise, specifically in the areas in which Deliveroo operates, might give it the ability to influence other shareholders and Deliveroo’s policy formation.

It can come as a surprise to companies and investors that merger control may apply when they are acquiring only a minority shareholding, particularly of less than 25%. In the UK, the relevant test for control, the acquisition of material influence, can apply even at low shareholding levels. The CMA’s jurisdictional guidance indicates that shareholdings above 25% are likely to give rise to material influence, whereas those below 15% will only exceptionally result in material influence.  Between these levels, an assessment of other factors, as carried out in this case is key to determining whether material influence has arisen.

Although not commonplace, this is not the first time a shareholding slightly above 15% has led to a finding of material influence. For example, BskyB’s acquisition of a 17.9% shareholding was considered to give it material influence over ITV, a case in which the competition authorities ultimately identified concerns and required a remedy.

Substantive assessment and minority shareholdings

Whilst material influence may be sufficient to trigger jurisdiction for a merger review, the substantive assessment of the effect of a minority shareholding on competition also needs to take into account the size of shareholding and resulting effect on the parties’ incentives.

In its assessment of the effect of Amazon’s shareholding on competition between Amazon and Deliveroo, the small size of Amazon’s shareholding was significant in determining whether the transaction would alter Amazon’s incentives to re-enter the food delivery market or to alter its business in the online convenience grocery delivery market.

In particular, an important factor in the CMA’s considerations is that any action taken by Amazon that favoured Deliveroo would result in Amazon suffering the entirety of the downside, but only gaining a 16% share of any additional Deliveroo profits that arise.  Accordingly, at this low level of shareholding, any effect on competition was much weaker than if the shareholding had been more significant. In its press release, the CMA noted that whilst the current scale of Amazon’s investment did not substantially lessen competition in both markets, if Amazon were to increase its shareholding in Deliveroo, the position might be different.

Key “takeaways”

Amazon/Deliveroo highlights that a minority shareholding, even if small, can lead to a lengthy and detailed merger review. In the UK, where the merger regime is voluntary, the effects of the CMA subsequently deciding to review such an acquisition are more limited than in those jurisdictions with mandatory notification regimes, where substantial financial penalties may be imposed for failure to notify a transaction. Given the differing tests between jurisdictions for the lowest level at which a shareholding may trigger merger review, a careful review of merger control requirement is advisable even on the acquisition of minority shareholdings.

CMA’s review of market remedies finds breaches across several markets

At a glance

The Competition and Markets Authority (CMA) has recently taken action against companies that have not complied with market investigation orders and undertakings across a range of industries.

The CMA appears to be more actively enforcing against breaches of market investigation orders and undertakings – the remedies imposed by the CMA to address adverse effects on competition identified by it in its markets work.

The CMA has also indicated that in future it will publish a register of significant breaches; and it has requested additional powers from government so that it can fine firms that do not comply with final remedies.

With the CMA appearing to have increased its monitoring and enforcement action, it is as important as ever for companies subject to market investigation orders or undertakings to ensure that they continue to comply – even if several years have passed since the orders or undertakings came into force.


The CMA has powers to carry out detailed examinations on markets where it has reasonable grounds for suspecting that competition is not working effectively in that market. This markets regime sets the UK apart from many other jurisdictions which have no equivalent powers to assess how well markets are working, although the European Commission is consulting on introducing an equivalent power at the EU level.

Where the CMA identifies that competition is not working properly in markets, the CMA can agree undertakings with companies or, after full market investigations, may impose orders to remedy the adverse effects.

The CMA has imposed remedies in a significant number of markets, ranging from obligations to provide consumers with information (for example in Payment Protection Insurance and Payday Lending) through to obligations to divest parts of a company’s business in the most extreme cases, as occurred in the market review of BAA Airports.

Many of the remedies designed to ensure ongoing behavioural changes to improve competition last for many years, or are open-ended and continue until they are revoked by the CMA.

Monitoring and Enforcement powers

Since 2014, the CMA has been responsible for market investigations and the monitoring of remedies imposed by such investigations.

Under current rules, the CMA has no powers to impose financial penalties for non-compliance with undertakings or orders. The remedies are only enforceable by the CMA in civil proceedings, through actions taken in the courts. With the limited tools available to impose sanctions, the CMA is increasingly looking to ‘name and shame’ non-compliance.

The CMA has published 20 letters sent to companies in breach of market investigation orders and undertakings. A third of these letters have been sent out in the first half of 2020 – three in relation to breaches of the Retail Banking Market Investigation Order 2017; one to Tesco relating to breaches of the Groceries Market Investigation (Controlled Land) Order 2010, one in respect of a breach of the order imposed in relation to Payday Lending and two to banks for not carrying out annual reviews pursuant to the Payment Protection Insurance (PPI) Market Investigation Order 2011.

The CMA announced on 1 April 2020 its proposal to publish a list of all significant breaches of market remedies. It is clear that the CMA sees compliance with market investigations orders and undertakings as a priority, with its recent work indicating a number of instances of non-compliance, particularly several years after the fact when many personnel involved in the original market investigations will have moved on.

In February 2019, Andrew Tyrie, the Chair of the CMA, wrote to the Secretary of State for Business, Energy and Industrial Strategy, regarding reforms to the UK’s competition regime. This included a request for powers to fine companies that do not comply with final remedies following a market investigation.

For companies that are subject to market investigation orders or undertakings, ensuring appropriate procedures are in place to ensure continued compliance should be of importance, as the CMA is actively monitoring breaches.

Towards a new definition of ‘relevant market’ in competition law?

The European Commission is contemplating changes to its 23-year-old Market Definition Notice. To this end, on 26 June 2020, the Commission launched a public consultation on the relevance of the Notice. Competition Commissioner Margrethe Vestager has said that the purpose of the consultation is to “adapt the Notice in the era of trade globalization and the digitalization of the economy”.

Revising the Notice could entail significant changes to antitrust enforcement, and shift our understanding of how markets are assessed.

Through the consultation, stakeholders have the opportunity to submit their views on the proposed changes until 9 October 2020.


What is the Market Definition Notice?

The determination of the relevant market, as defined by the Notice in 1997, is one of the most important tools available to competition authorities. The delimitation of the relevant market provides an indication of the boundaries within which competition between undertakings takes place, making it possible, for instance, to calculate market share, which can be used when assessing market dominance or mergers. A relevant market comprises both a product and geographic scope. A relevant product market comprises all products and/or services that are regarded by consumers as interchangeable or substitutable due to their characteristics, prices and intended uses. The scope of the geographic market is defined by how far away or close by alternative sources of supply need to be, to be acceptable to customers seeking to switch from one producer or service provider to another, and can be worldwide, regional, national or even local.

The delimitation of the relevant market directly influences competition authorities’ decisions when assessing whether business practices or mergers comply with competition law.


Why change now?

The method for defining the relevant market has not changed in 23 years. However, the digital age confronts authorities with new challenges, including when faced with new consumer behaviour, multi-channel market players and ‘Big Tech’ companies whose market power does not meet current competition thresholds despite their market dominance. Commentators therefore agree that the current approach, as set out in the Notice, may no longer be fit for purpose in dealing with these challenges.

For example, digital platforms are often double-sided, offering services for free in one market in order to maximise the data gathered from users so that this can then be monetised in the advertising market. The current market definition approach is ill-suited to deal with the challenges of such two-sided markets, often leading to a definition of relevant markets that is too narrow, making it difficult to grasp the bigger picture. The Commission itself has, in the context of internet mergers, acknowledged that focusing on either side of a two-sided market in isolation of the other leads to an overly narrow definition of the market.

In addition, more recently, commentators have also questioned whether the market definition method, as currently applied, sufficiently takes into account the globalised nature of today’s world when defining the relevant geographic market.

Our client alert ‘An approach to market definition fit for the twenty-first century’ examines these issues in more detail.


What will the EU Commission assess?

The evaluation will be conducted based on the assessment criteria described below:

  • Effectiveness: How effective is the Notice in providing guidance and transparency to all stakeholders?
  • Efficiency: Is the Notice definition of relevant markets sufficiently clear?
  • Relevance: Is the Notice still relevant in the light of market developments since 1997 and the evolution of technology?
  • Coherence: To what extent do the different elements set out in the Notice work together, in the light of the rulings of the EU courts, developments in the legal framework for competition and EU competition policy and practice?
  • EU added value: How has the Notice ensured that the Commission and national competition authorities within the EU have maintained a consistent and coherent approach to market definition?

If you would like to participate, the consultation is open until 9 October 2020. For further assistance, please get in touch with your usual Reed Smith contact or the authors of this article.


What are the risks when increasing prices in times of COVID-19?

When COVID-19 swept the globe and disrupted the production and distribution of goods, it gave way to some companies taking advantage of consumers by significantly increasing prices.  As governments across the world have started taking action against unfair or excessive prices, we examine the global enforcement trends in this space and offer practical advice to ensure businesses won’t find themselves in breach of antitrust, price gouging or other consumer protection rules when adapting their pricing strategy in the current climate. Read our full client alert here – and watch this space for our forthcoming Global Antitrust and Competition Guide that will shed more light on the relevant price gouging regulations in key jurisdictions (EU, France, Germany, the UK, US and China).

The EC’s White Paper on Foreign Subsidies and what it means for M&A deals and foreign subsidised companies operating in the EU

In our recent client alert, we take a look at the European Commission’s proposed new toolbox to intervene where foreign subsidies could potentially distort the EU single market. We consider the implications of such new measures, and also highlight the significant impact the powers could have on M&A transactions in the EU.

Foreign investment: the UK’s approach

As the UK takes steps to introduce new foreign direct investment (FDI) rules, it is important for investors from outside the UK or EU to consider these new rules at the outset of transactions in particular sectors. We discuss this latest move and consider what impact the new measures may have, in our latest client alert.