On 10 August 2023 the UK's Competition and Markets Authority (CMA) imposed a penalty of £25,000 on Copart Inc and other companies in the same group for failing to comply with an information notice issued by the CMA. This follows on from the record €432m fine imposed on Illumina by the European Commission for implementing a merger with GRAIL before it had been cleared by the Commission.
Gun jumping
The EU's merger rules state that mergers that are big enough to trigger the European Commission's jurisdiction cannot proceed unless they have first been cleared by the Commission. That includes an obligation not to begin implementing the merger in any substantive way until clearance has been received (the "standstill obligation"), so that if the Commission refuses to give clearance the merger parties can carry on competing with each other as separate entities. Beginning to implement a merger before clearance is received, commonly known as "gun jumping", for example by giving notice on premises, coordinating marketing and integrating back office systems, can undermine the ability of one of the parties to carry on as an independent business. Such conduct can therefore attract significant fines – up to 10% of aggregate turnover of the companies involved.
On 12 July 2023 the Commission fined US firms Illumina and GRAIL for implementing a merger (that the Commission had later blocked) by:
- Executing all of the documents to complete the transaction;
- Merging GRAIL's activities with those of two Illumina subsidiaries;
- Illumina paying GRAIL's shareholders for their shares.
The size of the fine also appears to have been heavily influenced by evidence the Commission uncovered that Illumina had considered the risk of a gun jumping fine and balanced that against the break-up fee if it did not begin implementation and the profits it could make before clearance even if the Commission ultimately blocked the merger. The fine – which at 10% of Illumina's global turnover is the maximum the EU can impose – is therefore designed to be a deterrent to other merging businesses in a similar position in future.
The previous record high fine for gun jumping was the €125m fine imposed on Altice in 2018. In that case, Altice had begun exercising control over the target company, PT Portugal, before clearance had been received – Altice was fined even though the Commission cleared the merger itself.
Illumina is appealing both the decision to block the merger and the size of the gun-jumping fine.
Failure to respond to information notices
The CMA's fine imposed on Copart arises from its completed acquisition of Green Parts Specialist Holdings Ltd. The CMA referred that merger to a CMA panel in December 2022 and it was clearedon 14 July 2023. However, during the process the CMA issued a statutory notice requiring Copart to provide information concerning its tenders for three insurance companies. Copart provided a response, but when the CMA then sent similar notices to the insurance companies themselves, it received documents that Copart had not provided. The CMA therefore concluded that Copart had breached the notice by omitting those documents, without reasonable excuse, and imposed the fine of £25,000.
The maximum fine for breaching such a notice is currently set at £30,000 but – as we noted in part three of our recent blog on the bill – the Digital Markets, Competition and Consumers Bill will increase this to 1% of global group turnover. Businesses failing to respond to CMA notices can therefore expect much harsher fines in future.
The Illumina and Copart fines are timely reminders that competition regulators in both the UK and EU will not hesitate to punish businesses that are seen not to be properly cooperating with the merger control process. Businesses involved in mergers – whether as the buyer, target, seller or indeed competitors, suppliers or customers who receive information notices – should be alert to their obligations to avoid falling foul of the rules.
If you have any queries about competition law, please contact Charles Livingstone, Jamie Dunne or your usual Brodies contact.
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