ACM: European Court of Justice takes away opportunity to assess acquisition by Microsoft, new power is needed
The Netherlands Authority of Consumers and Markets (ACM) has withdrawn its request filed with the European Commission for investigating the acquisition of start-up company Inflection by Microsoft. ACM had filed this request because of concerns about the acquisition’s consequences in the Netherlands. The concerns were related to innovation and the options for consumers and businesses in the area of Artificial Intelligence (AI). Multiple Member States requested the European Commission to investigate this acquisition. However, a recent ruling by the European Court of Justice (ECJ) in the Illumina-Grail case revealed that the European Commission cannot handle requests filed by Member States that are not competent to review that transaction. This ruling emphasizes the importance for consumers and businesses that acquisitions that may not meet the notification thresholds for the European Commission or for ACM, but which may nonetheless lead to negative effects in the Netherlands, can be assessed. ACM has advocated for such a power for quite some time.
Martijn Snoep, Chairman of the Board of ACM, adds: “It remains to be seen whether Microsoft’s stronger position after acquiring Inflection has any negative consequences for consumers and businesses in the Netherlands, such as fewer options or reduced innovation. That is why we believed that an investigation was necessary. The ability to assess the effects of these types of acquisitions and to prevent market power does not exist at this moment. In order to be able do so, ACM requires a new power. It would also restore the ability of ACM to refer these types of acquisitions that have effects across Europe to the European Commission.”
The acquisition of Inflection
In March 2024, Microsoft took over a large share of Inflection’s staff (including two of its three co-founders) and it obtained the intellectual property rights over Inflection’s AI model and the chatbot Pi. Inflection and Microsoft are both active in the field of artificial intelligence, including AI chatbots. An AI chatbot is a computer program that makes use of artificial intelligence, and where human conversations are simulated. Inflection developed, among other products, AI chatbot Pi, which is a chatbot that offers consumers emotional support and advice. Due to the success of that chatbot, Inflection’s user base substantially grew in a short period of time.
The European Commission or ACM did not need to be notified of the acquisition of Inflection by Microsoft, because the turnover thresholds were not met. Start-ups such as Inflection often have relatively low turnovers, whereas these companies represent tremendous value. ACM was of the opinion that an assessment of the effects for Dutch consumers and businesses was necessary on the market for AI chatbots, among other markets. For example, there were concerns that Microsoft eliminated an innovative new entrant with the acquisition, as a result of which consumers and businesses would have fewer options, and innovation and entry into the market of AI chatbots would deteriorate.
Ruling of the European Court of Justice
On 3 September 2024, the ECJ handed down its ruling in the Illumina-Grail case: the European Commission can only assess smaller acquisitions (those that do not meet the notification thresholds) at the request of national competition authorities such as ACM if that national competition authority also has the power to assess such an acquisition in its own country. Since the acquisition of Inflection by Microsoft does not meet the Dutch notification thresholds and ACM does not yet have the power to assess acquisitions that fall below the notification thresholds, ACM has decided to withdraw this referral request. Other Member States, too, have withdrawn their referral requests after consultations with the European Commission.
New power
Competition authorities do not need to be notified of each and every merger or acquisition. Only if the merger companies meet certain turnover thresholds, then they are required to notify the competition authority of their merger or acquisition first. However, acquisitions that fall below those notification thresholds can also have negative consequences for consumers and businesses in the Netherlands. For example, if an already dominant business buys a smaller, rising competitor or if competition takes place at a local level or in niche markets. The market power that can emerge as a result thereof leads to higher prices, reduced quality, and less innovation. That is why ACM is in favor of the introduction of a “call-in power”. That means that ACM does not to be notified of all smaller acquisitions, but only those that ACM at first glance believes could be problematic for businesses and consumers in the Netherlands. ACM will then be able to assess those acquisitions in the usual manner or it can refer them to the European Commission if the consequences of an acquisition occur at the European level.