CAT endorses CMA assessment that Meta’s purchase of Giphy harms competition

Competition Appeal Tribunal upholds CMA on five out of six challenged grounds.

The Competition Appeal Tribunal has upheld the Competition and Markets Authority’s decision on five out of six challenged grounds.

In December 2021, Meta launched an appeal against the CMA’s decision that Meta’s acquisition of Giphy would lead to a substantial lessening of competition (SLC). Following an in-depth investigation, the CMA had found that Meta’s purchase of Giphy would reduce competition between social media platforms and had already removed Giphy as a potential challenger in the display advertising market in the UK. The CMA’s decision required Meta to sell Giphy to a purchaser approved by the CMA.

Meta sought an order from the CAT quashing the CAM’s decision on seven grounds:

  • Ground 1: (i) that the CMA misdirected itself in law or misapplied the test in section 35(1)(b) of the Enterprise Act 2002 (EA 2002) in its finding that a horizontal SLC arose from a loss of dynamic competition, or (ii) that the CMA’s finding of a horizontal SLC was unreasonable.
  • Ground 2: the CMA’s finding of a horizontal SLC contradicted or was inconsistent with the CMA’s definition of the market on which it concluded that Meta competes.
  • Ground 3: the counterfactual used by the CMA did not rationally follow from the CMA’s findings of fact and was inadequately specified.
  • Ground 4: the Decision was procedurally flawed and otherwise unlawful because (i) the CMA acted unfairly and/or in breach of its duty to consult under section104 of the EA 2002, or (ii) the excisions to the Decision amounted to an unlawful failure to give reasons.
  • Ground 4A: the Decision was ultra vires and void in its entirety as the determination of the merger reference was unlawfully delegated to the chair of the CMA group and then sub-delegated to CMA staff.
  • Ground 5: the CMA failed properly to assess the remedy it would have imposed in relation to the vertical SLC in isolation and/or any option beyond the divestment of GIPHY by Meta.
  • Ground 6: in determining the remedy for the horizontal and vertical SLCs, the CMA acted irrationally and/or disproportionately, or acted ultra vires under section 35(3) of the EA 2002.

The CAT unanimously dismissed all of Meta’s Grounds except part of Ground 4. It decided that:

  • In relation to Ground 1, the CMA correctly directed itself to the test it had to apply, and the decision made by the CMA was one that it was entitled to make.
  • In relation to Ground 2, the CMA acted rationally to put itself in a position properly to apply the substantial lessening of competition test in a case of dynamic competition.
  • As regards Ground 3, the CMA’s conclusions as to the counterfactual were, as conclusions in relation the static competition position, unassailable.
  • In respect of the first element of Ground 4, the Tribunal doubted whether the CMA could be criticised for making insufficient inquiries of any person assuming there was proper consultation and saw no basis for suggesting that the CMA’s investigation was impeachable on a judicial review. However, it said that in respect of the second element of Ground 4, the CMA failed to properly consult and wrongly excised portions from the Decision. The CMA’s approach to disclosure in this case overly favoured confidentiality concerns of third parties.
  • Ground 4A failed as the named individual members of the CMA group are not expected to personally conduct a merger investigation and personally draft the CMA’s provisional findings and final decision.
  • Ground 5 was dismissed as it was predicated on a successful challenge to the horizontal SLC and the Tribunal had concluded that Meta’s substantive challenges to the horizontal SLC in Grounds 1 to 3 all failed.
  • On the basis that the CMA’s decisions regarding the horizontal and vertical SLCs were unimpeachable, Ground 6 failed as section 35 and 41 of the EA 2002 confer a broad and wide discretion on the CMA in crafting remedies in relation to completed mergers and the remedies ordered by the CMA were not irrational and well within its remedial powers.

The CMA has welcomed the CAT’s decision.

Published: 2022-06-16T17:00:00

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