This is the first in a series of briefings in which we will explore competition law in the digital sector. In this briefing, we consider the significance of the CMA’s clearance decision in "Amazon/iRobot", within the broader context of the need to ensure that Big Tech do not acquire smaller rivals to remove nascent competitors and protect their market dominance, at the same time as ensuring that regulation does not unduly stifle innovation and growth of the tech sector.
Concerns and findings in the Amazon/iRobot case
The CMA explored three main ways in which Amazon’s acquisition of iRobot might harm competition in the UK, but concluded that none of them raised any concerns:
- Loss of future competition – The CMA found that, absent the merger, Amazon could have entered the RVC market. However, the CMA concluded that, even if Amazon did enter the market, there would be sufficient constraints to ensure the merger did not give rise to competition concerns in relation to the loss of future competition in RVCs in the UK. This was based on iRobot’s “modest” market position and the presence of several significant competitors (eg Ecovacs, Eufy, Roborock, Samsung and Dyson).
- Foreclosure of rival smart home platforms – The CMA found that the merged entity would not have the ability to disadvantage rival smart home platforms by limiting their access to iRobot, such that the merger would not give rise to competition concerns as a result of vertical effects in relation to the supply of smart home platforms. This was based on the understanding that RVCs (including the data they are likely to gather) are generally not an important input in the supply of smart home platforms, particularly in the UK.
- Foreclosure of RVC competitors – Despite Amazon’s strong position in online retail in the UK, the CMA concluded that the merged entity would not have the incentive to disadvantage or foreclose other RVC providers in the UK (for which Amazon’s online store could be an important route to market). The RVC market in the UK was not considered to be strategically significant to Amazon on account of it being “small” and “not expected to grow significantly in the future”.
How significant is the CMA’s clearance of this merger?
This case represents another example of the CMA looking at a Big Tech merger, only a short time after blocking Microsoft’s acquisition of Activision, a decision which has attracted a significant amount of scrutiny. Given the specific facts of the case (ie iRobot’s “modest” position in a small market which is not expected to grow significantly), it may be uncontroversial, but it raises some interesting points to note about the enforcement landscape in the digital sector.
Firstly, the CMA’s clearance of Amazon’s proposed acquisition of iRobot may go some way towards addressing the criticism that has been directed at the CMA in recent months for its decision to block the merger of Microsoft and Activision (which we discuss in this separate briefing). In her recent speech on "Competition and Innovation: a priority for the CMA" at the University of East Anglia’s Centre for Competition Policy Annual Conference 2023, the Chief Executive of the CMA, Sarah Cardell, referred to this clearance decision in relation to the interaction between competition and innovation. As Cardell stated, the very purpose of merger control is “to ensure open and effective competition can continue unencumbered, safeguarding the conditions that allow growth and innovation to thrive”. She also noted how the CMA steps in to prevent just a handful of problematic deals out of thousands of merger transactions impacting the UK each year.
The CMA has since announced its Phase 1 decision in "Adobe/Figma" that an acquisition by global software developer, Adobe, of Figma, a provider of screen design and whiteboarding tools, could reduce innovation. In its press release, the CMA outlines its concern that the acquisition would mean less choice for designers of digital apps, websites and other products. Unless Adobe and Figma agree appropriate remedies with the CMA, then the acquisition will be referred for an in-depth Phase 2 investigation.
Whilst there is the possibility that regulatory intervention may unduly stifle innovation and growth of the tech sector, as identified by AG Kokott in her recent Opinion on ‘Towercast’, there is also the risk of an enforcement gap in relation to so-called “killer acquisitions” (ie where Big Tech acquire future or nascent rivals to eliminate them as competitors). We discuss the judgment of the Court of Justice of the European Union in ‘Towercast’ here.
Like other competition agencies around the world, the CMA therefore faces a tough challenge, which is complicated further by the fact that the dynamic and rapidly changing nature of digital markets makes predicting the future (an inherent part of merger control) even more difficult. It is essential though that each transaction is assessed on the evidence and the individual facts of the case.
What’s next?
Amazon’s proposed acquisition of iRobot is subject to ongoing regulatory review by the European Commission and the US Federal Trade Commission. The European Commission will decide by 6 July 2023 whether to clear the deal, with or without remedies, or to launch an in-depth investigation. Timing of the review in the US has yet to be announced.
Finally, it is important to note that the CMA’s clearance decision is separate to the investigation which it launched on 5 July 2023 into suspected anti-competitive practices by Amazon in relation to Amazon UK Marketplace. That investigation is still ongoing.
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