Nota Bene Podcast Ep. 160
European Update: Oliver Heinisch and Scott Maberry Talk Protectionism, Competition Enforcement, and Data Protection
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Listen to the original podcast released March 1, 2023 here:
https://www.sheppard.com/notabene-462
In this episode, Sheppard Mullin partner Oliver Heinisch joins host Scott Maberry to discuss international law and policy trends in Europe, including the race for green energy, greater protectionism, and the outlook for competition enforcement.
Guests:
About Oliver Heinisch
As a partner in the Antitrust & Competition Group practicing out of Sheppard Mullin’s London and Brussels offices, Oliver Heinisch advises on all areas of EU, UK and German competition law with a focus on international cartel and abuse of dominance procedures, including related antitrust litigation matters as well as merger control law. He also advises on the interface between intellectual property and competition law, mainly in the context of complaint cases, investigations of competition authorities and intellectual property litigation.
While most of Oliver's clients are technology, consumer electronics and life sciences companies, he also works with financial services, private equity, insurance, automotive, industrial, fashion and food clients. In addition to counseling clients on distribution agreements, parallel imports, IP licensing, R&D and cooperation arrangements, Oliver also assists companies working to comply with EU product regulations, particularly in the area of medical devices, pharmaceuticals and cosmetics. He also regularly provides clients with counsel regarding BREXIT and data protection and GDPR-related issues.
A qualified UK and German lawyer, Oliver maintains offices in both London and Brussels. He is ranked in the major legal directories and consistently recognized as an expert in the field.
About Scott Maberry
As an international trade partner in Governmental Practice, J. Scott Maberry counsels clients on global risk, international trade, and regulation. He is also a past co-chair of the Diversity and Inclusion Working Group for the Washington D.C. office, serves on the firm's pro bono committee, and is a founding member of the Sheppard Mullin Organizational Integrity Group.
Scott's practice includes representing clients before the U.S. government agencies and international U.S. Department of Treasury Office of Foreign Assets Control (OFAC), the Department of Commerce Bureau of Industry & Security (BIS), the Department of Commerce Import Administration, the Department of Homeland Security (DHS), the Department of State Directorate of Defense Trade Controls (DDTC), the U.S. Department of Justice (DOJ), the International Trade Commission (ITC), the Committee on Foreign Investment in the U.S. (CFIUS), He also represents clients in federal court and grand jury proceedings, as well as those pursuing negotiations and dispute resolution under the World Trade Organization (WTO), North American Free Trade Agreement (NAFTA) and other multilateral and bilateral agreements.
A member of the World Economic Forum Expert Network, Scott also advises the WEF community in the areas of global risk, international trade, artificial intelligence and values.
Transcript:
Scott Maberry:
Welcome to Episode 160 of the Nota Bene podcast. I'm your host, Scott Maberry. My guest is Oliver Heinisch. He's in the perfect position to give us insights into international law and policy trends in Europe. He's an international lawyer with Sheppard Mullin. He has offices in London and Brussels. He's a dual qualified UK and German lawyer. He's also at the head of the firm's UK competition team. His practice focuses on investigations, M&A clearances, business strategy and litigation on antitrust and data protection issues. He represents multinational companies before EU, UK, and German authorities.
Oliver, welcome to the podcast.
Oliver Heinisch:
Thanks Scott, and great to be part of it.
Scott Maberry:
Well, the business headlines in Europe seem to be painting a really complex picture. On the one hand, we're seeing signs of fragmentation like protectionism and like Brexit fallout. And on the other hand, we're seeing closer cooperation among the allies on things, like in my field, export control policy and in your field on competition policy. So I'd like to talk a little bit about that global outlook and then get into some specifics of competition enforcement, or what we here in the States call antitrust enforcement. And then if there's time, I'd like to talk about European data protection a little bit.
So let's talk about Europe. There's been a little bit of a rise of protectionism between the United States and the EU, particularly in terms of the green energy transition. Could you talk a little bit about that?
Oliver Heinisch:
Sure, absolutely. Look, I mean, whether there is protectionism or whether that's ultimately actually something which the world should be happy about is, I mean the goal here, a faster and speedier progress towards green transition is, of course, wanted by everyone. But I think what's going on at the moment is the reaction to, I think what you call in the US, the Inflation Reduction Act, which came into force and which will give a lot of funding to companies in the electric vehicles batteries and wind turbines sections.
That has been sort of met with quite a strong reaction here in Europe. Obviously the fear is that the US will lure away companies and talent from Europe into the US with these subsidies. And now the question here is how to react to it. And I think there are various suggestions by the commission, the European Commission, but I think the idea is it has to be more attractive in Europe to maintain the talent and the companies here, so easier, simpler procedures, easier access to funding, faster funding, accelerated approvals, et cetera.
And we'll see, there's still an all clear view on how the European Commission will react to it. But it's just an interesting sign how now suddenly across the Atlantic, these two jurisdictions are competing for talent and whether you call that protectionism or healthy competition with an ultimate, very positive goal remains to be seen.
Scott Maberry:
And it's a fascinating study. We've never seen a non-wartime investment in, what you might call, industrial policy in the United States on this scale. But as you rightly point out, these are subsidies. There could be World Trade Organization issues with picking one company to subsidize over another.
Oliver Heinisch:
Yeah. No, absolutely. And I think the way it's discussed here at the moment is to make, I think, or to keep the European markets as attractive as it will be in the United States. And I think that's sort of where the discussion goes at the moment. But of course when we talk about WTO rules and we can talk about the recently enacted Foreign Subsidies Regulation here in the EU, which deals with subsidies made to foreign companies, but by foreign governments to companies that are active in the European market. So basically European state aid rules applied to, if you want, government's subsidies made outside the European Union.
And they are, I think, just because you mentioned the WTO, the European Commission has been very respectful of the WTO rules and remains so. But I think there's a perceived lack of enforcement abilities, and that's why the European Commission needed an additional tool and has enacted this regulation in Europe. And there will be a need for global companies to notify and get clearance from the European Commission.
Scott Maberry:
That's amazing because what it says to me is, there's a kind of a carrot and stick approach by the Europeans about this transition and especially about the way funding in the United States is being used to bolster a bunch of industries. The carrot in Europe would be to try to make the EU just as attractive. And I suppose that means, if Europe could ever agree, it would mean that Europe would consider finding ways to subsidize or to otherwise assist these industries in Europe, which...
Oliver Heinisch:
Absolutely.
Scott Maberry:
... from a certain perspective is a really good idea, especially when we're talking about green technologies.
Oliver Heinisch:
Exactly. So I think ultimately, look, Europe and European countries have been pushing for an accelerated transition to green for a long time. And countries like the US have been slow in reacting. So ultimately what's happening in the US is something positive, and I think the jurisdictions are close enough aligned to have some healthy competition without it leading to really trade issues and bigger fallout. So that's the hope.
Scott Maberry:
Yeah, I hope so too. And I hope that... Well, the one interesting thing that's happened is, that although the United States was slow, it kind of went all in with this Inflation Reduction Act and the infrastructure bill and the amounts of money that are being put into these industries now are really staggering. And what's staggering to me as an observer of US politics is that you wouldn't have predicted that politically we would have the will and the unity to put together a couple of huge, huge bills of that scale. And we did, and I think that you're right, Europeans have been very out front on these issues for much longer than the United States.
But I think there's still, at least a perception from my side, that it's been slow to translate into actual money for actual companies, and that's what needs to probably happen next in order to make this more of a healthy competition and less of a thing where you're going to have to use the sticks against US companies or against whatever companies are being subsidized by the United States. So talk to me a little bit about how that would work under the new regulation and in particular, if you can, how that would differ from the EU jurisdictions already existing anti-subsidy rules.
Oliver Heinisch:
Yeah, so just to step away from what we just discussed, the green transition is sort of one area where, as I say, I think the commission and member states are currently discussing how to deal with that, whether to relax state aid rules and make it easier for companies here to access funding. And of course that also triggers then a discussion amongst the EU member states because there's a fear of the smaller states that the bigger states will then just strengthen their national industries and the smaller companies lose out. So that's sort of the green transition bit.
Then I mentioned the other part, that regulation that came in just in force at the beginning of January, and that's the Foreign Subsidies Regulation. This is an additional requirement for global companies in deal making, for instance, in merger control, where the European Commission now will assess whether these merging companies have obtained subsidies from countries outside the EU, view and then assess whether these subsidies distort competition within the European Union market.
Scott Maberry:
If a European company, for example, were to obtain US infrastructure bill money as a subsidy and then were to come to Europe and want to, let's say, acquire another company in Europe, the question of that subsidy is going to come up in the merger control rules.
Oliver Heinisch:
For instance, in concentrations or merger control contacts, joint ventures, but also in the context of the award of public contracts. And thirdly, the commission can also ex officio launch investigations on its own initiative. And then if it considers these subsidies to have a distortive effect and they have quite staggering remedies they can impose, they can obviously block a merger, they can impose structural and non-structural remedies and they can ask for the subsidy to be repaid.
Scott Maberry:
So this sounds like a major issue for any company wishing to engage in merger and acquisition activity in Europe. And so how are you advising companies to prepare for this?
Oliver Heinisch:
Well, there is a transition period and companies have now six months as a lead. The regulation will really come into force in the midyear term, and they have to get ready really to understand where financial contributions have been received outside the European Union and have sort of a map within the organization to be ready to talk about it because, of course, there's still a lot of implementation being currently discussed by the European Commission. So what is the financial contribution at the moment? The definition is extremely broad. The implementation regulations currently being discussed will be published in a couple of days or so and then will be open for consultations.
So companies have the ability to then respond to that consultation, that public consultation, in Europe. But once that's all up and running and one has more clarity, then really companies have to take this into account in deal making. So you have to be ready to deal with these regulatory issues and be ready to respond to quite extensive questions from the authorities. So there will not be much time, because of course, if you're in a merger timetable, you have a short amount of time to get that merger cleared. And in that time you also want to have FSA clearance from the commission. So I think to get a really clear view on where subsidies have been received from around the world is, I think, the first thing on the to-do list.
Scott Maberry:
That sounds very urgent for companies because there's a lot of moving parts here. I know of many companies who are right now in the process of writing these applications for infrastructure bill money and for Inflation Reduction Act money in the United States. And while they're looking at grabbing pieces of that pot of money, which will help them create green technologies in their companies, at the very same time they've got to be thinking about what's their merger strategy in Europe and be ready to respond to any merger control that emerges out of this regulation.
They should also be thinking about participating in the consultation on the regulation itself, which is ongoing right now. And then they have to be thinking about if they are a public contracted company in any form, they're going to have to be thinking about what their public procurement strategy is and be ready to answer questions about the US subsidy money when they're doing that. All the while considering that there may also be an ab initio investigation launched by the European Commission on this.
Oliver Heinisch:
And the way you put it is right. So initially obviously, the press was this is all about China. But it's not only about China, it's about any company receiving funding from governments outside the EU. And I think in terms of countries that we're looking at, that's US companies, that's companies from Canada, from the UK, from the Middle East and so on, who invest in Europe, do business in Europe and receive subsidies outside.
Scott Maberry:
And then thinking about cooperation versus competition between the EU and the United States, you've talked a little bit from time to time about how the competition enforcers specifically, and I guess in the United States that'd be the DOJ and the FTC. And in Europe it would be the competition authorities there on enforcement. So where are we on that and what are the emerging issues there?
Oliver Heinisch:
So I think what companies should be aware of, there is the new administration in the US and there has been push for encouraging closer corporation with the European Commission in particular. So it regulates change between the European Commission, the FTC, and the DOJ. And the idea is to align competition policies across the pond and that has been quite successful. One reads, and you've seen these regulators meeting regularly, and so I think of course the digital market's key focus at the moment, because there are cases going on in the US as well as in Europe, but I think even broader. There always has been a close dialogue, but this is now even more formalized and I think is ever-increasing.
And the question is of course for global companies, on the one hand, this is more difficult because you have to deal with two strong regulators coordinating their approach. On the other hand, it might provide more legal certainty and you know where the direction is going in both jurisdictions and don't have to deal with different interpretations and views on the market, so remains to be seen and depends on what deal, and what company, what industry you're in.
Scott Maberry:
Absolutely. And it seems to me, just as an outsider looking into this field, one of the main issues is the idea of competition enforcement in Europe seems to be philosophically different from the idea of competition enforcement in the United States. We're very focused on maintaining competition and it seems like the European system seems to be more focused on protecting consumers.
Oliver Heinisch:
Yes, that's a big debate, a philosophical debate as well as an enforcement debate. And there's certainly issues on both sides, so whether the consumer is sort of the key element if you want of the assessment and whether consumers have to pay higher prices or get less innovative products as a result of, for instance, a merger. Whether that's the key of the assessment or whether other elements, political elements, societal elements also play a role. And question is whether that shift away from the consumer as standard to a broader standard, and that's certainly discussed strongly in the United States and also is being discussed over here.
Scott Maberry:
I agree it's getting more complex. And so we've already talked about the subsidies that are being put in place out there and then the reactions to subsidies in terms of the Foreign Subsidies Regulation and the existing WTO enforcement. We've talked about merger control and now we've also seen some developments in the United States and the EU on Foreign Direct Investment controls. And I wonder if you could talk a little bit about where that's heading and how that adds to the complexity.
Oliver Heinisch:
Yeah, so we do have a Foreign Direct Investments control regime on a national level in each EU member state. And the European commissioner is issuing a regulation on bringing the regimes closer together and have transparency and reporting obligations without actually bringing it onto a European level. So it's not the European Commission looking at it, it's national states looking at foreign direct investment. It's also foreign companies investing into a European company and taking control of that in a strategic industry. And these have to be notified and there has been a great uptick in that. So that's also part of, if you do mergers or M&A activity, this is going to be or is a normal part of the exercise. So the regulatory burden is increased. And again, you need to get clearance on these national regulators and that might not just be one, it might be several across the EU.
Scott Maberry:
Yes, especially if your business is global across the EU and elsewhere. And then similarly, all of that is very consistent with the philosophy of the US Committee on Foreign Investment in the United States. And so people who are familiar with that CFIUS process here will be familiar with at least the broad outlines of what you're talking about, albeit that in your situation it's a bit like if Kansas and Nebraska and Delaware all had their own CFIUS rules here and we were trying to align them.
Oliver Heinisch:
Correct. That's exactly how it is.
Scott Maberry:
And the other development we're seeing in the United States, and I would predict that this is going to spread also, for the first time the United States is considering regulating outbound foreign direct investment. So we're going to have national security review of a US company's investments in China, for example. And that's a whole new philosophical development and it's going to be a whole new regulatory world. We're predicting that that's going to come out at least as an executive order in the United States before the middle of this year.
Oliver Heinisch:
Exciting. Well, it'll be interesting to read.
Scott Maberry:
Yeah. Now that's brought us to a more specific focus on what should companies expect in competition law enforcement?
Oliver Heinisch:
Just a sort of outlook without being able to cover this all in great step, I think, we mentioned merger control. I think there will be an increase in enforcement and review of mergers and there was a perceived under enforcement in Europe, couple of mergers went through which in hindsight shouldn't have been cleared. So both the European Commission and the national authorities are upping their game. The national regulators as well as the European regulators have obtained more tools to catch mergers which previously would've escaped merger control. So we are expecting a greater scrutiny here generally.
And then you mentioned consumer welfare standard against broader considerations, and I think that's something which we'll definitely see ongoing. I will mention the additional requirements. And then I think if the Digital Markets Act come in and the digital gatekeepers will have also a greater burden when they enter into any form of transactions.
So I think in terms of merger control, it will be more burdensome. Companies have to be more ready to file and defend their cases in front of the regulators here. The other area is cartel enforcement, it has been busy, but it hasn't been as busy as it was many years ago. But I think with economic downturn, supply chain issues, et cetera, you would expect the authorities to be more rigorous to enforce and try to detect any wrongdoing and then also penalize it. So I think there will very likely also with Covid being over and lockdown, there will be more dawn raids this year. There will be more investigations which the commission will be launching and the national regulators. So definitely an uptick there.
And I think in the UK, but also across Europe, I think private enforcement of competition law where you have private companies launching damages actions in front of courts for infringements of competition law and that will also be increasing. And the UK remains quite an attractive jurisdiction. And of course in the US, you have that on a regular basis. It's been going on there for many, many years. But collective opt-out class actions or collective opt-out damages actions here in the UK, there's a big increase in these cases being launched. And I think they will continue like that.
Scott Maberry:
So collective action sounds like what we would think of as a class action suit in the United States?
Oliver Heinisch:
Correct. That's exactly what it is. When that came into force in 2015, I think they were very careful not to adopt the US style class action system. And it is a little bit more difficult to get these cases off the ground. But the Supreme Court here in the UK has recently ruled in a case that made it easier to get these cases actually really established in front of the court here. And that has triggered a flurry of new proceedings.
Scott Maberry:
It paints a picture of a further increasingly complex marketplace where any companies doing business in Europe have to be really stepping up their game too. And how are you advising them to do that? What do they need to do?
Oliver Heinisch:
I think these trends and enforcement trends, they're not new, but they have always been there. But I feel this is where the focus will be in the next year. As ever, I think compliance programs, training awareness is key. Getting it wrong, I think, it's just too costly. So if you do something proactively in Europe, you need to be ready and need to know about the regulatory landscape, get your ducks in the row and be prepared to engage with the regulator. Think lobbying. There's a lot of lobbying going on in Europe, but I think that has received quite a big setback in the course of the DMA process. And I think having really well advised submissions to the regulators is key. And then of course, be prepared and have your compliance programs in place and check them regularly and have them up to date. I think that's key.
Scott Maberry:
Absolutely. Could you say for our listeners who might not know, what's the DMA process and what sets-
Oliver Heinisch:
Sorry, that's Digital Markets Act. That's the act I talked about, which will regulate digital gatekeepers in Europe. And during the process of course, there was heavy lobbying against this act coming into force and that wasn't very well received in Brussels, and they're having all sorts of scandals.
Scott Maberry:
Oh, yes. And so what I'm taking away from that as a general point is that if you're a company doing business in Europe, you really should be thinking about all of this complexity and preparing for it in ways that you might not have done so intensively before. And in particular, it sounds like if I've got an antitrust or anti-cartel compliance policy and procedures and I haven't looked at that and updated it in the last couple years, it's time to do a refresh on my policies, procedures and training if I'm doing business in Europe.
Oliver Heinisch:
Yeah, I mean, that's always good business practice and I think that applies to the US as well.
Scott Maberry:
Absolutely. Well, let's turn the page and talk a little bit about the issues around data protection in Europe. And we should start by defining what the regulation is and what it does and then talk about some of the developments there.
Oliver Heinisch:
Sure. Yeah, we talked about this in the past in this channel, and I think that the General Data Protection Regulation, the GDPR, has been enforced since 2015. It's changed dramatically the landscape of data protection around the world, I think. The GDPR has quite a broad reach and it's been around for a while now. And so we have seen regulators starting to enforce it and it's now being enforced quite heavily. And also by smaller member states. So this is enforced on a national level in the EU, not by the European Commission, it is coordinated though to an extent on European level by the European Data Protection Board, the EDPB.
The GDPR is being enforced by these national regulators. And I think what we see is an increase in fines across the board. We see cases being launched across the GDPR really, not just typical cases like data breaches, but we see also see fines being levied against companies that haven't really assessed properly the legal basis which they use for processing data, the information obligations under the GDPR, which require companies to notify data subjects before they actually process their data, and et cetera. So I think France, Luxembourg has been extremely active. Ireland has been extremely active because, of course, a lot of foreign companies are headquartered there and the GDPR is just a fact. And as painful as it might be for many companies, it has to be dealt with. And the fines that can be levied are quite substantial.
Scott Maberry:
Absolutely. And my sense of that, if you're a company operating in Europe is that if you are in more than one national jurisdiction, you may, although there is coordination as you say at the European level, there are very much different priorities among the different national bodies. And we might be seeing some inconsistent enforcement there.
Oliver Heinisch:
Absolutely. That's still the case. And I think different regulators focus on different areas of data protection. Some are more focused on cookies, others are more focused on legal basis analysis, then different industries are getting different attention in different member states. And yes, there is dividing views on certain legal issues and enforcement issues across the EU, but it's getting smaller. And I think with the GDPR in place for so long, I think that the European body is issuing guidelines on a regular basis on key issues. For instance, what is meant by consent or data protection in the workplace environment or things like that. And these guidelines help unify the application of the GDPR national rules.
But again, they are national rules. So the national rules, to some extent, differ as well. And of course, being in Europe, you also have the UK, which is not part of the GDPR regime. The GDPR has been implemented into the UK when the UK left the European Union, but it's now being reviewed and will be a slightly different animal going forward. So that's something to bear in mind. And then of course, the big issue is transferring data out of Europe into the US. We do see a lot of cases there, there's a lot of advice also in the context of, for instance, antitrust investigations.
Scott Maberry:
Absolutely.
Oliver Heinisch:
So the DOJ subpoenas asks for documents that come out of the EU, asks for WhatsApp messages that come out of the EU. How can you transfer that data out into the US to the regulator? It puts the spotlight on your GDPR compliance very quickly, and it's the wrong moment when you want to be thinking about GDPR compliance. You just want to be able to either say no or yes and transfer the data.
Scott Maberry:
We found that too with investigations of all kinds where you have data in Europe, if you haven't already thought through how you're going to transfer data to the United States or other jurisdictions out of Europe in an investigation, it's way too late to be thinking about it when the investigation starts. We've seen that cause enormous trouble in enforcement cases across the board here. So yeah, I see that issue as a continuing one.
And another reminder for our listeners that on data protection as with competition, if you haven't dusted off your GDPR compliance policy and procedures, it's time to do it. If you haven't done a tabletop exercise recently on an investigation that requires you to transfer some data, you should do it and you'll be glad you did.
Oliver Heinisch:
Absolutely. And we see companies that have put something in place in 2015, but the world has moved on and I think the sophistication has moved on in terms of dealing with the GDPR.
Scott Maberry:
Absolutely. Well, this has been very helpful and I'm really glad to have spent some time with you, Oliver. Thank you very much for being on the podcast today.
Oliver Heinisch:
Thank you, Scott. I really enjoyed that.
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