Facebook has been fined £50.5 million by the CMA for a "deliberate" breach of an Initial Enforcement Order ("IEO") and for changing its Chief Compliance Officer on two separate occasions without the CMA's permission.
The IEO had been imposed on Facebook and Giphy on 9 June 2020 as a result of the CMA's ongoing investigation into the acquisition of Giphy, which completed on 15 May 2020. IEOs may be issued where the CMA decides to investigate transactions that have already completed. Their aim is to ensure that the acquiring and acquired companies remain functionally independent and competitive (by acting as though a merger has not taken place), so that the transaction can be unwound if the CMA deems the merger to be anticompetitive.
One of the requirements under an IEO is for the company to provide regular compliance reports to the CMA. These enable the CMA to determine whether it is satisfied with the company's compliance with the IEO and to monitor the company's conduct for any actions that could negatively impact the ongoing merger investigation.
Despite receiving several warnings from the CMA, Facebook decided against reporting all of the requested information as part of this process. In response, the CMA issued a substantial £50 million fine, for what the CMA described as a "major breach". This is the first time that the CMA has found a company to be in breach of an IEO for a deliberate failure to comply.
Following the announcement of the fine, Joel Bamford, Senior Director of Mergers at the CMA was quoted saying, "this should serve as a warning to any company that thinks it is above the law". Facebook, on the other hand, has issued a statement saying that "We strongly disagree with the CMA’s unfair decision to punish Facebook for a best effort compliance approach, which the CMA itself ultimately approved. We will review the CMA’s decision and consider our options."
This is not the first disagreement over the IEO between the CMA and Facebook during the review of the Giphy transaction. Facebook previously requested a "derogation" from parts of the IEO, which would have enabled them to take certain actions that would otherwise have been banned. The CMA refused the request as, in their view, Facebook had not provided them with enough information for them to decide. Facebook applied to the Competition Appeal Tribunal for a review of the CMA's position. Following their review of Facebook's application, the CAT unanimously dismissed all three of Facebook's grounds for appeal, finding in favour of the CMA. Facebook then appealed this decision to the Court of Appeal who not only dismissed Facebook's appeal, but criticised Facebook for its failure to properly engage with the CMA when applying for the derogation.
Conclusions
Facebook's fine is a reminder of the risks involved in closing a transaction that meets the UK merger control thresholds before seeking clearance from the CMA, despite filings technically being voluntary. The imposition of an IEO can be difficult for companies to manage – having to keep separate a newly acquired business and dedicating significant resource to compliance and reporting. However, the CMA has clearly indicated that deliberate breaches of an IEO will not be taken lightly. It is also worth noting that, had Facebook notified the acquisition of Giphy to the CMA and obtained clearance prior to closing, the issue of the IEO would never have arisen.