Predictions for 2025 from our Competition, Regulation and Trade team (Part 1)

Lawyers in our Competition, Regulation and Trade practice have come together to predict what's on the horizon in the competition space in the UK and beyond in 2025 – identifying the key themes and trends that businesses will need to navigate in the coming year.

This is Part 1 of 2 in our predictions series – part 2 will follow later this week.

1. Merger control
2. Digital markets
3. Foreign direct investment regulation
4. Consumer protection

Merger control

"Killer acquisitions" still in the spotlight

Camille Puech and Christon Shenolikar

At EU level, 2024 was marked by the judgment of the European Court of Justice in Illumina/Grail in which it held that Article 22 of the EU Merger Regulation (EUMR) does not constitute a corrective mechanism and, therefore, does not empower the European Commission (Commission) to accept referrals of concentrations that do not meet the jurisdictional thresholds of the referring Member State.

This has raised questions as to how the Commission will tackle so-called "killer acquisitions" going forward, i.e. acquisitions by large companies of smaller targets in highly innovative sectors. The end of 2024 has paved the way for what can be expected on that front in 2025:

• First, Member States with call-in powers can be expected to increasingly make use of such powers with a view to then referring cases to the Commission under Article 22 EUMR. At the end of October, the Commission accepted the referral by the Italian Competition Authority of NVDIA's acquisition of Israeli AI workload management startup Run:ai. The transaction did not meet the jurisdictional thresholds under Italian merger control rules but was notified at the request of the Italian competition authority which has the power to call-in certain transactions below the thresholds. We can also expect additional Member States to introduce similar call-in powers.
• Second, the debate on revisions of the EUMR's jurisdictional thresholds can be expected to be revived, including the introduction of deal value-based thresholds and/or of call-in powers for deals that do not meet the current EUMR thresholds.
• Third, in light of the statement in Teresa Ribera's mission letter that killer acquisitions raise the risk that foreign companies may eliminate possible sources of future competition, we can expect increased interplay between the Foreign Direct Investment and merger control regimes. In particular, there could be revisions to the draft Proposal for a new Regulation on the screening of foreign investments to address the competitive effects of killer acquisitions that involve certain key sectors.

In the UK, from 1 January 2025, the Digital Markets, Competition and Consumers Act (DMCC Act) will come into force (with the exception of the consumer provisions which are expected to take effect in April 2025). In addition to introducing a new UK digital markets regime (discussed below) the DMCC Act expands the Competition and Markets Authority (CMA)'s merger control jurisdiction, with the introduction of a new jurisdictional threshold that enables the CMA to review certain acquisitions by large companies, even where there is no horizontal overlap between the parties. This new acquirer-focused jurisdictional threshold was designed, in part, to enhance the CMA's remit to review killer acquisitions. In addition, under the new digital markets regime created under the DMCC Act large technology companies which are designated by the CMA as having "strategic market status", will be subject to a new mandatory reporting requirement for certain transactions, which may trigger further investigations by the CMA under its merger control powers.

It is also worth noting that both the Commission and the CMA have shown increased interest in AI and technology markets, leading to more merger control investigations in this space. Indeed, both the Commission and the CMA have reviewed several AI partnerships and this is a trend that is expected to continue in 2025. In particular, in its policy brief on Competition in Generative AI and Virtual Worlds, the Commission flagged the risk of killer acquisitions in generative AI related markets and the need to "remain vigilant", noting that "[t]o the extent that such concentrations do not meet the turnover thresholds under the [EUMR], the [Commission] will work together with Member States and the parties to assess whether they will be reviewed under national merger control regimes or referred to the [Commission] in line with the legal requirements for such referrals as clarified in the recent Illumina judgment of the European Court of Justice".

Digital markets

New regime entering into force in the UK and first enforcement decisions under the EU regime

Natalia Rodriguez and Peter Rowland

In the EU, digital services will be high on the agenda of the new European Commission, which started its five-year term on 1 December 2024. The new Commission is likely to bring with it a new push on digital markets regulation and enforcement - not that either of these things were lacking under the last Commission!

In particular it is likely that we will see the first enforcement decisions under the ground-breaking Digital Markets Act (DMA) and Digital Services Act (DSA). The Commission will also continue implementation of the EU AI strategy, in particular the AI Act, and will work on a wide variety of other digital markets issues including consumer protection, media, cyberbullying, virtual worlds, a "digital networks act" (focusing on digital infrastructure), and a "digital fairness act" addressing unethical techniques and practices such as dark patterns, addictive design of products and online profiling.

In terms of competition law, 2025 is likely to see developments in at least some of the Commission's ongoing antitrust investigations (e.g. into Microsoft and Alphabet). As noted above there will be enforcement under the DMA, and there may be new cases relating to companies/areas not falling within the DMA where the Commission will fall back on traditional antitrust enforcement. It will be interesting to see merger control developments in 2025, particularly following the Commission's ecosystem theory of harm in Booking/eTraveli; and its recent decision in Nvidia/Run:AI demonstrating that it can review deals involving targets with low turnover despite the Illumina/Grail saga.

The major UK development in 2025 will be the new digital markets regime under the Digital Markets, Competition and Consumers Act (DMCC Act) coming into force on 1 January (see further here). We expect the Competition and Markets Authority (CMA) to launch its initial Strategic Market Status investigations under the new regime shortly afterwards. Once an undertaking is designated with SMS the CMA will be able to impose "conduct requirements" and make "pro-competition interventions" in relation to certain of its activities.

The CMA has closed a number of its antitrust investigations in the digital sector in anticipation of the new regime coming into force, but as with the Commission's use of the DMA, it will continue to use traditional antitrust enforcement where appropriate.

In merger control, the CMA has now investigated a number of AI partnership deals and found them not to qualify under its merger review powers (see further here). It is still considering whether to launch a formal inquiry in respect of Microsoft/OpenAI and we should see a decision on that shortly and in any event in 2025. Review of such transactions – aspects of which the European Commission has suggested may be investigated under the antitrust rules – is likely to remain on the radar of all competition authorities.

Mass private enforcement actions seeking damages from tech companies have been a major theme of the last few years, including in the UK. Expect to see more of these in 2025, as well as further indications of the role that the new digital markets regimes under the DMA and DMCC Act will play in such litigation.

Foreign direct investment regulation

FDI regulation will remain a key consideration for cross-border M&A: be alert to global trends and the detail of individual regimes

Veronica Roberts and Ruth Allen

Foreign direct investment (FDI) regulation is now well-established as a critical piece of the regulatory jigsaw for cross-border M&A. Whilst most jurisdictions welcome foreign investment in principle, we have seen a global trend towards greater protectionism that is likely to continue in 2025 amidst geopolitical tensions and concerns around supply chain resilience. FDI authorities will continue to strictly enforce FDI rules, both in terms of notification obligations and review of non-notified transactions, as well as closely monitoring compliance with any conditions imposed on clearance. Chinese investment is likely to remain under heightened scrutiny, although FDI agencies are increasingly also reviewing investment from other jurisdictions.

Deal parties and their advisers need to be alert to global enforcement trends and the detail of the regimes, in order to identify possible issues early in the transaction planning and whether they could be remedied or ultimately threaten deal deliverability. The good news is that the latest data indicates that the vast majority of transactions continue to be cleared, despite stricter scrutiny, and some jurisdictions – including the UK – have started to improve transparency and speed up decision-making.

Looking ahead to 2025, the recent wave of new FDI regimes in Europe will abate as almost all EU Member States now have regimes in place following strong encouragement from the European Commission. However, a new regime is due to enter into force in Ireland in early January 2025 and draft legislation is due to be voted on by the end of 2024 in Cyprus, with a new regime potentially forthcoming in 2025.  Some European countries are also considering further amendments to existing regimes, in particular Germany, where a new FDI Act is expected to be introduced within the next year. However, the new EU FDI Regulation proposed in January 2024 is not expected to be fully implemented until at least 2026.

In the UK, the election of the new Labour government has delayed pro-business amendments to the National Security and Investment regime proposed by the previous government, but some reforms are still expected, including a likely review of the scope of the 17 mandatory notification sectors, and potentially some targeted exemptions (for example for certain internal reorganisations).

Finally, the much-anticipated new US outbound screening regime will take effect on 2 January 2025, prohibiting or requiring notification of certain US investments in Chinese companies. For now the regime is focussed solely on advanced semiconductors and microelectronics, quantum information technologies and certain artificial intelligence applications, but there is scope to expand this in the future. A wide range of transactions will fall within scope, including indirect investments, and the regime will have extra-territorial effect as a result of a very broad definition of "US person". The US is clearly hoping that other jurisdictions will follow suit by introducing similar regimes: so far the UK has rejected the idea of introducing a separate outbound regime (although it remains a possibility), but the European Commission has embarked on a monitoring phase with the intention of identifying possible targeted and proportionate policy responses in Autumn 2025.

Consumer protection

Increased focus on consumer protection enforcement in current climate

Susan Black and Kristien Geeurickx

In the current climate of global economic disruption and cost-of-living crisis we are seeing an increased focus on consumer protection enforcement.  This is particularly the case for the UK where all eyes will be on the CMA's new enforcement regime created under the Digital Markets, Competition and Consumers Act (DMCC Act), due to take effect in April 2025.  Until now, the CMA had to take companies to court in order to establish an infringement.  In practice, the CMA usually opted to negotiate informal undertakings and commitments from companies it was investigating to change their practices.

Under the new regime, the CMA will be able to enforce consumer protection legislation directly, with the same powers of investigation and enforcement as it currently has for competition law enforcement.  Where the CMA concludes there has been a breach of the legislation it will be able to impose very significant penalties, of up to 10% of worldwide annual turnover of the companies involved.

The new powers will not have retroactive effect, but where infringement activity starts before the new regime takes effect and continues thereafter, the new enforcement regime will apply to the part of the continuing activity that takes place after the start of the new regime. The new and strengthened consumer protection laws will also apply to non-UK companies who have a place of business in the UK, who carry on business in the UK or where the conduct at issue arises in the context of carrying on activities directed to consumers in the UK.

In addition to the CMA's new enforcement powers, the DMCC Act has created a number of new consumer rights to ensure that consumer protection keeps pace with market developments, in particular the trend towards online retail and advertising.  These include fake reviews, drip pricing and subscription contracts and more detailed CMA guidance for each of these is expected to be published shortly in order to provide businesses with more guidance on the steps they should take to ensure compliance.

Consumer protection is already very much a focus area for the CMA and we can expect to see it make wide use of its new powers and increase the number of consumer protection investigations. Businesses should therefore anticipate that consumer protection will become just as crucial a part of their risk management strategy as competition law has been up until now, and should start preparing for these key changes by:

• Identifying the key risk areas for their business
• Ensuring they are on top of the detail of the relevant rules, including in other jurisdictions where they are active
• Updating internal processes in order to ensure compliance and document it
• Extending compliance programmes, training and reporting requirements to include the relevant consumer protection rules