DENMARK: An Introduction to Competition/European Law

Current economic conditions affecting competition

As many other countries, Denmark’s economy has been significantly affected by both the COVID-19 outbreak, and now also by the war in Ukraine.

When COVID-19 first broke out in 2020, the markets became pessimistic and economic activity slowed down dramatically. Many companies adapted by trimming their organizations and conserving their funds, so several planned mergers and acquisitions were abandoned or deferred to a later time.

Towards the end of 2020, the momentary pessimism was replaced with optimism, and the Danish economy saw a general upswing. A large bottleneck of liquidity, conserved funds and deferred mergers from 2020 was popped open, and the economic development was further accelerated by the large sums of state aid and compensations to Danish companies distributed by the Danish state. According to statistics from the Danish Business Authority, since the outbreak began in March 2020, the Danish state has given approx. DKK 52 billion (approx. EUR 7.1 billion) in compensation. All put together, the market quickly turned from ice-cold to burning-hot. As a result, 2021 had a historic high level of M&A activity in Denmark.

It was originally expected that this same level of activity would continue throughout 2022. However, following the war in Ukraine, as well as increasing interest and inflation rates, the economic forecasts have become much more uncertain.

Activity, trends, and developments 

The unparalleled M&A activity in 2021 was reflected in a record-setting number of merger notifications to the Danish Competition and Consumer Authority (“DCCA”). In 2021, the DCCA had 67 merger notifications under review, clearing 63 of them, up against 34 merger notifications in 2020 and 48 notifications in 2019.

Contrary to the high activity within merger control, the Danish competition authorities’ enforcement activity has been limited. In 2021, the Danish competition authorities published only three decisions on infringements of the Danish competition act section 6 and 11 (corresponding to TFEU art. 101 and 102). This may be due to the DCCA’s workload on merger notifications, which may have led to some of the DCCA’s other areas of supervision being afforded less attention. Further, owing to COVID-19, for an extended period, it was not possible for the DCCA to perform dawn raids as usual due to the restrictions and lockdowns.

Looking at the substance of the DCCA’s decisions over the past years, namely in relation to horizontal agreements, the DCCA has long had a strong tendency of assessing such violations only as by-object restrictions, instead of assessing the effects of violations. The companies involved in such cases have often tried to oppose this approach, but the DCCA does not seem to be changing its tone.

New legislation 

Some of the most important new examples of legislation or legislative plans include the implementation of the EU Directive 2019/1 of 11 December 2018 (“the ECN+ directive”), new rules on foreign direct investments (“FDI") and lastly, considerations regarding an amendment of the rules on merger control.

Implementation of the ECN+ directive 

In March 2021, an important amendment of the Danish Competition Act was adopted in implementation of the ECN+ directive. The directive is designed to empower national competition authorities (“NCA’s”) to be more effective enforcers. This amendment will undoubtedly have a significant impact on the DCCA’s investigation and decision-making powers going forward, which in turn may lead to more competition law cases. Most notable, in implementation of the directive, a civil fine regime in relation to undertakings has been introduced. This is a significant departure from the Danish legal tradition of imposing sanctions only in accordance with the rules of criminal procedure. How the new civil fine regime will be administered in practice is yet to be seen, but it is expected that fines will be more frequent and also higher.

Foreign direct investments screenings act 

On July 1, 2021, the Danish Act on the Screening of Foreign Investments ("FDI Act”) entered into force. The FDI Act has as its purpose to prevent foreign direct investments threatening national security and public order. Although this legislation is not overseen by (and thus does not directly implicate) the DCCA, it still affects the outlying framework surrounding the Danish merger system. The FDI Act enacts two different screening mechanisms, which are overseen by the Danish Business Authority. One is a sector-specific mechanism with a mandatory notification obligation, and the other is a general (cross-sector) mechanism with a voluntary notification option. The obligatory mechanism specifies that when foreign investors invest in particularly sensitive sectors and activities, such as defence or critical infrastructure, the investor must apply beforehand to the Danish Business Authority for permission to invest. The FDI Act is broadly relevant for foreign investors looking to invest in Danish companies, and it should be considered in all such transnational M&A processes.

Modification of merger control regime 

Lastly, the DCCA, at the request of the Danish National Parliament, is currently considering how to modify the current merger control paradigm. This follows in the wake of discussions at EU level on how to deal with high impact mergers that do not meet merger notification thresholds. The current Danish merger control regime focuses exclusively on turnover thresholds and thus faces the same challenges as the EU merger control regime: if the turnover thresholds are not met, there is no obligation to notify a merger. However, we do see some mergers that have, potentially, significant impact on competition, but which do not meet the merger thresholds, so they escape scrutiny from the DCCA. This carries the risk that large companies with significant market power (e.g., digital or medicinal companies), are able to squeeze out up-and-coming competitors, e.g., through acquisitions with no other purpose than to eliminate a competitor (so-called “killer acquisitions”). The targets of such methods could be start-ups, smaller digital companies, and other companies with competitive and commercial potential not (yet) reflected in traditional turnover, for example companies with innovative designs, IP rights, many digital users, or substantial collections of data. Accordingly, while turnover-based notification thresholds are effective and widely used, they are also a rather rigid mechanism, which entails some challenges.

It is currently unclear how the DCCA will address this rather complicated issue. One option would be to lower the current turnover thresholds in order to catch the relevant mergers for scrutiny by the DCCA. However, such a solution would also open the floodgates for the notification of many more mergers of less relevance, burdening the DCCA’s limited capacity. Alternatively, similar to the EU Commission’s new guidance of March 26, 2021, on the referral mechanism in art. 22 of the EU Merger Regulation, the DCCA could introduce a discretionary legal basis to call in specific mergers for control, even though they fall below the notification thresholds. This would enable the DCCA to narrow its focus to the most relevant mergers, however, at the same time leading to less transparency and predictability and thus reduced legal certainty for undertakings. The DCCA has stated it is looking to the approach of our neighbouring countries. Among others, Sweden and Norway have implemented the second option mentioned above, so it would not be surprising if the DCCA chose to follow the same approach. Accordingly, we may be looking into a modified Danish merger regime, allowing the DCCA in the future to call in mergers for review, even though they fall below the turnover thresholds.