Market Regulation As Geopolitical Lever
When UK regulators ordered U.S.-based Meta Platforms, formerly Facebook, to divest the U.S.-based GIF search engine Giphy last month, it was the most recent shot in a regulatory salvo that raises novel questions about which nations’ authorities can structure the U.S. innovation ecosystem.
The UK market regulator, the Competition & Markets Authority, has been on fire lately. In two years, the national competition agency has barred three mergers involving U.S. companies with no meaningful UK presence. Traditionally, competition agencies have avoided intervening in transactions with a limited nexus to their local markets. Not so for the CMA, which is openly positioning itself to be the world’s arbiter for mergers and acquisitions. At its current pace, the CMA may soon be the global M&A traffic cop. And should other regulators follow this course, it could substantially reshape the international economy.
The British Umpire
Like other acquisitions recently barred by the CMA, Giphy had neither revenue nor market share in the UK. Nor did it compete with Meta’s Facebook product. In short, the Giphy deal was not a transaction between competitors, and it would not have impacted UK markets. That did not stop the CMA, which manufactured a connection to the UK in its post-Brexit play for the role of worldwide M&A referee.
As Prof. David Teece explains, “[a]bsent an acquisition, Giphy would most likely have failed,” and yet the CMA has now compelled Meta not only to divest Giphy, but also provide it the “ability to generate revenue”. This is something that Giphy was unable to meaningfully do in over 7 years. Having stuck Meta with this herculean task, the CMA’s message is unmistakable: clear your M&A by London.
Query what would happen if other jurisdictions began to follow the UK strategy. Germany and France have already publicized a manifesto to promote industrial policy for Europe, in essence arguing that authorities should have more power to consider the geopolitical import of transactions. In other words, Continental regulators could soon be using the CMA playbook as well.
If geopolitical ambitions can be pursued by regulators through intervention in the business transactions of another country’s exporters, the consequences for technology investment could be substantial. Acquisition is the most frequent means by which venture investors realize returns on their investment in startups. If that avenue is foreclosed because startups cannot navigate the maze of foreign regulators, seed funding for the next wave of tech unicorns could dry up as investors turn to other vehicles.
U.S. Policy Focus Remains Inward
Even as regulators abroad are being explicit about their goal to use competition enforcement to improve their strategic international position, there has been limited U.S. reaction. U.S. policymakers remain primarily focused on a domestic antitrust debate. Yet this is a crucial moment in the contest for global technology leadership: other economies covet America’s role as a leading exporter of digital goods and services. Where their businesses have competed less successfully in open markets, these jurisdictions are increasingly deploying regulatory intervention and state power as their competitive advantage, instead of entrepreneurship and investment.
Chinese officials are not shy about their ambitions to achieve technological superiority in key areas like semiconductors, AI, and 5G. Already, legislative proposals under consideration could inadvertently advance those objectives by giving foreign actors increased access to data and intellectual property, and guaranteeing foreign businesses advantages without any reciprocity. A sudden sea change in global M&A could exacerbate that result, shifting the balance of power across the Pacific.
Amid the ongoing U.S. domestic debate about whether to impose European-style regulation on our leading technology players, there’s a need for an international conversation about the limits of industrial policy between trading partners in open markets. That conversation is far larger than one transaction involving GIFs: U.S. policymakers need to make clear that ventilating geopolitical ambitions through antitrust enforcement might be a short-term political winner, but it is a long-term economic loser. It’s time to reaffirm that the only relevant yardstick for competition regulators should be whether conduct affects their consumers, and whether it makes those consumers better or worse off.
