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Article:

Innovation Theories of Harm (IToH)

26 November 2018

Yuval Eliaz , Director, Antitrust Law, BDO Consulting |

Innovation Theories of Harm (IToH) played a major role in recent DG COMP decisions regarding Dow/DuPont and Bayer/Monsato cases. In a nutshell, IToH holds that horizontal mergers may prove anti-competitive in a dynamic perspective when there are indications that the merger will reduce the incentive of the merged firm to invest in innovation. The main "innovation" made by DG COMP in the above decisions lies in the stage of the R&D pipeline, arguing that overlapping research that may yield products 5 to 10 years in the future could constitute a substantial loss of competition.

I recently had the honor to discuss IToH on a merger control panel that took place at the annual Thomson Reuters UK 'Competition Law Conference', which benefited from participation by senior UK competition regulators. The conference addressed many issues including cartel investigations, the usage of big data analysis in antitrust cases, class actions and many more,

At the panel, I presented outlines for a possible defense against IToH. In short, I believe that merging parties should strive to prove that the merger will not divert long-term R&D investments from social optimum, or help obtain it. When considering social optimum, firms shouldn't only concentrate on the relevant product market or 'innovation space' (as defined by DG COMP), they also need to consider all the sources of innovation that are conducting relevant long-term R&D, such as research institutes, universities, startups, etc.