European Commission Adopts Guidelines Regulating Outsourcing and Joint Venture Transactions

The European Commission (EC) recently issued a consolidated jurisdictional notice (Notice) under Council Regulation (EC) No. 139/2004 (Merger Regulation), which includes guidance on the regulation of outsourcing and "full-function joint ventures". The Merger Regulation is applicable when there is a concentration of control or a change in control among two or more undertakings on a lasting basis. According to the Notice, the outsourcing of in-house activities will amount to a concentration if a transfer of assets that were previously dedicated to in-house activities of the seller will enable the outsourcing supplier to provide services to third parties (as well to provide services to the outsourcing customer). Similarly, the transfer of assets from parent companies to a joint venture, if the scope of the joint venture's activities is expanded, may amount to a concentration if the joint venture operates on a "full-function basis". The proportion of any sales from the joint venture to third parties (compared to overall sales) will indicate a level of full functionality that could trigger the approval process. EC approval for an outsourcing or joint venture activity will be required when a concentration involves a third party or joint venture with annual sales of more than $7.3 billion worldwide and $365 million within Europe, and the potential annual sales generated by the transferred operation exceeds $365 million (all $Cdn) within Europe. However, the Merger Regulation does not apply if no assets are transferred, if the transferred assets are used to exclusively service the customer or parent company, or if the transaction does not result in a lasting change in the market structure. The new guidelines are of relevant in IT outsourcing transactions since if the approval process is triggered, additional time may be required to obtain EC approval. The detailed regulations can be found via the links below. For further information, see: http://tinyurl.com/24wscg For the EC Press Release, visit: http://tinyurl.com/25aqf4 For the EC Notice, visit: http://ec.europa.eu/comm/competition/mergers/legislation/jn_en.pdf For the European Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, visit: http://tinyurl.com/25z35t Summary by: Lauren Lodenquai