* This piece was first published in the January 2018 issue of the Practical Lawyer (2018) PL (Comp. L) Jan 75
With the USD 130 billion merger between global agrochemical giants – Dow Chemicals and E. I. du Pont de Nemours and Company (DuPont) being granted a green chit by the European Commission (EC) and the Competition Commission of India (CCI), the significance of innovation in merger assessment has witnessed a renewed focus. The extent and role of innovation in the concerned market is one of the factors that antitrust regulators are required to consider while evaluating a proposed transaction. Ordinarily, this exercise is undertaken to study the impact of the transaction on future innovation and any competitive harm which may result from reduction in the incentives to innovate as also the pro-competitive outcomes emanating from operational synergies which enhance innovation.
In the Dow/DuPont merger, the relevance of innovation was discussed at length by the EC which observed that the merger would not only significantly impede competition in the pesticides and petrochemical industries, at a global level, but would also reduce future innovation in the global pesticides industry. It was noted that the development of effective and environment friendly pesticides required large scale investments and continuous research and development (R&D) and globally, only five players were engaged in R&D in the field of pesticides. The Dow/DuPont merger therefore, would further consolidate market power in an already highly concentrated industry with significant entry barriers and would substantially reduce the parties’ incentives to innovate in the pesticides sector.
The EC also took into account the impending conclusion of similar deals between other agro-chemical sizeable players which would reduce the total players in the worldwide R&D value chain from six to three along with the concrete evidence of the parties’ intention to significantly cut back on their R&D investments towards innovating and developing new pesticides. Given the significance of the agrochemical sector in crop production and the dependence of farmers on affordable and effective pesticides, the EC held that the Dow/DuPont merger would harm future innovation and directed divestment of inter alia DuPont’s existing pesticides business and its global R&D operations in crop protection methods.
Pertinently, the innovation harm emanating from the merger was also recognized by the CCI which observed that the deal would adversely affect the Indian crop protection market and would jeopardize the rate at which new and better pesticides came to the Indian market. The CCI further cooperated with other jurisdictions as well as endorsed and accepted the EC directive for a global divestiture of DuPont’s R&D operations and personnel to FMC Corporation to address the innovation concerns in the crop protection products. While this was not the first instance where the CCI has cooperated with another antitrust agency, the merger has showcased the increasing collaboration of the CCI with antitrust agencies across jurisdictions while analyzing transactions bearing global significance and likely competition impact.
The Dow/DuPont merger raises a few interesting questions – which industries require a detailed assessment of the impact on future innovation and how far into the future does one have to look to foresee any harm caused to innovation? The Dow/DuPont merger has clearly shown that innovation, as a key competitive factor, is not restricted to technology driven industries which are known to thrive on disruptive innovation and where entry barriers are significantly low, such as, e-commerce, app-based businesses or IT and IT enabled services, but is also an essential element of traditional industries which may be characterised by relatively high entry barriers, such as agrochemicals and pharmaceuticals. On the question of the extent of clairvoyance that a regulator is expected to exercise, guidance can be drawn from the EC’s assessment of the Dow/DuPont merger where it went on to scrutinize pipeline products which were still at an early stage of development (without any guarantee of successful development), as opposed to its anecdotal approach of assessing only those pipeline products which were nearing marketing and were at the last stage of clinical trials.
While the EC has assessed early stage pipeline overlaps in a number of pharmaceutical mergers,  its assessment in the Dow/DuPont merger indicates that innovation may need to be assessed at the idea level and not necessarily be restricted to ideas which have already manifested or are about to be manifested into successful products in the foreseeable future. While the observations of the EC are no doubt worthwhile, considering delineation of future markets could make the analysis speculative to a degree, caution may be advisable based on the quantifiable impact of the transaction and attendant market realities.
Innovation is regarded as a lynchpin in ensuring continuous growth in industries and contributes heavily towards consumer welfare as well as progression of the mankind, at large. As the chief regulator of competition in India, the CCI holds a special responsibility to create an environment which fosters continued innovation in order to secure competitiveness of industries on a sustainable basis. Given that the competition assessment of mergers and acquisitions is an ex ante review, it is expected that the CCI will take cues from the pro-innovation approach that the EC is now increasingly applying in all its merger assessments in traditional and technology sectors alike.
* The authors were assisted by Anmol Awasthi, Associate.
 TomTom/Tele Atlas, Case Comp/M.4854, Order dated 14.05.2008.
 Case M.7932, Order dated 27.3.2017.
 Globally, the five integrated companies characterised by their scale and their activity at all stages of the value chain (discovery, development, mixture/formulation and commercialisation) through large R&D budgets and operations for crop protection are Syngenta AG, Bayer AG, BASF Agrochemical Products B.V., Dow Chemicals and DuPont, also known as the “Big 5” or “Global R&D integrated players”, Case M.7932, Paragraph 222.
 On 05.04.2017, the EC conditionally approved the acquisition of Syngenta AG by China National Chemical Corporation Syngenta AG (See: Case M.7962). Further, on 22.08.2017, the EC commenced an in-depth investigation in to the proposed acquisition of Monsanto (US) by Bayer AG and had observed that the merger may reduce competition in areas such as pesticides, seeds and traits, available at: http://europa.eu/rapid/press-release_IP-17-2762_en.htm .
 Dow/DuPont, Case M.7932, Paragraph 3216, Page 495.
 Dow Chemical Company, E. I. du Pont De Nemours and Company and Others, Combination Registration Number C- 2015/05/400, Order dated 08.06.2017.
 Novartis/GlaxoSmithKline Oncology Business, Case Comp/M.7275, Order dated 28.01.2015; J&J/Actelion, Case M.8401, Order dated 09.06.2017. Similar to the practice followed by the EC, the CCI has also assessed product overlaps between the parties on the basis of pipeline products still under development, See: Sun Pharmaceutical Industries Limited and Ranbaxy Laboratories Limited, Combination Registration Number C-2014/05/170, Order dated 17.03.2015; Torrent Pharmaceuticals Limited and Elder Pharmaceuticals Limited, Combination Registration Number C- 2014/01/148, Order dated 26.03.2014.