Facebook's planned takeover of Instagram gets go-ahead from UK regulator

Out-Law News | 15 Aug 2012 | 10:51 am | 2 min. read

The UK's primary regulator of competition issues has approved Facebook's proposal to buy photo-sharing company Instagram.

In a short statement on its website the Office of Fair Trading (OFT) said that it had decided against referring the case to the Competition Commission for further assessment. The decision was based on "the information currently available," the regulator said. It was the first time the OFT had assessed competition issues arising from a merger in the social media sector.

In June the OFT announced that it was seeking "written representations about any competition or public interest issues" from interested parties on whether Facebook's $1 billion bid for Instagram raised competition law issues.

At the time a spokesman for the regulator told Out-Law.com that the proposed deal may result in a "substantial lessening of competition" in the market for "conduits" for the uploading of pictures in the UK. Whether a proposed merger would result in a substantial lessening of competition is the test applied by the OFT in determining whether to refer a case for more detailed investigation by the Competition Commission.

At the time the spokesman said that the OFT was considering whether Instagram "has the potential to become a straight competitor to Facebook" and whether the impact of the two companies joining together would have a detrimental impact on users and advertisers.

The spokesman had also outlined that there were questions over whether the OFT had jurisdiction to rule on the case. The OFT can assess competition concerns arising in the UK if the turnover of a company being acquired is £70 million or more or if it meets a 'share of supply' test. The OFT had "reason to believe" that the planned acquisition met its 'share of supply' test, the spokesman said in June.

According to the OFT's merger guidelines, the 'share of supply' test is satisfied if the combining businesses "supply or acquire goods or services of a particular description" and would "collectively supply or acquire 25 per cent or more of those goods or services, in the UK as a whole or in a substantial part of it, provided that the merger results in an increment to that share."

Commenting on the probe in June, competition law expert Alan Davis of Pinsent Masons, the law firm behind Out-Law.com, said that the OFT would be "seeking to understand whether Facebook's acquisition of Instagram would enable it to prevent competing apps from being able to upload pictures to Facebook, or restrict the use of the Instagram app from uploading pictures to other social networking sites including Twitter." He added that "given the strong market position of Facebook, this potential market foreclosure would be likely to cause competition concerns".

Facebook announced its plans to takeover Instagram in April. The proposed deal is already subject to an in-depth investigation by US antitrust officials at the Federal Trade Commission.

The OFT’s merger clearance in the UK will likely be seen as helpful for Facebook in seeking to obtain clearance for the proposed acquisition in the US.  It is less common for vertical mergers – mergers between non-competitors – to ultimately be blocked by competition authorities.