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May 19 2023

Commercial News Round-up: Competition, Carbon & ChatGPT

Industry Insights

James Lloyd

James Lloyd

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Welcome to the latest edition of the Flex Legal Commercial News Round-up. Being commercially aware is a vital aspect of succeeding in a legal career, and we at Flex are keen to ensure that we contribute to keeping you informed on the latest updates and insights from the commercial world. Read on to find out the latest key stories of interest that we have been keeping an eye on, as well as additional Flex insights which can help to progress your legal career.

Competition Law and Tech Companies: Microsoft purchase of Activision Blizzard blocked by CMA - James Lloyd

The UK’s Competition and Markets Authority (CMA) have blocked Microsoft’s $68.7 billion acquisition of Activision Blizzard, determining that the deal was anti-competitive and would result in Microsoft having an unfair advantage over the gaming market. Activision hold titles such as Call of Duty, Candy Crush and World of Warcraft, and the CMA conclude that with Microsoft already accounting for around 60-70% of global cloud gaming, the deal would ultimately stifle innovation and competition in cloud gaming, offer consumers less alternatives in a fast growing market, and the anti-competitive nature of the deal outweighed the potential benefits to consumers. Microsoft did put forward proposals to combat the CMA’s concerns (including signing agreements with competitors such as Nvidia), however the CMA concluded that these proposals did not effectively resolve concerns around competition related to cloud gaming services, and that these proposals would have replaced competition with ineffective regulation.

There was shock around the decision, with many of the UK games industry expecting that the deal would be approved. Microsoft and Activision have hit out at the decision and are expected to appeal. They have argued that this decision contradicts the UK’s ambition to become an attractive country for technology businesses, and that the UK consumers, who face increasingly difficult economic conditions, have lost out due to the decision. They conclude that it discourages technology innovation and investment in the United Kingdom, and that the UK is ‘closed for business’. It is a big setback for Microsoft especially, who have big ambitions to strengthen their gaming offering. Competitors such as Sony will be pleased, with them already opposing the deal due to the potential for restricted access to big gaming titles which could greatly hinder their ability to compete.

This deal is also very significant for law firms. The blocking of this deal informs law firms about how regulators will respond to future deals, especially related to big acquisitions such as this one. If regulators continue to be proactive in preventing acquisitions, it will lead to increased legal work as companies will need more advice on how to overcome regulatory and competition concerns. Due to the finances involved and how significant a blocked acquisition can be, law firms will need to ensure they undertake extra due diligence (and therefore take more time) for future corporate transactions, especially related to competition law and a company’s market share to ensure deals are not at risk of being blocked. If deals like these get blocked by increasingly proactive regulators and there are further appeals, it could also lead to more litigation work, especially from the largest companies who can afford to take on further legal costs. With other acquisitions blocked (e.g. the acquisition of Giphy by Meta being blocked by CMA earlier this year) and greater regulation in the technology sector (e.g. the EU’s new Digital Services Act), there will be increasing work for law firms who can advise on a host of competition, regulatory and data protection issues. There is therefore plenty of lucrative work available for the law firms with the greatest expertise and reach across these sectors and practice areas.

👉 BBC News: Microsoft and Activision Blizzard hit out as UK regulator blocks takeover

👉 GOV.UK: Microsoft/Activision deal prevented to protect innovation and choice in cloud gaming

ESG and Disclosure - Amandeep Singh

A commercial issue that is worth noting is the lack of companies globally failing to disclose their environmental impact as part of the Carbon Disclosure Project. The Carbon Disclosure project is a non-profit charity that helps companies worldwide assess their environmental risk and manages a scoring framework around environmental impact. The Financial Times recently reported that only 12 companies worldwide scored an ‘AAA’ rating for environmental disclosures as part of the Carbon Disclosure Project, with 30,000 companies scoring ‘F’ as a result of non-disclosure. This is particularly significant for the lenders and financial institutions that law firms act for as the Financial Times also reported that approximately 700 financial institutions rely on Carbon Disclosure Project scores to manage investments and risk. This comes amidst the Norwegian Oil Fund announcing a stricter approach towards companies failing to engage meaningfully with ESG. With the Norwegian Oil Fund owning on average 1.5% of every listed company, this news is particularly significant for law firms as it represents a shift in the way funds and private equity invest and manage their portfolios. Specifically, what this means is that when it comes to acquisition activity, ESG will play a bigger part of the due diligence stage and could see transactions slow down if companies continue to lack ESG transparency.

👉 Financial Times: Fewer companies gain top score for environmental disclosures in 2022, report shows

👉 Financial Times: Norwegian oil fund to vote against companies without net zero targets

AI and the Legal Sector - Lizzie Grayson

AI is becoming increasingly prevalent, demonstrated in the recent release of applications such as ChatGPT and MyAI on Snapchat. Though many people who have accessed these applications may have done so merely out of curiosity, the rapid developments in the technological sphere suggest that it may soon play a more impactful part in our lives. In a nutshell, artificial intelligence is the replication of human thinking, designed to allow machines to complete tasks and make decisions independently. AI works by analysing data sets to identify patterns to replicate the human decision making process. As more data is studied by the AI, it ‘learns’.

There are undoubtedly concerns regarding the use of AI. Privacy appears to be the dominant concern. The AI must be given access to data to work, and the most effective AIs have access to the most data. It is unsurprising that there are therefore concerns about the impact of the improper use of a large AI system.

As AI integrates further into our daily lives (Universal Credit assessments, loan and overdraft applications, and social media to name but a few), there are also growing concerns of algorithmic discrimination. To replicate human thinking and make decisions, the AI must assess patterns in the data it has access to. Where human bias has been identified as a pattern, the AI would continue to replicate the bias when forming its own decisions. This can be avoided by firstly; ensuring representative collection and processing of data, and transparency amongst diverse samples, and secondly; implementing ‘learning’ facilities that will allow its decision making process to evolve alongside a forward-thinking society.

But how can artificial intelligence change the legal sector?

On the drastic end of the scale, we could discuss the potential use of AI in trials. An AI that could accurately review legislation, precedent and past outcomes alongside facts of a present matter could be used to identify patterns which would allow it to predict the outcome of a dispute with impressive accuracy. This would lead to increased resolution outside of the courtroom saving time and money, and ensuring that only the most contentious of issues reach the courtroom, whilst still leaving flexibility, empathy, and discretion of the human judge at end stages.

At the smaller, less intimidating, and more imminent end of the scale, AI would have huge benefits to the legal sector where it is used to conduct due diligence, legal research, risk assessments, and document/contract review. These tasks can be tedious and time consuming, and rely on heavy yet basic input from the human user, leaving ample opportunity for error and taking time away from other work. Implementation of AI for tasks such as these would have huge cost and resource benefits, not to mention the potential elimination of human error and reduction in time spent. Using AI in tasks such as these would free up colleagues to work on more complex and financially rewarding tasks.

That’s all for this round-up! Remember to have a broad array of sources for your commercial news. A little bit a day keeps you up to date and ready to smash your commercial awareness.

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