Week Ahead (27 May)

Monday, 27 May - Deadline for Microsoft to provide additional data on the risks posed by its AI features under the DSA 

On 17 May, the Commission issued a legally binding request for information (RFI) urging Microsoft to provide additional internal documents and data on the risks posed by its AI features by 27 May, following an earlier request in March that did not yield sufficient information. 

More specifically, the Commission suspects that Bing's AI image generator and chatbot may not adequately manage risks associated with disinformation and deepfakes. These risks include ‘’AI hallucinations’’, where the AI creates false information, the spread of misleading photos, and automated services that could manipulate public opinion, especially during elections. 

Sending an RFI is the preliminary step in the EU's process before potentially launching an official investigation under the DSA. Notably in March, Microsoft’s Linkedin also received an RFI on whether its targeted advertising practices are compliant. Non-compliance with the DSA can result in fines of up to 6% of global revenue, posing a significant financial risk for Microsoft, especially given Bing’s classification as a very large search engine (VLOE) with over 45 million EU users. Responding to the latest RFI, Microsoft’s spokesperson stated the company’s commitment to responding to the questions and sharing more about its approach to digital safety and compliance with the DSA.  

The Commission is actively investigating multiple tech companies for potential violations of the DSA related to election disinformation and AI-generated content. In addition to Microsoft's case concerning the Bing’s AI features, the Commission has also launched investigations into Meta’s Facebook and Instagram over their handling of political advertising and disinformation in the lead-up to the June 2024 European Parliament elections. 

W/C Monday, 27 May – European Commission likely to announce decision on Kuwait Petroleum’s acquisition of a 50% stake in EcoFox 

This week, the European Commission is likely to announce its decision on whether to allow Kuwait Petroleum International’s acquisition of a 50% stake in the Italian biodiesel producer EcoFox. 

The state-owned company, Kuwait’s major national oil company, announced the deal in March, although its financial details were not disclosed. EcoFox, a company controlled by Eco Petroli, has a production capacity of 200,000 tons of advanced biodiesel annually. The deal aims to bolster KPI's biofuel capabilities and contribute to reducing carbon emissions. According to its announcement, the investment aligns with KPI's 2050 energy transition goals, emphasising sustainability and environmental stewardship. The partnership, subject to regulatory approval, is expected to enhance both companies' positions in the renewable energy sector and support their long-term growth objectives 

The parties filed a notice of the proposed deal to the European Commission on 6 May. Although the Commission’s deadline for Phase 1 of the deal is on 6 June, a decision is likely later this week. 

Thursday, 30 May – EU Court of Justice to rule on challenges by Airbnb, Amazon, Google, Vacation Rentals, and Expedia to Italian law on information sharing  

In Italy, providers of online intermediation services and search engines, such as Airbnb, Google, Amazon and Vacation Rentals must be entered in a register, periodically submit various information to an administrative authority and pay a financial contribution. Penalties are imposed in case of a failure to meet those obligations.  

With the exception of Expedia, which is established in the United States and simply objects to the obligation to supply information, those online service providers, established in the European Union, challenged those obligations before the Italian courts.  

According to the service providers, those obligations are contrary to the EU Regulation promoting fairness and transparency for business users of online intermediation services while Italy argued that the law in question implemented the requirements of this regulation.  In particular, the companies argue that the law infringes the principle laid down in the Directive on electronic commerce, according to which information society services are, in principle, subject to the law of the Member State in which the service provider is established (in this case Ireland or Luxembourg). In that context, the Italian court decided to refer questions to the Court of Justice for a preliminary ruling.   

In January, the companies’ legal challenge received a boost when the Court of Justice Advocate General Maciej Szpunar issued his legal opinion which found that the EU directive on electronic communications precludes the imposition of such general and abstract obligations on an online service provider established in another Member State.  

As regards the Regulation promoting fairness and transparency for business users of online intermediation services, which Italy argued was the legal basis for these requirements, Spuznar’s view was that the obligations set out in the Italian law do not constitute implementing measures for that regulation. It therefore does not justify those obligations.   

According to Spuznar, the objective of that regulation is to contribute to the proper functioning of the internal market by putting in place a fair, predictable, sustainable and trusted environment for online commercial transactions within the internal market. In that context, a Member State may only collect information that is relevant to its obligations under that regulation and to the objectives thereof.   

Should the Court of Justice ruling follow the recommendation of the Advocate General, as is usually but not always the case, it is for the Italian court to dispose of the case in accordance with the Court’s decision, which is similarly binding on other national courts or tribunals before which a similar issue is raised.  The Court of Justice does not decide the dispute itself.   

Thursday, 30 May – Deadline for European Commission phase 1 decision regarding KKR’s €22.5 billion bid for Telecom Italia’s (TIM) landline network (Netco) 

The European Commission’s competition directorate (DG Comp) has until 30 May to decide whether to approve KKR’s acquisition of Telecom Italia’s (TIM) landline network (Netco) or to open an in-depth investigation into the transaction.  Earlier this month, DG Comp met with TIM’s competitors to discuss how the sale of its Netco to a consortium led by the private equity group would impact their respective businesses.  One outcome of these meetings is that DG Comp indicated to KKR and TIM that maintaining low wholesale prices for the Italian phone carrier’s rivals is crucial for approving the acquisition. 

Last week, KKR itself met with DG Comp and reportedly gave assurances regarding maintaining existing contracts established after the creation of FiberCop (TIM's last-mile grid unit), and allowing rivals direct access to the fiber infrastructure.  Because these assurances are not technically remedies, the 30 May deadline remains in place – had remedies been filed, the current review would likely have been extended by 10 working days.   

Since DG Comp announced changes to its review process of mergers in April 2023, seeking to simplify and expand the category of unproblematic mergers that can go through a “simplified” procedure, the number of deals being considered by DG Comp under this procedure has increased significantly. KKR’s acquisition of Netco does not qualify for this procedure however and will instead be considered under the “normal procedure”.  The fact that KKR has not submitted remedies has been interpreted as a positive signal that the deal will be approved  this week without DG Comp opening an in-depth investigation.    

If, despite the above mentioned assurances, DG Comp decides that a more thorough investigation is required, this should be completed by 90 working days from the decision deadline.  This should still enable the deal to be signed off by the 15 October deadline set by TIM.  The Italian government is likely to weigh in behind the scenes to try to ensure the deal will be approved as soon as possible.     

Thursday, 30 May – CJEU to rule on Ryanair’s legal challenge to state aid granted to Finnair 

On Thursday, the Court of Justice of the EU (CJEU), the EU’s highest court, will rule on an appeal brought by Ryanair against the European Commission’s approval of state aid.  

More specifically, the case (C-353/21) pertains to Ryanair’s challenge to a March 2020 European Commission decision approving €600 million in state aid for Finnair, Finland’s flagship airline, in response to the COVID-19 pandemic. The Irish airline argued that the aid was unjustified and asserted errors in law, claiming there was no evidence of market failure or necessity for the aid, and that the procedure violated its rights. However, the General Court (T-388/20) dismissed Ryanair's challenges, confirming that Member States could selectively grant aid to address serious economic disturbances without extending it to all affected companies. Ryanair's appeal to the CJEU seeks to overturn this decision, arguing that the aid measures were disproportionate and discriminatory, thus unfairly distorting competition within the internal market. 

In total, Ryanair has filed 16 lawsuits against the Commission for allowing state aid to airlines across Europe, including Lufthansa, Austrian Airlines, and LOT. In February, Ryanair won its second challenge against a €3.4 billion Dutch state aid scheme in support of Air France-KLM's Dutch unit, after the General Court ruled that the Commission had not taken into account all beneficiaries within the airline group, annulling the approval of the state aid. 

Friday, 31 May – Eurostat flash inflation estimate for May 

On Friday, Eurostat will release its flash inflation estimate in the eurozone for May. Inflation remained at 2.4% in April, stable compared to the previous month, while core inflation fell from 2.9% to 2.7%, in line with economists’ expectations. Nevertheless, German inflation in April exceeded forecasts due to a surge in food and energy prices. Spain also saw an increase last month, rising to 3.4%, compared with 3.3% in March. Furthermore, Q1 GDP growth exceeded expectations, as the Eurozone economy grew by 0.3%, marking the strongest growth since Q3 2022.  

This week’s release of data will come a week before the ECB’s upcoming monetary policy council meeting, scheduled for 6 June. In its April meeting, the Bank decided to keep its rates unchanged for a sixth consecutive time, at a record high of 4%, amid a worsening economic outlook. However, the ECB also gave its strongest signal that a rate cut should be expected in its next monetary policy meeting in June, stating that ‘’it would be appropriate to reduce the current level of monetary policy restriction’’. This latest uptick in inflation witnessed in two of the eurozone’s bigger economies was a reminder of the challenge of achieving sustainable inflation close to 2%, tempering investors' expectations of multiple interest rate cuts this year. 

In an interview with FT over the weekend, ECB’s Philip Lane confirmed the GC’s readiness to cut rates next week. Although a June rate cut is widely priced in, subsequent moves remain uncertain. Elements of the ECB GC remain wary of inflation due to a series of factors, including elevated wage growth, scrutiny on corporate profits, and geopolitical volatility threatening supply chains.  Beyond June, opinions diverge significantly.  Some ECB officials are advocating for a cautious approach towards committing to further reductions. Earlier in May, Isabel Schnabel, an ECB Executive Board member, called for caution regarding rate cuts beyond June, warning that the ‘’last mile of disinflation is the most difficult’’.  Meanwhile, other members, like ECB Vice President Luis de Guindos, have suggested that further cuts could be necessary depending on economic conditions in the coming months. 

Thus, Friday’s release of inflation data will be closely monitored by the ECB policymakers indicating the direction of policy beyond June.