THE EUROPEAN COMMISSION SUFFERED A MAJOR setback in July 2006 when, for the first time ever, the Court of First Instance (CFI) annulled one of the Commission's merger clearance decisions. In July 2008 the Commission was redeemed when the European Court of Justice (ECJ) overruled the CFI and issued a key decision in the area of European merger control.
BACKGROUND
In July 2004 the Commission unconditionally cleared the creation of a joint venture (Sony BMG) between Sony Corporation and Bertelsmann AG, following what was later described by the ECJ as a 'fundamental U-turn' over the question of whether the merger might strengthen a collective dominant position. While in its statement of objections (SO) the Commission had provisionally concluded that the joint venture would strengthen a collective dominant position between Sony BMG, Universal, Warner and EMI, in both the recorded music market and in the wholesale market for licences for online music, the parties were ultimately able to convince the Commission that the market was not transparent enough to allow tacit collusion on price.
However, Impala, a trade association representing a number of independent music companies, lodged an appeal against the decision and in July 2006 the CFI annulled the Commission's clearance, concluding that the Commission had not applied a sufficiently high standard of proof to the evidence submitted by the parties in response to the SO (Impala v Commission [2006]).
The joint venture (which completed in 2004) was then renotified to the Commission and was cleared unconditionally in October 2007. This second clearance decision was also appealed by Impala to the CFI.
ECJ JUDGMENT
In July 2008, nearly four years after the Commission's original clearance decision, the ECJ overturned the 2006 ruling by the CFI (Bertelsmann & Sony Corporation of America v Impala [2008]). The ECJ found that the CFI had placed too much reliance on the contents of the SO when reaching its decision, taking insufficient account of the fact that the contents of the SO could be reassessed in light of material subsequently submitted by the parties. The ECJ thus concluded that, despite the fact that throughout the investigation the case team had considered that the market was sufficiently transparent to allow tacit collusion on price, the Commission was entitled to reach the opposite conclusion in its final decision.
Furthermore, the ECJ found that the Commission was not obliged to offer any explanation for the difference between the findings set out in the SO and the final decision, and that, given the strict time constraints inherent in a merger investigation, the Commission should not be required to send out detailed information requests to market participants after the publication of the SO. However, the ECJ dismissed Sony BMG's claim that the Commission is obliged to satisfy a higher standard of proof when it is prohibiting a merger than when it is approving one, confirming that there is no general presumption that a merger will not harm competition. However, the ECJ did acknowledge that the question of evidence is a particularly important one when prohibiting a merger on the basis of complex economic arguments such as those employed when analysing the issue of collective dominance.
COMMENT
This judgment is likely to be welcomed by practitioners since it confirms that new evidence introduced at the end of an investigation can convince the Commission of the merits of a merger, even where the Commission has taken the opposite view throughout a case. The ruling is also likely to mean that merging parties are now less concerned about the implications of adverse findings being set out in the SO. Finally, it provides welcome clarification of the issue of the standard of proof to be applied in merger decisions. Paradoxically, the ECJ's decision regarding the approval of the formation of the Sony BMG joint venture comes just on the heels of Sony's announcement that it intended to end it by buying Bertelsmann out. Sony filed its application for clearance of that transaction with the Commission in August 2008 and the first-phase clearance deadline was scheduled for mid-September 2008.
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