Ex post review of mergers under abuse of market power rules? – A balancing act between the protection of competition and legal certainty
In 1973 – long before the introduction of the EC Merger Regulation (“ECMR”) on January 20, 2004 – the European Court of Justice (“ECJ”) ruled in the Continental Can case on whether the prohibition of abuse of a dominant position was applicable to a merger. In this case, the Court took the view that reviewing potentially abusive conduct ex post following a merger that had not already been examined ex ante was necessary to ensure undistorted competition in the common market. This especially holds true at a time when there was no EU merger control legislation. Said case law, which has remained disregarded ever since, is now coming back into the spotlight of discussion through Advocate General (“AG”) Juliane Kokott’s opinion in the Towercast case.
A. Case Towercast (C-449/21)
In addition to Television de France (“TDF”), only two other companies, Itas and Towercast, were active in the French market for television broadcasting. TDF, which had by far the largest market shares, acquired control of Itas in October 2016. This merger did neither meetthe national French nor the European turnoverthresholds of the ECMR, which is why neither the French competition authority nor the European Commission (“EC”) took up the case.
Towercast – as TDF’s only remaining competitor – considered the takeover to constitute an abuse of a dominant position within the meaning of Art 102 TFEU and complained to the French competition authority. The competition authority, even though TDF held a dominant position, rejected Towercast’s request arguing that the ECMR precluded ex post merger control for potential abuse of market power pursuant to Art 102 TFEU. For the provision to apply, there would have to be (abusive) conduct on the part of TDF that was separate from the merger itself.
In the appeal proceedings, the French Court of Appeal made a request to the ECJ for a preliminary ruling on the relationship between the rules of ex ante merger control and ex post review of potential market abuse under Art 102 TFEU. Accordingly, the question was whether a competition authority, given specific circumstances, could retrospectively assess a merger by the standard of Art 102 TFEU (as a standard of primary EU law). In this very case, the merger was pursued by a dominant undertaking and did not reach the ECMR’s nor the French turnover thresholds so that no ex ante merger control had taken place.
In essence, the question referred for a preliminary ruling was aimed at the interpretation of Art 21 ECMR, which governs the ECMR’s application in conjunction with other (secondary) EU legal acts. For this purpose, the ECJ had to determine whether Art 21 (1) ECMR has the effect that concentrations are to be assessed exclusively on the basis of merger control provisions excluding the parallel or subsequent application of Art 102 TFEU (“blocking effect”).
B. Previous legal practice
Merger control is based on a system of ex ante review. Accordingly, companies must file notifiable mergers with one or more competition authorities before their implementation. Whether a concentration is notifiable depends on the turnover thresholds of the ECMR or respective national laws. An ex ante control enables the competition authorities to examine possible restrictive effects on competition and, if such effects exist, to prohibit the merger. If the competition authorities see no threat to competition, the merger is approved, which leads to (relative) legal certainty for the companies involved.
Case law and doctrine strictly distinguish between ex ante merger control (focusing on market structure) and an ex post review of potentially abusive conduct pursuant to (Art 101 and) Art 102 TFEU. As outlined above, the ECMR precludes ex post merger control for potential abuse of market power. This view is based, inter alia, on (i) the wording of Art 21 (1) ECMR, (ii) the independent character of the ECMR itself, which is evident from the recitals, and (iii) the conflict-of-law principle lex specialis degorat legi generali, according to which the more specific provision takes precedence over the more general provision.
C. AG Kokott’s point of view
1. Hierarchy of norms and direct applicability
According to AG Kokott, based on the hierarchy of norms, the ECMR (as secondary EU law) cannot exclude Art 102 TFEU (as primary EU law with direct effect). Furthermore, the conflict-of-law principle lex superior derogat legi inferiori must be observed, according to which secondary EU law cannot restrict the scope of or the direct effect of primary EU law. Art 21 (1) ECMR must therefore be interpreted in accordance with Art 102 TFEU. Any other interpretation would contradict the Unions law’s regime of protecting undistorted competition. Consequently, no blocking effect of the ECMR regarding Art 102 TFEU can be derived, says AG Kokott.
Art 21 (1) ECMR may exclude the application of Regulation 1/2003, which serves, inter alia, the implementation of Art 102 TFEU, but not the prohibition of market abuse according to Art 102 TFEU or its enforcement, since it is worded in a sufficiently clear and precise manner, so that no secondary legislation is required.
Within the boundaries of Union law, it would simply not have been possible for the legislator to enact a secondary law rule that would nullify the application of the higher-ranking and directly effective Art 102 TFEU.
2. (Ir)relevance of the thresholds
The ECMR’s turnover thresholds distribute competence between the EC and the national competition authorities and determine which law is applicable. The idea behind this is a quasi-rebuttable presumption that mergers exceeding these thresholds would be particularly significant and could have harmful effects on the market structure, which is why ex ante merger control should take place. According to AG Kokott, however, the thresholds as such do not indicate whether, in certain cases, an ex post review of dominant undertakings’ conduct pursuant to Art 102 TFEU in merger control is possible.
3. No double check of a merger
In AG Kokott’s view, a concentration previously approved under the ECMR should still not be reviewable for abuse of market power pursuant to Art 102 TFEU. The principle that more specific norms take precedence over more general ones (lex specialis degorat legi generali) applies here, AG Kokott continued her reasoning. In this respect, competition authorities can only take up a merger in view of potential market abuse if no examination under merger control rules has taken place beforehand due to the respective turnovers not exceeding the thresholds. This means that there is no second (or double) control of notified and approved mergers.
Contrary to the French competition authority’s opinion, AG Kokott also stated that the ECMR cannot be irrefutably regarded as a lex specialis that would take precedence over a more general provision. Art 21 (1) ECMR merely states that the assessment of restrictive effects of a merger on competition is primarily subject to merger control rules. However, this would not exclude the possibility of an ex-post review of potentially abusive conduct. On the contrary, applying both regimes in parallel would even be necessary as both intend to prevent restrictions of competition in the common market, AG Kokott argues. This would not be ensured if the ECMR were to completely exclude the review of mergers for potential abuse of market power.
4. Relationship between Art 102 TFEU and Art 22 ECMR
AG Kokott also points to the existence of problematic mergers under competition law that could not be examined because they fell below the thresholds. In particular, this would concern cases in which dominant undertakings acquire up-and-coming competitors. The result would be greater market concentration and increased consolidation of the dominant undertaking’s market position. However, this loophole has already been addressed. In March 2021, the EC announced its intention to use Art 22 ECMR to cover and control so-called “killer acquisitions” under competition law. Typically, these are acquisitions of innovative, emerging but not yet high-turnover start-ups (mostly in the digital or medical sectors) in their early stages of development by established and powerful undertakings in the same, adjacent, upstream or downstream market. The purpose of such acquisitions is to eliminate these start-ups as competitors and to consolidate one's own market position.
At the request of one or more Member States the EC has the possibility (pursuant to Art 22 ECMR) to examine any concentration which is not of Community-wide significance (i.e. does not exceed the turnover thresholds), but affects trade between and threatens to distort competition within the territory of the Member State concerned. The EC may then require Member States to submit a request for referral under Art 22 ECMR.
In the absence of such a request from France or another Member State, there was no referral to the EC in the present case. Nevertheless, AG Kokott commented on the significance of Art 22 ECMR. In short, said provision was of no relevance for the interpretation of the relationship between Art 21 (1) ECMR and Art 102 TFEU and, as secondary law, did not justify the exclusion of Art 102 TFEU.
Art 22 ECMR is also relevant in the context of the Digital Markets Act (“DMA”). According to Art 14 DMA, gatekeepers are obliged to notify acquisitions to the EC in advance. The purpose of this provision is to regulate killer acquisitions. This obligation to notify applies irrespective ofwhether the merger must be notified to the competent national authorities or to the EC.
Art 14 (5) DMA directly refers to the following procedure, which is also described in the EC’s guidance on the application of the referral mechanism set out in Art 22 ECMR. Accordingly, the EC informs the national competition authorities of the planned concentration notified (Art 14 (4) DMA) to ultimately receive a request for referral if necessary. For example, this was done in the Illumina/Grail case (T-227/21), where the relevant thresholds were not met. Even transactions that have already been completed can, under certain circumstances, be referred to the EC by a Member State and consequently be taken up by the former.
D. Summary
In the Continental Can case, it was held, mutatis mutandis, that no distortion of competition through abusive conduct prohibited by Art 82 EC Treaty (now Art 102 TFEU) must be permitted, especially if the concentration in question involves dominant undertakings. Accordingly, a potential market abuse may also occur if a dominant undertaking strengthens its position in such a way that the degree of market dominance achieved significantly distorts competition or the only remaining undertakings on the relevant market are dependent on the dominant undertaking.
However, these principles must be specified in accordance with the current legal situation, especially against the background of the ECMR. On the one hand, legal certainty following the implementation of a merger is essential for undertakings, AG Kokott emphasizes. However, if the merger is not subject to notification, it cannot be ruled out that it will not be taken up by the authorities in the future. Consequently, in AG Kokott’s view, a merger that has not been subject to a preliminary examination under merger control rules can subsequently be reviewed for potential abuse of market power as provided for in EU primary law (Art 102 TFEU).
If an ex post review concludes that an abuse of a dominant position has occurred, there is usually no risk that the concentration will subsequently be dissolved. Instead, only a fine will be imposed, AG Kokott outlines in her opinion. This follows from the priority of behavioral remedies over structural remedies and from the principle of proportionality.
In case the ECJ adopts AG Kokott’s opinion, undertakings must also reckon with possible merger reviews for potential abuse of a dominant position if there was no obligation to notify the concentration. This would add a second driver of legal uncertainty in addition to the existing one resulting from the application of Art 22 ECMR. The contractual allocation of these risks is likely to be to the detriment of the weaker party.
It should be noted, however, that the opinion of AG Kokott discussed in this article is not binding on the ECJ. The latter has announced the publication of the judgment for March 16, 2023. It therefore remains to be seen what the Court will decide on in this matter.
Please note: This blog merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the blog.