On July 13, 2023, the Court of Justice delivered its much anticipated judgment in Commission v. CK Telecoms,[1] setting aside the General Court’s landmark judgment that annulled the Commission’s 2016 prohibition of the proposed 4-to-3 merger between Telefónica Europe Plc (“O2”) and Hutchinson 3G UK Investments Limited (“Three”), the second and fourth largest mobile network operators in the UK, that would have created a new market leader with a combined share above 40%.[2]
In its judgment, the Court of Justice, following Advocate General Kokott’s opinion,[3] restored the “balance of probabilities” standard of proof and previous interpretation of the “significant impact to effective competition” (“SIEC”) test under the 2004 EU Merger Regulation.[4] It upheld the Commission’s appeal on all main grounds, annulled the General Court’s judgment, and referred the case back to the General Court for reconsideration.
Background
In 2016, the Commission prohibited Three’s proposed acquisition of O2,[5] finding that the combined entity would have a “strong position” (although falling short of creating or strengthening a dominant position) on the oligopolistic UK mobile telecommunications market.[6] The Commission’s theory of harm focused on non-coordinated (unilateral) effects, concluding that the parties “compete[d] closely with each other”[7] and the merger would eliminate Three as an “important competitive force”.[8]
In May 2020, the General Court annulled the Commission’s decision in its entirety, essentially on the ground that the Commission did not provide “sufficient evidence to demonstrate with a strong probability” that the transaction would lead to a SIEC based on the loss of competition between the merging companies.[9] The Commission appealed the General Court’s judgment to the Court of Justice. In October 2022, Advocate General Kokott issued an opinion advising the Court of Justice to uphold the Commission’s appeal on all main grounds.[10]
Judgment
The Court of Justice followed Advocate General Kokott’s opinion and provided guidance on key legal concepts, including:
- Standard of proof. The Court of Justice reaffirmed the balance of probabilities standard of proof established in Bertelsmann and Sony,[11] which requires the Commission to show it is “more likely than not” that the concentration would (or would not) lead to a SIEC.[12] Accordingly, the General Court erred by requiring the Commission to demonstrate a SIEC with a “strong probability” that a concentration would give rise to harm.[13] Importantly, the Court of Justice also clarified that the standard of proof does not change whether the transaction raises conglomerate, vertical, and/or horizontal concerns.[14]
- SIEC in oligopolistic markets. The General Court erred by holding that the Commission can only establish a SIEC by satisfying two cumulative conditions: (i) the elimination of important competitive constraints that the merging parties had exerted upon each other; and (ii) the reduction of competitive pressure on the remaining competitors.[15] This restrictive interpretation is “incompatible” with the EU Merger Regulation’s objective to effectively control concentrations that are liable to significantly impede effective competition.[16]
- Important competitive force. An undertaking can be an “important competitive force” if it has “more of an influence on the competitive process than its market share or similar measures would suggest”.[17] The General Court, therefore, erred in finding that an undertaking can only be so classified if it stands out from its rivals and competes “particularly aggressively” in terms of price.[18]
- Closeness of competition. The General Court erred in requiring the Commission to show that the merging parties are not only close competitors, but rather “particularly close” competitors.[19] In assessing closeness of competition, a very high level of substitution between the parties’ products is “not necessarily required”.[20] The Court of Justice, however, clarified that not every firm within an oligopolistic market qualified as a close competitor; each industry has its own dynamics and it is possible that the products offered by two undertakings could have a relatively low degree of substitutability.[21]
- Efficiencies. Contrary to the General Court’s finding, the Court of Justice held that there is no presumption that all concentrations give rise to “standard” efficiencies that the Commission must take into account in its quantitative analysis and it is for the parties to establish any efficiencies.[22]
Discussion
The judgment was the first opportunity for the Court of Justice to clarify when transactions that do not create or strengthen a dominant position may give rise to a SIEC, precisely the sort of “gap” cases the EU Merger Regulation’s 2004 reform was intended to cover. EU Commissioner for Competition Margrethe Vestager welcomed the Court of Justice’s judgment, stating that it “validates [the Commission’s] approach to merger assessment” and “confirmed [the Commission’s] interpretation of several crucial elements on [its] approach to [the “gap”] cases”.[23]
The reversion to the previously settled state of the law by the Court of Justice was, to some extent, anticipated. Pending the Court of Justice’s judgment, the General Court had another opportunity in June 2022 to consider similar legal issues through Thyssenkrupp’s challenge of the Commission’s 2019 prohibition decision in Tata Steel/Thyssenkrupp.[24] In upholding the Commission’s prohibition decision in its entirety, the General Court made no reference to the heightened standard of proof it had set out in Three/O2.[25]
As is apparent from the EU Commissioner for Competition’s statement, the Court of Justice’s judgment encourages the Commission to continue pursuing rigorous merger control assessment of transactions that give rise to a SIEC. In this connection, the Commission is currently conducting an in-depth investigation into the proposed joint venture between Orange and MasMovil, the second and fourth largest fixed and mobile operators in Spain, and it has already sent a Statement of Objections to the parties.[26] The Commission’s approach and the outcome of this case will be closely watched for signs of what companies should expect going forward.
[1] Commission v. CK Telecoms UK Investments Ltd (Case C-376/20 P), EU:C:2023:561.
[2] Hutchinson 3G UK / Telefonica UK (Case COMP/M.7612), Commission decision of May 11, 2016, paras. 335, 343 and 1176. See our July-September 2016 EU Competition Quarterly Report, pp. 15–16.
[3] Commission v. CK Telecoms UK Investments Ltd (Case C-376/20 P), opinion of Advocate General Kokott, EU:C:2022:817.
[4] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the “EU Merger Regulation”), OJ 2004 L 24/1
[5] Hutchinson 3G UK / Telefonica UK (Case COMP/M.7612), Commission decision of May 11, 2016.
[6] Ibid., para. 406.
[7] Ibid., para. 438.
[8] Ibid., para. 2126.
[9] CK Telecoms UK Investments Ltd v. Commission (Case T-399-16), EU:T:2020:217. See our July 2020 Alert Memorandum, “The General Court Raises The EC’s Bar For Mergers In Concentrated Markets”.
[10] Commission v. CK Telecoms UK Investments Ltd (Case C-376/20 P), opinion of Advocate General Kokott, EU:C:2022:817. See our October 2022 EU Competition Law Newsletter and our October 2022 Cleary Antitrust Watch blog post.
[11] Bertelsmann and Sony Corporation of America v. Impala (Case C-413/06 P), EU:C:2008:392, para. 52.
[12] Commission v. CK Telecoms UK Investments Ltd (Case C-376/20 P), EU:C:2023:561, paras. 70, 73, and 87.
[13] Ibid, paras. 86–89.
[14] Ibid, para. 79.
[15] Ibid, paras. 110-111.
[16] Ibid, paras. 112-116.
[17] Ibid, para. 167.
[18] Ibid, paras. 162, 166 and 168.
[19] Ibid, para. 191.
[20] Ibid, paras. 188-189.
[21] Ibid, para. 173.
[22] Ibid., paras. 238–241.
[23] See Commission Press Release STATEMENT/23/3852, “Statement by Executive Vice-President Margrethe Vestager on today’s Court of Justice judgment on the Hutchison/O2 UK merger prohibition decision,” July 13, 2023.
[24] Tata Steel/Thyssenkrupp/JV, Case COMP/M.8713, Commission decision of June 11, 2019.
[25] Thyssenkrupp AG v. Commission (Case T-584/19), EU:T:2022:386.
[26] Commission Press Release IP/23/3421, “Mergers: Commission sends Orange and MasMovil Statement of Objections over their proposed joint venture in Spain,” June 27, 2023.