Sunday, September 2, 2018

Todd Wallace, European Advocate General opines that the reversal of the EU merger approval of the music units of Sony Corporation and Bertelsmann AG should be upheld; ECJ will likely adopt the opinion


European Advocate General opines that the reversal of the EU merger approval of the music units of Sony Corporation and Bertelsmann AG should be upheld; ECJ will likely adopt the opinion

The following opinion of the Advocate General of the European Court of Justice (ECJ) analyzes in detail the ECJ’s case law in the area of competition and merger control. In particular, it reviews the extent of the investigation and reasoning that is required of the EU Commission when it authorizes a concentration between companies.

The Advocate General of the ECJ, Juliane Kokott, has issued her opinion in the case of Bertelsmann and Sony Corporation of America v. Impala. In the fall of 2003, Bertelsmann and Sony agreed to integrate their global businesses for recorded music, on‑line music and music publishing, creating the company Sony BMG. The EU Commission approved this proposed concentration through a decision on July 19, 2004 (see 2005 Official Journal (L 62) 30).

The Independent Music Publishers and Labels Association (Impala) of Belgium petitioned the European Court of First Instance to invalidate the Commission decision. See Case T‑464/04, Impala v. Commission [2006] ECR II‑2289. The Court did in fact do so. The Commission thereupon conducted a new merger control procedure, meanwhile Bertelsmann and Sony appealed to the ECJ. The gist of their argument is that the Court of First Instance applied excessive legal requirements. On October 3, 2007, the Commission again declared the concentration compatible with the common market.

The legal basis for this kind of review is the so‑called Merger Regulation, Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings, as amended. Pursuant to Article 2 of the Merger Regulation, the Commission must approve proposed mergers as to their compatibility with the common market. In general, a concentration that does not create or strengthen a company’s dominant position which would impede effective competition is approvable.

Here, the Advocate General notes that the issue of a dominant position applies not to the two individual companies, but the collective market dominance of both companies combined.
For this determination, the EU applies a two‑part merger control procedure. First, the Commission conducts a preliminary examination of the proposed examination. If this preliminary examination raises serious doubts about the compatibility with the common market, the Commission continues to the second part, which is a formal procedure pursuant to Article 6 of the Regulation. The Commission did in fact conduct a formal review. Eventually, with the above‑mentioned Decision of July 19, 2004, the Commission declared the proposed concentration compatible with the common market. Impala successfully challenged that decision before the Court of First Instance.

The ECJ held a hearing on this matter on November 6, 2007. In her opinion, the Advocate General addresses the appellants’ arguments, among them:

(1) Standard of proof for clearance of concentrations. The appellants claim that the Court of First Instance erroneously applied an excessively high standard of proof for Commission merger clearance decisions. There should be a general presumption that concentrations are compatible with the common market.

The Advocate General disagrees. The Merger Regulation is not based on a general presumption in favor of compatibility of concentrations with the common market. In each case the Commission must make an express finding as to whether the concentration in question is compatible or incompatible with the common market. The participating companies are expressly prohibited from putting their concentration into effect before the decision is made. See Article 7(1) and (5) of the Merger Regulation. (Paragraph 219).

There are only two exceptional situations when a concentration may be presumed to be compatible with the common market:
(1) First, when the Commission fails to timely decide the case and, second, when the evidence is so unclear that it is not possible to make a reliable prognosis as to the effect on the common market. (Paragraphs 222 and 223).
(2) The Court’s power to analyze the facts and evidence. The appellants argue that the Court of First Instance exceeded the scope of judicial review by failing to respect the Commission’s discretion in these matters.

Also, here the Advocate General disagrees. The Commission’s margin of discretion does not preclude Community Courts from analyzing the facts and the evidence. Quite the opposite, courts must conduct their own assessment of the matter, otherwise they cannot ascertain whether the Commission has acted within the limits of its discretion. (Paragraphs 239 and 240).

The Advocate General now proposes that the ECJ decide to
(1) dismiss the appeal; and
(2) Bertelsmann AG and Sony Corporation of America each bear their own costs.

Observers expect the ECJ to follow the Advocate General’s opinion and issue a final decision in early 2008.

Citation: Advocate General’s Opinion ‑ 13 December 2007, Bertelsmann and Sony Corporation of America v. Impala, Case C‑413/06 P, Document 62006C0413, available at the website “eur‑lex.europa.eu.”


*** K. Todd Wallace is an attorney at Wallace Meyaski in New Orleans. He has nearly 20 years of experience in the legal and business professions with established excellence in trial advocacy, negotiation, strategic and initiative planning, government relations, mergers and acquisitions, and team building. See http://www.walmey.com/our-attorneys/k-todd-wallace/