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/
