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EU_Court_Raises_Bar_for_Commission_SOCIAL

EU Court Raises Bar for Commission to Block Certain Mergers

The EU General Court ruled that the Commission must demonstrate with a "strong probability" that the effect on competition is "significant" to block a merger that does not create a dominant company.

In a rare judgment, the EU General Court annulled the European Commission's decision to block Hutchison's attempted acquisition of Telefónica's "O2" mobile network. While the Commission may still appeal, the ruling is significant because it increases the Commission's evidentiary burden in certain merger cases.

The proposed acquisition would have reduced the number of mobile network operators ("MNOs") in the United Kingdom from four to three, and Hutchison's "Three" network would become the United Kingdom's leading mobile network operator with a share of approximately 40%. The Commission blocked the merger under its "significant impediment to effective competition" ("SIEC") test, finding that the merger would remove an important competitive force from the market, the parties were "close competitors," and prices would increase based on a quantitative analysis.

This case marks the first time that the General Court applied the SIEC test to so-called "gap cases," i.e., those mergers that the Commission alleges significantly lessen competition without creating or strengthening a dominant position in the marketplace. The European Commission presumes a company is dominant if its share is 50% or more, although a dominant position also may be found with a lower market share. The General Court stressed that, under that SIEC test, a mere decline in competitive pressure is not sufficient to prohibit a deal; otherwise, the Commission would have discretion to prohibit virtually any horizontal merger. The Court requires the Commission to demonstrate with a "strong probability" that the effect on competition is "significant."

In its review, the Court found that the Commission had failed to substantiate its claim that Three was an "important competitive force" despite its modest market share. It also found that the Commission failed to establish with sufficient certainty that prices would increase significantly.

Looking Ahead

  • The case continues the trend of increasingly close scrutiny by the Court in competition cases, including mergers.
  • This case raises the standard of proof that the Commission must satisfy to block transactions in which the merged party is not "dominant." This decision will pressure the Commission to reassess its decisional practice regarding mergers reviewed under the SIEC test and, in particular, transactions that decrease the number of competitors from four to three.
  • In recent years, EU merger reviews have become increasingly burdensome with the Commission requiring production of more and more data and documents. This decision is likely to increase that burden as the Commission must now have more evidence to support its merger challenges.
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