European Court of Justice

On 7 September 2017, the European Court of Justice issued a decision (Decision) on the interpretation of the European Union Merger Regulation (EUMR). The Decision clarifies the conditions under which the EUMR applies to the setting-up of joint venture companies.

WHAT HAPPENED:

  • 3(4) of the EUMR stipulates that the “creation” of joint ventures requires a notification only if the joint venture “performs the functions of an autonomous economic entity” (Full-Function JV).
  • Companies with management dedicated to its day-to-day operations, as well as access to sufficient resources including staff, finance and assets usually qualify as Full-Function JV. If the joint venture has only one specific function for the parent companies (e.g. supplying input products or services), and has no or only very limited own resources, it is unlikely to be considered a Full-Function JV.
  • There has been considerable uncertainty whether Art. 3(4) EUMR applies only to the creation of a new company (greenfield operation), or whether it also applies if joint control is acquired over an existing company.
  • The European Commission significantly contributed to this uncertainty by repeatedly taking inconsistent and contradictory positions. In a fairly unusually move, the ECJ’s Advocate General chastised the European Commission, calling it “extremely regrettable” that the European Commission did notcommit to a clear and uniform approach and then apply it consistently”.
  • The ECJ’s Decision comes at the request of an Austrian court. The Austrian court had to decide whether the acquisition of joint control over a small asphalt plant–which does not qualify as Full-Function JV–requires notification and clearance under the EUMR by the European Commission.
  • The ECJ has now held that the change of sole control to joint control only requires a notification under the EUMR if the newly created joint venture qualifies as a Full-Function JV.

WHAT THIS MEANS:

  • The Decision brings much-awaited clarity to a key issue of European Union merger control.
  • If two or more companies create a joint venture company, it will be subject to the EUMR only if it qualifies as s Full-Function JV. This applies both to greenfield operations, where a new company is created, and the change from sole to joint control over an existing company. Whether a notification to the European Commission is actually required, will depend on whether the jurisdictional turnover thresholds under the EUMR are met.
  • The creation of joint ventures which do not qualify as Full-Function JV does not require notification to and clearance by the European Commission. However, these joint ventures may still be subject to merger control in one or several EU Member States.
  • The European Commission required and accepted in the past the notification of transactions which involved the creation of joint ventures not qualifying as Full-Function JV. Following today’s decision by the ECJ, it appears that the European Commission did not have jurisdiction. An interesting question to be explored in the coming weeks and months is therefore whether the Decision somehow affects the legality of these transactions.

On 20 October 2016, the Italian Council of State (the “Council of State”) upheld the judgment of the Administrative Court of Lazio (“TAR”) on the cartel in the sector of international road freight forwarding to and from Italy and confirmed the ranking applied in granting the reduction of the fine. According to the Council of State, in order to access the national leniency program, a company should provide the Authority with all necessary information and elements for the uncovering of the infringement, and should take into account that all the relevant information and elements provided to other authorities, in the context of other leniency application, will not be considered by the Authority. Therefore, companies should be careful and verify that each leniency application submitted is prepared ad hoc for each jurisdiction and is not capable of raising doubts regarding its scope. Continue Reading Ad hoc Local Leniency Application Makes the Difference: The Italian Council of State Upholds the Administrative Court of Lazio Judgment on the Alleged International Road Freight Cartel

By its judgment of 28 January 2016 (C-514/14 P, Editions Odile Jacob SAS v Commission), the European Court of Justice (Court) upheld the General Court of the European Union’s (GCEU) ruling with respect to each of the grounds raised by Editions Odile Jacob (Odile Jacob) thereby dismissing Odile Jacob’s appeal.

The case concerned the sale, in 2002, of Vivendi Universal’s subsidiary Vivendi Universal Publishing (VUP) to the Lagardère Group (Lagardère).

The European Commission (Commission) authorized the concentration in 2004, subject to undertakings by Lagardère. Specifically, Lagardère undertook to divest a significant amount of VUP assets. Lagardère thus approached several undertakings potentially interested in purchasing those assets. Odile Jacob was one of the undertakings that expressed an interest in the acquisition of the divested assets. However, Lagardère accepted the purchase offer made by Wendel Investissement (Wendel) whom the Commission approved as a suitable purchaser. Odile Jacob challenged the Commission’s decision authorizing the concentration and the decision approving Wendel as a suitable purchaser. In 2010, the GCEU confirmed the decision authorizing the concentration but annulled the decision approving Wendel as a suitable purchaser on the ground that it had been adopted on the basis of a report drawn up by a trustee that was not deemed independent. This judgment was upheld by the Court in 2012.

Following the GCEU’s judgment, Lagardère made a further request to the Commission for the approval of Wendel by proposing a new trustee who was subsequently approved by the Commission, in 2011, with effect from 2004. Odile Jacob brought another action for annulment of this approval decision which was dismissed by the GCEU by judgment of 5 September 2014 (T-471/11).

In its judgment of 28 January 2016, the Court upheld the September 2014 judgment of the GCEU.

First, the Court considered that the GCEU correctly ruled that, in order to give full effect to the judgments of 2010, the Commission was only required to approve a new trustee responsible for drawing up a new report evaluating Wendel’s candidature and to assess this candidature on the basis of this new report. In this respect, the Court found that the Commission neither had to revoke the decision authorizing the concentration nor to repeat the whole procedure from the date on which Lagardère appointed the first trustee.

Second, the Court ruled that the GCEU had not erred in law by declaring that the 2011 Commission decision, which approved again Wendel as an acquirer of VUP’s assets, could be retroactive. Indeed, the Court found that the Commission could adopt retroactive decisions where this is required by the intended aim and where the principle of protection of the legitimate expectations of the parties is properly observed. Here, the Court confirmed that these conditions had been met in the case: the new retroactive approval decision was intended inter alia to fill the legal vacuum created by the annulment of the first approval decision. In that regard, the Court found that Odile Jacob failed to demonstrate that there were no grounds that could justify such retroactive effect.

Finally, the Court rejected Odile Jacob’s argument that the Commission failed to observe the condition that Wendel had to be independent of Lagardère. Indeed, the Court agreed with the GCEU that the presence of the same person in either the managerial or supervisory boards of both companies was not such as to establish a relationship of dependency between Wendel and Lagardère. In addition, the Court found that the Commission had been able to supervise the asset sale procedure on the basis of the regular progress reports that the trustee was required to submit.

by Martina Maier, Philipp Werner and David Henry

In a landmark ruling, the EU’s top court, the European Court of Justice (ECJ) in Kone and Others C-557/12 of 5 June 2014, has held that, where a cartel causes competing companies to increase their prices, the members of the cartel may be held liable for losses incurred by victims of those price increases.

Please click here to read the full article.

The European Court of Justice decided on 21 November 2013 that EU national courts must assume that a measure qualifies as State aid, if the European Commission has opened an in-depth investigation into that measure.

This judgment is relevant to all cases in which the disputed measure was already granted, or is planned to be granted, and the European Commission has opened an in-depth investigation but not yet made a final decision on whether or not the measures qualify as State aid.


The European Court of Justice (ECJ) decided on 21 November 2013 in Deutsche Lufthansa AG v Flughafen Frankfurt-Hahn GmbH (C-284/12) on the obligations placed on national courts in EU Member States that have been asked by a third party to order the recovery of State aid that was granted to a beneficiary without approval by the European Commission.

The ECJ stated that, even though the assessment carried out by the European Commission in its decision to open an in-depth investigation is preliminary in nature, the decision to open an investigation has legal effect and is therefore binding for national courts in that they must find that the measure qualifies as State aid. If the aid was granted without approval by the European Commission, the national court will have to order its recovery.

Background

EU Member States cannot implement measures that qualify as State aid within the meaning of Article 107(1) of the Treaty on the Functioning of the European Union (TFEU) until those measures have been approved by the European Commission (“the standstill obligation”, established in Article 107(3)(3) TFEU). The European Commission has exclusive competence to approve State aid.

National courts may, however, find an infringement of the standstill obligation and order the recovery of State aid that was granted without European Commission approval. Although national courts may not authorise State aid, they are permitted to decide whether or not a measure qualifies as State aid.

State aid investigations by the European Commission begin with a first phase, in which the European Commission requests information from the relevant EU Member State and gives the State the opportunity to give its views on the qualification of the relevant measures as State aid and grounds for their authorisation.

In complex cases, the European Commission generally opens an in-depth investigation. When making its decision to initiate an in-depth investigation, the European Commission has to provide an initial assessment of the measure and explain why it has come to the preliminary conclusion that the measure qualifies as State aid.

In the case at hand, the competitor of an alleged aid beneficiary approached a German court seeking recovery of alleged aid given to the beneficiary and suspension of its implementation. According to the appellant, the measure qualified as State aid, was granted without approval by the European Commission and was therefore in violation of the standstill obligation. The European Commission opened an in-depth State aid investigation into the relevant measures in 2006, but the final decision is still outstanding.

Question Referred by The National Court

The German court essentially asked the ECJ whether a national court is bound by the European Commission’s preliminary conclusion that a measure qualifies as unlawful State aid (by taking the decision to initiate an in-depth investigation), when the national court is considering a legal action concerning the reimbursement of payments made and an order to refrain from making future payments.

The ECJ’s Response

Before answering this question, the ECJ recalled that, where the European Commission has not yet initiated the formal investigation procedure, it is incumbent upon the national courts to assess whether or not the measure qualifies as State aid. The national court has to be able to decide if there has been an infringement of the standstill obligation.

The ECJ further assessed which measures need to be taken by the national court in a situation where the European Commission has already initiated an in-depth investigation procedure.

The ECJ found that the national court has an obligation under Article 108(3)(3) TFEU to ensure that State aid is only granted after the European Commission has given its approval. Following the European Commission’s decision to open an in-depth investigation, the national court has to assume that the measure under investigation qualifies as State aid. The national court is therefore required “to adopt all the necessary measures with a view to drawing the appropriate conclusions” of an infringement of the standstill obligation. The national court may be required to order the recovery of illegal State aid and the suspension of its implementation. Alternatively, the national court may decide on provisional measures.

Practical Implications

With this judgment, the ECJ has put an end to the debate over whether or not national courts are bound to find that a measure qualifies as State aid when the European Commission has decided to open an in-depth investigation. In the future, national courts will find it difficult to determine that measures do not qualify as State aid if the European Commission has opened an in-depth investigation. This is despite the explicitly preliminary nature of the assessment that is even emphasised in European Commission press releases announcing the opening of in-depth investigations.

Situations in which a national court denies the existence of State aid in these circumstances, such as the German Federal Administrative Court’s decision in 2010 with respect to measures in favour of an association for the disposal of dead animal bodies, would therefore not be compatible with European law.

While the conclusion drawn by the ECJ was, from our point of view, not strictly necessary, aid beneficiaries will have to prepare themselves for the possible consequences of this judgment. In practice, aid beneficiaries may have to systematically reimburse the benefits received if—following a decision by the European Commission to open an in-depth investigation—competitors approach a national court. Being bound by the European Commission’s preliminary assessment in its decision to open an in-depth investigation, the national court will have to find an infringement of the standstill obligation and order the immediate recovery of the advantage. This might lead to very unsatisfactory consequences, particularly as the recovery of State aid may constitute a fatal threat to the (alleged) aid beneficiary, even if the European Commission later concludes in its final decision that the measures does not, after all, constitute State aid or that it can be authorised.

Katharina Dietz, a paralegal at McDermott Will & Emery’s Brussels office, also contributed to the article.

 

by David Henry, Martina Maier and Philipp Werner

In the wake of the seminal European Court of Justice (ECJ) ruling in case C-360/09 – Pfleiderer AG v Bundeskartellamt, Amtsgericht Bonn (Bonn local court), in a decision rendered on 18 January 2012 (case 51 Gs 53/09), has refused to give a damages claimant access to leniency submissions held by the German Federal Cartel Office (FCO).  Although strongly welcomed by the FCO, the decision is a blow to potential damages claimants in Germany, especially as it is not open to appeal.

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by Martina Maier and Philipp Werner

In Elf Aquitaine SA v Commission, the European Court of Justice ruled on 29 September 2011 that Elf Aquitaine was not jointly and severally liable as a parent company for the involvement of its wholly owned subsidiary in the cartel for monochloroaecetic acid.  Taken with a number of recent judgments, this suggests that European  courts are getting tougher with the Commission on parental liability.

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by Martina Maier, Philipp Werner and David Henry

The European Court of Justice (ECJ) ruling of 14 June 2011 followed a case that originated in Germany.  Pfleiderer, a firm in the wood industry, was considering a damages claim against members of a paper cartel.  It sought access to the cartel files held by the German Competition Authority (FCO) in order to substantiate its claim.  A dispute followed over whether disclosing the documents of companies who had cooperated with the FCO would undermine the national leniency programme since potential leniency applicants would fear eventual disclosure.

A German court asked the ECJ for a preliminary ruling whether or not the provisions of EU competition law are to be interpreted as meaning that cartel victims can be granted access to leniency applications received by an EU Member State competition authority.

The ECJ has held  that it was for the courts and tribunals of each EU Member State on the basis of their own national law to determine the conditions under which such access must be permitted or refused by weighing the interests protected by EU law.  The upshot of this ruling is therefore that each judge in each Member State has a discretion as to what type of leniency document can be disclosed to a cartel victim.  The ECJ has therefore distanced itself from recommendations made by the Advocate General who suggested that documents which existed before the cartel was uncovered could be disclosed  but said that submissions drafted for the purpose of revealing the infringement should be protected.

For leniency applicants, weighing the decision whether to apply for leniency has now become even more complex. On the one hand, a potential leniency applicant stands to benefit from immunity, or a reduction, from fines. On the other hand,  it will now have to take into consideration not only the remaining risk of a fine and criminal sanctions but also the the fact that private damages claimant might get easier access to incriminating evidence. Such complexity is all the more greater given that the ECJ’s ruling may lead to different results in different European countries.

 

by Martina Maier, Philipp Werner and David Henry

The European Court of Justice recently expanded upon the scope of the law in relation to pricing practices of vertically integrated companies. The ruling impacts dominant, vertically integrated companies active both within and outside regulated markets, such as telecoms. All dominant, vertically integrated undertakings on both sides of the Atlantic must be sure to tailor their commercial pricing policies in such manner that they comply with the EU dominance rules.

To read the full article, please visit: http://mwe.com/info/news/bb030911.htm