European Economic Area

The European Commission recently reaffirmed that industrial policy objectives have no role to play when it comes to applying the EU merger control rules. Despite unusually intense industrial and political pressure to get the Siemens/Alstom railway merger done, Competition Commissioner Vestager has forcefully reiterated that the substantive test under the EU Merger Regulation remains exclusively competition based.

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By two judgments of January 19, 2015 (Case T-404/12 Toshiba v. Commission and Case T-409/12 Mitsubishi Electric v. Commission), the General Court of the European Union (GCEU) upheld the fines of €131 million imposed by the European Commission (EC) on Toshiba and Mitsubishi for their participation in a cartel on the market for gas insulated switchgear (GIS), dismissing a line of reasoning essentially based on the principle of equal treatment.

The cartel, involving 20 European and Japanese undertakings, consisted in an agreement between competitors with the objective of coordinating the commercial activity worldwide of the members. The cartel members developed a quota system aimed at determining the market shares to allocate between them. In parallel, the cartelists reached an unwritten understanding, according to which GIS projects in the European market and Japanese market were reserved to European members and Japanese members of the cartel, respectively.

In its 2007 decision, the EC found a single and continuous infringement of competition law on the GIS product market between 1988 and 2004 and imposed fines on Toshiba and Mitsubishi, inter alios, of €86.25 million and €113.92 million, respectively. It also found the two Japanese undertakings jointly and severally liable for up to €4.65 million. Both companies challenged the EC decision, which led to two judgments of the GCEU (Case T-113/07 Toshiba v. Commission and Case T-133/07 Mitsubishi Electric v. Commission), subsequently upheld by the Court of Justice of the European Union (CJEU) (Case C-498/11 P Toshiba v. Commission and Case C-489/11 P Mitsubishi Electric v. Commission). The GCEU annulled the fines imposed on the two Japanese undertakings, finding that the Commission had infringed the principle of equal treatment in calculating their fines. The reference year used to calculate the fines for the applicants was indeed different from that chosen for the European participants in the infringement.

Having been asked to reexamine its decision, the EC recalculated the fines imposed on Toshiba and Mitsubishi and fixed them at €56.79 million and €74.82 million, respectively, without changing the amount of the fine for which they were held jointly and severally liable. The two Japanese undertakings then lodged a new appeal before the GCEU seeking the annulment of the revised fines. In support of their action, the applicants alleged, inter alia, an infringement of the principle of equal treatment as regards the determination of their level of culpability as compared to the European participants in the infringement and the starting amount of the fine.

First, Toshiba and Mitsubishi argued that they were less culpable than their European counterparts because their participation had been limited to agreeing not to enter the European Economic Area (EEA) market, whereas the European undertakings had distributed the GIS projects on that same market through active collusion. In other words, they contended that their participation only consisted in a failure to act and that, consequently, they could not be held as liable as the European undertakings for the implementation of the cartel.

The GCEU reiterated its settled case-law, according to which the fact that an undertaking did not take part in all aspects of an anticompetitive scheme or that it played a minor role in the aspects in which it did participate must be taken into consideration when the gravity of the infringement is assessed and when the fine is determined. Nevertheless, the GCEU relied on the fact that the decision of the Japanese undertakings not to enter the European market, without which the allocation of market shares in the EEA would not have been possible, was a prerequisite for the implementation of the infringement as a whole. In that context, the applicants could not have ignored the unlawful nature of their conduct within the bigger picture of the framework in which such conduct took place. The GCEU concluded that the two different types of infringement – concrete action vs. agreement not to enter a market – are comparable, so it is therefore consistent for the applicants to receive the same treatment as the European undertakings.

Second, the applicants claimed an infringement of the principle of equal treatment as regards the starting amount of the fines. The fines of their European counterparts had been calculated on the basis of their respective GIS sales in 2003. Following the annulment of the first fines imposed on Toshiba and Mitsubishi, the Commission was under the obligation to determine the applicants’ new fines on the basis of sales achieved in 2003 (as held by the GCEU and confirmed by the CJEU). However, the applicants had not themselves achieved any GIS sales that year since in 2002 they had transferred their operations in that sector to a joint venture (JV) jointly owned by them. In consequence, the GCEU ruled that they were not placed in a comparable situation as the European GIS producers and the Commission was entitled to treat them differently.

In this context, the Commission chose (i) to determine a starting amount of the fine for the JV (using its GIS sales in 2003) and then (ii) to divide it between its shareholders – Toshiba and Mitsubishi – on the basis of their respective GIS sales in 2001; i.e., the last year where they had each achieved sales on that market. The applicants argued against this method by contending that the starting amount of their fines should have been determined individually after having divided the JV’s worldwide GIS sales between them in consideration of their respective shares in the JV’s turnover in 2013.

The GCEU ruled that the Commission had a certain margin of discretion when calculating the applicants’ fines and approved of the method applied in the case at hand. Therefore, the Commission did not breach the principle of equal treatment. In this case, the GCEU adopted a pragmatic and functional approach to cope with the technical pitfall.

On 9 July 2015, the Court of Justice of the European Union (CJEU) issued its judgment in InnoLux Corp. v Commission C-231/14P, confirming the existence of a new concept in cartel fining: “direct European Economic Area [EEA] sales through transformed products”. This new concept can be used by the European Commission to calculate fines of an amount higher than a restrictive reading of its Fining Guidelines might suggest.


The judgment arose out of the liquid crystal display (LCD) cartel case, which involved several LCD producers in Asia. The European Commission determined that the cartel participants had three channels of sale into the EEA:

Direct EEA sales, i.e., LCD panels for IT or television applications directly sold to another undertaking in the EEA.

Direct EEA sales through transformed products, i.e., LCD panels incorporated intra-group into a final IT or television product and subsequently sold to another undertaking in the EEA.
Indirect Sales, i.e., LCD panels sold by one of the cartel participants to another undertaking outside the EEA, which would then incorporate the panels into final IT or television products and sell them in the EEA.

The Commission took the view that inclusion of the third channel was not necessary for the purposes of imposing a fine to achieve a sufficient level of deterrence, but did take account of the first two channels. InnoLux challenged the inclusion of the second channel, and the General Court of the European Union rejected the challenge.

The CJEU’s Judgment

The CJEU upheld the decisions of the EU General Court and the Commission, notwithstanding the opinion of the Advocate-General to the contrary.

The CJEU referred first to the established case law, according to which the amount of the fine imposed on an undertaking must reflect “the economic significance of the infringement and the relative size of the undertakings’ contribution to it”.

Next, the CJEU observed that, applying this principle, the existing case law (Guardian Industries C-580/12P 12 November 2014) concludes that sales of the product concerned to a related party in the EEA should be taken into account in the same way as sales direct to unrelated parties.

The CJEU then took an innovative step. It extended the approach in Guardian Industries as follows. When sales of a cartelised product are made to a related party outside the EEA, and the product is incorporated into a downstream product that is sold to independent third parties inside the EEA, the sales of the downstream product into the EEA can be taken into account in determining the amount of the fine. The value to be taken into account is not the full value of the downstream product, but the proportion of that value that corresponds to the value of the cartelised product that was incorporated into the downstream product.

The CJEU emphasised that this case was not about whether or not the Commission had jurisdiction. The Commission’s jurisdiction was not in dispute because the cartel participants, including Innolux, made some sales of LCDs direct to independent third parties in the EEA.

Practical Consequences

The case shows that the CJEU is prepared to give a wide interpretation to the expression in the Commission’s Fining Guidelines: “the value of the undertaking’s sales of goods or services to which the infringement directly or indirectly … relates … within the EEA”. This enlargement of the Commission’s fining powers should be highlighted in all competition compliance programmes.

by Rohan Massey, Lionel Lesur, Veronica Pinotti, Vincent Schröder

All e-commerce businesses active in the European Economic Area (EEA) should review their current processes, policies, terms and documentation and implement any changes before 13 June 2014 to ensure they are compliant with the new national laws of the EU Member States implementing EU Directive No 2011/83/EU on consumer rights. In those Member States that fail to implement the Directive into their national laws, the provisions of the Directive will directly apply.

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The European Commission (Commission) has issued a package of measures (the Reform Package), the rationale for which is to simplify and streamline EU merger control. The Reform Package does this by extending “simplified” treatment to more transactions, reducing the information that parties to a notifiable transaction have to submit and streamlining the pre-notification process. The reforms take effect on 1 January 2014.

The overall objective of the Reform Package is to make EU merger procedures simpler and more business friendly. But it may actually introduce additional work for some types of transactions, for instance by introducing new categories of information that parties to a notifiable transaction must be prepared to supply.

The Reform Package

The Reform Package is comprised of a revised Merger Implementing Regulation, a Notice on Simplified Procedures and revised notification forms, namely a revised Form CO, a revised Short Form CO and a revised Form RS.

The main features of the Reform Package are as follows.

Extension of the Simplified Procedure

At present, transactions that do not present competition concerns are eligible for simplified treatment. Parties to these transactions are entitled to use the Short Form CO, which requires less information and generally requires less time because a market investigation is not necessary.

The Reform Package expands the simplified procedure to apply it to more transactions. Specifically:

  • In markets in which two merging companies compete (horizontal overlap), the simplified procedure applies to mergers below a 20 per cent combined market share, instead of 15 per cent currently.
  • In mergers where one of the companies sells an input to a market where the other company is active (vertically-related markets), the simplified procedure applies to mergers below a 30 per cent combined market share, instead of 25 per cent currently.
  • Provided that the increase in market shares is small, i.e., a Herfindahl–Hirschman Index increase of 150 or less, the simplified procedure applies where the parties’ combined market shares are between 20 per cent and 50 per cent.

The Commission estimates that, under the Reform Procedure, between 60 and 70 per cent of notifiable transactions will be eligible for simplified treatment, representing a 10 per cent increase over current levels.

Information Requirements

The Reform Package introduces several changes in respect of the provision of information in connection with EU merger procedures. Some of these changes will reduce the overall amount of information that parties to notifiable transactions will have to provide to the Commission.

  • More transactions eligible for simplified treatment. As the Reform Package makes more transactions eligible for simplified treatment, it follows that parties to those transactions will need to provide less information in connection with their merger procedure.
  • Waivers for certain information. The Reform Package envisages that parties using either the Form CO or the Short Form CO will also need to provide less information, but this will largely remain within the discretion of the Commission case team reviewing the transaction. Specifically, under the Revised Package, parties will have greater likelihood of being relieved from providing certain required information.
  • Change to the Definition of an “Affected Market.” For non-simplified cases, the Reform Package increases the threshold of what constitutes an “affected market”. At present, parties to a transaction must provide extensive information concerning all affected markets. The Reform Package has raised the thresholds for what constitute affected markets from 15 per cent to 20 per cent (in relation to horizontal markets) and 25 per cent to 30 per cent in relation to vertical markets. A logical corollary is that less market information will need to be provided because fewer markets will be examined by the Commission. In practice, therefore, the workload required from the parties will be lightened.

These changes will reduce the overall information requirements, although the Commission’s case team retains significant discretion to determine which information requirements can be dispensed with in practice.

The Commission has, however, also introduced new categories of information that will need to be provided.

  • Increased requirements for transactions under the simplified procedure. Where the parties’ activities overlap in the European Economic Area (EEA), or where there is a vertical relationship between them, the parties will have to submit presentations that analyse the transaction that were prepared by or for, or received by, members of the board of management, board of directors, supervisory board, any person exercising similar functions or the shareholders’ meeting.
  • Increased requirements for transactions under the full procedure. Parties will have to provide the board documents described above and substantial additional information, including analyses, reports and other documents from the prior two years that analyses the transaction or alternative transactions.

The Commission has indicated that parties may ask the Commission case team to dispense with some of these requests. The Commission has also noted that it only wishes to review those documents that analyse the transaction in relation to alternative acquisitions. Nevertheless, the new scope of documents to be provided is clearly very broad.

Joint Ventures Active Outside the EEA

The Reform Package substantially streamlines the Commission’s approach to joint venture transactions that have no connection with the EEA.

The current jurisdictional thresholds of the EU Merger Regulation as applied to joint ventures has resulted in a large number of joint ventures that have no connection to the EEA being subject to merger control in the EU solely as a result of their parents’ EEA revenue.

The Reform Package therefore introduces a “super-simplified” notification for joint ventures active entirely outside the EEA. For these transactions, parties only need to describe the transaction, their business activities and sufficient revenue information to establish jurisdiction.

Pre-Notification Contacts

Pre-notification contacts are a necessary part of EU merger procedures, but the European Commission has faced criticism over the length of these procedures.

The Reform Package partly addresses this problem, mainly through the expanded use of the simplified procedure. By enabling more parties to be able to use the simplified procedure, it reduces the information that needs to be provided to the Commission when compared with a full procedure. Since less information is required, the Reform Package is expected to lead to shorter pre-notification contacts for these cases.

Parties to transactions benefiting from the simplified procedure may also be able to file without any pre-notification discussions where their activities do not horizontally overlap and they have no vertical relationship. There does however, remain a risk in this situation that notification could be considered incomplete. This could act as a disincentive to notify without engaging in even brief pre-notification discussions.


The Reform Package will clearly enable more transactions to benefit from the simplified procedure, which should reduce the burdens on companies in relation to transactions notifiable in the European Union. The creation of a super-simplified procedure for transactions involving joint ventures having no link to the EEA is particularly welcome.

With that said, the overall reduction in burden may be offset by the potentially significant increase in the information that parties to transactions under both the simplified procedure and the full procedures are expected to provide. This may be mitigated if information requirements will be increasingly waived, but this remains subject to the discretion of the Commission case team and therefore introduces some uncertainty into the process.

The extent to which pre-notification contacts will be streamlined is also unclear, since this is primarily linked to the greater use of the simplified procedure. Parties to transactions that are eligible for notification with no pre-notification contacts at all may not choose to take advantage of this option as they will continue to run the risk that the Commission case team will require more information to confirm that the transaction actually qualifies for simplified treatment. In this case, the Commission case team could simply issue a determination that the notification is “incomplete”, which would essentially start the process over again.