Chillin'Competition

The assessment of non-coordinated effects in ‘gap cases’ has attained its Airtours moment: earlier today, the General Court annulled the Commission decision declaring the incompatibility of the acquisition of O2 by Three (see here). The judgment is, to be sure, of major importance for that aspect of merger control. It is significant, however, for EU competition law at large. I can think of three contributions in this sense:

• EU competition policy, the General Court confirms, is implemented through law, not discretion.
• The analysis of effects is a meaningful one in EU competition law; this is true across all provisions.
• The proposed reform of the EU competition system will not legislate away law and judicial review.

Why this case was so important: it was law vs discretion, and the law won

When the decision declaring the incompatibility of the transaction was announced in 2016, I discussed (see here) what was, in my view, the main potential problem with the assessment of non-coordinated effects under Regulation 139/2004. Because it is no longer necessary to establish dominance in the new regime, Article 2 could in theory be interpreted as allowing the Commission to block any horizontal merger.

Suffice it to think about the matter for a second: any concentration involving actual or potential competitors leads, by definition, to a reduction of competitive pressure and thus to an increase in market power (no matter how small).

Accordingly, one could make a not unreasonable argument that any such transaction gives rise, by definition, to non-coordinated effects. If this interpretation were accepted, then the Commission would enjoy, in effect, the discretion to decide which horizontal merger to allow and which to block.

The idea that the Commission would enjoy (de facto) discretion would not only be at odds with Regulation 139/2004, but with the logic of EU law at large, whereby it is for the EU courts, not an administrative authority, to state what the law is.

This central aspect is grasped by the General Court in CK Telecoms. The judgment is explicit about the risk of construing Regulation 139/2004 in the way described above.

Paragraphs 157-176 are of particular relevance in this regard. In its Three/O2 decision, the Commission had claimed that Three was an ‘important competitive force’. However, the General Court notes, the authority had defined the notion in such a way that any competitor in an oligopolistic market would count as an ‘important competitive force’ (thereby affording de facto discretion to itself). Para 174 is, I think, the crucial one.[1]

I read this aspect of the judgment as demanding a meaningful assessment of the ‘appreciability’ of the effects of a horizontal merger that does not give rise to dominance (that is, a ‘gap’ case). Appreciability is required by virtue of Article 2 of the Regulation, which refers to a ‘significant impediment’.

Most of you will remember that the Court of First Instance faced the very same issues in Airtours already. In that case, the Commission, by playing down the ability to collude, had defined the notion of collective dominance in a way that would afford it de facto discretion to block any horizontal merger in an oligopolistic market.

After today’s judgment, we now know that the ‘gap’ left open by Airtours (which in turn led to the adoption of Regulation 139/2004) is also driven by law.

In the same vein, the General Court confirms (paras 95-105) that, in order to establish a significant impediment to effective competition in a gap case, it would not be sufficient to show that the transaction would lead to a ‘reduction of competitive pressure on the remaining competitors’ (see Recital 25 of the Preamble to the Regulation).

It would be necessary to establish, in addition, that it results in ‘the elimination of important competitive constraints that the merging parties had exerted upon each other’. I feared that we might not have a structured legal test for the assessment of non-coordinated effects in ‘gap cases’. The General Court, fortunately, has provided one.

The analysis of effects in EU competition law is a meaningful one

More generally, the judgment provides confirmation that the analysis of effects is a meaningful one in the EU competition law system. The analysis can revolve around potential effects, true, and it is not necessary to establish that it is certain that such effects will occur. Still, the Commission would need to show, as a matter of law, that the practice or transaction would probably have such appreciable effects (paras 115-119 of the judgment).[2]

CK Telecoms provides several examples of the ways in which the Commission may fail to show effects. For instance, the authority did not establish, to the requisite legal standard, that Three was an ‘important competitive force’ (paras 155-226). It also failed to show that, prior to the transaction, O2 and Three were close competitors (paras 227-250). Finally, the quantitative evidence relied upon by the Commission was insufficient to establish that prices would rise significantly (paras 260-282).

The analysis of effects is central to the outcome of many pending cases (before the Commission and the EU courts). As a result, the very frictions observed in CK Telecoms are likely to be observed again.

One aspect should be emphasised in this regard: the notion of anticompetitive effects is the same irrespective of whether merger control, Article 101 TFEU or Article 102 TFEU are at stake. In fact, today’s judgment is in line with the most recent case law on Article 102 TFEU (e.g. MEO and Intel). It is only sensible that, as the case law shows, the concepts of ‘competition’ and ‘effects’ have the same meaning across the board.

On the reform of EU system: law and judicial review cannot be legislated away

CK Telecoms comes at a time when there are discussions aiming to take competition law in the opposite direction from where the EU courts have taken it over the years. Today’s judgment is just the latest of a trend of cases that show that competition policy is implemented through law (as opposed to discretion) and that administrative action is subject to full review of all issues of law and fact.

Some of the proposals to reform the system appear to hint at a different way of doing policy: discretionary fine-tuning of markets away from the law, away from the judges. I understand why this Copernican Revolution would appeal to some. However, CK Telecoms leads me to the conclusion that, at least in the EU system, law and judicial review cannot and will not be legislated away.

[1] ‘174. It follows that the Commission made an error of law and an error of assessment, in recital 326 of the contested decision, in finding that an “important competitive force” does not need to stand out from its competitors in terms of impact on competition, particularly in so far as such a position would allow it to treat as an “important competitive force” any undertaking in an oligopolistic market exerting competitive pressure’.

[2] See in particular para 116: ‘It is therefore in the light of the economic outcome attributable to the concentration which is the most likely to ensue that the Commission must, as a following step, show that that concentration would probably and significantly impede effective competition in the relevant market’.