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On 15 February 2005, the European Court of Justice dismissed the Euro…

On 15 February 2005, the European Court of Justice dismissed the European Commission’s appeal against the annulment of its prohibition of the Tetra Laval/Sidel merger.

The Commission prohibition decision
On 30 October 2001, the Commission prohibited the merger between Swiss-based Tetra Laval and French company Sidel. Tetra’s activities include liquid food carton packaging, for which Tetra is the market leader worldwide. Sidel is the worldwide market leader for the production and supply of stretch blow moulding (SBM) machinery used in the production of polyethylene terephthalate (PET) plastic bottles. The Commission’s prohibition decision was based on two grounds, namely that the merger was likely (i) to create a dominant position on the SBM machine market through the ‘leveraging’ of Tetra’s dominant position on the carton packaging market and (ii) to strengthen Tetra’s dominant position on the carton packaging market by eliminating an important source of potential competition. Although the Commission conceded in its prohibition decision that carton and PET packaging were weak substitutes, it asserted that “this may change in future” and concluded that “the two packaging systems belong to two very closely neighbouring markets”.

The appeals
On 25 October 2002, the CFI annulled the Commission’s decision and the Commission appealed against the CFI’s annulment.

Burden of Proof
The Commission’s main ground of appeal was that the CFI required ‘convincing evidence’ to show that leveraging was likely in the future. The Commission argued that the CFI had infringed Article 230 EC, which allows the Commission a wide discretion in assessing complex factual and economic matters and allows the CFI to intervene only where the Commission has made a ‘manifest error’. The ECJ rejected the Commission’s argument, holding that ‘the Commission has a margin of discretion with regard to economic matters, [but] that does not mean that the Community Courts must refrain from reviewing the Commission’s interpretation or information of an economic nature…Such a review is all the more necessary in the case of a prospective analysis required when examining a planned merger with conglomerate effect’. The ECJ went on to reiterate the CFI’s findings that the Commission’s conclusions appeared to be inaccurate because ‘they were based on insufficient, incomplete, insignificant and inconsistent evidence’. As to the basis for the Commission’s prohibition, the ECJ found that anti-competitive leveraging is generally ‘dimly discernible, uncertain and difficult to establish’ and that the elimination of an important competitor on a market does not per se strengthen the position of the dominant player on that market.

The Commission’s other grounds of appeal
The ECJ endorsed the CFI’s finding that behavioural commitments should not be dismissed out of hand and that the Commission should have assessed the implications of Tetra’s behavioural commitments on the likelihood of future leveraging. Save for finding that the CFI was wrong to require the Commission to examine, for each proposed merger, the extent to which the incentive to adopt anti-competitive conduct would be affected by the likelihood of detection and/or sanctioning of such behaviour in every relevant jurisdiction, the ECJ rejected the remainder of the Commission’s arguments as unfounded, irrelevant, or, insofar as the Commission sought to question the CFI’s assessment of the evidence, as inadmissible.

Next steps
There is no right of appeal from the ECJ. The Commission must now prepare for the CFI’s judgments in General Electric and Honeywell’s appeals against the Commission’s merger prohibition decision of 3 July 2001, involving similar ‘conglomerate effects’ arguments. The CFI has not yet set a date for the delivery of its judgments.

Paul McGeown, Linklaters partner, commented:
“The Commission’s strongest argument was that the CFI had exceeded its powers of review by requiring the Commission to produce ‘convincing evidence’ in support of a merger prohibition. The Advocate General rejected the Commission’s arguments as ‘linguistic or semantic’. The effect of the ECJ’s judgment is effectively to tie the Commission’s hands where the only basis for a prohibition is likely future conglomerate effects. The ECJ’s wholesale rejection of the Commission’s appeal represents a further blow to the Commission, which must be anticipatin g the CFI’s judgment in GE/Honeywell with baited breath.”

British MP George Galloway and his opponent the Daily Telegraph will leave no stone unturned to sort out what could be a spectacular libel case.