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URÍA & MENÉNDEZ |
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The information contained in this Newsletter is of a general nature and does not constitute legal advice |
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COMPETITION LAWNEW COUNCIL REGULATION ON THE CONTROL OF CONCENTRATIONS BETWEEN UNDERTAKINGS A substantial reform of Community Merger control rules has taken place recently with the adoption of Council Regulation (EC) No. 139/2004, of 20 January 2004, on the control of concentrations between undertakings (“Regulation 139/2004” or “New Merger Regulation”). The said provision replaces Regulation 4064/89, and will be applicable from the 1 May 2004. |
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NEW COUNCIL REGULATION ON THE CONTROL OF CONCENTRATIONS BETWEEN UNDERTAKINGS
A substantial reform of Community Merger control rules has taken place recently with the adoption of Council Regulation (EC) No. 139/2004, of 20 January 2004, on the control of concentrations between undertakings, OJ of 29 January 2004, L 24/1 (“Regulation 139/2004” or “New Merger Regulation”). The said provision replaces Regulation 4064/89, and will be applicable from the 1 May 2004.
At the same time, the Commission has recently issued Guidelines on the assessment of horizontal mergers (between competing undertakings), OJ of 5 February 2004, C 31/4, as well as a guide of Best Practices on the conduct of EC merger control proceedings (www.europa.eu.int/comm).
The most relevant reforms introduced by Regulation 139/2004 can be summarised as follows:
1. Allocation of cases
Regulation 139/2004, establishes a simplified and more flexible system for referrals between Commission and Member States intended to guarantee that the most appropriate authority deals with the case (a notice on this issue is being currently prepared by the Commission).
In light of the New Merger Regulation, referrals can be requested to the Commission at two different stages, namely:
· At pre-notification stage the undertakings concerned may request to the Commission that a case be referred either to the Commission or to a Member State concerned:
(i) Request for referral to the Commission (until 3 weeks prior to notification, which should in principle be filed to the Member States), if a concentration not having Community dimension produces effects on three or more Member States. This will oblige parties to examine the concentration under the national merger control regulation of every Member State, in order to determine whether it produces effects on three or more Member States.
Commission will inform all concerned Member States of such referral. If none of the latter disagree within 15 days from receiving the submission, the case shall be examined by the Commission in accordance with Community Regulation.
(ii) Request for referral to a Member State (until 5 weeks prior to notification, which should in principle be filed to the Commission), if a concentration with community dimension significantly affects competition in a market within such Member State.
Commission will inform the concerned Member State of such request. The relevant National competition authority will have 15 days from receiving the submission to refuse the referral. However, the Commission will be the one to finally decide within 25 days of receiving the submission.
· After the notification has been filed one or more Member States may request to the Commission that a case be referred to them or to the Commission:
(i) Request for referral to a Member State (within 15 days of the date of receipt of the notification), if a concentration having Community dimension threatens to significantly affect competition in its market. This request for referral may also take place following the invitation of the Commission.
The Commission will decide on this referral within 35 days or 65 days of the date of receipt of the notification. Unlike Regulation 4064/89, this possibility does not require that the concentration threatens to restrict competition (by creating or reinforcing a dominant position), it being sufficient that the operation threatens to significantly affect competition.
(ii) Request for referral to the Commission (within 15 days of the date of receipt of the notification) of a concentration not having Community dimension which may affect trade between Member States. Competition authorities of other affected Member States will have 15 days (from the initial request) for deciding whether to join the submission. The Commission will decide within 25 days of receiving the submission whether it will take up the case.
2. Substantive test for the appraisal of mergers
Regulation 4064/89 was based on the dominance test, according to which a concentration was incompatible with the Common Market if it created or strengthened a dominant position in the relevant market. This test focused on the potential harm to the competitive structure of the market that the concentration might cause, in opposition to the “substantial lessening of competition test” used in the US, which mainly focuses on the negative effects that the concentration might produce (the possible reduction of the degree of competition on the market),, even if it does not create or strengthen a dominant position (for example a merger between the second and the third market operator if they do not become the market leader after the concentration).
The Commission initial proposal intended to maintain the dominance test but to substitute the traditional concept of dominance by the concept of economic power. This would have moved the dominance test towards an effects-based-approach for the appraisal of mergers. However, the test contained in the final version of Regulation 139/2003 is a hybrid test that does not differ substantially from the dominance test contained in Regulation 4064/89.
As a general principle, the new test prohibits concentrations that would significantly impede effective competition (but not exclusively by giving rise to a dominant position). The central question should therefore be whether sufficient competition will remain after the concentration. Nevertheless, the New Merger Regulation still refers to the creation or strengthening of a dominant position as a particular example of significant impediment of competition, so that dominance, as defined by the case law and Commission decisions, will remain as a key reference of the merger control system.
In conclusion, the impact of the amended dominance test, introduced by Regulation 139/2004 will largely depend on the interpretation that will be given to it by the Commission and the Courts in the future. The Commission will be able to widen its scope of intervention, since it is allowed to prohibit concentrations not giving rise to a dominant position but still impeding effective competition.
3. Flexibilisation of the “triggering event” and of the deadline for notification
Regulation 139/2004 establishes that concentrations may be filed prior to the conclusion of a binding agreement, provided that:
(i) The undertakings concerned demonstrate to the Commission in good faith intention to conclude a binding agreement; or
(ii) In case of public bid, the undertakings concerned have publicly announced their intention to make such a bid.
Moreover, Regulation 139/2004 eliminates the obligation to notify concentration agreements within one week from the date of the binding agreement. It will only require that the concentration be notified and approved prior to implementation.
The New Merger Regulation introduces additional flexibility in the proceedings by extending certain deadlines:
(i) in case the parties submit commitments during the First or the Second Phase (10 and 15 days respectively). Regulation 4064/89 only foresaw this possibility in the First Phase.
(ii) within the Second Phase proceedings if so requested by the parties or by the Commission with their consent, in order to grant the Commission an additional time limit of 20 days for investigation.
In any case, the duration of the proceedings will not exceed 35 working days for the First Phase and 150 for the Second. As a general principle, time limits are now referred to in working-days instead of weeks or months.
4. Changes in fact-finding powers, fines and penalties
Regulation 139/2004 increases Commission’s fact-finding powers in line with Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ of 4 January 2003, L 1/1 (“Regulation 1/2003”). It allows the Commission to:
(i) Request information by simple request or by decision;
(ii) Interview any natural or legal person who consents;
(iii) Seal books, documents or business premises, (only in exceptional circumstances and for the period of time strictly necessary for inspection, normally no longer than 48 hours).
However, it does not foresee the right of the Commission to search private homes of companies’ representatives, as Regulation 1/2003 does in non-merger investigations.
The New Merger Regulation also enables the Commission to impose higher fines and periodic penalties, again in line with Regulation 1/2003, for failure in complying with Commission requests of information, up to 1% of the turnover for fines and 5% per day of average daily turnover for periodic penalty payments. Moreover, the fine for failing to notify raises to 10% of the aggregate turnover.
5. Changes in decision-making powers
Regulation 139/2004 contains an express reference to the power of the Commission to request undertakings the complete dissolution of a merger or the disposal of all shares or assets acquired if the concentration has been declared incompatible with the common market or is implemented in breach of the conditions attached to clearance.
It also foresees the possibility of the Commission to adopt interim measures in order to restore competition if the concentration is implemented in breach of the suspension obligation (when no decision on its compatibility has yet been taken) or in breach of a decision prohibiting a concentration or imposing conditions.
6. Ancillary restrictions
Regulation 139/2004 includes an important amendment regarding the treatment of restrictions related to concentrations that might be considered as ancillary to it. According to the general principle for the assessment of this clauses, restrictions accepted by the undertakings concerned will be compatible with article 81 of the Treaty provided that they are directly related to, and necessary for, the implementation of the concentration. Nevertheless, the New Merger Regulation expressly states that those restrictions will be automatically covered by the decision clearing the concentration as compatible with the common market, in so far as they comply with the said requirements, even if no express reference to those restrictions is contained in the clearance decision. Therefore, parties will have to examine by themselves whether the said restrictions can be consider as directly related to, and necessary for, the implementation of the concentration in the light of the foregoing Commission decisions on this issue, which are included in the Notice regarding restrictions directly related and necessary to concentrations, OJ of 4 July 2001, C 188/5 (it is important to note that a new Commission Notice on ancillary restrictions is expected for summer 2004).
However, the New Merger Regulation foresees an exception to the said general principle: in cases presenting novel or unresolved questions giving rise to genuine uncertainty the Commission should, at request of the undertakings concerned, expressly assess whether or not any restriction is directly related to, and necessary for, the implementation of the concentration.
Brussels, 20 February 2004