Two recent rulings of the European Court of First Instance (CFI) on 3 April 2003 uphold, for the most part, the European Commission’s decision approving the merger between direct competitors, SEB and Moulinex, two French manufacturers of small electrical household goods. Against this Philips and Babyliss, also manufacturers of small electrical household goods, appealed the decision. The case highlights inter alia the negotiation of remedies dispelling serious doubts as to the compatibility of a merger with the Common Market and the (partial) referral of an investigation, for the territory of a single Member State, to the competent authorities of that State.
SEB took control of certain activities of Moulinex within the framework of a receivership procedure. In order to dispel serious doubts about the merger aroused by its perceived effect on competition, SEB undertook, vis-à-vis the Commission, to grant third parties an exclusive licence to the trade mark Moulinex in nine Member States of the European Economic Area for a period of five years, and to abstain from using the mark Moulinex in these States for another three years following the expiration of those licences. The Commission did not impose any commitments with regard to the Spanish, Italian, Finnish, British and Irish markets. Also, the Commission granted the request made by the French competition authorities to allow them to examine the effects of the proposed merger on competition in France. The French competition authorities eventually approved the merger without imposing any commitments.
Taking into account of portfolio effects
The CFI essentially confirmed the competitive analysis of the Commission and, in particular, its examination of portfolio effects. Although the Commission has used the portfolio effect theory several times in the past, this was the first time that the CFI took a position on it. Thus, when assessing the competitive position of an undertaking, the Commission may have to take into account the portfolio of brands held by the company, or the fact that it holds strong positions on several affected product markets.
Negotiation of Remedies
The judgment of the CFI clarified the conditions under which remedies can be modified during the first phase of the merger control procedure. The initial version of the commitments proposed by SEB and Moulinex did not permit the Commission to dispel all serious doubt as to the compatibility of the concentration with the Common Market, but the final version was proposed after the expiration of the time period laid down by the Merger Control Regulation, i.e., three weeks after notification of the concentration. However, the CFI held that the time limit is only imposed on the notifying parties, not on the Commission. It observed that the time limit was designed to allow the Commission to have enough time to evaluate the commitments, to consult third parties and also to avoid commitments being presented at the last minute. It follows from there that the Commission has the right to accept modified commitments even after the expiry of the three weeks time limit.
Furthermore, the CFI upheld rebranding as a remedy to competition concerns identified on markets where brands are of paramount importance.
Referral to the French Competition Authority
The CFI held that the two conditions laid down by the Merger Control Regulation for referring a merger to the competent authorities of a Member State were fulfilled. As regards the problem of the creation or reinforcement of a dominant position on the internal market of a Member State, the court noted that the new entity would have an unrivalled range of products and portfolio of trade marks within France. As regards the existence of a distinct market, the CFI observed that France effectively constitutes such a market, with respect to its differences in price, different trade marks, and its national distribution, supply and logistics structures.
However, the CFI held that systematic referral of a merger to Member States where the products in question raise concerns for distinct national markets, could damage the principle of a “one stop shop”, i.e. the idea of having sole control by the European authorities. Nevertheless, the court considered this risk to be inherent in the referral procedure laid down in the Merger Regulations.
The French competition authorities approved the merger (insofar as it concerned France) without imposing any commitments, basing its decision on a theory (failing company theory) which the Commission had explicitly excluded in its approval decision. Nevertheless, the CFI confirmed that the legality of the referral should only be assessed at the moment that the Commission adopts its decision.
It should be pointed out in this connection that referral to the competent authorities within each Member State will have increased importance if the proposed amendments to the Merger Control Regulations are passed.
Written by Peter Hoeltzenbein and Indiana de Seze.