On appeal from judgment by EU Court of First Instance, European Court of Justice finds no substantive errors of EU competition law on concentrations between undertakings such as Sony Corporation of USA and Bertelsmann on part of EU Commission contrary to rulings of CFI but remands to that Court since it had not reached several other important issues
This is an appeal of a Ruling by the Court of First Instance (CFI) dated on October 3, 2006, under Article 56 of Statute of European Court of Justice, before a Grand Chamber of 13 judges. Impala is an international association, incorporated under Belgian law; its members are 2,500 independent music production companies. The chief substantive legal provision involves Article 2(2) and (3) of Council Regulation (EEC) No. 4064/89 of December 21, 1989 on the control of concentrations between undertakings as amended by Council Regulation (EC), No 1310/97 of June 30, 1997 (the Regulation).
This is the factual background. On January 9, 2004 the Commission got a notice pursuant to the Regulation of a proposed concentration by which the undertakings Bertelsmann and Sony proposed to merge their global recorded music businesses. Bertelsmann is an international media company; it is active in recorded music through its wholly owned subsidiary, Bertelsmann Music Group (BMG). In the recorded music sector, Sony does business through Sony Music Entertainment (SME).
The proposed operation would integrate the parties' global recorded music businesses into the concentration , setting up three or more newly created companies pursuant to a Business Contribution Agreement dated December 11, 2003. In the aggregate, these joint venture companies were to do business under the name Sony BMG. Under the agreement, Sony BMG would be active in the discovery and development of artists (the so called A & R (Artist and Repertoire) activity) and the marketing of the resulting discs. Sony BMG would not get involved in related activities such as music publishing, manufacturing and distribution.
On January 20, 2004, the Commission sent out questionnaires to a number of players on the market. Impala replied to that questionnaire and later lodged a separate submission. It set out the reasons why the Commission should declare the operation incompatible with the common market. Impala set out its concerns about further concentration in the market and the impact that this would have on market access (including in the retail sector) the media, the internet and consumer choice.
The Commission found that the notified operation raised serious doubts as to its compatibility with the common market and the functioning of the Agreement on the European Economic Area (the EEA Agreement). It, therefore, launched formal proceedings.
On May 24, 2004, the Commission sent a statement of objections (SO) to the parties to the concentration. It provisionally decided that the notified operation seemed incompatible with the common market and the functioning of the EEA Agreement. Thus, it seemingly would strengthen a collective dominant position (CDP) in the recorded music market and in the wholesale market for licences for online music. It might also coordinate the parent companies' behaviour in a way incompatible with Article 81 EC.
The parties to the concentration answered the SO. The Hearing Officer held a hearing in June 2004. Impala, inter alios, was present. By the Contested Decision (TCD), the Commission found the concentration compatible with the common market pursuant to Article 8(2) of the Regulation. After proceedings before the CFI, the court found that it followed, both from TCD and from the arguments advanced by the Commission before it, that the only alleged element of opacity of the market resulted from the lesser transparency of the campaign discounts.
It held, [1] that the evidence, as mentioned in TCD, did not support the Commission's conclusions and [2] that those conclusions decidedly differed from the findings made in the SO. In those circumstances, the CFI held that the first and second pleas in law were well founded and annulled TCD without examining the third to fifth pleas raised before it. The Appellants request that the ECJ should set aside the Judgment under Appeal (JUA); dismiss Impala's application to annul TCD or, alternatively, refer the case back to the CFI for reconsideration.
By Appellant's seven grounds of appeal (and their subparts), the Appellants allege the following mistakes committed by the CFI: [1] the CFI relied on the SO as a point of reference for its review of the substance of TCD; [2] it required the Commission to undertake new market investigations after the response to the SO; [3] it applied an excessive and incorrect standard of proof for decisions approving a concentration; [4] it exceeded the scope of its role in carrying out judicial review; [5] it misinterpreted the pertinent legal criteria applying to the creation, or strengthening, of a CDP; [6] it applied an incorrect standard of reasoning as to decisions approving a concentration; and [7] it relied on evidence that was not disclosed to the parties to the concentration. Sony BMG Music Entertainment BV adopts in full both the appeal and the forms of order sought by the Appellants. [The present digest will focus on grounds [6] and [7] dealing mainly with the substantive law of competition in the EU.]
When the CFI has found or assessed the facts, the Court of Justice has jurisdiction under Article 225 EC to review the CFI's legal characterisation of those facts and the legal conclusions it has drawn from them. The ECJ thus has no jurisdiction to establish the facts or, in principle, to examine the evidence which the CFI accepted in support of those facts. Provided that the parties have properly obtained the evidence and have complied with the general principles of law and the rules of procedure in relation to the burden of proof and the taking of evidence, it is for the CFI alone to assess the value which it should attach to the evidence offered to it. Save where the lower court has distorted the clear sense of the evidence, that appraisal does not therefore constitute a point of law which is subject as such to review by the ECJ.
On the other hand, according to the ECJ's case law, the extent of the obligation to state reasons is a question of law reviewable by the Court on appeal. This is because a review of the legality of a decision carried out in that context must necessarily take into consideration the facts on which the CFI based itself in reaching its conclusion as to the adequacy or inadequacy of the SO.
In the present case, as is apparent, inter alia, from the record and contrary to what Impala contends, the Appellants do not seek generally to challenge the findings of fact made by the CFI as such. On the contrary, they raise mostly appealable questions of law.
The fifth ground of appeal alleges that the CFI had erred in construing the pertinent legal criteria that apply to the creation or strengthening of a CDP. "... [T]the Court has already held, in substance, that the concept of a [CDP] is included in that of "dominant position' within the meaning of Article 2 of the Regulation [Cite]. ...[T]he existence of an agreement or of other links in law between the undertakings concerned is not essential to a finding of a [CDP]. Such a finding may be based on other connecting factors and would depend on an economic assessment and, in particular, on an assessment of the structure of the market in question.[Cites]."
"In the case of an alleged creation, or strengthening of, a [CDP], the Commission is obliged to assess, using a prospective analysis of the reference market, whether the concentration which has been referred to it will lead to a situation in which effective competition in the relevant market is significantly impeded by the undertakings which are parties to the concentration and one or more other undertakings which together, in particular because of correlative factors which exist between them, are able to adopt a common policy on the market [cite] in order to profit from a situation of collective economic strength, without actual or potential competitors, let alone customers or consumers, being able to react effectively."
"Such correlative factors include, in particular, the relationship of interdependence existing between the parties to a tight oligopoly within which, on a market with the appropriate characteristics (in particular in terms of market concentration, transparency and product homogeneity) those parties are in a position to anticipate one another's behaviour and are therefore strongly encouraged to align their conduct on the market in such a way as to maximise their joint profits by increasing prices, reducing [either] output, [or] the choice or quality of goods and services, diminishing innovation or otherwise influencing parameters of competition. In such a context, each operator is aware that highly competitive action on its part would provoke a reaction on the part of the others, so that it would derive no benefit from its initiative."
"A [CDP] significantly impeding effective competition in the common market " or a substantial part of it " may thus arise as the result of a concentration where, in view of the actual characteristics of the relevant market and of the alteration to those characteristics that the concentration would entail, the latter would make each member of the oligopoly in question, as it becomes aware of common interests, consider it possible, economically rational, and hence preferable, to adopt on a lasting basis a common policy on the market with the aim of selling at above competitive prices, without having to enter into an agreement or resort to a concerted practice within the meaning of Article 81 EC and without any actual or potential competitors, let alone customers or consumers, being able to react effectively."
"Such tacit coordination is more likely to emerge if competitors can easily arrive at a common perception as to how the coordination should work, and, in particular, of the parameters that lend themselves to being a focal point of the proposed coordination. Unless they can form a shared tacit understanding of the terms of the coordination, competitors might resort to practices that are prohibited by Article 81 EC in order to be able to adopt a common policy on the market."
"Moreover, having regard to the temptation which may exist for each participant in a tacit coordination to depart from it in order to increase its short term profit, it is necessary to determine whether such coordination is sustainable. In that regard, the coordinating undertakings must be able to monitor to a sufficient degree whether the terms of the coordination are being adhered to."
"There must, therefore, be sufficient market transparency for each undertaking concerned to be aware, sufficiently precisely, and quickly, of the way in which the market conduct of each of the other participants in the coordination is evolving. Furthermore, discipline requires that there be some form of credible deterrent mechanism that can come into play if deviation is detected. In addition, the reactions of outsiders, such as current or future competitors, and also the reactions of customers, should not be such as to jeopardise the results expected from the coordination."
"The conditions laid down by the [CFI] in ¶ 62 of its judgment in Airtours v Commission, which that court concluded, in ¶ 254 of the [JUA], should be applied in the dispute before it, are not incompatible with the criteria set out in the preceding paragraph of this judgment."
"In applying those criteria, it is necessary to avoid a mechanical approach involving the separate verification of each of those criteria taken in isolation, while taking no account of the overall economic mechanism of a hypothetical tacit coordination."
"... [T]he assessment of, for example, the transparency of a particular market should not be undertaken in an isolated and abstract manner, but should be carried out using the mechanism of a "hypothetical tacit coordination' as a basis. It is only if such a hypothesis is taken into account that it is possible to ascertain whether any elements of transparency that may exist on a market are, in fact, capable of facilitating the reaching of a common understanding on the terms of coordination and/or of allowing the competitors concerned to monitor sufficiently whether the terms of such a common policy are being adhered to."
"In that last respect, it is necessary, in order to analyse the sustainability of a purported tacit coordination, to take into account the monitoring mechanisms that may be available to the participants in the alleged tacit coordination in order to ascertain whether, as a result of those mechanisms, they are in a position to be aware, sufficiently precisely and quickly, of the way in which the market conduct of each of the other participants in that coordination is evolving."
"In the present case, the Appellants submit that, even though the [CFI] stated in ¶ 254 of the [JUA] that it was following the approach adopted in its judgment in Airtours v Commission, in practice, it committed an error of law in inferring the existence of a sufficient degree of transparency from a number of factors which were not, however, relevant to a finding of an existing [CDP]."
"In that context, the Appellants object in particular to the fact that the [CFI] indicated in ¶ 251 of the [JUA] that the conditions laid down in ¶ 62 of the judgment in Airtours v Commission could, "in the appropriate circumstances, be established indirectly on the basis of what may be a very mixed series of indicia and items of evidence relating to the signs, manifestations and phenomena inherent in the presence of a [CDP]'."
"... [O]bjection cannot be taken to ¶ 251 of itself, since it constitutes a general statement which reflects the [CFI]'s liberty of assessment of different items of evidence. It is settled case law that it is, in principle, for the [CFI] alone to assess the value to be attached to the items of evidence adduced before it.[Cites]."
"Similarly, the investigation of a pre existing [CDP] based on a series of elements normally considered to be indicative of the presence, or the likelihood of, tacit coordination between competitors cannot therefore be considered to be objectionable of itself. However, ... it is essential that such an investigation be carried out with care and, above all, that it should adopt an approach based on the analysis of such plausible coordination strategies as may exist in the circumstances."
"In the present case, the [CFI], before which Impala raised arguments relating, in particular, to the parts of TCD relating to market transparency, did not carry out its analysis of those parts by having regard to a postulated monitoring mechanism forming part of a plausible theory of tacit coordination."
"It is true that the [CFI] referred in ¶ 420 of the [JUA] to the possibility of a "known set of rules' governing the grant of discounts by the majors. However"as the Appellants rightly submit ..."the [CFI] was content to rely, in ¶¶ 427 to 429 of the [JUA], on unsupported assertions relating to a hypothetical industry professional. In ¶ 428 of the judgment, the [CFI] itself acknowledged that Impala, ... "admittedly did not explain precisely what those various rules governing the grant of campaign discounts are'."
"... Impala represents undertakings which, even if they are not members of the oligopoly formed by the majors, are active in the same markets. In those circumstances, it is clear that the [CFI] disregarded the fact that the burden of proof was on Impala in relation to the purported qualities of such a hypothetical "industry professional'."
"... [I]t must be held that, in misconstruing the principles which should have guided its analysis of the arguments raised before it concerning market transparency in the context of an allegation of a [CDP], the [CFI] committed an error of law."
"That error vitiates the part of the [JUA] which concerns the examination by the [CFI] of the arguments relating to the manifest errors of assessment committed by the Commission, including the finding of that court in ¶ 377 of the [JUA]. However, it is not, of itself, capable of invalidating that court's finding in ¶ 325 of the [JUA] that, in substance, TCD had to be annulled because it was inadequately reasoned. Further grounds of appeal thus fall to be examined."[¶¶ 119 134]
The sixth ground of appeal claims the commission of an error of law when the [CFI] applied an incorrect standard of reasoning with respect to decisions approving a concentration. It is clear from settled case law that the statement of reasons required by Article 253 EC must be appropriate to the measure at issue and must disclose, in a clear and unequivocal fashion, the reasoning followed by the institution which adopted the measure in question in such a way as to enable the persons concerned to ascertain the reasons for the measure and to enable the competent Community Court to exercise its power of review."
"The requirements to be satisfied by the statement of reasons depend on the circumstances of each case, in particular (a) the content of the measure in question, (b) the nature of the reasons given and (c) the interest which the addressees of the measure, or other parties to whom it is of direct and individual concern, may have in obtaining explanations. It is not necessary for the reasoning to go into all the relevant facts and points of law, since the question whether the statement of reasons meets the requirements of Article 253 EC must be assessed with regard not only to its wording but also to its context and to all the legal rules governing the matter in question." [Cites]
"The institution which adopted the measure is not required, however, to define its position on matters which are plainly of secondary importance or to anticipate potential objections. [Cites]. Moreover, the degree of precision of the statement of the reasons for a decision must be weighed against practical realities and the time and technical facilities available for making the decision. [Cites]."
"Thus, the Commission does not infringe its duty to state reasons if, when exercising its power to examine concentrations, it does not include precise reasoning in its decision as to the appraisal of a number of aspects of the concentration which appear to it to be manifestly irrelevant or insignificant or plainly of secondary importance to the appraisal of the concentration. [Cite]. Such a requirement would be difficult to reconcile with the need for speed and the short timescales which the Commission is bound to observe when exercising its power to examine concentrations and which form part of the particular circumstances of proceedings for control of those concentrations."
"It follows that, where the Commission declares a concentration to be compatible with the common market on the basis of Article 8(2) of the Regulation, the requirement to state reasons is satisfied when that decision clearly sets out the reasons for which the Commission considers that the concentration in question, ... does not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it."
"While it is true that the Commission is not obliged, in the statement of reasons for decisions adopted under the Regulation, to take a position on all the information and arguments relied on before it, including those which are plainly of secondary importance to the appraisal it is required to undertake, it none the less remains the case that it is required to set out the facts and the legal considerations having decisive importance in the context of the decision. The reasoning must in addition be logical and must not disclose any internal contradictions. [Cites]."
"It is in the light of these principles that the objections raised by the Appellants under the sixth ground of appeal should be examined. 171. As their principal argument, the Appellants submit that a Commission decision approving a concentration cannot be annulled on the ground of inadequate reasoning. They rely in particular in this regard on Article 10(6) of the Regulation." [¶¶ 166 170]
"... [T]he purpose of that provision is to ensure legal certainty where, exceptionally, the Commission has not adopted a decision within the prescribed period. Thus, the undertakings concerned are free to implement their concentration as soon as approval is deemed to have been given."
"As Impala observes, the line of argument of the Appellants based on Article 10(6) of the Regulation has the result that decisions approving concentrations do not have to be reasoned at all, as they cannot be challenged on the ground of lack of a statement of reasons."
"... [A]n inadequate statement of reasons in breach of Article 253 EC constitutes an infringement of essential procedural requirements for the purposes of Article 230 EC and is, moreover, a plea which may, and even must, be raised by the Community judicature of its own motion [Cite]. Furthermore, according to settled case law, where it is necessary to interpret a provision of secondary Community law, preference should as far as possible be given to the interpretation which renders the provision consistent with the Treaty and the general principles of Community law [Cite]. It follows that Article 10(6) of the Regulation must be interpreted and applied in the light of Articles 230 EC and 253 EC."
"Thus, ... Article 10(6) constitutes an exception to the general scheme of the Regulation, which is laid down in particular in Articles 6(1) and 8(1) thereof. According to them, the Commission is to rule expressly on the concentrations which are notified to it, whether its decision be a negative or a positive one. It follows that, not only can Article 10(6) of the Regulation not form the basis of a general presumption that concentrations are compatible with the common market, it also cannot serve as a basis for an exception to the rule that a decision approving such a concentration may be challenged on the ground of infringement of the duty to state reasons. The legitimate need for legal certainty in exceptional situations, which that provision reflects, cannot go so far as to exclude decisions relating to concentrations in whole or in part from review by the Community judicature. The Appellants' line of argument based on Article 10(6) of the Regulation must therefore be rejected."
"In the alternative, the Appellants submit, inter alia, that since TCD allowed Impala to ascertain the reasons for the approval at issue and the [CFI] to exercise its power of judicial review, that court did not observe the settled case law of the Community judicature on the requirement to state reasons."
"... [I]t is settled case law, first, that the purpose of the statement of reasons required by Article 253 EC is to enable the persons concerned to ascertain the reasons for the measure and to enable the competent Community Court to exercise its power of review and, secondly, that the requirements to be satisfied by the statement of reasons must be appraised by reference to the nature of the measure at issue and the context in which it was adopted. [Cites]."
"In the present case, it is true that a certain imbalance in [TCD] between the presentation of the elements tending to plead in favour of there being sufficient transparency and the presentation of the impact of the campaign discounts, which plead, according to the Commission, against such transparency, may appear unfortunate. Nevertheless, in the light, first, of the context in which [TCD] was adopted, marked in particular by the short space of time between the written reply to the [SO] and the hearing before the Commission, on the one hand, and the end of the formal proceedings, on the other. Secondly, [under] the requirements laid down by the case law referred to in ...this judgment, ... the [CFI] could not, without committing an error of law, find that the Commission had failed to comply with the duty to provide an adequate statement of reasons for [TCD]."
"In the first place, [TCD] showed the reasoning followed by the Commission in a way which subsequently allowed a party such as Impala to challenge its validity before the competent Court. It would be unreasonable in that regard to require, ... a detailed description of each of the factors underpinning [TCD], such as the nature of campaign discounts, the circumstances in which they might be applied, their degree of opacity, their size or their specific impact on price transparency. [Cites]. That is all the more the case because Impala was [cites] closely associated with the formal proceedings [cites] and that it was, in addition, perfectly able to challenge the validity of the Commission's substantive appraisal in [TCD] before the [CFI]."
"In the second place, ...the [CFI] was aware of the reasons for which the Commission decided to approve the concentration at issue. It also devoted numerous paragraphs in its judgment to an analysis of whether those reasons were well founded. ... [T]he duty to state adequate reasons in decisions is an essential procedural requirement which must be distinguished from the question whether the reasoning is well founded, which is concerned with the substantive legality of the measure at issue [Cites]. The reasoning of a decision consists in a formal statement of the grounds on which that decision is based. If those grounds are vitiated by errors, the latter will vitiate the substantive legality of the decision, but not the statement of reasons in it, which may be adequate even though it sets out reasons which are incorrect. It cannot therefore be claimed that it was impossible for the [CFI] to exercise its power of judicial review. [Cites]." [¶¶ 172 181]
"Under the first paragraph of Article 61 of the Statute of the Court of Justice, if the appeal is well founded, the Court of Justice is to quash the decision of the [CFI]. It may itself give final judgment in the matter, where the state of the proceedings so permits, or refer the case back to the [CFI] for judgment. Since the [CFI's] judgment of July 13, 2006 examined only two of the five pleas relied on by Impala in support of its action, the Court of Justice considers that the present case is not in a state where judgment may be given. The case must therefore be referred back to the [CFI]." [¶¶ 189 190]
Citation: Bertelsmann AG, and Sony Corporation of America v. Commission of the European Communities, Independent Music Publishers and Labels Association (Impala), Case 413/06; OJ 2008 C223/7 (ECJ Aug. 30, 2008)(Grand Chamber).
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