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In December 2004, Impala (the Independent Music Publishers and Labels Association) brought an action before the CFI seeking annulment of the first clearance decision. The Commission applied for the action to be dismissed and was supported by Sony, Bertelsmann and the merged entity Sony BMG Music Entertainment, who were given leave to intervene.

On 13 July 2006, the CFI annulled the first clearance decision. Sony and Bertelsmann brought a joint appeal against the CFI's decision, seeking to have the judgment set aside and Impala's application for annulment dismissed, or, alternatively, referred back to the CFI for reconsideration. It is in respect of this appeal that AG Kokott has delivered her opinion and, assuming that there continues to be an interest in pursuing the case, the ECJ will eventually deliver its judgment in this regard.

While Kokott has considered some elements of the appeal to be successful in substance, she has ultimately recommended to the Court that it be dismissed. Although the CFI's judgment does not escape criticism, Kokott considered that those errors of law that were apparent were not sufficient to justify it being set aside. Critically, Kokott considered the CFI's findings that the Commission had failed in its duty to state the reasons for the first clearance decision to be justified and, notwithstanding certain errors on the CFI's part, it had still correctly identified two manifest errors of assessment by the Commission. Either of these errors of assessment by the Commission, or its failure to state sufficient reasons, could justify the CFI in annulling the first clearance decision.

Second clearance decision
Of course, time has not stood still for the parties while this appeal process has been running. Sony and Bertelsmann implemented the merger following the first clearance decision and, after that decision was annulled, the transaction was renotified to the Commission on 31 January 2007. Following another Phase II investigation, the concentration was cleared by the Commission for the second time on 3 October 2007 - again, without being subject to any conditions or obligations
(the second clearance decision).

As a preliminary matter, Kokott had to consider whether there was any continuing interest in the appeal being pursued, particularly as the concentration had been put into effect and the state of uncertainty regarding its lawfulness was removed by the second clearance decision. Kokott concluded that the appellants did have a valid interest in obtaining not just clearance but definitive clearance of their concentration in order to obtain legal certainty as to its lawfulness. While the second clearance decision had been issued, it could only become definitive once the time period for third parties to challenge it has expired and any such challenges that may be brought have been dismissed. On this basis, Sony and Bertelsmann were permitted to maintain their appeal, although this position could be expected to change if the second clearance decision becomes 'final' before the decision of the Court of Justice.

Other issues
Kokott considered a number of other preliminary issues raised by the appeal before giving her opinion on the substance. The appellants had argued that the CFI had erred in law:

1. by using the Commission's statement of objections as a benchmark for its substantive assessment of the decision;
2. by requiring the Commission to conduct a new market investigation following the parties' response to the statement of objections;
3. by applying an erroneous and excessively high standard of proof for merger clearance decisions;
4. by misapplying the criteria developed in Airtours for the assessment of the feasibility of tacit collusion;
5. by applying an erroneous and excessively high standard of reasoning for merger clearance decisions; and
6. by relying on evidence that was not disclosed to the applicants and that was not before the Commission at the time it adopted its decision.

In addition, the appellants said that the CFI had exceeded the scope of judicial review by substituting its own assessment for that of the Commission and, in doing so, itself committed manifest errors and fundamentally misconstrued the evidence.

Impala had claimed that the appeal was inadmissible in its entirety because it merely sought reconsideration of the CFI's appraisal of the facts - appeals to the ECJ being limited to points of law. Kokott considered this claim, and whether the appeal was capable of achieving the result sought, on the basis that the appellants had allegedly failed to challenge a decisive passage of the judgment and the grounds of the judgment under appeal did not support its operative part. With the exception of the fourth ground of appeal, Kokott considered the appeal to be directed at the criteria that the CFI had applied in assessing the legality of the first clearance decision and the evidential requirements to which the Commission is subject in clearing concentrations. As these were questions of law, the relevant grounds of appeal were admissible.

Airtours criteria ground of appeal
The fourth ground of appeal raised the question of whether the criteria developed in the Airtours case applied to a different degree of strictness, depending on whether what was to be proved was an existing collective dominant position or the risk of one being created as a result of the concentration. The fourth ground then continued to detail several specific criticisms of the CFI's failure to take certain information (including the importance of price discounts, price variance and volatility of prices) into account on the issue of market transparency. Kokott considered that these specific criticisms effectively asked the ECJ to substitute its own appraisal of the facts for that of the CFI, and was therefore inadmissible. While the first part of the fourth ground concerning the interpretation of the criteria in Airtours was a question of law, Kokott pointed out that the relevant sections of the CFI's judgment considering those criteria were made obiter and therefore did not support the operative part of the judgment. As a result, all of the fourth ground of appeal was inadmissible.

Standard of reasoning
In considering the remaining six grounds of appeal, Kokott first addressed the standard of reasoning required for merger clearance decisions, and her conclusions in this regard suggest that the ECJ's judgment is likely to dismiss Sony and Bertelsmann's appeal. The appellants had argued that a merger clearance decision by the Commission could not be annulled on grounds of insufficient reasoning, but Kokott disagreed. Article 253 EC provides that Commission decisions shall state the reasons on which they are based and the duty that this imposes is not limited to decisions that may negatively affect the interests of the decision's addressees. As it infringes an essential procedural requirement, a breach of the duty to state reasons may be complained of by means of an annulment action before the Community courts.

Insufficient reasoning
The appellants' argument that the CFI applied an excessively high standard in assessing the extent of the Commission's duty to state reasons was no more successful. Kokott considered the CFI's high standards to be justified. The statement of reasons must be appropriate to the measure at issue and in this case there was an imbalance between the factors pointing towards market transparency (a key criterion for a collective dominant position) and those which allegedly militate against sufficient transparency. In this context, the CFI was correct to find that the Commission's reasoning in finding insufficient market transparency was itself insufficient, the Commission having restricted itself to vague assertions and factors, decisive to its decision, that were unsubstantiated and internally contradictory.

CFI errors and weaknesses
Kokott did have some sympathy for the appellants' arguments that the CFI had set too high a standard of proof regarding their assertions in response to the statement of objections and wrongly held that the Commission was under a duty to conduct a new market investigation following the statement of objections. Kokott's view was that the CFI had failed to understand the legal position correctly - the parties' submission in response to the statement of objections was made at the correct point in the merger control process. As this is the first point at which parties are informed in detail of the Commission's objections to a concentration, their rights of defence allow them to put forward anything appropriate to refute such objections at that point. Similarly, the Commission could not be obliged to initiate a new market investigation at such a late stage in the process.

Unfortunately for the parties, Kokott did not consider these errors by the CFI justified the judgment being set aside. The CFI also reviewed the substance of the Commission's analysis for manifest errors of assessment. In doing so, it identified two errors of assessment that were not based on the Commission taking into account the parties' defence submissions and which therefore also justified the annulment decision.

The appellants' arguments that the CFI's had wrongly used the statement of objections as a benchmark for its substantive assessment of the first clearance decision were unsuccessful too. Despite the numerous references in the judgment, Kokott was satisfied that - while some of the CFI's choices of expression were unfortunate - the Court did not misunderstand the nature and function of the statement. With regard to the Commission's failure to state reasons, the CFI's references to the statement were essentially illustrative and not relied upon in the judgment. The same was true of many on the references regarding the Commission's errors of assessment. Kokott was satisfied that, to the extent that the CFI did rely on other references in its judgment, it did so in an acceptable manner as a basis for its review of whether the first clearance decision was adopted on a correct and complete factual basis that was capable of supporting the Commission's conclusions.

Merger control
For merger control lawyers, perhaps the most interesting part of Kokott's opinion on the remaining grounds of appeal concerns the standard of proof applicable for clearing a concentration. The appellants had argued that there exists an asymmetry as to the standards of proof required in relation to clearance decisions and prohibition decisions, and a general presumption of compatibility with the common market.

Kokott was not convinced by this argument, pointing out that merger control decisions are based on prognoses as to the market's future development and the extent to which such prognoses may be plausible or implausible. The Commission should therefore base its decision on the prognosis for market development that is most plausible - in effect, a balance of probabilities test. There is no discernible difference between the legal requirements as to a clearance decision on the one hand and a prohibition on the other - no difference between the degrees of plausibility of the prognosis to be made or the solidity of the factual basis supporting it.

Two exceptions
As the legal requirements are symmetrical, it follows that there is no general presumption of compatibility with the common market. However, Kokott did identify two narrow exceptions where such a presumption of compatibility could exist. These are cases of deemed clearance where the Commission has failed to issue a decision within the specified time limit, and a very limited class of borderline cases where the unclear state of available evidence means that it is impossible to make any reliable prognosis as to whether or not a dominant position will ultimately be created or strengthened.