When are acquisitions subject to review under the abuse of dominance rules?
Article 102 of the Treaty on the Functioning of the European Union prohibits the abuse of a dominant position. It is most often used to sanction the behaviour of dominant firms, in particular with respect to the foreclosure of rivals and the imposition of excessive prices. However, in a 1973 judgment (Continental Can) the European Court held that it could also be applied to acquisitions that structurally strengthen the position of dominant companies “in a way that substantially fetters competition”.
The European Commission leveraged this ruling in several cases until the first EU Merger Regulation came into force in 1989. The advent of European merger control did not invalidate the European Court’s judgment. But it reduced the circumstances where post-completion intervention was required, and raised questions as to how the two sets of rules interact. Indeed, the current version of the EU Merger Regulation disapplies the procedural rules that implement Article 102 with respect to “concentrations” that are capable of review under EU merger control.
This issue has now been thrust under the spotlight in an acquisition in the French television broadcasting sector. Prior to the contested transaction, only three companies were active in the French market for terrestrial television broadcasting: TDF (clearly the largest player); TowerCast; and Itas. TDF acquired Itas in 2016. The deal did not require prior approval under EU or French merger control rules so TowerCast complained to the French Competition Authority that it constituted an abuse of a dominant position by TDF.
The authority rejected the complaint on the basis that Article 102 does not apply to concentrations that are reviewable under European merger control rules. TowerCast launched an appeal to the Paris Court of Appeal. In turn, the Court of Appeal asked the European Court of Justice whether a concentration that has not been subject to prior review under EU or national merger control law can be reviewed under Article 102, despite the EU Merger Regulation disapplying the procedural rules of Article 102 for “concentrations” that are capable of review under EU merger control.
The case is still pending judgment by the European Court, but Advocate General Kokott issued an opinion on the matter last week. The opinion focuses on the supremacy of Article 102 over the EU Merger Regulation: Article 102 is directly applicable primary law that cannot be restricted by a Regulation; although the EU Merger Regulation may preclude the application of the relevant procedural rules, individuals must always be able to enforce their rights under Article 102, and public authorities must always be obliged to protect those rights.
Nevertheless, AG Kokott seeks to draw a distinction between two situations:
- Transactions that have been reviewed under EU or national merger control rules. Kokott concedes there is a risk of “double assessment” that was not the intention of the EU legislature for transactions that have already been reviewed under merger control rules. She confirms that Article 102 remains applicable in these cases, but resolves the tension by noting that a transaction approved under merger control rules could not factually constitute an abuse of a dominant position.
- Transactions that have not been subject to prior merger control review. Conversely, Kokott holds that transactions that have not been subject to prior merger control review are unambiguously capable of review under Article 102.
This opinion is influential, but not binding, on the European Court. Indeed, there remains scope for further debate, including as to (1) the assumption that a merger control approval is substantively equivalent to a finding that there has been no abuse, and (2) the potential implications on Article 101, which prohibits anticompetitive agreements and whose procedural rules are also disapplied for concentrations that are capable of review under the EU Merger Regulation. The European Commission and national competition authorities around Europe will be watching with keen interest as to whether and when Article 102 forms part of their merger toolbox.
This article was authored by Richard Pepper, a partner in our competition practice, and Roque Botas Armero, a stagiaire in our competition practice.