Competition Law – new standards in the assessment of conglomerate merges

In its judgment of 15 February 2005 in case Tetra Laval BV v. European Commission, the European Court of Justice (hereinafter the “ECJ”) upheld and confirmed conclusions reached by the Court of First Instance (hereinafter the “CFI”) in its judgment of 25 October 2002.

The so-called “Tetra Laval saga” commenced in October 2001, when the European Commission refused to approve Tetra Laval’s contemplated acquisition of Sidel, due to serious concerns of potential conglomerate effects of the concentration. Tetra Laval, in particular through its Tetra Pak business, is considered to be one of the leading companies in the area of aseptic and non-aseptic carton packaging solutions and Sidel is a market leader in plastic (PET) packaging systems, in particular in the area of stretch-blow molding machines for empty PET bottles manufacturing. The European Commission arrived to the conclusion that Tetra Laval’s market power on the market of aseptic and non-aseptic carton packaging systems would enable the newly created entity to leverage significantly its market power on the neighboring market of plastic (PET) packaging systems and eliminate thus potential competition across the entire packaging systems sector.

The prohibition decision of the European Commission was appealed before the CFI, which upheld arguments of the merging entities, rejected substantive assessment used the European Commission in this particular case and annulled the prohibition decision. Upon annulment of the decision Tetra Laval re-notified the contemplated concentration and the European Commission approved it in the Stage I proceedings on 13 January 2003. Although the contemplated concentration was implemented, the European Commission appealed the judgment of the CFI before the ECJ, questioning in particular its burden of proof in merger cases, its obligation to take into account behavioural commitments offered by the merging entities, and other issues relating to the standard of judicial review in merger cases.

With regard to the contested burden of proof the ECJ held that “the analysis of a conglomerate-type concentration [i.e. when the merging entities are neither horizontal nor vertical competitors] is a prospective analysis in which, first, the consideration of a lengthy period of time in the future and, secondly, the leveraging necessary to give rise to a significant impediment to effective competition means that the chains of cause and effect are dimly discernible, uncertain and difficult to establish. That being so, the quality of the evidence produced by the Commission is particularly important”.

As far as the assessment of behavioural commitments is concerned, the ECJ upheld the CFI’s finding that the European Commission’s rejection of behavioural commitments “as a matter of principle” could not be sustained. The ECJ’s judgment thus confirmed that even well-structured commitments of a behavioural nature may be sufficient to alleviate the European Commission’s concerns, in particular in conglomerate cases.

Concerning the standard of judicial review the ECJ held that the CFI’s requirement that proof of the anti-competitive effects of a concentration calls for “a precise examination, supported by convincing evidence, of the circumstances which allegedly produce those effects” is not a new standard imposed upon the European Commission, but simply a reflection of the essential function of evidence, which is to establish convincingly the merits of a merger decision. The ECJ moreover confirmed the fundamental role of the CFI in the review of merger cases that shall enable CFI to continue looking very closely at the European Commission’s analysis.