Judicial Review and EC Merger Control:Issues for Discussion

Kyriakos Fountoukakos Partner, Herbert Smith LLP

International Competition Law ConferenceAthens, 2 June 2007

Disclaimer: All views expressed in this presentation are personal views of the author. The content of this presentation does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

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Today’s presentationIntroduction: Why is judicial review important in EC merger control?

Outline of EC system of merger control and role of the EC courts

Access to judicial review: what decisions and who can attack them

How do the EC courts review Commission decisions? Review of law: procedure and substance Review of facts Review of economic assessment

The issues The recent criticism Deficiencies/issues in the current system Standard of review/proof; evidentiary issues; speed Interesting Statistics

Data mainly from www.curia.eu.int “Annual Report” where more info can be found

Solutions? Issues for further discussion

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I. Introduction

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The importance of JR in EC merger control An administrative system of merger control

• Commission enjoys powers of investigation and decision-making including the power to prohibit, sanction and penalise

• Same body (“Commission”) investigates, ‘prosecutes’ and decides cases at first instance (administrative system): “Is COM judge and jury”?

• Right of appeal to the European Courts but courts judicially review-no re-examination on the merits (more on this later)

• Typical administrative system set-up used in most Member States

• US system is different: competition authorities must initiate proceedings before Federal Courts in order to block a merger

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The importance of JR in EC merger control

President Vesterdorf:

“concentration of investigative, prosecutorial and decision-making powers in the hands of a single body is not an unusual feature of administrative systems, including competition enforcement systems. [The acceptability of such a system] is, however, subject to an important proviso: that the administration's decisions are taken in full respect of due process and are subject to effective checks and balances, in particular, subject to effective judicial review by an independent tribunal”

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II. Overview of the current system of judicial review

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Overview of the current system (1)Role of the EC Courts in merger control

• Article 7 EC: the Court of Justice is one of the Institutions of the EU (see next slide for CFI composition)

• Article 220 EC and 233 EC (judicial review - more on this later)

• Article 229 EC (fines)

• Articles 242-243 EC (interim measures)

• Article 288 EC (damages)

• Article 234 EC (preliminary rulings)

• Article 21(2) and 16 ECMR (specific mention of judicial review in ECMR) and Article 10(5) ECMR (specific provision on procedure to be followed after annulment)

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Overview of the current system (2)

The Court of First Instance (CFI) is the main judicial player in EC merger control

• 27 Judges

• Sits in chambers composed of one, three, five Judges (mainly 3).  It may also sit in a Grand Chamber or as a full court

• Types of merger proceedings:

– direct actions brought by individuals and Member States against the Commission

– actions for annulment– actions for failure to act– actions for damages– interim measures

• Appeal against CFI’s decisions/orders to the ECJ on points of law only

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Overview of the current system (3)CFI Procedure for direct actions

•Lodge action before the Registry

•Appointment of Chamber and Judge Rapporteur

•[Expedited procedure?]

•[Interim measures?]

•Written procedure (normally 2 rounds of pleadings)

•Internal preliminary report

•Measures of organisation or of inquiry

•Report for the Hearing

•Oral procedure (hearing)

•Deliberation

•Judgment (No dissenting opinions)

Applicant chooses language of case – internal working language French – publication in all languages

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III. Access to judicial review

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Admissibility (1)Comprehensive access to justice

• Reviewable acts – which decisions can be attacked:

– Commission decisions that produce legal effects adversely affecting the applicant’s situation

– Final decisions, decisions as to non-applicability, conditional clearance decisions, fining decisions

– Reviewable merger decisions: Article 6(1)(b)/6(2), 8(2), 8(3) and 8(4). Other decisions that can, in principle be appealed: Article 6(1)(a), 7(3), 14 and 15 and referral decisions under Articles 9 (and 22(3)(?))

– Not preparatory measures: decision under Art. 6(1)(c) or the SO

• Locus standi – who can attack:

– Addressee of decision – notifying party(ies); – Target company (involved party)– Third parties to whom decision is of direct and individual

concern: competitors, customers, suppliers, employees(?), shareholders(?), consumers (?)

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Admissibility (2)

Recent cases

Schneider II (T-48/03 and C-188/06P) CFI dismissed Schneider’s action against the Commission decision to

initiate a second Phase II investigation A decision under Article 6(1)(c) constitutes a procedural step in the

investigation and is not an appealable decision Confirmed by ECJ

Wirtschaftskammer Kärnten (Verbund/Energie Allianz) (T-350/03) Appeal against clearance decision by two third parties Participation in the administrative procedure is not by itself sufficient to be

individually concerned by a decision Impact on competitive position must be substantial

Moving towards more restrictive approach?

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IV. How do the EC Courts perform their role of judicial review?

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Jurisdiction of the CFI/ECJ to review merger decisions

• Article 230 EC Treaty – annulment procedures on the grounds of incompetence, infringement of an essential procedural requirement, infringement of the Treaty or any rule of law relating to its application, or misuse of power

• Infringement of procedural requirements and infringement of rule of law will normally be the grounds capable of challenging most aspects of merger decisions

• ECMR Article 16 and Article 229 EC Treaty – unlimited jurisdiction with regard to fines

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The standard of review

The “judicial review” role of the Courts

•Role of the Courts is that of judicial review (Art 230 EC, Art 233 EC)

•No re-examination of a case on the merits (but unlimited jurisdiction in respect of fines under Art 229 EC)

•The Courts must remit the case back to the Commission which has to take into account the Court’s judgment when taking its decision

•Merger cases: Commission has to re-start the procedure taking into account the current market conditions (Article 10(5) ECMR)

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The standard of review (cont.)

Full control of law

• Jurisdictional and substantive issues• Procedural issues

Full control of facts

• Primary facts• Economic data• Documents in the file• Difficulties in distinguishing between “facts” and “economic

appreciation”?

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The standard of review (cont.)

Restrained control of economic appreciation

•The traditional “manifest error” standard

– Kali and Salz (Joined Cases C-68/94 and C-30/95, France and Others v. Commission)

– Gencor (Case T-102/96, Gencor v. Commission)– Petrolessence (Case T-342/00, Petrolessence and

SG2R v. Commission)

• The “new” “manifest error” standard– The 2002 annulments (Airtours, Schneider, Tetra Laval)– The Tetra Laval ECJ judgment (C-12/03P)

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Effectiveness of judicial reviewCFI has been very effective in controlling Commission

merger decisions• Judicial review standard does not mean that scrutiny by the CFI is lax

• CFI will not hesitate to annul Commission decisions where– underlying facts on which the Commission relies to support

its case are erroneous– the Commission has committed procedural breaches which

have a significant impact on the outcome of the case– the Commission’s assessment of facts or economic

reasoning reveals manifest errors of appreciation

• Series of 2002 merger prohibitions annulled by the CFI– Airtours v Commission (Case T-342/99)– Schneider Electric v Commission (Case T-310/01)– Tetra Laval v Commission (Case T-5/02)

• Followed more recently by other high profile cases such as GE v Commission (Case T-210/01) and Impala (Case T-464/04)

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Examples of JR in recent cases (1)Jurisdictional points

• Cementbouw Handel & Industrie BV v Commission (Case T-282/02)

– Multiple transactions

• Endesa v Commission (Case T-417/05)

– Calculation of turnover thresholds

• MCI Inc v Commission (Case T-310/00)

– What happens in case of withdrawal of notification or abandonment of a deal

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Examples of JR in recent cases (2)

Procedural points

• Tetra Laval BV v Commission (Case T-5/02)

– access to file

• Schneider Electric v Commission (Case T-310/01)

– Importance of the SO

• Omya v Commission (Case T-145/06 - pending)

– Article 11 request used by the Commission to obtain an extension of the time limit

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Examples of JR in recent cases (3)Substantive points

• EDP v Commission (Case T-87/05)

– potential competition

• GE v Commission (Case T-210/01)

– vertical and conglomerate effects

• Impala v Commission (Case T-464/04)

– collective dominance

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V. Some problems in the current system of judicial review

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The criticism

Debate during the recent merger review in 2003/2004 and more recently re-launched: CBI and House of Lords in 2006/2007

Critics of the current system say:

• Commission enjoys wide-ranging powers and is “judge and jury” in competition cases.

• Companies feel they have no real redress against Commission decisions because:

– “You don’t really get your day in court”: An appeal is just a judicial review and not re-examination on the merits. Case goes back to the Commission.

– “Too little too late”: Judicial review takes too long to be meaningful, especially in merger cases

Do the critics have a point?

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Problems/issues

• Standard of review – nature of judicial review

– Are we in a mixed system of JR?

• Treatment of economic evidence

– Are the standards of economic evidence adequate?

• The problem of speed

– Is judicial review quick enough to provide real justice?

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Standard of review (and the Impala issue)

Do we have an appropriate standard of review/proof?

• Traditional “manifest error” standard and new “heightened” standard (Tetra Laval)

• Is/should the standard of review/proof be the same for prohibition and authorisation decisions?

• In Impala (Case T-464/04), the CFI performed a very close scrutiny of the Commission’s clearance decision which had authorised the Sony/BMG JV

• Strong criticism of the Commission’s treatment of the case

– Differences between SO and Decision– Reliance on parties’ data– Economic analysis– Commission must prove the “absence” of competition

problems?

• The case also highlights the problems of speed in judicial review (more on speed later)

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A mixed system of judicial review?

Are we in a transitional phase of a mixed system of judicial review?

• More than 15 years on, are we still grappling with issues of standard of control/proof, and the the role of the courts in general?

• Post-Tetra Laval judgments do not always appear to follow same standard

– Heightened standard? (MCI, GE, Impala)– Traditional standard? (EDP, Cementbouw, easyJet)

• Treatment of evidence is not entirely consistent and there is an absence of clear criteria

• The role of judicial review can create problems for the Commission and for the parties

• Better if the CFI could adopt a final decision on the merits rather than just annulling and sending the case back to the Commission for re-examination?

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Economic evidence

Rules of evidence and use of evidence by the EC courts

•Economic evidence

•Expert reports

•Expert testimony

•Witnesses

•Pre-trial management

•Need for (clearer) criteria?

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The problem of speedProcedural delays

•Average duration of proceedings in CFI currently stands at over 25 months – much longer in competition cases

•Length of proceedings can discourage litigation

•Merger cases: speedy adjudication is of crucial importance

•CFI has introduced expedited (“fast track”) procedure (Art 76a Rules of Procedure of the CFI) for cases where there is particular urgency

– CFI has discretion in deciding whether or not to adjudicate under the expedited procedure

•Under the expedited procedure, cases are usually adjudicated in less than a year

– EDP decided in approximately 7 months– But Impala took around 1 and half years

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Merger Statistics in 2006 (Jan-Dec 2006)

•Notifications: 356• Notifications withdrawn in Phase I: 7• Notifications withdrawn in Phase II: 2

•Article 4(5) : 39 cases (more than 10% of total)

•Final decisions: 346• Phase I: 336

– Of which simplified procedure: 207• Phase II: 10

•Remedies: 19 • Phase I: 13• Phase II: 6

•Judgments: 6

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StatisticsCompetition-specific CFI data

As of end of 2006:

• CFI disposed of 42 competition and 54 State aid cases in 2006

• CFI received 81 new competition cases and 28 new State aid cases in 2006

• 173 pending competition cases and 164 pending State aid cases before the CFI (more than 1000 cases in total pending)

• Pending competition cases (excluding State aid cases) represent around 16% of the total pending caseload of the CFI

• Average time required for the adjudication of competition cases at the CFI is more than [30 months] but under 12 months under the expedited procedure (can be even shorter in merger cases)

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CFI merger judgments1989-2006

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10

1989

1990

1991

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Judg

men

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CFI – Expedited procedure applications

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2001 2002 2003 2004 2005 2006

Requests

Granted

Refused

Withdrawn/other

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So do the critics have a point?

After the discussion today, think again about some relevant examples of judicial review in practice:

• Merger prohibition decisions:– GE/Honeywell– Schneider/Legrand– Tetra Laval

• Merger clearance decision:– Sony/BMG

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Discussion for improvement

Possible reform?

• Removing cases from the CFI’s workload– creating non-competition (e.g. Trade Mark) judicial

panels under Art 225A EC

• Procedural improvements within existing framework– More use of expedited procedure– Rules to improve trial management– Language

• Specialised CFI Chamber(s)

• Specialised Competition Tribunal

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“Watch this space”Cases pending before the CFI:

• Damages– My Travel (T-213/03)– Schneider/Legrand (T-351/03)

• Implementation of remedies– E.ON/MOL (T-57/07)

• Commission v Member States– Poland v Commission (HVB/Unicredito) (T-41/06)

• Procedural issues– Omya (T-145/06)– My Travel (access to documents) (T-403/05)

Cases pending before the ECJ:

– SonyBMG (C-413/06P)– Cementbouw (C-202/06P)

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Questions?