Explanatory Memorandum to COM(2002)711 - Control of concentrations between undertakings ("The EC Merger Regulation")

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dossier COM(2002)711 - Control of concentrations between undertakings ("The EC Merger Regulation").
source COM(2002)711 EN
date 11-12-2002

I. Introduction

1. 00000000Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings ("the Merger Regulation")1 was adopted on 21 December 1989 and entered into force on 21 September 1990. It was amended by the Act of Accession of Austria, Finland and Sweden2 and by Council Regulation (EC) No 1310/97 of 30 June 1997 ("the amending Regulation")3. The Merger Regulation applies to all concentrations having a Community dimension, as defined on the basis of the annual turnover of the companies concerned, and confers exclusive jurisdiction to the Commission for such cases. The Merger Regulation thus provides a “one stop shop” within the European Union for the examination and control of concentrations having a Community dimension.

2. The current proposal for review of the Merger Regulation was prompted by the legal obligation to review the turnover thresholds under Article 1 and the case referral rules under Article 94. In addition, the Commission took the opportunity to examine the operation of the Regulation as a whole, in order to identify other areas in which improvements could be made (mainly substantive and procedural issues).

3. On 11 December 2001, the Commission adopted a Green Paper on the Review of Council Regulation (EEC) No 4064/89 (“the Green Paper”)5. That Green Paper invited comments mainly on three areas: (i) the operation of the turnover thresholds and case referral mechanisms (so-called jurisdictional issues), (ii) the substantive test to be applied for the review of concentrations by the Commission (so-called substantive issues), and (iii) procedural issues. Views were also sought on the effectiveness of the due process guarantees built into the EU merger control regime and of judicial review in merger cases.

4. Following the adoption of the Green Paper, the Commission launched a consultation of Member States, the business and legal community and other interested parties. The Council, the European Parliament and the Economic and Social Committee were also invited to express their opinions.

5. The review showed that Community merger control is widely regarded as a success. Nevertheless, it identified a number of weaknesses in the present system, not only in relation to turnover thresholds, but also in relation to some other aspects of the Merger Regulation. The Commission considers that it is now appropriate to propose amendments that will address these shortcomings and will thus improve the operation of merger control in the European Community.

6. In the light of the objective set by the European Council to make Community legislation more accessible and comprehensible6, and given that the proposed amendments concern various Articles of the Merger Regulation, it is proposed to replace both the current Merger Regulation and the amending Regulation by a new EC Merger Regulation, using the recasting technique7.

2.

7. As compared with the text of the current Merger Regulation, the amendments contained in the proposed new EC Merger Regulation can be categorised as follows:


- jurisdictional issues (see section II.A. below);

- substantive issues (see section II.B. below);

- procedural issues (see section II.C. below);

- other proposed amendments (see section II.D. below).
II. Overview of the most important amendments

A. Jurisdictional issues

(1) Community dimension

8. One of the aims of the proposed amendments to the Merger Regulation, as set out in the Commission’s Green Paper, is an optimisation of the allocation of merger cases between the Commission and national competition authorities, in line with the principle of subsidiarity.

9. In this context, it is the Commission's stated objective to ensure that the Commission can deal with cases having a significant cross-border impact, but which are not currently caught by the turnover thresholds of Articles 1 i and 1 i of the Merger Regulation, whilst ensuring that Member States deal with cases whose impact is mainly national or local. This would also benefit the business community by reducing legal uncertainty and costs, which have been reported to be significant in post-notification referrals. As set out in further detail below, the proposal places the exclusive right of initiative with the notifying parties at the pre-notification stage.

10. In line with the principle of subsidiarity, and in order to preserve administrative efficiency and the 'one stop shop' concept – one of the main assets of the current system –, the Community legislator should at the same time seek to reduce the significant number of multiple filings, i.e. mergers requiring notifications in several Member States.

11. The Commission's review of the functioning of the Merger Regulation has revealed that the threshold levels in Article 1 i as well as the 2/3 rule8 continue to function effectively as proxies for those cases that are most appropriately dealt with at the Community level.

12. Article 1 i has fallen short of achieving its underlying objective, i.e. to confer Commission competence over cases that affect three or more Member States.9 Given these findings, the Commission looked at various possibilities aimed at improving the functioning of Article 1 i as set out in the Green Paper.

(a) The Green Paper Proposal

13. The main suggestion set out in the Green Paper was for a so-called "mandatory 3+ system", the perceived advantage of which would have been to automatically confer Community dimension on concentrations notifiable under clearly established national laws. Closer examination shows however that the system does not provide the initially perceived advantage of being simple, clear and legally certain.

14. The requirement to notify in three or more Member States is not a sufficient indication of the existence of a Community interest. This may be due to the existence of low jurisdictional thresholds in some Member States and Applicant Countries, or even due to the lack of sufficient nexus to a specific national jurisdiction.

15. The mandatory 3+ system would also introduce unacceptable legal uncertainty. Different jurisdictional tests or concepts of concentration in various Member and applicant States could lead to diverging interpretations. It seems inappropriate to base Community jurisdiction on criteria about which the merging parties, the relevant Member State and, possibly, the Commission could adopt differing views. This is particularly true for Member State jurisdictions that base their notification requirements on market share thresholds.

16. Based on the comments received, the Commission has also given serious consideration to proposals for an "optional 3+ system”, possibly combined with a veto right for the Member States concerned. Under such a system the 3+ rule would remain intact, that is the test would be whether a transaction below the Article 1 i and 1 i thresholds was notifiable in 3 or more Member States. The parties would first check whether the 3+ rule was met. If this were the case, the parties would have a choice: either to notify to the national jurisdictions, or to make a request that the case ought to be deemed to have a Community dimension and hence notified to the Commission. The Member States concerned could be given a right to veto the merging companies’ choice to notify to the Commission instead of submitting three or more notifications to national competition authorities.

17. However, even such an improved optional 3 + system would retain many of the disadvantages of the original 3 + proposal whilst also being more complex. First, an optional 3+ system would remain a relatively crude test for 'catching' or 'missing' cross-border cases. The fact that a transaction would be notifiable in 3 or more Member States would not necessarily mean that the transaction had significant cross-border effects. At the same time, some cases notifiable in only one or two Member States might have significant cross-border effects and would not be caught. Second, by giving the parties the right to choose where to notify and hence the right to determine jurisdiction, there would be a risk of 'forum shopping' (or at the very least a perception thereof). A right for the Member States concerned to veto the submission of notifications to the Commission would not eliminate such problems and could create uncertainty.

(b) The Commission's Proposal - A system of Streamlined Referrals

18. In the light of the above and taking into account the results of the public consultation the Commission has concluded that the most effective way of meeting the two main objectives outlined above, that is optimal allocation of cases and reduction in the incidence of multiple filings, could be achieved through a more streamlined system of referrals. Such a system would be based on an enhanced recourse to the Merger Regulation’s referral mechanisms under Articles 9 and 22 ECMR, including their improvement and use at a pre-notification stage, so as to provide for an effective means of fine-tuning the allocation of cases brought about by the turnover thresholds of Articles 1 i and 1 i ECMR.

3.

19. The main elements of the proposed system are the following:


- improvement of the criteria for referrals, including a closer 'mirroring' of the criteria for referral in both directions.

- applicability of Article 9 and 22 at the pre-notification stage. Given their superior knowledge of the circumstances of the case, the notifying parties should be given an exclusive right of initiative at this stage of the procedure. In relevant cases, this would enable them to make a reasoned request for a pre-notification referral of the case in either direction. For the sake of efficiency, the request would be deemed to be accepted if not expressly opposed within given deadlines. The relevant authorities and the Commission would be organised in an informal “network” so as to enhance the efficiency and effectiveness of the process, an approach supported by the current level of experience in the Member States regarding merger control. The proposed changes for the pre-notification referrals have been incorporated into the proposed new Article 4 i and 4 i.

- conferring exclusive jurisdiction on the Commission if all the Member States concerned, or a minimum number of three such Member States, agree to a case being referred under Article 22;

- possibility for the Commission to invite Member States to make referrals under Article 22, or to request the Commission to refer cases to them under Article 9; currently the Commission has no such formal 'right of initiative';

4.

(i) Improvement of the substantive criteria in Articles 9 and 22


20. First of all, the substantive criteria for the application of both provisions are being simplified and improved10. As regards Article 9, the current wording of its paragraph 2(a) requires Member States to assess whether or not the proposed concentration threatens to create or strengthen a dominant position. The Commission proposes to delete this wording so as to allow referral requests on the basis that competition would be significantly affected on a distinct market within a given Member State. National authorities would thus not be obliged to present elaborate preliminary conclusions with regard to the competitive assessment of the case. This would facilitate a speedier use of Article 9.

21. Conversely, Article 22 would be applied mainly in those cases which have a significant impact on competition beyond a single Member State. One of the initial purposes of Article 22 was to provide a possibility for Member States which do not have national merger control legislation to refer cases with an impact on trade between Member States to the Commission; today, only Luxembourg falls into this category. Nevertheless, the possibility for a single Member State to refer cases to the Commission should not be completely excluded.

5.

(ii) Application of Articles 9 and 22 at a pre-notification stage at the request of the parties


22. The consultation showed that the main weakness is that the current referral provisions can only be used after a merger has been notified to either the Commission or the national competition authorities, as the case may be. This inevitably brings about a significant loss of time and administrative efficiency and imposes unnecessary costs and burdens on the merging companies. In Article 22 cases, experience has shown that the delay can easily amount to several months.

23. In order to address these drawbacks, it is therefore proposed in a new Article 4 paragraphs 4 and 5 to render Articles 9 and 22 applicable at a pre-notification stage, at the request of the merging parties.

24. As regards cases fulfilling the turnover thresholds of Articles 1 i or 1 i, it could be determined at an early stage whether a transaction would be better dealt with at the Member State level and referred in advance of notification. Conversely, in early application of Article 22, Member States could refer to the Commission cases remaining below the turnover thresholds of Articles 1 i and 1 i ECMR but which are likely to have a significant cross-border impact.

25. Such referrals would be made on the basis of a request and information provided by the merging parties. As is generally the case with referrals under Articles 9 and 22 of the Merger Regulation, the competition authorities involved would retain certain discretion as to whether or not to request, grant or accept a referral.

6.

(iii) Exclusive Community jurisdiction where all, or at least 3, Member States concerned make a referral request; streamlining of Article 22 procedure


26. In order to make Article 22 an efficient mechanism for the review of cases with significant cross-border effects, and to reduce legal uncertainty, it is proposed that, where all, or at least three, Member States with jurisdiction under their national rules decide to refer a case to the Commission, the Commission should acquire exclusive jurisdiction over the case throughout the EEA (see proposed Articles 22 i and 4 i, fourth subparagraph of the proposed new Regulation).

27. It is also proposed to clarify and streamline the procedural rules relating to joint referrals under Article 22, in light of the experience gained in the Promatech/Sulzer11 and GEES/Unison12 cases (see Article 22 i, i, and i of the proposed new Regulation). To that end, the new Regulation introduces deadlines for Member States to make referral requests and for other Member States to join such requests. For the sake of efficiency, Article 22 provides for a non-opposition procedure13.

7.

(iv) Referrals at the request of the Commission


28. For both Article 9 and Article 22 of the Merger Regulation, it is proposed to expressly provide the possibility for the Commission to invite Member States to make a referral request, after the case has been notified. At a pre-notification stage, however, the Commission would simply transmit the request of the merging parties, in line with the underlying basic concept that the pre-notification referrals mechanism should only be triggered by the merging parties themselves, as is laid down in the proposed Article 4 i and 4 i.

8.

(v) Implications of a system of streamlined referrals


9.

Advantages and disadvantages


29. The main advantage of this system would be its precision. Unlike relatively crude turnover or “3+” type tests, this test would form a basis for focusing on cases that have a significant cross-border impact at the Community level. The system would also have the advantage of striking a balance between Community and national interests by providing a “two-way approach”: it would allow for streamlined referrals both from and to the Commission. Last but not least, this system would also deal with the issue of case allocation in a short timeframe if triggered by the parties at the pre-notification stage. A transaction would be notified to the 'right' authority from the start, reducing legal uncertainty and cost for the merging parties.

30. As regards the business and legal communities, it should be acknowledged that they have expressed some scepticism about a more extensive use of the referral mechanism. Their criticism, however, mainly relates to the fact that the prospect of referrals after notification of a case to a given authority creates additional costs and legal uncertainties for the parties as their case will be dealt with by an authority different from the one to which they have initially turned. The Commission considers that the proposed amendments to the referral provisions, in particular their applicability at a pre-notification stage and the right of initiative granted to the merging parties, address most of the concerns voiced by the business and legal communities with regard to referrals.

Contents

1.

Comparison with the modernisation of Regulation No 17


31. The EC Merger Regulation is based on the concept of exclusive jurisdiction, that is to say, a merger is to be reviewed either at the Community level or at the national level. A parallelism of jurisdiction does not exist (see Article 21 i, i and recital 29 of Council Regulation (EEC) No 4064/89).

32. Moreover, the Commission and national competition authorities do not apply the same substantive and procedural rules. Whilst the Commission reviews mergers falling within its own jurisdiction on the basis of the Merger Regulation, the national competition authorities apply their respective national legislation to mergers falling within their jurisdiction; they do not apply the Merger Regulation (see Article 21 i, i of the current Merger Regulation). The same basic rule also applies in a referral scenario: Referrals under Article 9 of the Merger Regulation are made with a view to the application of the national competition law of the Member State concerned, whilst cases referred to the Commission under Article 22 are reviewed on the basis of the Merger Regulation.

33. Given that cases do not qualify, a priori, for review by both the Commission and national authorities, and given that the Commission and national authorities do not apply the same substantive rules, it is not necessary to provide for mechanisms ensuring the uniform application of competition law.

(2) Definition of a concentration

34. Article 3 defines what is considered to be a concentration under the Merger Regulation.

(a) Change of control on a lasting basis

10.

(i) Article 3 paragraph 1


35. The general definition in Article 3 i has been amended so as to explicitly include the criteria according to which a concentration requires a change in control and that this control has to take place on a lasting basis. These criteria were in the past applied as unwritten criteria when determining whether an operation constituted a concentration in the sense of the Merger Regulation.

36. The criterion for a change in control is currently only detailed in the Commission notice on the concept of a concentration14. The way the proposed Article is formulated, the term is used in a wide sense so as to cover mergers and acquisitions, which both continue to be explicitly referred to in Article 3 i.

37. The criterion of a lasting change is currently only included in recital 23 of Council Regulation (EEC) No 4064/89, and is taken up in the Commission Notice on the concept of a concentration.

38. It seems appropriate to complete the text of the Merger Regulation by incorporating all the major criteria that define a concentration into the definition of Article 3 i.

11.

(ii) Article 3 paragraph 5


39. Article 3 i remains unchanged. The provision describes certain narrowly defined situations when a concentration shall not be deemed to exist. Experience has shown that the limitations in this provision (in terms of non-voting rights and as regards the maximum period for holding on to the securities) mean that it is rarely applicable. At the same time, restrictions of this type are intended to discourage circumvention of the Merger Regulation, and thus to safeguard its effectiveness as well as the level playing field for companies in the internal market. The Green Paper therefore mooted the possibility of extending this provision so as to give it a larger field of application.

40. In the light of the changes proposed to the wording of Article 3 i, which clarify that the change of control has to take place on a lasting basis, it is not necessary to amend the specific cases laid down in Article 3 i.

41. The new wording of Article 3 i on the other hand makes it clear, that it is not excluded that other operations, even if they do not meet the narrow criteria laid down in Article 3 i, can be considered not to constitute a concentration if it is shown that the operation in question does not constitute a change of control on a lasting basis.

(b) Multiple transactions

12.

(i) Article 3 paragraph 4


42. The proposed new Article 3 i now explicitly states that multiple transactions which are conditional on one another or are so closely connected that their economic rationale justifies their treatment as a single concentration shall be deemed to constitute a single concentration.

43. In the past, the Commission has had to decide on a number of occasions whether a number of transactions, which are linked in a variety of respects, should be considered as constituting a single concentration.

44. The question is relevant in determining the jurisdiction of the Commission. A transaction that by itself might not have a Community dimension because it does not meet the thresholds set out in the Merger Regulation, might nevertheless fall within the scope of the Merger Regulation as part of a concentration that is made up of more than one transaction.

45. Article 3 applies to the acquisition of 'direct or indirect control of the whole or parts of one or more other undertakings'. Apart from this general and wide definition, the only other provision directly concerned with the situation of two or more transactions constituting a single concentration is Article 5(2)2. This provision was designed primarily to prevent circumvention of the Merger Regulation by separating one concentration into numerous transactions. The Merger Regulation has established a legal presumption that all transactions meeting the requirements of Article 5(2)2 are to be considered as one concentration.

46. In conformity with the “one stop shop” system, there is no reason in principle why other multiple transactions, which are not covered by the present Merger Regulation, should not be assessed as a whole if they involve an economic link revealing economic unity between the transactions in a manner that is equivalent to a single concentration. In order to avoid artificial separation in the treatment of multiple transactions, which, from the perspective of the parties and/or of the market, are characterised by economic unity, it appears appropriate to further specify the circumstances in which multiple transactions should be considered as constituting a whole for the purpose of the Merger Regulation.

47. The Green Paper15 had identified a number of specific categories for which the application of the “one stop shop” principle would better serve the overall aim of maintaining effective competition, as it would ensure that the totality of effects of such concentrations are subject to one coherent assessment.

48. The reactions to categorising the scenarios presented in the Green Paper as one concentration were generally positive. These scenarios are summarised in the proposed recital 16. As a matter of legislative technique, however, it is proposed to introduce a clause of general application. These criteria not only cover the scenarios that have been discussed in the Green Paper but also other scenarios which might arise in individual cases and merit an equivalent treatment.

49. The wording of this clause has been guided by the purpose of covering those cases that are so closely connected that their treatment as a single concentration is justified. At the same time the wording has to be stringent enough as not to compromise predictability in its application. Further guidance on this principle could be provided during the revision of the Commission's Notice on the concept of a concentration16.

13.

(ii) Article 5 paragraph 2 second subparagraph


50. It is proposed to retain the one circumstance that had already been provided for in the Merger Regulation since its inception, i.e. Article 5 paragraph 2 second subparagraph. This provision was designed primarily to prevent the circumvention of the Merger Regulation by separating one concentration into numerous transactions.

51. The wording of this provision has been tightened, however, so that transactions that are linked merely by the time criterion and the identity of the parties, but lack any economic connection, would no longer be considered as one single concentration in the future. Therefore, in future, concentrations meeting the criteria of Article 5 i second subparagraph will not be considered to constitute one concentration, if they concern unrelated economic sectors.

B. Substantive issues

52. On the substantive side, the Green Paper sought to launch a debate on two main policy questions. First, it proposed to review the respective merits of the 'dominance test', which is used in the Merger Regulation as the substantive standard to review mergers, and the "substantial lessening of competition test" ("SLC"), which is used in certain other jurisdictions such as the U.S. and, since relatively recently, also the United Kingdom and Ireland. Second, it proposed to review and, if necessary, clarify the role in merger investigations of efficiency claims made by the merging parties.

(1) The substantive test

53. The Green Paper invited views on the effectiveness of the substantive test contained in Article 2 of the Merger Regulation, and in particular sought views on how its effectiveness compares with the 'substantial lessening of competition' (SLC) standard used in some other jurisdictions. Two principal points of view have informed the debate on the substantive test. On the one hand, the consultation revealed a certain concern as to whether the current dominance test could provide effective control in some specific situations of oligopoly, in particular in cases where the merging firms would be in a position to raise prices, and thus exercise market power, without resorting to co-ordination and without necessarily holding the largest market share in the market. The economic community seems to agree that such cases should indeed be covered. The main argument for changing to SLC would be the clarity provided by the test in these cases.

54. On the other hand, many comments in response to the Green Paper have pointed out that what matters is how the applicable legal test should be interpreted. The dominance test and SLC have produced broadly convergent outcomes and the dominance test is proving to be an instrument capable of being adapted to a wide variety of situations where market power exists. It should also be noted that the Court of Justice has not explicitly ruled on, and therefore not explicitly excluded, the possibility of addressing the effect of mergers in (non-collusive) oligopolies with no single firm being significantly larger than the others under the current dominance test17.

55. The Commission considers that the aim of improving legal certainty on the scope of the Merger Regulation is best served by clarifying the Regulation itself. The Commission thus proposes to insert a new Article 2 i into the Merger Regulation, which aims to clarify the concept of dominance under the Merger Regulation.

56. The proposed definition of the dominance criterion closely follows the characterization of a dominant position given by the Court of Justice18. It thereby seeks to maintain the sizeable body of case law and case practice which has been built up over the years. The proposed recital 21 has the purpose of making it clear that specific situations of oligopoly are also covered by Article 2.

57. This approach has the additional advantage of not linking the definition of dominance under the Merger Regulation to any future interpretations given by the ECJ to the concept of dominance under Article 82 of the Treaty.

58. Alongside these proposals, a draft Notice on the appraisal of horizontal mergers under Council Regulation (EEC) No 4064/89 will be published for public consultation. It is further proposed to amend Article 23 of the ECMR in order to establish that, for the purpose of merger control, guidance shall be given regarding the notion of dominanceby a Notice issued by the Commission19.

(2) The consideration of efficiencies in merger control

59. The Green Paper also invited views as to the proper role and scope of efficiency considerations in merger control. Many respondents to the consultation on the Green Paper were in favour of treating efficiency claims made by parties explicitly in the merger review process.

60. The Commission is of the opinion that it is legally possible to deal explicitly with the issue of efficiencies under the present substantive test and with the present and proposed wording of the Merger Regulation. This view was also shared by many respondents to the Green Paper. Article 2 i (b) of the Merger Regulation provides a legal basis in that respect by stating that the Commission shall take account, inter alia, of “the development of technical and economic progress provided it is to consumers’ advantage and does not form an obstacle to competition”.

C. Procedural issues

(1) Obligation to notify a concentration before its implementation, Article 4(1)

61. The obligation to notify a concentration with a Community dimension to the Commission before it is put into effect is an expression of the principle of ex ante merger control. Practice over the last 12 years has shown that a strict enforcement of the one-week deadline for submitting notifications (Article 4 i of the current Merger Regulation) is neither realistic nor necessary. Given the suspensive effect of Article 7 i, it is in the undertakings’ own commercial interest to obtain regulatory clearance from the Commission as soon as possible, so as to be able to complete their concentration.

62. Experience has also shown that on many occasions, the notifying parties would have preferred to submit notifications earlier than the present wording of Article 4 i permits; the “triggering event” currently required by the Merger Regulation is, as a general rule, the conclusion of a binding agreement between the merging parties.

63. The comments received in response to the Green Paper show broad support for a flexibilisation of both the timing of notifications and the “triggering event” for notifying a merger. Such a flexibilisation would also bring the Community’s merger control law in line with what is current practice in many other jurisdictions and recommended by the International Competition Network20 with a view, inter alia, to enhancing international cooperation.

64. Accordingly, Article 4 i, first sentence, of the proposed new Regulation abandons the one-week deadline for submitting notifications but clearly spells out that the Community’s system of merger review is based on ex-ante control (“Concentrations […] shall be notified to the Commission prior to their implementation […].”). Article 4 i, second subparagraph, allows notifications where the undertakings concerned demonstrate to the Commission a good-faith intention to conclude a (binding) agreement and thus flexibilises the “triggering event”.

(2) Suspension of concentrations

65. The obligation to suspend the implementation of a notified concentration, i.e. the prohibition to implement it pending a clearance decision of the Commission, as provided for by Article 7 of the Merger Regulation, is an expression of the system of ex-ante merger control.

14.

(i) Automatic derogation for acquisitions through the stock market


66. In line with what had been proposed in the Green Paper,21, it is proposed to enlarge the scope of application of the automatic derogation in Article 7 i (ex-Article 7(3)) beyond public bids, so as to cover all acquisitions made from various sellers through the stock market, e.g. the so-called “creeping takeovers”, and thereby remove any legal uncertainty caused by Article 7 i in relation to such acquisitions.

15.

(ii) Automatic derogation for simplified procedure cases


67. As regards cases which, in general, do not lead to a combination of market positions giving rise to competition concerns, the obligation to suspend the implementation of a concentration is not an absolute requirement to ensure the effectiveness of ex-ante merger control. Certain types of concentrations, such as, for instance, venture capital investments, are often dependent on the parties’ ability to react quickly and close their transactions before the expiry of the one-month deadline for a Phase I decision.

68. In Article 7 i of the draft Regulation, it is therefore proposed to enable the Commission to disapply the suspensive effect laid down in Article 7 i for categories of cases which, in general, do not lead to a combination of market positions giving rise to competition concerns. The intended categories would mainly correspond to the ones set out in the Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EEC) No 4064/8922.

(3) Calculation of deadlines

69. The calculation of the time-limits laid down in the Merger Regulation and in the Implementing Regulation should be simplified and rendered more transparent by expressing all deadlines in terms of working days (“WD”, with one week generally having 5 working days, except if it includes official Commission holidays). This approach was also proposed by the Commission in its Green Paper23, and has received a generally positive feedback. Accordingly, the deadlines set by the Merger Regulation have been expressed in working days throughout the proposed new Regulation.

(4) A more flexible Timeframe

16.

(i) The current problem: time constraints both in Phase I and in Phase II


70. One of the most frequently reported procedural difficulties encountered under the current system is the “time squeeze” which can occur in complex cases, and in particular (but not only) in cases involving remedies.

71. As regards Phase I, the short deadline for submission of remedies (currently 3 weeks from the date of notification24) does not always allow the Commission to identify the areas in which serious doubts may arise, to receive input from the Member States, and to discuss with the parties and market test any remedies that they may propose at that stage.

72. As regards Phase II, time constraints may already occur in the first half which is the investigation period and for which not more than six weeks can normally be allowed. This average investigation time can indeed be insufficient if a case raises a series of competition concerns or requires complex economic analysis (such as an econometric study or the evaluation of alleged efficiency gains) or where the parties want to take issue with so called 'complaints' by competitors before the Statement of Objections is issued.

73. In addition, in almost every Phase II case, a “time squeeze” is felt towards the second half of the four-months period. In particular it should be noted that the preparation of the parties’ reply to the Commission’s Statement of Objections (SO), the possibility for them to analyse the Commission’s file (after being granted access to the file), the discussion of possible remedies with the Commission, and the preparation of the draft decision, often coincide. Moreover, Member States have repeatedly commented that the Commission does not provide the Advisory Committee with all relevant documents in time for a full discussion to take place at the meeting.

17.

(ii) The proposed solution: more flexibility while preserving the general benefits of deadlines


74. Whilst it should be recognised that the benefits of the time limits provided for in the Merger Regulation should certainly be preserved (the speediness of the investigation and the predictability of the timeframe are widely regarded as major assets of the current system), it seems necessary to ease to a certain extent the time constraints in complex cases. That is why the Green Paper proposed the introduction of a “stop the clock” provision, i.e. a provision allowing for an extension of the legal deadlines within which a final Commission decision must be adopted25. The feedback received in response to the Green Paper has shown almost unanimous support for such a “stop the clock” idea.

18.

(iii) The proposed changes: an overview


75. Given the above, it is proposed to introduce several elements of flexibility into the timeframe of merger control procedure. The existing automatic extension of the deadline in Phase I remedy cases has been enlarged – Phase I decisions in remedy cases must be adopted after 35 working days (7 weeks) instead of the current 6 weeks (see Article 10 i, second subparagraph). Conversely, an automatic extension of the deadline in Phase II (which does not yet exist) should be introduced, accommodating the time constraints in typical Phase II remedy cases (see Article 10 i, first subparagraph). In order to encourage the submission of remedies at an early stage, however, this extension of the Phase II deadline should only apply if Phase II remedies are submitted on or after the 55th working day, counting from the initiation of proceedings (Article 6(1)(c) decision).

76. In addition, there should be an optional possibility to extend the deadline in complex Phase II cases (see Article 10 i, second subparagraph) by up to 20 working days. Indeed, the time constraints in complex Phase II cases (complex market investigation, possibly involving econometric studies or the analysis of alleged efficiency gains; thorough examination of the arguments put forward by the parties) can be significant even if no remedies are offered. Additional time for the investigation of complex Phase II cases is normally in the interest not only of the Commission but also of the merging companies. The parties would have the option to use the additional time to convince the Commission that all or part of the objections, which would most likely be raised in an upcoming Statement of Objections, are not well founded and should be dropped. In order to allow for sufficient planning of the various procedural steps in a Phase II investigation, it is proposed that the parties should only be able to extend the Phase II time limit once, and that they should request this within 15 working days of the beginning of Phase II, i.e. three weeks into Phase II. This allows for sufficient time for the Commission and the undertakings concerned to engage in informal discussions about the possible timing of Phase II proceedings.

77. All extensions of the timeframe should normally be triggered by the merging parties (either by means of a specific request for an optional extension or by submitting remedies and thus triggering the automatic prolongation), without the Commission having discretion to grant or refuse them. The proposal nevertheless foresees that the Commission, with the consent of the parties, could trigger the extension referred to in the preceding paragraph. The maximum extension should however not exceed 20 working days (see Article 10 i, second subparagraph).

78. The proposed key elements of a more flexible timeframe (expressed in working days) can be summarised as follows.

- Automatic extension of the Phase I deadline by 10 WD to 35 WD if remedies are proposed;

- Optional extension of the Phase II deadline by up to 20 WD in complex Phase II cases (at the request, or with the agreement, of the parties, to be made at the latest 15 WD after the initiation of Phase II proceedings);

- Automatic extension of the Phase II deadline by 15 WD in remedy cases (unless remedies have been submitted sufficiently in advance of the deadline for commitment offers – before the 55th working day –) in order to allow for better consultation of Member States.

(5) Procedure following annulment by the European Courts

79. Article 10 i of the Regulation is proposed to be clarified to reflect current practice as to the procedure to be followed where the Court gives a judgement which annuls the whole or part of a Commission decision. Under the proposal, such an annulment will, if it relates to a decision that was subject to a time limit under Article 10, lead to the re-examination by the Commission with a view to adopting a new decision pursuant to Article 6 i. The new examination will be made in the light of current market conditions. In such cases, the parties will have to submit a new notification or supplement the original notification, where the original notification has become incomplete by reason of intervening changes in market conditions or in the information provided. Where there are no such changes, a certification of this fact will suffice.

(6) Enforcement provisions

80. The investigative powers of the Commission in merger cases and the penalties provided for non-respect of certain rules set by the Regulation (so-called enforcement provisions) are laid down in Articles 11-15 of the Merger Regulation.

19.

(i) General principle: Keeping the enforcement provisions in line with antitrust


81. The initial text of these enforcement provisions, as introduced by Council Regulation (EEC) No 4064/89, was largely identical to that of the corresponding provisions in the antitrust area (Articles 11-16 of Council Regulation No 17). It is appropriate to bring the enforcement provisions of the new Merger Regulation in line with the corresponding provisions of the new Regulation implementing Articles 81 and 82 of the Treaty (Articles 18-20 and 22-23 thereof) with a view to rendering them more effective.

(ii) Increase of the ceilings for fines and periodic penalty payments related to “fact-finding”

82. In particular, it is appropriate to raise the possible amounts of the fines and periodic penalty payments which are aimed at protecting the Commission’s fact-finding through notifications and market investigations (Articles 14 i, 15(1)(a) and 15(1)(b) of the proposed new Merger Regulation). The establishment of the facts of a case forms the basis for a successful analysis of a concentration’s possible impacts on competition, and it may not be falsified by misleading or incorrect information.

- The current ceiling for fines under Article 14 i, which is set at 50,000 EUR, has not been changed for the last 12 years and no longer has a deterrent effect. It is proposed to raise this ceiling to 1% of the turnover of the undertaking or association of undertakings concerned, in line with what had already been the case under the ECSC Treaty (see Article 47 i thereof) and will now apply in the antitrust area (see Article 22 of the new Regulation implementing Articles 81 and 82 of the Treaty).

- As regards periodic penalty payments, the maximum daily amount is currently set at 25,000 EUR under Article 15 i. This amount has not been changed for the last 12 years and no longer has a sufficiently coercive effect. It is proposed to raise it to 5% of the aggregate average daily turnover of the undertaking or association of undertakings concerned, in line with what had already been the case under the ECSC Treaty (see Article 47 i thereof) and will now apply for the antitrust area (see Article 23 of the new Regulation implementing Articles 81 and 82 of the Treaty).

20.

(iii) Increase of the ceilings for periodic penalty payments related to the enforcement of certain types of Commission decisions


83. The same principles as set out for fact-finding should apply to the periodic penalty payments enforcing remedy decisions (Article 15(1)(c)) or decisions ordering a de-merger (Article 15(1)(d)). They are aimed at ensuring the continued effectiveness of the Community’s system of ex-ante merger control and the amounts chosen should have a sufficiently coercive effect. It is therefore proposed to treat these provisions the same way as the ones relating to market investigations (Articles 15(1)(a) and 15(1)(b)) and to allow for periodic penalty payments of up to 5% of the average daily aggregate turnover of the undertaking or association of undertakings concerned.

21.

(iv) Power to take statements


84. Given the need for speed which characterizes the general scheme of the Merger Regulation,26 it is furthermore expedient to provide a possibility for the Commission to conduct interviews with natural persons. The proposed provision (Article 11(7)) fills a gap in the Commission’s current powers in merger investigations by allowing for oral submissions to be recorded and used as evidence in proceedings where the interviewee consents. It also foresees the possibility to impose fines for incorrect or misleading information given in interviews (Article 14(1)(b)).

22.

(iv) No power to conduct sector inquiries or search private homes


85. Unlike the new Regulation implementing Articles 81 and 82 of the Treaty (see in particular Articles 17 and 20a thereof), however, the proposed new Merger Regulation does not provide for sector inquiries or home searches. These far-reching powers are specific to the area of antitrust policy where the detection and prosecution of infringements pursuant to Articles 81 and 82 of the Treaty is central.

D. Other Proposed Amendments

(1) Article 1 paragraph 4

86. Under Article 1 i, the Commission is obliged to report to the Council on the operation of the thresholds and criteria set out in paragraphs 2 and 3 of Article 1. The purpose is to enable the Council to decide on a possible review of the thresholds according to Article 1 i.

87. The current deadline has been renewed in the proposal in order to oblige the Commission to report again to the Council on the thresholds by 1 July 2007.

88. In order to better enable the Commission to comply with its reporting obligation, the member States will in future be held explicitly by the Regulation to provide the Commission with the necessary statistical data.

(2) Article 4 paragraph 6

89. In order to enable the Council to decide with a qualified majority about possible amendments to Article 4, in particular with a view to the proposed new referral procedures before a concentration is notified, a review clause similar to Article 1 i is being proposed in Article 4 i. Its deadline is linked to that in Article 1 i and 1 i.

(3) The Commission’s powers under Article 8 paragraph 4

90. Article 8 i of the current Merger Regulation deals with situations in which mergers that have already been implemented are subsequently prohibited by the Commission. That Article allows the Commission to require the separation of assets brought together, the cessation of joint control or any other action that may be appropriate to restore conditions of effective competition.

91. It has been suggested that Article 8 i, by stating that all proceedings initiated pursuant to Article 6(1)(c) shall be closed by means of a decision as provided in Article 8 i to i, would limit the applicability of these provisions to cases where the concentration has been notified and a second phase proceeding has been initiated. Whilst the Commission does not share this interpretation,27 it is expedient to clarify the powers conferred to it by the Regulation with regard to mergers that have already been implemented. The proposed amendments to Article 8, in particular the deletion of its current paragraph 1 (which is added to Article 6(1)(c)), remove any possible doubts as to the scope of application of Article 8 i. The new wording of Article 8 i clarifies that the scope of application does not exclude mergers implemented without prior notification to the Commission.

92. As regards the powers conferred to the Commission, the wording of the present Article 8 i is proposed to be modified in order to emphasise the overriding principle underlying this provision: The situation prevailing prior to the implementation of the concentration (“status quo ante”) should be restored. The Court of First Instance has supported this interpretation in its recent judgment in case Tetra Laval v. Commission28. Where such restoration is not fully possible through dissolution of the concentration, the second sentence of the proposed Article 8 i provides the necessary powers for the Commission to restore the “status quo ante” as far as possible.

93. In addition to the overriding principle of restoration of the status quo ante, the proposed new wording is intended to express that the Commission may order any appropriate measure to ensure that conditions of effective competition are not distorted in the interim, i.e. for the transitional period until the status quo ante is restored. Such measures could include, inter alia, a requirement to hold separate the undertakings or assets brought together until they are legally separated, the cessation of the exercise of joint control or similar interim measures.

(4) The Commission’s power to enforce conditions attached to previous decisions, new Article 8 paragraph 5

94. As regards Article 8 i of the proposed Regulation, a specific provision is introduced which enables the Commission to take any appropriate measure to restore or maintain conditions of effective competition where a concentration has been implemented in contravention of Article 7 or of a condition attached to a Commission decision under Articles 6(1)(b) or 8 i. With the exception of interim measures, the provision will require that the criterion laid down in Article 2 i is fulfilled. In the cases referred to in Article 2 i, the provision will require that the criteria laid down in Article 81 i of the Treaty are not fulfilled.

95. This provision is aimed at enabling the Commission to enforce conditions attached to its decisions, in particular conditions intended to ensure that the parties comply with the commitments (“remedies”) they have entered into with a view to obtaining a conditional clearance decision (see Article 8 i, second subparagraph, and Article 6(1)(b) in connection with 6(2)).

96. The legal consequence of the non-compliance with a condition is that the decision no longer stands. This may not in all cases suffice to ensure compliance. Furthermore, the current enforcement powers of the Commission, i.e. fines pursuant to Article 14(3)(c) or (d), may not be sufficient in all cases to achieve the objective of restoring or maintaining conditions of effective competition.

97. With a related amendment, it is proposed to extend Article 18 i to the provisional measures which are newly foreseen in the proposed Article 8 i.

(5) Clearance decisions in Phase II merger cases – Article 8 paragraphs 1 and 2

98. It is proposed to provide for a specific legal basis for unconditional clearance decisions in Phase II cases in the amended Article 8 i of the Merger Regulation. Article 8 i would thus be limited to the specific situation of a Phase II clearance based on remedies (commitments) submitted by the undertakings concerned.

(6) Decisions to end Phase I - Article 6

99. Article 6(1)(b), in conjunction with Article 6 i, provides for the possibility to clear a concentration on the basis of commitments submitted by the parties with a view to rendering the concentration compatible with the common market. The textual amendment aims to clarify the text with regard to this criterion.

100. The present text of Article 8 i has been moved to the end of Article 6(1)(c) for the reasons set out in paragraph 91 set out above. In this context, this wording also specifies that after the adoption of an Article 6(1)(c) decision the Commission is obliged to adopt a decision under Article 8 i - i, unless the concentration has been definitely abandoned. Therefore a notification may not be withdrawn by the notifying parties in Phase II, as long as the parties intend to put the deal into effect. Conversely, in Phase I the withdrawal of the notification remains possible as long as an Article 6(1)(c) has not been adopted, because Article 4 i no longer specifies at what point in time before implementation a notification has to be submitted to the Commission.

(7) “Ancillary restraints”

101. As regards the treatment of restrictions directly related and necessary to the implementation of concentrations (“ancillary restraints”), the present text of Articles 6(1)(b), second subparagraph, and 8 i, second subparagraph, last sentence, does not appear to provide for sufficient legal clarity.

102. In its recent notice on the treatment of ancillary restraints,29 the Commission took the view that the assessment of such clauses in merger decisions is of a purely declaratory nature. Moreover, the Commission announced the abandonment of its previous practice of individually assessing and formally addressing ancillary restraints in each of its merger decisions. This new policy was intended to simplify the Commission’s practice in the field of mergers and to bring it in line with the modernisation of the Community’s antitrust rules (rules implementing Articles 81 and 82 of the EC Treaty).

103. It should, however, be noted that it does not clearly result from the present text of the Merger Regulation that there is no obligation for the Commission to assess and address, in its decisions, ancillary restraints if the notifying party so requests.30

104. It is therefore proposed to modify the text of the Merger Regulation in such a way as to clearly state that the Commission’s clearance decision in a merger case shall be deemed to cover restrictions directly related and necessary to the implementation of the concentration (see Articles 6(1)(b), 8 i and 8 i of the proposal, as well as recital 17).


ê Corrigendum, OJ L 257, 21.9.1990, p. 13 (adapted)

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