SUMMARY
On 16 March 2023, the ECJ published its judgment in Towercast (C-449/21), confirming that Article 102 TFEU (which prohibits abuses of a dominant market position) may apply to transactions which fall below national and EU merger control thresholds, and have not been referred to the European Commission under Article 22 of the EU Merger Regulation (“Merger Regulation”). This followed the opinion of Advocate-General Kokott on 13 October 2022, which we analysed here.
The judgment, in an echo of Continental Can, re-establishes a mechanism for competition authorities and third parties to scrutinise below-threshold transactions (which would not otherwise be subject to mandatory merger control filings and review), including so-called “killer acquisitions”. It will generate concern and uncertainty for merging parties, and potentially opportunities for aggrieved third parties, while its wider significance may depend in part on how the ECJ interprets the application of Article 22 of the Merger Regulation in its forthcoming Illumina/Grail judgment.
Case History
The judgment arose from a November 2017 complaint made by Towercast SASU to the French Competition Authority (“FCA”) that the completed acquisition of Itas by Télédiffusion de France (“TDF”) constituted an abuse of dominance. The acquisition was completed in October 2016 and was not reviewed by any authority as it fell below both the EU and French merger control thresholds; nor was it referred to the Commission under Article 22 of the Merger Regulation. Towercast relied on the ECJ’s 1973 judgment in Continental Can (6/72, EU:C:1973:22) in support of its complaint. Continental Can established (prior to the existence of the Merger Regulation) that a merger may constitute an abuse of dominance in cases where, due to the merger, a dominant acquirer strengthens their dominance and, thereby, substantially fetters competition.
The FCA initially rejected Towercast’s complaint. Drawing a bright line between “incompatible and irreconcilable” ex ante merger control regime and ex post prohibition against anticompetitive behaviour, the FCA found that mergers were regulated exclusively by the Merger Regulation and the merger control laws of Member States (Decision 20-D-01 of 16 January 2020). The FCA therefore held that there could be no abuse of dominance finding in relation to a merger in itself. The form of abuse established in Continental Can therefore appeared obsolete.
Faced with the same question on appeal, the Cour d’appel de Paris made a preliminary reference to the ECJ (Decision 20/04300 of 1 July 2021). It asked whether a national authority could find that a merger constitutes an abuse of dominance, in circumstances where that merger fell below national or EU merger review thresholds, and was not referred to the Commission under Article 22 of the Merger Regulation (please see our summary of Article 22 here).
The ECJ found that it could. Adopting the opinion of Advocate-General Kokott, the ECJ determined that national competition authorities are not precluded from finding that acquisitions falling below EU or EU Member State merger thresholds that have not been referred to the Commission under Article 22 may constitute an abuse of dominance. The ECJ’s ruling was grounded in the direct effect of Article 102 TFEU; as a provision of primary law the ECJ ruled that it cannot be overridden by the Merger Regulation, which is secondary law.
The ECJ rejected TDF’s request for its judgment to apply prospectively only. In doing so, it rejected TDF’s argument that the ruling could undermine legal certainty.
However, the ECJ also fired a warning shot to third parties and regulators who may seek to rely on the revived Continental Can ground of abuse to challenge proposed or completed mergers. It reiterated that for a finding of an abuse of dominance on this ground, an acquisition must substantially impede competition such that it results in the market consisting of only companies whose behaviour depend on the dominant company. Mere ‘strengthening of dominance’ is insufficient.
On the one hand, the judgment is unsurprising insofar as it refuses to confine Continental Can to history. In view of the ever-growing regulatory scrutiny applied to merger control in the EU and more widely, coupled with concerns regarding the applicability of merger thresholds to “killer acquisitions”, the ECJ’s decision in Towercast provides further ammunition for regulators and third parties to scrutinise mergers. As evidence of this, already in the few days since the judgment was published the Belgian Competition Authority launched an investigation into whether a completed acquisition constitutes an abuse of dominance, citing Towercast as precedent.
Whether regulators seek to apply Towercast frequently may depend on the outcome of the appeal of the decision of the General Court’s decision in Illumina/Grail regarding the interpretation of Article 22 of the Merger Regulation – and in particular whether the European Commission has the right (as asserted by the Commission and the General Court) to review transactions referred to it by EU Member State national competition authorities in those circumstances where the referring authority does not itself have jurisdiction to review the merger. If the Commission’s interpretation is upheld, regulators will likely continue to favour the less demanding Article 22 route to scrutinise mergers.
In the meantime, interested third parties including possible complainants and those with cases for injunctions or damages will keep a close eye on the pending decision of the Cour d’appel de Paris in the Towercast case, the investigation by the Belgian competition authority, and whether any further merger abuse of dominance cases come out of the woodwork.
We provide in more detail below implications of Towercast for competition authorities, transaction parties, and third parties.
The authors would like to thank Alexander Shaw (trainee) for his assistance with writing this piece.
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