Court of Justice confirms yet another tool to tackle non-reportable M&A – but is it all bark and no bite?

The European Court of Justice (CJEU) handed down its judgment in Towercast on 16 March 2023, confirming Advocate General Juliane Kokott’s Opinion from October 2022 that the prohibition on abuse of dominance under Article 102 TFEU is applicable to certain non-reportable mergers by dominant firms (covered in our previous blog here). 

The judgment confirms that the EU’s abuse of dominance rules can be used to challenge, post completion, acquisitions which fell below merger control review thresholds of the European Commission and EU national merger regimes. By confirming that Article 102 TFEU can be flexed to tackle below threshold deals, the Towercast judgment arguably plugs yet another (perceived) enforcement gap, following the landmark Illumina/Grail decision last year confirming (for now) the legality of the Commission’s revised, expansive policy on Article 22 (see our previous blog here).

Opening a Continental Can of worms

One of the key questions that arose in the Towercast case is what is the conduct that constitutes the abuse in such circumstances. While the CJEU first refers to satisfying “the conditions laid down in Article 102 TFEU for establishing the existence of an abuse of a dominant position,” it adds that, “in particular, it is for the authority in question to verify that a purchaser who is in a dominant position on a given market and who has acquired control of another undertaking on that market has, by that conduct, substantially impeded competition on that market.”

In doing so, the CJEU has breathed new life into its 1973 decision in Continental Can, which confirmed that the mere strengthening of a position of dominance in itself is not sufficient to establish an abuse, but that the degree of dominance achieved must be such that it would “substantially impede competition, that is to say, that only undertakings whose behaviour depends on the dominant undertaking would remain in the market”. The judgment suggests that the relevant concentration should result in effects on the same market as the one where the dominant undertaking holds market power, i.e. a horizontal acquisition by the dominant undertaking of a competing business. The judgment also notes that it should involve a market “of national dimension”. However, Towercast does not provide any further guidance on the analytical framework to be applied to determining what degree of “dominance” and/or “dependence” would reach the “substantially impedes competition” threshold, and whether this standard of review bears any similarity to merger review under the EUMR. In fact, the analyses under Article 102 and the EUMR seem to be conflated by the CJEU creating further uncertainty.

Under which circumstances an acquisition by itself can reach the level of an alleged abuse of dominance therefore remains uncertain.

Technically, are even cleared mergers in danger? 

A critical part of the CJEU’s reasoning is its conclusion that Article 102 has the status of primary EU legislation with direct effect and primacy over regulations. From a technical legal standpoint, the EUMR cannot preclude Article 102 TFEU’s direct effect under the procedural rules of NCAs and national courts. This reasoning raises a number of questions which are not resolved in the judgment:

• The judgment does not make it clear whether it applies only to concentrations that do not meet the thresholds in all EU Member States, or only those that do not meet the thresholds in the EU Member State of the authority / court that is considering to apply Article 102.
• While the judgment focuses on below threshold deals, it is unclear if the CJEU’s conclusions could also extend to notifiable concentrations. Advocate General Kokott acknowledges this possibility, however in her opinion, once a concentration has been cleared and declared as compatible with the internal market, it can no longer qualify as an abuse of dominance under Article 102 (to avoid double assessment, "unless the undertaking concerned has engaged in conduct which goes beyond that and could be found to constitute such an abuse”). The CJEU’s judgment is silent on this point, but even if we assume this view is accepted, there is still the question of clearance from whom? The Commission, any NCA, or the specific NCA in the Member State of the national court that is considering applying Article 102?
• Could the Article 101 prohibition on anti-competitive agreements and concerted practices also be interpreted in the same way as applying to below threshold deals?  

A roadmap for demerger or primed for behavioural remedies?  

Advocate General Kokott, in her opinion, was of the view that the imposition of a fine, rather than the threat of subsequent dissolution, is the appropriate remedy in circumstances such as Towercast. Article 7 of Regulation 1/2003, however, provides the power to order that such an infringement be brought to an end. How a fine can address an abusive acquisition which has been found to have had structural impacts on the market such that it substantially impedes competition is unclear, let alone how such an order would be capable of bringing the infringement to an end.  

Effective resolution would, however, be far from easy. If a divestment were ordered, the parties would be looking at “unscrambling the eggs” possibly many years after the acquisition when the businesses have become fully integrated. And would a full dissolution of the merger be necessary, or would a partial divestment up to the point where the merger no longer results in a substantial impediment of competition be enough? If fines and structural divestments are not effective, is there are more central role for behavioural remedies in such circumstances?

These difficult questions are not confronted by the CJEU in its judgment and so are left to be answered. It will be all eyes on the Paris Court of Appeal for their view of the practical application of the CJEU’s decision.  

Loud bark, but where does it bite? 

The potential risk for an M&A transaction to be subject to an ex-post abuse of dominance should certainly not to be ignored, but equally the incremental risk should not be overstated. NCAs, in particular, have the Article 22 referral process, which already provides the ability to refer transactions which fall below the thresholds of the EU and national merger regimes to the Commission for review. Deal value filing thresholds in some member states (notably Germany and Austria) also provide a strong tool for capturing so-called killer acquisitions. It is therefore difficult to see a situation where an NCA or the Commission itself would see the need to use this route.

The most likely use case would seem to be private litigation by a disgruntled competitor, supplier or customer. Indeed, the Towercast case itself originated from a private complainant, as did the similar Belgian case, Alken-Maes/AB InBev (in which the Court of Appeal of Brussels confirmed that transactions which do not meet the mandatory notification threshold in Belgium could still be reviewed under national antitrust rules).

While the Towercast judgment does not bind UK courts, similar reasoning could be applied to challenge non-notified deals using the Chapter 2 prohibition, the UK equivalent of Article 102 (or indeed any ex-European jurisdiction with equivalent dominance rules), especially in the current thriving climate of private claimant activity in the UK. Some in the UK (and elsewhere) will certainly be keeping a close eye on Towercast and how this fits with the impending merger reforms there and in other jurisdictions. 

As with many of these new developments at the crossroads of M&A and antitrust, it is a case of watch this space. The days of full certainty with respect to non-reportable transactions in Europe would, however, appear to be limited.     

Further commentary from Freshfields authors on the judgment (in Italian) can be found here.

Please contact us or your usual contact in our Antitrust, Competition and Trade team if you would like to discuss this update further. To read more about these and other antitrust developments, refer also to our Global antitrust in 2023: 10 key themes report.