Judgment of the Court of First Instance (First Chamber) of 22 October 2002. - Schneider Electric SA v Commission of the European Communities. - Competition - Action for annulment. - Case T-310/01.



European Court reports 2002 Page II-04071



Summary

Parties

Grounds

Decision on costs

Operative part



Keywords

1. Competition - Concentrations - Examination by the Commission - Decision requesting information addressed to the notifying parties - Automatic suspension of the four-month period referred to in Article 10(3) of Regulation No 4064/89

(Council Regulation No 4064/89, Arts 10(3) and (4) and 11(5))

2. Competition - Concentrations - Assessment of compatibility with the common market - Relevant market - Geographical definition

(Council Regulation No 4064/89, Art. 2(3))

3. Competition - Concentrations - Assessment of compatibility with the common market - Creation or strengthening of a dominant position impeding competition - Assessment criteria

(Council Regulation No 4064/89, Art. 2(3))

4. Competition - Concentrations - Assessment of compatibility with the common market - Creation or strengthening of a dominant position impeding competition - Relevance of the range of products and brands of the entity created by the concentration - Not decisive where presence and supply vary from one national market to another

(Council Regulation No 4064/89, Art. 2(3))

5. Competition - Concentrations - Incompleteness of a decision declaring a concentration incompatible with the common market - Not relevant if the decision is otherwise justified by a set of factors

(Council Regulation No 4064/89, Art. 2(3))

6. Competition - Concentrations - Administrative procedure - Observance of the rights of the defence - Statement of objections - Necessary content

(Commission Regulation No 447/98, Art. 13(2))

Summary

$$1. Where, following a failure by the parties notifying a concentration between undertakings to respond to a letter requesting information within the reasonable period set therein, the Commission adopts a decision, pursuant to Article 11(5) of Regulation No 4064/89 on the control of concentrations between undertakings, ordering the parties to provide it with the information requested, the four-month period referred to in Article 10(3) of that regulation is exceptionally ... suspended, under the mandatory terms of Article 10(4). Where a decision requiring information has been properly sent by the Commission to a notifying undertaking, the fact that the term exceptionally is used does not preclude that decision from automatically suspending the four-month period from the date on which it is found that the necessary information has not been provided until the date on which it is provided.

What is exceptional, within the meaning of Regulation No 4064/89, about suspension of the relevant period is the occurrence of the conditions which allow a decision requesting information to be adopted and not the consequences to be inferred from such a decision.

( see paras 99-100, 104, 106, 109 )

2. The geographic market to be taken into account for the purpose of applying Regulation No 4064/89 on the control of concentrations between undertakings is a defined geographic area in which the product concerned is marketed and where the conditions of competition are sufficiently homogeneous for all economic operators, so that the effect on competition of the concentration notified can be evaluated rationally.

( see para. 154 )

3. When applying Regulation No 4064/89 on the control of concentrations between undertakings, the Commission must, for the purpose of demonstrating the risk of the creation or strengthening of a dominant position impeding competition on previously defined national sectoral markets, use evidence of economic power relating to those markets. It may also take account of transnational effects which may increase the impact which a concentration has on each of the national sectoral markets deemed relevant but those effects must be demonstrated to the requisite legal standard and not merely presumed to exist.

( see paras 171, 178-179 )

4. When applying Regulation No 4064/89 on the control of concentrations between undertakings, the Commission may not base the arguments supporting its assessment of the risk of the creation or strengthening of a dominant position impeding competition on the national sectoral markets affected by a concentration on the fact that the new entity will have a range of products and brands which is unrivalled throughout the European Community where it is unable to establish that the entire range is offered on the relevant national markets.

( see paras 239-243, 255-257, 262 )

5. However incomplete a Commission decision finding a concentration incompatible with the common market may be, that cannot entail annulment of the decision if, and to the extent to which, all the other elements of the decision permit the Community judicature to conclude that in any event implementation of the transaction will create or strengthen a dominant position as a result of which effective competition will be significantly impeded for the purposes of Article 2(3) of Regulation No 4064/89 on the control of concentrations between undertakings.

( see para. 412 )

6. The statement of objections must contain an account of the objections cast in sufficiently clear terms to achieve the objective ascribed to it by the Community regulations, namely to provide all the information the undertakings need to defend themselves properly before the Commission adopts a final decision.

That requirement is particularly strict in the procedures for reviewing concentrations between undertakings governed by Regulation No 4064/94 in which the Commission adopts a prospective approach to the state of competition to which the concentration under examination is likely to give rise in the future In those procedures, the statement of objections is not solely intended to spell out the complaints and give the undertaking to which it is addressed the opportunity to submit comments in response. It is also intended to give the notifying parties the chance to suggest corrective measures and, in particular, proposals for divestiture and sufficient time, given the requirement for speed which characterises the general scheme of Regulation No 4064/89, to ascertain the extent to which divestiture is necessary with a view to rendering the transaction compatible with the common market in good time.

( see paras 440-444 )

Parties

In Case T-310/01,

Schneider Electric SA, established in Rueil-Malmaison (France), represented by F. Herbert, J. Steenbergen and M. Pittie, lawyers,

applicant,

supported by

French Republic, represented by G. de Bergues and F. Million, acting as Agents, with an address for service in Luxembourg,

intervener,

v

Commission of the European Communities, represented by P. Oliver, P. Hellström and F. Lelièvre, acting as Agents, with an address for service in Luxembourg,

defendant,

supported by

Comité central d'entreprise de la SA Legrand,

Comité européen du groupe Legrand,

established in Limoges (France), represented by H. Masse-Dessen, lawyer,

interveners,

APPLICATION for annulment of Commission Decision C(2001)3014 final declaring a concentration to be incompatible with the common market and the EEA Agreement (Case COMP/M.2283 - Schneider-Legrand),

THE COURT OF FIRST INSTANCE

OF THE EUROPEAN COMMUNITIES (First Chamber),

composed of: B. Vesterdorf, President, N.J. Forwood and H. Legal, Judges,

Registrar: B. Pastor, Deputy Registrar,

having regard to the written procedure and further to the hearing on 10 July 2002,

gives the following

Judgment

Grounds

Legal framework

1 Article 2 of Council Regulation (EEC) No 4064/89/EEC of 21 December 1989 on the control of concentrations between undertakings (OJ 1989 L 395, p. 1, corrected version in OJ 1990 L 257, p. 13), as most recently amended by Council Regulation (EC) No 1310/97 of 30 June 1997 (OJ 1997 L 180, p. 1) (hereinafter Regulation No 4064/89) provides:

1. Concentrations within the scope of this Regulation shall be appraised in accordance with the following provisions with a view to establishing whether or not they are compatible with the common market.

In making this appraisal, the Commission shall take into account:

(a) the need to maintain and develop effective competition within the common market in view of, among other things, the structure of all the markets concerned and the actual or potential competition from undertakings located either within or outwith the Community;

(b) the market position of the undertakings concerned and their economic and financial power, the opportunities available to suppliers and users, their access to supplies or markets, any legal or other barriers to entry, supply and demand trends for the relevant goods and services, the interests of the intermediate and ultimate consumers, and the development of technical and economic progress provided that it is to consumers' advantage and does not form an obstacle to competition.

2. A concentration which does not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall be declared compatible with the common market.

3. A concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall be declared incompatible with the common market.

...

2 Under Article 6(1)(c) of Regulation No 4064/89, where the Commission finds that the concentration notified falls within the scope of the regulation and raises serious doubts as to its compatibility with the common market, it is to decide to initiate proceedings.

3 Article 7 of Regulation No 4064/89 provides:

1. A concentration as defined in Article 1 shall not be put into effect either before its notification or until it has been declared compatible with the common market ...

...

3. Paragraph 1 shall not prevent the implementation of a public bid which has been notified to the Commission in accordance with Article 4(1), provided that the acquirer does not exercise the voting rights attached to the securities in question or does so only to maintain the full value of those investments and on the basis of a derogation granted by the Commission pursuant to paragraph 4.

...

4 Article 8 of Regulation No 4064/89 provides in particular:

2. Where the Commission finds that, following modification by the undertakings concerned if necessary, a notified concentration fulfils the criterion laid down in Article 2(2) ... , it shall issue a decision declaring the concentration compatible with the common market.

...

3. Where the Commission finds that a concentration fulfils the criterion defined in Article 2(3) ... , it shall issue a decision declaring that the concentration is incompatible with the common market.

4. Where a concentration has already been implemented, the Commission may, in a decision pursuant to paragraph 3 or by separate decision, require the undertakings or assets brought together to be separated or the cessation of joint

control or any other action that may be appropriate in order to restore conditions of effective competition.

5 Under Article 10(3) of Regulation No 4064/89, a decision declaring that a concentration is incompatible with the common market must be taken within not more than four months of the date on which proceedings are initiated.

6 Under Article 10(4), that period is exceptionally to be suspended where, owing to circumstances for which one of the undertakings involved in the concentration is responsible, the Commission has had to request information by decision pursuant to Article 11(5) of Regulation No 4064/89.

7 Under Article 10(5) of Regulation No 4064/89, where the Court of Justice gives a judgment which annuls the whole or part of a Commission decision taken under the regulation, the periods laid down therein are to start again from the date of the judgment.

8 Article 10(6) of Regulation No 4064/89 provides that where the Commission has not taken a decision in accordance with Article 8(3) within the four-month time-limit referred to above, the concentration is to be deemed to have been declared compatible with the common market.

9 Article 11(1) of Regulation No 4064/89 enables the Commission, in carrying out the duties assigned to it by the regulation, to obtain all necessary information from, among others, the parties to the concentration which has been notified.

10 Article 11(5) provides that where an undertaking does not provide the information so requested by the Commission within the period fixed or provides incomplete information, the Commission is, by decision, to require the information to be provided. The decision must specify what information is required, fix an appropriate period within which it is to be supplied and state that the person concerned has the right to have the decision reviewed by the Community Courts.

11 Article 18(3) of Regulation No 4064/89 provides that the Commission is to base its decision only on objections on which the parties have been able to submit their observations and that the rights of the defence are to be fully respected in the proceedings.

12 Finally, under Article 9(1)(a) of Commission Regulation (EC) No 447/98 of 1 March 1998 on the notifications, time-limits and hearings provided for in Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings (OJ 1998 L 61, p. 1), the period of four months is to be suspended where the Commission, under Article 11(5) of Regulation No 4064/89, has to take a decision because the information requested from one of the notifying parties has not been provided or has not been provided in full within the time-limit fixed by the Commission.

Facts

13 Schneider Electric SA (Schneider), a company incorporated under French law, is the parent company of a group engaged in the manufacture and sale of products and systems in the electrical distribution, industrial control and automation sectors. In the 2000 financial year Schneider's turnover was EUR 8 750 million worldwide and EUR 4 095 million within the Community.

14 Legrand SA is a company incorporated under French law which specialises in the manufacture and sale of electrical equipment for low-voltage installations. In 2000 its turnover amounted to EUR 2 791 million worldwide and EUR 1 684 million within the Community.

15 On 16 February 2001 Schneider and Legrand, in accordance with the requirements in Regulation No 4064/89, notified the Commission of Schneider's proposal to make a public exchange offer (the offer) in respect of all the shares in Legrand held by the public.

16 That step was taken after informal notifications had been submitted on 12 December 2000 and 5 January 2001.

17 The notifying parties sent the Commission a further draft notification on 29 January 2001.

18 Schneider and Legrand then replied to 71 questions sent by the Commission on 7 February 2001 and intended to finalise the third draft notification.

19 The Commission concluded that the concentration notified fell within the scope of Regulation No 4064/89 and that there were serious doubts as to its compatibility with the common market and the European Economic Area (EEA).

20 As a result, the Commission adopted, on 30 March 2001, a decision under Article 6(1)(c) of Regulation No 4064/89, by which it opened the second stage of the procedure for examining the transaction notified.

21 By letter of 6 April 2001, the Commission sent Schneider and Legrand a request for information under Article 11(1) of Regulation No 4064/89.

22 Since by the end of the period for responding, which expired on 18 April 2001, neither company had provided all the information requested on the various markets affected by the concentration, the Commission sent each of them a decision pursuant to Article 11(5) of Regulation No 4064/89 dated 27 April 2001.

23 By 25 June 2001 the Commission had received all the information requested.

24 On 7 June 2001, Schneider submitted the terms of its offer to the French Financial Markets Council (Conseil Français des Marchés Financiers), which at its meeting of 14 June 2001 stated that it had no objections. The offer was approved by the Commission des Opérations de Bourse (Stock Exchange Commission) on 19 June 2001.

25 Since Article 7(3) of Regulation No 4064/89 allows the implementation of public bids which have been notified to the Commission, provided that the purchaser does not exercise the voting rights attached to the securities concerned, Schneider launched its offer on 21 June 2001 and closed it on 25 July 2001.

26 On 3 August 2001, the Commission, acting in accordance with Article 13(2) of Regulation No 447/98, sent Schneider a statement of objections in which it concluded that the transaction would create or strengthen a dominant position in a number of national sectoral markets.

27 On 6 August 2001 the Commission des Opérations de Bourse announced the final outcome of Schneider's offer for Legrand shares. Schneider thus acquired 98.7% of the shares in Legrand.

28 Schneider submitted to the Commission a report dated 14 August 2001 which had been drawn up by Professor L. Waverman and the consultancy, National Economic Research Associates, on behalf of the notifying parties (the first NERA report). That report examines the definition of the sectoral market in switchboards and panel-boards, the integrated sales of panel-board components of two of Schneider's competitors, ABB and Siemens, and also competition on the market for panel-boards in Italy, Spain, Portugal and Denmark.

29 The notifying parties replied to the Statement of Objections by a document lodged on 16 August 2001.

30 A hearing was held on 21 August 2001.

31 On 29 August 2001, a meeting took place between Schneider and Commission officials with a view to drawing up modifications, for the purposes of Article 8(1) of Regulation No 4064/89, intended to solve the competition problems identified by the Commission.

32 To that end, Schneider submitted its proposed commitments (remedies or corrective measures) on 14 September 2001, the final day of the period prescribed for that purpose.

33 On 18 September 2001, the Commission sent the other parties concerned a questionnaire concerning the proposals.

34 The Advisory Committee on Concentrations met on 19 September 2001 to examine the draft of the final decision.

35 On 24 September 2001 Schneider sent the Commission a new version of its commitments of 14 September in response to the specific requests made by the Commission on 21 September.

36 On the same date, the Commission convened a meeting with the parties.

37 In a note enclosed with their letter of 25 September 2001 to the Member of the Commission responsible for competition matters, Schneider and Legrand expressed their utter surprise at the Commission's further negative reaction to their new proposed commitments, since they envisaged that Legrand would withdraw from the markets for panel-board components throughout the entire EEA.

38 The Advisory Committee on Concentrations met again on 28 September 2001 to examine the proposed corrective measures and to express its view on the draft decision.

39 On 10 October 2001 the Commission adopted a decision on the basis of Article 8(3) of Regulation No 4064/89 (C (2001) 3014 final (Case COMP/M.2282 - Schneider/Legrand)) (the Decision).

40 Article 1 of the Decision states:

The concentration notified to the Commission by Schneider on 16 February 2001, which would allow it to acquire sole control of Legrand, is declared incompatible with the common market and the EEA Agreement.

41 The Decision includes a description of the sector for low voltage electrical equipment (Section V.A Compatibility with the Common Market), a definition of the national sectoral markets affected by the merger (Section V.B), an analysis of the transaction (Section V.C) and an assessment of the remedies proposed by Schneider to resolve the competition problems identified by the Commission (Section VI, Corrective Measures).

42 The industrial sector affected by the concentration consists of equipment used in industrial, tertiary or residential buildings, downstream from the connection to the medium voltage distribution grid. That equipment can be arranged in three categories, which are described in recital 12 to the Decision.

43 First, low-voltage distribution switchboards are used essentially for supplying electricity to the various levels of the installation and protecting the installation and the user against power surges and short-circuits.

44 Those switchboards, mainly composed of a cabinet and safety components such as circuit breakers, fuses or differential switches, may be subdivided into three groups of products corresponding to the different levels of electrical distribution:

- main switchboards, used to connect large tertiary or industrial buildings to the medium-voltage grid;

- distribution panel-boards, used on the individual floors of a building;

- final panel-boards, used by end-users with low current requirements, such as the occupant of an apartment.

45 Second, cableways/ladders and busbar trunking are used to carry electric cables in the basement, service shafts or false ceilings of a building.

46 Third, the electrical equipment situated downstream from the final distribution panel-board is composed of six categories of product (see, in particular, recital 302 to the Decision):

- ultraterminal equipment making up the final part of the electrical installation (sockets, switches, etc.);

- control systems running a specific application, such as heating, in an individual area of a building;

- safety systems, protecting property and people (alarm systems, fire detectors, safety lighting, etc.);

- computer connectors for communication systems (computer connectors, interconnection boxes, etc.);

- fixing and shunting equipment, used for shunting, fixing and wiring equipment downstream from final panel-boards;

- trunking components (concealed trunking, floor boxes or conduits).

47 The concentration also impacts on other types of products for industrial use, in particular accessories for control and signalling, also known as industrial pushbuttons, and equipment for supplying and transforming electricity.

48 The parties agreed to divide the relevant industrial sector into segments as shown in the table below, which is set out at recital 14 to the Decision:

>lt>0

49 Six categories of operators are involved in the supply of, and demand for, the equipment concerned.

50 Manufacturers, such as Schneider and Legrand, are the industrial groups producing the electrical equipment concerned.

51 Wholesalers are the local distributors who buy from the manufacturers and offer the range of materials which installation engineers and switchboard assemblers need in order to carry out an electrical installation.

52 Switchboard assemblers are professionals who put together the various components of a switchboard in a building. In practice, they carry out four functions, namely:

- designing and adapting the board to the particular needs of each installation;

- supplying and assembling the parts of the board (cabinet components, circuit breakers, fuses, etc.);

- wiring the board;

- checking that the assembly works properly.

53 The switchboard assemblers then deliver the cabinets ready for use to the installation engineer, who will fit them at the end-user's premises. In practice, switchboard assemblers are mainly involved with main switchboards and distribution panel-boards. Final panel-boards are generally adapted and assembled directly by installation engineers.

54 Installation engineers are professionals responsible for fitting low-voltage electrical equipment at the end-user's premises.

55 Project managers are architects, research consultancies, construction companies or property developers responsible for projects involving the installation of electrical equipment.

56 End-users are the persons or undertakings which own the building in which the electrical equipment is installed. Typically, end-users can be divided into two broad categories: (i) industrial and (ii) construction undertakings. The construction sector is itself sometimes subdivided into companies in the tertiary sector and residential customers.

57 The Commission concluded, at recital 782 to the Decision, that the transaction would create a dominant position as a result of which effective competition would be significantly impeded on the following markets:

- the markets for moulded case circuit breakers, miniature circuit breakers and cabinets intended for distribution panel-boards in Italy;

- the markets for miniature circuit breakers, differential circuit breakers and cabinets intended for final panel-boards in Denmark, Spain, Italy and Portugal;

- the markets for connector circuit breakers in France and Portugal;

- the market for cableways in the United Kingdom;

- the market for sockets and switches in Greece;

- the market for watertight equipment in Spain;

- the market for fixing and shunting equipment in France;

- the market for electrical transformation products in France;

- the market for control and signalling accessories in France.

58 The Commission also took the view, at recital 783 to the Decision, that the projected transaction would strengthen a dominant position as a result of which effective competition would be significantly impeded on the following markets:

- the markets for moulded case circuit breakers, miniature circuit breakers and cabinets intended for distribution panel boards in France;

- the markets for miniature circuit breakers, differential switches and boxes intended for final panel boards in France;

- the market for sockets and switches in France;

- the market for watertight equipment in France;

- the market for security lighting systems or independent emergency lighting units in France.

59 The Commission finally concluded that the commitments proposed by Schneider would not resolve the competition problems identified in the Decision.

60 Schneider submitted a second report to the Commission. This was prepared by NERA in December 2001 (the second NERA report) and dealt with demand elasticity as regards panel-board components, the brand loyalty of installation engineers, distribution structure in Italy, Spain, Portugal and Denmark, the features of ABB's and Siemen's integrated sales of panel-board components and, finally, definition of the sectoral market for electrical switchboards and panel-boards to be taken into consideration.

Procedure before the Court

61 Schneider brought an action for annulment of the Decision by application lodged at the Court Registry on 13 December 2001.

62 By separate document, Schneider requested the Court to adjudicate on its case under an expedited procedure, in accordance with Article 76a of the Rules of Procedure.

63 On 23 January 2002, the Court dismissed that application having taken account of the nature of the case and, in particular, the volume of the application and the documents annexed to it.

64 On 5 April 2002, an informal meeting was organised between the President of the First Chamber and the Judge-Rapporteur and the parties' representatives.

65 On 3 May 2002 the Court (First Chamber) decided, after hearing the Commission's views, to grant Schneider's application for the case to be adjudicated under the expedited procedure, since Schneider had confirmed that it would adhere to the abridged version of its application, submitted on 12 April 2002.

66 By order of 6 May 2002, the French Republic was granted leave to intervene in support of the form of order sought by Schneider.

67 On 16 May 2002, the Commission lodged a new version of the defence that it had previously lodged, adapted to the abridged version of the application.

68 By order of 7 June 2002, the Works Council of SA Legrand and the European Works Council of the Legrand group were granted leave to intervene in the proceedings in support of the form of order sought by the Commission.

69 Upon hearing the report of the Judge-Rapporteur, the Court decided to open the oral procedure and put a number of questions to the parties, by way of measures of organisation of procedure, as provided for in Article 64 of the Rules of Procedure of the Court of First Instance. The parties complied with the requests.

70 The parties presented oral argument and replied to the Court's questions at the hearing on 10 July 2002.

Forms of order sought by the parties

71 Schneider, supported by the French Republic, claims that the Court should:

- primarily, allowing the first plea in law, annul the Decision and declare that Article 10(5) of Regulation No 4064/89 is not applicable to the present case;

- in the alternative, annul the Decision;

- in so far as may be necessary, reserve the applicant's right to request the adoption of any measure of organisation of procedure or measure of inquiry necessary for establishment of the facts and for analysis of the disputed concentration;

- order the Commission to pay all the costs.

72 The Commission, supported by the Works Council of SA Legrand and by the European Works Council of the Legrand group, contends that the Court should:

- dismiss the application;

- order Schneider to pay the costs.

Law

73 The arguments developed by Schneider in support of its action are set out in various pleas, which, for ease of presentation, are to be regarded as alleging (i) procedural irregularity as regards Article 10(3) of Regulation No 4064/89, (ii) manifest errors on the part of the Commission in its appraisal, first, of the impact of the concentration and, second, of the commitments submitted by Schneider in order to render the transaction compatible with the common market and (iii) infringement of the rights of the defence.

Procedural irregularity

First plea, alleging infringement of Article 10(3) of Regulation No 4064/89

- Arguments of the parties

74 In the context of this plea, raised by way of principal claim, Schneider observes that, under Article 10(3) of Regulation No 4064/89, the Commission had a period of four months starting on 30 March 2001, the date on which the second stage of the procedure began, to make a finding as to whether the concentration was incompatible with the common market.

75 That mandatory period expired on 10 August 2001, as a result of the application of the provisions of Regulation No 447/98 relating to the calculation of time-limits, i.e. before the Commission adopted the Decision on 10 October 2001.

76 In those circumstances, the disputed concentration must be deemed to have been declared compatible with the common market, in accordance with Article 10(6) of Regulation No 4064/89.

77 The Commission, however, relied on the exceptional suspension of the four-month period prescribed by Article 10(4) of Regulation No 4064/89 where, owing to circumstances for which one of the undertakings involved in the concentration is responsible, the Commission has been obliged to request information by decision pursuant to Article 11(5) of Regulation No 4064/89.

78 The decision of 27 April 2001 sent to Schneider (see paragraph 22 above) in effect required it to provide the Commission with information which the Commission, by letter of 6 April 2001, had already asked it to provide by 18 April 2001. However, the very strict conditions to which Article 10(4) of Regulation No 4064/89 subjects suspension of the four-month period had not been met.

79 Suspension of that period is exceptional and does not necessarily follow from every request for information. In the present case, the Commission was obliged to adopt the decision not because of circumstances for which the parties to the concentration were responsible but because of the fact that, in the letter of 6 April 2001, the parties were given five working days within which to respond to 322 questions. Those questions involved gathering more than 300 000 pieces of information, whose later use in the appraisal of the transaction remains to be shown.

80 The Commission thus itself created a situation which it later used to justify adopting a decision requesting information and having a suspensive effect.

81 Schneider points out that the Decision, at recital 8, takes Article 10(4) of Regulation No 4064/89 as the basis for suspending the period for adopting a decision, whilst the decision of 27 April 2001 requesting information is founded, in that regard, on Article 9 of Regulation No 447/98.

82 The Commission cannot attempt to justify suspending the four-month period by contending that Article 9 of Regulation No 447/98, unlike Article 10(4) of Regulation No 4064/89, does not refer to the exceptional nature of the suspension and the need to establish that there were circumstances for which the parties to the concentration were responsible. Regulation No 447/98 cannot provide an exception to the provisions of the basic Regulation, No 4064/89, which it implements.

83 The fact that Schneider did not directly bring an action for annulment of the decision of 27 April 2001 does not affect the admissibility of the present plea. Suspension of the maximum four-month period is not a substantive measure affecting the rights of the undertakings. That interpretation is not affected by the fact that it was stated in the body of the decision of 27 April 2001 that an action for annulment could be brought against it. The operative part did not mention suspension of the four-month time-limit and Schneider could not in any event have shown sufficient legal interest to apply for annulment of the decision.

84 In so far as the first plea is upheld, Schneider also asks the Court to find, on the basis of Article 241 EC, that Article 10(5) of Regulation No 4064/89 is inapplicable. Article 10(5) provides that the periods laid down in the regulation are to start again from the date of a judgment annulling a Commission decision. To cause time to run again in a case in which a decision on compatibility is deemed to have been given would be tantamount not to condemning but to endorsing the unlawful act, since the Commission would thereby be granted a fresh period within which to determine the matter.

85 The Commission claims that the plea alleging that the decision of 27 April 2001 is illegal is manifestly inadmissible, since the decision was not challenged within the period prescribed for bringing an action for annulment (Case C-178/95 Wiljo [1997] ECR I-585, paragraph 19).

86 The decision of 27 April 2001 requesting information, which was adopted under Article 11(5) of Regulation No 4064/89, is a measure against which an action for annulment may be brought. In addition, Schneider had a vested and present interest in applying directly for annulment of that decision.

87 In any event, the plea is unfounded: the decision complies with Regulation No 4064/89 and Regulation No 447/98. In particular, the information requested was necessary for the investigation and the Commission was actually obliged to adopt the decision because of a delay for which the notifying parties were responsible.

88 Whether a time-limit is reasonable must be determined in relation to the particular circumstances of each case (Joined Cases T-213/95 and T-18/96 SCK and FNK v Commission [1997] ECR II-1739) and the Commission is obliged to observe mandatory time-limits.

89 The letter of 6 April 2001 amounted to no more than the logical follow-up to the various questions which the Commission had been asking since the start of the procedure, to which an undertaking such as Schneider was required to reply with all the diligence expected of a reasonably well-informed operator.

90 There is no difference, as regards the effects of decisions requesting information under Article 11(5) of Regulation No 4064/89, between Article 10(4) of Regulation No 4064/89 and Article 9 of Regulation No 447/98. It is possible to refer to either of those provisions.

91 In those circumstances, it is of no consequence that, in stating reasons for suspending the four-month period, the decision of 27 April 2001 takes as its legal basis, at its tenth recital, Article 9 of Regulation No 447/98, and that the Decision, at its eighth recital, takes Article 10(4) of Regulation No 4064/89 as such.

92 Furthermore, the Commission regards as premature, and therefore inadmissible, the plea of illegality raised in respect of Article 10(5) of Regulation No 4064/89, which provides that the periods laid down in that regulation are to start again from the date on which a judgment annulling a decision is given.

93 In any event, it is logical, indeed essential, that Regulation No 4064/89 should contain a provision setting out the effects which annulment of a decision based on that regulation is to have on the periods prescribed therein.

- Findings of the Court

94 The contested suspension of the four-month period within which the Commission was to take a decision covers the period between 19 April 2001, the day following the deadline set in the Commission's request for information of 6 April 2001, and 25 June 2001, the date on which the Commission considers that it received all the information requested.

95 It is not disputed that, if the suspension of the period were to be regarded as lawful, the Decision, adopted on 10 October 2001, would have been given, account being taken of the calculation of working days, within the four-month period commencing on 30 March 2001, the date on which the procedure was initiated. By contrast, if the suspension were found to be unlawful, the Commission would have to be regarded as not having taken a decision under Article 8(3) within the statutory period.

96 Suspension of this kind, which Regulation No 4064/89 describes as exceptional, presupposes that the Commission has been obliged to request information by decision because of circumstances for which one of the parties to the concentration is responsible.

97 In that regard, the Commission noted, in the seventh recital to its decision of 27 April 2001, that the information requested in its letter of 6 April 2001 was necessary, for the purposes of Article 11(1) of Regulation No 4064/89, to enable it to examine the compatibility of the proposed transaction with the common market and, in particular, to determine the position of the notifying parties on the various sectoral markets concerned.

98 Schneider does not fundamentally dispute that the information was necessary, since it merely submits that the later use of the information in the appraisal of the transaction remains to be shown.

99 Nor is it disputed that the parties to the notification did not comply with the deadline for replying, set for 18 April 2001 by the letter of 6 April 2001. As stated in the fourth recital to the decision of 27 April 2001, the notifying parties informed the Commission by letter of 23 April 2001 that they were not in a position to meet the deadline for responding.

100 Given the circumstances of the present case (see, in particular, paragraphs 15 to 18 above), and the requirement for speed which characterises the overall scheme of Regulation No 4064/89, the Court regards the time-limit for responding set by the letter of 6 April 2001, which expired on 18 April 2001, as reasonable.

101 The letter of 6 April 2001 followed a series of contacts and conversations between the notifying parties and the Commission which had begun on 8 December 2000. In the course of that period, the notifying parties had already had occasion to reply to numerous informal requests for information.

102 In view of its nature, the information requested in the letter of 6 April 2001, which was of a similar kind to much of the information already supplied during the informal stage of the enquiry, should, therefore, in the normal course of events have been available at short notice within a company of Schneider's size.

103 Furthermore, the notifying parties did not immediately challenge the extent of the information requested in the letter of 6 April 2001, since they did not react until they wrote to the Commission on 23 April 2001 (see above).

104 It does not therefore appear that the Commission acted incorrectly when, on 27 April 2001, it adopted a decision pursuant to Article 11(5) of Regulation No 4064/89 requiring the parties to provide it with the information requested.

105 That finding is not affected by the fact that on 23 April 2001, i.e. five days after expiry of the deadline for responding set by the letter of 6 April 2001, the parties suggested that the deadline should be postponed until 29 April 2001.

106 In such a situation, the four-month period referred to in Article 10(3) of Regulation No 4064/89 is exceptionally ... suspended, under the mandatory terms of Article 10(4). Where a decision requiring information has been properly sent by the Commission to a notifying undertaking, the fact that the term exceptionally is used does not preclude that decision from automatically suspending the four-month period from the date on which it is found that the necessary information has not been provided until the date on which it is provided.

107 In that regard, there is no contradiction between the wording of Article 10(4) of Regulation No 4064/89 and that of Article 9 of Regulation No 447/98.

108 Also, the Commission was entitled to state, at the tenth recital to the decision of 27 April 2001:

Under Article 9 of Regulation No 447/98, the periods set by Article 10(1) and (3) of Regulation No 4064/89 are to be suspended, where the Commission adopts a decision pursuant to Article 11(5) of that regulation, throughout the period between the end of the time-limit set in the request for information and receipt of the complete and correct information required by that decision.

109 The Court is not convinced by the argument that the application of the basic rule in Regulation No 4064/89 was exceptional and unlawful. What is exceptional about suspension of the relevant period is the occurrence of the conditions which allow a decision requesting information to be adopted and not the consequences to be inferred from such a decision. As is clear from the above arguments, Schneider has failed to show that that decision was unlawful.

110 Since the Commission was entitled to adopt the decision of 27 April 2001, the effect of which was to suspend the four-month period within which the Commission was to take a decision on the compatibility of the transaction notified, the Decision is not unlawful in that respect.

111 In those circumstances, the first plea in law must be rejected and there is no need to rule on its admissibility in so far as it indirectly alleges that the decision of 27 April 2001 is unlawful.

112 The plea alleging that Article 10(5) of Regulation No 4064/89 is illegal in so far as it has the effect that the relevant periods are to start again where a decision on incompatibility is annulled, was raised only if and in so far as the Court should uphold the plea alleging that suspension of the four-month period was unlawful. Accordingly, there is no need to adjudicate on the former plea.

113 Moreover, even if the plea had been upheld, the objection of illegality would have had to be rejected as inadmissible, since the Commission has not at this stage adopted vis-à-vis Schneider any decision based on the provision whose illegality is raised indirectly (see, to that effect, Joined Cases C-432/98 P and C-433/98 P Council v Chvatal and Others [2000] ECR I-8535, paragraph 33).

Pleas criticising the Commission's assessment of the impact of the concentration

114 In the alternative, Schneider argues that the objections relating to the creation of a dominant position are not properly reasoned. In addition, the Decision is vitiated by manifest errors of methodology and assessment and fails correctly to apply the conditions necessary under Article 2(3) of Regulation No 4064/89 for a finding that a concentration is incompatible with the common market. The Decision thus contains substantive defects such as to justify its annulment.

115 Before undertaking an examination of the various pleas falling under this heading, the Court will set out the substance of the economic reasoning on which the Commission based its analysis of the impact of the concentration.

116 According to recital 488 of the Decision, the examination in the introduction to the Commission's analysis of the effects of the concentration (Section V.C.1.1. of the Decision) of the main features of competition so far as switchboards and panel-boards are concerned applies mutatis mutandis to the other product markets affected by the transaction, subject to particular considerations ... mentioned in the sections relating to the products concerned.

117 In the general analysis set out between recitals 489 and 520, the Commission emphasises the low price sensitivity of demand for low-voltage electrical equipment. First, the decision to undertake building or renovation projects is not influenced by the price of electrical equipment, which often accounts for only a small part of the total cost of the work. Second, electrical equipment often represents only 20% of the overall value of the electrical installation, the other 80% being essentially labour costs. Consequently, an overall rise in the price of electrical equipment would have little, or indeed no, effect on demand.

118 The Commission also considers that installation engineers and switchboard assemblers show significant loyalty to their manufacturer's brand and do not readily desert that manufacturer even if they are offered lower prices by competing producers.

119 The Commission makes clear, however, that such brand loyalty is not absolute. As long as one brand guarantees that low-voltage electrical equipment is of good quality and is immediately available, it is not easy for other manufacturers to win over the customers, even if they offer better products and/or lower prices. By contrast, if a brand ceases to satisfy the basic requirements of installation engineers and switchboard assemblers, it will quickly lose their confidence and will find it difficult to regain it.

120 Where, because the brand is one of the main factors which determine electricians' choices, a particular brand represents a significant barrier to market entry or diversification by manufacturers on other sectoral markets, the extent of the product range is, in the Commission's view, a further factor in the manufacturer's success. Manufacturers' readiness to extend their product ranges corresponds to wholesalers' inclination to prefer manufacturers with very extensive product ranges in order to optimise their costs.

121 As indicated at recital 71, although wholesalers are not involved in sales of components for main switchboards, they account for between 80 and 90% of sales of the other types of electrical equipment affected by the transaction.

122 Furthermore, manufacturers with extensive product ranges have an advantage at distributor level because of the various discounts which they offer to wholesalers and which represent a significant part of wholesalers' turnover (see recital 589). In particular, the basis for calculating volume discounts is the value of sales of all low-voltage electrical equipment (recital 587).

123 As a result, although the criteria which influence their choices must clearly reflect those of their customers (switchboard assemblers and installation engineers), wholesalers nevertheless look for suppliers with the most extensive possible product range (recital 81).

124 In the Commission's view, the merged entity will become an irresistible force in the distribution of the products concerned owing to its ability to reinforce its current market positions, at the expense of its competitors, owing to its unrivalled geographic coverage, its privileged relations with wholesalers, its unequalled product range and its incomparable variety of brands.

125 Given the atomised nature of demand from switchboard assemblers and installation engineers and their loyalty to the best-known brands, the new group will be in a position to impose price rises, without their effect being negated by corresponding losses in market share (recitals 592 and 688).

126 The Commission concludes that the transaction is likely to have a particularly acute effect on the price of panel-boards (recital 612), cableways (recital 641) and ultraterminal electrical equipment (recital 688).

Second plea, alleging errors in the economic reasoning underpinning the analysis of the impact of the concentration

- Arguments of the parties

127 First, Schneider claims that the Commission's conclusion that the merged entity would be able to act independently of other players and, consequently, to raise prices is predicated on the low price sensitivity of overall demand for low-voltage electrical equipment. However, that factor is not relevant to an assessment of the competitive structures on each of the various sectoral markets.

128 Instead, the analysis should be based on the elasticity inherent in an undertaking's tariff offer. In that regard, the second NERA report established that where manufacturers ran advertising campaigns for a particular item, sales increased to the detriment of competitors.

129 The Commission observes that it pointed out, at recitals 517 to 519, that overall demand for low-voltage electrical equipment is not very price sensitive, or inelastic, since it is largely determined by exogenous factors.

130 The point on which the Commission and Schneider disagree is therefore the price sensitivity of demand vis-à-vis each manufacturer. That issue is actually one and the same as the issue of purchasers' loyalty to manufacturers' brands.

131 The Commission contends that the two NERA reports do not establish that sales promotions enabled manufacturers to win over their competitors' customers. Despite the low level of demand elasticity, however, those promotions could provide the opportunity to launch new products and could provide the necessary means of ensuring continuing consumer brand loyalty.

132 Second, Schneider submits that the Commission cannot, without being inconsistent, find that the high degree of brand loyalty of switchboard assemblers and installation engineers puts competitors in a better position to withstand the concentration and at the same time find that such brand loyalty none the less represents a significant barrier to market entry which should be taken into account for the purposes of analysing the anti-competitive effects of the transaction.

133 The Commission observes that, according to recital 499, the degree of brand loyalty has no consequences for the assessment of a dominant position and that such loyalty is not absolute but significant. It does not place existing players in an impregnable position (recital 494). However, that reasoning is not undermined by - nor is it inconsistent with - the fact that, for potential competitors, brand loyalty is a barrier to market entry.

- Findings of the Court

134 The Court finds, first, that, as is apparent from the second NERA report, Schneider does not call into question the relative inelasticity of overall demand for low-voltage electrical equipment. The dispute between the parties relates only to the need, perceived by Schneider, to take account of any cross elasticity between manufacturers when assessing the competitive structures of the various markets for low-voltage electrical equipment.

135 Schneider's arguments suggest that that question is closely linked to that of the brand loyalty of switchboard assemblers and installation engineers. Thus, the second NERA report, at point 2.1.2, concludes from the increased sales of promotion items that customers, such as switchboard assemblers and installation engineers, change brands quickly when the prices of electrical equipment change.

136 Schneider has not challenged recital 22, which states that direct purchases from manufacturers are the province of wholesalers, whose low price sensitivity to which the Commission refers (in particular at recital 650), is not discussed.

137 Nor does it appear that Schneider has criticised recital 70, according to which only large industrial customers or large-scale switchboard assemblers operating in the main switchboard segment, which does not involve wholesalers, may find it advantageous to buy products directly from the manufacturers.

138 In those circumstances, the increase in certain manufacturers' sales of promotion items - on the assumption that it was to the detriment of competitors - does not seem, in itself, to be capable of affecting what the Commission found to be the significant brand loyalty of switchboard assemblers and installation engineers.

139 In fact, it is not inconceivable that the increase in sales of products promoted by the manufacturers can be accounted for by wholesalers.

140 Therefore, it cannot necessarily be inferred from the increased sales of promotion items either that switchboard assemblers and installation engineers have a tendency to change brands quickly or, as a consequence, that there is high cross elasticity of demand on the part of those operators.

141 As a result, the Court accepts the Commission's finding that switchboard assemblers and installation engineers have significant loyalty to the brands of manufacturers of low-voltage electrical equipment.

142 In those circumstances, Schneider has not shown that the Commission, for the purposes of assessing the impact of the transaction, was wrong to use the test of price sensitivity of overall demand for low-voltage electrical equipment instead of relying on cross elasticity of demand (which has not been proved) on the part of switchboard assemblers and installation engineers.

143 The Court finds, second, that, owing to what must be recognised as the significant loyalty of switchboard assemblers and installation engineers, it cannot be precluded that penetration of a national sectoral market may prove difficult for a new competitor.

144 None the less, it cannot be precluded that such loyalty may also be a factor which, in this instance, puts a manufacturer already present on the relevant market in a better position to withstand the impact of the concentration.

145 Therefore, the Commission's assessment of electricians' brand loyalty does not appear to be inconsistent.

146 In those circumstances, the plea must be rejected.

Third plea, alleging overestimation of the strength of the merged entity

- Arguments of the parties

147 Schneider observes that the Commission's approach was to define country by country the various product markets affected by the transaction, whilst the notifying parties had, on the contrary, contended during the administrative procedure that certain sectoral markets were European in scale.

148 Without taking issue with that definition, Schneider complains that the Commission carried out, in Section V.C of the Decision, an overall analysis at European level of the impact of the transaction, instead of proceeding country by country on the basis of the definition of the product markets set out in Section V.B of the Decision.

149 That overall analysis prompted the Commission to describe the new entity as the European leader and to conclude that it would enjoy certain substantial advantages in comparison with its competitors, in particular, the extent of its geographic coverage, its relations with wholesalers, the extent of its product range and the wide variety of its brands.

150 However, the Commission cannot complain that the future entity would become the unchallenged European leader, whilst the strict national definition of the markets which it had undertaken shows, on the contrary, the narrow geographic limits of the competition problems identified.

151 The Commission contends that it concluded that the transaction would lead to the creation or strengthening of a dominant position, relying solely on an analysis of the impact of the transaction in each country affected, irrespective of whether those effects were common to the national markets as a whole or specific to one or some of them.

152 The Commission denies that it tried to establish that the merged entity would have a dominant position on any sectoral market of European scale or that it was the European leader. The Commission draws attention to the fact that the merged entity enjoyed, in particular, unrivalled geographic cover, and a product range and variety of brands which are appreciably more extensive than those of its competitors.

- Findings of the Court

153 It follows from point 8 of the Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ 1997 C 372, p. 5, point 7) that the geographic market to be taken into account comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas.

154 The Court has confirmed that the geographic market is a defined area in which the product concerned is marketed and where the conditions of competition are sufficiently homogeneous for all economic operators, so that the effect on competition of the concentration notified can be evaluated rationally (Joined Cases C-68/94 and C-30/95 France and Others v Commission [1998] ECR I-1375, paragraph 143).

155 At Section V.B of the Decision, Definition of the relevant markets, the Commission described the national dimension of the various markets and market segments for low-voltage electrical equipment identified beforehand and set out in the table reproduced at paragraph 48 of this judgment.

156 The Commission's conclusion that there were national markets for distribution and final panel-board components was founded on four factors (see recital 194).

157 First, there are significant differences between the products sold in the various countries.

158 Second, prices are set at national level and the price of certain reference products varies considerably (by up to twice as much) from one country to another.

159 Third, the key factors in competition, both on the supply side (positioning of brands, access to wholesalers) and on the demand side (customer structure and expectations), are dependent upon essentially national factors, such as the concentration, size and sphere of activity of wholesalers, or installation engineers' perception of brands and product ranges. In addition, those factors vary significantly from one country to another. In particular, the extent to which wholesalers are concentrated varies markedly between countries and wholesalers' purchasing is organised on a national basis (recital 220). Negotiations between manufacturers and wholesalers, in particular as regards choice of suppliers and selection of the product ranges to be bought and sold, take place almost entirely at national or regional level (recital 223).

160 Fourth, there are significant barriers to entry and expansion between countries. Those barriers can be attributed in particular to the conservatism of installation engineers (see recital 240), to national practices (see recitals 194 and 203) and to the absence of full harmonisation of technical standards at Community level (see recital 201) and can require a new entrant to invest significant sunk costs.

161 At recital 268 the Commission points out that those key factors apply by analogy to cableways and busbar trunking.

162 Similarly, the Commission takes the view that the various market segments in ultraterminal electrical equipment are national in scale (recitals 380, 381 to 384, 394 and 424).

163 On concluding of its analysis of the transaction, the Commission finds that there are a certain number of objections relating to the creation or strengthening of a dominant position on the various national sectoral markets affected by the transaction and, as such, listed at recitals 782 and 783 (see paragraphs 57 and 58 of this judgment).

164 The Commission's analysis of the effect of the disputed concentration on each of the national sectoral markets affected by the transaction is none the less also founded on the positions held by the merged entity outside those markets, inasmuch as the Commission took into account its unrivalled geographic coverage, i.e. the fact that its activities extend to the whole of the EEA.

165 As regards, first, national markets for switchboard and panel-board components, the Commission, in order to illustrate that the new entity would acquire an unrivalled position, refers to the strength of the combined entity on the markets for low-voltage electrical equipment as a whole (recital 551) and sets out in Table 30, which is reproduced below, the range of low-voltage electrical equipment which the Schneider-Legrand group would be able to offer in each of the 15 countries listed:

Table 30

Markets for low-voltage electrical equipment affected by the transaction

>lt>1

Key: one star (*) represents 10 to 20% of total sales and so on up to five stars (*****), which represent a share of sales in excess of 50%.

166 In that regard, the Commission explains at recital 550 that prior to the proposed transaction, the parties each had a very wide range of products in the low-voltage electrical-equipment sector. They most frequently held very significant positions for some of those products and in certain geographic areas. Thus the transaction [will] enable the parties to combine Schneider's strong positions in the Nordic countries in electrical equipment used downstream from final panel-boards with Legrand's strong positions in Southern Europe. Likewise, Schneider brings its strength in all categories of switchboards and panel-boards and reinforces Legrand's strong position in downstream products as a whole.

167 The Commission continues as follows at recital 551:

Following the transaction, there [will] be only two countries in the EEA (Germany and Finland) in which the combined entity will not have a leading position. More generally, it should also be pointed out that Schneider states that for low-voltage electrical equipment it is ranked second globally whilst Legrand portrays itself as world leader in ultraterminal electrical distribution ....

168 The Commission goes on to observe, at recital 552, that none of Schneider-Legrand's competitors [will] have such a wide range of products and such geographic coverage with strong positions on the relevant markets.

169 As regards, second, national markets for ultraterminal electrical equipment, the Commission draws attention to the fact that the merged entity will offer a full range of products and that its coverage of the EEA as a whole will be comprehensive and unmatched (recitals 654 and 658). The proposed transaction will therefore result, in the Commission's opinion, in the combination of Schneider's large market shares in Northern Europe and those of Legrand in Southern Europe (recital 659).

170 Thus, although the Commission used the national dimension of the sectoral markets for low-voltage electrical equipment to demonstrate that a dominant position would be created or strengthened in those markets, it nevertheless had recourse to evidence of economic power drawn from all the national sectoral markets, irrespective of whether the concentration would give rise to competition problems on those markets.

171 However, the Court observes that the creation or strengthening of a dominant position on national sectoral markets could, in this instance, be apprehended only on the basis of evidence of economic power relating to those markets, possibly supplemented by a consideration of transnational effects, assuming such effects should be shown to exist in the present case. However, that is not the position.

172 In that regard, the Commission itself points out, at recitals 534 and 537, that, although the transaction creates, for example, a cumulation of market shares on all the national markets for panel-boards, it none the less gives rise to competition problems in only five countries, as may be seen from Tables 27 to 29, reproduced below.

Table 27

Market shares in distribution panel-board components

>lt>2

1- Abbreviation of General Electric.

* Confidential data.

Table 28

Market shares in final panel-board components

>lt>3

* Confidential data.

Table 29

Market shares in connector circuit breakers

>lt>4

* Confidential data.

173 Likewise, the purpose of Table 35 in the Decision, reproduced below, is to illustrate the presence of the merged entity and of its main competitors on the various segments of the market for ultraterminal electrical equipment throughout the EEA.

Table 35

Presence of the major manufacturers on the markets for equipment used downstream from the final panel-board

>lt>5

Key: one star (*) represents a market share of between 5 and 20%, two stars (**) a market share of between 20 and 50% and three stars (***) a market share in excess of 50%.

174 Of the segments of national markets referred to in Table 35 only the following segments were referred to in the objections relating to the creation or strengthening of a dominant position, set out at recitals 782 and 783:

>lt>6

1 - Objections including the sockets and switches segment and the watertight equipment segment.

2 - Objection relating to watertight equipment.

175 It follows that, of all the national sectoral markets referred to in Table 30 reproduced at paragraph 165 above, the factual evidence in the Decision indicates that only the markets and segments shown below entail competition problems relating to the creation or strengthening of a dominant position:

>lt>7

1 - Objection relating to watertight equipment segment.

2 - Objection also relating to market for connector circuit breakers.

3 - Objections relating to segments for sockets and plugs, watertight equipment and security systems.

4 - Objection relating to the market for sockets and plugs.

5 - Objection also relating to market for connector circuit breakers.

Key: one star (*) represents a market share of between 5 and 20%, two stars (**) a market share of between 20 and 50% and three stars (***) a market share in excess of 50%.

176 The Court thus finds that the Commission incorporated, not only in its presentation, but also in its analysis, of the facts, the unmatched geographic coverage of the merged entity throughout the whole of the EEA, in order to show that a dominant position would be created or strengthened on the national sectoral markets for switchboard components and for ultraterminal equipment as referred to in the objections set out at recitals 782 and 783.

177 The Court points out in that respect that the transaction, as the documentary material in the Decision itself shows, in reality poses competition problems only in France and on six other national markets.

178 Admittedly, as pointed out at paragraph 171 above, it is in principle open to the Commission to take account of transnational effects which may increase the impact which a concentration has on each of the national sectoral markets deemed relevant.

179 Those effects may not be presumed to exist, however: on the contrary, the Commission must provide sufficient evidence that they do.

180 It must be pointed out that, in order to provide evidence of the competition problems which would arise on the sectoral markets affected by the concentration and referred to at recitals 782 and 783, the Commission focused exclusively on the power which the merged entity would have on all the other national sectoral markets in Table 30, without weighing that power against the competitive strength of its competitors on those markets.

181 None of those competitors features in Table 30. The table gives no indication of the impact of the transaction on each of the various national sectoral markets in which no competition problems will arise as a result of the concentration.

182 In particular, Table 30 does not make clear that Legrand was present on the markets for distribution panel-board components in only three of the 15 countries referred to in Table 30, namely France, Italy and Norway (see recital 530). Nor, as a consequence, does it make clear that the proposed merger is likely to pose competition problems only in those three countries.

183 Nor does Table 30 indicate whether the strength attributed to the merged entity on each of the national sectoral markets listed would result from the transaction or from the presence on those markets, prior to the transaction, of one or other of the notifying parties (see paragraphs 327 and 392 below). In particular, the table fails to indicate that before the transaction Legrand was not present on any of the national markets for main switchboard components and that, as a consequence, the transaction cannot give rise to competition problems in those markets (recital 245).

184 Furthermore, ABB, Siemens and GE have a huge range of low-voltage products (recital 17), whilst ABB and Siemens are generally present in a large number of Member States (recital 20). In particular, ABB is represented on all the national markets for ultraterminal electrical equipment, or most of them, whilst Siemens and Hager are present on several of those markets (recitals 644 and 645).

185 Nor, in light of the general scheme of the Decision, can the Court accept the assertion that the assessment of the role to be played by Schneider-Legrand at European level, far from casting doubt on the geographic definition of the relevant markets as being of national dimension, is an integral part of the analysis of the impact of the concentration on each of the national markets and product markets affected (recital 654).

186 At the hearing, the Commission stated that a company present on all markets and holding a dominant position on all the geographic markets of the EEA as a whole is capable of retaliation.

187 It was, however, by reference to each of the territories concerned that the Commission pointed out, at recital 605, that the combined entity's ability to offer a very wide range of products would enable it to direct targeted retaliatory measures against its competitors.

188 Likewise, according to the Commission's own interpretation of Table 30 in its reply to the seventh plea (see paragraph 304 of this judgment), it is within the same geographic market that the new entity is supposed to gain a significant competitive advantage as a result of its strong position on other product markets on which the same wholesalers are active.

189 Thus, only the Spanish market would appear to be affected by what the Commission claims at recitals 678 and 685 to be Schneider's ability to capitalise on the substantial presence it is known to enjoy on the markets for panel-board components in Spain and force wholesalers to stock its ultraterminal electrical equipment.

190 Similarly, according to recital 604, it is only in Portugal that Schneider, which is deemed to be in a very strong position on the market for miniature circuit breakers, especially for industrial and tertiary applications, is accused of regularly fuelling the price war in the residential segment, in such a way as to confine Hager and ABB to that less profitable market and thereby protect its market shares in the segments for tertiary and industrial applications.

191 It follows from the foregoing that the Commission, in its analysis of the merged entity's geographic coverage, incorrectly applied Article 2(3) of Regulation No 4064/89.

192 The plea must therefore be accepted.

Fourth plea, alleging inconsistency in the analysis of the structure of competition at wholesaler level

- Arguments of the parties

193 Schneider claims, first, that there are manifest errors of reasoning in the Commission's overall assessment of the relative strength of manufacturers and wholesalers and, second, that there are inconsistencies in the consequences which in the Commission's contention follow from, in particular, the greater or lesser degree of concentration in distribution for the competitive pressure which the wholesalers are capable of exercising on the merged entity.

194 The Commission replies that the degree of concentration among wholesalers, and thus the extent of buyer power, varies significantly from one country to another. However, irrespective of the degree of concentration among wholesalers, rivalry between them does not have an impact on the manufacturers, at least not on the largest manufacturers, amongst whose leaders the merged entity is to be found.

195 The competition between wholesalers consequent upon a low (Italy and Spain) or average (Portugal) degree of concentration of distribution does not mean that the resulting competition between wholesalers leads to significant pressure being brought to bear on the leading manufacturers. On the contrary, the wholesalers' room for manoeuvre vis-à-vis the manufacturers is particularly limited and does not enable them to constrain prices in any appreciable way.

196 In countries in which distribution is highly concentrated (France and Denmark), wholesalers are dependent for a very large number of products on the major manufacturers with the best-known brands. The leading manufacturers grant even larger discounts to wholesalers when they concentrate on selling the manufacturers' products, so that there is even less incentive for wholesalers to exert their buyer power on manufacturers.

- Findings of the Court

197 It is appropriate to point out that the Commission confined itself, at recitals 579 to 583, to a very general examination of the relative strengths of manufacturers and wholesalers at a transnational level, whilst the national dimension of the geographic markets stated to be relevant would have called for a detailed country-by-country analysis.

198 In addition, the examination carried out by the Commission does not prove that the new entity would be an unavoidable trading partner for wholesalers nor that they would be incapable of exercising any competitive restraints on it.

199 First, it does not appear that the Commission's method of gauging the wide variations which it found in the extent to which distribution was concentrated on the various national markets provided a sufficiently reliable basis for the conclusions it reached about the relative strengths of manufacturers and wholesalers.

200 At recitals 26 and 221, the Commission classed Portugal, together with Spain, among the countries in which wholesalers were most atomised. The Commission also notes, at recital 594, First, installation engineers and switchboard assemblers are too atomised to exercise significant buyer power over the merged entity. The same is true of Spanish, Danish and Portuguese wholesalers.

201 However, it does not follow from Table 6 in the Decision, set out below, that the structure of distribution is atomised in Portugal, since two wholesalers between them have 40% of the market for switchboards and panel-boards.

Table 6

Schneider's estimate of the market shares of the five groups of international wholesalers on the markets for switchboards/panel-boards

>lt>8

* Confidential data.

202 In any event, the structure of distribution obtaining in Portugal can be distinguished from that in Spain, where three wholesalers together have 19% of the market for switchboards and panel-boards, and that in Denmark, where two wholesalers together control 13%. In its defence, the Commission also classifies Portugal as a country in which there is an average degree of concentration, as is clear from the Commission's answer to the plea set out above.

203 Second, several passages of the Decision (see recitals 26 and 221) are at variance with the Commission's conclusion that in countries in which distribution is not highly concentrated wholesalers' room for manoeuvre vis-à-vis manufacturers is particularly limited and does not enable them to constrain prices in any appreciable way.

204 At recital 26, the Commission observes, with reference to Legrand's medium-term plans, that according to the parties' internal documents, those structural differences [in distribution] are not without consequences for the conduct of wholesalers in the countries concerned and that it thus appears that in the countries in which wholesalers are the most fragmented, such as Portugal, competition between wholesalers leads to a price war which has repercussions at manufacturing level. Nevertheless, the Commission regards Legrand as having a strong position in Southern Europe.

205 At recital 221, the Commission states:

As an internal document from Legrand shows, "there are several classes of distributor in Portugal, chiefly independent speculative family-run businesses, without a structured commercial policy, and operating in the very short term. Consequence: strong anarchic competition between them, which entails (i) a fall in prices generally and in their profit margin in particular, resulting in constant pressure on manufacturers to give better purchasing terms"...

206 The example of Portugal cited by the Commission does not therefore lend weight to the proposition that in countries where distribution is not highly concentrated, wholesalers are not in a position to restrain prices in any appreciable way.

207 Similarly, according to Legrand's medium-term (2001-2005) plan for Spain, [distributors'] margins and their profitability continue to fall year on year because of the strong pressure on prices caused by the large number of distributors on the market, the fall in those prices then rebounding on manufacturers.

208 Thus, those data undermine the Commission's argument at recital 579 that it is highly unlikely that Spanish wholesalers each have sufficient buyer power to restrain the merged entity's competitive conduct in any appreciable way and, contrary to the Commission's contention at recital 581, it cannot be taken as proved that the merged entity would be an unavoidable trading partner for the wholesalers (see paragraph 216 et seq. below).

209 Third, the Court does not consider that there is sufficient evidence to support the Commission's finding that where wholesalers are highly concentrated, there is still no strong downward pressure on prices.

210 In support of that finding, the Commission points out, at recital 582, that in a number of countries, including Italy, wholesalers favour Legrand's products particularly because of their relatively high prices, which give them increased profit margins.

211 On the one hand, it follows from the foregoing that the Commission places Italy among the countries where distribution is not highly concentrated, as is evident from Table 6 in the Decision, reproduced at paragraph 201 above.

212 The reference to Italy therefore does not demonstrate that there is no strong downward pressure on prices where distribution is highly concentrated.

213 The reference at recital 582 to the structure of distribution in Austria is irrelevant: according to the Decision itself, no relevant sectoral market in that country is affected by the concentration (see recitals 782 and 783).

214 Further, the characteristics of overall demand for electrical equipment, including customer-side demand, must also be taken into consideration.

215 In that regard, it is apparent from recital 213 that the high cost of Legrand's products may actually be a significant impediment in that it sometimes makes the products ill-suited to the customers' purchasing power.

216 Fourth, Table 31 of the Decision, reproduced below, does not effectively support either the description of the merged entity at recital 567 as an unavoidable trading partner for most wholesalers, which is based on the fact that it has sway over a very substantial proportion - in some cases more than 40% - of national sales or the contention that it has significant market positions in each country.

217 Table 31, reproduced below, provides percentage brackets for sales of all low-voltage electrical equipment by the leading manufacturers to wholesaler [A] *.

Table 31

Wholesaler [A's] * percentage sales of low-voltage electrical equipment

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218 Since, as regards low-voltage electrical equipment as a whole, there is no indication of how distribution is concentrated nationally (as there was in Table 6 in the case of the markets for switchboards and panel-boards), it is impossible to decide from Table 31 whether national wholesalers of low-voltage electrical equipment as a whole will find the merged entity an irresistible force.

219 Nor does a comparison of Tables 31 and 6 (on the assumption that any such comparison is possible, since Table 6 deals only with switchboard and panel-board components) make it possible in any event to regard the new entity's share of sales to wholesalers as substantial.

220 The 30 to 40% bracket sales of low-voltage electrical equipment by wholesaler [A] * in Italy attributed to the Schneider-Legrand group in Table 31 is not an adequate basis for an accurate assessment of the economic power which that group will have vis-à-vis distributors in that country.

221 First, that wholesaler accounts for only 4% of the Italian market for panel-board components. According to the Commission itself, account should be taken of how well established wholesalers are when ascertaining to what extent the manufacturers' competitive position is essentially determined by their access to distribution.

222 At recital 73, the Commission thus points out that the competitive position of the various manufacturers will to a large extent be determined by ... their access to wholesalers, at least in the Member States in which the latter are sufficiently well established.

223 Second, Table 6 is not exhaustive. As the Commission states, at recital 72, manufacturers do not necessarily have access to the same wholesalers. Whilst the larger manufacturers tend to work with large international groups, the smaller competitors are more inclined to operate at regional level and work with smaller wholesalers.

224 The first NERA report indicates, and is not disputed in that regard by the Commission, that, according to Legrand's estimates, there are about 800 wholesalers on the Italian market for ultraterminal electrical equipment.

225 Furthermore, recital 63 makes clear that local wholesalers supplying installation engineers are not necessarily subsidiaries of international wholesalers.

226 For the same reasons, the Court is also unable to accept the Commission's assertion, at recital 676, that the new group will account for a significant proportion of the wholesalers' turnover and, as a result, a significant proportion of their purchasing in most of the EEA Member States (see further above, Table 31).

227 The Court cannot accept the Commission's contention at recital 637 that the merged entity will have privileged access to distribution on the United Kingdom markets for products for electrical distribution on the ground that it will account for between 10 and 20% of the sales of electrical-distribution products by one of the largest wholesalers in the United Kingdom, whilst that wholesaler's second supplier accounts for less than 10% of its sales.

228 Owing to its imprecise nature, since it could be anywhere between less than 1% and more than 19%, the difference between Schneider-Legrand and the supplier in second place cannot be regarded as a reliable indication of privileged access to distribution.

229 For the same reason, the Court cannot accept the finding at recital 573 that the Schneider-Legrand group in Spain will be relatively larger than its competitors, having regard to the brackets of shares of sales by [A] * accounted for by each of the leading operators on the market for low-voltage electrical equipment and set out in Table 31, which includes equally imprecise percentage brackets of market shares.

230 In those circumstances, neither the fact that the merged entity will be an unavoidable trading partner for wholesalers nor their inability to exercise competitive constraints on it have been properly demonstrated.

231 The plea must therefore be declared founded.

Fifth plea, alleging errors in the analysis of the impact of the concentration on the various national sectoral markets referred to in the Commission's objections

- Arguments of the parties

232 Schneider submits that the Commission's Europe-wide analysis of the impact of the transaction led it to substitute general considerations for an analysis of the merged entity's position on each of the national markets affected. Instead of carrying out such an analysis, the Commission confined itself to general arguments relating to the product range and to the new entity's incomparable variety of brands. In reality, the Commission has drawn inferences about the other national product markets from the situation regarding competition on the French sectoral markets.

233 The Commission contends that it structured its analysis of the transaction by presenting, category by category, arguments which applied to each of the markets concerned, although to varying degrees and using different methods, which are duly explained. The general presentation did not distort the subsequent analysis of each of the markets affected by the transaction: in fact it was helpful in shedding light on the analysis of competition on each of those markets.

- Findings of the Court

234 In its reply to the seventh plea (see paragraph 304 below), the Commission contends that Table 30 (see paragraph 165 above) is intended to show that, on each of the markets affected by the transaction, the new entity will derive a substantial competitive advantage from the fact that it will be in a strong position, in the same geographic market, in other product markets in which the same wholesalers are active (recitals 567 to 578).

235 In taking the range of low-voltage electrical equipment which the merged entity will offer to wholesalers as evidence of economic power, the Commission relied, as is apparent from the answers it gave at the hearing, on Article 2(1)(b) of Regulation No 4064/89.

236 That provision indeed states that the Commission is to take into account the access of the undertakings concerned to markets and, therefore, their access to distribution in order to establish whether a concentration is compatible with the common market.

237 The Court takes the view, however, that the Commission did not properly incorporate that criterion into its assessment of the new entity's economic power on each of the national sectoral markets affected by the transaction and listed at recitals 782 and 783 of the Decision, owing to the lacunae and inconsistencies in the analysis of the structure of distribution which the Court found to exist when considering the fourth plea.

238 As a result of those shortcomings, the Court finds that the Commission has failed to establish the ability of the merged entity to compel wholesalers on each of the national sectoral markets affected by the transaction to distribute other products from its range which they did not thus far distribute.

239 In addition, the Commission qualifies the Schneider-Legrand group's product range as unrivalled on the basis of an abstract combination of the various kinds of low-voltage electrical equipment which the group will supply throughout the EEA as a whole and not of an assessment of the product range which the group will actually offer on each of the national sectoral markets affected by the proposed transaction and referred to in the objections set out at recitals 782 and 783 of the Decision.

240 As was made clear above, the Commission contends that the transaction would enable the parties to combine Schneider's strong positions in the Nordic countries in electrical equipment used downstream from final panel-boards with Legrand's strong positions in Southern Europe and to associate Schneider's strength in all categories of panel-boards with Legrand's strong position in downstream products as a whole (recital 550). Thus, the merged entity will, in the Commission's contention, have a full range of products covering all markets for electrical equipment downstream from the final panel-board (recital 654).

241 However, contrary to what recital 654 might suggest, it does not follow from the Decision that the combined entity will necessarily offer the whole range of low-voltage electrical equipment on each of the national markets referred to in the objections listed at recitals 782 and 783 of the Decision.

242 Thus, Table 35, reproduced at paragraph 173 above, shows that the Schneider-Legrand group will not be present on certain segments of the market for ultraterminal electrical equipment, even in France, Italy and Spain. In particular, the Schneider-Legrand group will not be present in the control systems segment, even in France.

243 It is apparent that the Commission took a transnational approach in putting together the merged entity's product range. That notional range cannot, however, give a valid indication of the entity's economic power on each of the national sectoral markets affected by the transaction.

244 It is common ground that decisions about the product ranges to be bought and sold as between the manufacturers and the wholesalers are made almost entirely at national or regional level (recital 223, cited above).

245 Furthermore, apart from the fact that it does not mention, for example, either the extent or the distribution of the market shares held by the new entity's competitors on the national sectoral markets affected, Table 30 gives only broad market share brackets, instead of sufficiently precise market positions, which alone would allow the entity's economic power to be accurately evaluated. The same is true of Table 35.

246 It is clear that its hypothetical approach led the Commission to overestimate the new group's power on certain of the national sectoral markets affected by the transaction. The statement, at recital 550, that Schneider brings its strength in all categories of panel-boards is thus at variance with Table 28, reproduced at paragraph 172 above, which indicates that the Commission accepted that Schneider's market shares on the Italian markets for final panel-board components fluctuate between [...] * and [...] *.

247 It is also necessary to put into perspective the importance attached by the Commission to the actual extent of the range of low-voltage electrical equipment. At recital 507, the Commission observes that, according to the notifying parties, in order to be viable in distribution panel-boards and final panel-boards, it is necessary to supply the full range of components (cabinets, fuses, circuit breakers, differential protection devices and control systems etc) corresponding to those panel-boards, and ... for the purposes of distribution installation, manufacturers must offer the full range of products.

248 Although the extent of the product range supplied by a manufacturer may be a factor in its success, it none the less does not follow from recital 507 that a manufacturer must necessarily supply wholesalers with the entire range of low-voltage electrical equipment or that wholesalers must try to reduce the number of their suppliers indiscriminately throughout all the sectoral markets for low-voltage electrical equipment.

249 In any event, recital 141 itself states that all the parties' large competitors (such as ABB, Siemens or Hager) have the full range of panel-board components, which should enable them to meet the need, referred to at recital 82, to offer the fullest possible product ranges in that sector.

250 The Commission also observes, at recital 507, that each of the large manufacturers, including not only Schneider and Legrand but also ABB, Siemens and GE, offers more than 2000 items for distribution panel-board components and more than 5 000 items for final panel-board components.

251 Likewise, the Commission notes, at recital 17, that ABB, Siemens and GE have a huge range of low-voltage products. It also appears from recital 507 that the large manufacturers' product catalogues of equipment used downstream from final panel-boards and related equipment also include several thousand items.

252 Furthermore, brand mixing exists even in the case of certain switchboard and panel-board components (recitals 136 and 163). In that regard, the Commission points out, at recital 168, that single branding is not absolute for either final panel-boards or distribution panel-boards.

253 In addition, it seems from the Decision that brand mixing may well exist between switchboard and panel-board components and other types of low-voltage electrical equipment.

254 Finally, account must also be taken of the important role which, as the Commission acknowledges, is played by end-users and project managers in the choice of visible equipment (plugs, switches, trunking, etc.). Their main selection criteria are appearance and practicality (recitals 66 and 79) and not whether a wide range of products is available.

255 The Commission was not therefore lawfully entitled, for the purposes of assessing the merged entity's economic power on the national sectoral markets affected and defined at recitals 782 and 783, to rely on a product range whose alleged superiority to those of its competitors resulted from its being a notional whole based on a combination of the various kinds of low-voltage electrical equipment that will be supplied by the merged entity throughout the EEA.

256 It follows that the Commission has again overestimated the economic power of the new entity on the national sectoral markets referred to at recitals 782 and 783 by including in its analysis of the impact of the transaction on those markets the total effect of a product range which does not reflect the true competitive situation which will obtain in those markets following the concentration.

257 The same reasoning must apply as regards the merged entity's wide variety of brands, which is also deemed to be unrivalled because the brands owned by the notifying parties in the EEA as a whole have been taken together in the abstract.

258 Since it does not necessarily supply the whole range of low-voltage products on each of the various national sectoral markets concerned, the Schneider-Legrand group will not necessarily offer in those markets all the brands which it owns throughout the EEA.

259 It is also appropriate to take into account the number and reputation of the other competitors on each national sectoral market. It is thus clear from the Commission's answer at the hearing to a question asked by the Court that, in comparison with the four competitors in Tables 27 and 28, which are reproduced at paragraph 172 above, the Schneider-Legrand group will, for example, own only two brands on the market for final panel-board components in Denmark, Spain and Portugal.

260 The Court also observes that, even if the importance to competition of the range of components and brands is accepted, it is none the less the case, as the Commission itself points out at recital 176, that the strength of a brand is principally based on the competitiveness of its various constituent parts.

261 That finding puts into perspective the importance which the Commission attaches in its arguments to the merged entity's wide variety of brands.

262 It follows that the Commission was wrong to take as its reference point the entire range of products and brands which the merged entity will have throughout the EEA for the purpose of assessing the entity's economic power on each of the various national sectoral markets affected by the transaction.

263 To that extent the Commission has misapplied Article 2(3) of Regulation No 4064/89.

264 The plea must therefore be accepted.

Sixth plea, alleging manifest errors of assessment in the analysis of the impact of the concentration on certain national markets for panel-board components

- Arguments of the parties

265 Schneider challenges the Commission's refusal to include within the market shares of ABB and Siemens (two of the merged entity's leading competitors) the not insignificant proportion of the sales of panel-board components made by those companies to installation engineers and switchboard assemblers which are vertically integrated within those groups.

266 Since they are all capable of winning tenders for large construction projects, the manufacturers of panel-boards are to be viewed as direct competitors, irrespective of whether they have integrated switchboard assembly and installation businesses.

267 The notifying parties provided the Commission with specific examples of tenders in which they competed directly with the bids submitted by ABB and Siemens through their integrated subsidiaries.

268 That competition testifies to the existence of an independent market in distribution channels selected by each manufacturer. To that extent, the market for panel-board components is radically different from the situation in which products are manufactured in-house for purely internal consumption.

269 By refusing to take ABB's and Siemens' integrated sales into account, the Commission underestimated those companies' market shares and, consequently, overestimated the new entity's economic power on the French and Italian markets for distribution panel-board components and on the Danish, Spanish, French, Italian and Portuguese markets for final panel-board components.

270 Schneider goes on to complain that the Commission made a manifest error of assessment in its quantification of ABB's and Siemens' integrated sales. Schneider indicates that it put the proportion represented by integrated sales at [...] of the turnover to be taken into account for the sale of panel-boards in Europe. That percentage is far higher than the figure of 5% stated by Siemens at the hearing on 21 August 2001 and reproduced, unexamined, by the Commission at recital 527.

271 The Schroder Salomon Smith Barney study confirmed Schneider's assessment in the following terms:

Around [... *] of [Automation] & [Drives] 2000 sales that includes Low Voltage Activities were made to other Siemens divisions.

272 The Commission replies that it did not take integrated sales of components made by ABB and Siemens into account, since those products cannot immediately be rechannelled into the open market. As such they do not exert any direct competitive pressure and should not be included in the calculation of the market shares of the undertakings concerned, in particular where added value is conferred on the products in question (Commission Decision 2000/174/EC of 3 May 2000 declaring a concentration to be compatible with the common market and the EEA Agreement (Case No COMP/M.1693 - Alcoa/Reynolds, OJ 2002 L 58, p. 25)). That practice in taking decisions was approved by the Court of First Instance in Case T-221/95 Endemol v Commission [1999] ECR II-1299, paragraph 109.

273 Each category of operators on the three levels of the vertical chain of distribution and final panel-board production adds value to the component (wholesalers (around 20%), switchboard assemblers (between 15 and 20%) and installation engineers (around 80%)) before they are installed at