Green Paper on the Review of Council Regulation (EEC) No 4064/89
Date: 2001-12-11
Institutions: European Commission
Subjects: amendment of a law, economic concentration, merger control

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 11.12.2001
COM(2001) 745 final

GREEN PAPER

on the Review of Council Regulation (EEC) No 4064/89

(presented by the Commission)

TABLE OF CONTENTS

GREEN PAPER on the Review of Council Regulation (EEC) No 4064/89 ............................. 1

GREEN PAPER on the Review of Council Regulation (EEC) No 4064/89 ............................. 4

EXECUTIVE SUMMARY........................................................................................................ 4

I.

II.

A.

1.

2.

3.

a)

b)

c)

d)

4.

B.

1.

2.

3.

a)

b)

c)

C.

1.

2.

3.

D.

1.

INTRODUCTION ....................................................................................................... 6

JURISDICTIONAL ISSUES ....................................................................................... 8

Community dimension............................................................................................... 10

Background ................................................................................................................ 10

Summary of Issues to be Addressed .......................................................................... 10

Assessment of the conceivable options for amending Article 1(3)............................ 11

Alterations to the five constituting criteria of Article 1(3) are unlikely to provide any
significant improvement ............................................................................................ 12

No modification of Article 22 likely to provide any significant improvement (and
would require harmonisation of national laws).......................................................... 15

Automatic Community Competence over Cases Subject to Multiple Filing
Requirements ............................................................................................................. 15

Conclusion on the conceivable options for amending Article 1(3)............................ 17

Case Allocation in an Enlarged Community - a Long-term Perspective ................... 17

Referrals to Member States, Article 9........................................................................ 18

Background ................................................................................................................ 18

Summary of Issues to be Addressed .......................................................................... 19

Possible amendments ................................................................................................. 20

Simpler Criteria for Referring a Case: ....................................................................... 21

Referral at the Commission's initiative : .................................................................... 21

Timing ....................................................................................................................... 21

Joint Referrals to the Commission, Article 22(3) ...................................................... 22

Procedural Weaknesses of Article 22(3).................................................................... 23

Operational Weaknesses of Article 22(3) .................................................................. 24

Conclusion on Article 22(3)....................................................................................... 25

The concept of "concentration": relevant issues for review....................................... 25

Minority Shareholdings.............................................................................................. 26

2

2.

3.

4.

5.

6.

7.

8.

Strategic Alliances ..................................................................................................... 27

Article 2(4) ................................................................................................................. 28

Partial-function Production Joint Ventures................................................................ 29

Multiple Transactions ................................................................................................ 31

Venture Capital Investments, Article 3(5) ................................................................. 33

Convergence - "Control" vs. "Group"........................................................................ 35

Summary of Conclusions ........................................................................................... 36

III.

SUBSTANTIVE ISSUES .......................................................................................... 36

A.

B.

C.

The substantive test .................................................................................................... 36

Merger-specific efficiencies....................................................................................... 38

Simplified Procedure.................................................................................................. 39

IV.

PROCEDURAL ISSUES........................................................................................... 40

A.

B.

C.

D.

E.

F.

1.

G.

H.

I.

J.

V.

Notification - Triggering event .................................................................................. 40

Suspension of Concentrations .................................................................................... 42

Calculation of time limits........................................................................................... 42

Administrative efficiency........................................................................................... 43

Completeness of Notification..................................................................................... 43

Commitments Procedure............................................................................................ 44

Amending the Applicable Procedure ......................................................................... 46

Article 8(4) ................................................................................................................. 48

Enforcement Provisions ............................................................................................. 49

Filing Fees.................................................................................................................. 50

Due Process and "Checks and Balances"................................................................... 51

INVITATION TO COMMENT................................................................................. 56

ANNEXES

3

GREEN PAPER

on the Review of Council Regulation (EEC) No 4064/89

EXECUTIVE SUMMARY

The proposed revision of the Merger Regulation  is  undertaken  with  a  view  to  ensuring  that
the  Merger  Regulation  will  continue  to  be  an  effective  instrument  of  merger  control  in  a
changing economic and political environment, both in Europe and worldwide. While building
upon the  successful  application  of the Regulation  over the past 10  years,  the  proposals  also
seek  to  meet  the  challenges  posed  by  global  mergers,  monetary  union,  market  integration,
enlargement and the need to cooperate with other jurisdictions. The Commission believes that
the reform should be built on the principles underlying the Merger Regulation, i.e. the need to
ensure effective, efficient, fair and transparent control of concentrations at the most appropriate
level, in accordance with the principle of subsidiarity.

Jurisdictional issues

Community dimension

The Commission's review of the functioning of the Merger Regulation has revealed that the
threshold  levels  in  Article  1  (2)  as  well  as  the  2/3  rule  function  satisfactorily.  However,  as
regards Article 1(3), while its main underlying principle (namely, that the Commission should
deal  with  cases  that  affect  three  or  more  Member  States)  remains  valid,  the  jurisdictional
criteria  contained  in  the  provision  have  not  solved  the  multiple  filing  problem  which  they
were  designed  to  tackle.  As  a  result,  cases  of  Community  interest  still  remain  subject  to
notification and  scrutiny in a number of  EU  jurisdictions.  Of  particular concern is the trend
indicating  an  increase  in  multiple  filings  to  three  or  more  Member  States,  and  the  fact  that
enlargement of the Community must be expected to exacerbate this trend. The Commission's
proposal  therefore  focuses  on  the  amendment  of  Article  1  (3),  which  should  be  operational
before the enlargement of the Community.

Having analysed various numerical modifications to the combination of thresholds and other
requirements  of  Article  1  (3),  the  Commission  invites  comments  on  the  possibility  of
introducing  an  automatic  Community  competence  over  cases  subject  to  multiple  filing
requirements to three or more Member States.

Articles 9 and 22 on referrals maintain their importance as guarantors of a degree of flexibility
in the allocation of competence in EU merger control. The Commission investigation revealed
a generally positive attitude towards a simplification of the test used in order to formulate a
referral  request  under  Article  9,  for  instance  by  disjoining  the  request  from  evidence  of  a
threat  of  creation  or  strengthening  of  dominant  position  and/or  by  eliminating  the  need  to
establish that the requested market is not a "substantial" part of the common market. Such an
amendment  would  allow  cases  whose  effects  do  not  extend  beyond  national  borders  to  be
more readily referred, thereby expediting procedures. For consistency of argument, the paper
proposes the possibility for the Commission to refer  cases, on its own initiative, to Member
States  when  the  established  criteria  are  met.  The  Commission  also  proposes  that  the
provisions in Article 22 on referral of cases to it by Member States should be modified along
the same lines.

4

The concept of concentration

In  recognition  of  experience  gained  as  well  as  evolutions  in  business  practices,  the  paper
explores a number of potential adjustments to the concept of concentration set out in Article 3
of the Merger Regulation. With regard to minority shareholdings and strategic alliances, while
acknowledging  the  potential  structural  effects  of  such  transactions,  the  paper  describes  the
difficulties in drawing borderlines with sufficient legal certainty. On Article 2 (4), concerning
full-function  cooperative  JVs,  it  is  concluded  at  this  stage  that  more  experience  should  be
gained before considering an amendment, while it appears that, for the time being, there is no
convincing argument for extending the Merger Regulation to partial function production JVs.
The paper proposes to amend  current  provisions  on  multiple  transactions  in  order  to  ensure
more consistent and effective application of the merger control rules to three specific types of
such transactions and also raises questions as to the applicability of the Merger Regulation to
certain types of venture capital transactions. Finally, this section considers whether the group
concept of Article 5 (4) should be harmonised with the concept of control in Article 3 (3).

Substantive issues

The substantive test

The Green Paper launches a debate on the  respective  merits  of  the  "dominance  test" as laid
down in the Merger Regulation and of the "significant lessening of competition test" used in
certain  other  jurisdictions.  The  value  and  effectiveness  of  the  dominance  test  is  recognised
and  it  is  pointed  out  that  international  convergence  is  already  occurring  to  a  considerable
extent, independent of any actual harmonisation of laws. It could be argued, however, that a
review  of  the  Regulation  text  in  this  respect  may  be  desirable,  mainly  to  ensure  that  major
jurisdictions will be working on the basis of the same test or to create a more explicit basis in
the law for assessing efficiency considerations.

Simplified procedure

The  Green  Paper  advances  proposals  which  would  take  stock  of  the  successful  and  smooth
application of the Commission's 2000 Notice on simplified procedure. It is suggested that this
practice  might  be  consolidated  into  a  "block  exemption"  regulation,  with  the  advantage  of
further removing regulatory burden from transactions that are harmless to competition and of
focusing available regulatory resources on those cases that require more thorough attention.

Procedural issues

Commitments

In the field of procedure, the most important proposal concerns  a reorganisation of  the time
schedule for the submission and discussion of commitments in the first and second phases of
investigation,  with  a  view  to  allowing  more  time  for  all  involved  to  make  considered
contributions. Specifically, the paper proposes a stop-the-clock provision. This would operate
at the parties' request, thereby avoiding any ex officio prolongation of the procedure.

Due process

The paper moreover sets out the various mechanisms of relevance  to due  process  in  merger
proceedings,  to  which  the  new  rules  on  treatment  of  commitments  would  be  added.  In  this
context,  it  also  addresses  the  question  of  the  effectiveness  of  judicial  review  and  invites
comments on all these aspects.

5

Other procedural issues

Other  issues  with  a  bearing  upon  procedure  are  further  considered.  In  specific,  the  Green
Paper discusses current practices concerning the notification triggering  event and the timing
thereof as well as the "standstill obligation" (Article 7). Still on the subject of notification, the
paper  invites  comments  on  electronic  filing,  submission  of  notification  copies  directly  to
Member States by the parties themselves, filing fees and the modalities of the declaration of
incompleteness. The debate also embraces certain aspects of the application of Article 8 (4),
and  a  reconsideration  of  the  enforcement  procedures  in  the  light  of  the  "modernisation"
proposal  concerning  the  implementation  of  Regulation  17.  Finally,  the  paper  considers  the
introduction of working days for the calculation of deadlines.

Comments are invited

Interested  parties  are  invited  to  submit  their  views  on  any  of  the  issues  raised  in  the  Green
Paper,  as  well  as  on  other  matters  of  relevance  to  the  implementation  of  merger  control  in
Europe. Such comments should reach the Commission no later than 31 March 2002.

I.

1. 

2. 

3. 

4. 

INTRODUCTION

Council Regulation 4064/89 on  the  control  of  concentrations  between  undertakings
("the Merger Regulation") was adopted on 21 December 1989 and entered into force
on  21  September  1990.  The  Merger  Regulation  sets  out  rules  applicable  to  large
concentrations,  the  market  impact  of  which  is  presumed  to  go  beyond  any  single
Member State.

Over  its  first  10  years  of  application,  the  Merger  Regulation  has  received  much
acclaim for its ability to provide effective merger control at the European level. The
introduction of short, strict legal deadlines was and remains one of the key aspects of
the Regulation.  The Commission believes that the  Regulation  continues  to  form  an
appropriate regulatory approach towards the continuing integration of markets across
Europe, and in particular that it is capable of constant adaptation to new economic,
legal and political developments - both within Europe and more widely.

The Merger Regulation was based on an understanding that the establishment of the
internal market would lead to major cross-border corporate reorganisation, and that a
level playing field was necessary to ensure that such transactions would not result in
lasting damage to competition.  The  level  playing  field  should  ensure  that  the  same
notification requirements, procedure and legal standards  apply  to  all  concentrations
with significant cross-border effects.

For  this  purpose  the  Merger  Regulation  conferred  exclusive  jurisdiction  on  the
Commission  over  "concentrations  with  a  Community  dimension".  This  “one-stop
shop” principle serves a dual purpose. First, in the spirit of subsidiarity, it builds on the
realisation that merger control at Community level is justified in view of the inability of
any  single  Member  State  to  deal  comprehensively  with  the  cross-border  scale  and
effects of such transactions. In addition, the single "stop" of the Regulation simplifies
administrative procedures, thereby enabling both competition authorities and companies
to minimise the costs of merger control.

5. 

Since the adoption of the Merger Regulation, the European Union has expanded from
12  to  15  Member  States,  whose  markets  are  becoming  increasingly  integrated.

6

6. 

7. 

8. 

9. 

10. 

11. 

Moreover,  following  the  entry  into  force  of  the  1994  Agreement  on  the  European
Economic  Area  (EEA),  the  European  Commission's  exclusive  competence  for
concentrations  meeting  the  thresholds  has  been  extended  to  cover  the  whole  EEA
territory.  European  cross-border  corporate  reorganisation  has  received  further
impetus from the introduction of Monetary Union in 1999.

We  are  now  facing  the  prospect  of  a  European  Union  with  significantly  more
Member States as of 2004, and the completion of the monetary union with the final
phase of the introduction of the Euro due to take place in 2002. At the same time the
trend towards internationalisation, or even globalisation, of companies and markets is
continuing at an increasing pace.

In a parallel development, an ever-greater number of pre-merger control regimes are
being introduced across the globe (currently, about 60), with a consequent increase in
the costs associated with multiple filing requirements.

Since 1990, some 1800 concentrations have been notified to the Commission (by July
2001). Still, that figure represents only a fraction of the total number of transactions that
were  notified  to  the  EU's  national  competition  authorities  during  the  same  period1.
Since  1990,  many  Member  States  as  well  as  Candidate  countries  have  introduced
merger  control  rules  (or  amended  previous  existing  ones).  As  a  consequence  many
national merger control systems largely follow the principles of the Merger Regulation.
Despite  this  “soft  harmonisation”,  various  degrees  of  discrepancy  persist,  notably  in
terms of procedure.

All of these factors point to the desirability of revising the overall system of European
merger  control,  so  that  the  Commission  and  each  national  authority,  individually  and
together, can utilise their resources in the optimal way for protecting competition in the
Community,  while at the same time  reducing  any unnecessary  burden on  industry, in
terms  of  compliance  costs  and  increasing  legal  certainty.  This  is  particularly  true  for
medium-sized  companies  which,  owing  to  their  limited  size,  fail  to  meet  the  current
thresholds  of  the  Merger  Regulation,  but  who  still  remain  subject  to  the  burden  of
multiple national filings.

The experience gained over the first ten years of applying the Merger Regulation also
indicates  that  certain  improvements  may  be  possible  in  both  the  scope  and  the
functioning  of  the  Regulation.  As  regards  its  scope,  one  of  the  basic  concepts,
namely  that  of  a  “concentration”  has  been  re-assessed  from  a  number  of  different
perspectives.  Similarly,  the  procedural  setting  of  the  Regulation  has  been  re-
examined  and  a  number  of  options  appear  to  exist  for  further  improving  both  the
effectiveness of the rules and legal certainty for those concerned by them.

Since its adoption in 1989, the Merger Regulation has been based on a principle by
which  concentrations  are  appraised  in  accordance  with  a  criterion  of  market
dominance:  concentrations  that  create  or  strengthen  such  dominance  should  be
declared  incompatible  with  the  common  market  (and  therefore  unlawful).  Overall,
this  appraisal  criterion  has  proved  effective  in  averting  potential  competition
problems. Indeed, many other jurisdictions have followed suit, introducing the same

1 

In 2000, a total of 3021 notifications were made to the EU's national competition authorities, compared to
345 cases notified to the Commission in that year.

7

                                                
appraisal criterion into their rules. The main alternative merger control test, used in a
number of major jurisdictions and currently contemplated in some Member States, is
that of substantial lessening of competition. According to certain commentators, the
lack  of  global  harmonisation  of  the  appraisal  criteria  for  mergers  is  problematic.
Therefore,  and  as  significant  experience  has  now  been  acquired  in  applying  the
dominance  criterion,  the  Commission  considers  this  an  appropriate  opportunity  to
open up a wider debate on the respective merits of the two tests, particularly in view
of  the  acknowledged  desirability  of  striving  towards  a  greater  degree  of  global
convergence in merger control standards.

In this context it is also appropriate to re-examine provisions in the Regulation that have
a bearing on due process. This involves a wider-ranging number of issues, relevant to
the  investigation,  the  adoption  of  decisions,  and  the  right  to  judicial  review.  It  is
moreover  recognised  that  ensuring  transparency  at  each  step  of  the  procedure  is  of
paramount importance.

This review of the Merger Regulation complements the previously launched review
of Regulation 17 (on the implementation of the anti-trust rules in Articles 81 and 82
of  the  Treaty)2.  There  is  nonetheless  a  fundamental  difference  between  the  two
systems,  namely  the  fact  that  the  Commission  has  exclusive  competence  over
concentrations  with  a  Community  dimension,  while  competence  is  shared  between
the  Commission  and  the  Member  States  in  the  field  of  anti-trust;  indeed,  the
Commission  is  proposing  to  strengthen  this  parallel  competence.  Notwithstanding
this difference, due  consideration is  given to the review of Regulation 17, allowing
the  two  review  exercises  to  form  part  of  a  comprehensive  modernisation  of  the
European legislative framework in the field of competition.

In conclusion, it is for the above reasons necessary, in order both to take stock of the
accumulated experience and to prepare European merger control for the challenges of
the coming years, to initiate a reform process. The Commission believes that the reform
should  be  built  on  the  principles  underlying  the  Merger  Regulation,  i.e.  the  need  to
ensure  effective,  efficient,  fair  and  transparent  control  of  concentrations  at  the  most
appropriate level.

12. 

13. 

14. 

II.

JURISDICTIONAL ISSUES

CONCENTRATION WITH COMMUNITY DIMENSION

15. 

16. 

2

The  Merger  Regulation  gives  the  Commission  sole  competence  to  deal  with
concentrations  with  a  Community  dimension.  The  Regulation  presumes  that  such
concentrations  have  a  market  impact  going  beyond  the  national  borders  of  any  one
Member State (Recital 9).

The allocation of cases between the Community and the Member States in the area of
merger control was thus inspired by the same principles that underpin the notion of
subsidiarity. According to this notion, action should be taken at the most appropriate

See Commission proposal of 27.9.2000 for a Council Regulation on the implementation of the rules on
competition  laid  down  in  Articles  81  and  82  of  the  Treaty  and  amending  Regulations  (EEC)  No
1017/68, (EEC) No 2988/74, (EEC) No 4056/86 and (EEC) No 3975/87, COM(2000) 582 final

8

                                                
17. 

18. 

19. 

20. 

level of jurisdiction, in view of the objectives to be attained and the means available
to the Community and the Member States3.

Experience has confirmed that the Commission generally is better placed to deal with
concentrations where the  merging parties are  active  on  markets  that  are  wider  than
national.  For  cases  involving  global  or  European  wide  markets,  the  Commission's
powers  of  investigation  and  remedial  and  enforcement  action  are  clearly  more
appropriate than the more limited means available to the Member States. The same
often also holds true for cases which generate competition concern spreading across
various Member  States. Such  cases  may  have  significant  competitive  repercussions
in other parts of the Community, for example by impeding entry by competitors from
other Member States into the affected countries.

A  particular  feature  of  the  creation  of  the  internal  market  within  the  EU  is  that  a
number  of  markets  may  be  seen  as  being  in  a  transitional  state.  Pirelli-BICC4,
illustrates  the  result  of  a  process  where  European  deregulation  and  harmonisation
effectively led to a widening of the relevant anti-trust markets. In this case the market
was  indeed  confirmed  to  be  EEA-wide  on  the  basis  that  customers  increasingly
source  power  cables  at  a  European  level  on  the  basis,  inter  alia,  of  the  procedures
provided  for  in  the  Community  public  procurement  directives.  The  Pirelli  case
contrasted with earlier cases involving the same industry: in 1992, the same markets
were  still  considered  to  be  national  in  scope.  The  Commission  is  normally
particularly well placed to handle cases where such a transition is occurring, as it is
able to fully consider all effects at both national and European levels.

Although each Member State may be able to address issues such as these in so far as
they relate to its own territory, the Commission is clearly better placed to address the
totality  of  such  concerns  throughout  the  Community.  Community  competence  in
such cases would therefore be in line with the subsidiarity principle as it represents
the  most  effective  means  of  avoiding  the  creation  of  obstacles  to  further  European
integration. In addition, reasons of efficiency militate against parallel treatment of the
same issues in a number of Member States.

Conversely,  Member  States  are  generally  better  placed  to  deal  with  cases  which,
owing  to  the  activities  of  the  companies  involved,  produce  their  effects  within  a
Member  State,  that  is  where  for  instance  no  significant  foreclosure  or  spillover
effects  occur.  The  effective  treatment  of  such  cases  does  not  require  access  to  the
broader powers of the Commission, and the national authorities are normally  better
placed when it comes to gathering the relevant market information.

3

4

Article  5  EC  Treaty  requires  that  action  be  carried  out  at  the  level  at  which  objectives  can  be  most
sufficiently achieved. As specified in Commission Report to the European Council on the Adaptation of
Community Legislation to the Subsidiarity Principle (COM(93) 545 final, 24.11.93), action should be
taken  at  the  mostly  appropriate  level  of  jurisdiction,  in  view  of  the  objectives  to  be  attained  and  the
means available to the Community and Member States.
Case  n°  COMP/M.1882  –Pirelli-BICC.  Commision  decision  of  19.07.2000  under  Article  8(2)  of
Regulation (EEC) n° 4064/89.

9

                                                
A.

1.

21. 

2.

22. 

23. 

24. 

25. 

5

6

Community dimension

Background

In  its  Report  of  28  June  2000  to  the  Council  on  the  application  of  the  Merger
Regulation thresholds ("the 2000 Report")5, the Commission outlined its preliminary
findings  concerning  the  functioning  of  the  thresholds  in  Article  1  of  the  Merger
Regulation,  including  “multiple  filings”,  i.e.  concentrations  notified  in  at  least  two
Member  States.  Following  the  adoption  of  that  Report,  the  Commission  has
undertaken  additional studies.  The  results  of these further investigations are  set  out
and discussed in detail in Annex I, which provides a comprehensive background to
the conclusions set out in this section.

Summary of Issues to be Addressed

In  the  course  of  its  review,  the  Commission  has  re-assessed  the  continued
appropriateness of the turnover thresholds in Article 1 in the light, not only of their
effectiveness, but also of  their predictability and transparency.  It  should  be  pointed
out that failure to attain the jurisdictional criteria in Article 1 normally means that the
transaction  will  be  subject  to  mandatory  notification  requirements  in  one  or  more
Member States.

As  to  the  functioning  of  the  current  thresholds,  the  review  has  not,  as  set  out  in
further  detail  in  Annex  1,  indicated  any  urgent  need  to  amend  Article  1(2).  This
Article continues to provide results that are generally in line with subsidiarity, and a
revision  of  the  threshold  levels  set  out  therein  would  not  be  well  suited  to  dealing
with the multiple filing problem. Nor has the review brought to light any urgent need
to  modify  the  level  of  the  2/3-rule.  The  rule,  which  adopts  a  centre  of  gravity
approach to the division of competence, appears to provide results that are generally
in line with subsidiarity. Furthermore, to the limited extent that the 2/3-rule leads to
multiple  filings,  it  is  very  rare  for  this  to  go  beyond  notifications  to  two  national
authorities.

On  the  other  hand,  it  must  be  concluded  that  Article  1(3)  has  fallen  short  of
achieving its underlying objective. At the time of its adoption in 1997, this provision
was intended to confer Commission competence over cases that affect three or more
Member States. While the review broadly supports the validity of this objective on
the grounds that these are generally cases with a Community interest, the provision
has not lived up to expectations. Only  a  small proportion of such cases have fallen
within  the  Merger  Regulation.  In  2000,  only  20  cases  were  notified  under  Article
1(3),  compared  to  75  multiple  notifications  to  three  or  more  Member  States.  The
failure  of  Article  1(3)  is  also  shown  by  the  fact  that  in  2000  only  some  5%  of  all
notifications were made under this Article, representing a significant decrease  from
the already low level in 19996.

The  review  has  provided  indications  that  many  of  those  multiple  filing  cases
involved cross-border interests. One such indication in itself is the fact that three or
more national notifications were required. Furthermore, in a majority of these cases,

COM(2000) 399 final - 28.06.2000
In 2000, only 20 out of 345 notifications  were  made  under  Article  1(3).  For 1999,  the  corresponding
figure was 12% or 34 out of 292 notifications.

10

                                                
some  or  all  of  the  Member  States  involved  assessed  and/or  defined  the  relevant
geographic market as wider than national. It is also notable that the majority of these
cases  satisfied  the  jurisdictional  test  in  so  far  as  it  relates  to  the  Community  level,
while remaining far from having a national centre of gravity (i.e. the 2/3-rule). The
fact  that  many  of  these  concentrations  involved  cross-border  interests  beyond  the
countries  where  notification  took  place  is  also  supported  by  the  fact  that  many  of
these  cases  involved  business  activities  in  several  Member  States  where  the
concentration was not notified.

From  the  viewpoint  of  the  companies  involved,  the  review  has  also  provided
indications that multiple filings in three or more Member States give rise to a number
of additional difficulties, in terms of length of process, costs and legal certainty (see
Annex 1 for details of the results of the studies).

This conclusion is further strengthened by two additional factors. First, a trend may
be  observed  according  to  which  multiple  notifications  involving  three  or  more
Member States are steadily increasing, both in absolute terms and in relation to the
number of cases notified under the Merger Regulation. This shows that this problem
is  growing,  even  within  the  current  EU15.  The  approaching  enlargement  of  the
Community  as  from  2004  is  likely  to  further  accentuate  the  negative  effects  of
multiple filings involving a significant number of Member States.

The  Commission  is  aware  of,  and  fully  supports,  the  recent  initiative  by  the
competition authorities of the Member States for closer cooperation in dealing, inter
alia, with merger cases that are notified in more than one country. Such cooperation
should  certainly  have  a  beneficial  impact  in  terms  of  strengthening  the  level  of
protection of competition, while at the same time increasing procedural efficiency. It
nevertheless  appears  doubtful  whether  such  cooperation,  even  if  significantly
developed,  could  be  seen  as  an  equivalent  substitute  for  one-stop  shop  control  of
mergers with cross-border effects.

Assessment of the conceivable options for amending Article 1(3)

The  solution  to  the  above  identified  weaknesses  of  Article  1(3)  should  aim  at
ensuring effective application of Community competition rules to cases with a cross-
border interest, while, in a balanced way, reducing the administrative burden for the
involved companies. This solution, which should be in place prior to the accession of
new Member States, should moreover be designed in such a way as to strengthen the
underlying  principles  of  the  Merger  Regulation,  namely  furthering  effective
protection of competition in line with the subsidiarity principle.

In addressing the identified weaknesses of Article 1(3), a reasonable approach would
appear to be to evaluate whether its effectiveness could be improved by altering one
or  more  of  its  five  constitutive  criteria.  A  careful  analysis  of  the  available
information  indicates  that  modifications  to  the  current  criteria  in  Article  1(3)  are
unlikely to provide the envisaged results, principally because the complexity of this
provision allows for a significant diversity of reasons why companies fail to meet the
current criteria of Article 1(3). This is explained in more detail below.

26. 

27. 

28. 

3.

29. 

30. 

31. 

Further,  it  has  been  suggested  to  the  Commission  that  it  may  not  be  necessary  to
adapt  Article  1(3)  at  all,  but  that  the  desired  effect  may  be  attainable  through
modifications  to  Article  22.  This  suggestion  has  also  been  carefully  analysed,  and,

11

again,  the  results  of  the  review,  which  are  further  elaborated  below,  show  that  this
suggestion would be unlikely to provide a workable solution.

32. 

At  this  stage,  the  Commission  is  therefore  of  the  opinion  that  the  desired  results
could  best  be  achieved  through  the  introduction  of  amendments  that  might  be
described as effects-oriented. They would seek directly to ensure a result where cases
that  typically  involve  a  potentially  significant  cross-border  effect  would  fall  under
the  Commission's  jurisdiction.  The  Commission  seeks  comments  on  the  possibility
of Article 1(3) being replaced by a provision whereby notification to three Member
States  can  be  seen  as  providing  a  reliable  indication  of  the  manifestly  cross-border
nature  of  a  concentration7.  This  possibility  is  built  upon  the  ideas  underlying  the
Commission's proposal in its 1996 Green Paper.

33. 

A  more  long-term  discussion  on  work  sharing  in  an  enlarged  Community  has  also
been  included  at  the  end  of  the  section  below.  As  the  measures  outlined  therein
would  require  at  least  some  minimum  level  of  harmonisation  of  national  merger
control rules, this discussion remains outside of the current exercise.

a)

Alterations to the five constituting criteria of Article 1(3) are unlikely to provide any
significant improvement

34. 

35. 

i) Modification of Article 1(3) by Adjusting the Various Threshold Levels

It is important to note for this discussion that the threshold levels in Article 1(3) were
set  without  having  conducted  a  full  investigation  of  the  likely  effectiveness  of  the
changes in catching cases with Community interest. Nor does it seem likely that any
useful data of this kind could be established. Turnover is and will remain a proxy for
the  likely  impact  of  concentrations,  but  will  continue  to  produce  effects  that  differ
according,  inter  alia,  to  the  economic  sector  involved.  Nevertheless,  there  is  wide
agreement that turnover is the best proxy for establishing which concentrations have
a Community interest.

Against this background, it should come as no surprise that the conclusion from the
Commission's studies is that there is no clear-cut answer to the question of the level
at  which  the  Article  1(3)  thresholds  would  catch  all  Community  interest  cases.
Moreover, it should be stressed that Article 1(3) presents what could be described as
a  matrix  of  provisions,  which  could  be  modified  in  an  endless  number  of
combinations.  Thus,  it  is  relatively  straightforward  to  indicate  the  effect  of,  for
example, an  isolated  lowering  of the EUR 2,5 billion  criterion  in  Article  1(3)(a)  to
EUR 2 billion. In theory, such an amendment could of course  be  coupled  with any
number  of  amendments  to  subparagraph  (b),  (c)  and/or  (d)  of  Article  1(3).  It  is
clearly  impossible  (and  probably  not  very  useful),  however,  to  attempt  any  overly
sophisticated study of what might be the ideal level and combination of these criteria.

7

It  may  be  noted  that  the  available  information  does  not  support  a  proposal  for  a  "straightforward"
reduction of the  worldwide thresholds or of  that  for  Community  turnover  in  Article  1(2).  While  such
measures,  depending  on  the  values  chosen,  obviously  would  have  the  effect  of  extending  the
Commission's  jurisdiction,  it  appears  unlikely  that  a  way  could  be  found  for  such  measures  to
specifically target those concentrations with a cross-border impact.

12

                                                
36. 

37. 

38. 

39. 

40. 

41. 

42. 

The presentation below will therefore focus on explaining the exclusionary effect of
each  of  the  criteria  of  Article  1(3),  as  concerns  multiple  filings  which  are  made  in
three or more Member States8.

The data available indicate that 71% of all cases  notified  in  three  or  more  Member
States  failed  to  meet  the  EUR  2,5  billion  criterion  in  Article  1(3)(a).  The
exclusionary effect would be reduced to 58%, if this criterion were to be replaced by
an EUR 2 billion requirement. To illustrate further the difficulty of finding an ideal
level,  the  following  example  can  be  provided.  The  Article  1(3)(a)  threshold  would
have to be lowered to EUR 500 million or even lower in order to catch all cases that
were  notified  in  three  or  more  Member  States.  Even  then,  however,  a  number  of
those cases would fail to satisfy sub-paragraph (b), (c) and/or (d).

About 40% of the cases notified in three or more Member States failed to meet the
aggregate  EUR  100  million  criterion  in  at  least  three  Member  States  (Article
1(3)(b)).  The  exclusionary  effect  would  be  reduced  to  31%  if  this  criterion  were
replaced by an EUR 50 million requirement.

For cases notified in three or more Member States, 68% failed to meet the EUR 25
million criterion in Article 1(3)(c). The exclusionary effect would be reduced to 38%
if this criterion were replaced by an EUR 15 million requirement.

About 35% of all cases that were notified in three or more Member States failed to
meet the EUR 100 million criterion in Article 1(3)(d). The exclusionary effect would
be reduced to 25% if this criterion were replaced by an EUR 50 million requirement.

It  should  be  stressed  that  the  above  figures  must  not  be  read  cumulatively.  This
means  that  if  one  estimation  shows  that  a  reduction  in,  for  example,  the  Article
1(3)(a)  threshold  were  to  make,  say  15%  of  all  multiple  filings  eligible  for  the
Merger  Regulation,  it  cannot  be  added  to  a  modification  of,  say,  Article  1(3)(b),
which in itself would be estimated to make 10% of multiple filings eligible. In other
words,  both  measures  may  be  alternative  ways  of  making  some  or  even  all  cases
identified by the first measure eligible.

Within the confines of what can be deduced from the available information, it seems
unlikely that any modifications to the five criteria in Article 1(3) could be targeted to
allowing  multiple  notifications  to  three  or  more  Member  States  to  come  under  the
Commission's jurisdiction. If anything, the available information would indicate that
a  reduction  in  the  level  of  turnover  needed  to  satisfy  Article  1(3)(a)  and  (c)  would
hold  the  greatest  scope  for  improvement.  This  results  from  the  indication  that
specific reductions to these criteria appear to have a higher impact on cases notified
to three or more Member States. It appears that modifications of the current threshold
values  will  nonetheless  leave  an  inestimable  number  of  concentrations  with
particularly strong Community interest (in terms of the number of affected Member
States) still failing to meet the thresholds9.

8

9

For a more detailed presentation, see Annex 1, Section B, on the results of the investigations undertaken
by the Commission.
At  the  same  time,  any  such  modifications  would  also  most  likely  allow,  inadvertently,  a  number  of
cases  that  are  not  subject  to  multiple  filings  in  three  or  more  Member  States  to  come  under  the
Commission's jurisdiction.

13

                                                
43. 

44. 

45. 

46. 

47. 

48. 

10

ii) Modification of Article 1(3) from a Three-country to a Two-country Requirement

One  conceivable  alternative  to  an  outright  lowering  of  the  various  thresholds  in
Article  1(3)  that  has  been  suggested  would  be  to  modify  the  current  three-country
requirement  to  a  two-country  requirement.  The  current  requirement  means  that  the
undertakings concerned must have a combined (aggregate) turnover of at least EUR
100  million  in  three  or  more  Member  States,  and  that  at  least  two  undertakings
concerned  must  reach  an  individual  turnover  of  EUR  25  million  in  three  of  those
Member States. The latter requirement, in particular, appears to be  one of the most
common  reasons  why  multiple  filing  cases  fail  to  meet  the  criteria  in  Article  1(3),
often with the result that notifications in three or more Member States are required.

It  is  nevertheless  recalled  that  Article  1(3)  was  intended  not  to  be  applicable  to
concentrations  which  would  only  have  to  be  notified  in  two  Member  States.
Although it is clear that the actual effect of the three-country requirement has gone
beyond  its  original  purpose,  it  is,  however,  at  the  same  time  not  likely  that  the
conversion of Article 1(3) into a "two-country requirement" would have more than a
relatively  limited  effect  in  terms  of  reducing  the  number  of  cases  subject  to  filing
requirements in three or more Member States10.

iii) De-linking of Criteria in sub-paragraphs (b) and (c) of Article 1(3)

Another conceivable alternative to an outright lowering of the various thresholds in
Article 1(3) would be to de-link the criteria in Article 1(3)(b), which aims at ensuring
that a significant volume of aggregate business activities is present in at least three
Member States, and that of Article 1(3)(c), which aims at ensuring that at least two of
the undertakings concerned have a significant presence in those Member States.

In theory, it could be argued that the EUR 25 million requirement in Article 1(3)(c)
represents  a  relatively  modest  level  of  turnover,  and  that  it  would  be  surprising  if
concentrations that raise a Community interest would not satisfy this requirement. In
that respect, it is notable that the available information suggests that the proportion of
cases meeting this requirement would increase to some 54% if it were to be de-linked
from  the  criterion  in  Article  1(3)(b).  Thus,  while  the  current  link  between  the  two
criteria is aimed at excluding that the entire aggregate turnover taken into account for
the  purposes  of  Article  1(3)(b)  is  achieved  by  one  of  the  parties,  this  link  also
appears to have the effect of being overly exclusionary in certain situations.

It is difficult to accept that the above-mentioned 54% of excluded cases, which fulfil
the three  times  EUR  25  million  presumption,  would  -  as  a  rule  -  nevertheless  only
have a de minimis cross-border effect. The fact that cases in this category frequently
are subject to notification requirements in three or more Member States strengthens
this impression.

A further sign pointing in the same direction is that the currently applicable Member
State rules often require notification of cases involving less than the EUR 25 million
required  in  Article  1(3),  thereby  introducing  a  presumption  that  significant  effects
can occur also below this level.

The available information does not allow for any estimation about the likelihood that the shift to a two-
country  requirement  under  Article  1(3)  (b)  and  (c)  would  bring  cases  that  currently  are  subject  to  a
single national notification under the Commission's jurisdiction.

14

                                                
49. 

50. 

51. 

b)

52. 

53. 

c)

54. 

A modification that would allow a more significant proportion of the cases which can
be  taken  to  have  a  significant  effect  in  at  least  three  Member  States  would  be  to
remove  the  Article  1(3)(b)  criterion.  This  would  allow  for  possible  Community
jurisdiction  in  all  cases  where  one  of  the  undertakings  concerned,  typically  the
acquirer,  meet  all  criteria  in  Article  1(3),  while  the  other  undertaking  concerned,
typically the target, meets the criteria in Article 1(3)(c)  and (d). The available data,
however, do not reveal any conclusion as to the degree to which such a modification
would have repercussions in the form of catching cases that are currently not subject
to multiple filing requirements.

Alternatively,  it  would  be  possible  to  remove  the  current  cumulative  character  of
Article 1(3)(b) and (c), making these two criteria alternative ones instead. However,
in order to avoid that all turnover required under Article 1(3)(b) is achieved by one of
the  undertakings  concerned,  additional  criteria  would  be  needed.  It  is  unclear
whether  this  could  be  achieved  within  the  logic  of  Article  1  without  referring  to  a
threshold  value.  It  would,  for  example,  seem  doubtful  from  a  legal  certainty
viewpoint to simply require that at least two of the undertakings concerned are active
in the three Member States where the EUR 100 million is achieved.

iv)  Conclusion  on  the  potential  for  alterations  to  the  five  constituting  criteria  of
Article 1(3)

It results from the above that modifications to the current criteria in Article 1(3) are
unlikely to  provide the  envisaged results.  Any modifications would most  likely,  on
the one hand, not provide a guarantee against continuing multiple filings in three or
more Member States, and, on the other, most likely confer Commission jurisdiction
over a number of cases that today are not subject to such multiple filings.

No  modification  of  Article  22  likely  to  provide  any  significant  improvement  (and
would require harmonisation of national laws)

It  has  been  suggested  that  the  problem  of  multiple  filings  could  be  addressed  by
amendments making joint referrals under Article 22 of the Merger Regulation a more
readily  available  tool.  As  the  difficulties  in  applying  Article  22  are  extensively
discussed  in  the  below  section  on  referrals,  all  the  arguments  will  not  be  repeated
here.  For  the  discussion  on  amending  Article  1(3)  it  is  sufficient  to  note  that  the
possibilities appear limited for making making Article 22 a useful measure of general
application to multiple notification cases.

Among the main reasons why Article 22 has not led to any joint referrals appear to
be the remaining technical differences in national merger control procedures, notably
concerning  the  event  triggering  the  notification  and  the  rules  concerning  timing  of
notifications.  In  order  to  address  these  issues,  it  is  likely  that  some  degree  of
harmonisation of national laws would have to be made. This clearly falls outside the
scope  of  the  current  review  exercise,  and  would  in  any  case  necessarily  involve  a
relatively time consuming procedure.

Automatic  Community  Competence  over  Cases  Subject 
Requirements

to  Multiple  Filing

In  order  to  address  the  problem  of  multiple  national  filings,  the  Commission
proposed in its Green Paper of January 1996 to extend the Commission's competence

15

55. 

56. 

57. 

58. 

59. 

60. 

11

to  those  concentrations  below  the  thresholds  that  come  within  the  jurisdiction  of
more than one national system.

The proposal was for the Commission's competence to be extended to cover multiple
notification  concentrations  falling  between  the  Article  1(2)  thresholds  and  some
lower thresholds, which were indicatively set at EUR 2 billion (world-wide) and 100
million  (Community-wide).  In  short,  the  proposal  implied  that  Article  1  of  the
Merger  Regulation  would  be  amended  to  provide  that  concentrations  which  do  not
meet  the  thresholds  laid  down  in  Article  1(2)  have,  nevertheless,  a  Community
interest when it comes within the jurisdiction of three Member States.

In subsequent discussions, the Commission's proposal, however, did not achieve the
required support. The main criticisms related to issues such as how to deal with the
existing  disparity  between  Member  State  laws  in  areas  such  as  the  definition  of  a
concentration and in obligatory/voluntary notification. This disparity was found not
only to raise issues of legal certainty, but also to make the Commission's assessment
of whether national rules applied to a certain case overly complex.

Since  the  time  of  the  discussions  concerning  the  Commission's  1996  proposal,  a
significant  harmonisation  of  national  merger  control  rules  has  taken  place  on  a  de
facto basis. This should have reduced the  difficulties  applying  the  proposed  system
that  were  identified  at  that  stage.  It  therefore  appears  appropriate  to  re-open  the
discussion about the merits of this proposal. For that purpose the Commission would
retain  the  basic  orientation  of  the  1996  Green  Paper,  i.e.  that  the  cases  targeted  by
such  an  amendment  would  be  those  involving  three  or  more  national  notifications.
However, on the basis of the more detailed knowledge accumulated on the operation
of Article 1(3), there appears to be no empirical basis for limiting the applicability of
such a system to cases satisfying certain turnover thresholds.

i) Procedure

Once  the  Commission's  competence  on  the  basis  of  the  multiple  notification
requirements had been established, the Commission's powers and the procedure to be
followed  would  be  the  same  as  for  cases  falling  under  Article  1(2).  However,  in
addition  to  the  normal  requirements  establishing  the  Commission's  competence,  it
would  be  necessary  to  determine  whether  the  concentration  met  the  notification
thresholds of at least three Member States.

Based  on  the  discussions  following  the  1996  Green  Paper,  it  can  be  assumed  that
such  a  system  would  have  to  be  based  on  the  principle  that  the  relevant  Member
States  should  confirm  to  the  Commission  the  parties'  interpretation  of  the  national
thresholds11.

In  a  system  where  notification  to  the  Commission  would  be  made  obligatory  for
cases  meeting  the  notification  requirements  in  three  or  more  Member  States,  the
parties would certainly need to demonstrate, no later than in the formal notification,
that the operation meets the notification thresholds in three Member States. There is

Any alternative approach would imply that the Commission would have to interpret the national merger
laws.  To  the  extent  that  national  laws  are  not  yet  fully  harmonised  even  when  it  comes  to  technical
concepts  such  as  calculation  of  turnover,  this  would  raise  issues  about  potentially  divergent
interpretations of national laws by the Commission and the Member States.

16

                                                
however  no  reason  why  the  parties  could  not  provide  the  Commission  and  the
relevant Member States with this information at an even earlier stage. In either case,
a system would need to be established by which the Member States concerned would
confirm the parties' analysis to the Commission within a set period of time. In order
not  to  create  legal  uncertainty,  this  would  necessarily  have  to  be  done  within  a
relatively short period of time (e.g. within one or two weeks). The system could, for
example, take the form of a non-opposition procedure, meaning that if the Member
States concerned did not oppose the analysis of the parties within the set period, the
competence of the Commission would be established.

In the consultation that followed the 1996 Green Paper it was argued that it may be
difficult to determine quickly whether a concentration meets the national notification
thresholds, especially in those Member States where other criteria than turnover are
used  (e.g.  market-share  thresholds).  However,  to  the  extent  that  the  application  of
some national thresholds may be difficult, this would not seem to be aggravated by
the  proposal,  as  such  an  assessment  would  in  any  case  have  had  to  be  done  if  the
Merger  Regulation  did  not  apply.  Moreover,  as  the  number  of  Member  States  that
apply non-turnover based criteria has been reduced since 1996, this objection may no
longer  be  perceived  to  pose  a  similar  problem.  Finally,  to  the  extent  that  a  serious
legal certainty issue were to arise in this regard, it might be addressed, for example,
by providing that the one-week requirement in Article 4(1)  would not  apply to this
category of cases.

Conclusion on the conceivable options for amending Article 1(3)

The  above  proposal  is  an  effect-based  model,  under  which  the  decisive  criterion
under  Article  1(3)  would  no  longer  be  directly  based  on  reaching  certain  specified
levels of turnover. Instead, the fact that a merger gives rise to three or more national
notification  requirements  would  be  taken  as  a  sufficient  presumption  of  a
Community interest. This model would require the establishment of a transparent and
rapid method for Member States to confirm the applicability of their national rules to
a given case.

Interested parties are encouraged to indicate their views on the outlined proposal and
the  way  it  could  most  usefully  be  pursued,  as  well  as  to  comment  on  other
possibilities  that  may  exist.  Comments  are  also  encouraged  on  the  most  suitable
procedure  for  establishing  the  applicability  of  the  merger  control  rules  in  three  or
more Member States as well as on other technical or procedural matters. Finally any
comments as to any perceived inconvenience in amending Article 1(3), or generally
as to its desirability are welcomed.

Case Allocation in an Enlarged Community - a Long-term Perspective

The data collected for this review also suggest that a more overarching solution could
be  considered  in  the  longer  term.  A  system  such  as  the  one  outlined  below  would
clearly require amendments to Community and national rules that would go beyond
the  scope  of  the  current  review.  This  section  is  therefore  introduced  in  order  to
commence  a  larger  debate  on  the  appropriate  shape  and  form  of  merger  control  in
Europe in the years following enlargement of the Community.

61. 

d)

62. 

63. 

4.

64. 

65. 

The  focus  of  such  a  debate  should  be  on  how  to  design  a  system  that  would  best
serve  the  principle  of  subsidiarity,  whilst  allowing  each  competition  authority  to

17

66. 

67. 

68. 

B.

1.

69. 

70. 

make  best  use  of  its  limited  resources,  responding  at  the  same  time  to  legitimate
industry requests for greater predictability and reduction of unnecessary costs.

Despite having provided results generally in line with subsidiarity, the jurisdictional
criteria of the Merger Regulation could, in principle, be amended so as to provide a
more  direct  and  case-related  test  for  establishing  the  cross-border  nature  of  any
concentration.

One  possibility  would  be  to  create  a  system  where  the  turnover  thresholds  are
removed  from  the  ECMR,  and  where  the  triggering  event  for  a  Commission
notification would be the fact that the case is subject to multiple filing requirements
in the EU.  In this way, the determination of which cases can be assumed to have a
Community interest would be directly connected to the fact that the case will have an
impact  in  several  Member  States.  One  of  the  key  conditions  necessary  for  such  a
system to function would, however, be that further harmonisation of national merger
control  thresholds  could  be  achieved.  The  Commission's  surveys  indicate  that  the
currently non-harmonised notification requirements in Member States do not permit
reliable identification of the Member States in which a particular concentration will
have a significant impact. A more systematic approach to the setting of notification
thresholds in national merger laws could, however, allow these thresholds to serve as
direct measurements of the cross-border impact of individual concentrations.

In order to develop a network approach to merger control in Europe it would also be
useful to strengthen the existing degree of de facto alignment of merger control rules
within  the  Community.  This  applies  in  particular  to  certain  key-issues  such  as  the
concept of a concentration and important parts of the procedural framework. Another
topic  for  consideration  would  be  the  extent  to  which  further  harmonisation  of  the
applicable  competition  test  would  be  beneficial  to  effective  and  transparent
protection  of  competition  and  the  maintenance  of  a  level  playing  field.  Such  a
harmonised environment would also be beneficial to the creation of a more seamless
network  of  competition  authorities,  where  ultimately  the  Commission  and  one  or
more national authority could share the task of assessing the totality of impacts from
a concentration on anything from global to local markets.

Referrals to Member States, Article 9

Background

The referral mechanism set out in Article 9 of the Merger Regulation is intended to
fine-tune  the  effects  of  the  turnover-based  system  of  thresholds  for  establishing
jurisdiction, allowing the best placed authority to deal with the case. This is done by
means  of  a  test  oriented  towards  the  concentration's  effects  upon  competition  in  a
market within a Member State. If the test is satisfied, concentrations may, even if the
thresholds in Article 1 are fulfilled, be dealt with at national level. This arrangement
is in the spirit of the subsidiarity principle.

Article 9(10) states that referral provisions may be re-examined at the same time as
the  thresholds  referred  to  in  Article  1.  Following  the  Commission's  report  in  June
2000,  Member  States  supported  such  a  re-examination  and  also  suggested  that  the
Commission further investigate potential additional costs entailed by referrals.

18

71. 

2.

72. 

73. 

74. 

75. 

The  review  has  looked  at  cases  in  which  merger  notifications  were  the  subject  of
referral  requests  over  the  last  five  years  (November  1996  to  January  2001).  The
results are set out in Annex II.

Summary of Issues to be Addressed

The  results  of  this  most  recent  survey,  although  providing  little  evidence  that
referrals  entail  additional  costs,  nevertheless  point  to  certain  aspects  of  the  current
referral mechanism that could benefit from amendment. These are, notably, the time
schedule,  the  criteria  for  referring  a  case,  and  the  problems  caused  by  partial
referrals. Additionally, there is some concern about the treatment of referred cases by
National  Competition  Authorities  ("NCAs"),  mainly  with  regard  to  aspects  of
procedure.  What  clearly  emerges  from  the  Commission's  survey  is  a  desire  for  the
establishment  of  an  efficient  procedure  which  ensures  sufficient  transparency
between the companies involved, the Commission and Member States, which limits
duplication of efforts and waste of time, and which guarantees timely and consistent
decisions.

A recurrent remark on the time schedule concerns the three-week deadline available
to NCAs for submitting a referral request. Many respondents considered the length of
this period to be longer than necessary for the relevant issues to be addressed. This
applies  in  particular  where  a  request  concerns  markets  that  a  national  authority  is
undoubtedly  better  placed  to  deal  with.  Some  indicated  that  this  additional  period
may be harmful, as it can upset the timing of national bidding procedures. Problems
could also be created by a request arriving close to the expiry of the deadline while
parties  may  be  focusing  on  preparing  remedy  proposals  for  discussion  with  the
Commission.  Finally,  timing  considerations  become  important  in  relation  to  the
varying  length  of  deadlines  for  a  final  decision  by  NCAs,  in  particular,  in  partial
referrals.

As regards the test for the definition of concentrations to be referred (Article 9(2) of
the  Merger  Regulation),  most  respondents  would  favour  the  establishment  of
"predictable",  "simple"  or  even  "automatic"  criteria.  Proposed  examples  include
"clearly  distinguishable  product  and  geographic  markets",  "absence,  or  very  low
flow, of intra-Community trade", one clearly effect-oriented test such as creation or
strengthening  of  a  dominant  position,  or  any  combination  of  the  above.  Article
9(2)(b),  which  was  introduced  to  facilitate  referral  requests  by  establishing  a  less
demanding test, has only once been successfully used as a basis for a request.12

Recurrent views among companies which have experienced partial referrals include
that  references  diminish  the  benefits  of  the  one-stop-shop  principle,  and  that  they
may also have a negative impact upon timing, costs and legal certainty. This is all the
more so  if  the  assessment  of  various  parts  of  an  operation  is  referred  to  more  than
one  Member  State.  Most  companies  were  of  the  view  that  referrals  generate
additional  financial  and  human  costs  resources  especially  after  a  request  has  been
accepted,  though  these  costs  were  not  quantified.  It  should  however  be  borne  in
mind, as confirmed by the survey, that companies are generally able to forecast when
a  case  is  likely  to  be  the  subject  of  a  referral,  and  can  factor  this  into  their  cost
calculations in advance.

12

Case Govia/Conex (2001) referred to the authorities of the UK.

19

                                                
76. 

77. 

78. 

3.

79. 

80. 

13

There  is  widespread  concern  about  national  rules,  especially  procedural  ones,
applying to referred cases. Though referred cases all appear to have been assessed by
national authorities on competition grounds, uncertainty persists regarding the length
of  national  procedures  and  the  protection  of  business  secrets  in  the  treatment  of
referred cases. Many would like to see more alignment of national procedural rules,
at least to a minimum standard.

A considerable  number of  respondents  felt  that  the  assessment  of  concentrations  at
national level could be susceptible to political influence depending on the degree of
maturity  of  national  competition  law,  the  ownership  regime  of  the  undertakings
concerned and, finally, the political or social importance of the relevant sector for the
Member State in question.

Once the case has been referred, the Merger Regulation imposes two obligations on
Member  States.  First,  Article  9(6)  obliges  the  NCA  to  report  its  findings  within  a
maximum period of four months. It has been suggested that the  current wording of
this rule leaves scope for NCA's to use more time for the national review than would
have  been  the  case  had  the  case  remained  with  the  Commission,  and  that  this  has
occurred.  Second,  Article  9(8)  requires  Member  States  to  take  only  the  measures
strictly  necessary  to  safeguard  or  restore  effective  competition  in  the  market
concerned.  While  it  is  left  to  NCAs'  discretion  to  decide  how  to  comply  with  the
latter  Article,  it  does  introduce  an  obligation  to  adhere  to  the  principle  of
proportionality. As the Member States' use of this discretion is subject to the control
of  national  courts,  there  would  not,  as  has  been  suggested  by  some  industry
representatives, appear to be any need to amend this provision by introducing some
form of supervision by the Commission. Two recent cases provide examples of the
role of national courts in referral cases13.

Possible amendments

A simplification of the requirements for the submission of a referral request appears
to be in the interests of procedural efficiency, and may allow the current timeframe
for  the  submission  and  grant  of  a  request  to  be  shortened.  The  latter  objective  is
largely  dependent  on  the  feasibility  of  shortening  the  applicable  procedural
requirements  at  the  national  levels.  In  this  respect,  there  appears  to  be  little  or  no
scope  for  reduction  of  the  three-week  period  for  so  long  as  the  national  authority
needs  to  demonstrate  the  threat  of  creation  or  strengthening  of  dominance  (Article
9(2)a). However, a simplification of the requirement for the submission of a referral
request should reduce the need for specific  investigation by the national authorities
into the likely effects of a concentration before making such request. Furthermore, it
would  appear  possible  to  limit  the  time  needed  for  internal  consultation  within  the
administrative structure of the Member State, given the fact that a request would no
longer represent a preliminary conclusion that the transaction is likely to give rise to
anti-competitive effects.

In line with the objective of facilitating the referral of cases which, due to a lack of
significant  cross-border  effects,  would  be  most  appropriately  assessed  at  national

Case  COMP/M.2216  ENEL/FT/Wind/Infostrada,  referred  to  Italy  on  19  January  2001,  decision
appealed before the competent national court; Case COMP/M.2044, Interbrew/Bass referred to the UK
on 22 October 2000, decision on remedies quashed by competent national court on procedural grounds
only.

20

                                                
level, it would be reasonable to provide the Commission with the possibility to refer
such  cases  on  its  own  initiative.  Such  a  procedure  would  naturally  involve  prior
consultation between the Commission and the relevant Member State  authority  and
could spare the Member State the procedural steps needed in preparing a request. In
addition to simplifying the referral procedure, such a possibility for the Commission
would, in cases with sub-national effects, allow for a more level playing field across
the Community.  The  Commission's  option  to  transfer  such  cases  to  Member  States
would  basically  mirror  the  current  option  for  Member  States  to  refer  appropriate
cases to the Commission under Article 22 of the Merger Regulation.

81. 

In  order  to  further  increase  the  transparency  it  may  be  appropriate  for  the
Commission  to  adopt  special  guidelines  on  the  treatment  of  referrals  under  an
amended  system.  Such  guidelines  could,  in  a  form  similar  to  the  recently  adopted
Notice on remedies, provide explanations on the principles underlying referrals, and
on how to define cases of local or regional interest, coupled with practical examples.

a)

Simpler Criteria for Referring a Case:

It  is  proposed  to  maintain  only  Article  9(2)(b)  but  facilitate  its  use.  This  means  to
disjoin the referral request from evidence of a threat of creation or strengthening of
dominance. A substantiated claim of effect on competition in a distinct market within
the Member State should suffice. As regards the size and relevance of the market in
question the criterion should not be the extent to which  this  market is a substantial
part  of  the  common  market.  Instead,  a  simpler  geographic  criterion  should  be
established. For the purposes of a referral, there would not seem to be any need for
even defining the geographic scope of the relevant market/s, provided that the effects
do  not  extend  beyond  the  Member  State's  borders.  It  should  therefore  be  sufficient
that a request establishes that the alleged effect on competition, which would justify
the referral, does not extend to significant effects in terms of foreclosure, spillover on
related markets of greater geographic scope or similar cross-border effects.

b)

Referral at the Commission's initiative :

In  order  also  to  fully  protect  competition  on  markets  within  a  Member  State,  the
Commission should, in line with the principle of subsidiarity, be able to refer a case
or part of a case to national authorities where the same criteria as described above are
fulfilled.

c)

Timing

As  the  need  to  demonstrate  the  creation  or  strengthening  of  dominance  would  be
removed, the three-week period for a referral request, for the Commission's exercise
of an initiative to refer, or both could be shortened to two weeks. Notifying parties
wishing  to  enhance  legal  certainty  could  ensure  that  more  time  is  available  for
discussions with the NCAs concerned and the Commission by engaging in early pre-
notification contacts. In order to maintain the added value of this more flexible and
confidential  stage  of  the  procedure,  it  should  however  not  be  formalised  in  the
Regulation.

82. 

On a general level, it appears justifiable that notifying parties should not be put in a
worse  position  by  the  fact  that  a  case  is  subject  to  a  referral.  This  applies  to
substantive issues in particular, but also to procedural issues that may have an impact

21

on the notifying parties. On the other hand, referred cases should arguably be treated
on  an  equal  footing  to  all  cases  subject  to  a  merger  control  procedure  within  the
specific  reviewing  authority.  Nevertheless,  there  may  be  some  merit  in  seeking  to
harmonise the timeframe in which the final decision is taken. A possibility would be
to  clarify  the  current  rule  in  Article  9(6)  so  that  a  decision  of  a  definitive  nature
comparable to an Article 8 decision under the Merger Regulation would have to be
adopted  within  the  same  timeframe  as  would  have  applied  for  the  Commission.
Another,  more  far-reaching  possibility  would  be  to  provide,  in  the  Merger
Regulation, that any national authority dealing with a case that has been referred to it
should do so under the procedure indicated in the Merger Regulation. Either of these
amendments  would  be  likely  to  require  some  subsequent  amendments  of  national
merger control procedures.

With  the  purpose  of  initiating  a  debate  on  these  issues,  the  Commission  invites
interested parties to  comment on  how the  current  system for  work sharing  between
improved.
the  Commission  and  national  competition  authorities  could  be 
Commentators  are  invited  to  consider  the  twofold  aim  of  better  safeguarding
competition,  even  where  possible  negative  effects  are  not  of  a  cross-border  nature,
and  of  improving  the  efficiency  of  the  current  system.  Observations  as  to  any
perceived inconvenience in such an amendment, or generally as to its desirability, are
also welcome.

Joint Referrals to the Commission, Article 22(3)

Prior to its amendment through Regulation 1310/97, Article 22(3) served the purpose
of allowing Member States to ask the Commission to "step into its shoes" and assess
the  effects of  concentrations below the  Article  1  thresholds.  As  such,  Article  22(3)
was originally conceived for the benefit of Member States that did not yet dispose of
the  appropriate  tools  to  investigate  mergers  at  the  national  level.  It  has  been
questioned  whether  this  original  purpose  of  Article  22(3)  was  compatible  with  the
principle  of  subsidiarity,  as  -  in  the  absence  of  this  Article  -  such  concentrations
would not have been subject to any control mechanism at the national level.

However, as has been mentioned above, all Member States except Luxembourg have
now introduced merger control rules. In practice, this means that the potential scope
for use of Article 22(3) in its original form is very limited14.

The amendments that took effect in 1998 were intended to give Article 22(3) a new
function as a means of allowing two or more Member States to make joint referrals
to  the  Commission  where  they  felt  that  the  Commission  was  better  placed  to  act.
Thus, the intention was to strengthen the application of Community competition law
in  cases  with  cross-border  effects,  to  strengthen  the  one-stop  shop  principle  and  to
alleviate the problem of multiple filings.  In  a  sense  this  amendment can  be  seen as
complementary to the introduction, at the same time, of the Article 1(3) thresholds,
which was likewise intended to address the same issues. Unfortunately, however, the
amendments in Article 22(3) have proved even less effective than has Article 1(3). In
fact, the Commission has until now not received any joint request to deal with a case.

83. 

C.

84. 

85. 

86. 

14

In fact, the latest Article 22(3) referral was made in 1997 by the Dutch Authorities in Case IV/M.890 -
Blokker/Toys "R" Us. In all only four cases have been referred to the Commission under this procedure,
two from the Netherlands and one each from Finland and Belgium-

22

                                                
87. 

88. 

1.

89. 

90. 

91. 

The  Commission  has  asked  companies  that  have  been  involved  in  multiple  filings
whether, to their knowledge, the relevant NCAs considered the possibility of a joint
request  for  the  Commission  to  deal  with  the  case.  Only  in  6% of  cases  notified  to
three or more Member States were notifying parties made aware of the fact that the
relevant  NCAs  considered  a  joint  request.  None  of  the  companies  notifying  in  two
Member States were aware of any such consideration.

In addition, the same companies were asked whether they were aware, in the course
of the multiple filing proceedings, of any  contacts between the involved  authorities
(e.g.,  by  requests  to  agree  to  an  exchange  of  confidential  information  between  the
authorities). In 8% of the cases notified to three or more Member States the notifying
parties  were  aware  of  some  co-ordination  among  NCAs.  The  equivalent  figure  for
companies notifying in two Member States was 2%.

Procedural Weaknesses of Article 22(3)

While  it  should  be  noted  that  the  source  of  the  above  information  is  limited  to  the
subjective impression of notifying parties responding to the questionnaire addressed
to companies involved in multiple filings, it nevertheless appears quite clear that, in
most  multiple  notification  cases,  the  first  pre-condition  for  a  joint  referral,  namely
timely  contacts  between  those  concerned,  is  not  being  met.  For  this  reason  and  in
order  to  strengthen  the  function  of  Article  22(3)  as  a  remedy  to  the  multiple  filing
problem,  it  would  probably  be  necessary  to  devise  a  mechanism  of  information
exchange  between  all  concerned.  Such  a  mechanism  would  necessarily  have  to
involve the notifying parties, all Member States concerned and the Commission.

In a limited number of cases, the Commission has had informal contacts with NCAs,
where  the  possibility  of  a  joint  referral  has  been  discussed.  These  contacts  have
highlighted  three  additional  elements,  relating  principally  to  the  procedural  rules
contained in the second sub-paragraph of Article 22(4), that can frustrate the attempts
of Member States to make a joint referral.

The  first  problem  relates  to  the  provision  that  a  request  must  be  made  within  one
month  of  the  date  when  the  concentration  was  either  made  known  to  the  Member
State or to all Member States making the joint request, or effected. The period begins
on  the  date  of  the  first  of  these  events.  There  is  no  definition  of  what  is  meant  by
"making a concentration known to a Member State". Although the provision would
probably benefit from clarification in that respect, it appears natural to use the date of
a national notification as the triggering  date  in  Member  States  where  a  notification
requirement exists. The reason for this interpretation is that it appears unreasonable
to  use  any  other,  less  formal  announcement  as  a  basis,  where  the  national  law
contains  specific  requirements  for  how  a  concentration  should  be  brought  to  the
Member  State's  attention15.  An  issue  more  open  to  discussion  is  how  "making  a
concentration known to a Member State" should be interpreted when the national law

15

This interpretation, on the other hand, has been criticised on efficiency grounds, as it arguably might not
be necessary to request the parties to undertake the often detailed  work involved in  preparing  several
national notifications, if the case is ultimately likely to be referred to the Commission.

23

                                                
92. 

93. 

94. 

95. 

2.

96. 

contains  no  requirements  for  a  notification16.  In  addition,  it  is  conceivable  that  a
concentration could be effected on different dates in different Member States.

A second problem, partly related to the one described above, is that Member States'
merger  control  systems  differ  significantly  in  the  requirements  as  to  when  a
notification should or may be made. National systems show considerable variation in
this respect. In practice, this means that it is difficult to foresee when the one-month
deadline  in  Article  22(4)  will  expire  as  concerns  any  of  the  Member  States.  This
difficulty  is  then  obviously  multiplied  by  the  number  of  Member  States  that  may
participate in the joint referral. Another difficulty in itself is that there is no objective
way  to  predict  how  many  Member  States  could  participate  in  a  joint  referral.  The
end-result is  that depending on  which Member States  participate  in  a  joint  referral,
the deadline in Article 22(4) may differ significantly, as this in turn will depend on
when the concentration was made known to each of them.

The third and possibly most problematic issue, which again is connected to the lack
of procedural harmonisation among Member States, is that there is no provision for
suspending the applicable national deadlines pending a joint referral. This means, for
example,  that  country  X  may  be  legally  bound  under  its  national  law  to  adopt  a
decision on the notified transaction before the expiry of the deadline for country Z to
submit its request to the Commission. This difficulty can obviously be aggravated if
there would be more than two countries considering a joint referral, as well as by the
fact that the Commission, in accordance with Article 22(3), has discretion whether or
not to accept a referral request.

In  conclusion,  in  order  to  make  Article  22(3)  operational  as  a  generally  applicable
corrective  mechanism to  the multiple filing  problem,  the  system  would  most  likely
need amendment of more than just the Merger Regulation. Iit is doubtful whether the
Merger  Regulation  could  be  amended  so  as  to  introduce  mandatory  consultation
between Member States about notifications of cases with no Community interest (as
defined  in  Article  1).  The  same  applies  to  the  above-described  problems  stemming
from  Member  States'  varying  provisions  concerning  the  triggering  event  for
notification.

For  these  reasons  it  is  likely  that  Article  22(3)  could  only  be  made  operational
following  a  sufficient  degree  of  harmonisation  of  national  laws.  However,  even  if
this  were  to  be  achieved,  the  system  would  still  suffer  from  certain  operational
inconveniences that are set out below.

Operational Weaknesses of Article 22(3)

From  an  efficiency  viewpoint,  the  Article  22  referral  provision  inherently  implies
longer  overall  procedures  and  less  legal  certainty  for  all  involved.  As  any  referral
provision  will,  by  its  very  nature,  always  involve  an  assessment  by  two  or  more
competition authorities, it is unlikely that a system can be devised which would not
involve longer waiting-periods than the immediate one-stop shop system. Moreover,
as, at least in the current system, each involved competition authority has a discretion
whether or not to request/accept a referral, the procedure is bound to be surrounded

16

Following  the  entry  into  force  of  the  new  French  merger  control  system,  this  difficulty  will  only  be
generally applicable in the UK and in Luxembourg (but will, potentially, apply to any merger below the
national merger control thresholds).

24

                                                
by  yet more uncertainty. The merging parties, who may be able to use the existing
differences  between  national  laws  in  order  to  promote  a  specific  outcome,  may
contribute  additional  uncertainty.  Whereas  these  weaknesses  may  have  to  be
accepted  in  a  system  that  is  designed  to  function  as  a  corrective  mechanism  in
exceptional cases, they go beyond what can be defended in a system aiming to more
generally alleviate the multiple filing problem.

A second operational weakness of Article 22(3) is that a joint referral only gives the
Commission  competence  to  take  the  measures  necessary  to  maintain  or  restore
effective competition within the requesting Member State(s). This may be logical for
a  system  based  on  the  idea  that  the  Commission  in  such  cases  will  replace  the
requesting  Member  State(s).  Nevertheless,  it  is  liable  to  create  results  that  are
incompatible  with  the  one-stop  shop  principle  (as  non-requesting  Member  States
may  pursue  parallel  procedures),  or,  worse,  may  lead  to  the  result  that  the
Commission  is  unable  to  address  an  identified  competition  concern  (if  non-
requesting Member States do not investigate).

Conclusion on Article 22(3)

As has been indicated above, some of the current weaknesses of Article 22(3) could
be  overcome  by  clarification  (e.g.  of  the  expression  "making  the  concentration
known to a Member State").  In addition, as Article 22 has always had the role of a
mirror  image  to  Article  9,  the  same  type  of  modification  as  has  been  outlined  in
respect  of  the  latter  could  also  be  envisaged  (e.g.  the  facilitation  of  the  applicable
test).

Still, in view of the above described weaknesses, it is doubtful whether this provision
could  be modified  in such a way as to  provide  an efficient and  general  method  for
alleviating the multiple filing problem. Interested parties are nevertheless invited to
set out their views on this, including any suggestion for making this provision part of
a coherent system for the allocation of competence.

97. 

3.

98. 

99. 

D.

The concept of "concentration": relevant issues for review

100. 

101. 

In addition to mergers, the concept of concentration covers the acquisition by one or
more companies of legal or de facto control over one or more companies, including
the creation of full-function joint ventures.

It follows that a transaction, which does not entail an acquisition of such control falls
outside  the  scope  of  the  Merger  Regulation.  This  means,  for  example,  that
transactions  involving  the  acquisition  of  non-controlling  joint  or  sole  minority
shareholdings  are  not  covered  by  the  Regulation,  and  this  is  regardless  of  whether
the minority stake is acquired by a competitor. As long as the control criterion is not
satisfied,  the  same  principle  also  applies  to  strategic  alliances,  a  business  concept
that has become more frequent since the introduction of the Merger Regulation. As a
rule, the Commission currently examines such transactions under Articles 81-82 EC.
The  Commission  is  conscious  of  the  fact  that  such  transactions  may  have  a
"structural"  impact  on  the  markets  involved.  It  is  also  conscious,  however,  of  the
difficulty  in  sufficiently  defining  the  transactions  in  question  for  the  purposes  of
mandatory ex-ante notification.

25

102. 

103. 

104. 

105. 

As  noted  above,  the  Merger  Regulation  applies  to  full-function  joint  ventures.  In
1998 the scope of application was extended, through amendments to Article 3(2) and
the  introduction  of  Article  2(4),  which  enabled  the  assessment  to  include  co-
operative  aspects  of  a  joint  venture.  Experience  gained  during  the  first  years  of
applying this new provision will be assessed below. Moreover, the 1999 White Paper
on modernisation of the rules implementing Articles 81 and 82 raised the question of
whether partial-function production joint ventures should also be included under the
Merger Regulation. However, in its proposal of 27.9.2000, the Commission deferred
further examination of this issue to the review of the Merger Regulation.

An issue that has on occasion given rise to difficult questions of interpretation relates
to  concentrations  that  consist  of  multiple  transactions.  Put  simply,  the  question  is:
under  which  conditions  should  two  or  more  legally  separate  transactions  be
considered,  for  the  purposes  of  the  Merger  Regulation,  as  constituting  a  single
notifiable  transaction  ?  The  answer  to  this  question  can  have  repercussions  on  the
allocation of competence between the Commission and national authorities. In order
to  guarantee  effective  and  efficient  control  of  concentrations  at  the  most  appropriate
level,  the  Commission  believes  that  it  should  be  ensured  that  economically  inter-
dependent transactions are treated comprehensively by one and the same authority. At
the same time, the system should exclude artificial combination of distinct transactions.

Another  issue  which  is  linked  to  the  concept  of  a  concentration  is  whether  the
Merger  Regulation  can  be  said  to  cover  certain  transactions,  in  particular  in  the
financial  sector  (venture  capital,  etc),  which  in  reality  do  not  give  rise  to  a
concentration  of  supply  or  demand  in  any  market.  Article  3(5)  of  the  Merger
Regulation provides an exemption for certain types of such transactions in. However,
in view of developments that have occurred since 1990 in the financial markets and
in corporate financing, it is appropriate to reassess whether this Article continues to
fulfill its purpose, or whether it requires revision.

Finally,  an  issue  with  relevance  to  the  concept  of  a  concentration  is  whether  there
could be more convergence between this concept and the group concept in Article 5
of the Merger Regulation. The current distinction between these two concepts has, on
occasion,  given  rise  to  controversy  and  it  is  therefore  desirable  to  assess  whether
utilising a common concept under both these Articles might facilitate the application
of the Regulation.

1.

Minority Shareholdings

106. 

107. 

17

In a limited number of cases the Commission has taken account of the divestment of
minority shareholdings or the abandoning of interlocking directorships in first phase
decisions, rendering unnecessary an analysis of the potentially complex issues arising
from the assessment17.

The  Merger  Regulation,  however,  does  not  apply  to  acquisitions  of  minority
shareholdings, unless, due to other factors, a situation of legal or de facto control is
established. Still, it may be the case that a minority shareholding (potentially coupled
with  interlocking  directorships)  may  alter  the  linked  companies'  incentives  to

See  for  examples  IV/M.1080  -  Thyssen/Krupp,  Decision  of  2  June  1998,  COMP/M.1712  -
Generali/INA,  Decision  of  12  January  2000  and  COMP/M.1980  -  Volvo/Renault,  Decision  of  1
September 2000.

26

                                                
108. 

109. 

compete  and  thus  have  an  impact  upon  market  conditions.  Although  the  Merger
Regulation is not applicable in such cases, Articles 81 and 82 EC can, according to
established  case  law,  be  used  to  assess  minority  shareholdings  and  the  competition
problems they may entail.

The  Commission's  attention  has  been  drawn  to  minority  shareholdings  and
interlocking  directorships  as  possible  factors  facilitating  joint  dominance,  and  the
fact  that  a  number  of  other  jurisdictions  apply  merger  rules  to  the  acquisition  of
minority  shareholdings  independently  of  the  acquisition  of  control18.Some  have
suggested that the Community rules may benefit from a similar extension.

At this stage the Commission is not in the possession of comprehensive data as to the
prevalence of minority shareholdings and interlocking directorships. However, based
on  current  experience,  it  appears  that  only  a  limited  number  of  such  transactions
would  be  liable  to  raise  competition  concerns  that  could  not  be  satisfactorily
addressed  under  Articles  81  and  82  EC.  Under  this  assumption  it  would  appear
disproportionate  to subject all acquisitions of minority shareholdings to  the  ex  ante
control of the Merger Regulation. At  the same time it appears doubtful  whether  an
appropriate  definition  could  be  established  capable  of  identifying  those  instances
where  minority  shareholdings  and  interlocking  directorships  would  warrant  such
treatment.

110. 

The  Commission  nevertheless invites  interested  parties  to  describe  their  experience
with  the  treatment  of  minority  shareholdings  and  interlocking  directorships  under
Community competition rules, as well as their views on the most appropriate future
treatment of such arrangements.

2.

Strategic Alliances

111. 

Strategic  alliances  are  co-operative  arrangements  of  varying  scope  involving  the
creation of several links which are usually  contractual but may also have structural
aspects.  They  may  range  from  the  creation  of  a  joint  venture,  to  specialisation  in
certain  markets,  joint  R&D,  technology  transfer,  cross-supply  arrangements,
commitments  to  co-operate  in  other  fields  in  the  future,  or  even  the  acquisition  of
shareholdings.19  Strategic  alliances  are  often  concluded  among  actual  competitors
who  are  seeking  to  compete  with  other  similar  alliances.  They  have  tended  to  be
most common in recently liberalised markets where they provide a means to compete
in  markets  integrating  on  a  global  scale.  Competition  law  mainly  seeks  to  ensure
independence and effective competition between such alliances.

18

19

German,  Austrian  and  Irish  merger  assessment  rules,  for  example,  apply  to  an  acquisition  of  a  25%
shareholding,  regardless  of  changes  in  control  in  the  meaning  of  the  Merger  Regulation.  In  these
systems, a second notification may be required if, subsequently, sole control is acquired. Similarly, the
UK  merger  rules  apply,  in  addition  to  acquisitions  of  control,  to  transactions  whereby  one  party
acquires  the  ability  to  "materially  influence"  another  party.  The  US  merger  rules  (Section  7  of  the
Clayton  Act)  also  apply  to  situations  that  would  not  meet  the  definition  of  a  concentration  under  the
Merger Regulation. Issues relating to interlocking directorships are covered by Section 8 of the Clayton
Act.  The  US  rules  employ,  inter  alia,  a  "size-of-the-transaction  test",  which  can  apply  to  transactions
that do not involve a transfer of control (in the Merger Regulation meaning), provided that the acquired
securities exceed the $50 million threshold.
See 24th Report on Competition Policy (point 156).

27

                                                
112. 

113. 

The  agreements  involved  in  a  strategic  alliance  (notably,  exclusive  licences,
purchase,  distribution,  non-compete  clauses)  may  be  restrictive  of  competition  and
consequently may be caught by Article 81 of the Treaty. So far, only one, namely the
strategic alliance between Alitalia and KLM,20 has been assessed on the basis of the
Merger  Regulation.  In  that  case  the  Commission  considered  that,  for  a  number  of
reasons,21 the alliance fulfilled the criteria of a full-function joint venture, as defined
in the Commission Notice.

According  to  recital  23  of  the  Merger  Regulation  it  is  appropriate  to  define  the
concept of concentration in such a manner as to cover only operations bringing about
a  lasting  change  in  the  structure  of  the  undertakings  concerned.  Strategic  alliances
are normally not designed to bring about the structural change envisaged in Article
3(1)  of  the  Merger  Regulation  and  may  not  necessarily  result  in  the  creation  of  an
autonomous economic entity as this is defined in the Notice on the concept of full-
function joint ventures. Article 81, therefore, still appears to be the most appropriate
legal instrument for assessing such transactions.

3.

Article 2(4)

114. 

115. 

116. 

117. 

One of the key amendments made to the Merger Regulation in 1998 consisted in the
inclusion of certain joint ventures, which previously  had  been  considered  as  falling
outside  the  scope  of  the  Regulation  (so  called  full-function  co-operative  joint
ventures "ffCJV's").

Between March 1998 and December 2000, a total of 47 ffCJV's were notified. Out of
these, only one notification was based on the turnover criteria set out in Article 1(3),
while the remaining 46 cases fulfilled the criteria in Article 1(2).

The extension of the Merger Regulation to include all ffCJV's is generally considered
as having been appropriate. Experience has shown that these cases are well suited to
the  more  structural  type  of  assessment  of  the  Merger  Regulation.  Their  inclusion
under the Merger Regulation has reduced the cost and delays involved in achieving
regulatory  clearance  for  the  companies  involved  in  such  transactions,  and  Article
2(4) allows all the competition aspects of such operations to be evaluated in a single
administrative procedure.

From a  substantive viewpoint, the  likelihood  that  ffCJV  cases  produce  competition
concerns  can  be  illustrated  as  follows.  Seven  of  the  above-mentioned ffCJV  cases
were  found  to  raise  dominance  concerns  in  either  the  first  or  second  phase.  The
equivalent figure for all other cases that were notified under the Merger Regulation
in  the  same  period  was  75  (out  of  798  notifications).  Putting  these  figures  in
comparison, dominance concerns arose in some 15% of the ffCJV cases, and in 9%
of the other cases.

20

21

JV.19 - KLM/Alitalia
Notably the facts: that the parents would cease to operate in the markets pooled in the alliance; that they
would run jointly the day  to day business and  would adopt jointly the  main strategic and commercial
decisions; that tangible assets of each of the parties would be exclusively dedicated to the Alliance; that
the duration of the agreement would be long.

28

                                                
118. 

Over the same period, two ffCJV cases22 raised issues related to the co-ordination of
competitive  behaviour  of  undertakings  that  remain  independent  (i.e.  Article  81
concerns).  In  these  cases,  these  issues  were  not  further  investigated  because
modifications brought by the parties to their initial project addressed them, rendering
a full investigation unnecessary. To date, no ffCJV case has been found incompatible
with the common market.

119.  While  it  appears  that  the  type  of  concerns  which  Article  2(4)  was  introduced  to
control occur  relatively infrequently, it must nevertheless be acknowledged that  the
period  within  which  this  provision  has  been  in  force  is  relatively  short.  More
practical  experience  should  therefore  be  gathered  before  making  any  more  detailed
evaluation.

4.

Partial-function Production Joint Ventures

120. 

121. 

122. 

As  mentioned above, the  Commission's modernisation proposal  for  Articles 81 and
82  left  the  question  of  the  possibility  of  a  further  extension  of  the  concept  of  a
concentration to this review. The background was that the Commission's white paper
had indicated that it appeared desirable to maintain a prior authorisation system for
partial-function  production  joint  ventures.  The  basis  for  this  assumption  was  the
substantial  investment  and  far-reaching  integration  of  operations  involved  in  such
operations.  It  was  envisaged  that  partial-function  joint  production  ventures,  as  full-
function joint ventures, would be subjected both to the dominance test and to Article
2(4) of the Merger Regulation.

The  subsequent  consultation  procedure,  however,  revealed  several  important
criticisms of the proposal. One problem is that it would be very difficult to find an
unambiguous  legal  definition  of  the  concept  of  a  partial-function  production  joint
venture,  particularly  in  to  the  context  of  service  markets.  This  indicates  that  such
operations  may  not  be  suited  to  control  under  a  system  of  mandatory  ex  ante
notifications.

Even  more  importantly,  the  consultation  did  not  produce  indications  that  such
production  joint  ventures  are  inherently  more  suited  to  ex  ante  control  than  other
operations  that  may  involve  large-scale  investments  (e.g.  R&D  joint  ventures  or
distribution  systems).  For  example,  as  partial-function  production  joint  ventures
would  by  definition  not  be  active  on  any  market,  the  only  real  assessment  of  such
cases,  should  they  be  brought  under  the  Merger  Regulation,  would  relate  to  co-
ordination  between  the  parent  companies.  As  this  means  that  the  test  to  be  applied
would  remain  the  same  (i.e.  Article  81),  it  is  important  to  note  that  there  are  no
indications that parties concerned have a strong preference for ex ante control under
the current system for applying Article 81: it does not appear that parties to partial-
function  joint  production  ventures  frequently  notify  under  Article  81  and  await  the
Commission's decision before implementing such transactions.

123. 

In addition, partial-function joint production ventures would continue to be covered
by  block  exemption  regulations  under  Article  81.  Of  particular  relevance  in  this
context  are  the  block  exemptions  on  research  and  development  agreements  and
specialisation agreements. Regulation 2658/2000 on the application of Article 81(3)

22

Case M.1327 - NC/Canal +/CDPQ/Bank America and Case JV.15 - BT/AT&T.

29

                                                
to  categories  of  specialisation  agreements23  block  exempts,  inter  alia,  joint
production agreements, whereby two or more undertakings agree to produce certain
products  jointly.  The  exemption  is  subject  to  a  market  share  threshold  of  20%.
Regulation  2659/2000  on  the  application  of  Article  81(3)  to  categories  of  research
and  development  agreements24  block  exempts  joint  research  and  development  of
products or processes as well as joint exploitation of the results thereof. If the parties
to the  agreement  are  competitors,  the  block  exemption  is  subject  to  a  market  share
threshold of 25%.

124. 

In  conclusion,  based  on  currently  available  information,  there  does  not  seem  to  be
any  compelling  reason  to  extend  the  scope  of  the  Merger  Regulation  to  partial-
function  production  joint  ventures.  The  Commission  nevertheless  invites  any
interested  party  who  feels  that  such  an  extension  would  be  appropriate  to  describe
how,  in  their  view,  such  a  system,  incorporating  sufficient  standards  of  legal
certainty, might be envisioned.

5.

Multiple Transactions

125. 

126. 

127. 

128. 

129. 

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

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

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

In conformity with the one stop shop principle, there is no reason in principle why
other multiple transactions, which do not appear to constitute a single concentration
under  the  present  Merger  Regulation,  should  not  be  assessed  as  a  whole  if  they
involve an economic link revealing economic unity among the transactions in a way
that is equivalent to a single concentration.

The concept of economic unity should be assessed against the goals pursued by the
parties.  The  relevant  factors  to  establish  that  the  situation  is  equivalent  to  a  single
concentration necessarily include a time connection as well as an identity link, both
in terms of the participants in the transactions and in the scope of the transactions.

23

24

OJ 2000 L 304, page 3.
OJ 2000 L 304, page 7.

30

                                                
130. 

131. 

132. 

25

The application of the one stop  shop principle to  the  types  of  multiple  transactions
described  below  would  better  serve  the  overall  aim  of  maintaining  effective
competition, as it would ensure that the totality of effects of such concentrations are
subject  to  one  coherent  assessment.  For  the  same  reasons  as  apply  to  any  other
concentration, a more stringent application of the one-stop shop principle should also
enhance legal certainty for those involved or affected by the concentration. In order
to avoid artificial separation in the treatment of multiple transactions, which from the
perspective of the parties and/or of the market are characterised by economic unity, it
appears  appropriate  to  further  specify  the  circumstances  in  which  multiple
transactions  should  be  taken  as  a  whole  for  the  purpose  of  the  Merger  Regulation.
This seems to apply to the following three scenarios25:

Operations  involving  the  acquisition  of  joint  control  of  one  part  of  an  undertaking
and  sole  control  of  another  part.  This  is,  for  instance,  normally  the  case  when  the
direct  acquisition  concerns  the  parent  company  of  a  group.  In  such  a  scenario,  the
target company may often have one or several jointly controlled subsidiaries which,
as  a  consequence  of  the  direct  acquisition,  will  become  (jointly)  controlled  by  the
new owner of the parent company. In such a scenario it would clearly be artificial not
to  regard  the  acquired  group  as  one  economic  unit,  and  as  long  as  the  situation  at
hand,  from  an  economic  viewpoint,  is  the  same,  there  would  be  no  reason  not  to
apply  the  same  general  principle.  This  can  be  demonstrated  by  way  of  a  simple
example. Consider a situation where Company A intends to sell the following assets
(which, for the sake of the argument, may be active in the same relevant market and
have been run as a single entity by A) to Company B:

(cid:1)  100% of its subsidiary A1,

(cid:1)  its 50% stake in A2 (a jointly controlled company), and

(cid:1)  its 25% stake in A3 (not a controlling stake).

Under  the  current  rules  the  acquisitions  of  A1  and  A2  would  be  considered  as
separate  concentrations,  whereas  the  acquisition  of  the  stake  in  A3  would  not  be
characterised as a concentration at all. The two first-mentioned would, depending on
the  turnovers  involved  in  each  of  those  two  transactions,  be  subject  to  assessment
under the Merger Regulation or by (multiple) Member State(s). The result would be
completely different if A, prior to the sale, would put A1-A3 in a holding company
(for  example,  for  tax  reasons)  that  subsequently  was  transferred  to  B.  In  this  case
there  would  only  be  one  concentration  under  which  B  would  acquire  sole  control
over the holding company. Moreover, all turnover related to the assets held by  that
company  would  be  taken  into  account  for  the  decision  on  jurisdiction,  which  as  a

A  possible  fourth  scenario  would  involve  joint  bids.  These  cases  are  already  treated  as  a  single
concentration  for  the  purposes  of  the  Merger  Regulation,  unless  the  joint  bidders  have  agreed  an
immediate  break-up  of  all  the  acquired  assets  according  to  a  pre-defined  plan.  In  the  latter  scenario,
point 24 of the Notice on undertakings concerned specifies that each such acquisition of assets will be
considered as a separate concentration. As this main principle is already established, there would be no
need to amend the existing legal provisions. Nevertheless, it may be appropriate to further clarify the
limitations of the exemption in point 24 of the Notice on undertakings concerned in the next revision of
this Notice. Such clarification would explain that, to the extent that there is any uncertainty concerning
the future disposition of the jointly acquired assets, the joint bid will be considered, in its totality, as a
single  concentration,  the  assessment  of  which  will  include  any  known  dispositions  to  break  up  the
acquired assets.

31

                                                
133. 

134. 

result would mean that the entire transfer of assets would be subject to an assessment
at  either  Community  or  Member  State  level.  In  order  to  capture  fully  all  the
economic  activities  being  combined  through  the  concentration  it  therefore  appears
appropriate  to  amend  Article  5(2)(2)  of  the  Merger  Regulation  to  fully  extend  its
coverage to this type of scenario26.

The exchange of assets (swaps) between two companies will normally have as an end
result  that  two  separate  entities  remain  on  the  market  (albeit  with  modified  asset
constellations). A swap will often be determined by a single contract and conclusion
of each transaction will, almost by definition, be conditional upon conclusion of the
other.  Until  now,  the  Merger  Regulation  has  not  recognised  that  such  links  are
sufficient to treat swaps as a single concentration. However, in order to provide for a
coherent assessment of the entire transaction, a change of policy appears justified. In
addition, one or both swaps can be partial, in the sense that the previous owner may
retain an economic interest in the swapped business. As regards the assessment, each
side  of  a  swap  may  certainly  have  an  impact  on  the  assessment  of  the  other  one.
These  reasons,  and  the  fact  that  swaps,  from  the  parties'  viewpoint,  normally
represent an economic unity, would advocate in favour of treating such transactions
as equivalent to single transaction concentrations. It therefore appears appropriate to
amend Article 5(2)(2) of the Merger Regulation to  fully  extend  its  coverage to this
type of scenario27.

"Creeping"  take-overs  via  the  stock  exchange  is  another  example  of  multiple
transaction  concentrations.  Such  transactions  can  be  implemented  in  a  number  of
more or less sophisticated ways, ranging from relatively straightforward direct share
purchases  from  a  number  of  previous  shareholders  to  transaction  structures  that
involve  any  number  of  financial  intermediaries  using  a  variety  of  financial
instruments.  This  type  of  transaction  will  often  occur  in  "hostile"  situations,  i.e.
where the target company and/or some of its previous shareholders are less than fully
supportive  of  the  take-over.  In  such  scenarios,  it  will  normally  be  both  impractical
and  artificial  to  consider  the  concentration  as  occuring  via  the  acquisition  of  the
particular  share  or  block  of  shares  that  will  put  the  acquirer  in  a  situation  of  (de
facto)  control  over  the  target  company.  Instead,  it  will  normally  be  clear  from  the
viewpoint  of  all  parties  involved  that  a  number  of  legally  separate  acquisitions  of
rights, from an economic viewpoint, form a unity, and that the intention is to acquire
control  over  the  target  company.  It  therefore  appears  appropriate  to  amend  Article
5(2)  (2)  of  the  Merger  Regulation  to  fully  extend  its  coverage  to  this  type  of
scenario28.

135. 

The Commission is of the view that the above-mentioned types of transactions could
be brought within the scope of the Merger Regulation through adjustments to Article
5(2) (2).  In order not to over-extend the  application  of the principle of  Article 5(2)
(2), it however appears appropriate to limit the scope of this provision to transactions
relating  to  the  same  economic  sector.  Following  such  an  amendment  Article  5(2)
would read as follows (amendments in bold):

26

27

28

Consequently changes would also be required to the Commission's interpretative Notices (see Notice on
the concept of a concentration, point 16).
Again, subsequent changes would be required to the Commission's interpretative Notices (see Notice on
the concept of undertakings concerned, point 49-50)
See also paragraph 180 (and following) on the relationship in these situations between Articles 4 and 7
of the Merger Regulation.

32

                                                
2.  By  way  of  derogation  from  paragraph  1,  where  the  concentration  consists  in  the
acquisition of parts, whether or not constituted as legal entities, of one or more undertakings,
only the turnover relating to the parts which are the subject of the transaction shall be taken
into account with regard to the seller or sellers.

However,  two  or  more  transactions  between  the  same  persons  or  undertakings  which  take
place within a two-year period shall, unless they concern unrelated industrial sectors, and
regardless  of  the type of control involved,  be  treated  as  one  and  the  same  concentration
arising on the date of the last transaction.

The  principle  set  out  in  the  second  subparagraph  shall  apply  mutatis  mutandis  to
exchanges of assets (swaps) and to multiple acquisitions of the securities, as defined in
Article 7(5), second subparagraph, of an undertaking.

136. 

Comments  are  invited  on  this  proposed  amendment  to  Article  5(2)  of  the  Merger
Regulation. Interested parties are also invited to comment on whether, in their view,
there are other types of multiple transaction concentrations that would  benefit  from
further clarification as to their treatment under the Merger Regulation.

6.

Venture Capital Investments, Article 3(5)

137. 

138. 

139. 

140. 

Article 3(5) describes certain narrowly defined situations when a concentration shall
not be deemed to exist. One such exception relates to the normal trading activity of
financial  institutions.  However,  experience  shows  that  the  limitations  of  this
provision  (in  terms  of  non-voting  rights  and  as  regards  the  maximum  period  for
holding  on  to  the  securities)  mean  that  it  is  rarely  applicable.  At  the  same  time,
restrictions  of  this  type  are  intended  to  discourage  circumvention  of  the  Merger
Regulation, and thus to safeguard its effectiveness as well as the level playing field.

The  merger  review  has  drawn  the  Commission's  attention  to  the  existence  of  new
forms  of  financing  in  the  equity  markets,  and  these  should  be  considered  when
reviewing the scope of the Regulation. Venture Capital ("VC") as a phenomenon has
increased  significantly  in  Europe  since  the  adoption  of  the  Merger  Regulation.
According  to  one  distinction,  VC  can  be  divided  into  two  main  categories;
transaction investments and growth capital/technology investments.

Transaction  investments  normally  relate  to  takeovers  of  established,  quoted  or
private,  companies  and  are  in  many  respects  similar  to  traditional  industrial
transactions. They  do not appear  to  raise  any  particular  issues  of  relevance  for  this
review.

Growth  capital/technology  investments,  however,  do  present  some  characteristics
that may deserve closer examination. Such investments are normally made in order
to  provide  capital  for  a  new  business  during  its  early  development  phase,  with  the
ultimate  aim  of  floating  the  company  on  the  stock  exchange  in  the  medium  term.
Typically, the entrepreneur will retain full operational control over the business and
the company may not even have a Board. It has been argued that this type of venture
capital should be seen as equivalent to traditional loan facilities provided by banks.
The main feature of relevance under the Merger Regulation is that VC investors will
hold shares in the new business and typically have at least veto rights over its budget
and  business  plan.  Under  traditional  financing  methods  banks  would  normally  not
hold shares, but would instead retain a possibility to refuse renewal of loan facilities.

33

141. 

142. 

143. 

144. 

The  reason  why  these  growth  capital/technology  investments  may  fall  under  the
Merger  Regulation  is  that  they  are  normally  syndicated,  which  means  that  two  or
more  VC  investors  will  share  the  investment.  Owing  to  this  construction,  such
transactions may, even in the case of start-up businesses with no sales, be notifiable
under  the  rules  applicable  to  full-function  joint  ventures.  There  are  several  reasons
why both the VC investors and the entrepreneur may prefer syndication, notably the
wish  of  both  sides  to  lower  their  exposure  to  risk  and  to  combine  particular
experiences.

This type of VC investments will often relate to small and medium size enterprises
and,  moreover,  will  encourage  entrepreneurial  activity  that  in  the  medium  to  long
term is  likely to benefit competition,  as well as the economy in  general.  Under  the
current  rules,  such  VC  investments  are  likely  to  meet  the  criteria  for  simplified
treatment  under  the  Merger  Regulation  (see  below).  However,  even  if  it  could  be
accepted  that  competition  concerns  are  unlikely  to  occur  in  this  type  of  VC
investments, as they provide new businesses with capital during an initial stage, there
are  several  difficulties  in  defining  the  scope  of  a  specific  exemption.  One  such
difficulty relates to the fact that there is no common definition of a VC investor. In
this  respect,  it  is  certainly  clear  that  there  is  less  scope  for  competition  concerns
differ if the VC investor is a purely financial company (such as a bank), than if it is a
subsidiary of an industrial company29. Furthermore, it is clearly of relevance for the
assessment of whether competition concerns may arise whether the syndicate of VC
investor  takes  a  more  or  less  active  role  in  the  business.  Competition  concerns  are
unlikely to arise where the VC investors take a passive role and do little more than
provide funding in a way that is comparable to traditional bank facilities. The same
may  not  necessarily  be  the  case  where  the  VC  investors,  who  are  often  sector
specialists  and  invest  in  a  large  number  of  businesses  in  a  particular  sector,  take  a
more  proactive  role,  possibly  including  the  transfer  of  assets  and/or  information
between various investments.

A different type of issue to be resolved for any type of exemption to be useful would
appear to be the relationship between such an exemption and the merger control rules
in  the  Member  States.  An  exemption  that  would  have  as  a  consequence  that
syndicated  Growth  capital/Technology  investments  would  be  subject  to  multiple
notification requirements at the national level  would  not only be  incompatible with
the one-stop shop principle, it would add to, rather than reduce, the regulatory burden
involved.

Notwithstanding  the  above-described  difficulties  in  defining  a  category  of  VC
investments  which  would  not  give  rise  to  competition  problems,  the  Commission
remains  open  to  the  possibility  of  enlarging  the  scope  of  Article  3(5).  It  therefore
invites interested parties to submit their views, and in particular any proposals as to
how this might be achieved without reducing the effectiveness of the Regulation. In
providing  such  comments,  interested  parties  are  particularly  invited  to  consider
whether  the  proposals  set  out  below  concerning  an  extension  of  the  scope  of  the

29

The  European  trade  association  for  VC  investors  (EVCA)  includes,  inter  alia,  bank  subsidiaries  and
fund management companies, but also so called "corporate ventures" who are subsidiaries of industrial
companies.  The  aim  of  the  latter  category  may  be  to  invest  in  new  technologies  that  will  support  or
develop existing industrial activities.

34

                                                
simplified procedure might alleviate the need to address additional issues relating to
VC investments.

7.

Convergence - "Control" vs. "Group"

145. 

146. 

Article  3(3)  defines  the  concept  of  "control"  for  the  purposes  of  determining  the
circumstances  in  which  a  concentration  is  deemed  to  arise.  The  test  applied  is
qualitative rather than quantitative,  and can be  established on  the  basis of both  law
and fact.

Article 5(4) defines the concept of the group of undertakings that, in addition to the
undertaking  concerned,  will  be  included  for  the  purposes  of  assessing  whether  the
turnover  thresholds  in  Article  1  are  satisfied.  The  purpose  of  this  provision  is  to
capture the total economic resources involved in a concentration.

147. 

In a limited number of cases some controversy has arisen as to the compatibility of
Article 3(3) with 5(4). This has been caused primarily by the following two facts:

– 

– 

indent 1-3 of Article 5(4)(b) states that a company shall be considered as part
of a group if more than half of its capital or assets are owned by the group, if
more than half of its voting rights can be exercised by the group or if the group
can appoint more than half of its Board;

indent 4 of Article 5(4)(b) states that a company shall be included in the group
if the group has the right to manage its affairs.

The first three indents of Article 5(4) provide what can be described as quantitative
form-based  criteria.  The  fourth  indent  is  of  a  more  effects-based  nature  and  is
therefore  more  similar  to  the  qualitative  test  in  Article  3(3).  Therefore,  even  if  the
end-result of the two types of analysis may be the same in the vast majority of cases,
it  is  clear  that  there  are  differences  between  the  two  provisions  and  that  such
differences, may sometimes create uncertainty.

It is, for example, established case-law that control in the sense of Article 3(3) can be
acquired  by  a  company  holding  significantly  less  than  half  of  the  voting  rights  in
another  company  (assuming  that  it  nevertheless  is  likely  to  hold  a  majority  at  the
shareholders' meeting). On the other hand, it is not certain that control in the sense of
Article 3(3) would be deemed to arise even after the acquisition of, say 51% of the
share capital or assets (assuming, e.g., that another shareholder controlled more than
half of the votes in the company).

Equally, Article 5(4), including indent 4, uses language that is more compatible with
a situation of sole control than with joint control between several parent companies.

In view of the above, the Commission invites interested parties to submit comments
as to whether, in practice, the current differences between Articles 3(3) and 5(4) is a
cause of concern to them and, if so, whether, in their view, it would be appropriate to
also  base  the  group  concept  on  the  principles  underlying  Article  3(3).  Equally,  the
Commission  would  be  interested  in  receiving  comments  about  any  perceived
inconveniences that might result from harmonising the two provisions.

148. 

149. 

150. 

151. 

152. 

A related issue concerns the Commission's practice, based on an analogy with Article
5(5)  of  including  a  proportion  of  the  turnover  of  joint  ventures  for  the  purposes  of

35

calculating the total group turnover30. Although the analogous application of Article
5(5) in this way has not given rise to controversy, it nevertheless appears appropriate
to clarify the approach in the provision itself.

8.

Summary of Conclusions

153. 

154. 

155. 

156. 

157. 

158. 

III.

A.

159. 

This  chapter  has  considered  a  number  of  possible  amendments  to  the  concept  of
concentration  set  out  in  Article  3  of  the  Merger  Regulation.  It  first  looked  at  the
treatment of this concept in relation to minority shareholdings and strategic alliances.
While certain of these transactions might have structural effects, this does not apply
as  a  general  rule  and  it  does  not  appear  possible  to  draw  this  distinction  with
sufficient legal certainty. Article 81 therefore appears to remain the most appropriate
instrument for the assessment of such transactions.

This  chapter  also  considered  the  issues  of  Article  2(4)  and  partial  function  joint
ventures. Regarding the former, it was concluded that, although its introduction into
the  Merger  Regulation  in  1998  has  not  lead  to  a  significant  number  of  spill-over
concerns  being  identified,  it  is  nonetheless  consistent  with  the  one-stop  shop
principle and should therefore be retained. As regards partial function joint ventures,
it was concluded that there appears to be no convincing argument for extending the
Merger Regulation to such operations.

Tthe  issue  of  so  called  multiple  transactions  was  considered,  and  it  was  concluded
that the current provisions should be amended to better ensure coherent and effective
application of merger control rules to three specific types of such transaction.

The chapter also considered whether it would be appropriate to limit the applicability
of  the  Merger  Regulation  to  a  particular  type  of  venture  capital  transaction.  It  was
concluded  that  the  feasibility  of  such  a  change  would  depend  on  whether  such  a
limitation could be defined in such a way as to exclude any negative impact on the
effectiveness of the Merger Regulation.

Finally, the chapter considered the appropriateness of harmonising the group concept
in Article 5(4) with that of control in Article 3(3).

In  addition  to  being  invited  to  comment  on  some  the  above-mentioned  issues,
interested  parties  are  encouraged  to  comment  on  any  other  issues  relating  to  the
concept  of  concentration  that,  in  their  view,  would  benefit  from  clarification  or
review.

SUBSTANTIVE ISSUES

The substantive test

The substantive  test according to  which notified  concentrations  are  appraised  is  set
out  in  Article  2  of  the  Merger  Regulation.  In  the  course  of  this  review  it  has  been
suggested that the Commission should use this  opportunity to discuss  the  merits of
the dominance test contained therein. Both procedural and substantive reasons have
been advanced for a re-evaluation of the appropriateness of this test.

30

See point 40 of the Commission's Notice on the calculation of turnover.

36

                                                
160. 

161. 

162. 

163. 

From  a  procedural  viewpoint,  the  main  reason  proposed  in  favour  of  such  a  re-
evaluation  is  that  it  could  allow  an  alignment  of  the  Merger  Regulation's  appraisal
criteria with those applied in other major jurisdictions, such as the US, Canada and
Australia, which rely on a concept of substantial lessening of competition ("the SLC-
test").  Such  an  alignment  towards  a  global  standard  for  merger  assessment  holds
certain  attractions.  It  would,  for  example,  facilitate  merging  parties'  global
assessment of possible competition issues arising from contemplated transactions, by
obviating  the  current  need  to  argue  their  case  according  to  differently  formulated
tests. This would in turn provide competition agencies with a better basis on which to
build  effective  cooperation  in  cases  that  are  notified  in  several  jurisdictions.
Moreover, as a common test would tend to highlight the actual application of the test,
rather than the test itself, it would provide for better bench-marking of the activities
of  competition  authorities  and  courts,  as  well  as  facilitating  the  development  of
competition-oriented research and modelling.

It  should  nevertheless  be  pointed  out  that  an  amendment  of  the  test  in  the  Merger
Regulation  could  also  involve  some  drawbacks.  Although  this  effect  should  not  be
exaggerated,  interested  parties  may,  at  least  for  an  initial  period  following  such  a
reform,  face  greater difficulties in forecasting the likely  outcome  of  merger  control
proceedings in Europe. The reason for this would be that the existing body of case-
law (emanating  from both the  Commission and the courts) has been built up under
the  Regulation's  dominance  test.  Another  possible  complication  relates  to  the  fact
that  most  Member  States  (as  well  as  the  Candidate  Countries)  have  aligned  their
merger control provisions to the current dominance test31. Thus, unless national rules
were  also  amended,  changing  the  Merger  Regulation's  competition  test  could  have
the  awkward  effect  of  creating  greater  alignment  internationally,  while  leading  to
greater disparity within the Community.

From  a  substantive  viewpoint  it  should  be  noted  that  there  are  many  similarities
between the dominance test and the SLC-test. Both types of test, will, for  example,
involve  an  investigation  into  the  scope  of  the  relevant  market  as  well  as  an
assessment of how the market(s) will be affected by the proposed concentration and
which competitive constraints would be faced by the merged entity. It should also be
noted  that,  despite  the  current  difference  in  legal  tests,  the  vast  majority  of  cases
dealt with by the Commission and other major jurisdictions using the SLC-test have
revealed a significant degree of convergence in the approach to merger analysis.

Since the adoption of the Merger Regulation in 1989, the application of the notion of
dominance has evolved, allowing it to be adapted both to developments in economic
theory and to refinements of the now available econometric tools to measure market
power.  This  implies  that  merger  assessment  today  can  be  less  reliant  on  the  rather
blunt  and  imprecise  market  share  test  than  it  was  10  years  ago.  The  fact  that  the
dominance test has undergone such an evolution is natural, and Article 2 has so far
proved sufficiently flexible to accommodate an effects analysis made on the basis of
more  sophisticated  micro-economic  tools,  instruments  and  models  developed  by
econometric and industrial organisation research.

31

It  is  noted,  however,  that  the  United  Kingdom  and  Ireland  are  contemplating  reforms  towards  the
introduction  of  an  SLC  test.  Moreover,  other  Member  States  are  interested  in  evaluating  the  possible
advantages of moving to such a test.

37

                                                
164. 

165. 

166. 

167. 

168. 

169. 

The  perhaps  most  well-known  example  of  this  evolution  is  the  European  courts'
interpretation of the Merger Regulation's competition test as applying to situations of
collective dominance, in the judgments of the Court of Justice and the Court of First
Instance in the Kali und Salz and Gencor cases.

It has nevertheless been suggested that the SLC-test might be  closer to the spirit of
the economically-based analysis undertaken in merger control and less (legally) rigid
than  the  dominance  test.  As  such,  some  consider  it  better  adapted  to  an  effective
merger  control,  in  particular  in  the  context  of  growing  industrial  concentration.  At
the same time, it has also  been suggested that adopting  the  more open-ended SLC-
test would lead to a greater degree of legal uncertainty.

One  of  the  more  specific  hypothetical  questions  that  has  occasionally  been  raised
about the reach of the dominance test in the Merger Regulation is the extent to which
it  would  allow  for  effective  control  in  some  specific  situations  where  firms
unilaterally may be able to raise price and thus exercise market power. The type of
example  that  tends  to  be  cited  is  of  a  merger  between  the  second  and  third  largest
players in a market, where these firms are the closest substitutes. In such a scenario
the merging firms may remain smaller than the existing market leader. The argument
goes  that  the  SLC-test  would  be  better  adapted  to  addressing  such  a  situation,  in
particular  if  the  market  characteristics  would  not  be  conducive  to  a  finding  of
collective  dominance.  While 
the
Commission has so far not encountered a situation of this kind.

interesting  as  a  hypothetical  discussion, 

In  conclusion,  experience  in  applying  the  dominance  test  has  not  revealed  major
loopholes in the scope of the test. Nor has it frequently led to different results from
SLC-test  approaches  in  other  jurisdictions.  Still,  in  view  in  particular  of  the
increasingly international scope of merger activity, the Commission believes that the
time is right to initiate a thorough debate on the respective merits of the two tests for
merger control.

In  order  to  open  up  a  full  debate  on  these  important  issues,  interested  parties  are
invited  to  submit  their  substantiated  views  on  any  perceived  advantages  or
disadvantages  resulting  from  the  current  wording  of  Article  2  of  the  Merger
Regulation, and to also assess the effectiveness of the test by contrast with the SLC-
test.

As  this  discussion  touches  on  principles  of  fundamental  importance  to  competition
law, not only at the Community level, but also at Member State level, it is recognised
that  it  may  not  be  possible  to  reach  definitive  conclusions  within  the  timeframe
available for this review exercise.

B.

Merger-specific efficiencies

170. 

Some commentators moreover suggest that the dominance test does not allow for a
proper consideration of efficiencies that may result from mergers. To date, however,
the issue of efficiencies has only been raised in a limited number of decisions under
the  Merger  Regulation,  and  the  precise  scope  for  taking  such  considerations  into
account  may  not  have  been  fully  developed.  Some  jurisdictions,  by  contrast,
explicitly  provide  for  merger-specific  efficiencies  to  be  taken  into  account  in  the
context of merger control (see, for example, the US Horizontal Merger Guidelines).
In  that  regard,  an  "efficiency  defence"  allows  a  merger  to  go  ahead  where  the

38

benefits to the economy resulting from the efficiencies are deemed to outweigh the
harm  to  the  economy  resulting  from  reduced  competition.  These  jurisdictions,
regardless of the substantive test applied, tend to allow for a defence of this kind only
in  those  rather  exceptional  circumstances  where  the  efficiencies  are  likely  to  be
passed on to consumers, and despite a situation of dominance or substantial lessening
of competition.

171. 

172. 

In any event, the burden of demonstrating that a particular concentration is likely to
lead to significant efficiency gains is naturally placed on the party forecasting those
gains, i.e. it normally rests on the notifying parties, who are, in any event, best placed
to  explain  the  scale  and  scope  of  such  efficiencies  as  well  as  why  the  proposed
merger is necessary for their realisation.

The Commission is aware of and supports the ongoing debate on how, and the extent
to  which,  efficiencies  should  be  taken  into  account  in  competition  analysis32.
Accordingly, and independently of the discussion on the two substantive tests, views
are invited as to the proper role and scope of efficiency considerations in the field of
merger control.

C.

Simplified Procedure

173. 

174. 

175. 

The 2000 Report indicated that European industry, whilst supporting an amendment
that  would  allow  for  Commission  competence  over  all  cases  with  cross-border
effects, also suggested that a less restrictive approach should be adopted in relation to
transactions that are unlikely to have negative effects on competition. For such cases
it was proposed, in particular, that the level of information required in a notification
should be limited and that the standstill provision in Article 7(1) should not apply to
such transactions.

In September 2000, the Commission introduced a Notice on a simplified procedure
for  treatment  of  certain  concentrations  under  the  Merger  Regulation33.  First
experience  of  applying  these  principles  has  been  very  positive  and  the  Notice  has
significantly enhanced the efficiency of European merger control.

Between September 2000 and 30 April 2001, some 216 notifications were notified to
the Commission under the Merger Regulation. About 39% of these were considered
to  fall  under  the  provisions  of  the  simplified  treatment  procedure.  The  average
duration from notification till clearance was 25 calendar days. Thus, while in terms
of procedural length, the new procedure has had little significant impact, it is likely
that  this situation  will  continue  unless  the  current  rule  in  Article  9(2)  (which  gives
Member States three weeks from the date of receipt of a copy of the notification to
request  a  referral)  is  amended.  A  possible  amendment  to  Article  9(2)  could  be
considered either in conjunction with a shortening of the current three-week deadline
for a referral request under Article 9, as discussed above in the section on referrals.
Alternatively, it could be provided that Article 9(2) would either not apply at all or
apply, but with a shorter deadline, in cases where the parties make reference to the
Notice on Simplified Procedure in their notification.

32

33

See, for example, OCDE/GD(96)65 "Efficiency claims in mergers and other horizontal agreements".
Published in the Official Journal of the European Communities on 29 July 2000 (OJ C 217, 29.07.2000,
p. 32).

39

                                                
176.  While the success of the new simplified procedure is borne out by experience to date,
it is envisaged that measures could still be taken to further streamline procedures; it
is, in particular, foreseen that a simpler Form-CO might be designed for such cases.
This  exercise  will  be  undertaken  in  the  context  of  a  more  general  review  of
Commission Regulation 447/98.

177. 

178. 

179. 

IV.

A.

180. 

181. 

182. 

It has been suggested that the practice on simplified procedure might be consolidated
either  into  the  Regulation  itself  or  into  a  form  of  "block  exemption"  that  could  be
built around the underlying principles of the Notice. The potential advantage would
be to do away completely with the need to process harmless concentrations and with
the need to adopt formal decisions in cases unlikely to have any significant value as
precedents. Still, it might be prudent and in the interest of legal certainty to maintain
some form of information requirement vis-à-vis the Commission and Member States.

From  a  substantive  viewpoint  it  has  been  furthermore  suggested  by  some  that  the
Merger Regulation, as is now the case under some national rules, should allow for a
de  minimis  threshold,  with  the  result  that  the  Commission  would  not  examine
dominance concerns that might arise in small markets.

Interested  parties  should  submit  their  comments  on  how,  in  relation  to  the  above-
mentioned  issues  or  any  related  ones,  an  amended  Merger  Regulation  could  best
further  the  simplification  of  procedure.  In  particular,  comments  on  aspects  of
transparency  and  legal  certainty  would  be  welcomed,  but  also  on  any  of  the  other
items outlined above.

PROCEDURAL ISSUES

Notification - Triggering event

The 2000 Report indicated that industry representatives in certain circumstances felt
a  need  for  further  clarification  of  the  concepts  in  Article  4(1)  that  trigger  the
obligation to  notify  a concentration. These  concepts  have  been further  explained in
the Commission's Notice from 1998 on the concept of a concentration. However, in
view  of  the  further  experience  that  has  been  gained  in  applying  the  Merger
Regulation, the need for further clarification will be discussed below.

This  discussion  will  also  cover  the  suggestion  made  by  some  industry  respondents
that  notification  should  be  possible  even  prior  to  the  triggering  points  currently
indicated in Article 4(1), i.e. before the conclusion of a legally binding agreement.

Unlike some other mandatory pre-notification merger control systems, Article 4(1) of
the  Merger  Regulation  explicitly  specifies  a  point  in  time  when  the  transaction
should be notified. Failure to comply with this rule exposes the involved companies
to  the  possibility  of  being  fined  under  Article  14(1)(a).  As  it  normally  is  in  the
parties' interest to notify as early as possible, with the aim of securing a decision as
soon as possible, it has not in practice been necessary for the Commission to enforce
the one-week requirement34. Moreover, it is established practice that the Commission
will not enforce the one-week obligation, assuming that the parties do not  take any

34

Cases  where  fines  have  been  issued  for  late  notification  also  involved  implementation  of  the
concentration in contradiction to Article 14(2)(b) and Article 7(1), see Samsung and AP Möller.

40

                                                
steps towards implementation of the merger agreement, thereby allowing the parties
the  time  necessary  to  prepare  and  file  a  complete  notification.  Various  proposals
have been made as to the latest point in time for a notification. These range from a
complete  removal  of  the  deadline  for  notification  to  a  codification  of  the  current
practice  in  this  respect,  or  to  an  amendment  whereby  the  one-week  requirement
would relate to providing informal information about the transaction while a longer
period could be provided for the notification itself.

Some  industry  representatives  have  proposed  that  Article  4(1)  could  be  either
repealed  or  amended  as  regards  the  earliest  possible  time  for  a  notification.  In
practice,  the  Commission  has  regularly  accepted  notifications  on  the  basis  of  an
agreement  between  the  Boards  of  companies,  even  where  these  may  not  be
enforceable  if  certain  conditions  are  not  subsequently  fulfilled,  e.g.  approval  by  a
shareholders'  meeting.  One  complication  in  interpreting  Article  4(1)  has  been  the
existing  national  differences  in  the  extent  to  which  the  management  bodies  of  a
company are able to bind the company. These differences mainly result from national
provisions  of  company  law,  but  may  also  be  influenced  by  specific  features  in
contractual traditions.

The main argument proposed in favour of relaxing the requirement for an agreement
which is binding on the companies involved is that this would make it easier to co-
ordinate notification to the Commission with notification to other jurisdictions, such
as the US.  It should nevertheless  be pointed out that such  co-ordination is  possible
also  in  the  current  system,  i.e.  by  notifying  to  all  authorities  involved  at  the  date
when  a  binding  agreement  has  been  concluded.  Still,  it  is  to  some  extent
understandable  that  business  reasons  may  advocate  commencing  each  regulatory
procedure as early as possible.

The current policy of requesting that notifications are submitted after the conclusion
of  a  sufficiently  binding  agreement  (or  public  bid),  is  based  on  a  number  of
assumption  that,  prima  facie,  remain  valid.  At  the  very  least  notifications  must,  as
they trigger the start of the deadlines for the investigation, be made at a point in time
when  confidentiality  reasons  do  not  restrict  the  Commission's  ability  to  fully
investigate  the  transactions35.  In  addition,  it  might  be  inappropriate  to  launch
investigations  at  a  preliminary  stage  of  the  transaction  if  this  could  put  any  third
party  in  a  position  of  advantage  or  disadvantage  compared  to  those  making  the
notification.  The  possibility  of  earlier  notifications  may  also  raise  an  issue  of
efficient  use  of  the  Commission's  resources  (as  well  as  the  resources  of  others
involved in such procedures). Finally, if notifications were to be allowed at an earlier
stage  of the transaction, parties may not  be in a position to  provide  all information
necessary  for  the  Commission  to  complete  the  initial  assessment  within  the  one-
month period set out in Article 10(1).

these  reservations,  however, 

Notwithstanding 
the
possibility to introduce greater flexibility, which would allow better co-ordination of
merger investigations in different jurisdictions, should be further examined. It invites
interested parties to submit comments on any perceived advantages or disadvantages

the  Commission  believes 

183. 

184. 

185. 

186. 

35

The fact of the notification is, in accordance with Article 4(3) published in the Official Journal of the
European Communities.

41

                                                
thereof, and in particular comments on how this could be achieved without resulting
in negative consequences such as those outlined above.

B.

Suspension of Concentrations

187. 

188. 

189. 

Article 7(1) provides that a concentration shall not be put into effect either before its
notification  or  until  it  has  been  declared  compatible  with  the  common  market
(hereinafter "the stand-still obligation"). Under certain conditions, a derogation from
the suspending rule applies by law to public bids, see Article 7(3). In other cases, the
Commission  can  grant  an  individual  exemption  in  accordance  with  Article  7(4).
Breach  of  the  standstill  obligation  is  sanctioned  by  the  penalty  of  substantial  fines
according to Article 14(2)(b). Moreover, under Article 7(5)  transactions  carried  out
in contravention of this obligation are void, unless the concentration is subsequently
declared compatible with the common market.

through 

It  has  been  suggested  that  the  relationship  between,  on  the  one  hand,  the  legal
exemption under Article 7(3) for public bids and, on the other, the situation for other
acquisitions 
the  stock  exchange  would  benefit  from  clarification.
Acquisitions  over  the  stock  exchange  are  not,  contrary  to  public  bids,  subject  to
mandatory rules that may oblige the bidder to implement the transaction at a certain
date.  Companies  making  such  acquisitions  have  nevertheless  argued  that  the
provision in Article 7(1), for practical reasons, should not be allowed to pre-empt the
completion of such transactions as long as the conditions set out in Article 7(3)  are
complied with. The opposite view, namely that the standstill provision in Article 7(1)
should be fully respected, is usually adopted by the company which is the target for
the acquisition.

As  has  been  indicated  above  when  discussing  the  concept  of  a  concentration,  it  is
considered  appropriate  to  extend  the  scope  of  Article  5(2)  to  cover  more  clearly
certain acquisitions through the stock exchange. Views are invited as to whether, in
addition  to  this  modification,  it  would  be  appropriate  to  clarify  the  scope  of  the
current stand-still obligation with regard to such acquisitions or generally. In setting
out their comments, respondents who are of the view that the one-week requirement
in Article 4(1) could be abandoned are encouraged to consider the impact of such a
modification and the appropriate scope of the standstill obligation.

C.

Calculation of time limits

190. 

191. 

One  of  the  most  important  aspects  of  the  Merger  Regulation  is  its  creation  of  a
system  of  short  and  definitive  deadlines  for 
the  assessment  of  notified
concentrations.  To  this  end,  the  Merger  Regulation  contains  numerous  Articles
specifying  the  period  or  point  in  time  when  certain  events  should  occur.  These
deadlines  are  currently  expressed  in  months,  weeks  and  days.  More  detailed
provisions for the calculation of these time limits are provided in the Commission's
Implementing Regulation, which also sets out the principle of recovery of holidays.

Given the importance of compliance with all these deadlines for the merger control
procedure  and  in  order  to  increase  transparency  in  their  calculation,  it  seems
appropriate  to  consider  the  introduction  of  a  more  simple  method  of  calculation.
Such a simplification could be achieved by consistently using a concept of working
days in all relevant parts of the Regulation.

42

192. 

It is noted that a concept of working days is already used by some other competition
authorities. In relation to the most important deadlines of the Merger Regulation, the
concept of working days would indicatively translate into some 23-25 working days
for  a  normal  first  phase  assessment36.  At  the  same  time,  the  length  of  a  normal
second  phase  proceeding  could  be  set  at  approximately  90  working  days,  with
intervening deadlines, for example for the submission of proposed remedies.

193. 

Interested parties are invited to provide their views on the merits of a possible switch
to the use of a working days concept in the Merger Regulation.

D.

Administrative efficiency

194. 

195. 

196. 

Article  19  of  the  Merger  Regulation  imposes  an  obligation  on  the  Commission  to
transmit copies of notification to Member States within three working days. The date
of receipt by Member States of the notification is important, as it is decisive for the
period according to which a referral request under Article 9 has to be made.

It is questionable whether these rules provide for the most efficient use of time and
resources,  not  least  as  there  have  been  significant  improvements  in  the  means
available in  transmitting  information  and  documents  since  the  rules  were  originally
conceived.

It is therefore considered appropriate to assess whether these provisions could not be
amended  so  as  to  provide  that  notifications  are  submitted  directly  by  the  notifying
parties to the competent authorities of the  Member  States.  At  the  same time,  views
are invited on what means might be available for providing a secure and reliable way
to  effect  such  transmissions,  as  well  as  on  what  means  might  be  available  for
introducing electronic submission of merger notifications.

E.

Completeness of Notification

197. 

The  consultations  for  the  2000  Report  also  indicated  that  the  legal  certainty  of
notifying  parties  could  be  strengthened  by  clarification  of  certain  aspects  of  the
Merger Regulation procedure. One relatively widespread view was that there should
be a legal deadline for the Commission's ability to declare a submitted notification to
be incomplete (such a declaration re-starts the one-month period, see Article 4(2) of
the Commission's Implementing Regulation, EC No 447/98). Various proposals were
made as to the appropriate length of such a deadline (varying from 1-3  weeks  after
notification).

198. 

Following  a  constructive  dialogue  between  the  European  legal  community  and
Commission representatives, best practice guidelines were developed in 1999. These
are  available  for  consultation  on  the  Commission's  home  page37.  The  discussions
clearly revealed a common interest on the part of the Commission, as well as of the
business and legal communities, in ensuring that declarations of incompleteness are

36

37

In view of the discussion on a possible extension of the scope of the simplified procedure (see above), it
would  be  reasonable  to  use  a  25  working  day  period  for  the  reminder  of  the  cases,  as  these,  by
definition,  would  involve  a  substantive  analysis  of  competition  effects.  As  a  point  of  reference,  it  is
noted that the existing proposal for revision of the UK merger control system would introduce a period
of 30 working days.
See http://europa.eu.int/comm/competition/mergers/others/best_practice_gl.html

43

                                                
199. 

200. 

kept to the minimum. Nevertheless it was recognised that it will not be possible for
notifying parties to follow these guidelines in all circumstances, and that there may
be situations where a declaration of incompleteness is unavoidable.

Declarations of incompleteness have occurred less frequently since publication of the
best  practice  guidelines  in  1999.  In  the  years  1997-1999,  the  proportion  of
notifications that were declared incomplete was stable at around 10-11%. In the year
2000, it dropped to 6% and for 2001 it seems that a further reduction is likely.One of
the main reasons for this positive development is that a further increase in the use by
companies  of  pre-notification  contacts  with  the  Merger  Task  Force  over  the  last
years, advocated by the best practice guidelines.

The suggestion that the system be made more rigid requires careful consideration. It
should, inter alia, be recognised that a more rigid system could lead to a less efficient
use  of  the  Commission's  resources,  and  therefore  ultimately  to  less  protection  of
competition.  In  addition,  the  question  must  be  raised  whether  a  legal  deadline  for
declaration  of  incompleteness  would  necessarily  be  to  the  advantage  of  notifying
parties. If a new issue arises after the notification, the Commission will obviously do
its utmost to resolve the issue by further investigation during the remaining time. It is
probable,  however,  that  there  could  be  situations  where  the  Commission,  in  the
absence  of  a  possibility  to  declare  the  notification  incomplete,  would  be  forced  to
open an in-depth investigation. This could happen regardless of whether the parties
have  made  their  best  efforts  to  disclose  fully  and  openly  the  relevant  facts  in  the
notification.  As  the  opening  of  an  in-depth  investigation  automatically  triggers  a
number of procedural steps (Hearing, Advisory Committee, translations, adoption of
decision  by  full  Commission  etc.),  experience  shows  that  it  is  very  difficult  to
finalise the procedure within considerably less than the foreseen four months.

201. 

Thus,  if  the  system  were  to  be  made  more  rigid  through  the  introduction  of  a
deadline  for  declarations  of  incompleteness,  notifying  parties  would  face  an
increased risk of prolonged procedures. In such a situation, their only option to avoid
the prolongation would be to withdraw the notification and re-notify the transaction.
This  will  normally  not  only  involve  additional  costs  and  loss  of  time,  but  also
contractual  uncertainty,  as  a  withdrawal  of  a  notification  without  a  simultaneous
abandonment  of  the  underlying  transaction  means  that  the  notifying  parties  are  in
breach  of  Article  4(1),  raising  the  question  of  a  possible  application  of  Article
14(1)(a).

202. 

In view of the above, the Commission is of the opinion that the current possibility to
declare a notification incomplete fulfils a proportionate and appropriate objective in
the rare cases where it is used. Comments on this subject are nonetheless invited.

F.

Commitments Procedure

203. 

Comments indicating the need to review the procedural rules relating to the Merger
Regulation's  procedure  for  commitments  have  been  submitted  both  by  industry
representatives and by Member States. For industry, the most relevant objectives in
this  respect  can  be  summarised  as  increasing  legal  certainty  and  creating  an
atmosphere for meaningful discussions. Although, these concerns are more strongly
felt  in  relation  to  the  2nd  phase,  owing  to  the  finality  of  the  decision  taken  at  that
stage,  they  apply  also  to  commitment  discussions  at  the  end  of  the  1st  phase.  The
interests  of  industry  partly  converge  with  those  of  Member  States,  who  generally

44

204. 

205. 

206. 

207. 

208. 

would  like  to  see  amendments  that  would  ensure  their  full  involvement  in  the
procedure, as foreseen in Article 19 of the Merger Regulation38.

The time-framework within which remedies discussions take place under the Merger
Regulation  is  a  complex  one.  It  also  works  differently  during  the  1st  and  2nd  phase
proceedings. In the initial phase, the notifying parties have the possibility to submit
proposed  commitments  within  three  weeks  from  the  date  of  notification  (Article
18(1) of Regulation 447/98). In the 2nd phase, commitments may be proposed up to
three  months  after  the  date  on  which  proceedings  were  initiated  (Article  18(2)  of
Regulation  447/98).  These  deadlines  for  the  submission  of  commitments  are
necessary  in  order  to  allow  sufficient  time  for  the  Commission  to  conduct
consultations with Member States and interested third parties and to finalise its own
assessment of the case.

Article  18(2)  contains  a  possibility  for  extending  the  three-month  time  limit  in
"exceptional"  circumstances.  In  order  to  maintain  respect  for  the  deadlines  and  to
guarantee a level playing field, this provision has to be interpreted narrowly. It may
be  applicable  in  cases  where  the  notifying  parties,  due  to  external  factors  beyond
their  control,  are  unable  to  submit  proposed  remedies  within  the  applicable
deadlines39. The provision is not intended as a solution to the constraints that will be
further elaborated below.

The  above-mentioned  deadlines  in  Article  18  aim  to  guarantee  adequate  time  for
good  quality  contributions  by  each  of  the  three  types  of  "actors"  involved  in  the
process, i.e. the Commission, the business environment (notifying & 3rd parties) and
Member  States.  This  specific  relationship  imposes  unique  constraints  upon  the
organisation and procedural aspects of the EU merger control system. Indeed, these
provisions were based  on  a  desire  to  establish  a  balanced  solution,  with  acceptable
procedural  guarantees  for  all  of  the  interests  involved,  while  at  the  same  time
keeping the overall time needed for the procedure to the minimum.

In  the  2nd  phase,  from  the  viewpoint  of  the  notifying  parties,  it  may  be  seen  as
problematic that the three-month deadline will often occur 2-3 weeks, or in any case
relatively  shortly,  after the  Oral  Hearing.  This  implies  that  the  parties  may  have  to
prepare themselves for discussions about commitments at the same time as they are
absorbing  the  contents  of  the  Commission's  statement  pursuant  to  Article  18  ("the
Statement  of  Objections")  and  preparing  the  Oral  Hearing.  Industry  representatives
have  indicated  that  the  procedure  should  allow  for  a  clearer  separation  of  the  time
when  they  should  absorb  and  defend  themselves  against  the  Commission's
objections, and the period when they should prepare for remedy discussions.

This,  in  itself  legitimate,  position  of  the  notifying  parties  often  leads  to  a  situation
where commitments are submitted on the last day of the three-month period. This, in
turn, has the effect that a very limited amount of time is left for the Commission to
conduct the necessary consultation with Member States and interested third parties,
prior to preparing a draft decision for discussion in the Advisory  Committee.  In  all
but exceptional cases this means that the  Commission  will not be able to include a

38

39

See  also  Commission  Notice  of  21.12.2000  on  remedies  acceptable  under  Council  Regulation  (EEC)
No 4064/89 and under Commission Regulation (EC) No 447/98 ("the Notice").
See, for example, Commission decision of 13.10.1999 in case COMP/M.1439 - Telia/Telenor, OJ L40,
9.2.2001.

45

                                                
209. 

210. 

full analysis of the proposal in the draft that is sent to the Member States, unless the
proposed  commitments  are  clear  and  straightforward  and/or  have  been  submitted
well in advance of the deadline40.

For  the  above  reasons,  the  current  procedural  rules  could  be  modified  so  as  to
provide more time to all involved for proper evaluation of how to address identified
competition concerns. In order not to introduce any overly complex and potentially
time-consuming  procedures,  it  appears  appropriate  that  the  new  provisions  should
operate solely at the initiative of the parties and then as a direct result of the law. At
the  same  time,  the  system  must  be  designed  so  as  to  provide  incentives  for
submissions at a time that will not unduly compress the time  available for Member
States or the Commission.

Experience  has  also  indicated  that,  as  concerns  1st  phase  commitments,  the  three-
week period within which remedy proposals have to be submitted may on occasion
be  too  short  for  establishing  the  exact  scope  of  the  competition  concerns  at  hand.
Equally,  the  time  that  is  left  after  the  expiry  of  this  deadline  may  place  undue
pressure  on  the  assessment  of  the  proposals  that  is  being  made.  These  factors  can
affect the notifying parties, who may  face difficulties in formulating an appropriate
proposal within the time available. Also for the Commission and Member States, the
current system may entail disadvantages in terms of, inter alia, unduly compressing
the  time  available  to  form  an  opinion  on  submitted  proposals.  It  therefore  appears
appropriate to  also  provide for the  possibility  of  a  limited  extension of time  during
the 1st phase, at the initiative of the parties.

211. 

Upon adoption of the outlined amendments, it would also be necessary to adapt the
Notice on remedies.

1.

Amending the Applicable Procedure

212. 

A  simple  extension  would  most  likely  be  disproportionate,  as  it  would  tend  to
penalise  notifying  parties  who,  under  the  current  rules,  come  up  early  with
appropriate proposals. A simple prolongation would in any case, unless the schedule
of events  and incentives  is amended,  risk  to  simply postpone  the  currently  existing
problem.  What  appears  to  be  needed  is  a  way  to  encourage  timely  submission  of
appropriate  commitments  ("best  shot"),  whilst  allowing  for  a  limited  additional
period that is often needed between the Oral Hearing and the deadline for submission
of commitments. Another requirement of the system would of course be that it must
be  structured  in  such  a  way  that  the  parties  are  not  able  to  impinge  on  the  time
needed by Member States and the Commission to conduct an appropriate assessment.

213. 

It  appears  that  a  "stop  the  clock  provision"  could  fulfil  these  criteria.  Such  a
provision could, in a proportionate way, solve the problem of the current squeeze of
the  time  available  for  the  Commission  and  Member  States  when  proposed
commitments are submitted towards the end of the period allowed (or amended after
this deadline).

214. 

However, in order to avoid introducing unacceptable inefficiency in the procedure or
making it susceptible to abuse, such a provision would need to have some procedural

40

According  to  Article  19(5)  the  Member  States  are  normally  entitled  to  receive  the  preliminary  draft
decision two weeks in advance of the meeting of the Advisory Committee.

46

                                                
safeguards.  For  the  2nd  phase,  these  should  include  respect  for  the  basic  principles
that a request for stopping the clock should be introduced within the original three-
month deadline. Moreover, in order to maintain the efficiency of the procedure, the
new  provision  should  operate  solely  on  the  basis  of  a  request  from  the  parties.
Furthermore, it should be built on the principle that the extension is available for  a
short finite period, for  example 20-30 working days, and that the additional time is
distributed in a proportionate way between all interested parties. In order to maintain
the efficiency of the system as a whole it appears undesirable to provide for a longer
period.  It  has  also  been  considered  whether  the  system  should  provide  for  the
addition  of  a  shorter  period,  to  be  equally  distributed  between  the  parties  and  the
Commission  (e.g.  five  working  days  each).  Whilst  the  latter  would  provide  for
additional flexibility in the system (e.g. where it is likely that only a short additional
period  will  be  needed),  it  would  however  make  the  system  significantly  more
difficult to manage (e.g. possibly less forward planning of Advisory Committees).

215. 

A "stop the clock provision" would appear to have a number of advantages in the 2nd
phase procedure:

(cid:1)  It would strengthen the parties' procedural guarantees by allowing more time for
discussion  following  the  Oral  Hearing,  where  the  notifying  parties  and  the
Commission could elaborate on identified concerns and possible solutions;

(cid:1)  Assuming  that  the  first  proposal  is  made  at  a  sufficiently  early  stage,  it  could
restore time that has been lost as a result of the notifying parties making first sub-
optimal  proposal  (e.g.  where  they  genuinely,  but  ultimately  wrongly,  feel
confident that they will be able to counter the Commission's objections);

(cid:1)  It  would  improve  transparency  of  the  procedure  by  allowing  the  Advisory
Committee to discuss on the basis of a draft Article 8(2) decision evaluating the
parties'  final  proposal  (currently  a  draft  Article  8(3)  decision  may  be  the  only
available  document).  Also  in  this  respect,  the  notifying  parties'  procedural
guarantees would be strengthened.

The  "costs"  of  such  a  procedure  would  be  limited.  First,  for  the  notifying  parties,
their  own  strategic  choices  would  be  decisive  for  whether  the  extra  time  would  be
used  or  not.  For  the  markets,  the  possibility  of  an  additional  20-30  working  days
would  normally  not  have  any  significant  impact.  Second,  for  the  Commission  and
Member  States,  it  would  mainly  require  some  additional  flexibility,  as  meeting
schedules may need to be re-arranged, which in its turn would add some complexity
to  the  logistics  of  Advisory  Committee  meetings  (room,  translations,  interpreters
etc). On the whole, it is expected that the positive effects would outweigh such minor
inconveniences.

In practice, the system would provide notifying parties with a clear choice of options.
The  first  such  option  would  be  to  come  up  with  a  proposed  commitment  well  in
advance  of  the  three-month  deadline,  allowing  the  results  of  the  market  test  to  be
established  before  the  end  of  the  third  month  of  the  procedure.  On  the  assumption
that the result is positive, there would be no need to apply for the clock to be stopped,
and  sufficient  time  should  be  available  for  preparing  a  complete  draft  decision  in
view  of  the  Advisory  Committee.  Should,  on  the  other  hand,  the  market  test  be
negative, the parties would still have the option to request that the clock be stopped
while additional discussions and market test are conducted. Under the proposal, the

47

216. 

217. 

218. 

219. 

220. 

221. 

parties  would  then  have  an  additional  10-15  working  days  to  find  an  appropriate
solution, after which the Commission would have the same amount of time to verify
the viability of the final proposal and to prepare a complete draft decision in view of
the Advisory Committee.

Alternatively, the parties may decide to propose commitments only at the very end of
the three-month period. In such cases a proper market test may not be possible within
the end of this period. Consequently, the parties may need to decide whether to ask
for the clock to be stopped without knowing the full results of the market test. Should
they decide to make such a request, the remainder of the procedure will follow that
outlined  in  the  preceding  paragraph.  In  cases  where  the  parties,  on  the  other  hand,
decide  not  to  request  that  the  clock  should  be  stopped,  the  continuation  of  the
procedure will depend on the viability of that proposal. Thus, in cases where the late
proposal turns out to satisfactorily remedy the identified concerns, the Commission
may continue to be under some time pressure to prepare a complete draft clearance
decision  in  good  time  before  the  meeting  of  the  Advisory  Committee.  The  risk  of
serious negative effects stemming from this should however rarely be significant, as
successful remedies submitted towards the last day of the three-month period tend to
be  clear-cut  in  character.  The  same  applies  to  unsuccessful  remedies  submitted
towards  the  last  day  of  the  three-month  period,  where  the  Commission's  draft
decision  would  be  built  largely  on  its  Statement  of  Objections,  with  some  added
comments on the proposal and its weaknesses.

For the 1st phase, the new procedure could largely follow that set out above. It would
thus  be  up  to  the  parties  whether  they,  within  a  limited  period  after  the  end  of  the
three-week  period,  felt  that  there  would  be  merits  in  asking  for  the  clock  to  be
stopped  for  a  short  and  finite  period,  in  order  to  discuss  a  new  or  substantially
revised proposal. Unlike the situation in the 2nd phase there would however appear to
be reasons for allowing the Commission discretion as to whether to accept a request
for  the  clock  to  be  stopped.  The  reason  for  this  is  that  it  would  be  procedurally
inefficient  to  use  more  than  the  current  six  weeks  for  1st  phase  cases  where  the
Commission does not see any possibility of adopting an authorisation decision, even
on  the  basis  of  the  new  or  substantially  revised  proposal.  In  such  cases,  the
Commission should retain the power to adopt an Article 6(1)c decision at the end of
the six-week period.

The Commission invites interested parties to indicate their experience and views on
the outlined proposal as well as generally on the functioning of the procedure for 1st
and 2nd phase commitments.

In  addition  to  the  above-discussed  issues  on  the  timing  of  the  procedure  in  cases
involving  commitments,  some  commentators  have  suggested  that  a  modification
should  be  introduced  whereby  the  Commission  should  take  a  more  active  role  in
identifying  the  measures  that  it  deems  necessary  in  order  not  to  oppose  a  notified
concentration.  Views  are  also  invited  as  to  the  desirability  of  such  an  amendment,
and in particular as to the legal effects of such a "suggestion" or the absence thereof
(as in the case of prohibitions where no appropriate remedies can be identified).

G.

Article 8(4)

222. 

In  case  that  a  concentration  has  already  been  implemented,  Article  8(4)  allows  the
Commission  to  require  the  separation  of  assets  brought  together,  the  cessation  of

48

223. 

224. 

joint  control  or  any  other  action  that  may  be  appropriate  to  restore  conditions  of
effective competition. Such decisions, which are subject to the procedural protection
under Article 18, may be adopted in pursuant to Article 8(3) or by separate decision.

The main scenario where an application of Article 8(4) may be necessary is when a
concentration has been implemented in contravention of Article 7(1). Other possible
scenarios  may  include  public  bids,  which  are  not  subject  to  Article  7(1),  and  cases
that  have  come  under  the  Commission's  jurisdiction  by  application  of  Article  22.
Finally, it may be appropriate to apply this provision in situations where the parties
commit  a  serious  breach  of  conditions  or  obligations  that  have  enabled  the
Commission  to  approve  the  concentration  under  Article  6(1)b  or  8(2).  In  the  latter
scenario,  the  breach  would  entail  automatic  illegality  (in  the  case  of  breach  of  a
condition)  or  the  possibility  to  revoke  the  clearance  decision  (in  the  case  of  an
obligation,  see  Article  8(5)).  There  may,  however,  be  situations  where  reasons  of
legal  certainty  would  necessitate  recording  these  findings  and  at  the  same  time
setting  out  the  type  of  action  that  would  be  appropriate  to  restore  conditions  of
effective competition.

It  has  been  suggested  that  Article  8(1),  by  stating  that  all  proceedings  initiated
pursuant  to  Article  6(1)c  shall  be  closed  by  means  of  a  decision  as  provided  in
Article  8(2)  to  (5),  would  limit  the  applicability  of  these  provisions  to  cases  where
the concentration has been notified and a second phase proceeding has been initiated.
The  Commission  does  not  share  this  interpretation,  as  it  would  run  counter  to  the
very purpose and wording of Article 8, in particular of Article 8(4), which refers to
"a  concentration",  without  limiting  the  powers  of  the  Commission  to  cases  of
"notified"  concentrations  (language  used  elsewhere  in  the  Merger  Regulation;  see
e.g.  Articles  6,  8(2),  9(1),  etc)  and  empowers  the  Commission  to  act  "by  separate
decision", a possibility that would be pointless if the Commission could only  act in
cases of concentrations prohibited under Article 8(3). Nevertheless, the Commission
invites  comments  on  whether  further  improvement  of  the  wording  of  Article  8(4)
might be useful.

H.

Enforcement Provisions

225. 

During the consultation for the 2000 Report, some Member States suggested that the
effectiveness of the Merger Regulation's enforcement provisions should be reviewed.
These provisions relate to two main issues; powers of investigation (Articles 11-13)
and  penalties  (Articles  14-15).  When  the  Merger  Regulation  was  adopted,  these
provisions were modelled closely on the pre-existing provisions on the same subjects
in Regulation No 17. The Commission's modernisation proposal for Articles 81 and
82 introduces a number of amendments  to  guarantee  the  protection  of  competition.
To  the  extent  that  these  adjustments  relate  to  issues  of  similar  importance  to  the
merger  control  procedure,  it  is  considered  appropriate  to  introduce  the  same
amendments  in  the  Merger  Regulation.  Following  the  order  of  the  modernisation
proposal,  the  following  items  could  be  amended  and/or  introduced  into  the  Merger
Regulation:

(cid:1)  Sector  inquiries.  Under  the  Merger  Regulation,  the  Commission  should  be
empowered  to  conduct  inquiries  not  only  on  the  basis  of  a  specific  notification,
but also in order to do more general studies, including post-merger studies. Such
studies can provide valuable insight into the effects of past decisions and thereby
be used for fine-tuning future policy.

49

(cid:1)  Clarification that companies remain responsible for the correctness of information

provided by their duly authorised representatives (lawyers).

(cid:1)  Power to take statements. The merger control procedure, with its short deadlines,
is particularly well suited for allowing oral submissions to be recorded and used
as evidence. Indeed, it is felt that this may considerably enhance the efficiency of
fact-finding in merger investigations.

(cid:1)  Inspections. Under the Merger Regulation, inspections have so far only been used
exceptionally.  Still,  there  would  not  seem  to  be  any  reason  not  to  increase  the
potential effectiveness of these provisions along the same lines as for Articles 81
and 82.

(cid:1)  Investigations  by  national  competition  authorities.  In  the  context  of  Articles  81
and  82,  this  provision  will  be  modified  to  allow  one  Member  State  to  conduct
investigations  on  its  territory  on  behalf  of  the  competition  authority  of  another
Member  State.  This  amendment  has  no  equivalent  function  under  the  Merger
Regulation,  which,  contrary  to  Articles  81  and  82,  is  based  on  a  system  of
exclusive jurisdiction.

(cid:1)  Fines.  It  would  be  appropriate  also  in  the  context  of  the  Merger  Regulation  to
switch  to  a  percentage-based  calculation  of  fines  for  breach  of  procedural  rules
(up  to  1%  of  annual  turnover).  Moreover,  it  would  be  appropriate  to  add  the
violation of failing to comply with an obligation imposed by decision pursuant to
Article  6(2)  of  the  Merger  Regulation  to  the  list  in  Article  14(2)(a)  of  that
Regulation.

(cid:1)  Periodic  penalty  payments.  It  would  be  appropriate  also  in  the  context  of  the
Merger Regulation to switch to a percentage-based calculation of periodic penalty
payments (up to 5% of average daily turnover). Again, it would be appropriate to
add  the  violation  of  failing  to  comply  with  an  obligation  imposed  by  decision
pursuant to Article 6(2) of the Merger Regulation to the list in Article 15(2)(a) of
that Regulation.

(cid:1)  In addition, the short and fixed time periods of the Merger Regulation, would at
least in certain circumstances justify the Commission to be empowered to adopt a
decision requiring certain information to  be  provided,  without  first  having  made
an  unsanctioned  request.  Under  such  a  provision  the  Commission  would  be
allowed to directly use Article 11(5) of the Merger Regulation, for example, when
there are reasons to assume that the respondent will not provide a full reply in a
timely manner.

226. 

The Commission invites interested parties to indicate their experience and views on
the proposed modifications outlined above.

I.

Filing Fees

227. 

The 2000 Report indicated that the introduction of filing fees for merger notifications
would be further evaluated. Such fees are currently applied by several Member States
(the UK,  Germany,  Austria,  Spain,  Ireland  and  Greece),  as well  as  by  a  number  of

50

228. 

229. 

230. 

candidate  countries  and  other  non-EU  jurisdictions,  including  the  US41.  In  those
jurisdictions  filing  fees  are  often  justified  as  a  means  of  ensuring  that  the  merging
parties bear the costs associated with merger control.

Studies  of  other  jurisdictions  reveal  that  there  are  two  main  options  for  the
introduction  of  filing  fees.  Such  fees  can  be  either  of  a  fixed  amount  for  each
notification, or they can be proportional to the complexity of the notified transaction.
Within  each  model,  the  fees  may  fall  to  be  paid  by  one  or  more  of  the  involved
parties. Regardless of the preferred structure, a basic principle for the setting of fees
should be to de-link them from the budget of the competition authority, so as to not
create any perceived bias.

Accordingly,  the  Commission  seeks  comments  on  the  appropriateness  of  including
an  enabling  provision  in  the  Merger  Regulation,  allowing  the  Commission  to
introduce filing fees by means of a subsequent Commission Regulation, if and when
it might regard the introduction of such fees as justified.

It should moreover be noted that the Commission participates actively in the ongoing
discussion at the international level about the effects of the introduction of filing fees
by  numerous  competition  authorities  worldwide,  a  development  that  is  a  cause  of
some  concern  to  industry.  The  Commission  looks  favourably  on  the  fact  that  the
issue of filing fees in merger cases is being discussed internationally, and could see
some  benefit  to  be  derived  from  a  possible  future  international  harmonisation  of
approach to the issue.

231. 

Comments  on  this  topic,  including  relevant  experience  of  filing  fees  in  other
jurisdictions, are invited.

J.

Due Process and "Checks and Balances"

232. 

One of the most successful and praised features of the Merger Regulation has been,
since its conception, its capacity to deliver results within a very tight time schedule,
while maintaining in the process a high degree of efficiency and transparency.

Nature and characteristics of the procedure

233.  Merger  control  systems  around  the  world  combine  in  various  valid  ways  the
administrative and/or judicial elements in the procedure. To a varying  extent,  some
merger control systems also involve a political element, for example in the shape of a
test based not solely on competition grounds or, more directly, through intervention
by Government or Ministers. It must be made clear that the procedure established by
the  Merger  Regulation  and  its  implementing  regulation  is  administrative  in  nature
and not judicial.42 The apparent dual function of the Commission as investigator and
decision  making  body  is  inherent  in  the  structure  of  such  administrative  procedure
and  has  not  been  found  to  contravene  Article  6  of  the  European  Convention  on
Human  Rights.  Most  importantly,  the  Commission  has  been  held  to  be  subject  to
"effective" judicial review by an independent and impartial judge.43

41

42

43

A comparison of the size of filing fees in different jurisdictions can be found in Annex I, Section B.
According  to  case  law  the  Commission  is  not  a  tribunal  in  the  sense  of  Article  6  (1)  of  the  ECHR:
Joined Cases 100-3/80 Musique diffusion Francaise v. Commission [1983] ECR 1825.
Joined Cases 100-3/80 op.cit., Case T- T-348/94 Enso Espanola v. Commission [1998], ECR II-1875.

51

                                                
234. 

235. 

236. 

The  formal  administrative  procedure  incorporates  an  array  of  due  process  rights  in
favour of parties, affirmed and refined by a significant body of EC competition case-
law. Transparency is a paramount value throughout the process and is safeguarded by
features such as the adoption of a reasoned decision when an in-depth investigation is
launched, communication of objections to parties, access to file,  rights to refute the
objections  in  writing  as  well  as  to  an  oral  hearing,  and  full  reasoning  of  final
decisions.

On  a  more  general  level,  transparency  as  to  the  Commission's  policy  is  further
strengthened  by  the  practice  of  publishing  Guidance  Notices  on  important
jurisdictional  and  substantive  issues.  Furthermore,  publicity  is  given  to  the
Commission's  treatment  of  individual  cases,  e.g.  on  notifications,  on  decisions  to
open in-depth proceedings and on the full text of final decisions.

Other  Commission  departments  and  Member  States  provide  internal  and  external
"checks  and  balances".  Second  phase  decisions,  including  prohibitions,  must  be
adopted by the Commission deliberating in  college.  These  working methods  reflect
the nature and structure of the Commission in its function as guardian of the Treaties
and  implementing  authority  of  the  Merger  Regulation.  In  this  light,  it  is
understandable  that  the  structure  and  timeframe  of  the  procedure  must  also  allow
space for the organisational constraints imposed by the Commission's very working
methods,  i.e.,  consultations  between  services  and  with  15  Member  States,
translations  and  interpretation,  logistics  of  meetings,  of  hearings  and  of  decision
finalisation (preparation of college vote, signature etc).

237. 

The  following  paragraphs  illustrate  briefly  the  main  due  process  and  "checks  and
balances" elements incorporated in Commission's merger assessment procedure.

Due process

238. 

239. 

240. 

It  should  be  noted,  in  the  first  place,  that  a  well-established  practice  of  pre-
notification contacts and a  quite detailed form CO allow the  Commission  to  depart
upon  a  formal  procedure  immediately  after  notification  and  contribute  to  the
effectiveness  of  the  ensuing  process.  The  Commission  may  exercise  further  fact-
finding powers which directly involve the notifying parties and other market players,
throughout both the first and second phase. The Merger Regulation subjects requests
for  information  as  well  as  investigations  to  a  series  of  formal  procedural
requirements  (Articles  11-13).  Information  acquired  may  be  used  only  for  the
purposes of the relevant proceedings (Art. 17 (1)).

Reasoned  decisions  under  Article  6(1)(c)  to  instigate  in-depth  proceedings  are
communicated to the parties and will, in practice, allow them to accurately forecast
the scale and scope of the remainder of the procedure.

The second phase of the procedure may take on a more adversarial character than the
first  phase,  and  this  is  where  the  due  process  requirements  are  most  solidly  and
explicitly built-into the system.

241. 

In specific terms, parties have the following rights:

(cid:1)  At the end of the investigation (roughly two months before the final decision) the
Commission  must  duly  communicate  to  the  parties  a  statement  of  objections

52

laying down clearly and in detail all its objections so that the parties know exactly
the points they need to address in their defence. The statement of objections will
also  form  the  basis  on  which  the  parties  may  start  preparations  to  formulate
appropriate remedy proposals.

(cid:1)  After communication of the statement of objections, parties may request to have
access to the Commission's file in order to verify the  results  of  the  investigation
and  examine  for  themselves  the  sources  upon  which  the  Commission  based  its
objections  (subject  to  the  legitimate  interests  of  preservation  of  business  secrets
and commercially sensitive information).

(cid:1)  In their written response to the Commission's objections, parties have the right to
request  a  formal  oral  hearing,  where  they  can  develop  their  defence  to  the
statement  of  objections.  The  competent  authorities  of  the  Member  States  attend
the hearing. The importance of Member State's opinion, particularly with a view
to  the  following  procedural  step (i.e.,  Advisory  Committee on  concentrations) is
clearly recognised by parties, who regularly contact the Member State authorities
on  a  bilateral  basis  concerning  the  case.  Parties  on  whom  the  Commission
proposes to impose a fine or periodic penalty are also entitled to the same defence
rights.

Third  parties  who  can  demonstrate  a  sufficient  interest  (such  as  members  of  the
board and representatives of the employees of the companies concerned (Art.18 (4),
customers,  suppliers  and  competitors),  may  also  ask  to  be  heard  and  submit  their
observations in writing.

One important category of third parties that only  rarely make their views known  in
the  context  of  ongoing  merger  control  procedures  is  consumers  (or  their
representative organisations). Although not strictly an issue falling within the ambit
of  the  review  of  the  Merger  Regulation,  the  Commission  would  welcome  any
suggestions  as  to  what  assistance  it  could  lend  in  order  to  encourage  and  facilitate
consumer  groups  and  organisations  to  more  actively  make  their  views  known  in
relation  to  mergers  falling  within  the  scope  of  the  Regulation  and  affecting  their
interests.

The Commission is open to hearing the views of employees, including during phase I
of  a  merger  investigation,  to  the  extent  possible  given  the  severe  time  constraints
inherent in such investigations. In the light of this, the Commission would welcome
suggestions as to how employees or their representatives might be enabled to more
effectively express these views, in particular regarding the likely market impact of a
proposed merger.

Oral hearings are organised and conducted by a Hearing Officer (HO) whose role in
safeguarding  the  right  to  be  heard  throughout  the  procedure  has  been  strengthened
with a new decision on his mandate44. His report of the hearing is made directly to
the  competent  Commissioner.  It  covers  due  process  issues  generally,  including
disclosure of documents and access to file, time limits for replying to the Statement
of Objections, the proper conduct of the oral hearing and potentially observations on

242. 

243. 

244. 

245. 

44

Commission Decision of 23.05.01 on the terms of reference of hearing officers in certain competition
proceedings, OJ L 162/21, 19.06.2001.

53

                                                
the  further  progress  of  the  proceedings  (i.e.,  withdrawal  of  objections).  His  final
report (which is communicated to Member States, attached to the final draft decision
and  published  with  the  final  decision  in  the  OJ),  will  consider  whether  the  draft
decision deals only with objections in respect of which the parties have been afforded
the  opportunity  of  making  known  their  views,  as  well  as  the  objectivity  of  any
inquiry  concerning  the  competition  impact  of  commitments.  According  to  the  new
rules, the HO is attached directly to the Commissioner responsible for competition, is
appointed  through  a  transparent  procedure  and  does  not  have  to  be  a  Commission
official.

"Checks and balances" in the decision making process

246.  Member  States  provide  a  most  important  element  of  external  control  to  the
procedure.  Their  role  is  more  formalised  in  the  second  phase.  Whereas  in  the  first
phase  they  are  entitled  to  receive  copies  of  the  notification  and  of  most  important
documents (including  commitments) upon which they may comment, in the second
phase they are  also convened in  the  Advisory  Committee  on  concentrations,  which
consists of representatives of the relevant authorities. A set of documents including a
preliminary  draft  decision  and  any  proposed  commitments  are  sent  to  the  Member
States beforehand.  If parties  submit  new  undertakings,  the  Committee  may  have  to
be consulted again. The fact that the Commission attaches significant importance to
the Committee's opinion is verifiable, as the opinion is published.

247. 

Other  competent  units  within  DG  Competition  as  well  as  other  departments  of  the
Commission have a role in the process and their input is sought throughout the entire
procedure, from the fact-finding and investigation stages through to the drafting and
reasoning of the decision. The Legal Service plays a particular role as it oversees the
legal  aspects  of  the  case,  both  as  to  substantive  and  procedural  issues.  Its  prior
approval is required before any act having legal effects can be proposed and adopted.
When  merger  decisions  are  challenged,  the  Legal  Service  will  be  called  upon  to
defend  the  Commission  before  the  European  Courts.  DG  Financial  &  Economic
Affairs, and DG Enterprise or any other appropriate sectorial Directorate General, as
well as the internal economists of DG Competition, provide technical, economic and
industrial  expertise  into  the  analysis  that  is  made  in  merger  cases.  They  are  also
called  upon  to  comment  on  preliminary  opinions  formed  at  various  stages  of  the
procedure, both in 1st and 2nd phase, by the team responsible for the investigation.

Modifications to the current procedural framework

248. 

Improvements  to  the  current  merger  assessment  procedure  must  be  possible  but,
obviously, they should fit into the limits imposed by  the present Treaty system and
by  the  Commission's  working  methods,  as  outlined  above.  An  important  principle
behind  any  modifications  should  be  that  they  must  aim  at  allowing  the  actors
involved  to  make  better  quality  contributions  at  the  appropriate  moment  and  the
appropriate  stage  in  the  procedure.  Any  proposals  must  also  acknowledge  the
possibility that concessions in one direction might mean restrictions in another. Any
modifications concerning the commitments procedure (see above), should be seen in
this  light.  Indeed,  the  Commission’s  proposal  concerning  2nd  phase  proceeding
allows  concessions  in  terms  of  a  very  tight  time  schedule  in  order  to  enhance
transparency  and  participation  of  all  the  actors  involved  in  the  discussion  of
commitments.

54

249. 

250. 

251. 

252. 

253. 

45

46

47

The Commission would openly  consider  any other substantiated suggestions in  this
spirit.

The  current  system  of  judicial  review  of  merger  decisions  is  considered  by  certain
commentators  to  be  unsatisfactory  and  ineffective.  The  length  of  EC  court
proceedings  is  deemed  to  discourage  litigation  and  therefore  to  eliminate  the
constraint  posed  upon  administrative  action  by  the  threat  of  judicial  control.  On  6
December 2000 the Court of First Instance adopted various amendments to its Rules
of  Procedure  with  a  view  to  expediting  proceedings  in  various  fields  which  could
include  merger  control45.  As  these  amendments  entered  into  force  on  1  February
2001, it is however still too early to evaluate their effects. It is noted at this point that
although  the  reform  of  judicial  procedures  is  outside  the  competence  of  the
Commission  and  certainly  outside  the  scope  of  this  revision  exercise,  the
Commission would welcome any further reform undertaken by the European Courts
to  expedite  appeals.  This  would  moreover  have  the  additional  benefit  of  further
enriching judicial precedent.

There has in any event been both a not insignificant amount of litigation in  merger
cases  and,  more  importantly,  a  number  of  appeals  against  prohibition  decisions.
Indeed,  out  of  15  prohibition  decisions  7  have  been  challenged  by  the  notifying
parties, i.e. in 47% of the cases the Commission decision was (or is currently being)
closely scrutinised by the Court of First Instance46.

Certain  commentators  have  pointed  to  elements  in  other  merger  control  systems
which  they  regard  as  more  capable  effectively  guaranteeing  systematic  judicial
review.  Under  the  US  system,  for  instance,  competition  authorities  must  initiate
proceedings  before  a  federal  court  in  order  to  block  a  merger.  Experience  shows,
however, that many cases which are settled in the US on the basis of agreed remedies
are not subject to court review. Nor are prohibition decisions in the US necessarily
subject to judicial review, as merging parties may abandon their merger plans at the
time when the competition authorities file suit.47

In  conclusion,  and  quite  independently  of  the  fact  that  the  reform  of  judicial
procedures  falls  outside  the  scope  of  the  review  of  the  Merger  Regulation,  the
Commission  does  not  believe  that  the  current  system  of  judicial  review  fails  to
provide  adequate  judicial  protection  to  companies  whose  merger  plans  are
challenged  under  the  Regulation.  Nevertheless,  within  these  limitations,  the
Commission  would  openly  consider  what  assistance  it  might  provide  in  support  of
any substantiated suggestions aiming at enhancing judicial review of its decisions in

OJ L 322 of 19 December 2000
As  of  1  October  2001,  RTL/VERONICA/ENDEMOL,  GENCOR/LONRHO,  KESKO/TUKO,
BERTELSMANN/KIRCH/PREMIERE,  AIRTOURS/FIRST  CHOICE,  WORLDCOM  MCI/SPRINT
AND GENERAL ELECTRIC/HONEYWELL.
In  the  period  1996-2001,  the  FTC  filed  a  complaint  for  a  preliminary  injunction  to  block  the
implementation of the merger in 12 cases. Seven of those cases went to trial and one was settled prior to
trial. In four cases the parties abandoned their transaction after a complaint  was  filed (in another four
cases, the parties abandoned after Commission had  voted to file such a complaint or after learning of
Staff's intention to recommend with  Commission to seek a Preliminary Injunction). Thus, overall, the
number of abandoned transactions over the period (8) was as high as the number of cases argued before
a  judge  (7).  In  the  period  1996-2000,  the  Deparment  of  Justice  filed  an  action  in  district  Court  in
relation  to  80  cases,  whilst  126  cases  were  restructured  or  abandoned  prior  to  filing  a  complant  as  a
result of an announced challenge.

55

                                                
merger cases. Equally, the Commission would invite substantiated reflections on the
relative  merits  of  the  overall  procedural  system  provided  for  in  the  Merger
Regulation  as  compared  to  merger  control  procedural  systems  employed  in  other
jurisdictions.

V.

INVITATION TO COMMENT

254. 

Interested  parties  are  not  only  invited  to  submit  their  views  on  any  or  all  of  the
specific  issues  raised  throughout  this  paper,  but  also  on  any  other  matters  of
relevance to the implementation of merger control in Europe.

255. 

Comments should reach the Commission by not later than 31 March 2002 and can be
transmitted in the following ways:

By mail to:

European Commission
Competition Directorate-General
- Merger Review - Green Paper -

B-1049 Brussels
Belgium

By electronic mail:

mtfmergerreview@cec.eu.int

256. 

Extra copies of this paper can be found at

http://europa.eu.int/comm/competition/mergers/review/

ANNEXES

ANNEX I : THRESHOLDS RELATED ISSUES

ANNEX II : Article 9 – Article 22

The  annexes  are  available  in  English  only,  together  with  the  original  version  of  the  Green
Paper at the following address:

http://europa.eu.int/comm/competition/mergers/review/

56