Communication from the Commission to the Council - Report on the functioning of Regulation No 139/2004 {SEC(2009)808}
Date: 2009-06-18
Institutions: European Commission
Subjects: disclosure of information, economic concentration, exchange of information, harmonisation of standards, merger control, turnover

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 18.6.2009 
COM(2009) 281 final 

 CORRIGENDUM : 

Annule et remplace le document COM(2009)281 du 18 juin 2009; concerne uniquement les 
versions FR, DE et EN (ajout de la cote sur la page de couverture) 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Report on the functioning of Regulation No 139/2004 

{SEC(2009)808} 

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Report on the functioning of Regulation No 139/2004 

BACKGROUND 

Council  Regulation  (EEC)  No  4064/89,  the  "EC  Merger  Regulation",  entered  into 
force  on  21  September  1990.  The  EC  Merger  Regulation  applies  to  concentrations 
which  are  deemed  to  have  a  Community  dimension,  i.e.  where  the  turnover  of  the 
parties  concerned  satisfy  the  thresholds  set  out  in  Article  1  of  the  EC  Merger 
Regulation. 

One of the main principles of the EC Merger Regulation is the exclusive jurisdiction 
of  the  Commission  with  respect  to  concentrations  having  a  Community  dimension. 
The concept that the Commission should have sole competence to deal with mergers 
with  a  Community  dimension  follows  from  the  principle  of  subsidiarity.  From  the 
viewpoint  of  the  European  business  community,  the  Commission's  exclusive 
jurisdiction also provides a "one-stop-shop" advantage, which is widely regarded as 
an  essential  part  of  keeping  the  regulatory  costs  associated  with  cross-border 
transactions  at  a  reasonable  level.  In  addition,  the  Commission's  exclusive 
jurisdiction to vet such mergers is an important element in providing a "level playing 
field"  for  the  concentrations  that  were  bound  to  result  from  the  completion  of  the 
internal  market.  This  principle  is  widely  accepted  as  the  most  efficient  way  of 
ensuring  that  all  mergers  with  a  significant  cross-border  impact  are  subject  to  a 
uniform set of rules. 

In 1998, after a careful review of the experience gained, the EC Merger Regulation 
was  amended,  through  Council  Regulation  No  1310/97.  In  relation  to  Article  1,  a 
new  sub-paragraph  -  Article  1(3)  -  providing  for  an  alternative  turnover  threshold 
was  introduced.  The  objective  of  this  provision  was  to  address  the  problem  that  a 
significant number of cases failed to meet the turnover requirements of Article 1(2) 
and  had  to  be  notified  in  several  Member  States.  Many  such  concentrations  had  a 
significant cross-border impact but did not benefit from the one-stop-shop principle. 
The  EC  Merger  Regulation  had  therefore  not  fully  succeeded  in  creating  a  level 
playing field and a set of coherent rules for this category of cases.  

The adoption of the recast EC Merger Regulation on 20 January 20041 (also referred 
to as the "EC Merger Regulation") was the next step to further improve the merger 
case allocation between the Commission and the Member States. It was the result of 
a  far  reaching  review  and  a  broad  debate  with  all  concerned  parties  which  was 
launched in 2001 with the Commission Green Paper2. 

Council  Regulation  (EC)  No  139/2004  of  20  January  2004  on  the  control  of  concentrations  between 
undertakings (OJ L 24, 29.1.2004, p. 1). 
COM(2001) 745, 11.12.2001. 

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The recast EC Merger Regulation introduced a number of substantive and procedural 
changes.  The  review  had  found  that,  notwithstanding  the  introduction  of  the 
threshold  under  Article  1(3),  there  was  still  further  scope  for  improved  case 
allocation  between  the  Commission  and  the  national  competition  authorities 
("NCAs"). Therefore, while the turnover thresholds set out in Articles 1(2) and 1(3) 
were  left  unchanged,  a  set  of  voluntary  pre-notification  referral  mechanisms  was 
introduced in order to "further improve the efficiency of the system for the control of 
concentrations  within  the  Community"3.  The  principles  guiding  the  system  were 
those that decisions taken with regard to the referral of cases should take due account 
"in  particular  which  is  the  authority  more  appropriate  for  carrying  out  the 
investigation, the benefits inherent in a 'one-stop-shop' system, and the importance of 
legal certainty with regard to jurisdiction"4.  

SCOPE AND PURPOSE OF THE REPORT 

This Report is a stock-taking exercise, the aim of which is to understand and assess 
how  the  jurisdictional  thresholds  and  their  corrective  mechanisms  have  operated 
since  the  entry  into  force  of  the  recast  EC  Merger  Regulation  on  1  May  2004,  as 
provided  by  its  Articles  1(4)  and  4(6).  It  is  to  be  read  in  conjunction  with  the 
accompanying  Commission  Staff  Working  Paper  which  contains  a  more  detailed 
review. 

In a number of areas, this Report highlights aspects which merit further discussion, 
but  leaves  open  the  question  as  to  whether  any  amendment  to  the  existing  rules  or 
practice  is  appropriate.  It  will  serve  as  a  basis  for  the  Commission  to  assess,  at  a 
further stage, whether it is appropriate to take further policy initiatives. 

A SYSTEM OF JURISDICTIONAL THRESHOLDS AND CORRECTIVE MECHANISMS 

The division of competence between the Commission and the NCAs is based on the 
application  of  the  turnover  thresholds  set  out  in  Article  15  and  includes  three 

Recital  16  of  the  EC  Merger  Regulation.  Other  instruments  that  should  also  be  mentioned  are:  the 
Commission Notice on Case Referral in respect of concentrations (Commission Notice on Case Referral 
in  respect  of  concentrations  -  OJ  C  56,  5.3.2005,  p.  2),  which  sets  out  the  guiding  principles  of  the 
referral system. On 10 July 2007, the Commission adopted the Consolidated Jurisdictional Notice under 
Council  Regulation  (EC)  No  139/2004  on  the  control  of  concentrations  between  undertakings 
(Corrected French and German versions of the Commission Consolidated Jurisdictional Notice and the 
remaining languages versions of the Notice were adopted by the Commission on 17 March 2008). The 
Consolidated Jurisdictional Notice replaces the previous four jurisdictional Notices, all adopted by the 
Commission in 1998 under the previous EC Merger Regulation. The Consolidated Jurisdictional Notice 
covers  all  issues  of  jurisdiction  relevant  for  establishing  the  Commission’s  competence  under  the  EC 
Merger  Regulation,  including  in  particular,  the  concept  of  a  concentration,  the  notion  of  control,  the 
concept of full-function joint ventures and the calculation of turnover. 
Commission  Notice  on  Case  Referral  in  respect  of  concentrations  (OJ  C  56,  5.3.2005,  p.  2-23, 
paragraph 8). 
Article 1(2) of the EC Merger Regulation stipulates that: "A concentration has a Community dimension 
where: (a) the combined aggregate worldwide turnover of all the undertakings concerned is more than 
EUR  5 000  million;  and  (b)  the  aggregate  Community-wide  turnover  of  each  of  at  least  two  of  the 
undertakings  concerned  is  more  than  ECU  250  million,  unless  each  of  the  undertakings  concerned 
achieves  more  than  two-thirds  of  its  aggregate  Community-wide  turnover  within  one  and  the  same 
Member  State."  Article  1(3)  stipulates  that:  "A  concentration  that  does  not  meet  the  thresholds  laid 

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corrective  mechanisms.  The  first  corrective  mechanism  is  the  so-called  "two-thirds 
rule".  The  objective  of  this  rule  is  to  exclude  from  the  Commission's  jurisdiction 
certain cases which contain a clear national nexus to one Member State6. 

The  second  corrective  mechanism  is  the  pre-notification  referral  system  introduced 
in 2004. This mechanism allows for the re-allocation of jurisdiction to the Member 
States under Article 4(4) or the Commission under Article 4(5) if certain conditions 
are  fulfilled7.  The  initiative  is  in  the  hands  of  the  parties  prior  to  notification. 
However, referral is subject to approval by the Member States and the Commission 
under Article 4(4) and by the Member States under Article 4(5). 

The third corrective mechanism is the post-notification referral system whereby one 
or  more  Member  States  can  request  that  the  Commission  assess  mergers  that  fall 
below the thresholds of the EC Merger Regulation under certain conditions (Article 
22)8. Conversely, a Member State may, in cases that have been notified under the EC 
Merger  Regulation,  request  the  transfer  of  competence  to  the  NCA  under  certain 
conditions (Article 9)9. 

JURISDICTIONAL THRESHOLDS 

It  appears  that  the  threshold  criteria  in  Article  1(2)  and  1(3),  considered  in 
conjunction with the available corrective mechanisms, operate in a satisfactory way 
in allocating jurisdiction.  

down  in  paragraph  2  has  a  Community  dimension  where:  (a)  the  combined  aggregate  worldwide 
turnover of all the undertakings concerned is more than EUR 2 500 million; (b) in each of at least three 
Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 
100  million;  (c)  in  each  of  at  least  three  Member  States  included  for  the  purpose  of  point  (b),  the 
aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; 
and (d) the aggregate Community-wide turnover of each of at least two of the undertakings concerned is 
more than EUR 100 million; unless each of the undertakings concerned achieves more than two-thirds 
of its aggregate Community-wide turnover within one and the same Member State." 
The threshold is construed in a way that even if the general thresholds under Articles 1(2) and 1(3) are 
met,  notification  under  the  EC  Merger  Regulation  is  not  required  if  each  of  the  parties  concerned 
realises more than two thirds of its EU-wide turnover in one and the same Member State, see footnote 
above.  
Under  Article  4(4),  unless  the  Member  State  expresses  its  disagreement,  the  Commission,  when  it 
considers that the concentration may significantly affect competition in a market within a Member State 
which presents all the characteristics of a distinct market, may decide to refer the whole or part of the 
case  to  the  competent  authorities  of  that  Member  State  with  a  view  to  the  application  of  that  State's 
national competition law. Under Article 4(5) concentrations which do not have a Community dimension 
and which are capable of being reviewed under the national competition laws of at least three Member 
States  can  be  referred  to  the  Commission  unless  any  Member  State  competent  to  examine  the 
concentration under its national competition law expresses its disagreement. 
For a referral to the Commission to be available under Article 22 the concentration must: (i) affect trade 
between Member States; and (ii) it must threaten to significantly affect competition within the territory 
of the Member State(s) making the request. 
Under  Article  9,  a  Member  State  may  request  that  a  case  be  referred  to  it  in  either  of  the  following 
circumstances: (i) the concentration must "threaten to affect significantly competition in a market" and 
the market in question must be within the requesting Member State and present all the characteristics of 
a  distinct  market,  or  (ii)  the  concentration  must  affect  competition  in  a  market  and  the  market  in 
question  must  be  within  the  requesting  Member  State  and  present  all  the  characteristics  of  a  distinct 
market and does not constitute a substantial part of the common market. 

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Nevertheless,  the  Commission's  analysis  of  cases  reported  by  the  NCAs  indicates 
that there are still a significant number of transactions which need to be notified in 
more  than  one  Member  State.  In  this  regard,  available  data  for  2007  indicate  that 
there were at least 100 transactions which were notifiable in three or more Member 
States10. These concentrations together required more than 360 parallel investigations 
by the NCAs.  

A  large  majority  of  the  cases  with  filing  requirements  in  three  or  more  member 
States involve markets which are wider than national or relate to several national or 
narrower markets. Consequently, there are a number of transactions with significant 
cross-border  effects  which  would  appear  to  remain  outside  the  scope  of  the  EC 
Merger Regulation. Against this background, one can conclude that there is further 
scope for "one-stop-shop" review.  

Available  data  also  suggest  that  around  6%  of  the  cases  notified  in  at  least  three 
Member State gave rise to competition concerns. This is an indication that a number 
of  additional  concentrations  may  be  appropriate  candidates  for  review  by  the 
Commission also when considering the principle of the "more appropriate authority". 
In  fact,  the  negative  consequences  of  parallel  proceedings  and  the  potential  for  a 
contradictory  outcome  are  particularly  important  for  those  cases  which  raise 
substantive competition issues. 

Looking  beyond  the  application  of  the  existing  jurisdictional  thresholds  and  their 
corrective mechanisms, in order to fully achieve the objective of a level playing field 
in  the  Common  Market,  the  public  consultation  has  suggested  that  efforts  towards 
further convergence of the various national rules governing merger control and their 
relation to Community rules should be envisaged to alleviate difficulties encountered 
in the context of multiple filings.  

THE TWO-THIRDS RULE 

There  were  at  least  126  cases  that  fell  under  the  two-thirds  rule  over  the  reference 
period11. There were thus few cases that met this threshold compared to the overall 
case  load  at  the  Member  State  level12.  Furthermore,  it  has  mostly  been  applied  in 
relation  to  concentrations  within  large  Member  States.  The  two-thirds  rule  has,  in 
most cases appropriately distinguished between concentrations that in terms of their 
cross-border  effects,  have  a  Community  relevance  and  those  that  do  not.  However, 
there  are  a  small  number  of  cases  with  potential  cross-border  effects  in  the 
Community which nevertheless fall under the competence of the NCAs as a result of 
this  rule.  In  a  substantive  respect,  public  interest  considerations  other  than 
competition  policy  have  been  applied  in  a  number  of  cases  falling  under  this 
threshold to authorise mergers which could have given rise to competition concerns. 
More generally, it is desirable that, independently of which authority is the reviewing 
agency,  merger  control  across  the  EU  ensures  the  protection  of  undistorted 
competition. Against this background, the present form of the two-thirds rule merits 
further consideration. 

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At least 240 cases were reviewable in two or more Member States in 2007. 
Reference period between 2001 and 2008. 
For the same reference period, more than 26,000 cases where reported at a Member State level. 

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PRE-NOTIFICATION REFERAL MECHANISMS  

The Commission's own experience as well as the comments received from the NCAs 
and  stakeholders  clearly  support  the  view  that  the  pre-notification  referral 
mechanisms  introduced  in  2004  have  considerably  enhanced  the  efficiency  and 
jurisdictional  flexibility  of  merger  control  in  the  EU.  They  have  substantially 
improved  the  allocation  of  cases  between  the  Commission  and  the  Member  States 
taking  into  account  the  principles  of  "one-stop-shop"  and  "more  appropriate 
authority".  

In fact, available information clearly supports the view that these mechanisms have 
allowed  the  appropriate  authority  to  handle  cases  while  also  avoiding  unnecessary 
parallel proceedings and inconsistent enforcement efforts. In fact, it is estimated that 
these  mechanisms  have  allowed  for  the  reduction  of  the  number  of  proceedings  to 
around  150  from  almost  a  thousand  potential  parallel  proceedings  in  the  period 
between 2004 and 2008. Furthermore, they have allowed for the re-allocation of 40 
cases  from  the  Commission  to  the  Member  States  over  the  same  period.  Referrals 
were refused only in four cases under Article 4(5) and in one case under Article 4(4). 

Nevertheless, there are some problems that have been highlighted, in particular in a 
procedural respect. Stakeholders have expressed concerns notably with regard to the 
overall timing and cumbersomeness of the referral process. These factors have been 
identified  as  the  main  cause  of  parties'  decisions  not  to  request  referral  in  a  large 
number of cases.  

In this respect, based on available data with regard to the number of multiple filings 
and having regard to stakeholder comments, there appears to be further scope to use 
the  referral  mechanism  under  Article  4(5)  in  more  cases  and  thus  to  achieve 
increased "one-stop-shop"13. Conversely, there may be scope for more referrals in the 
direction of the Member States in application of Article 4(4).  

POST-NOTIFICATION REFERRAL MECHANISMS 

The  post-notification  mechanisms provided by Articles 9 and 22 of the EC Merger 
Regulation have proven to continue to be useful corrective instruments also after the 
introduction  of  the  pre-notification  referral  mechanisms.  This  is  a  reflection  of  the 
different  function  of  the  post-notification  mechanisms,  allowing  for  a  flexible 
reallocation of cases at the initiative of the Member States or the Commission when 
appropriate.  Nevertheless,  the  business  community's  concern  regarding  the  timing 
and cumbersomeness of the referral procedures described above extends also to these 
mechanisms. 

Furthermore,  it  must  be  recalled  that  the  Member  States'  refusal  powers  under  article  4(5)  have  been 
rarely used. Many stakeholders therefore consider, having regard to the experience they acquired over 
the  past  years,  that  one  should  re-examine  the  possibilities  of  shifting  to  a  system  of  automatic 
notification  under  the  EC  Merger  Regulation  when  the  three  Member  State  criterion  is  met  (or  other 
intermediary solutions) as was initially proposed in the process leading up to the current system. This 
would in their view significantly increase transparency while lowering the cost and time for the review. 

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CONCLUSION 

This  report  gives  account  to  the  Council  of  the  operation  of  the  notification 
thresholds  under  Article  1  of  the  EC  Merger  Regulation  in  allocating  merger  cases 
between the Community level and the national level and of the referral mechanisms 
provided for by its Articles 4, 9 and 22. The conclusions of this report are limited to 
taking stock of the situation to date without proposing any measures. Following this 
report  and  considering  in  particular  the  reactions  of  the  Council,  the  Commission 
may,  pursuant  to  Articles  1(5)  and  4(6)  of  the  EC  Merger  Regulation,  present 
proposals to revise the notification thresholds or the referral mechanisms. 

The  Commission  concludes  that  overall,  the jurisdictional  thresholds  and  the  set  of 
corrective mechanisms provided for by the EC Merger Regulation have provided an 
appropriate legal framework for allocating cases between the Community level and 
the  Member  States.  This  framework  has  in  most  cases  been  effective  in 
distinguishing  cases  that  have  a  Community  relevance  from  those  with  a  primarily 
national  nexus,  in  pursuit  of  the  objectives  of  "one-stop-shop"  and  the  principle  of 
the  "more  appropriate  authority".  Notwithstanding  this  success,  there  is  scope  for 
further improvements of the current system of case allocation in a number of respects 
as set out in this Report.  

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The  Commission  invites  the  Council  to  take  note  of  the  information  set  out  in  this 
report.  The  Commission  also  submits  this  report  for  information  to  the  European 
Parliament and the European Economic and Social Committee. 

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