This week, GN Store Nord A/S ("GN") revealed that it intends to bring a claim for compensation of the losses it suffered as a result of the German Federal Cartel Office's ("BKartA") prohibition of the sale of its hearing aid business GN ReSound to Sonova Holding AG (then Phonak Holding AG) ("Sonova") in 2007 by the BKartA.  In GN's Q2 interim report, which was published this week, GN stated that it "will file a claim against the BKartA", without revealing any further details.

The claim arises from proceedings dating back to 2 October 2006, when the original agreement was signed between GN and Sonova to sell GN ReSound to Sonova.  Following an in-depth Phase II investigation by the BKartA, the intended transaction was prohibited in April 2007.  The BKartA reasoned that the three largest hearing-aid manufacturers in Germany, Sonova, Siemens and Otikon, together formed an oligopoly, which had a position of collective dominance on the market for hearing-aids in Germany, with a market share of approximately 80% of the market.  Their closest competitors, GN ReSound and Widex together only held under 10% of the market. This prohibition decision led to the parties abandoning the transaction.

GN, together with Sonova, appealed against the BKartA decision at the Court of Appeal in Düsseldorf (Oberlandesgericht), which confirmed the BKartA's prohibition of the transaction in late 2008.  In a further appeal to the Federal Supreme Court (Bundesgerichtshof), Germany's highest court overturned the decision of the BKartA in April 2010, ruling that the BKartA's prohibition of the transaction was not justified.

Following an earlier press statement in May 2010 in which GN stated it was contemplating its legal options, the announcement this week shows that GN is planning to file a complaint against the BKartA for compensation of its losses, which the company alleges are approx. € 1 billion (up to July 2010).  Sonova has said that it has no intention of pursuing a claim for damages.

The BKartA has stated that it considers the damages claimed by GN as "unjustified".  Under German law, GN will have to base its claim on a "breach of duty of office", which requires GN to prove that the BKartA has acted incorrectly, that is "intentionally or negligently" in prohibiting the intended transaction.  As the Court of Appeal upheld the BKartA's initial assessment of the transaction, this could prove hard to establish. The bar is still set very high for damages claims and, since the introduction of the merger regime in Germany in 1973, no similar action for damages has succeeded. The Federal Republic of Germany would be the likely defendant in the case.

On a European level, the General Court (previously the Court of First Instance) awarded damages, for the first time in 2007, to Schneider Electric, a French company who had intended to merge with its competitor Legrand in 2001, a merger that the European Commission had prohibited.  However, in Europe as in Germany, even if allowed in principle, the evidential threshold for such damages claims is very high

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