Gun jumping: The Court of Justice of the European Union states that the early implementation of operations incidental to a merger which do not themselves result in a lasting change in the control of a company is not punishable

In a decision dated May 31, 2018, the Court of Justice of the European Union (CJEU) ruled on whether the early termination of a cooperation agreement between KPMG DK and KPMG International, condition precedent of a merger intended between KPMG DK and EY, constituted "gun jumping", i.e. contrary to the obligation to suspend the completion of a merger until it has been authorized.

KPMG DK was bound to KPMG International by a cooperation agreement which allowed KPMG DK to be part of KPMG's global network. In November 2013, KPMG DK and EY entered into a merger agreement which notably provided as condition precedent the termination of the cooperation agreement between KPMG DK and KPMG International, which KPMG DK immediately implemented following the signature of the agreement. The proposed merger between KPMG DK and EY was notified to the Danish Competition Authority one month later and authorized on May 28, 2014.

Independently of this authorization, the Danish Competition Authority penalized KPMG DK and EY for breach of the prohibition under Danish competition law to implement a merger before it has been authorized. It considered that the termination by KPMG DK of the agreement binding it to KPMG International constituted the early implementation of the intended merger with EY. In support of its reasoning, the Danish Competition Authority noted that the termination of this agreement was a condition of the merger, that it was irreversible and likely to produce effects on the market during the period between the termination of the agreement and the merger authorization.

Further to EY's appeal against this decision, the Danish judge referred the matter to the CJEU to obtain clarifications on the scope of the suspension obligation set out in Article 7§1 of Regulation No. 139/2004 on merger control. More specifically, it asked the Court whether such acts could be considered as resulting in the completion of a merger and whether, in this respect, the fact that these acts had had significant effects on the market was relevant.

Regarding the scope of Article 7§1 of Regulation No. 139/2004, the Court relies on the purpose of the regulation, i.e. the prohibition of mergers significantly impeding effective competition in the domestic market or in a substantial part of it, to rule that the prohibition prescribed therein is limited to operations contributing to the completion of a merger. The EU judge therefore recalled the definition of the notion of merger which requires a lasting change in the control of the target and concluded that operations which are not necessary to achieve this do not fall under Article 7§1 of Regulation No. 139/2004, even if they are incidental or preparatory to the merger. In the case at hand, the operation in issue could be separated from the completion of the merger in that the termination of the cooperation agreement did not allow EY to acquire any influence over KPMG DK. Therefore, the CJEU considered that it was not necessary to rule on whether the effects of the operation had to be taken into account.

In this decision, the Court followed the recommendations of its Advocate General Nils Wahl by outlining a well-drawn definition of Gun Jumping and rendered a proportionate decision. On the other hand, and as recalled by the CJEU, actions incidental to a merger which do not constitute gun jumping can always be challenged from the antitrust rules angle. Accordingly, a double analysis must always be carried out.

Coty, lesson No. 2: The French Supreme Court recalls the analysis grid which must be followed when analyzing the lawfulness of a selective distribution agreement under competition law

In two decisions dated May 16, 2018, the French Supreme Court twice criticized the Paris Court of Appeal which had concluded that Coty France's selective distribution agreement was illegal simply because certain clauses could be characterized as "black" clauses within the meaning of the European block exemption regulation on vertical agreements.

It should be recalled that in May and June 2016, the Paris Court of Appeal had rejected Coty France's claims in the context of the actions initiated against France Télévisions, Marvalle LLC and Mrs. Y., on the one hand, and Brandalley France, on the other hand, on the grounds of non-compliance by the latter (not approved) with the prohibition to resell products outside its selective distribution network. The Paris Court of Appeal had considered that Coty France's selective distribution network could not benefit from any block exemption or individual exemption, due to the existence of hardcore restrictions in its selective distribution agreement. The clauses thus characterized as "black" clauses were essentially: i) the obligation for members of works councils or collectivities to come in person to the store to make their purchases, ii) the prohibition to resell outside the network of approved distributors and iii) respecting a period of one year before making any active sale of a new contractual product to another Member State in which this product has not been launched.

The French Supreme Court clearly called the Court of Appeal to order stating in a fundamental and unambiguous recital that "the fact, if it were established, that the agreement does not benefit from a block exemption does not necessarily imply that the selective distribution network breaches the provisions of Article 101 §1 TFEU".

The second Court of Appeal will therefore have to analyze the lawfulness of Coty France's selective distribution network in light of Article 101 § 1 TFEU and the principles laid down by the famous Métro case law, i.e.: the choice of resellers depending on i) objective qualitative criteria, ii) fixed uniformly with respect to all potential resellers, iii) applied in a non-discriminatory manner, and iv) the defined criteria should not go beyond what is necessary.

Regarding the clauses in issue, it should be noted that they were validated by the recent Paris Court of Appeal decision dated February 28, 2018, Coty France / Showroomprivé.com.

The French Competition Authority announces simplification measures for merger control

Following a broad public consultation on the reform of merger control in France, the French Competition Authority considers that revising the existing control thresholds is not necessary. It does not want to add a new threshold related to the value of the transaction to control the acquisition of high value-added start-ups, contrary to the reform carried out recently by the German and Austrian Competition Authorities in this regard. However, the French Competition Authority submits to public consultation the introduction of an ex-post control, i.e. for operations which do not fall within the French thresholds but presenting very significant competition issues, as already possible for the English and Swedish Competition Authorities.

The French Competition Authority also announces an extension of the number of operations which can benefit from the simplified procedure, i.e. a streamlined notification file and faster processing time, reduced from five to three weeks. This could cover a great number of operations notified since it would notably include all those where the parties do not hold more than 25 percent market share on the same market or in case of vertical integration, when the market share on the upstream or downstream market is less than 30 percent.

Finally, the French Competition Authority announces an ultra-simplified online procedure on its website for operations which today benefit from the simplified procedure, i.e. those without activity overlap between the parties or operations in the retail sector without brand change.

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