On 4 October 2024, the Court of Justice of the European Union (CJEU) upheld the European Commission's decision to prohibit the proposed joint venture (JV) between ThyssenKrupp and Tata Steel Europe, confirming the Commission's margin of discretion in merger control investigations. Building on the General Court's ruling in the same case, and last year's judgment in European Commission v CK Telecoms, the ruling reaffirms the Commission's authority to intervene in mergers that are likely to harm competition without creating or strengthening a dominant position.
Background
In 2018, ThyssenKrupp AG and Tata Steel Ltd, the second and third largest producers of carbon steel in the European Economic Area respectively, notified the Commission of their intention to create a JV combining their European steel operations. The proposed JV aimed to consolidate their respective strengths in the production of flat carbon steel and electrical steel products. However, the Commission raised serious concerns about the potential anti-competitive effects of the merger, particularly in the markets for automotive hot-dip galvanised (HDG) steel and packaging steel, including tin plate (TP) and electrolytic chromium coated steel (ECCS).
On 11 June 2019, the Commission issued a decision declaring the proposed JV incompatible with the internal market. The decision was based on the finding that the merger would result in a significant impediment to effective competition (SIEC) by eliminating an important competitive constraint in the relevant markets and/or, in some (but not all) of those markets, by creating a dominant position. Although the parties offered to divest automotive and packaging steel plants in Spain, Belgium, and the UK to address these concerns, the Commission deemed the proposed remedies inadequate.
Inconsistent rulings by the General Court
ThyssenKrupp challenged the Commission's prohibition decision before the General Court. In its June 2022 judgment, the General Court dismissed the appeal and upheld the Commission's decision in full.
Significantly, the General Court's judgment departed materially from the approach taken in its 2020 ruling in CK Telecoms. In that case, the Commission's decision to prohibit a merger between UK mobile telecoms operators (Three and O2) which would not have created a dominant position was overturned. In doing so, the General Court held that, to establish an SIEC, the Commission must "produce sufficient evidence to demonstrate with a strong probability the existence of significant impediments following the concentration" (emphasis added). Additionally, the General Court held that the Commission had applied too broad an interpretation of the concept of a "significant competitive force", the elimination of which supported the finding of an SIEC. The General Court was concerned that such an interpretation would give the Commission almost unbounded discretion to prohibit mergers in oligopolistic markets. According to the General Court, the Commission had failed to show that Three competed particularly aggressively on price and/or pursued a pricing policy which could significantly alter the competitive dynamics on the market.
Notwithstanding that prior ruling, the General Court in ThyssenKrupp held that it was only necessary to show with a "sufficient degree of probability" that the transaction significantly impedes effective competition in the internal market, which the Commission had done in its decision. In doing so, the General Court did not cite its CK Telecoms judgment at all. The resulting uncertainty as to what the correct approach and standard of proof are in such cases was addressed last year, when the CJEU comprehensively rebuked the General Court's ruling in CK Telecoms1 and referred the Commission's prohibition decision back to the General Court, thus implicitly endorsing the latter's approach in ThyssenKrupp.
Position confirmed by the CJEU
The CJEU's judgment in this case confirms the approach taken by it in CK Telecoms. The CJEU found ThyssenKrupp's legal arguments (some of which were based on the General Court's conclusions in CK Telecoms) to be unfounded or inadmissible, and upheld the Commission's prohibition decision in full. In doing so, amongst other things, the CJEU confirmed the following.
- The standard of proof the Commission must meet in order to declare a concentration incompatible with the internal market is that it is "more likely than not" that it would result in an SIEC, as clarified by the CJEU in CK Telecoms. The Commission is not required to demonstrate a "strong probability" of an SIEC, as the General Court had suggested in that case, nor a "sufficient degree of probability", as the General Court stated in the present case. The CJEU also reiterated that the same standard of proof applies to both prohibition and clearance decisions, and that the Commission must base its decision on a "sufficiently cogent and consistent body of evidence, that it is more likely than not that the concentration would or would not significantly impede effective competition."
- The concept of an SIEC covers not only the anti-competitive effects of a concentration resulting from the creation or strengthening of a dominant position, but also those resulting from the non-coordinated behaviour of undertakings which would not have a dominant position on the market concerned. The CJEU rejected ThyssenKrupp's argument that the concept of non-coordinated effects in oligopolistic markets can only come into play if no dominant position has been found, and that the Commission had lowered the intervention threshold by leaving open the question of whether the merged entity would be dominant and applying both theories of harm in parallel. The CJEU held that the concepts of the creation or strengthening of a dominant position and the existence of non-coordinated horizontal effects resulting from the elimination of an important competitive constraint in an oligopolistic market are not mutually exclusive. The CJEU also held that the Commission can rely, to a certain extent, on the same factors and indicators to show that the concentration could give rise to the creation of a dominant position and/or result in non-coordinated horizontal effects.
- The concept of an "important competitive force" refers simply to an undertaking which has more of an influence on the competitive process than its market share or similar measures would suggest. The elimination of such a force is one of the factors which may influence whether significant non-coordinated effects are likely to result from a merger. The CJEU rejected ThyssenKrupp's argument that the General Court had failed correctly to define the relevant criteria for determining whether Tata Steel could be viewed as an important competitive force, and had interpreted that concept too broadly. Contrary to ThyssenKrupp's assertions, the concept of an important competitive force cannot be applied exclusively to undertakings that compete particularly aggressively on price and force their competitors to align with their prices, or which have a significant impact on the competitive dynamics of the market. According to the CJEU in CK Telecoms, such a restrictive interpretation would deprive the concept of its effectiveness and would be contrary to the objectives of the EUMR. The concept of an "important competitive force" must therefore be interpreted broadly.
Commentary
Central to both the CK Telecoms and ThyssenKrupp cases were the conditions for finding an SIEC and the standard of proof the Commission must meet in order to prohibit a merger.
According to Article 2(3) EUMR, a "concentration which would significantly impede effective competition, ... in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market". Whilst it was always clear from the recitals of the EUMR itself that Article 2(3) is also intended to capture anti-competitive effects resulting from the non-coordinated behaviour of undertakings that do not hold a dominant position (so-called "gap cases"), what was required of the Commission to establish an SIEC in those circumstances was uncertain.
In seeking to address this question for the first time, the General Court in CK Telecoms encroached on the Commission's margin of discretion and potentially made it much more difficult for the Commission to intervene in gap cases. The General Court then appeared to distance itself from that strict approach in ThyssenKrupp, but it took the CJEU ruling in CK Telecoms to provide some much needed clarity, given the incompatibility of the General Court's pronouncements in the two cases.
The CJEU's latest ruling in ThyssenKrupp cements CK Telecoms as the last word on this important issue. Pending the case's final determination, there remained a lingering uncertainty as to how "gap cases" should be analysed, as there was at least some possibility (albeit slight) that some limiting principles could be imposed on the Commission's margin of discretion. That door, it seems, has now been firmly closed: by confining itself to a straightforward reiteration and application of the CK Telecoms principles, the CJEU has confirmed the Commission's broad discretion to prohibit or require remedies in connection with mergers and JVs in oligopolistic markets.
Footnote
1 Read our previous article on "The European Court of Justice's CK Telecoms judgment and merger control in concentrated market" for more information.
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