CK Telecoms and ‘gap cases’: Advocate General recommends setting aside judgement of the General Court, endorses the Commission’s approach

Introduction

On 20 October 2022, Advocate General Kokott delivered her opinion in Commission v CK Telecoms UK Investments (C-376/20 P). This is the first case in which the Court of Justice of the EU (the Court) has the opportunity to address the concept of a significant impediment to effective competition (SIEC) based on non-coordinated effects, including the standard of proof required by the European Commission (the Commission) to be met and the scope of review by the Court. 

In 2016, the Commission blocked CK Hutchison’s deal to acquire Telefonica UK (under the O2 brand), finding that the merger would have created a new market leader while removing an important competitor in the UK mobile market. CK Hutchison appealed the decision and in 2020 the General Court overturned the Commission’s block. 

AG Kokott found that the General Court (GC) failed to provide sufficient justification for raising the standard of proof for the prohibition of mergers based on non-coordinated effects when it annulled the Commission’s decision.

Standard of proof – SIEC

In its judgment, the GC found that the Commission must show a ‘strong probability’ of the existence of a SIEC. This is a stricter standard than previously recognised by case law. 

AG Kokott found that there was no justification for introducing a higher standard of proof than ‘more likely than not’ on the basis of a ‘balance of probabilities.’ It therefore suffices if the Commission provides “evidence of the ‘most likely’ outcome or ‘plausibility’ of its prospective analysis.”¹ The standard of proof is the same for all types of concentrations, including dominance or non-coordinated effects on oligopolistic markets. This is because of:

• The unitary nature of the concept of a SIEC - the Commission is required to establish a SIEC, regardless of the type of concentration;²
• The symmetry of the standard of proof in the Merger Regulation, which does not impose different standards of proof with respect to decisions authorising a concentration and decisions prohibiting a concentration.³

It is worth noting that the Court has followed a similar line of reasoning in the recent ThyssenKrupp judgment, where the GC diverged from the finding in CK Telecoms in holding that it is sufficient for the Commission to show that a transaction significantly impedes effective competition “with a sufficient degree of probability.”⁴

The AG also re-iterated the Commission’s margin of discretion with regard to economic matters when applying the Merger Regulation. Accordingly, the Court should not substitute its own economic assessment for that of the Commission, but instead the review of the Court is confined to ascertaining that the facts have been accurately stated and that there has been no manifest error of assessment. 

According to the AG, the GC departed from this standard when it found that ‘mere errors of assessment’ had been made by the Commission. The GC therefore carried out a more far reaching review than set by precedent.⁵

However, AG Kokott does not suggest giving the Commission free reign to prohibit all horizontal mergers in oligopolistic markets. The Commission must “investigate and assess a large number of factors and a great deal of evidence which may give rise to a finding of the existence…[of] a significant impediment to effective competition.”⁶

Misinterpretation of Article 2(3) of the Merger Regulation

In order to establish a SIEC, the GC held that the Commission must demonstrate that the following two cumulative and exhaustive conditions are fulfilled:

• The elimination of important competitive constraints that the merging parties had exerted upon each other, and;
• A reduction of competitive pressure on the remaining competitors.

AG Kokott viewed this approach as reductionist. According to the AG, the criteria found in recital 25 of the Merger Regulation are not legally binding nor capable of providing a basis for an interpretation of Article 2 contrary to the objectives pursued by the regulation itself – i.e. the effective control of mergers liable to significantly impede effective competition.⁷

The GC’s approach would effectively prevent the Commission from investigating, taking into account and weighing up as a whole the competitive relationships which determine the functioning of an oligopolistic market. In would also prevent the Commission from developing theories of harm which do not fulfil the two criteria laid down by the GC.⁸

Important competitive force

According to the GC, the Commission was required to show that an undertaking is “competing particularly aggressively in terms of prices” and “forces other players on the market to align with its prices or that its pricing policy [is] capable of significantly altering the competitive dynamics on the market.”⁹

The AG disagreed with this approach, finding that the GC imposed excessive requirements for classifying an undertaking as an ‘important competitive force’, due to the following considerations:

• The Horizontal Guidelines do not have such a requirement for classifying an undertaking as an important competitive force. It is sufficient that an undertaking has more of an influence on the competitive process than its market share or similar measures would suggest, independently of other competitors in the market;¹⁰

• While the Commission may have in the past considered that certain companies play a unique role in the market (so-called ‘mavericks’), it does not follow that the concept of an important competitive force is limited to those scenarios;¹¹
• There is no justification for a restrictive interpretation of the concept of an important competitive force. According to the AG, such a restrictive interpretation would risk underestimating the competitive forces present within an already concentrated oligopolistic market. Even though the term ‘important’ implies that the competitive behaviour on the market should be ‘substantial’, it cannot be interpreted as requiring that an undertaking be competing particularly aggressively in terms of prices.¹²

Closeness of competition

The AG dismissed the GC’s holding that the Commission was required to demonstrate that the parties in question were ‘particularly close competitors’ in order to establish that a SIEC was present. 

According to the AG, it is not necessary for the parties to be ‘particularly close’ competitors, as such a standard of proof is excessive and contrary to the Horizontal Guidelines, nor is it supported by the Merger Regulation. 

While there can be different degrees of closeness of competition based on the Horizontal Guidelines it does not follow that the “the relevant degree of proximity must…be that of particularly close competitors’.” The fact that other competitors are also close, or even closer, does not mean that the parties in question cannot be considered to be close competitors.¹³

The AG notes that the closeness of competition is just one of multiple factors that must be considered by the Commission when assessing whether a transaction gives rise to a SIEC. Therefore, a lack of closeness, or ‘particular closeness’ is not a valid ground to conclude that there is no evidence of the existence of a SIEC.¹⁴

Closing remarks

AG Kokott recommends that the ECJ should confirm the Commission’s standard approach for assessing mobile mergers in oligopolistic markets. This does not give the Commission carte blanche to challenge all four-to-three mobile mergers, but rather the Commission must continue assessing each individual case on its own merits, taking into account all circumstances of the case. This is in line with the Commission’s statements that there is no ‘magic number’ in oligopolistic market cases, as evidenced by the previous unconditional clearance of a four-to-three mobile merger in the Netherlands.¹⁵

The final word rests with the ECJ, which will hopefully provide much needed guidance on the above-discussed concepts in oligopolistic markets.