Merger commitments have a shelf-life - The General Court partially annuls Commission decision on commitments
Under EU and Irish merger control, a merger can be approved subject to the merging parties agreeing to carry-out certain commitments (e.g. such as the sale of part of a business or to act in a certain way on a market). These commitments enable the European Commission (Commission) (under the EU merger rules) or the Competition and Consumer Protection Commission (CCPC) (under the Irish rules) to approve a merger under their respective merger control rules. It has always been an issue whether such commitments might become unnecessary over the course of time. These merger control decisions by the Commission and CCPC usually include a "review clause" allowing such commitments to be waived (or adjusted) as a result of a change of circumstances.
Deutsche Lufthansa AG v European Commission (Case T-1/18): In 2005, the Commission cleared the acquisition of Swiss by Lufthansa under the EU Merger Regulation subject to certain conditions. One condition included compliance with commitments on pricing (fare commitments) given by Lufthansa and Swiss regarding the Zurich-Stockholm and Zurich-Warsaw routes. Those commitments provided that the merged entity would apply, each time it reduced a published fare on a comparable reference route, an equivalent reduction to the corresponding fares on those two routes. That obligation would cease once a new air service provider began operations on the relevant routes. The commitments by Lufthansa and Swiss addressed the Commission’s concerns regarding competition on those two routes.
In November 2013, Lufthansa and Swiss submitted a request to the Commission seeking a waiver of the commitments due to a change in circumstances on those routes. The Commission rejected that request in 2016 because it took the view that the conditions for a waiver of the commitments were not met. Lufthansa brought an action before the General Court seeking annulment of the decision rejecting the waiver request.
On 16 May 2018, the General Court annulled the Commission’s decision regarding the Zurich-Stockholm route.
The Court said that although the Commission has some discretion in carrying out an assessment on whether the conditions for a waiver had been met, the Commission must undertake an examination of the request, to conduct, an investigation making the appropriate enquiries and basing its conclusions on all the relevant information.
The Court decided that the Commission had failed to fulfil that obligation. In particular, the Commission had not examined the impact on competition of the termination of a JV agreement between Lufthansa and SAS in 1995, with Lufthansa’s offer to terminate its existing bilateral alliance agreement with SAS. Neither did the Commission adequately answer Lufthansa’s argument that the Commission had changed its policy by no longer taking alliance partners into account for the determination of affected markets.
In addition, the Court found that the Commission had failed to fulfil its duty carefully to examine all the relevant information, in order to determine whether there was competition between Swiss and among others, SAS. Therefore, as regards the Zurich-Stockholm route, the Commission made a manifest error of assessment and the Commission had not justified the rejection of the waiver request relating to that route. However, as regards the Zurich-Warsaw route, the Court found that the Commission's decision was not vulnerable to such challenge and the Commission's refusal to waive the commitment on that route was upheld.
Comment: Merging parties may see this as an increased opportunity to challenge Commission decisions on rejections of waivers of merger commitments. Similarly in Ireland, if merging parties consider that the CCPC has failed to properly review all the factors for waiver of a merger commitment then the Lufthansa case provides a framework for any such challenge in the Irish Courts. That said, the Court's decision is very specific to the facts and it also found for the Commission in a number of ways (including that the Commission has a certain discretion in carrying out its assessment). Also, the CCPC has a track record of constructively reviewing applications for waiver of merger commitments so this remains the more efficient and appropriate way of addressing concerns regarding the on-going validity of merger commitments.
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Date published: 29 May 2018