Case C-12/03 P

Commission of the European Communities

v

Tetra Laval BV

(Appeal – Competition – Regulation (EEC) No 4064/89 – Decision declaring a ‘conglomerate-type’ concentration incompatible with the common market – Leveraging – Scope of judicial review – Factors to be taken into consideration – Behavioural commitments)

Opinion of Advocate General Tizzano delivered on 25 May 2004

Judgment of the Court (Grand Chamber), 15 Feburary 2005

Summary of the Judgment

1. Competition – Concentrations – Examination by the Commission – Assessments of an economic nature – Conglomerate-type concentration – Discretion as regards assessment – Review by the Court – Limits

(Council Regulation No 4064/89, Art. 2)

2. Competition – Concentrations – Assessment of compatibility with the common market – Conglomerate-type concentration – Presentation of a close prospective examination supported by convincing evidence

(Council Regulation No 4064/89, Art. 2(2) and (3))

(Art. 82 EC; Council Regulation No 4064/89, Art. 2(2) and (3))

4. Competition – Concentrations – Examination by the Commission – Commitments by the undertakings concerned capable of rendering the notified operation compatible with the common market – Taking into account of behavioural and structural undertakings

(Council Regulation No 4064/89 Arts 2(2) and (3) and 8(2))

5. Competition – Concentrations – Assessment of compatibility with the common market – Taking into account of the elimination or significant reduction of potential competition tending to reinforce a dominant position – Whether permissible – Obligation of the Commission to establish the alleged reinforcement – Mere finding as to the existence of a clear dominant position on the part of the acquiring undertaking not sufficient

(Council Regulation No 4064/89, Art. 2(1), (2) and (3))

1. The basic provisions of Regulation No 4064/89 on the control of concentrations between undertakings, in particular Article 2, confer on the Commission a certain discretion, especially with respect to assessments of an economic nature. Consequently, review by the Community Courts of the exercise of that discretion, which is essential for defining the rules on concentrations, must take account of the margin of discretion implicit in the provisions of an economic nature which form part of the rules on concentrations.

Whilst the Court recognises that the Commission has a margin of discretion with regard to economic matters, that does not mean that the Community Courts must refrain from reviewing the Commission’s interpretation of information of an economic nature. Not only must the Community Courts, inter alia, establish whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it. Such a review is all the more necessary in the case of a prospective analysis required when examining a planned merger with conglomerate effect.

(see paras 38-39)

2. A prospective analysis of the kind necessary in merger control must be carried out with great care since it does not entail the examination of past events – for which often many items of evidence are available which make it possible to understand the causes – or of current events, but rather a prediction of events which are more or less likely to occur in future if a decision prohibiting the planned concentration or laying down the conditions for it is not adopted.

Thus, the prospective analysis consists of an examination of how a concentration might alter the factors determining the state of competition on a given market in order to establish whether it would give rise to a serious impediment to effective competition. Such an analysis makes it necessary to envisage various chains of cause and effect with a view to ascertaining which of them are the most likely.

The analysis of a conglomerate-type concentration is a prospective analysis in which, first, the consideration of a lengthy period of time in the future and, secondly, the leveraging necessary to give rise to a significant impediment to effective competition mean that the chains of cause and effect are dimly discernible, uncertain and difficult to establish. That being so, the quality of the evidence produced by the Commission in order to establish that it is necessary to adopt a decision declaring the concentration incompatible with the common market is particularly important, since that evidence must support the Commission’s conclusion that, if such a decision were not adopted, the economic development envisaged by it would be plausible.

(see paras 42-44)

3. The Commission’s analysis of the effects of a conglomerate-type concentration must comprise a comprehensive examination of the probability of the adoption of anti-competitive conduct capable of resulting in leveraging, that is to say, it must take into account both the incentives to adopt such conduct and the factors liable to reduce, or even eliminate, those incentives, including the possibility that such conduct is unlawful.

However, it would run counter to the purpose of prevention of Regulation No 4064/89 on the control of concentrations between undertakings to require the Commission to examine, for each proposed merger, the extent to which the incentives to adopt anti-competitive conduct would be reduced, or even eliminated, as a result of the unlawfulness of the conduct in question, the likelihood of its detection, the action taken by the competent authorities, both at Community and national level, and the financial penalties which could ensue.

Such an assessment would make it necessary to carry out an exhaustive and detailed examination of the rules of the various legal orders which might be applicable and of the enforcement policy practised in them. Moreover, if it is to be relevant, such an assessment calls for a high probability of the occurrence of the acts envisaged as capable of giving rise to objections on the ground that they are part of anti-competitive conduct.

It follows that, at the stage of assessing a proposed merger, an assessment intended to establish whether an infringement of Article 82 EC is likely and to ascertain that it will be penalised in several legal orders would be too speculative and would not allow the Commission to base its assessment on all of the relevant facts with a view to establishing whether they support an economic scenario in which a development such as leveraging will occur.

(see paras 74-77)

4. As regards commitments offered by the undertakings concerned which are capable of rendering the notified concentration compatible with the common market, the principle is that these must enable the Commission to conclude that the concentration at issue will not create or strengthen a dominant position within the meaning of Article 2(2) and (3) of Regulation No 4068/89 on the control of concentrations between undertakings. It is to be inferred from that principle that the categorisation of a proposed commitment as behavioural or structural is immaterial and that the possibility cannot automatically be ruled out that commitments which are prima facie behavioural, for instance a commitment not to use a trade mark for a certain period or to make part of the production capacity of the entity arising from the concentration available to third-party competitors or, more generally, to grant access to essential facilities on non-discriminatory terms, may also be capable of preventing the emergence or strengthening of a dominant position.

(see para. 86)

5. It follows from Article 2(1) of Regulation No 4064/89 on the control of concentrations between undertakings that the Commission, when assessing the compatibility of a concentration with the common market, must take account of a number of factors, such as the structure of the relevant markets, actual or potential competition from undertakings, the position of the undertakings concerned and their economic and financial power, possible options available to suppliers and users, any barriers to entry and trends in supply and demand.

Accordingly, the mere fact that the acquiring undertaking already holds a clear dominant position on the relevant market, although constituting an important factor, does not in itself suffice to justify a finding that a reduction in the potential competition which that undertaking must face constitutes a strengthening of its position.

The potential competition represented by a producer of substitute products on a segment of the relevant market is only one of the set of factors which must be taken into account when assessing whether there is a risk that a concentration might strengthen a dominant position. It cannot be ruled out that a reduction in that potential competition might be compensated by other factors, with the result that the competitive position of the already dominant undertaking remains unchanged.

(see paras 125-127)

JUDGMENT OF THE COURT (Grand Chamber) 15 February 2005 (1)

(Appeal – Competition – Regulation (EEC) No 4064/89 – Decision declaring a ‘conglomerate-type’ concentration incompatible with the common market – Leveraging – Scope of judicial review – Factors to be taken into consideration – Behavioural commitments)

In Case C-12/03 P, APPEAL under Article 49 of the EC Statute of the Court of Justice lodged on 8 January 2003,

appellant,

the other party to the proceedings being:

applicant at first instance,

THE COURT (Grand Chamber),,

composed of P. Jann, President of the First Chamber, acting for the President, C.W.A. Timmermans and A. Rosas (Rapporteur), Presidents of Chambers, C. Gulmann, J.-P. Puissochet, R. Schintgen, N. Colneric, S. von Bahr and J.N. Cunha Rodrigues, Judges,

Advocate General: A. Tizzano,

having regard to the written procedure and further to the hearing on

after hearing the Opinion of the Advocate General at the sitting on 25 May 2004,

gives the following

‘1.

In making this appraisal, the Commission shall take into account:

(a)

(b)

2.

3....’

‘As a preliminary point, it must be recalled that the substantive rules of the Regulation, in particular Article 2, confer on the Commission a certain discretion, especially with respect to assessments of an economic nature. Consequently, review by the Community judicature of the exercise of that discretion, which is essential for defining the rules on concentrations, must take account of the discretionary margin implicit in the provisions of an economic nature which form part of the rules on concentrations (Joined Cases C-68/94 and C-30/95

‘It must also be recalled that under Article 2(3) of the Regulation a concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it must be declared incompatible with the common market. Conversely, the Commission is bound to declare a concentration falling within the scope of application of the Regulation compatible with the common market where the two conditions laid down in that provision are not fulfilled (Case T-2/93

‘It should be observed, first, that the Regulation, particularly at Article 2(2) and (3), does not draw any distinction between, on the one hand, merger transactions having horizontal and vertical effects and, on the other hand, those having a conglomerate effect. It follows that, without distinction between those types of transactions, a merger can be prohibited only if the two conditions laid down in Article 2(3) are met (see paragraph 120 above). Consequently, a merger having a conglomerate effect must, like any other merger (see paragraph 120 above), be authorised by the Commission if it is not established that it creates or strengthens a dominant position in the common market or in a substantial part of it and that, as a result, effective competition will be significantly impeded’.

…

Arguments of the parties

221 In the case of an alleged collective dominant position, the Commission is therefore obliged to assess, using a prospective analysis of the reference market, whether the concentration which has been referred to it leads to a situation in which effective competition in the relevant market is significantly impeded by the undertakings involved in the concentration and one or more other undertakings which together, in particular because of correlative factors which exist between them, are able to adopt a common policy on the market and act to a considerable extent independently of their competitors, their customers, and also of consumers.

Findings of the Court as to the first ground of appeal

‘Leveraging [this position] ... in a number of ways, Tetra/Sidel … would have the ability to tie carton packaging equipment and consumables with PET packaging equipment and, possibly, preforms (in particular barrier-enhanced preforms). Tetra/Sidel would also have the ability to use pressure or incentives (such as predatory pricing or price wars and loyalty rebates) so that its carton customers buy PET equipment and, possibly, preforms from ... Tetra/Sidel and not from its competitors or converters.’

‘156 In the present case, the leveraging from the aseptic carton market, as described in the contested decision, would manifest itself – in addition to the possibility of the merged entity engaging in practices such as tying sales of carton packaging equipment and consumables to sales of PET packaging equipment and forced sales (recitals 345 and 365) – firstly, by the probability of predatory pricing by the merged entity (recital 364, cited in paragraph 49 above); secondly, by price wars; and, thirdly, by the granting of loyalty rebates. Engaging in these practices would enable the merged entity to ensure, as far as possible, that its customers on the carton markets obtain from Sidel any PET equipment they may require. The contested decision finds that Tetra holds a dominant position on the aseptic carton markets, that is to say, the markets for aseptic carton packaging systems and aseptic cartons (recital 231, see paragraph 40 above), a finding which is not disputed by the applicant.

162 It follows from the foregoing that it is necessary to examine whether the Commission based its analysis of the likelihood of leveraging from the aseptic carton markets, and of the consequences of such leveraging by the merged entity, on sufficiently convincing evidence. In the course of that examination it is necessary, in the present case, to take account only of conduct which would, at least probably, not be illegal. In addition, since the anticipated dominant position would only emerge after a certain lapse of time, by 2005 according to the Commission, its analysis of the future position must, whilst allowing for a certain margin of discretion, be particularly plausible.’

‘217 The leveraging methods referred to in recital 364 of the contested decision (cited in paragraph 49 above) are based on Tetra’s dominant position on the aseptic carton markets. Given, in particular, Tetra’s commitment to divest itself of its preforms operations, the leveraging would be carried out by two types of measures: first, through pressure leading to tied sales or sales which bundle equipment and consumables for carton packaging jointly with PET packaging equipment. That pressure could be put on Tetra customers needing to continue to use carton packaging for some of their production and especially those customers with long-term agreements with Tetra for their carton packaging needs (recital 365, cited in paragraph 50 above). Second, measures could be adopted to offer incentives, such as predatory pricing, price wars and loyalty rebates.

“Tetra Pak shall not practice predatory or discriminatory prices and shall not grant to any customer any form of discount on its products or more favourable payment terms not justified by an objective consideration. Thus, discounts on cartons should be granted solely according to the quantity of each order, and orders for different types of carton may not be aggregated for that purpose.”

Arguments of the parties

Findings of the Court as to the second ground of appeal

Arguments of the parties

‘In any event, a distinct group of customers for the relevant product may constitute a narrower, distinct product market when such a group could be subject to price discrimination. This will usually be the case when two conditions are met: (a) it is possible to identify clearly the group to which an individual customer belongs at the moment it purchases the relevant products and (b) trade among customers or arbitrage by third parties should not be feasible.’

‘In the contested decision, the Commission finds, firstly, that “even for an allegedly ‘generic’ piece of equipment such as an SBM machine it is justified to examine the equipment market with reference to the end-use segments”, which is “even more relevant when comparing whole packaging systems in order to assess whether or not they may belong in the same product market” (recital 43). It goes on to state that each liquid product intended for packaging has “its very particular characteristics which dictate the availability of a given form of packaging”, before concluding that end-use segmentation constitutes a meaningful analytical tool for assessing the liquid food packaging equipment market (recital 44, cited in paragraph 30 above). Thus it distinguishes between sensitive products belonging to “common product segments” and other products, on the basis of the ability of the former to be packaged, at least from a technical standpoint, in either carton or PET, unlike non-sensitive products such as water and carbonated drinks, which cannot be packaged in carton (recital 58). Whilst accepting that “the majority of SBM machines are ‘generic’” (recital 177), the Commission states in the same recital that “a PET packaging line, of which the SBM machine is only one component, is usually tailored to the specific products filled by the customer”, which is especially the case for sensitive products, an argument reiterated in its assessment of the consequences of leveraging (recital 369). It refers by way of example to Sidel’s “SRS G Combi”, “which is designed for carbonated drinks [and] cannot be a substitute for a beverage producer wanting to fill juices” (recital 177), for which an aseptic “Combi SRA” machine is required. Referring to the Commission Notice on the definition of relevant market for the purposes of Community competition law (OJ 1997 C 372, p. 5, point 43), it then finds that the two conditions which normally must be met for a finding of a distinct group of customers and thus of a narrower product market are met in the present case: it is possible to identify clearly which group an individual customer belongs to at the moment it purchases an SBM machine, and the trade in the machines among customers or arbitrage by third parties is not feasible (recital 178).’

261 However, the contested decision fails to provide sufficiently convincing evidence to demonstrate the allegedly specific characteristics of SBM machines used for packaging sensitive products. Admittedly, a combined machine specifically designed for filling carbonated drinks cannot be used for juices. However, that far from proves that low- and high-capacity SBM machines, even ones tailored before sale to the specific wishes of their purchasers, do not remain generic machines, as argued in essence by the applicant, that is to say, capable of packaging several types of products.

Findings of the Court as to the third ground of appeal

‘… when the Commission relies on the elimination or significant reduction of potential competition, even of competition which will tend to grow, in order to justify the prohibition of a notified merger, the factors which it identifies to show the strengthening of a dominant position must be based on convincing evidence. The mere fact that the acquiring undertaking already holds a clear dominant position on the relevant market may constitute an important factor, as the contested decision finds, but does not in itself suffice to justify a finding that a reduction in the potential competition which that undertaking must face constitutes a strengthening of its position.’

‘Thus the Commission did not commit any error in examining the significance for the carton markets of a reduction of potential competition from the PET equipment markets. It does have to show, however, that such a reduction, if it exists, would tend to strengthen Tetra’s dominant position in relation to its competitors on the aseptic carton markets.’

‘It follows that the evidence relied on in the contested decision does not establish to the requisite legal standard that the effects of the [notified] merger on Tetra’s position, principally on the aseptic carton markets, would, by eliminating Sidel as a potential competitor, be such as to fulfil the conditions of Article 2(3) of the Regulation. It follows from the foregoing that it has not been shown that the merged entity’s position would be strengthened vis-à-vis its competitors on the carton markets.’

Arguments of the parties

Findings of the Court as to the fourth ground of appeal

Arguments of the parties

Findings of the Court as to the fifth ground of appeal

On those grounds, the Court (Grand Chamber) hereby:

[Signatures]