ECJ rules that merging parties are entitled to know the economic basis of a decision

The European Court of Justice's judgment of 16 January 2019 in case C-265/17 P

by assistant attorney Troels Wittendorff Gram

The case concerned the notification by United Parcel Service, Inc. (UPS) of its contemplated acquisition of TNT Express NV. On 13 January 2013, the European Commission decided to not approve the merger, finding that it would significantly impede effective competition in a number of Member States and would therefore be incompatible with the internal market.

UPS brought an action against the Commission before the General Court, claiming annulment of the decision. The reason was that the Commission had, according to UPS, breached UPS’s right to be heard and to defend itself by having applied – without hearing UPS – an econometric model other than the one originally discussed between UPS and the Commission during the administrative procedure. The General Court sided with UPS and annulled the decision. 

The Commission subsequently filed an appeal against the judgment to the ECJ.

ECJ affirms decision that the Commission breached the right of a party to be heard and to defend itself

The ECJ affirmed the decision by the General Court and thus also the annulment of the Commission’s decision prohibiting the merger. The ECJ stated as its reason for affirming that a party's right to be heard and to defend itself is a fundamental principle in EU law. The principle implies, among other things, that the parties to a merger control case must be allowed the opportunity to comment on all issues on which the Commission intends to base its decision. In the specific matter, this meant the Commission should have allowed UPS the opportunity to comment on the changed econometric model.

The Commission argued in the appeals proceedings that there are very strict statutory deadlines to comply with in merger control cases and that therefore it had not been possible to comply fully with the principle. The ECJ rejected the argument, stating that the Commission is required to reconcile the need for speed with observance of the rights of the merging parties. The ECJ observed also that the final version of the econometric model selected by the Commission had been adopted more than two months before the adoption of the decision, and that the Commission had failed to explain why it would not have been possible at that time to give UPS a chance to comment on the model.

Moreover, it made no difference that – whatever the econometric model – the merger would be deemed to lead to significant impediments to effective competition especially in Denmark and the Netherlands. What matters is not whether the decision would have been different, but whether UPS would have been better able to defend itself.

Use of econometric models in merger control cases

The judgment is important because it lays down that there must be transparency in relation to the ever more sophisticated econometric models that are increasingly applied by competition authorities in their handling of merger cases. 

In its decision, the ECJ emphasised specifically that the amendments included in the econometric model ultimately applied were not negligible compared with the model discussed during the administrative procedure. It emphasised also the importance of such models in the Commission’s analysis of the effects of a merger.

The ECJ observed also that while econometric models are, by their nature and purpose, quantitative tools appropriate for the carrying out of the Commission’s investigations in merger control proceedings, the merging parties must always be allowed the opportunity to comment on them. The ECJ underlined in this regard that no such model can be characterised as an exculpatory or incriminating piece of evidence, which, presumably, is what lies behind the ECJ’s rationale that the merging parties must always be allowed to comment on the models in the exact form in which they are applied.

A rare case

It is a rare thing for the European Commission’s decisions in merger control cases to be brought before the General Court and the ECJ for judicial review. The case is interesting because it emphasises the importance of allowing the parties to exchange views and to reply to the Commission’s analyses, including economic analyses. The case is therefore an example of a Commission decision which has been reversed exclusively by reason of a procedural error.

Another example is the General Court’s annulment of a decision approving the UPC/Ziggo merger.

There is in Danish competition law another type of example, which equally underlines the need for transparency in the econometric models underlying authorities’ decision, namely the Danish Western High Court’s judgment in the Elsam case (read our previous news article about the case), in which errors in the basis of the economic model calculation caused an annulment.

Read the judgment.