Highest ever gun jumping fine upheld

The General Court’s judgment of 22 September 2021 in case T-425/18: Altice Europe vs European Commission

Background

In December 2014, Altice Europe NV (Altice), a Dutch telecom multinational, acquired PT Portugal SGPS SA (PT Portugal), a Portuguese provider of telecommunication and multimedia services, thereby gaining sole control of the company. PT Portugal was a competitor of two of Altice’s subsidiaries. The merger was subject to notification to and approval by the European Commission, and the parties had made a reservation to that effect in the share purchase agreement. 

The agreement conferred certain consultation and veto rights on Altice in relation to a number of operating decisions in PT Portugal, including decisions to enter into and terminate material contracts, to recruit, appoint and dismiss new directors and officers, and to change pricing policies and standard terms and conditions.

Altice had notified the Commission of the contemplated acquisition on an informal basis on 31 October 2014. The share purchase agreement was signed on 9 December 2014, and the merger notification was filed on 25 February 2015. But three days after signing, Altice had asked the Commission to allocate a case team to process the merger notification. And on 3 February 2015, Altice had filed a draft merger notification, which was accompanied by the share purchase agreement.

The Commission found that the transaction was not likely to restrict competition on the internal market and cleared it in April 2015. In March 2016, the Commission realised, however, that Altice had had a potential possibility of exercising decisive influence over PT Portugal before clearance of the transaction. In these circumstances, Altice was fined EUR 124.5 million in April 2018, corresponding to 0.5% of its 2017 turnover. The fine consisted of (i) a EUR 62.5 million fine for putting into effect a merger before it had been cleared in breach of the standstill obligation (“gun jumping”) in article 7(1) of the Merger Regulation, and (ii) a EUR 62.5 million fine for putting into effect a merger before it had been notified to the Commission in breach of Article 4(1) (notification obligation).

The general court’s judgment

Altice brought the Commission’s fine before the General Court, arguing that it had not exercised control contrary to the merger control rules, that the fine infringed the prohibition of double punishment ("ne bis in idem"), and that the fine was too high.

In response to the first argument, the General Court recognised that the buyer of an undertaking has a legitimate interest in being able to exercise some influence over that undertaking, also before approval of the merger, in order to protect the value of its investment. However, the influence may not provide the buyer with the possibility of exercising control over the general operations of the undertaking. Altice’s right to veto material contracts with a low threshold value and Altice’s ability to exercise influence on the management’s recruitment decisions made it possible for Altice to exercise decisive influence over  PT Portugal’s business policy. Also, the scope of the pricing policy veto right was very wide, limiting PT Portugal’s possibility of carrying on its ordinary operations independently.

The General Court held that the mere possibility of exercising decisive influence was sufficient to establish an infringement, but the Commission had further demonstrated in its decision that Altice had exercised de facto influence over PT Portugal. In one case, Altice had for instance intervened in negotiations with a sports channel and had also provided advice on and vetoed a decision relating to a video on demand contract. In support of its finding of control, the General Court further noted that Altice and PT Portugal had exchanged commercially sensitive information.

Altice argued in the second place that the fine was contrary to the prohibition of double punishment (ne bis in idem) enshrined in Article 50 of the Charter of Fundamental Rights of the European Union, since a merger that has been implemented before notification has in all circumstances been implemented before approval. Altice therefore submitted that the two fines were in reality based on the same facts in contravention of the prohibition of double punishment.

The General Court ruled - in accordance with judgment in C-10/18 P, Mowi vs the Commission, as dealt with in our newsletter - that Article 4(1) and Article 7(1) pursue autonomous objectives by imposing on undertakings both a positive obligation to act (i.e. to notify a merger before it is implemented) and by imposing on them an obligation not to act (i.e. not to implement the merger before the Commission declares it to be compatible with the internal market). Besides, an act may infringe the standstill obligation without also infringing the notification obligation. If the Commission were unable to distinguish between an infringement of the positive obligation to notify a merger and the obligation not to implement a merger before clearance, it would make it illusory to sanction breaches of the notification obligation as it would prevent any separate sanctioning.

The General Court allowed Altice’s third argument in part and reduced the fine of EUR 64.5 million for breach of the notification obligation by 10%. The General Court took into account that Altice had notified the Commission of the contemplated merger 2½ months before signing, and that Altice had asked the Commission to allocate a case team shortly after signing. It was also considered as a mitigating circumstance that Altice had filed a preliminary notification three weeks before filing of the formal notification.

It is still uncertain if Altice intends to appeal the judgment to the European Court of Justice. The appeal must be received by the ECJ no later than 2 months and 10 days after the date of the decision.

Read our previous newsletter on the Commission’s decision.

Read the General Court’s judgment.

Our comments

The ruling confirms once again the competition authorities’ attention on the formal merger control rules and imposition of higher fines. Undertakings proposing a merger must be very careful when granting rights before approval of the merger. The decision illustrates again that penalties for infringing both the gun jumping prohibition and the notification obligation do not amount to double punishment.

The ruling is also interesting in that the General Court reduced the fine for infringing the notification obligation by 10%, because Altice had informed the Commission of the transaction in advance and had initiated the merger control process right after the merger. In the decision, Mowi vs the Commission, the fine was upheld, but the merger was not notified until nine months after it had de facto been implemented.

In recent years, infringements of the formal merger control rules have attracted increased attention. In addition to the fining of Altice and Movi (Marine Harvest), the Commission has imposed a fine on Canon for having breached the standstill obligation by implementing a merger using a so-called two-step “warehousing” process (se this newsletter). Canon has appealed against the fine to the General Court. Furthermore, the Commission has in recent years imposed significant fines on both Sigma-Aldrich, Facebook and General Electric for providing incomplete or inaccurate information in merger cases.

Most recently, the Commission has announced that it intends to fine Illumina for proceeding with its acquisition of Grail before the transaction has been approved, thus breaching its standstill obligation. What is unique about the Illumina case is that, while the merger did not exceed the notification thresholds, it will still be investigated by the Commission according to its new practice (see our newsletter). Since Illumina has already completed its acquisition of Grail, the Commission is also contemplating to order Illumina to unwind the merger until it has been cleared.