UK: Monti Proposes Radical Reform of EU Merger Regime

Speaking at the EC Merger Control Conference in Brussels on Thursday 7 November, Mario Monti, Commissioner in charge of competition matters, has for the first time detailed the draft proposals on reform of the EU merger regime he will be presenting to the Commission before the end of this year.

Mr Monti indicated that the reform package will comprise four principal aspects anticipated in the Commission’s Green Paper on Merger Reform (published in December last year).

1. A draft proposal for the new Council Regulation on EC Merger Control;
2. A draft Commission Notice containing comprehensive Guidelines on the assessment of dominance in horizontal mergers;
3. A draft set of Best Practice Guidelines on the conduct of merger investigations (i.e. the day to day handling of cases); and
4. A number of proposed measures relating to the staffing and resources of DG Competition, as well as to the management and investigation of merger cases within the DG.

Changes in the Merger Regulation

The Commissioner highlighted a number of changes that will be made to the European Merger Control Regulation (ECMR)

1. Substantive test: the dominance test will stay and will not be replaced by the "substantial lessening of competition test used by US authorities. However, the concept of dominance in the EMCR will be further defined in a new paragraph to Article 2 as well as in additional new preambles to the ECMR. This new definition will be consistent with the interpretation of the European Courts to dominance issues in merger cases. The new concept will apply equally to mergers resulting in unilateral effects (olipology) but will not be linked to the concepts of dominance under Article 82 (i.e. abuse of a dominant position).
2. Timeframe: there will be a number of changes to the tight timeframe imposed by the current Regulation. First, the merging parties will be allowed to request an additional three weeks following an offer of remedies in Phase II. Second, up to four weeks could be added to the Phase II proceedings in order to ensure the thorough investigation of complex cases. The four week extension could either be at the request of the merging parties or of the Commission (but only with the consent of the parties). Third, notification will be allowed prior to the conclusion of a binding agreement and, provided no steps are taken towards its implementation, the current deadline for notification of one week after such an agreement has been reached could be removed. This will ensure that companies planning mergers will have more flexibility and will also help to synchronise filing timetables with other jurisdictions such as the US.
3. Jurisdiction: first, the referral systems to and from member States (in Articles 9 and 22 of EMCR) will be made more flexible and the referral criteria will be simplified. Second, referrals will be made possible at the pre-notification stage – the merging parties could suggest a referral from the Commission to a Member State or vice versa. Third, if a minimum number of Member States agree to refer a case to the Commission, it will be deemed to fall under the Commission’s jurisdiction. Fourth, it will be possible for the Commission to invite Member States to make referrals and to invite Member States to ask for referrals. These changes will be complemented by a set of guiding principles.
4. Enforcement powers: these will be aligned with those being proposed in the new Draft Implementing Regulation for Articles 81 and 82. Commissioner Monti reiterated that he will not propose that the Commission should have the power to conduct home searches in merger cases.

Commission Notice on Guidelines in Horizontal mergers

The Notice will contain clear guidelines on the assessment of dominance in horizontal mergers, providing transparency and predictability as to the Commission’s thinking and leading to greater legal certainty. Mr Monti also told the conference that he plans to introduce further guidance regarding vertical and conglomerate mergers at a later date. The Notice will also deal with mitigating factors such as buyer power, ease of market entry and efficiencies. As far as efficiencies are concerned, he considered Article 2(1)(b) of the EMCR to provide a clear legal basis for the assessment of efficiencies resulting from mergers. The Guidelines will explain that any efficiency claims will be carefully considered, in particular whether they counter-balance any anti-competitive effects of a merger. Mr Monti made it clear that efficiencies will only be taken into account if they are merger specific, benefit consumers and are substantial, viable and timely. It is unlikely, he said, that efficiencies could justify a merger which would lead to a monopoly or a quasi-monopoly.

Best Practice Guidelines and measures relating to staff management and resources

The best practices guidelines will focus on the day-to-day handling of merger cases within the Competition DG. Mr Monti stated that through best practice guidelines he wishes to introduce a systematic use of a peer review panel system in Phase II cases. These panels, independent from the Merger Task Force and composed of experienced officials, would have the task of scrutinising the case team’s conclusions with a "fresh pair of eyes" at key points of the inquiry.

The second major change to internal procedure relates to the merging parties’ right of access to the file. Merging parties should be given ample opportunities to defend themselves against third party allegations. It is therefore proposed that:

• the merging parties will be given access to the file shortly after the opening of an in-depth investigation, before any Statement of Objections is issued;
• the merging parties will be given ad hoc access to any third party submissions running counter to the merging parties’ views (subject to confidentiality issues). This will enhance transparency and allow the parties to contest such submissions at an early state in the proceedings;
• a further opportunity will be given to the merging parties to confront third parties’ allegations in a meeting before a Statement of Objections is issued; and
• the merging parties will be invited to attend "state of play" meetings with the MTF at decisive points in the procedure. This should guarantee that merging parties are constantly kept up to date and have an ongoing opportunity to discuss the case with senior Commission management.

There is also a plan to further strengthen the role and position of the Hearing Office by adding A-grade staff at his/her disposal.

Finally, Monti will create a Consumer Liaison function within the Competition DG to ensure that consumer groups are better involved in the merger control proceedings. Similarly, the increasing importance of transparent economic analysis will be reflected in the appointment of a Chief Competition Economist.

© Herbert Smith 2002

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