SonyBMG decision means EC merger decisions need more complex evidence, former EC official warns21 September 2006

A European court decision may put the onus on companies to present a greater volume of evidence before seeking merger clearance, a former EC official said.
Goetz Drauz, a former Deputy Director General at the European Commission’s DG Competition, said that in complex deals, parties will also have to come up with complex economic analyses in advance of any hearing.
Drauz, who is now Brussels-based partner at law firm Howrey, said the recent decision by the European Court of First Instance (CFI) to overturn the EC’s 2004 clearance of Sony BMG reinforced further the need to provide convincing evidence.
In its ruling, the CFI particularly criticised the EC’s reasoning and its lack of justification on its “U-turn” when it shifted its position from blocking the deal to clearing it.
Philip Lowe, EC Director General for Competition, said: “The judgment confirms the weight of the argument to allow as well as to prohibit a merger must be strong and convincing. And all this within the tight deadline of the merger regulation. The challenge is an ongoing one.”
Speaking at the George Mason Law Review Antitrust Symposium in Washington on Wednesday, Lowe said the increasing need for the EC to provide reasoned decisions brings new challenges to both sides. Merger assessments used to focus on companies’ market share, but the European Courts’ overturning of EC decisions has shown that the EC needs more sophisticated analyses. “This is welcome, sometimes painful but also challenging for not only the Commission but also parties and third parties,” said Lowe.
The Sony BMG judgment places more hurdles, not only in the path of the commission but also of the parties concerned, to provide further evidence. “The Sony BMG ruling last July affects the commission and parties alike,” said Drauz. He insisted, however, that the case should not be over-estimated because it also had its specificities. “The EC had sent two statements of objections, the parties were late in replying and sought to demonstrate the market was not transparent enough,” he said. “The EC lost confidence and cleared it without evidence”
Under the EC merger regulation, a phase two investigation would last five months but only two are spent analysing the parties’ arguments while the three others are dedicated to the rest of the process. “What is clear from the judgment is that there is little time for fact finding and economic analysis,” Drauz said.
He added that some issues could be addressed upfront during pre-notification talks although there were limits to this.
But in any case, Gautz said, parties wanting to present complex cases will need to be proactive and plan ahead. “After Sony BMG, it will be difficult for the commission to deal with complex market studies,” he noted. “It is vital for parties to learn about the commission’s concerns and come up with complex economic analysis in advance.”

by Sandra Pointel in Washington

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