A Tale of Legal Contortions: The Regulation of Mergers: unlimited extraterritorial jurisdiction (4/5)

This is part IV of a series of blog posts on the topic of the unilateral application of EU Competition Law beyond the confines of EU territory.

Go to: Introduction -> Part II -> Part III -> Part IV -> Conclusion

Council Regulation 139/20041 applies to concentrations which have a ‘Community dimension’2. This will be the case when certain thresholds, relating to turnover worldwide and EU-wide, are met3). Once a concentration falls under this Regulation it will need to pre-notify the Commission (or face penalties4 ), so that the Commission may consider the compatibility of the proposed concentration with the internal market5.

It is clear that this approach will catch foreign undertakings which carry out only minimal activities within the EU, as well as certain entirely foreign-to-foreign concentrations6. This raises the question of whether, under international law, all the concentrations which meet these thresholds have a sufficient nexus to the EU to justify an assertion of jurisdiction?7

A. Gencor: the recognition of the effects doctrine under international law

In Gencor-Lonhro8, a proposed concentration, between the South-African interests of two undertakings, was deemed incompatible with the internal market as it would lead to a duopoly in the world platinum market. The Commission’s assertion of jurisdiction was challenged before the Court of First Instance on two grounds: (i) the territorial scope of the MCR9 and (ii) compatibility with public international law10.

The Court, besides holding that the quantitative thresholds of the MCR did not require undertakings to be registered or to produce in the Community, clarified that the implementation criterion, in merger cases, may be satisfied by ‘mere sales’11. This makes for an ineffective jurisdictional safeguard12, as any undertaking meeting the turnover thresholds will automatically be found to satisfy the implementation criterion13.

Furthermore, in light of the jurisdictional sensitivities involved14, it went on to justify its decision under international law, holding that the MCR may be applied extraterritorially under international law where a proposed merger will have an ‘immediate, substantial and foreseeable effect’ on the internal market15 (which it found in this case). When the quantitative thresholds are met, it is likely that immediate and substantial effect will be foreseeable in the EU. This will, however, not be automatic16. Indeed, in Gencor this required careful factual examination by the Court17.

B. The notification problem

We are then left with an uneasy situation under which concentrations, which have a Community dimension, must be notified to the Commission, under the threat of fines, even though they may not have an effect on the EU market structure18.

The Commission has sought to address this jurisdictional problem through the simplified notification procedure introduced for full-function joint ventures19), which have little or no impact on the EU market. This may prove too limited in scope, as can be seen in the Samsung case20, where non-notification was sanctioned by fines, even though there were no EU competition concerns raised21.

The Community dimension as a jurisdictional tool is a brute instrument, which, as Ezrachi convincingly argues22, has significant added costs for non EU undertakings. As such, a jurisdictional test based on economic analysis and not political compromise as to competence between Member States and the EU would be a welcome development23.

C. A limited role for negative comity

Neither the Commission nor the courts have shown any particular interest in adopting a doctrine of international comity (or ‘reciprocal courtesy’)24. In Gencor, the Court held that there is no conflict of jurisdiction where one state prohibits conduct and the other allows it,

but does not require it (as was the case with the merger)25. A similar response was given in Woodpulp, where the ECJ was faced with an export cartel which was legal under the Webb-Pomerene Act in the United States26.

The Boeing/McDonnell Douglas27 case makes it clear that the Commission will, nevertheless, take into account international comity when reviewing and formulating remedies. In this instance, the Commission agreed to exclude from further review the military operations of these undertakings28.

In GE/Honeywell (General Electric/Honeywell, Case No COMP/M. 2220 [2004] OJ L48/1)) , the Commission prohibited what would have been the biggest merger in US history. This provides us with an interesting illustration of the consequences of competing authorities asserting jurisdiction over the same matter29.

The comity analysis, therefore, seems to be extremely limited and will hardly prove to be a restraint in practice. It may be better formulated as a matter of prosecutorial discretion rather than a legal prerequisite for the assertion of jurisdiction30. I would argue that this reasoning is a logical necessity in light of the EU’s approach of attempting to bring extra- territorial matters within its territorial jurisdiction31.

  1. Council Regulation 139/2004 [↩]
  2. Ibid. article 1 [↩]
  3. Ibid. article 1(2) and 1(3 [↩]
  4. Ibid. article 14 [↩]
  5. Ibid. article 2 [↩]
  6. Ibid. Recital 10; Mark Furse (ed), Butterworths Competition Law Service/Division XII Extra-territoriality [2011] at [133] [↩]
  7. Florian Wagner von Papp, ‘Competition Law, Extraterritoriality & Bilateral Agreements’ [2012] at 31 [↩]
  8. Gencor Ltd v Commission Case T-102/96, [1999] ECR II-753 [↩]
  9. Ibid. at [78]-[88] [↩]
  10. Ibid. at [89]-[111] [↩]
  11. Ibid. at [87] [↩]
  12. Brenda Sufrin, ‘Competition in a Globalised Marketplace: Beyond Jurisdiction’ in Patrick Capps, Malcolm Evans and Stratos Konstadinidis (eds), Asserting Jurisdiction (Hart Publishing 2003) at 116 [↩]
  13. Ariel Ezrachi, ‘Limitations on the extraterritorial reach of the European Merger Regulation’ [2001] 22 European Competition Law Review at 138 [↩]
  14. Christopher Bellamy, European Community Law of Competition (5th ed. Sweet & Maxwell 2001) at [2.157] [↩]
  15. Gencor Ltd v Commission Case T-102/96, [1999] ECR II-753 at [90] [↩]
  16. Ariel Ezrachi, ‘Limitations on the extraterritorial reach of the European Merger Regulation’ [2001] 22 European Competition Law Review at 138 [↩]
  17. Gencor Ltd v Commission Case T-102/96, [1999] ECR II-753 at [92]-[101]; Brenda Sufrin, ‘Competition in a Globalised Marketplace: Beyond Jurisdiction’ in Patrick Capps, Malcolm Evans and Stratos Konstadinidis (eds), Asserting Jurisdiction (Hart Publishing 2003) at 117 [↩]

  18. Andre R Fiebig, ‘International law limits on the extraterritorial application of the European Merger Control Regulation and suggestions for reform’ [1998] 19 European Competition Law Review 324; Brenda Sufrin, ‘Competition in a Globalised Marketplace: Beyond Jurisdiction’ in Patrick Capps, Malcolm Evans and Stratos Konstadinidis (eds), Asserting Jurisdiction (Hart Publishing 2003) at 116-117 [↩]

  19. Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) 139/2004; (2005) OJ C 56/4, art 5(a [↩]
  20. Samsung Case No IV/M.920 [1998] CMLR 494 [↩]
  21. Brenda Sufrin, ‘Competition in a Globalised Marketplace: Beyond Jurisdiction’ in Patrick Capps, Malcolm Evans and Stratos Konstadinidis (eds), Asserting Jurisdiction (Hart Publishing 2003) at 117 [↩]
  22. Ariel Ezrachi, ‘Limitations on the extraterritorial reach of the European Merger Regulation’ [2001] 22 European Competition Law Review at 138-139 [↩]
  23. Jacques HJ Bourgeois, ‘EEC Control Over International Mergers’ [1990] Yearbook of European Law at 103 [↩]
  24. Aluminium Imports from Eastern Europe [1985] OJ L92/1, [1987] 3 CMLR 813; Contra: 1986 OECD recommendation for Extraterritorial application of competition law [↩]
  25. Gencor Ltd v Commission Case T-102/96, [1999] ECR II-753 at [106] [↩]
  26. A Ahlström Oy v EC Commission Case 89/85 [1988] 4 CMLR 901 at [22]; Joseph Griffin, ‘Extraterritoriality in US and EU Antitrust Enforcement’ [1999] 67 Antitrust Law Journal at 179 [↩]
  27. Boeing/McDonell Douglas IV/M877 [1997] OJ L/336/16 [↩]
  28. Andre R Fiebig, ‘International law limits on the extraterritorial application of the European Merger Control Regulation and suggestions for reform’ [1998] 19 European Competition Law Review at 323 [↩]
  29. Alison Jones and Brenda Sufrin, EU Competition Law (4th ed, Oxford University Press 2010) at 1255 [↩]
  30. Van Bael & Bellis (firm), Competition law of the European Community (5th ed. Kluwer Law International 2010) at 140 [↩]
  31. William Sugden, ‘Global Antitrust and the Evolution of an International Standard’ [2002] 35 Vanderbilt Journal of Transnational Law at 1015 [↩]

Related posts:

  1. A Tale of Legal Contortions: The Extraterritorial Application of EU Competition Law in the Global Economy: Conclusion (5/5)
  2. A Tale of Legal Contortions: The concept of extraterritoriality: bases of jurisdiction and the effects doctrine (2/5)
  3. A Tale of Legal Contortions: The Extraterritorial Application of EU Competition Law in the Global Economy (1/5)
  4. A Tale of Legal Contortions: Articles 101 and 102: from ‘economic entity’ to ‘implementation’ (3/5)