EU Court of Justice Revives Long-Dormant "Abuse of Dominance" Challenge to Non-Reportable M&A Deals

Background 

Following changes to digital terrestrial television broadcasting rules in France in 2005, two digital broadcasters, Itas and Towercast, entered the market alongside the incumbent operator, Télédiffusion de France ("TDF"). TDF acquired Itas in 2016. Because the transaction did not meet the notification thresholds in the European Merger Control Regulation ("EMCR") or the French Commercial Code, the parties did not have to submit merger notifications to the EC or the French Competition Authority ("FCA"). Likewise, at that time, no NCA requested that the EC review the transaction under Article 22 of the EMCR.  

In November 2017, Towercast complained to the FCA, alleging that TDF had a dominant position that it abused when it acquired Itas, a purported "maverick." Towercast also claimed that the Itas deal was a "killer acquisition," which formed "part of TDF's anticompetitive strategy." As legal support for its position, Towercast pointed to the EC's Continental Can judgment of 1973, which stated that "the strengthening of the position of an undertaking may be an abuse and prohibited under [EU law] regardless of the means and procedure by which it is achieved if it has the effect of substantially fettering competition." Towercast argued that TDF unlawfully strengthened its dominant position in the upstream and downstream wholesale markets for digital terrestrial television when it acquired Itas. 

Under EU law, a company holds a dominant position if it has the power to act "to an appreciable extent independently of its competitors, its customers and ultimately of the consumers." In other words, it has the power to charge prices above competitive levels, among other conduct. Although market shares are not determinative of dominance, the EC is not likely to find dominance if shares are less than 40%, but it presumes dominance if shares are more than 50%.  

The FCA concluded that transactions falling below its merger notification thresholds could not be abusive and dismissed Towercast's complaint. Towercast appealed the FCA's decision, which prompted the Court of Appeal of Paris to request that the ECJ clarify whether a non-reportable transaction can violate Article 102's prohibition on abuse of a dominant position. 

The ECJ's Judgment 

The ECJ held that NCAs may review and block non-reportable transactions that harm competition under Article 102. The ECJ reasoned that Article 102 is a self-executing, primary EU law that cannot be displaced by secondary EU law such as the EMCR, nor by the national merger control rules of Member States. In other words, a deal can violate Article 102 regardless of whether it is reportable under the EU or Member State merger control rules.  

However, the fact that a transaction strengthens an acquirer's dominant position is not a sufficient condition for the NCA to block a deal under Towercast. The authorities also must prove that the acquisition has "substantially impeded competition." That test differs from the EC's standard merger review test, which prohibits transactions that result in a significant impediment of effective competitive ("SIEC"). Under the SIEC standard, the EC could block a deal even if the parties are not dominant. But to attack a non-reportable deal under Towercast, the authorities will have to prove that the buyer is dominant, the transaction strengthened the buyer's dominance, and as a result, "only undertakings whose behavior depends on the dominant undertaking would remain in the market." 

The ECJ judgment is consistent with Luxembourg's approach to merger control. Luxembourg is the only EU Member State without premerger notification and review. In a 2016 Utopia decision, the Luxembourg Competition Council determined, based on Continental Can, that Luxembourg can investigate and block deals involving the strengthening of a dominant position even though Luxembourg lacks a system of premerger control. The ECJ judgement is also consistent with a 2016 Belgian case, Alken-Maes/AB InBev, in which the Belgium Competition Authority acknowledged, as a matter of principle, that transactions falling below notification thresholds could be assessed under Article 102. 

Review of Non-Reportable Deals in the European Union 

Towercast comes on the heels of the EC's 2021 decision to expand so-called "Article 22 referrals" as detailed in our Commentary, "European Commission Expands Antitrust Reviews to Non-Reportable Transactions." The EC claimed that an increasing number of competitively significant transactions evaded merger notification because one or both of the transacting parties (but typically a small, high-value target) did not meet the EMCR or Member State filing thresholds. To address that perceived concern, the EC issued new guidelines that expanded the types of transactions that NCAs may refer to the EC for antitrust review, in particular, with a view to acquisitions involving companies with little or no sales in the EC but high market potential for future competition. 

Historically, once the merging parties determined no files were necessary in the European Union, the risk of non-reportable merger review was negligible. The EC's Article 22 referrals and the Towercast judgment have expanded the EC's and NCA's review of non-reportable deals, and the Belgian Competition Authority has already opened at least one investigation consistent with Towercast. However, relatively few deals are likely to meet the Towercast standard, and there have been only a small number of Article 22 referrals. Despite the EC's approach to Article 22 referrals and the Towercast judgment, challenges to non-reportable deals in the European Union are likely to remain infrequent for the foreseeable future.  

The EC's expanded review of non-reportable transactions brings the European Union closer to the United States, where antitrust enforcers regularly investigate and challenge non-reportable transactions both pre- and post-consummation. In addition to that convergence, U.S. antitrust enforcers have suggested in speeches that they should bring more merger challenges under Section 2 of the Sherman Act, the law that prohibits monopolization and parallels the European Union's Article 102, instead of or in addition to the United States' merger statute. For example, the FTC brought its challenge to Facebook's consummated acquisitions of WhatsApp and Instagram under Section 2.