If two undertakings decide to incorporate a joint venture, jointly controlled by them, this operation should only be filed before the European Commission (“Commission”) if that joint venture performs on a lasting basis all the functions of an autonomous economic entity (i.e., if it is a full-function joint venture). But what if those undertakings simply decide to convert an existing company, solely controlled by one of them, into a joint venture? Is it required that the new joint venture (previously only a subsidiary controlled by one of the undertakings) perform on a lasting basis all the functions of an autonomous economic entity? This was the question the European Court of Justice (ECJ) had to reply to in its decision in the Austria Asphalt case.1
The facts of the case are as follows: Austria Asphalt, a company of the Strabag Group, intended to acquire 50% of the capital of a company wholly owned (and therefore exclusively controlled) by Teerag Asdag, a company of the Porr Group. As a result of the transaction, Austria Asphalt and Teerag Asdag would exercise joint control over the target company (through the creation of a vehicle company). Since most of the target company’s production would be allocated to its parent companies, the new joint venture would not have an autonomous presence on the market and thus would not constitute a full function joint venture.
The transaction was notified to the Austrian Federal Competition Authority and subsequently referred to the Austrian Competition Court, which considered that the notified transaction fulfilled the criteria of the European Merger Control Regulation (EMCR), set forth in Article 3 (1) (b) of Regulation No. 139/2004. Consequently, it could not be examined under Austrian law (see Article 21 (2) of Regulation No. 139/2004). For its part, Austria Asphalt argued that in acquiring joint control over an already existing undertaking, the “full exercise” criterion would also need to be verified. Hence, the transaction should not be filed before the Commission. The Austrian Supreme Court referred the matter to the ECJ.
The ECJ recognized that the wording of Article 3 of the EMCR does not in itself answer the question. It is thus necessary to interpret the Regulation on the basis both of its purpose and of its general structure (§§ 18-20).
According to the ECJ, the “regulation should apply to significant structural changes, the impact of which on the market goes beyond the national borders of any one Member State” (§ 21). The same idea is referred to in Recital 20 of Regulation No. 139/2004.
Following the conclusions of Advocate General Kokott, the ECJ acknowledged that the EMCR does not draw any distinction in its recitals between a newly created joint venture and the acquisition of sole control over an existing company (§ 23). According to the ECJ, this lack of distinction is justified by the fact that, “[a]lthough the creation of a joint venture must be assessed by the Commission as regards its effects on the structure of the market, the realization of such effects depends on the actual emergence of a joint venture into the market, that is to say, of an undertaking performing on a lasting basis all the functions of an autonomous economic entity” (§ 24).
The Commission disagreed with this reasoning:16 the “full function” criterion should only be relevant in case of the creation of joint ventures. Thus, the simple conversion of an existing company into a joint venture jointly controlled by two companies constitutes an operation that should be notified to the Commission (if the relevant thresholds are met), and it is irrelevant that, for example, most of the sales of that target company are made to its parent companies. This opinion is consistent with the §§ 91-92 of the Commission Consolidated Jurisdictional Notice.
In its decision, the ECJ made clear that only concentrations with a real impact on market structure (i.e., involving companies with an autonomous presence on the market) are covered by EMCR. This does not mean, as the ECJ and the Advocate General have pointed out, that non full-function target companies are outside the scrutiny of the competition authorities — Articles 101 and 102 TFEU still apply to these (cooperative) joint venture companies.
This is an important decision that clarifies an important jurisdictional issue of the EMCR.
However, by stating that the ex-ante control set in the EMCR only applies to transactions which may affect the structure of the market - as in the case of the creation of a joint venture that performs all the functions of an autonomous economic entity on a lasting basis - one could ask whether, for consistency reasons, that criterion should also be applied to acquisitions of sole control as well. After all, if the target company (resulting from such an acquisition) does not perform on a lasting basis all the functions of an autonomous economic entity, will there be a real change to the structure of the market?
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1 Decision of 7 September 2017, Austria Asphalt GmbH & Co. OG v. Bundeskartellanwalt, C-248/16, EU:C:2017:643, accessed and available at curia.europa.eu.
2 See Commission’s official position, clarified in the conclusions of Advocate General Juliane Kokott, of 27 April 2017. DG COMP presented a different position regarding the one from the Commission in this process (agreeing with the ECJ), leading the Advocate General to criticize the lack of a similar Commission’s decision, particularly in a theme as important as this.
