EU General Court reinforces procedural rights of transaction parties in EU merger control proceedings and annuls EU Commission decision to block the proposed UPS/TNT Tie-Up

In a ruling issued on 7 March 2017, in Case T-194/13¹, the EU’s General Court (GC) annulled the decision by the European Commission to prohibit the acquisition by United Parcel Service (UPS) of its competitor TNT Express (TNT)².

Background

In June 2012, UPS notified its proposed acquisition of TNT to the Commission for clearance under the EU Merger Regulation (EUMR). Both UPS and TNT are providing international express small package delivery services within the European Economic Area (EEA). In its prohibition decision of January 2013, the Commission found that the operation would have reduced the number of major providers in this market to three or even two (UPS/TNT plus DHL and/ or FedEx) and likely resulted in material price increases for customers and thus in a significant impediment to effective competition (SIEC) in 15 EEA Member States.

In October 2012, during the in-depth investigation, the Commission had informed the parties in its Statement of Objections (SO) of its provisional view that the transaction would likely result in a significant impediment to effective competition in 29 EEA Member States. In reaching this view, the Commission based itself on an econometric analysis to predict the price effects of the merger, which was challenged by the parties for being based on a flawed model. Following an exchange of views and econometric analyses based on different models, the Commission prohibited the deal, finding that it would likely lead to SIEC in 15 EEA Member States. However, the model relied upon by the Commission in the final decision differed materially from both the version used in the SO and those discussed with the parties thereafter.

UPS appealed the prohibition decision to the GC, arguing, inter alia, that the decision infringed its rights of defence, as it had not been given opportunity to access and comment on the econometric model used by the Commission to block the transaction. The GC considered UPS’ plea to be well founded and annulled the prohibition decision.

The General Court’s Judgment

Rights of defence

The GC recalled that observance of the rights of defence was a fundamental right which must be guaranteed in all proceedings, including merger proceedings before the Commission. The right to a fair hearing, being one of those rights, required that undertakings concerned must have been afforded the opportunity, during the administrative procedure, to make known their views on the truth and relevance of the facts, circumstances and documents relied upon by the Commission in its decisions.

As the final version of the econometric model on which the Commission had based itself in its decision to establish that the transaction would likely lead to a SIEC in 15 EEA Member States had not been communicated to UPS during the administrative procedure, despite differing materially from all versions previously discussed, the GC found that UPS’ rights of defence had been infringed.

Necessity for speed in merger proceedings

In relation to the Commission’s argument that its final assessment regarding the econometric model to be used had to be left to the final decision, given the late date at which UPS had submitted its last econometric analysis, the GC stressed that while it is indeed necessary to take into account the necessity for speed in proceedings under the EUMR (i.e., the tight deadlines within which proposed mergers must be assessed), the Commission had chosen the final model two months before adoption of the final decision and, therefore, had enough time to communicate its essential elements to UPS.

UPS might have been better able to defend itself

However, in order for the infringement of its rights of defence to lead to the annulment of the prohibition decision, UPS still had to demonstrate that it might have been better able to defend itself in the absence of the infringement. The Commission argued that it had relied on a wide range of information, both quantitative – including the econometric analysis – and qualitative, so that an absence of the infringement would not have had any impact on its findings.

The GC found the Commission had reduced the number of SIEC countries after the SO (from 29 to 15) in light of the new results of the econometric analysis, which showed that those results were capable of countering the qualitative information taken into account, and that UPS had already had, during the procedure, a significant influence on the development of the model proposed by the Commission, since it raised technical problems to which it provided solutions. Access to the final model could have therefore allowed UPS to submit different results of the effect of the merger on prices, which might have given rise to a reassessment by the Commission of the scope of information taken into consideration and, accordingly, to a further reduction in the number of SIEC countries.

Comment

The GC judgment adds to the list of recent cases where the EU courts reinforced due process rights of undertakings, in particular with regard to cartel investigations³, and reconfirms the fundamental importance of their observance also in merger control proceedings, despite the ubiquitous “necessity for speed”. Strict judicial scrutiny in respect of undertakings’ procedural rights is particularly crucial in light of the limited judicial review often observed in relation to the substance of the Commission’s assessments.

The judgment is also welcome for extending this scrutiny to cases where the Commission relies on the results of econometric analyses, a nowadays regular feature of complex EU merger control proceedings. In such cases, it is essential for undertakings to be aware of the analytical model used to predict the effects of the concentration, as they are otherwise unable to effectively challenge the results of the analysis.

In practical terms, the judgment puts pressure on the Commission to structure its investigations such that the econometric model is either not changed after the SO or, if changed, its final version is adopted and communicated at a time that still allows the parties to submit observations and the Commission to take them into account in the final decision. In order to avoid protracted consultation with the parties, which are potentially incompatible with its tight procedural deadlines, the Commission might even be deterred from basing its findings on econometric analyses in the first place.

While the judgment is positive for notifying parties in general, it will likely be of little consolation to UPS, as TNT was acquired by FedEx in the meantime. Moreover, chances for UPS to successfully claim damages from the EU pursuant to Article 340(2) TFEU⁴ seem to be rather limited.

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