EC Not Blocking Legitimate Efforts to Create Large European Companies: Competition Chief

This posting was written by E. Darius Sturmer, Editor of CCH Trade Regulation Reporter.

At a conference on competition policy, law, and economics in Cernobbio, Italy on November 2, European Commission Vice Chair for Competition Policy Joaquin Almunia shared the latest developments in the field of merger control, placing them in the context of the recent evolution of the EC policy.

Much of his speech (“Merger review: Past evolution and future prospects”) contested the perception that the EC is “raising hurdles against the creation of large European companies” and not supporting “European champions.”

In reality, the Commission has cleared more than 4,600 deals and blocked only 22 since the EU’s merger regulation came into force in 1990. “Fewer than five in every thousand cases!” he said. Last year, the enforcement authority received 309 notifications, approved as many as 299 of them in Phase I, and blocked only one transaction, according to Alumnia.

“So let’s recognize the facts: it is simply not true that the Commission is putting the brakes on the legitimate efforts of Europe’s firms to scale up,” said the official.

Europe doesn’t lack corporate giants, he said, noting that the top 100 corporations in the world included 30 from the United States and 27 from the EU.

He further cautioned against shielding Europe’s companies from competition. “Merger control is not the place for protectionist measures,” observed the official. “The discipline imposed by a keen competition environment in the Single Market is a tonic for Europe’s companies. It prepares them to do business on the global markets and to succeed.”

Almunia cited the introduction, in the guidelines of 2004 and 2008, of strict analytical frameworks and a test for competitive harm based on economic effects. After these changes, he said, EC merger review “is now focused more on how a merger can affect the competitive dynamics of markets and less on structural aspects such as concentration levels and market shares.”

He explained that high market shares are not always problematic, while sometimes even moderate shares can impair competition, depending on the actual market conditions in which each individual deal takes place. The authority assesses the likely impact of a merger on price and other parameters—such as quality, choice, and innovation—alongside the precompetitive effects and efficiencies of a proposed deal, he said.

Almunia expressed his intent to continue streamlining the system to focus on “cases that have a real impact on competition and consumers in the internal market and require complex analyses.” He observed that there is room for improvement on one substantive point: evaluating transactions that lead to the acquisition of non-controlling minority stakes. These transactions currently escape EC scrutiny, even though they may cause significant harm to competition.

Regarding particular transactions, Almunia noted that the EC was currently reviewing Hutchison’s takeover of Orange in the Austrian mobile telephony market and the merger between UPS and TNT. “Our preliminary view is that serious competition concerns would arise in both cases, and substantial remedies are needed.” It is also analyzing Raynair’s renewed bid to acquire a controlling stake of its Irish rival, Aer Lingus.

Trade Regulation Tidbits

This posting was written by Jeffrey May and John W. Arden.

News, updates, and observations:

 On November 27, the European Commission (EC) announced the appointment of Joaquin Alumnia as the new Commissioner-designate for Competition, for a term running through October 31, 2014. Almunia, 61, previously served as the EC Commissioner for Economic and Monetary Affairs. A career politician, he was the Socialist Party candidate for prime minister of Spain in 2000. He would replace Neelie Kroes, who served as Commissioner for Competition since November 2004 and has been appointed as Commissioner-designate of the EC Digital Agenda. The appointments must be approved by the European Parliament, which is expected to hold individual hearings on the Commissioners-designate January 11-19 and to vote on the new Commission as a whole on January 26, 2010. Further details appear here on the European Union's Europa website.

 A group of 59 senators from both sides of the aisle have sent a letter to the Acting Head of the Delegation of the European Commission (EC) to the United States, requesting that the EC complete expeditiously its investigation of Oracle Corporation's proposed acquisition of Sun Microsystems Inc. Oracle announced on November 9 that the EC had issued a statement of objections (SO) concerning the proposed merger, despite U.S. approval of the transaction. The U.S. Department of Justice approved the plan in August, concluding the merger would not be anticompetitive. In a November 24 statement, Senator John Kerry (D, Massachusetts), who signed the letter, said: “The EC is within its sovereign rights to set the rules for operation in its market, but with our Department of Justice having made a compelling case that the merger does not pose a threat to competition, it is fair to ask the EC for the basis on which a delay on decision making is warranted and to make a decision one way or the other.” Orrin Hatch (R, Utah), another signatory, said “I have become increasingly concerned about the growing body of evidence that foreign regulatory agencies are unfairly using their review processes to impede the business of American corporations,” said Senator Orrin Hatch (Utah), another signatory.

 An increase in false advertising litigation and other dispute resolution might be the product of the “dismal economy,” according to a November 22 New York Times article. The number of complaints filed with the National Advertising Division of the Council of Better Business Bureaus is on track to set a record this year. The 82 formal complaints so far in 2009 follows 84 challenges in 2008, 62 challenges in 2007, and 52 challenges in 2006. Although there are no numbers available regarding the Lanham Act false advertising lawsuits filed this year, lawyers are reporting a corresponding increase. “In this economy, where margins are a bit tighter, a lot of marketing departments have decided to become more aggressive in going after their competitors in hopes that they can either protect their market position or capture an additional market share,” said John E. Villafranco, partner at Kelley, Drye & Warren and contributor to CCH Advertising Law Guide. (“Best Soup Ever? Suits Over Ads Demand Proof.)”

 A number of appointments of FTC senior staff were announced by the agency on November 30. Among them, Cecelia Prewett was named as Director of the Office of Public Affairs; Jessica Rich and Charles Harwood were named as Deputy Directors in the Bureau of Consumer Protection; and Norm Armstrong, Jr. was named Deputy Director in the Bureau of Competition. FTC Chairman Jon Leibowitz also announced a number of personnel changes within the Bureau of Consumer Protection. Joel Winston was named Associate Director of the Division of Financial Practices; Maneesha Mithal was named Associate Director of the Division of Privacy and Identity Protection; and Mark Eichorn was named Assistant Director of the Division of Privacy and Identity Protection. An announcement appears here on the FTC website. A list of senior FTC enforcement personnel appears at CCH Trade Regulation Reporter ¶9557.