{"id":17558,"date":"2023-03-17T14:05:18","date_gmt":"2023-03-17T13:05:18","guid":{"rendered":"https:\/\/wiersholm.no\/?post_type=newsletter&p=17558"},"modified":"2025-03-13T14:02:54","modified_gmt":"2025-03-13T13:02:54","slug":"towercast-the-hunt-for-nascent-acquisitions-continues","status":"publish","type":"newsletter","link":"https:\/\/wiersholm.no\/en\/newsletters\/towercast-the-hunt-for-nascent-acquisitions-continues\/","title":{"rendered":"Towercast \u2013 the hunt for nascent acquisitions continues"},"content":{"rendered":"

Towercast \u2013 the hunt for nascent acquisitions continues<\/h1>\n\n\n
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The Court of Justice of the European Union (the “Court”) has confirmed that a concentration without a community dimension may be subject to an ex-post control by national competition authorities and by national courts (under national procedural rules), due to the direct effect of the Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) prohibition on abuse of a dominant position.<\/p>\n\n

Antitrust and Competition<\/a><\/div><\/div>\n\n\n

C-449\/21 \u2013 Towercast<\/a><\/em><\/p>\n\n\n\n

The Court of Justice (the \u201cCourt\u201d) has confirmed that a concentration without a community dimension may be subject to an ex-post<\/em> control by national competition authorities and by national courts (under national procedural rules), due to the direct effect of the Article 102 of the Treaty on the Functioning of the European Union (\u201cTFEU\u201d) prohibition on abuse of a dominant position.<\/p>\n\n\n\n

The case addressed the question whether Article 21(1) of the EU Merger Regulation (\u201cEUMR\u201d), which provides that the Commission has exclusive competence to examine concentrations with an EU dimension, has the effect that such concentrations are only<\/em> subject to review under merger control rules \u2013 thus excluding a parallel or subsequent application of Article 102 TFEU.<\/p>\n\n\n\n

The potential for applying an abuse of dominance standard to non-notifiable concentrations post-closing has in theory far reaching implications for the remit of competition rules in future, although upon a closer review it seems the judgment alone may not be sufficient for such a paradigm shift.<\/p>\n\n\n\n

The factual background<\/h2>\n\n\n\n

The French company TDF Infrastructure Holding (who previously held a statutory monopoly on the market for terrestrial television broadcasting prior to liberalisation) acquired control over one of the two remaining market players, Itas. Despite Itas having by far the largest market share, the merger did not meet the requisite merger turnover thresholds under either EU merger control or French national rules nor was the merger caught by the Article 22 EUMR referral procedure either.<\/p>\n\n\n\n

Towercast, the third player in the market, argued that the acquisition was an abuse of a dominant position due to a strengthening of TDF\u2019s already dominant position on the upstream and downstream wholesale markets for digital broadcasting. The complaint was rejected by the French autorit\u00e9 de la concurrence, since, in its view, merger control applies exclusively to concentrations (as defined in Article 3 of the EUMR) and Article 102 no longer applies where no anticompetitive conduct exists besides the concentration itself.<\/p>\n\n\n\n

The complaint was also rejected on appeal to the Court of Appeal in Paris. The latter referred the following question up to the Court: can a competition authority subject a concentration (where one party has a dominant position) to an ex-post investigation for abuse of a dominant position where national and EU merger thresholds are not met, and consequently no ex-ante assessment had been made?<\/p>\n\n\n\n

Advocate General Kokott\u2019s opinion<\/h2>\n\n\n\n

Following the Court of Justice hearing, Advocate General Kokott\u2019s opinion was published in October 2022 which concluded that although the assessment of potential anti-competitive effects of a concentration is primarily the task of merger control rules, this does not exclude an ex-post<\/em> control of the conduct<\/em> of a dominant undertaking in connection with such a concentration. This opinion extended an effects-based analysis of actual or potential effects to transactions that aren\u2019t notifiable, without lowering the notification thresholds to achieve this.<\/p>\n\n\n\n

Kokott looked to the status of the legal rules and the principle of direct effect. She concluded that since Article 102 has primary EU law status and is directly effective, it follows that a provision of secondary law, the EUMR \u2013 a regulation \u2013 is not capable of restricting the formers\u2019 scope of application. Kokott also considered the prohibition in Article 102 to be sufficiently precise and unconditional, to remain directly applicable and therefore not to be restricted in its use here. Accordingly, no secondary instrument of implementation was required to expressly authorise its application in this case.<\/p>\n\n\n\n

Kokott went further to establish the primacy of Article 102 over regulation generally noting that the legal basis for the EUMR is rooted in Article 103 TFEU itself. Regulation is not on a level with Article 101 and 102 TFEU, nor is regulation capable via an implementing provision of modifying or limiting the scope of those reference provisions. The wording of her opinion was clear that the thresholds provided in Article 1 of the EUMR or in any national rules on merger control are therefore not capable of limiting or excluding the applicability of Article 102.<\/p>\n\n\n\n

The opinion also notes the increase in acquisitions of innovative start-ups for example in internet services or medical technology. The turnover of targets at this early stage of development is often minute and the deal falls below merger thresholds. These new companies are then acquired by large established undertakings. Article 102 is considered in the Kokott opinion to step in and act as a second sweep to capture and control these types of concentrations. This opinion although not binding on the Court was followed in the Court\u2019s judgment.<\/p>\n\n\n\n

Judgment of the Court of Justice<\/h2>\n\n\n\n

The Court followed the opinion of Kokott, highlighting that the intention of the EUs \u2018one-stop shop\u2019 system  did not lead to an inference that the EU legislature intended to for national authorities to cede control over concentrations when assessing them against the potential prohibitions of abuse of a dominant position and thus rendering this primary law obligation devoid of purpose.<\/p>\n\n\n\n

Article 21(1) of Regulation No 139\/2004 must be interpreted as not precluding the competition authority of a Member State from regarding a concentration of undertakings which has no Community dimension within the meaning of Article 1 thereof, is below the thresholds for mandatory ex ante control laid down in national law, and has not been referred to the Commission under Article 22 of that regulation, as constituting an abuse of a dominant position prohibited under Article 102 TFEU, in the light of the structure of competition on a market which is national in scope.<\/p>\n\n\n\n

The Court concluded therefore, that a prior<\/em> control of operations with a community dimension introduced by the Merger Regulation does not preclude a subsequent<\/em> control of concentrations that do not meet those thresholds: certain concentrations may both escape a prior control and be subject to a subsequent control. Such a control would entail a substantive assessment of whether a purchaser in a dominant position has substantially impeded competition by acquiring control over another undertaking on the same market. In that regard, the Court comments that a mere finding that an undertaking\u2019s position has been strengthened is not sufficient for a finding of abuse, since it must be established that the degree of dominance reached would substantially impede competition, that is to say, that only undertakings whose behaviour depends on the dominant undertaking would remain in the market.<\/p>\n\n\n\n

Despite TDF requesting that the Court limit the temporal effects of the judgment, the Court did not consider the legal tests were met to do so, namely that Article 102\u2019s application to the concentration was not \u201csignificantly uncertain\u201d and that the judgment would entail a risk of \u201cserious difficulties\u201d due to uncertainty over to the number of legal relationships which might be affected by that interpretation. The decision not to limit the effects of the judgment creates uncertainty for undertakings which have in good faith carried out transactions below the thresholds, which may now be challengeable before the national authorities or courts on the basis of Article 102 TFEU.<\/p>\n\n\n\n

Possible future implications for merger control<\/h2>\n\n\n\n

Although it appears theoretically safe to assume this judgment will significantly widen the remit of merger control, in practice the effects may be more limited, since the legal tests offer a relatively narrow route. The acquirer must be dominant in the same market or a related market to the target and the transaction itself, namely the act of two entities merging, must be harmful to competition by strengthening that position. This would likely require identification of high levels of concentration and sizeable entry barriers to establish, and according to the judgment, that the level of dominance reached is sufficient to impede competition. For early-stage targets for example this may not be the case as it is not possible to predict the transactions effect on competition at that early stage.<\/p>\n\n\n\n

Crucially, and a point noted by Kokott in her opinion, the general reliance on behavioural remedies in Article 102 infringement cases also rather limits the potential effectiveness in solving the competitive concerns (typically addressed by structural remedies) in merger cases.<\/p>\n\n\n\n

Several additional factors taken together however do point to competition authorities adopting a more interventionist approach towards merger review in the future.<\/p>\n\n\n\n

In 2021 the Commission issued guidance (Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases 2021\/C 113\/01<\/em>) confirming it would accept merger referrals even where the referring member state did not have jurisdiction over the transaction, namely where national thresholds were not met. This is a clear steer from the Commission that it intends to widen its scope of review, somewhat controversially, to capture deals that were not previously subject to review. The guidelines indicate an intention to allow the Commission a wider scope to review mergers in the fast moving digital and pharmaceutical sectors. In these sectors, as mentioned in the current Towercast<\/em> case, deals involving market players with little or no turnover can fall foul of the merger thresholds but nonetheless impede competition a year or so later.<\/p>\n\n\n\n

The Commission implemented this new policy in Illumina\/Grail (M.10188)<\/em> by accepting the referral of a French pharmaceutical merger, which had neither triggered a national nor an EU reporting obligation, but where the deal had already closed. Both the referral decision and the decision to block the merger are currently on appeal to the Court of Justice. The development of the Article 22 approach may therefore constitute a simpler alternative to capture so-called nascent acquisitions than meeting the legal tests required by Article 102.<\/p>\n\n\n\n

National competition authorities have also to an extent mirrored this more recent interventionist approach of the European Commission. The Norwegian Competition Authority can however already require transactions falling below the thresholds to be notified, so the implications for transactions involving Norway-specific markets are likely to be more limited. The Norwegian Competition authority has already reviewed several mergers that fell below the merger thresholds over the past years including Schibsted\/Nettbil <\/em>(see newsletter form Wiersholm \u2013 in Norwegian<\/a>).<\/p>\n\n\n\n

The albeit potentially limited effect of the application of an abuse of dominance standard to concentrations following Towercast,<\/em> together with the upcoming decision in Illumina\/Grail <\/em>will likely impact the approach of both the Commission and national competition authorities towards assessing concentrations. With an increased readiness to intervene ex-ante (in markets which are developing quickly), or ex-post (where merger control was not triggered but the concentration is due to its potential effects a perceived threat to the functioning of the common market), stakeholders are minded to prepare for greater scrutiny of transactions in the near future.<\/p>\n\n\n\n

The judgment of the Court in Towercast<\/em> can be found here<\/a>.<\/p>\n\n\n\n

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Key Contacts<\/h2>\n\n\n
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H\u00e5kon Cosma St\u00f8rdal<\/h3>\n\t

Partner<\/p>\n<\/div>\n\n<\/a>\n<\/div>\n\n\n<\/div><\/div>\n\n\n

Published: <\/p>

17.03.2023<\/div><\/div>

Last modified: <\/p>

13.03.2025<\/div><\/div><\/div><\/div>\n\n\n
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