On July 15 2013 the Dusseldorf Court of Appeal granted interim relief against a Federal Cartel Office (FCO) decision which prohibited the continuation of a joint venture between two competitors.(1) The case once again illustrates that no broad-brush analysis is appropriate for an assessment under Article 101 of the Treaty on the Functioning of the European Union (TFEU) and its German equivalent, Section 1 of the Act against Restraints of Competition, as they require close examination of the circumstances of every case. This case also makes it clear that in Germany, obtaining domestic merger control clearance for a joint venture does not bar the FCO from prohibiting the joint venture under Article 101 of the TEFU or Section 1 of the act at a later date.
On November 21 2012 the FCO ordered two competing chemical distributors to stop their joint venture from June 30 2013 – the deadline was subsequently extended until July 31 2013 (for further details please see "FCO breaks up joint venture – nothing clear after clearance?") The joint venture was active in the same product and geographic markets as its parents. The FCO based its decision on Article 101 of the TFEU and Section 1 of the Act against Restraints of Competition. Both parent companies and the joint venture appealed against the FCO's prohibition. Further, since their appeals did not have a suspensive effect, the parties also applied for interim relief.
The Dusseldorf Court of Appeal ordered the suspensive effect of the appeals. The court based its order on the fact that immediate execution of the appealed decision would present a serious risk of irreparable harm to the parties, since the consequences of immediate non-continuation of the joint venture could not be compensated later if the decision were quashed in the main proceedings. According to the court, such undue hardship for the parties could not be warranted in this case. In that regard, the court pointed out that the FCO had been aware of the joint venture for more than 16 years, since it granted merger control clearance in 1996. In view of the FCO's long-lasting inactivity, the court emphasised that the authority had failed to put forward any particular reasons why the joint venture should cease with almost immediate effect. However, the court also pointed out that the regulator's long-lasting inactivity could not create legitimate expectations of the parties that the FCO would not object to the joint venture under Article 101 of the TFEU and Section 1 of the Act against Restraints of Competition anymore. Scrutiny under Article 101 and Section 1 of the act thus always remains possible.
With regard to the facts at issue, the court also highlighted that it had doubts, under a preliminary review, as to the legality of the prohibition order. In particular, the court expressed concern about the FCO's finding that the joint venture distorted competition within the meaning of Article 101 and Section 1.
First, the court quashed the regulator's argument that both parent companies would not compete sufficiently with the joint venture. In that regard, the court referred to Paragraphs 36 and 40 of the Commission Notice on Restrictions Directly Related and Necessary to Concentrations, according to which a non-compete obligation between the controlling parents and the joint venture could be considered directly related and necessary to implementation of the joint venture, and could therefore be compatible with Article 101 of the TFEU and Section 1 of the act. The court thus concluded that a joint venture cannot be held to infringe Article 101 or Section 1 merely because it does not (fully) compete with its parent entities.
Second, the court also criticised the FCO's finding that the parent companies would coordinate their market behaviour through the joint venture. Even though the court reaffirmed previous case law which stated that competitive concerns are generally warranted if the parents of a joint venture remain active on the same market as the joint venture, it also pointed out that the FCO had not sufficiently taken into account the peculiarities of the case. For example, in 2007 one of the parent companies had blown the whistle and revealed a cartel to the FCO, and the subsequent proceedings ended in fines being imposed on the other parent company. The court considered this incident as likely to impact negatively on the relationship between the parent companies, thus rendering unlikely any coordination between them. The court also reminded the FCO that during the proceedings, one of the parent companies had submitted a file of more than 100 pages containing examples of actual competition between the parents, to which the regulator had failed to pay sufficient attention.
Given the reasoning of the court, it will be interesting to see whether the FCO can defend its decision in the main proceedings. Nonetheless, the order makes it clear once again that under German law, joint ventures are not – even years after merger control clearance – safe from a prohibition under Article 101 of the TFEU or Section 1 of the Act against Restraints of Competition. In fact, the existing case law provides for various presumptions according to which a joint venture active on the same market as its parent entities will lead to restrictions of competition. Consequently, prohibition decisions under Article 101 and Section 1 remain possible. This case is characterised by various particular circumstances and thus the court's order should not be mistaken for a general departure from existing case law. However, the case shows that companies can trust that the German courts will not hesitate to remind the FCO to conduct careful, fact-driven analysis of their case.
For further information on this topic please contact Kai Neuhaus at CMS Hasche Sigle's Brussels office by telephone (+32 2 6500 420), fax (+32 2 6500 422) or email (email@example.com). Alternatively, contact Christoff Soltau at CMS Hasche Sigle's Hamburg office by telephone (+49 40 37 63 00), fax (+49 40 37 63 040 600) or email (firstname.lastname@example.org). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.