On April 24, 2007, the European Commission's Directorate General for Competition ("Commission") began its public consultation on a new Notice on Remedies acceptable under the Merger Regulation ("Draft Notice").1 The Draft Notice is intended to provide non-binding guidance to companies to eliminate competition concerns identified by the Commission. The Draft Notice results from an extensive study undertaken by the Commission on the implementation and effectiveness of competition remedies, recent judgments of the European Courts and the Merger Regulation currently in force.2 Significantly, the Draft Notice expressly mentions the use of arbitration commitments in merger control.
The text of the Draft Notice was accompanied by draft amendments to the Merger Implementing Regulation. At present, the Merger Regulation provides that concentrations that meet certain turnover thresholds must be notified to and approved by the Commission prior to implementation. Where the Commission finds that the acquisition is likely to produce anti-competitive effects, the party can obtain clearance by making certain "commitments." Traditionally, the Commission and the European courts favored structural commitments because they are considered to guarantee compliance through a carefully administered monitoring process.3
These commitments generally involve divestitures of parts of the business to a third-party competitor. Usually, Commission clearance requires compliance with structural remedies. More recently, however, European courts have recognized that when divestments are undesirable or impossible, competition concerns can be addressed by behavioral commitments as long as they have a quasi structural effect on the market and they can assuage the Commission's competition concerns.4 Behavioral commitments are promises to behave in a particular manner vis-à-vis third-party competitors.
Examples of these commitments are promises by the acquiring party: to give access to technology or infrastructure; to secure the establishment of supply or purchasing relationships; to terminate exclusive or long-term contractual arrangements with its customers or to terminate anti-competitive distribution agreements with its customers. The latest draft Notice expressly sanctions these so-called "access commitments", and they generally qualify as obligations rather than conditions for clearance by the Commission. They are arguably more problematic for the Commission than structural commitments because they require policing over the long term, thus putting a strain on the Commission's resources. It is in this context that arbitration can play a role.
In recent years, the European courts, and now the Draft Notice, have recognized that arbitration commitments may be a mechanism to monitor the proper implementation of access commitments.5 If an acquiring party fails to comply with a commitment, the third-party competitor can commence arbitration proceedings to enforce the promise by reference to the arbitration clause in either the original Commission decision or in the Commitment Letter by the acquiring party. Where the third party has already concluded an agreement with the merged entity, it can trigger arbitration through the clause in the agreement itself. The merged party has an obligation to submit to arbitration. Because arbitration commitments are "obligations"6 within the meaning of the Notice on Remedies,7 breach allows the Commission to impose fines or order the dismantlement of the concentration. The Commission is also likely to commence its own investigation into the correct implementation of the access commitments concerned.
In the context of merger control, arbitration provides a number of advantages to the European Commission. By providing for independent arbitral tribunals, the Commission allows for the policing of the behavioral commitments in the medium and long-term without placing an undue burden on its own resources. Furthermore, arbitration likely brings certain advantages such as speed, flexibility of proceedings, the ability to select an arbitral tribunal with experience in the relevant industry and ease of enforceability of the award under the New York Convention.
Note that although the arbitral tribunals have the power to adjudicate the civil law consequences of the acquiring party's breach of the behavioral commitments,8 under the Merger regulation the Commission has the ultimate power to sanction the acquiring party (e.g., by imposing fines or dismantling the acquisition).9 In the past few years, the Commission also introduced tiered dispute resolution clauses that allow for amicable settlement and mediation of disputes before arbitration is undertaken.10
By explicitly mentioning arbitration in the Draft Notice, the Commission has acknowledged that arbitration can help to enforce compliance with behavioral commitments. This may be a sign that arbitration will play an increasingly important role in ensuring competition in the European marketplace.