Controlling Merger Control: watchdog faces increased burden of proof
In a rather lengthy May 2020 judgement related to a horizontal merger in the UK telecom sector (the facts of which preceded Brexit), the EU General Court significantly increased the burden of proof that the European Commission should meet when claiming that a merger that does not create a dominant market player nevertheless entails a "significant impediment to effective competition" ("SIEC" test).
The proposed transaction would have reduced the number of mobile network operators in the United Kingdom from four to three. The newly created "Three" network would become the United Kingdom's leading mobile network operator. The Commission blocked the merger under its ""SIEC" test, finding that the merger would remove an important competitive force from the market, the parties were "close competitors" and prices would increase.
Parties appealed the decision in Luxembourg and the Court found that the Commission had failed to substantiate its claim that Three was an "important competitive force" despite the fact that its market share did not amount to a level where dominance could be assumed. It also ruled that the Commission failed to establish with sufficient certainty that prices would increase significantly.
The Court stressed that a mere decline in competitive pressure is not sufficient to prohibit a deal; otherwise, the Commission would have discretion to prohibit virtually any horizontal merger.
In summary, the Court ruled that the Commission must demonstrate with a "strong probability" that the effect on competition is "significant" to block a merger that does not create a dominant company.
Hence, the competition watchdog has been put on notice that its merger control practice is under close scrutiny by a court that will not automatically follow suit and will expect the authority to properly substantiate its allegations of infringement with evidence, especially when reviewing transactions in which the merged party is not dominant.