Brussels, 10/07/2008 (Agence Europe) - On Thursday 10 July 2008, the European Court of Justice annulled the ruling of the European Court of First Instance annulling the European Commission's decision to endorse the Sony/BMG merger. This means the case will now be sent back to the Court of First Instance, which will have to re-assess the European Commission's decision in the light of the Court of Justice's comments. The Sony/BMG merger was given a second go-ahead by the European Commission in October 2007, which remains in place but has been challenged by a second appeal, currently pending at the Court of First Instance (Case C-413/06 P).
The merger of the music businesses of Sony Corporation (of the United States) and Bertelsmann AG (of Germany) is being challenged by Impala, an association of European independent record labels. Impala argues that the recorded music industry is already highly concentrated with the five big companies sharing 80% of the market and any further concentration should only be authorised under strict conditions in order to protect the diversity of supply and access to the market, particularly the online market. The Court of First Instance backed this view and refused to agree to the July 2006 merger (see EUROPE 9232). Sony/BMG (backed by the Commission) appealed to the Court of Justice against the Court of First Instance ruling and the Court of Justice annulled the decision on Thursday on the grounds of several errors in law. Firstly, the Court of First Instance based some of its arguments on the communication of grievances but the communication's conclusions can only be considered as provisional. Secondly, the Court of Justice disagrees with the Court of First Instance, arguing that the Commission was perfectly entitled to use the arguments of the parties to the merger but this did not mean it had delegated its investigation to the parties to the merger. The Court of First Instance's analysis of a possible abuse of dominant market position was too abstract to be credible, argues the Court of Justice, since such analyses should be based on concrete scenarios of hypothetical fixing of the market in question, which was not put forward. The Court of Justice therefore decided to annul the Court of First Instance ruling, sending the case back to the Court of First Instance for a second ruling. The Court of First Instance will now have to examine Impala's five series of arguments. Thus far it has only responded to two of them.
The only consolation for Impala and the Court of First Instance is that the Court of Justice confirmed that there had not been any general presumption that mergers were compatible with EU legislation. Sony/BMG had argued that mergers should be endorsed when there was no suspicions of obstacles to free competition but the Court of Justice said the burden of proof applied in both directions: 'There is nothing in Article 2(2) or (3) of the Regulation which states that it imposes different standards of proof in relation to decisions approving a concentration, on the one hand, and decisions prohibiting a concentration, on the other.'
The ball is now in the Commission's court to justify its green light for the merger through better market analysis and the drawing up of realistic scenarios for assessing the danger of anti-competitive behaviour, which is precisely what it says it did before giving its second approval in October 2007 (see EUROPE 9515). In June 2008, Impala appealed against the October 2007 decision. Impala's executive chair Helen Smith argued that the Commission's new analysis was inadequate, noting that the Commission had to take into account the need for cultural diversity under the May 2007 European Culture Strategy and this would require greater competition between the big music companies. Hearings in the second appeal case are expected to be held over the next few weeks. (C.D.)