Case T‑79/12

Cisco Systems, Inc.
and
Messagenet SpA

v

European Commission

(Competition — Concentrations — European markets for internet communications services — Decision declaring the concentration compatible with the internal market — Manifest errors of assessment — Duty to state reasons)

Summary — Judgment of the General Court (Fourth Chamber), 11 December 2013

1.      Actions for annulment — Natural or legal persons — Measures of direct and individual concern to them — Decision finding a concentration operation compatible with the internal market — Action by a competitor undertaking operating on a market neighbouring the dominated market and having actively participated in the administrative procedure — Admissibility

(Art. 263, fourth para., TFEU)

2.      Actions for annulment — Interest in bringing proceedings — Need for an actual and current interest — Action seeking annulment of a Commission decision declaring a concentration operation compatible with the internal market — Action brought by a competitor of the parties to the operation — Admissibility

(Art. 263 TFEU)

3.      Concentrations between undertakings — Examination by the Commission — Adoption of a decision finding a concentration operation compatible with the internal market without opening Phase II — Condition — No serious doubts — Economic assessments — Margin of discretion — Judicial review — Scope

(Council Regulation No 139/2004, Arts 2, 6 and 8)

4.      Concentrations between undertakings — Assessment of compatibility with the internal market — Creation or reinforcement of a dominant position significantly hindering effective competition in the internal market — Extent of the prejudicial effects of the concentration on access to the market — Burden of proof borne by the party challenging the decision on the compatibility of the concentration

(Council Regulation No 139/2004, Art. 2; Commission Notice 2004/C 31/03, points 8 and 22)

5.      Concentrations between undertakings — Assessment of compatibility with the internal market — Creation or reinforcement of a dominant position significantly hindering effective competition in the internal market — Definition of markets — Evidence — High market share — Circumstances capable of diminishing the probative value

(Council Regulation No 139/2004, Art. 2; Commission Notice 2004/C 31/03, point 17)

6.      Acts of the institutions — Statement of reasons — Obligation — Scope — Decision to apply the rules on concentrations between undertakings — Decision authorising a concentration operation

(Art. 296 TFEU; Council Regulation No 139/2004)

7.      Concentrations between undertakings — Assessment of compatibility with the internal market — Conglomerate-type concentrations — Criteria — Significant obstacle to competition as a direct and immediate consequence of the concentration — Concentration between undertakings supplying communication services and software by internet — Capacity to foreclose the market by ensuring preferential interoperability between the various softwares

(Council Regulation No 139/2004, Art. 2; Commission Notice 2008/C 265/07, points 11, 92 and 93)

1.      See the text of the decision.

(see paras 33, 34, 38‑40)

2.      See the text of the decision.

(see paras 35‑37)

3.      See the text of the decision.

(see paras 45‑50)

4.      See the text of the decision.

(see paras 59‑63, 79‑83, 88‑93)

5.      When assessing the compatibility of a concentration operation with the internal market, market shares of 50% or more are liable to constitute serious evidence of the existence of a dominant position, provided the market to which those shares refer has first been defined.

However, very high market shares and very high degree of concentration on a narrow market are not indicative of a degree of market power which would enable the new entity to significantly impede effective competition in the internal market, where the market shares in question are subject to major fluctuation and instability. Moreover, high market shares do not necessarily indicate a dominant position, and thus lasting damage to competition, where they refer to a recent and fast-growing sector which is characterised by short innovation cycles in which large market shares may turn out to be ephemeral. Concerning, in particular, the sector of software services and communication by internet, the importance of a high concentration of market shares may be diminished by the fact that a large number of users expect interoperability and that the communication services in question will be free of charge.

(see paras 65‑74)

6.      See the text of the decision.

(see paras 108‑113)

7.      As regards concentrations generating conglomerate effects, it is apparent from paragraphs 11 and 92 of the Guidelines on the assessment of non-horizontal mergers under the Council regulation on the control of concentrations between undertakings that this type of concentration does not involve competing undertakings, such that these concentrations are less likely to significantly impede effective competition than horizontal concentrations. Moreover, they may enable the parties involved to achieve efficiencies. Moreover, they may enable the parties involved to achieve efficiencies.

However, concentrations generating conglomerate effects may in certain circumstances give rise to competition concerns, especially where the concentration enables the new entity to pursue a market foreclosure strategy. Such foreclosure may occur if the combination of products in related markets confers on the merged entity the ability and incentive to leverage a strong market position on one market to foreclose competition on another market. That effect on the other market must be foreseeable in the relatively near future in order for the concentration to give rise to competition concerns under Regulation No 139/2004 on the control of concentrations between undertakings.

As regards proof of such conglomerate effects, the quality of the evidence produced by the Commission in order to establish such a hindrance to competition is particularly important. The assessment of a conglomerate-type concentration is based on a prospective analysis in which, first, the consideration of a lengthy period of time in the future and, second, the leveraging necessary to give rise to a significant impediment to effective competition mean that the chains of cause and effect are dimly discernible, uncertain and difficult to establish. The Commission may declare a concentration incompatible with the internal market only if the significant impediment to competition is the direct and immediate effect of the concentration. Such an impediment, which would stem from future decisions by the merged entity, may be regarded as a direct and immediate effect of the concentration, if that future conduct is made possible and economically rational by the alteration of the characteristics and the structure of the market caused by the concentration.

As regards the concentration between two undertakings supplying business and residential communication services and software by internet, the capacity of the new entity to foreclose the market by ensuring preferential interoperability of the respective softwares must be assessed, in particular, by reference to the technical innovation work and the duration of marketing necessary to implement the foreclosure. If the foreclosure effect depends on a series of future and speculative factors, that effect is too uncertain to be considered a direct and immediate effect of the concentration. Moreover, even if that negative effect could be considered as being a consequence of the concentration, it would still be necessary to demonstrate the commercial incentive of the new entity to pursue a market foreclosure strategy, the existence of sufficient market strength to impose that strategy, and the inability of competitor undertakings to prevent foreclosure of the market.

(see paras 115‑135)