General Court annuls the EC’s decision to prohibit UPS’ proposed acquisition of TNT
The General Court annulled yesterday the European Commission’s decision in 2013 to prohibit UPS’ proposed acquisition of TNT. The judgment was much awaited also because of its potential for clarifying the role of efficiencies in merger review. In practice, the Court overturned the decision on the grounds that UPS’ rights of defence had been infringed by the Commission’s failure to discuss with UPS the final version of an econometric analysis relied upon in its decision. These final results were used to identify those EEA countries where the merger would have led to price increases that would not be offset by merger efficiencies (notably, the Commission accepted in this case the merger would indeed lead to material efficiencies, but these were not deemed sufficient to overturn the estimated price effects).
The Court agreed that this final version of the econometric analysis was central to the Commission’s decision, and materially different from the version discussed with the Parties. Had the Parties known the details of the final version of the model, they would have been better able to address the Commission’s concerns. The Court also found that there would have been time within the administrative timetable for the Commission to share its final econometric analysis with the Parties. Having decided UPS’ rights of defence had been infringed, the Court then annulled the decision on these grounds and did not go on to consider the other grounds of the appeal.
This is not just a minor procedural issue. The implications of this judgment are potentially far reaching for the use of economic analysis in merger review. In the dust of war surrounding the days after an SO and an Oral Hearing, it has often been the case that Parties and their economists had no visibility of the fate of their further comments and analyses until the decision was published. A short discussion at the post-SO State of Play, when the focus is all on remedies, is not a replacement for a proper two-way engagement. While one understands that the Commission “must draw a line somewhere” and cannot engage in an open-ended game of ping-pong with the Parties’ economists, the process should not be curtailed too short. In court proceedings unchallenged evidence (i.e. evidence that both parties have not had the opportunity to be tested on) cannot be relied upon.
The clear message from the Court is that if the Commission is going to rely in its decision on economic evidence in the SO, then it must articulate its response explicitly to the comments submitted by the Parties’ economists on that evidence even post-SO and Oral Hearing. This implies that some time needs to be made available in the timetable following the SO for there to be a meaningful engagement between the CET and the Parties’ economists. The Best Practice Guidelines for the Submission of Economic Evidence are there, and also apply to evidence produced by the Commission. The Ryanair/Aer Lingus case suggests it is indeed possible for the Commission to produce and rely on robust economic evidence, properly aired to all sides in the context of the timetable.
It would be unfortunate if a knee-jerk reaction was for the Commission to retreat from relying on more formal economic evidence such as econometric analysis and economic modelling – to avoid altogether a perceived protracted “back and forth” with the Parties’ economic advisers. Parties will still put forward economic evidence that the Commission would still have to engage with. If “new evidence” of an economic nature is produced post SO that is to be relied upon in the decision, it must be formally stated to the Parties in much the same way as other “new evidence” which emerges post SO.
A CRA team including Ian Small, Diana Jackson and Damien Neven advised UPS on the merger and the appeal.
See here for the Court’s press release.