Judgments nº T-210/01 of Court of First Instance of the European Communities, December 14, 2005

• Resolution Date: December 14, 2005
• Issuing Organization: Court of First Instance of the European Communities
• Decision Number: T-210/01

(Action for annulment – Competition – Commission decision declaring a concentration to be incompatible with the common market – Regulation (EEC) No 4064/89 – Aeronautical markets – Acquisition of Honeywell by General Electric – Vertical integration – Bundling – Foreclosure – Horizontal overlaps – Rights of the defence)

In Case T-210/01,

General Electric Company, established in Fairfield, Connecticut (United States), represented by N. Green QC, C. Booth QC, J. Simor, K. Bacon, Barristers, S. Baxter, Solicitor, L. Vogel and J. Vogel, lawyers, and, initially, by M. Van Kerckhove, lawyer, and subsequently by J. O’Leary, Solicitor, with an address for service in Luxembourg,

applicant,

v

Commission of the European Communities, represented by R. Lyal, P. Hellström and F. Siredey-Garnier, acting as Agents, with an address for service in Luxembourg,

defendant,

supported by

Rolls-Royce plc, established in London (United Kingdom), represented by A. Renshaw, Solicitor,

and by

Rockwell Collins, Inc., established in Cedar Rapids, Iowa (United States), represented by T. Soames, J. Davies and A. Ryan, Solicitors, and P.D. Camesasca, lawyer,

interveners,

APPLICATION for the annulment of Commission Decision 2004/134/EC of 3 July 2001 declaring a concentration to be incompatible with the common market and the EEA Agreement (Case No COMP/M.2220 – General Electric/Honeywell) (OJ 2004 L 48, p. 1),

THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES (Second Chamber, Extended Composition),

composed of J. Pirrung, President, V. Tiili, A.W.H. Meij, M. Vilaras and N.J. Forwood, Judges,

Registrar: J. Plingers, Administrator,

having regard to the written procedure and further to the hearing on 27 May 2004,

gives the following

Judgment

Legal context

1 Article 2(2) and (3) of Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (OJ 1990 L 395, p. 1, corrected version in OJ 1990 L 257, p. 13), as last amended by Council Regulation (EC) No 1310/97 of 30 June 1997 (OJ 1997 L 180, p. 1) (hereinafter, as corrected and amended, ‘Regulation No 4064/89’), provides as follows:

‘2. A concentration which does not create or strengthen a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall be declared compatible with the common market.

3. A concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall be declared incompatible with the common market.’

   Facts

   2 General Electric Company (‘GE’ or ‘the applicant’) is a diversified industrial undertaking active in the following fields: aircraft engines, domestic appliances, information services, power systems, lighting, industrial systems, medical systems, plastics, broadcasting, financial services and transportation systems.

   3 Honeywell International Inc. is an undertaking active in, inter alia, the following markets: aeronautical products and services, automotive products, electronic materials, speciality chemicals, performance polymers, transportation and power systems as well as home and building controls and industrial controls.

   4 On 22 October 2000, GE and Honeywell entered into an agreement under which GE would acquire Honeywell’s entire share capital (‘the merger’), Honeywell becoming a wholly-owned subsidiary of GE.

   5 On 5 February 2001, the Commission formally received notification of the merger pursuant to Article 4 of Regulation No 4064/89.

   6 On 1 March 2001, taking the view that the merger fell within the scope of Regulation No 4064/89, the Commission decided to initiate proceedings under Article 6(1)(c) of that regulation and under Article 57 of the Agreement on the European Economic Area (EEA) (‘the decision to initiate proceedings’).

   7 On 15 March 2001, GE and Honeywell jointly submitted to the Commission their observations on the decision to initiate proceedings.

   8 On 8 May 2001, the Commission sent a statement of objections (‘SO’) to GE, to which it replied on 24 May 2001.

   9 On 29 and 30 May 2001, GE and Honeywell took part in an oral hearing before the Commission.

   10 On 14 and 28 June 2001, GE and Honeywell jointly proposed two sets of commitments designed to render the merger acceptable to the Commission.

   11 On 3 July 2001, the Commission adopted Decision 2004/134/EC (Case No COMP/M.2220 – General Electric/Honeywell) (OJ 2004 L 48, p. 1) declaring the merger incompatible with the common market and the EEA Agreement (‘the contested decision’).

   The contested decision

   12 The operative part of the contested decision states as follows:

   ‘Article 1

   The concentration by which General Electric Company acquires control of the undertaking Honeywell International Inc. is declared incompatible with the common market and with the EEA Agreement.

   Article 2

   This Decision is addressed to:

   [GE].

   ...’

   13 The grounds of the contested decision may be summarised as follows.

   14 According to the Commission, GE was itself already in a dominant position on the world market for jet engines for large commercial aircraft (hereinafter also referred to as ‘large commercial jet aircraft engines’) and on the world market for jet engines for large regional aircraft (hereinafter also referred to as ‘large regional jet aircraft engines’) (recitals 45 to 83 and 84 to 87 of the contested decision, and recitals 107 to 229). Its strong market position, combined with the commercial leverage represented by its financial strength and vertical integration into aircraft leasing were among the factors that led to the finding of GE’s dominance in these markets. The investigation also showed that Honeywell was already the leading supplier of avionics and non-avionics products (recitals 241 to 275), as well as of engines for corporate jets (recitals 88 and 89) and of engine starters, in particular for large commercial jet aircraft engines (a key component in the manufacturing of jet engines) (recitals 331 to 340).

   15 The combination of the two companies’ activities would have resulted in the creation or strengthening of dominant positions on a number of markets. The Commission found in particular that GE’s existing dominant position on the worldwide market for large commercial jet aircraft engines would be strengthened on account of the ‘vertical’ effects of the merger resulting from the integration of GE’s activity as a manufacturer of those engines with Honeywell’s activity as a manufacturer of starters for those engines (recitals 419 to 427 of the contested decision). It also concluded that dominant positions would be created on the various world markets for avionics products and non-avionics products, on which Honeywell already enjoyed strong positions prior to the merger, as a result of two types of conglomerate effects. In the Commission’s view, those effects were, first, those resulting from a process known as ‘share shifting’, consisting in the extension to those markets of the financial power of GE Capital, a company belonging to the applicant’s group, and the commercial advantages deriving from the business of aircraft purchase and leasing, in the main by GE Capital Aviation Services (GECAS) (another company in the applicant’s group) (recitals 342 to 348 and 405 to 411). Second, the Commission foresaw effects arising in future from the merged entity’s use of bundling practices – pure, technical and mixed – through offers incorporating both aircraft engines from the former GE, on the one hand, and avionics products and non-avionics products from the former Honeywell, on the other (recitals 349 to 404). The Commission held that in the future the practice of bundling would also strengthen GE’s pre-existing dominant position on the market for large commercial jet aircraft engines.

   16 In addition, the Commission concluded that GE’s pre-merger dominance on the world market for large regional jet aircraft engines would be strengthened and that a dominant position would be created for the merged entity on the world market for corporate jet aircraft engines, in particular because of ‘horizontal overlaps’, given the presence on those markets of both GE and Honeywell prior to the merger (recitals 428 to 431 and 435 to 437 of the contested decision). It also took the view that a dominant position would be created, in particular on account of a horizontal overlap between the two parties to the merger on the world market for small marine gas turbines (recitals 468 to 477).

   17 Thus, having deemed the commitments proposed by the parties to the merger to be insufficient to resolve the competition problems arising as a result of the transaction (recitals 500 to 533 and 546 to 563 of the contested decision), the Commission concluded, at recital 567 of the decision, that the merger would lead to the creation or strengthening of a number of dominant positions, as a result of which effective competition in the common market would be significantly impeded, and that the merger should therefore be declared incompatible with the common market pursuant to Article 8(3) of Regulation No 4064/89.

   Procedure

   18 By application lodged at the Registry of the Court of First Instance on 12 September 2001, the applicant brought the present action. On the same day, Honeywell also brought an action against the contested decision (Case T‑209/01).

   19 By documents lodged at the Registry of the Court on 11, 15 and 16 January 2002 respectively, Rolls-Royce Plc, Rockwell Collins Inc. (‘Rockwell’) and Thales SA sought leave to intervene in the present case in support of the Commission.

   20 The applicant requested that certain information contained in its written submissions and in the Commission’s submissions be kept confidential from the interveners.

   21 By order of 26 June 2002, the President of the First Chamber of the Court of First Instance granted Rolls-Royce...