Opinion of Advocate General Kokott delivered on 25 July 2018.

• Jurisdiction: European Union
• Court: Court of Justice (European Union)
• ECLI: ECLI:EU:C:2018:628
• Docket Number: C-265/17
• Date: 25 July 2018
• Procedure Type: Recurso de casación - infundado

OPINION OF ADVOCATE GENERAL

KOKOTT

delivered on 25 July 2018 (1)

Case C‑265/17 P

European Commission

v

United Parcel Service, Inc.

(Appeal — Competition — Merger control — Rights of defence — Right to be heard — Opportunity to submit observations — Econometric analysis — Price concentration model — Material changes to the price concentration model during the ongoing administrative procedure — Market for international express small package delivery services in the EEA — Article 18 of Regulation (EC) No 139/2004 — Articles 13 and 17 of Regulation (EC) No 802/2004)

I. Introduction

1. It is not uncommon for merger control proceedings conducted by the European Commission in its capacity as a competition authority to be characterised by the high degree of complexity of the economic relationships that are to be considered. To assess whether a proposed merger would significantly impede effective competition, difficult predictions sometimes have to be made regarding the market development that may be expected. In suitable cases, the Commission uses econometric models for this purpose. It relied on just such a model also in the present case, in prohibiting the acquisition of the package delivery service TNT Express N.V. (TNT) by United Parcel Service Inc. (UPS).

2. The Commission and UPS are now in dispute regarding the question of which procedural guarantees the competition authority has to observe when having recourse to such econometric analyses. Specifically, the question is whether the Commission was permitted to make material changes to the economic model on which it relied — known as a price concentration model — during the ongoing administrative procedure without informing UPS about it and giving the undertaking an opportunity to submit observations.

3. UPS was successful at first instance. The Commission’s Decision of 30 January 2013 prohibiting the proposed merger (2) (also referred to below as ‘the decision at issue’) was set aside by the General Court by way of a judgment of 7 March 2017 (3) (also referred to below as ‘the judgment under appeal’) on the ground that UPS’s rights of defence had been infringed. The Commission has brought the present appeal against that judgment.

4. What is now decisive for the outcome of the appeal is the question of what scope has to be accorded to the rights of defence of undertakings in merger control proceedings. Do the rights of defence require these undertakings to be informed about material changes to econometric models during the ongoing administrative procedure and to be heard in relation to such changes before a prohibition on a merger is issued?

5. The present case once again demonstrates the challenges facing competition authorities when they have to conduct an economic analysis in accordance with the legal requirements. However the Court of Justice decides in this case, its judgment will show, beyond the confines of this particular case, the way for the Commission’s future administrative practice in complex merger control proceedings, but also for that of national competition authorities and courts, which not infrequently adhere closely to the standards applicable at Union level in relation to merger control.

II. Legal context

6. The legal context of this case is determined, in terms of primary legislation, by Article 41 of the Charter of Fundamental Rights of the European Union and, in terms of secondary legislation, by Article 18 of the EC Merger Regulation. (4) In addition, it is necessary to refer to the Implementing Regulation (5) for the Merger Regulation (Merger Implementing Regulation), and in particular Articles 13 and 17 thereof.

A. The Merger Regulation

7. Article 18 of the Merger Regulation is devoted to ‘Hearing of the parties and of third persons’, and in extract it reads as follows:

‘1. Before taking any decision provided for in Article 6(3), Article 7(3), Article 8(2) to (6), and Articles 14 and 15, the Commission shall give the persons, undertakings and associations of undertakings concerned the opportunity, at every stage of the procedure up to the consultation of the Advisory Committee, of making known their views on the objections against them.

2. …

3. The Commission shall base its decision only on objections on which the parties have been able to submit their observations. The rights of the defence shall be fully respected in the proceedings. Access to the file shall be open at least to the parties directly involved, subject to the legitimate interest of undertakings in the protection of their business secrets.

4. …’

B. The Merger Implementing Regulation

8. Chapter IV of the Merger Implementing Regulation, which bears the heading ‘Exercise of the right to be heard; Hearings’, contains the following Article 13(2):

‘The Commission shall address its objections in writing to the notifying parties.

The Commission shall, when giving notice of objections, set a time limit within which the notifying parties may inform the Commission of their comments in writing.

...’

9. Finally, Chapter V of the Merger Implementing Regulation, which relates to ‘Access to the file and treatment of confidential information’, contains an Article 17, which is worded as follows:

‘1. If so requested, the Commission shall grant access to the file to the parties to whom it has addressed a statement of objections, for the purpose of enabling them to exercise their rights of defence. Access shall be granted after the notification of the statement of objections.

2. …

3. The right of access to the file shall not extend to confidential information, or to internal documents of the Commission or of the competent authorities of the Member States. …

4. …’

III. Background to the dispute

10. UPS and TNT operate on a global level in the specialist transport and logistics services sector. In the European Economic Area, they are active in the field of international express small package delivery.

A. Administrative procedure

11. On 15 June 2012, UPS notified the Commission of the proposed acquisition of TNT under the Merger Regulation and the Merger Implementing Regulation.

12. By way of the decision at issue, the Commission declared on 30 January 2013 that this acquisition was incompatible with the internal market and with the Agreement on the European Economic Area (EEA Agreement) because it would lead to a significant impediment to effective competition on the market for international intra-EEA express deliveries of small packages in 15 Member States.

13. The Commission’s prediction in relation to the expected negative development of competition on the relevant markets, on which the decision at issue was based, essentially relied on an econometric analysis by means of a price concentration model. However, the General Court found that the last price concentration model used by the Commission exhibited significant differences, as far as the variables adopted (so-called ‘discrete variables’ or ‘continuous variables’) were concerned, from the one which had been the subject of discussions with UPS during the administrative procedure. (6) The General Court further found that the Commission did not give UPS any opportunity to submit observations in relation to the material changes made to the price concentration model during the administrative procedure. (7)

B. First-instance proceedings

14. On 5 April 2013, UPS brought an action against the decision at issue before the General Court. On 21 October 2013, the President of the Fourth Chamber of the Court granted FedEx Corp. (FedEx) leave to intervene in the proceedings at first instance in support of the form of order sought by the Commission.

15. By the judgment now under appeal, on 7 March 2017 the General Court annulled the Commission’s decision at issue and ordered the Commission to bear its own costs as well as those of UPS; FedEx was ordered to bear its own costs.

16. The annulment of the decision at issue was based exclusively on the fact that the Commission had not communicated to UPS the final version of the price concentration model that it had used, (8) even though it had already decided upon this final version on 21 November 2012, that is to say more than two months before the adoption of the decision at issue, (9) and this final version differed from the original version in a manner that was not negligible. (10) The General Court considered that this constituted an infringement of UPS’s rights of defence. (11)

IV. Proceedings before the Court of Justice

17. By a written submission of 16 May 2017, the Commission lodged the present appeal against the judgment of the General Court of 7 March 2017. It requests

– that the judgment be set aside,

– that the case be referred back to the General Court, and

– that the costs be reserved.

18. For its part, UPS requests

– that the appeal be declared inadmissible and/or ineffective in part,

– that the appeal be dismissed to the extent that it is admissible and effective, and, in the alternative, that the case be decided by maintaining the operative part of the judgment under appeal, substituting the reasons for the judgment, and

– that the Commission, along with any other potential intervener, be ordered to pay the costs of this appeal and of the proceedings at first instance.

19. The Commission’s appeal was considered before the Court of Justice on the basis of written submissions. FedEx did not participate in the appeal proceedings.

V. Assessment

20. First of all, it should be made clear that neither the appropriateness of having recourse to an econometric analysis nor the substantive correctness of the price concentration model used by the Commission for this analysis is the subject of the present appeal proceedings. Consequently, when the parties in certain passages in their written submissions slip into a discussion of whether the Commission acted lege artis as regards the econometrics, this does not add any appreciable value for the purposes...