Insights | April 20, 2023

Mergers not reaching notification thresholds can be reviewed ex-post under the rules prohibiting abuse of dominance

The European Court of Justice has confirmed that a non-notifiable transaction may be subject to an ex-post review under the rules prohibiting an abuse of a dominant position. The recent Towercast ruling has placed the prohibition against abuse of dominance firmly back into the competition authorities' toolbox.

On 16 March 2023, The European Court of Justice (ECJ) confirmed that a non-notifiable transaction may nevertheless be subject to an ex-post review under the rules prohibiting an abuse of a dominant position (Article 102 of the TFEU).

Factual background

The acquisition of Itas by Télédiffusion de France (TDF) had not met the notification thresholds and, therefore, had not been reviewed under either the EU or national merger control rules. Towercast, a competitor of TDF and Itas, lodged a complaint against the acquisition with the French Competition Authority.

In the complaint, Towercast argued that the acquisition, which strengthened TDF’s already dominant position in the digital terrestrial television broadcasting services market, constituted an abuse of dominance, especially considering that Itas had been the operator with the largest market share.

In practice, since the EU Merger Regulation came into force in 1990, it has been considered that non-notifiable transactions – absent separately identified abusive conduct – would not be subject to examination under the abuse of dominance rules. Hence, Towercast’s complaint was initially rejected by the French Competition Authority.

The French Appeals Court, however, decided to request a preliminary ruling from the ECJ on the question of whether a transaction can be the subject of an ex-post investigation for abuse of a dominant position pursuant to Article 102 of the TFEU, where EU and national merger thresholds have not been met, and thus no ex-ante assessment has been made.

The ECJ’s findings

The ECJ was clear in its judgment – non-notifiable mergers can constitute an abuse of dominance.  Article 21(1) of the EUMR entails that a finding of an abuse of dominance is possible in cases where the notification thresholds are not reached and the transaction concerned has not been referred to the European Commission under Article 22 of the EUMR.

Thus, in Towercast, the ECJ confirmed that there is an additional mechanism for competition authorities to scrutinize non-notifiable transactions. As pointed out by Advocate General Kokott in her preliminary opinion to the ECJ, the judgment is particularly effective against “killer acquisitions”, i.e., cases in which a dominant market player acquires an up-and-coming start-up, thus pre-emptively eliminating competition.

In its reasoning, the ECJ followed the long-established Continental Can judgment, in which it was held that conduct “can be regarded as an abuse if an undertaking holds a position so dominant that the objectives of the Treaty are circumvented”. It should be stressed that strengthening a dominant position through a transaction cannot in and of itself be sufficient for finding an abuse – instead, “it must be established that the degree of dominance reached through the acquisition would substantially impede competition”, meaning that abuse of the dominant position must be shown.

One notable difference between the circumstances in Continental Can and Towercast stands out – no merger control regulation existed back in the 1970s. Since the introduction of the EU merger control regime in 1990, it has been assumed that the assessment of anti-competitive effects in the context of transactions is the task of merger control rules.

However, the Towercast ruling has now placed the prohibition against abuse of dominance firmly back into the competition authorities’ toolbox.

Implications of Towercast

The ECJ has now reminded us that non-notifiable transactions may also be subject to scrutiny under the rules prohibiting abuse of dominance, and, as expected, competition authorities are eager to test this out in practice. Not even a week following the Towercast ruling, the Belgian Competition Authority opened investigations into alleged abuse of dominance in the context of a proposed acquisition of edpnet by Proximus.

While Towercast (alongside the EU Commission’s forceful push for the Article 22 EUMR review, most notably in Illuminia/Grail) puts transaction parties on notice, it is important to remember that a mere finding of dominance will not be sufficient to block a transaction. There must also be evidence that the acquisition itself will lead to a substantial restriction of competition, thus amounting to an abuse of that dominant position.

It remains to be seen what evidentiary threshold national authorities and courts will require in this regard. Likewise, while the ECJ did not limit the temporal scope of possible subsequent investigations, it is expected that the longer the time that has elapsed since the completion of the transaction, the less likely it is that an investigating authority would attempt to “block” the transaction.

Instead, it would seek retribution through financial penalties for the abuse of a dominant position. Towercast has undoubtedly continued the EU-wide trend towards further safeguarding effective competition and avoiding enforcement gaps.

Article written by Partner Ami Paanajärvi, Senior Associate Julia Vahvaselkä and Associate Trainee Hennu Malmi.