COMPETITION
Record labels

Bertelsmann and Sony Corporation of America v Impala C-413/06 P

The European Union’s highest court has set aside the Court of First Instances ruling that annulled the European Commission’s approval of a merger between the Sony Music and BMG record labels. The European Court of Justice also ordered that the lower court to reconsider its decision in order to review three of five pleas it had not dealt with. The court said that “since the Court of First Instance examined only two of the five pleas relied on by Impala, the Court of Justice considers that it is not in a position to give a ruling itself on the dispute. It is accordingly referring the case back to the Court of First Instance”. In July 2006, the lower Court of First Instance threw out the Commission decision at the request of Impala, an independent group of music producers. The lower court said the Commission had taken insufficient care in giving its approval. It should have looked more carefully at whether collective market dominance existed in the music industry and could grow after the merger, the court said. There has been no practical effect of a flurry of decisions on the case since 2004, but the court ruling reflects on the powers of the Commission, the EU’s executive arm.
The Commission approved the deal for a second time in October 2007, saying it had taken care to meet the standards set by the Court of First Instance. Impala challenged that second decision in June, again before the Court of First Instance. The Commission approved the deal for a second time in October 2007, saying it had taken care to meet the standards set by the Court of First Instance. Impala challenged that second decision in June, again before the Court of First Instance. The high court’s decision on Thursday, in an appeal by Sony BMG, concerns the annulment by the lower court in July 2006. The court said the lower court had been wrong to equate a charge sheet, or statement of objections, with conclusive findings of fact. It also said the lower court made an error in law “in relying on documents submitted by Impala on a confidential basis, since the Commission itself could not have used them for the purposes of adopting a decision, by reason of their confidential nature.” So far, the decisions have made no practical difference to Japanese electronics and entertainment giant Sony and BMG, owned by Germany’s Bertelsmann. Bertelsmann is intensifying talks with Sony to pull out of the venture, media have reported.

 

The IPKat adds

“… On 19 July 2004, the Commission approved the concentration of the global recorded music businesses of Bertelsmann AG and Sony (with the exception of Sony’s activities in Japan) into three newly-created companies to be operated under the name Sony BMG.

Following an action brought by Impala, an international association of independent music production companies, the Court of First Instance annulled that decision … on the grounds that it was vitiated by manifest errors of assessment and was inadequately reasoned.

As a result of that annulment, the Commission carried out further review proceedings relating to that merger and approved the creation of Sony BMG for a second time on 3 October 2007, again without imposing any conditions or stipulations.

At the same time as those proceedings were taking place, Bertelsmann and Sony brought an appeal before the Court of Justice against the judgment of the Court of First Instance, claiming that that court had overstated the legal requirements to be applied in relation to a Commission decision approving a merger and that court’s role in carrying out judicial review.

… the Court of Justice rejects the argument put forward by Bertelsmann and Sony to the effect that there is a general presumption that a notified concentration is compatible with the common market, which would mean that the standard of proof the Commission is required to comply with in the case of a decision approving a concentration is less high than in the case of a decision prohibiting a concentration.

None the less, the Court of Justice considers that the Court of First Instance committed a number of errors of law in its judgment.

First …, the Court of Justice holds that the Court of First Instance did not merely use the statement of objections as a basis for verifying the correctness, completeness and reliability of the factual material which underpinned the contested decision, but treated certain of the conclusions set out in that statement as established, whereas those conclusions could, however, only be considered as being provisional.

Furthermore, the Court of First Instance committed an error in requiring, in essence, that the Commission apply particularly demanding requirements as regards the probative character of the evidence and arguments put forward by Bertelsmann and Sony in reply to the statement of objections and in finding that the lack of additional market investigations after communication of the statement of objections and the adoption by the Commission of the arguments in defence put forward by those companies amounted to an unlawful delegation of the investigation to the parties to the concentration.

The Court of Justice also considers that the Court of First Instance committed an error of law in relying on documents submitted by Impala on a confidential basis, since the Commission itself could not have used them for the purposes of adopting the decision, by reason of their confidential nature In addition, the Court of First Instance misconstrued the legal criteria applying to a collective dominant position arising from tacit. The Court of Justice finds that the assessment of the relevant criteria in that regard, including the transparency of the market in question, should not be undertaken in an isolated and abstract manner, but should be carried out using the mechanism of a hypothetical tacit coordination as a basis. However, the Court of First Instance did not carry out is analysis of market transparency in the light of a plausible theory of tacit coordination.

Lastly, the Court of Justice rejects the arguments of Bertelsmann and Sony that a Commission decision approving a concentration can never be annulled on the ground of inadequate reasoning. Nevertheless, the Court of Justice considers that the Court of First Instance could not find that the Commission had failed, in this case, to comply with the duty to provide an adequate statement of reasons for the decision. In that regard, the Court of Justice notes that the decision showed the reasoning followed by the Commission in a way which subsequently allowed a party such as Impala to challenge its validity before the Court of First Instance. Furthermore, the Court of First Instance was aware of the reasons for which the Commission decided to approve the concentration and devoted numerous paragraphs in its judgment to the analysis of whether those reasons were well founded. It cannot therefore be claimed that it was impossible for the Court of First Instance to exercise its power of judicial review. … Since the Court of First Instance examined only two of the five pleas relied on by Impala, the Court of Justice considers that it is not in a position to give a ruling itself on the dispute. It is accordingly referring the case back to the Court of First Instance”.

So in summary …. Because this one isn’t easy – the EC made a decision that Sony-BMG could merge – Impala appealed this approval and the Court of First agreed that the EC’s approval was flawed – so the EC had to review their own decision on the Sony-BMG merger – this the EC did – the result was a second decision clearing the merger – and now the ECJ said the EC didn’t have to do review anyway (but they already had) …… meanwhile Impala had filed a second appeal against the EC’s second (reviewed) approval …. AND … Bertlesmann are selling their 50% stake anyway …… read more here! 
http://ipkitten.blogspot.com/2008/07/bertelsmania-comes-to-luxembourg.html

http://www.billboard.biz/bbbiz/content_display/industry/e3ia9dec6e36d9df174a6259701f0f1eb82