JUDGMENT OF THE COURT (Grand Chamber)
15 February 2005(1)

(Appeal – Competition – Regulation (EEC) No 4064/89 – Decision declaring a ‘conglomerate-type’ concentration incompatible with the common market – Leveraging – Scope of judicial review – Factors to be taken into consideration – Behavioural commitments)

In Case C-12/03 P,

APPEAL under Article 49 of the EC Statute of the Court of Justice lodged on 8 January 2003,

Commission of the European Communities, represented by M. Petite, A. Whelan and P. Hellström, acting as Agents, with an address for service in Luxembourg,

appellant,

the other party to the proceedings being:

Tetra Laval BV, established in Amsterdam (Netherlands), represented by A. Vandencasteele and D. Waelbroeck of the Brussels Bar, M. Johnsson of the Swedish Bar, and A.Weitbrecht and S. Völcker, Rechtsanwälte,

applicant at first instance,

THE COURT (Grand Chamber),,

composed of P. Jann, President of the First Chamber, acting for the President, C.W.A. Timmermans and A. Rosas (Rapporteur), Presidents of Chambers, C. Gulmann, J.-P. Puissochet, R. Schintgen, N. Colneric, S. von Bahr and J.N. Cunha Rodrigues, Judges,

Advocate General: A. Tizzano,
Registrar: L. Hewlett, Principal Administrator,

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

after hearing the Opinion of the Advocate General at the sitting on 25 May 2004,

gives the following

Judgment

‘148

It is necessary first to determine whether a merger transaction creating a competitive structure which does not immediately confer on the merged entity a dominant position may nevertheless be prohibited under Article 2(3) of the Regulation, when in all likelihood it will allow that entity, as a result of leveraging by the acquiring party from a market in which it is already dominant, to obtain in the relatively near future a dominant position on another market in which the party acquired currently holds a leading position, and when the acquisition in question has significant anti-competitive effects on the relevant markets.

…

150

The Court observes that, in principle, a merger between undertakings which are active on distinct markets is not usually of such a nature as immediately to create or strengthen a dominant position due to the combination of the market shares held by the parties to the merger. The factors which are of significance for the relative positions of competitors within a given market are generally to be found within the market itself, namely in particular the market shares held by the competitors and the conditions of competition on the market. It does not follow, however, that the conditions of competition on a market can never be affected by factors external to that market.

151

Thus, by way of example, in a case where the markets in question are neighbouring markets and one of the parties to a merger transaction already holds a dominant position on one of the markets, the means and capacities brought together by the transaction may immediately create conditions allowing the merged entity to leverage its way so as to acquire, in the relatively near future, a dominant position on the other market. This could especially be the case where the relevant markets are tending to converge and where, in addition to the dominant position held by one of the parties to the transaction on a market, the other party, or one of the other parties, to the transaction holds a leading position on another market.

152

Any other interpretation of Article 2(3) of the Regulation could deprive the Commission of the power to exercise control over merger transactions which have solely or principally a conglomerate effect.

153

Consequently, in a prospective analysis of the effects of a conglomerate-type merger transaction, if the Commission is able to conclude that a dominant position would, in all likelihood, be created or strengthened in the relatively near future and would lead to effective competition on the market being significantly impeded, it must prohibit it (see, in this regard, Kali & Salz , paragraph 221; Gencor v Commission , paragraph 162; and Airtours v Commission , paragraph 63).

154

In this context, it is also appropriate to distinguish, on the one hand, between a situation where a merger having conglomerate effects immediately changes the conditions of competition on the second market and results in the creation or strengthening of a dominant position on that market due to the dominant position already held on the first market and, on the other hand, a situation where the creation or strengthening of a dominant position on the second market does not immediately result from the merger, but will occur, in those circumstances, only after a certain time and will result from conduct engaged in by the merged entity on the first market where it already holds a dominant position. In this latter case, it is not the structure resulting from the merger transaction itself which creates or strengthens a dominant position within the meaning of Article 2(3) of the Regulation, but rather the future conduct in question.

155

The Commission’s analysis of a merger producing a conglomerate effect is conditioned by requirements similar to those defined by the Court with regard to the creation of a situation of collective dominance ( Kali & Salz , paragraph 222; and Airtours v Commission , paragraph 63). Thus the Commission’s analysis of a merger transaction which is expected to have an anti-competitive conglomerate effect calls for a particularly close examination of the circumstances which are relevant for an assessment of that effect on the conditions of competition in the reference market. As the Court has already held, where the Commission takes the view that a merger should be prohibited because it will create or strengthen a dominant position within a foreseeable period, it is incumbent upon it to produce convincing evidence thereof ( Airtours v Commission , paragraph 63). Since the effects of a conglomerate-type merger are generally considered to be neutral, or even beneficial, for competition on the markets concerned, as is recognised in the present case by the economic writings cited in the analyses annexed to the parties’ written pleadings, the proof of anti-competitive conglomerate effects of such a merger calls for a precise examination, supported by convincing evidence, of the circumstances which allegedly produce those effects (see, by analogy, Airtours v Commission , paragraph 63).’

‘220

As stated above, under Article 2(3) of the Regulation, concentrations which 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 must be declared incompatible with the common market.

221 In the case of an alleged collective dominant position, the Commission is therefore obliged to assess, using a prospective analysis of the reference market, whether the concentration which has been referred to it leads to a situation in which effective competition in the relevant market is significantly impeded by the undertakings involved in the concentration and one or more other undertakings which together, in particular because of correlative factors which exist between them, are able to adopt a common policy on the market and act to a considerable extent independently of their competitors, their customers, and also of consumers.

222

Such an approach warrants close examination in particular of the circumstances which, in each individual case, are relevant for assessing the effects of the concentration on competition in the reference market.

223

In this respect, however, the basic provisions of the Regulation, in particular Article 2 thereof, confer on the Commission a certain discretion, especially with respect to assessments of an economic nature.

224

Consequently, review by the Community judicature of the exercise of that discretion, which is essential for defining the rules on concentrations, must take account of the discretionary margin implicit in the provisions of an economic nature which form part of the rules on concentrations.’

‘210

At the hearing, the Commission stated that its reasoning is not based on the precise accuracy of its forecasts, inasmuch as it is accepted that there will be significant future growth. It also acknowledged there that, in the light of the remaining uncertainties surrounding the commercial applicability of the necessary barrier technologies, it could not assume significant PET growth for the [non-flavoured] UHT milk market, and that even the weak growth predicted in the contested decision could turn out to be an overestimation. It did, however, emphasise that its forecasts for probable strong growth in the use of PET for fresh milk, juices, FFDs and particularly tea/coffee drinks in the period up to 2005 were entirely plausible.

211

The Court finds that the use of PET will not actually increase for UHT milk and, consequently, for approximately half of the LDP market.

212

As regards the rest of the LDP market, it must be found that the PCI report, [entitled “The Potential for PET in the Packaging of Liquid Dairy Products (2001)”,] the only independent study to concentrate on the LDP market, predicts growth as a result of which PET use will be 9.2% of the fresh non-flavoured milk market in 2005 (PCI, p. 64). In addition there is the fact that, for aseptic packaging, the Warrick report [entitled “Warrick Research Report Packaging Markets – Aseptic Packaging Markets World and Western Europe – 2000”] predicts only minimal growth, of 1%, for flavoured milk, and a slight decline for other milk-based drinks, whilst the Pictet report [entitled “Analysts’ Report Pictet – European Packaging Machinery, Move into PET”] does not give any specific forecasts for LDPs. On the basis of that evidence, the Commission has not shown what it claims to have shown in its defence, namely that its forecasts for LDPs are based on a prudent analysis of the independent studies or on a solid, coherent body of evidence obtained by it through its market investigation. The growth estimates adopted by the Commission (paragraph 209 above) are not really very convincing. The PCI report, on the other hand, provides the only proof which might possibly support the forecast of a 25% market share for PET in other milk-based drinks (namely flavoured milk and drinks based on milk and yoghurt) by 2005 (PCI, pp. 63 and 64). However, if that growth were to be realised, the relevant volume would increase only by 62 000 tonnes for 2000, to reach 92 800 tonnes in 2005, an increase which is not very significant in relation to the roughly 120 million tonnes of milk produced in the Community each year (PCI, p. 9). More generally, the contested decision does not explain adequately how PET could displace HDPE as the main material competing with carton by 2005, especially in the important fresh milk packaging segment. It must be pointed out that the Commission does not dispute either the overall figure of 17.3% for the use of HDPE for LDPs given by [the consulting company] Canadean for 2000 (see table 3 in recital 66) or the forecast that that figure could reach 19.5% by 2005 (see table 5 in recital 105).

213

As regards juices, the Commission’s forecast is even less convincing. Although the Commission itself acknowledged that the growth in question would be due mainly to a switch from glass to PET, it did not conduct any analysis of the glass market. In the absence of such an analysis, the Court is unable to ascertain the accuracy of the Commission’s forecasts for juices. An analysis of that kind would have been indispensable to enable the Court to determine the likely level of switch from glass to carton, PET and HDPE. It was all the more indispensable given the differences between the relevant forecasts made in the Canadean and Warrick studies, on the one hand, and the Pictet study, on the other, as regards levels of growth and the time periods used in the analyses.

214

It follows that the growth forecasts for LDPs and juices as stated by the Commission in the contested decision have not been proven to the requisite legal standard. Although a certain amount of growth in those segments is likely, especially for premium products, convincing evidence of the extent of the growth is lacking.

215

By contrast, the independent studies do show that, by 2005, there will in all likelihood be a significant increase in the use of PET for packaging FFDs and tea/coffee drinks, including isotonic drinks. Since the level of growth forecast in the contested decision was not seriously called into question by the applicant at the hearing and is not overestimated compared with the forecast in the studies, the Court finds that the Commission did not commit an error on this point.’

‘429

The behavioural commitment, namely the separation of Sidel from Tetra Pak, together with the confirmation of pre-existing Article 82 undertakings, are submitted in particular with regard to the concerns on the ability of the merged entity to leverage its dominant position in carton packaging to gain a dominant position in PET packaging equipment. This commitment and the pre-existing Article 82 commitments are, however, purely behavioural. As such, they are not suitable to restore conditions of effective competition on a permanent basis, since they do not address the permanent change in the market structure created by the notified operation that causes these concerns.

430

The “separation” of Sidel from Tetra Pak companies does not alter the fact that, as expressly acknowledged in the commitment itself, Sidel’s board will “be held responsible directly by the Tetra Laval Group board”. It cannot be expected that such separation will prevent Sidel from implementing the commercial strategy of the Tetra Laval Group. In addition Sidel’s legal status could be changed, i.e. Sidel might be de-listed and turned into a private company like Tetra Laval which would make monitoring of “firewalls” virtually impossible.

431

The commitment not to “bundle” as well as the confirmation of the pre-existing Article 82 commitments constitute pure promises not to act in a certain manner, indeed not to act in contravention of Community law. Such behavioural promises are in contrast with the Commission’s stated policy on remedies and with the purpose of the Merger Regulation itself … and are extremely difficult if not impossible to monitor effectively.

432

Overall, in addition to being complex in their implementation and in their monitoring, these commitments cannot be considered as capable of removing effectively the competition problems identified.’

‘156 In the present case, the leveraging from the aseptic carton market, as described in the contested decision, would manifest itself – in addition to the possibility of the merged entity engaging in practices such as tying sales of carton packaging equipment and consumables to sales of PET packaging equipment and forced sales (recitals 345 and 365) – firstly, by the probability of predatory pricing by the merged entity (recital 364, cited in paragraph 49 above); secondly, by price wars; and, thirdly, by the granting of loyalty rebates. Engaging in these practices would enable the merged entity to ensure, as far as possible, that its customers on the carton markets obtain from Sidel any PET equipment they may require. The contested decision finds that Tetra holds a dominant position on the aseptic carton markets, that is to say, the markets for aseptic carton packaging systems and aseptic cartons (recital 231, see paragraph 40 above), a finding which is not disputed by the applicant.

157

It should be recalled that, according to settled case-law, where an undertaking is in a dominant position it is in consequence obliged, where appropriate, to modify its conduct so as not to impair effective competition on the market regardless of whether the Commission has adopted a decision to that effect (Case 322/81 Michelin v Commission [1983] ECR 3461, paragraph 57; Case T-51/89 Tetra Pak v Commission [1990] ECR II-309, paragraph 23; and Joined Cases T-125/97 and T-127/97 Coca-Cola v Commission [2000] ECR II-1733, paragraph 80).

158

Moreover, in response to the questions put by the Court at the hearing, the Commission did not deny that leveraging by Tetra through the conduct described above could constitute abuse of Tetra’s pre-existing dominant position in the aseptic carton markets. This could also be the case, according to the concerns expressed by the Commission in its defence, in circumstances where the merged entity refused to participate in the installation and any necessary conversion of Sidel SBM machines, to provide after-sales service or to honour the guarantees for such machines when sold by converters. However, the Commission went on to state that the fact that a type of conduct may constitute an independent infringement of Article 82 EC does not preclude that conduct from being taken into account in the Commission’s assessment of all forms of leveraging made possible by a merger transaction.

159

In this regard, it must be stated that, although the Regulation provides for the prohibition of a merger creating or strengthening a dominant position which has significant anti-competitive effects, these conditions do not require it to be demonstrated that the merged entity will, as a result of the merger, engage in abusive, and consequently unlawful, conduct. Although it cannot therefore be presumed that Community law will not be complied with by the parties to a conglomerate-type merger transaction, such a possibility cannot be excluded by the Commission when it carries out its control of mergers. Accordingly, when the Commission, in assessing the effects of such a merger, relies on foreseeable conduct which in itself is likely to constitute abuse of an existing dominant position, it is required to assess whether, despite the prohibition of such conduct, it is none the less likely that the entity resulting from the merger will act in such a manner or whether, on the contrary, the illegal nature of the conduct and/or the risk of detection will make such a strategy unlikely. While it is appropriate to take account, in its assessment, of incentives to engage in anti-competitive practices, such as those resulting in the present case for Tetra from the commercial advantages which may be foreseen on the PET equipment markets (recital 359), the Commission must also consider the extent to which those incentives would be reduced, or even eliminated, owing to the illegality of the conduct in question, the likelihood of its detection, action taken by the competent authorities, both at Community and national level, and the financial penalties which could ensue.

160

Since the Commission did not carry out such an assessment in the contested decision, it follows that, in so far as the Commission’s assessment is based on the possibility, or even the probability, that Tetra will engage in such conduct in the aseptic carton markets, its findings in this respect cannot be upheld.

161

Moreover, the fact that the applicant offered commitments regarding its future conduct is also a factor which the Commission should have taken into account in assessing whether it was likely that the merged entity would act in a manner which could result in the creation of a dominant position on one or more of the relevant PET equipment markets. There is no indication in the contested decision that the Commission took account of the implications of those commitments when it assessed the creation of such a position in future through leveraging.

162 It follows from the foregoing that it is necessary to examine whether the Commission based its analysis of the likelihood of leveraging from the aseptic carton markets, and of the consequences of such leveraging by the merged entity, on sufficiently convincing evidence. In the course of that examination it is necessary, in the present case, to take account only of conduct which would, at least probably, not be illegal. In addition, since the anticipated dominant position would only emerge after a certain lapse of time, by 2005 according to the Commission, its analysis of the future position must, whilst allowing for a certain margin of discretion, be particularly plausible.’

‘217 The leveraging methods referred to in recital 364 of the contested decision (cited in paragraph 49 above) are based on Tetra’s dominant position on the aseptic carton markets. Given, in particular, Tetra’s commitment to divest itself of its preforms operations, the leveraging would be carried out by two types of measures: first, through pressure leading to tied sales or sales which bundle equipment and consumables for carton packaging jointly with PET packaging equipment. That pressure could be put on Tetra customers needing to continue to use carton packaging for some of their production and especially those customers with long-term agreements with Tetra for their carton packaging needs (recital 365, cited in paragraph 50 above). Second, measures could be adopted to offer incentives, such as predatory pricing, price wars and loyalty rebates.

218

However, the use, by an undertaking with a dominant position like Tetra’s on the aseptic carton markets, of pressure in the form of tied sales or incentives such as predatory pricing or loyalty rebates that are not objectively justified, would usually constitute an abuse of that position. As this Court has already held, the possible recourse to such strategies cannot be presumed by the Commission, as it has done in the contested decision, in order to justify a decision prohibiting a merger transaction which has been notified to it in accordance with the Regulation (see paragraphs 154 to 162 above). It follows that the leveraging practices which may be taken into consideration by the Court are limited to those which, at least probably, do not constitute an abuse of a dominant position on the aseptic carton markets.

219

It is, therefore, necessary merely to consider strategies for tied or bundled sales which are not in themselves forced, for loyalty rebates that are objectively justified on the carton markets, and for offers of reduced prices for carton or PET packaging equipment that are not predatory within the meaning of well-established case-law (Case C-62/86 AKZO v Commission [1991] ECR I-3359, particularly paragraphs 102, 115, 156 and 157; judgment in Case C-333/94 Tetra Pak v Commission [[1996] ECR I‑5951], paragraphs 41 to 44, upholding the judgment in Case T-83/91 [ Tetra Pak v Commission [1994] ECR II‑755], and the Opinion of Advocate General Fennelly in Joined Cases C-395/96 P and C-396/96 P Compagnie maritime belge transports and Others v Commission [2000] ECR I-1365, particularly paragraphs 123 to 130). Against that background, it is necessary to examine whether the Commission took account of the commitment concerning separation between Sidel and Tetra Pak companies, agreed in principle for a 10-year period, according to which “no joint offerings of any of Tetra Pak’s carton products together with Sidel’s SBM machines are to be made”.

220

It is apparent from the contested decision that Tetra asked the Commission to take note of its existing obligations under Article 3(3) of … Decision 92/163 …, which provides:

“Tetra Pak shall not practice predatory or discriminatory prices and shall not grant to any customer any form of discount on its products or more favourable payment terms not justified by an objective consideration. Thus, discounts on cartons should be granted solely according to the quantity of each order, and orders for different types of carton may not be aggregated for that purpose.”

221

It follows that Tetra gave a clear indication of its willingness to comply fully with the special obligations imposed on it by Article 82 EC as a result of the dominant position it holds on the aseptic carton markets. It also reiterated its acceptance of all of the relevant obligations imposed on it following the finding in Decision 92/163 of an infringement of Article 82 EC as regards those markets. It also undertook, in the context of the present proceedings, to make no joint offers of its carton products together with Sidel’s SBM machines.

222

Consequently, the only methods of tied or bundled sales which would actually be feasible for the merged entity would be offers made by Tetra to its current customers on the carton markets which would not be compulsory or forced and which would only be in respect of carton packaging equipment and/or carton products, on the one hand, and PET packaging equipment other than SBM machines, on the other. It must also be observed that, notwithstanding the emphasis placed by the Commission in the contested decision (recitals 177 and 369), in its written observations and oral pleadings on the significance of the merged entity’s ability to offer almost all of the equipment necessary for setting up an integrated PET production line, it is clear from the commitments that it would not be possible for that entity to make a joint offer to a customer for carton packaging equipment and an integrated PET production line, at least not one containing a Sidel SBM machine.

223

Moreover, although the finding in the contested decision regarding the price discrimination allegedly practised in the past by Sidel is not, having regard to the parties’ written pleadings and the oral pleadings of the Commission concerning the underlying econometric analysis, vitiated by a manifest error of assessment, it cannot constitute sufficiently convincing evidence that the merged entity will continue to behave in a similar way. Unlike Sidel prior to the merger, the merged entity would be bound not only by the commitments but also by the various obligations limiting Tetra’s conduct.

224

It must therefore be found that the merged entity’s possible means of leveraging would be quite limited. An examination of the foreseeable consequences of its resorting to such conduct must take account of this.’

‘260

The Court finds, firstly, that the emphasis placed in the contested decision on sensitive products belonging to “common product segments” is based on an objective criterion, namely the fact that these products belong to the category of carton-packaged products and the possibility, at least from a technical standpoint, of them being packaged in PET, which, in the light of the growth to be expected (see paragraphs 201 to 216 above), is likely to become a fairly widespread commercial reality by 2005, at least for FFDs and tea/coffee drinks.

261 However, the contested decision fails to provide sufficiently convincing evidence to demonstrate the allegedly specific characteristics of SBM machines used for packaging sensitive products. Admittedly, a combined machine specifically designed for filling carbonated drinks cannot be used for juices. However, that far from proves that low- and high-capacity SBM machines, even ones tailored before sale to the specific wishes of their purchasers, do not remain generic machines, as argued in essence by the applicant, that is to say, capable of packaging several types of products.

262

As for the alleged specificity of packaging moulds according to the product intended for them, as argued by the Commission, whilst the applicant does not dispute that the number of moulds determines the capacity of the machine, this specific fact does not prove that SBM machines, of which moulds are merely a component, differ significantly from each other. It is clear from the notification that moulds last on average for three years, whilst an SBM machine lasts for up to 15 years (recital 304). Although Sidel makes its own moulds, the contested decision does not dispute the information on the moulds market provided in the notification, according to which Sidel is not active in that market (that is, as a supplier of moulds to third parties) and the competition amongst those undertakings which are active is very strong, especially from SIG, which claims on its internet site that it is a world leader (recital 309).

263

Nor does the contested decision call into question the statement in the notification that, in a large facility, a customer can use several SBM machines in order to combine them for its various production needs. The contested decision does not contain any examination of whether the flexibility required by some customers for SBM machine moulds can be explained by needs relating to such uses.

264

In its defence, the Commission refers to a number of changes which can be made to an SBM machine to enhance its performance or make it more useful in an integrated PET production line, such as the addition of a special blow air filtration system or ultraviolet treatment to reduce the risk of contamination before the preforms enter the SBM machine. At the hearing, the Commission stated that these changes are evidence of the very specific characteristics of an SBM machine used in a PET packaging line to which the contested decision refers (recital 177). Tetra, whilst disputing the Commission’s approach of attributing specific characteristics of other components of a PET production line to SBM machines, none the less stated that these changes represented a mere 5% of the cost of an SBM machine.

265

The Court finds, first, that the contested decision makes no reference to this information. Although the decision correctly stresses the importance of the individual needs of customers who require an aseptic PET filling line in particular, namely a basic guarantee of aseptic conditions, this cannot justify the definition of a distinct sub-market for SBM machines used in filling lines for the sensitive products at issue here. The mere fact that each SBM machine must be installed in a PET line in order to be useful to its purchaser does not justify that specific characteristics of other PET equipment in that line should be attributed to the SBM machines themselves.

266

There is all the more reason to accept the generic nature of SBM machines, inasmuch as at the hearing the Commission was unable to rebut Tetra’s assertion regarding the relatively low cost, when compared to the cost of a so-called “standard” SBM machine, especially a high-capacity SBM machine, of making any necessary changes to render the machine more compatible for use with aseptic and non-aseptic PET filling machines, or possibly with aseptic filling machines capable of conversion from PET to HDPE.

267

The parties agree, moreover, that combined machines, which are still only rarely used for aseptic filling (see paragraphs 248 and 249 above), do not constitute a distinct market, as is also clear from the contested decision.

268

As regards the possibility of determining exactly which group a given customer belongs to when he purchases an SBM machine and whether or not that customer may, at least currently within the [European Economic Area], be able to find a better price through arbitrage between the available suppliers, it is clear that those possibilities, if established, would apply as much to SBM machines used for non-sensitive products as to those used to package sensitive products. The possibility for the merged entity to identify the group to which a customer belongs is due to the fact that many customers in the carton markets who will switch to PET will be current Tetra customers. However, this possible benefit, resulting from the first-mover advantage which the merged entity will foreseeably have, does not preclude those customers from turning to other suppliers of SBM machines if they become dissatisfied with the conditions offered by the merged entity.

269

Therefore, on the basis of the evidence in the contested decision, the Commission committed an error, first, by finding that “the majority of SBM machines are generic” (recital 177) and, second, by distinguishing between them according to end-use. The contested decision does not provide sufficient evidence to justify the definition of distinct sub-markets among SBM machines with reference to their end-use. Consequently, the only sub-markets it is necessary to consider are those for low- and high-capacity machines.’