In overturning the Commission's decision to allow the two record
labels to merge, the Court of First instance has dealt a severe
blow to the Commission in its role as Europe's competition
regulator. It is the latest in a long line of overturned decisions,
though the first in which an approval was overturned; other cases
involved blocked mergers which were then approved.
In 2002 the Commission blocked three mergers which were
subsequently approved by the Court, prompting a major review of the
Commission's merger review processes. The Sony/BMG decision was the
first taken entirely under the guidance of the new rules, and this
latest overruling will undermine that new approach.
"This is a disappointing result for the Commission, particularly
given the radical changes it has implemented since the series of
defeats in 2002," said Christina Day, a competition law specialist
with Pinsent Masons, the law firm behind OUT-LAW.COM.
This week the Court upheld a case brought by independent music
label association Impala to have the approval annulled. "This is a
watershed in European affairs, a landmark judgement for music,"
said Impala President Patrick Zelnick. "There is no doubt that it
will block any further mergers and will transform how music and
other creative sectors are treated."
Previous over-rulings have involved mergers that were blocked by
the Commission. Many observers assumed that approvals of rulings
were less likely to be challenged. Some commentators have said that
former competition commissioner Mario Monti, who made the original
decision just as he was leaving office, was keen to approve the
merger to avoid controversy.
The ruling itself carried scathing criticism of the incomplete
nature of the Commission's basis for its judgment. "The elements on
which that argument was founded were incomplete and did not include
all the relevant data that ought to have been taken into account by
the Commission," it said. "They were therefore not capable of
supporting the conclusions drawn from them."
The Commission now has the right to appeal, but only on points
of law and not on the case as a whole. The body has two months in
which to lodge its appeal with the European Court of Justice.
The case may also have implications for a proposed merger
between two of the other four major labels, Warner Music and EMI.
Both companies are keen on the merger but cannot agree on price.
The Court's ruling makes a regulatory hurdle more likely even if
the companies can come to a financial agreement.
Following the annulment of its first decision the Commission
will have to conduct another investigation into the merger.
"Given that the Court's judgment heavily criticises the
Commission's inadequate analysis and assessment of the merger, it
is likely that the Commission will be even more wary when
reconsidering this case, thus prolonging the parties' uncertainty
further," said Day.
In a message to staff, Sony BMG chief executive Rolf
Schmidt-Holtz said: “while we are not pleased with having to incur
the cost and inconvenience of a reconsideration process, we are
confident this re-examination will confirm the Commission’s
original findings.”
