ECJ introduces a new clear line as to merger control for joint ventures
09/13/2017 - Reading time: 1 minutes
In a preliminary ruling procedure instigated by the Federal Cartel Prosecutor, the ECJ (European Court of Justice) has now drawn a clear line regarding reviews of joint ventures under merger control law. This means that from now on only full-function joint ventures are subject to merger control – at least on the European level. Since 7 September 2017, it is irrelevant whether the joint venture is a newly created one. Rather, this distinction also comprises existing undertakings where a joint venture results from the addition of one or more parent undertaking(s). Therefore, on the European level a concentration requiring a merger filing is deemed to exist only if the structure concerned is a full-function joint venture.
As of now, European merger control requires a full-function joint venture to be an ‘autonomous economic entity’. Therefore, the venture must perform on a lasting basis all the functions of an autonomous economic entity. This means especially that the venture concerned is not only auxiliary to its parent companies’ activities.
However, all those rejoicing at the merger control rules obviously being interpreted restrictively should take the good news with a grain of salt: As a result, anti-trust regulations are applicable in full to all other joint ventures so that coordinating the actions of the parent companies via the joint venture is subject to the ban on cartels. In this setting, however, it is not possible to obtain approval by the authorities by way of a merger filing but the undertakings themselves must assess the situation and ultimately bear the (draconian) consequences.
Thanks to this precedent-setting decision by the ECJ, the issue has been resolved as far as European merger control is concerned; it remains questionable though whether this can be directly transposed onto national merger control. Most elements of Austrian merger control rules date back to the time before the introduction of the term ‘full-function’ joint venture and include much more than just the acquisition of control. For instance, acquisitions of shares are covered as soon as the acquired percentage is 25%.
This leads to the question if such a share purchase which subsequently results in a joint venture is nevertheless subject to Austrian merger control or whether the more specific rule governing joint ventures must be applied in that case as well; in Austria, too, the joint-venture rule requires ‘full function’ to exist. If this is the case, one must proceed on the assumption that the arguments stated by the ECJ should also apply to the interpretation of the Austrian laws, all the more so as the wording of the regulation is nearly identical. In that case, however, we have a bitter pill to swallow in Austria as well: as a consequence of the ECJ ruling, sections 1 et seq. of the Cartel Act (Kartellgesetz, KartG) of 2005 apply in full to non-full-function joint ventures without a preliminary check and clearance being possible. So exciting questions are going to arise in the near future in the context of structuring such projects and submitting, or not submitting, a merger filing.