A. The SIEC test: rationale and challenge

Under Regulation 139/2004, the compatibility of mergers with the internal market is assessed against the SIEC test. As mentioned in the introduction, the relevant substantive question is whether the transaction would significantly impede effective competition.Footnote ⁹ The SIEC test marked a break with the previous regime, which revolved around the concept of dominance. Under Regulation 4064/89, the Commission had to prove that the concentration would affect competition as a result of the creation or the strengthening of a dominant position,Footnote ¹⁰ whether individually or collectively held.Footnote ¹¹ The SIEC test is broader than the preceding one in the sense that it allows for intervention even absent the creation or strengthening of a dominant position. For instance, a transaction can be declared to be incompatible with the internal market even when the new entity would not even be the market leader in the post-merger scenario.Footnote ¹²

The shift to the SIEC test is explained by a concern that the dominance-based standard was underinclusive and thus opened an ‘oligopoly gap’.Footnote ¹³ The argument, more precisely, was that there are some markets (namely non-collusive oligopoliesFootnote ¹⁴ ) where competition can be significantly affected even when a concentration is unlikely to create or strengthen a dominant position.Footnote ¹⁵ In the same vein, it was argued that Regulation 4064/89 was not in line with the mainstream consensus. From an economic perspective, there is indeed no reason to expect or assume that concentrations only harm competition where they lead to, or reinforce, a dominant position. What matters is whether the change in the market structure results in a deterioration of the conditions of competition in the relevant market(s) affected by it.Footnote ¹⁶

The dominance-based test might have been defective from an economic standpoint but had a clear advantage from a legal one. The notion of dominance, whether individual or collective, had relatively well-defined boundaries at the time of the adoption of the merger control regime. Since the notion is also enshrined in Article 102 TFEU, it had a long history of enforcement behind it when Regulation 4064/89 entered into force.Footnote ¹⁷ As a result, the Court had already been presented with the opportunity to flesh out the conceptFootnote ¹⁸ and define proxies for it.Footnote ¹⁹ The SIEC test, by contrast, was a legal innovation for which there were no obvious precedents. There were several reasons, moreover, why the new substantive standard could be a source of legal uncertainty. As the EU legislature explains in the Preamble to the Regulation, a SIEC encompasses instances in which the degree of market power is significant, but not necessarily significant enough for it to give rise to dominance.Footnote ²⁰ The theoretical and practical challenge, against this background, was (and remains) to identify the requisite degree of market power that triggers the application of Regulation 139/2004 (and, similarly, to draw the line between significant and insignificant impediments to effective competition).

Delimiting the substantive scope of the SIEC test is particularly challenging in relation to mergers with a horizontal aspect – that is, transactions involving actual or potential competitors in one or more markets.Footnote ²¹ These operations eliminate, by their very nature, a source of competitive pressure. In other words, they strengthen, at least to some degree, the market power of the parties.Footnote ²² Therefore, every transaction with a horizontal dimension can be seen as prima facie problematic under Regulation 139/2004. The assessment of their compatibility with the internal market hinges, in practice, on whether the (inevitable) increase in market power to which they lead is ‘significant’ within the meaning of the SIEC test. The approach followed by the Commission to define this concept, and, in the same vein, the criteria used to distinguish between significant and insignificant impediments to effective competition is of paramount importance under the regime.

B. Making the SIEC test operational

The Commission has operationalised the SIEC test by means of soft law instruments that break down the substantive standard into workable building blocks. Both the Guidelines on horizontalFootnote ²³ and non-horizontal mergersFootnote ²⁴ identify two broad reasons why a concentration could significantly impede effective competition: transactions can lead to either coordinated or non-coordinated effects. The former (coordinated effects) concern, in essence, a scenario of collective dominance, the boundaries of which were defined by the GC in Airtours.Footnote ²⁵ More importantly for the purposes of the analysis that follows, the (cumulative) conditions laid down in that judgement have a clear meaning that is discernible ex ante and that is known to be stringent. As a result, the so-called Airtours criteria do not give rise to the sort of concerns on which this piece focuses.

The latter instance (non-coordinated effects), by contrast, was a relative novelty in the legal landscape, even though it shares some commonalities with the analysis of effects under Article 101(1) TFEU.Footnote ²⁶ A (horizontal or non-horizontal) concentration gives rise to non-coordinated effects where it strengthens the market power of a firm to such an extent that it significantly affects the dynamics of competition. Where the transaction has a horizontal dimension (and thus involves actual or potential competitors), non-coordinated effects result from the elimination of a competitive constraint on the relevant market. The effects are, in other words, the very consequence of the transaction.Footnote ²⁷ When the transaction is a possible source of non-horizontal concerns, on the other hand, non-coordinated effects, if manifested, will be triggered by the conduct of the new entity. Where the relevant markets are vertically related, the said entity may engage in a strategy of input or customer foreclosure;Footnote ²⁸ where they are horizontally related, foreclosure might result from a tying or bundling strategy.Footnote ²⁹

The analysis that follows focuses on non-coordinated effects arising from mergers involving actual or potential competitors (that is, mergers with a horizontal dimension). The Guidelines on horizontal mergers (hereinafter, the ‘Guidelines’) identify several factors against which the Commission commits to assessing the likelihood of a SIEC. These factors include the market shares of the parties (the higher the market share, the more likely the negative effects),Footnote ³⁰ the closeness of competition (the impediment to effective competition being more probable where the parties are close competitors),Footnote ³¹ whether customers have the ability to switch suppliersFootnote ³² (the exercise of market power can be expected in the aftermath of the operation if they do not), whether competitors have the ability to react to the conduct of the new entity (which may not be the case where the former would be unable to expand capacityFootnote ³³ or where the latter would have the ability to hinder their expansionFootnote ³⁴ ), and, finally, whether the transaction involves an important competitive forceFootnote ³⁵ (that, is a so-called ‘maverick’, the elimination of which affects market dynamics more than its modest position might suggest).

The conclusions based on these factors may then be corrected in light of other considerations, which relate to the features of the relevant market. Even when the analysis suggests, prima facie, that the transaction would lead to non-coordinated effects, an impediment to effective competition may not materialise, first, where the parties face strong constraints on either the buyer or the seller side.Footnote ³⁶ In such an instance, the exercise of countervailing power may not allow the parties to exercise market power in the post-merger scenario. Second, non-coordinated effects cannot be expected to result from a transaction where entry is ‘sufficiently easy’, in the sense that it is likely and sufficiently timely so that the mere prospect of a new player restricts the ability and incentive of existing players to significantly affect the relevant parameters of competition (Figure 1).Footnote ³⁷

Figure 1. The SIEC test under Regulation 139/2004.

C. The interpretation and application of the factors

There are three key aspects about the Commission’s approach to the abovementioned factors that are worth emphasising. First, the Guidelines note that each of the factors, considered in isolation, are not necessarily sufficient to substantiate a finding of non-coordinated effects.Footnote ³⁸ Therefore, they will be typically assessed in combination with one another. Second, the Commission takes the view that a finding of non-coordinated effects need not consider every factor in each transaction.Footnote ³⁹ One consequence of this approach is that the criteria against which the compatibility of a merger is assessed may change from operation to operation. For instance, the analysis in one case may rely on the parties’ market share and on the fact that they are close competitors; in another, the authority may place an emphasis on the status of one of them as a ‘maverick’.

The third aspect that is worth emphasising has to do with the fact that none of the factors identified in the Guidelines has clear, hard boundaries that can be discerned ex ante. In other words, there is no threshold of significance in relation to any of them. Consider ‘closeness of competition’. The Guidelines do not identify the requisite degree of closeness that would make it possible to draw the line between significant and insignificant impediments to effective competition. They do not present the issue as a binary one – whereby the parties are either significantly close competitors or they are not – but as one of degree, to be assessed on a case-by-case basis.Footnote ⁴⁰ Similarly, the Guidelines mention that a transaction is more likely to impede effective competition where it involves an ‘important competitive force’. However, the Commission does not identify any operational criteria, other than the fact that the influence of a ‘maverick’ on the market may be greater than its market share might suggest.Footnote ⁴¹

These three aspects, taken together, raise the question of whether they could give, in effect, something akin to de facto deference to the Commission when it evaluates mergers involving actual or potential competitors. This is so, to begin with, because the Guidelines follow an approach that allows the authority to decide, case-by-case, the benchmark against which the compatibility of transactions is assessed. In the same vein, it is an approach that does not give the merging parties the chance to argue that other factors, potentially casting doubts on the finding of a SIEC, should have been considered in the assessment. What is more, the nebulous boundaries of each of the factors are inextricably linked to the particularities of each case. In other words, the line between significant and insignificant impediments can only be determined ex post, once the assessment is performed.

The leeway which, by design, the Guidelines give to the authority may have the practical effect of turning an issue of law into one of policy. Merger control would revolve around policy in the sense that the decision of which transactions to prohibit and which to allow would not be determined and constrained by law, but by the enforcement priorities defined by the administrative authority. Concerns that the Commission’s approach may give it discretion in relation to horizontal transactions were, in fact, raised by practitioners in the years that followed the adoption of Regulation 139/2004. Venit, for instance, expressed the view that the authority’s approach ‘substantially reduces’ the ‘evidentiary burden’ to which it is subject.Footnote ⁴² This commentator contrasted, in this sense, the Airtours conditions, which are cumulative and are discernible ex ante, with the way the Commission performed the assessment of non-horizontal effects under the SIEC test.Footnote ⁴³

The consequences of the Commission’s approach to the assessment of horizontal mergers became apparent in Hutchison 3G UK/Telefónica UK.Footnote ⁴⁴ The authority reiterated in its decision some of the key aspects of the philosophy permeating the Guidelines. First, it explained that the compatibility of a transaction need not consider every single one of the factors (which, in any event are not exhaustive).Footnote ⁴⁵ Second, the Commission emphasised that the relevance of each factor is assessed along a continuum, not as binary options. Therefore, two parties can be deemed close competitors within the meaning of the Guidelines without necessarily being the closest competitors.Footnote ⁴⁶ Similarly, an important competitive force need not be a ‘particularly important’ one and thus need not stand out relative to the constraints imposed by other players.Footnote ⁴⁷

A. The substantive criteria defined by the GC

In May 2020, the GC delivered its ruling in CK Telecoms, which annulled the Commission decision in Hutchison 3G UK/Telefónica UK.Footnote ⁴⁸ The contributions it made in relation to the requisite standard of proof and the role and relevance of economic analysis have been widely discussed by commentators.Footnote ⁴⁹ Arguably, the single most important conversation that the judgement started, and the one on which the remainder of the paper focuses, has to do with the way in which the GC construed the substantive factors around which the assessment of horizontal transactions revolves. The first-instance court departed from the Commission’s interpretation insofar as it placed meaningful substantive boundaries when defining the SIEC test. In this sense, the judgement specifies the requisite degree of significance justifying a finding of incompatibility.

According to the GC, for instance, it would not be enough to show that the parties are close competitors, as the Commission argued in its decision. It would be necessary to prove that they are particularly close competitors; that is, that there is something about the competitive relationship between the parties that is qualitatively different from the relationship that exists with other oligopolists. Two parties to a transaction could be seen as particularly close competitors, pursuant to the GC’s interpretation, where their products are seen as the only two meaningful substitutes for one another.Footnote ⁵⁰ Such scenario would arise, for instance, where the merging firms target the same niche of customersFootnote ⁵¹ or where the customers of one of the parties only contemplate switching to the other (Figure 2).Footnote ⁵²

Figure 2. (1) and (2): ‘Closeness of competition’ as interpreted by the Commission (top) and the GC (bottom).

Similarly, the GC held that it would not be sufficient to prove that the ‘maverick’ involved in the concentration is an ‘important competitive force’. According to this interpretation, the authority would be required to establish that the said ‘maverick’ is a ‘particularly important’ competitive force, in the sense that the competitive pressure it exercises stands out from that coming from the rest of rivals.Footnote ⁵³ According to this interpretation, a ‘maverick’ within the meaning of the SIEC test would not just be a firm that adds more dynamism than its market share might suggest. It would be the primary responsible for disciplining the behaviour of the rest of oligopolists. This situation could arise, for instance, where the ‘maverick’ is the late comer to a market with well-established players and therefore has to compete particularly aggressively to improve its position (Figure 3).Footnote ⁵⁴

Figure 3. (1) and (2): ‘Maverick firm’ as interpreted by the Commission (top) and the GC (bottom).

The GC was explicit about why the appropriate interpretation of the SIEC test demands the delineation of clear substantive boundaries in relation to each of the factors. It pointed out, in this sense, that the Commission’s interpretation of the various factors would allow it to establish a SIEC in any oligopolistic market (which is tantamount to saying in virtually any market).Footnote ⁵⁵ If it is accepted, for instance, that an ‘important competitive force’ need not stand out from the rest of rivals, every single firm within an oligopoly could potentially meet this condition. Similarly, every single horizontal merger would be problematic if it were accepted that the parties to the transaction need not be ‘particularly close’ competitors. If the relevance of this factor is assessed along a continuum (as the Commission argued in its decision), it would always be possible to conclude that there is, at least to some extent, closeness of competition between the parties (and thus always possible to establish a SIEC). This is particularly true, the GC explains, in oligopolistic markets such as the one at stake in Hutchison 3G UK/Telefónica UK, which are characterised by a low degree of product differentiation.Footnote ⁵⁶

In addition to fleshing out each of the individual factors laid down in the Guidelines, the GC introduced an overarching test to establish whether the non-coordinated effects resulting from a horizontal merger can be expected to lead to a SIEC. According to the GC’s interpretation of Regulation 139/2004, the Commission would need to show that the transaction would lead to the elimination of ‘important competitive constraints’ that the merging parties had exerted upon each other and that, in addition, it would lead to a reduction of the competitive pressure to which remaining competitors are subject. These two criteria were derived by the GC from the Preamble to Regulation 139/2004, and more precisely from Recital 25.Footnote ⁵⁷ The judgement specifically noted that this overarching test is not to be confused or conflated with the factors defined by the Commission in its Guidelines.Footnote ⁵⁸

The definition of an overarching test served three purposes in the analytical framework crafted by the GC. First, it ensures that not every horizontal merger amounts to a SIEC merely because it entails the loss of (some degree of) competitive pressure.Footnote ⁵⁹ By requiring that the elimination of a competitive constraint be an ‘important’ one, it emphasises that the impediment to effective competition must be shown to be ‘significant’. The introduction of the overarching test means, second, that the individual factors are to be measured against a single overarching goal and are not examined in isolation. In addition, third, the test informs the fleshing out of individual factors. Because it demands that the constraints that the parties exerted upon each other be ‘important’, it would not be enough to show, for instance, that they were close competitors. They must be shown to be, in addition, ‘particularly’ close ones.

B. The Court ruling in CK telecoms

The ECJ set aside the GC ruling in CK Telecoms and referred the case back to the latter.Footnote ⁶⁰ The appeal judgement followed, by and large, Advocate General Kokott’s Opinion.Footnote ⁶¹ To begin with, the Court rejected the overarching test proposed by the GC.Footnote ⁶² By doing so, it brought the assessment back to the analytical framework sketched in Figure 1 (and rejected the extra step depicted in Figure 4). The ECJ advanced two main reasons in support of its conclusion. The need to preserve the effectiveness of the EU merger control regime is one of them. In addition, it argued that requiring the Commission to show not just that the transaction eliminates important competitive constraints placed upon each other but also that it would reduce the competitive pressure on remaining players would mean that the strengthening of the market power of the new entity in the post-merger scenario would be insufficient, in and of itself, to justify a finding of a SIEC.Footnote ⁶³ Such an outcome, the judgement suggests, goes against the letter and logic of Regulation 139/2004.Footnote ⁶⁴

Figure 4. The GC’s analytical framework in CK Telecoms.

Concerning the interpretation of the Guidelines, and the individual factors contained therein, the Court rejected the Commission’s argument pursuant to which the administrative authority benefits from a margin of discretion when interpreting the meaning of concepts such as those of ‘important competitive force’ and ‘closeness of competition’. The judgement noted, in this sense, that an administrative authority does not enjoy deference when construing the scope of legal provisions, including the substantive test enshrined in Regulation 139/2004.Footnote ⁶⁵ In this sense, it neatly distinguished between points of law, the interpretation of which is subject to full review, and complex assessments, which are only controlled for manifest errors.Footnote ⁶⁶ The Court pointed out, moreover, that the EU courts are in no way constrained by the choices made by the Commission, which is the only one bound by its own soft law instruments.Footnote ⁶⁷

On the other hand, the Court concluded that the interpretation of the factors by the GC was incorrect in law. Contrary to what the first-instance court had held, the ECJ ruled that an ‘important competitive force’ (or ‘maverick’) within the meaning of the Guidelines need not be a ‘particularly important’ one. Therefore it would not be necessary to show that the competitive pressure it exerts is particularly aggressive.Footnote ⁶⁸ Instead, the Court concurred with the interpretation given by the Commission, whereby the characterisation of a firm as a ‘maverick’ is appropriate whenever the influence of the undertaking on the competitive process is more important than its market share might suggest.Footnote ⁶⁹ In a similar vein, the ECJ ruled that it cannot be excluded that more than a single firm qualifies as an ‘important competitive force’.Footnote ⁷⁰ Again, considerations pertaining to the effectiveness of the merger control regime weighed in this interpretation.Footnote ⁷¹

The Court interpreted the other factor, namely closeness of competition, in a similarly expansive manner. Contrary to what the GC had held, the ECJ ruled that it is not necessary to show that two parties are ‘particularly close competitors’ for this factor to be relevant in the assessment.Footnote ⁷² According to the appeal judgement, a transaction could lead to a SIEC even when there is not a ‘very high degree of substitutability’ between the products offered by the merging undertakings.Footnote ⁷³ The Commission may take this factor into account, the Court explained, provided that the degree of substitutability of the products offered by the parties is higher in relative terms.Footnote ⁷⁴ Therefore, and in line with the Advocate General’s position, the judgement suggests that the factor must be assessed along a continuum, whereby a higher degree of closeness would point to a SIEC, while a lower degree would point to the opposite.Footnote ⁷⁵

Finally, the Court concluded that the GC had erred in law by failing to engage in an overall evaluation of the Commission’s assessment of the likelihood of a SIEC. This point is particularly relevant in that it sheds light on the purpose and scope of judicial review. According to the appeal judgement, the GC must consider whether the contested decision, taken in its entirety, has established a SIEC to the requisite legal standard.Footnote ⁷⁶ Accordingly, ruling that the Commission has erred in law when interpreting one or several of the factors enshrined in the Guidelines does not justify, in and of itself, the annulment of a decision. The first-instance court would need to ascertain, in addition, whether, in light of the assessment by the Commission in relation to other factors (not challenged and therefore deemed established), it could still be argued that the transaction would amount to a SIEC. Since the GC had failed to consider several arguments raised by the authority in its decision, the Court referred the case back to it.Footnote ⁷⁷

The appeal judgement in CK Telecoms emphasises the importance of an effective EU merger control regime. On the other hand, the Court does not appear to give much weight to a consideration that was central in the GC’s assessment, namely that the approach enshrined in the Guidelines could turn, in effect, an issue of law into one of policy. As mentioned above, the first-instance judgement had concluded that the Commission had construed the substantive test in such a way that virtually every horizontal transaction would amount to a SIEC. While this question does not feature in the appeal judgement, it was addressed by Advocate General Kokott in her Opinion. She rejected its relevance, however, on two grounds. She noted, first, that the Commission has not systematically prohibited every horizontal merger since the entry into force of Regulation 139/2004; and second, that this argument is ultimately about placing a higher standard of proof in relation to mergers that do not create or strengthen a dominant position.Footnote ⁷⁸

These arguments do not address the issue of de facto discretion. They are useful, however, in that they reveal that the theoretical and practical significance of the concerns raised by the GC may not always be fully appreciated. Contrary to what is suggested by the Advocate General, the fact that the interpretation of a legal provision gives, in effect, discretion to an administrative authority does not mean that it will be exercised to systematically prohibit every transaction. It simply means that the authority will have the leeway to decide which transactions are incompatible with the internal market and which are not, and this without being meaningfully constrained by law. The reference to the standard of proof in the Opinion, in turn, reveals a tendency, relatively widespread in the community, to conflate issues of substance (such as the meaning of the SIEC test) and issues of evidence (such as the requisite standard of proof).Footnote ⁷⁹

A. The intensity of judicial review after the appeal judgement: theory

Limited judicial review of complex assessments

The Court also confirmed that the Commission enjoys a margin of discretion as far as complex assessments are concerned. Where such assessments are involved, judicial review will be limited, in the sense that it would be confined to manifest errors of assessment. Accordingly, the EU courts’ scrutiny will be confined to three questions, namely ‘whether the evidence relied on is factually accurate, reliable and consistent’, ‘whether that evidence contains all the information which must be taken into account in order to assess a complex situation’ and, finally, ‘whether it is capable of substantiating the conclusions drawn from it’.Footnote ⁹¹ This passage in the appeal judgement is worthy of discussion not because of the position it expresses (it is, after all, a restatement of the Tetra Laval doctrine defining the scope and intensity of judicial review under the merger control regime),Footnote ⁹² but because of the view expressed by the GC in CK Telecoms. The first-instance judgement had made no reference to control for manifest errors when going over the principles governing the intensity of judicial review in EU merger control.Footnote ⁹³

The remaining question, on which the appeal judgement sheds some light, relates to what amounts to a ‘complex assessment’ within the meaning of the case law. This category is best understood as encompassing two issues: in the first place, the economic tools on which the Commission relies; in the second, the conclusions it draws from them. The economic tools within the meaning of the category include the methodologies used to define the relevant market (such as the SSNIP test)Footnote ⁹⁴ and to forecast the likely increase in prices in the post-merger scenario (of which the UPP and GUPPI tests are two examples).Footnote ⁹⁵ In principle, the Commission enjoys discretion to decide the tools on which to rely. For instance, it cannot be compelled to administer the SSNIP test if there are other ways to define the relevant market.Footnote ⁹⁶ The Commission also enjoys discretion when evaluating the findings that result from their use (for instance, the amount by which prices are expected to go up in the post-merger scenario and the boundaries of the relevant product market).Footnote ⁹⁷

Against this background, the role of the EU courts in relation to complex assessments can be summarised as follows. In accordance with the Tetra Laval framework described above, the Court and the GC can ascertain, first, whether the economic tools used by the Commission are ‘robust’ enough. It could be the case, for instance, that the academic consensus sees the tools as unreliable (alternatively, they may remain untested, and their reliability is therefore yet to be established). The control for manifest errors also comprises, second, evaluating whether the evidence included by the Commission as part of its assessment is ‘complete’ and ‘accurate’. It seems uncontroversial to state that the outcome of complex assessments can only be trusted where all the necessary and correct inputs have been incorporated into the analysis.

Third, the EU courts may test whether the tools (and the outcomes that result from the use of such tools) are capable of substantiating the conclusions drawn from them. For instance, there should be little doubt that judicial scrutiny extends to the question of whether a particular econometric technique can, alone, substantiate the conclusion that the new entity would enjoy a dominant position in the post-merger scenario (or, more generally, that it would allow it to profitably increase its prices). Fourth (and in a similar vein), the GC and the Court may verify whether the evidence drawn from the use of such tools is internally consistent (and, likewise, whether the conclusions drawn by the Commission are based on the whole body of evidence or whether, instead, it is contradicted by some aspects thereof). These ideas are summarised in Figure 5.

Figure 5. Full and limited review in EU merger control after the appeal judgement in CK Telecoms.

The role of the EU courts in relation to complex economic assessments is usefully illustrated in light of the GC’s analysis in CK Telecoms. The Commission had relied, as part of its assessment, on UPP analysis. This tool showed that the transaction would incentivise the parties to significantly increase prices.Footnote ⁹⁸ In line with the Tetra Laval case law (confirmed by the Court on appeal), the GC evaluated the robustness of this economic tool. It noted, in this sense, that UPP analysis is best used as a ‘first “screen”’ to determine whether a transaction warrants an in-depth investigation.Footnote ⁹⁹ It was therefore not found to be robust enough, in and of itself, to substantiate the conclusion that a particular concentration would lead to a SIEC. The GC noted, more precisely, that the projections drawn from UPP analysis ‘must not [. . .] be regarded as credible forecasts of price increases or simulations of mergers’.Footnote ¹⁰⁰ This aspect of the first-instance judgement was not challenged on appeal and, as already mentioned, is consistent with the Tetra Laval formula.

B. Towards de facto deference on issues of law?

Figure 5 is an attempt to capture the role and intensity of judicial review in EU merger control following the appeal judgement in CK Telecoms. As already explained, it is for the EU courts to interpret both the SIEC test and the factors into which it is broken down. Accordingly, it is not enough for the Commission to argue that its interpretation of the legal provisions is defensible (or not manifestly incorrect). It is equally irrelevant that the exercise involves complex economic assessments. The question, at least in principle, is whether the way the authority construes and applies the various legal concepts is the correct one. In the same vein, the EU courts are not bound by the Commission’s soft law instruments; and need not show deference with respect to emerging theories featuring in individual decisions or new iterations of the Guidelines.

In practice, however, the judicial review of issues of law may become less strict, and something akin to a reasonableness standardFootnote ¹⁰¹ may become the norm de facto – if not de iure – in the wake of CK Telecoms. It is submitted, in this sense, that, once the EU courts are confronted with the reality of what the scrutiny of merger decisions entails, the doctrine that applies to complex assessments may creep into the review of issues of law. Moving forward, judicial review may revolve, in effect, around whether the interpretation of the relevant legal concepts is, first, reasonable from a substantive perspective; second, whether it is based on all the relevant factors; and third, whether due process considerations have been observed when evaluating the evidence and when considering the arguments raised by the parties.Footnote ¹⁰²

The interpretative choices made by the Court help understand why administrative action may in practice be subject to a reasonableness standard (as opposed to full review) and become process-oriented (as opposed to substance-oriented).Footnote ¹⁰³ To begin with, the factors against which the compatibility of concentrations is assessed are allowed to vary from one case to another. The basis for the substantive assessment can therefore fluctuate depending on the nature of the transaction and the underlying context. Second, the Court did not identify a general, overarching test – such as the one defined by the GC – against which the significance of the impediment can be assessed. Similarly, the judgement provides no guidance in relation to how many factors need to be present for a SIEC to be established to the requisite legal standard (or whether a minimum set of such factors must be established for a finding of non-coordinated effects to be deemed substantiated). Finally, the Court did not provide guidance on how to deal with instances where the analysis of the various factors leads to contradictory conclusions (with some factors suggesting a SIEC and others pointing to the opposite outcome).

The approach followed by the Court to define the substantive scope of each of the individual factors also favours the emergence of a reasonableness standard. Unlike the GC, the ECJ did not set a hard substantive boundary marking the point at which the closeness of competition between the parties is deemed significant enough for it to be considered in the assessment. In a similar vein, a maverick need not be, according to the appeal judgement, a ‘particularly important’ competitive force (to the point that the judgement does not rule out that there could be, in a given oligopolistic market, more than one such maverick). The Court suggests that the relevance of these factors must be assessed, along a continuum, in light of the features of the relevant market. Whether or not the parties are close competitors, for instance, can only be assessed on a case-by-case basis, that is, by ascertaining whether, in relative terms, the parties’ competitive relationship is close, even if it not particularly so.

The reason why these interpretative choices might inevitably alter the nature and intensity of judicial review is apparent. Where there is no overarching substantive test defining the boundaries between significant and insignificant impediments, and where the relevance of each of the factors depends on the specificities of the relevant market, there is no distinct, autonomous benchmark against which the legal characterisation of facts can be controlled by a judge. As a consequence, a court would only be in a position to engage in the full review of issues of law by engaging in complex assessments itself; that is, by substituting its own assessment for that of the authority. For instance, the question of whether the parties are close competitors would require ascertaining whether the Commission was correct when finding that the degree of substitutability of the products offered by the parties is higher than that of rivals. These are evaluations from which judges typically refrain.

If, by design, the review of issues of law demands the court to substitute its own assessment for that of the authority, it seems almost inevitable that the margin of discretion that applies to complex assessments will find its way into both the interpretation of legal concepts and the legal characterisation of facts. There are compelling reasons why review judges are likely to exercise restraint when confronted with this situation. If they were to substitute their own assessment for that of the authority, judges would become, in effect, second or third-tier administrative authorities evaluating the compatibility of concentrations with the internal market. This task is not one for which they are particularly well equipped. More importantly, it is not the task that has been allocated to them under the TFEU. The role of the EU courts is confined to reviewing the legality of decisions adopted by the Commission.

Expanding the margin of discretion doctrine to issues of law is not any less problematic from the perspective of the allocation of powers between the Commission and the EU courts. If the administrative authority benefits from de facto deference in relation to the interpretation and application of legal concepts, it would be enjoying jurisdiction on matters which are in principle the exclusive province of the Court (such as, inter alia, whether a new theory is robust enough to justify a finding of a SIEC). This point was, in fact, emphasised by Advocate General Kokott in her Opinion.Footnote ¹⁰⁴ The conclusion that follows is that the interpretative choices made in CK Telecoms could lead, in effect, to two outcomes that are equally unsatisfactory and difficult to reconcile with the roles that the TFEU assigned to, respectively, the EU courts and the Commission. Placed between a rock and a hard place, process-oriented review, confined to manifest errors, is more likely to prevail.

A. Deference as an adjustment to a changing landscape

The preceding section concludes that the interpretative choices made by the Court in CK Telecoms have the potential to change the nature and intensity of judicial review in EU merger control. There would be compelling constitutional reasons to object to such a transformation. They have been outlined above and need not be rehearsed here. What is worth emphasising, on the other hand, is that, according to a growing number of commentators, the current economic and technological landscape provides arguments in support of leaving the Commission with a margin of discretion when evaluating the legality of concentrations. One can think of two overarching claims in support of deference on issues of law. The first has to do with the perception that merger control requires nimble decision-making. The second, with the importance of leaving authorities scope for experimentation. These two arguments are examined in turn.

B. Implications of deference

Any analysis of deference on issues of law, and how it could allow the system to adjust to the demands of a changing economic and technological landscape, would be incomplete without a discussion of its implications for EU merger control at large. The fact that a margin of discretion relating to the interpretation of the SIEC test might improve the effectiveness of enforcement does not imply that the system would necessarily fare better if process-oriented review and a standard of reasonableness became the norm. An inescapable consequence of the shift would be its impact on legal certainty and predictability. A second potential consequence relates to the quality of decision-making. It is unclear whether, as a general rule, greater leeway would improve the Commission’s output and, similarly, allow for the minimisation of enforcement errors.

The Court judgement in CK Telecoms placed particular emphasis on effective enforcement by the Commission. As explained above, it held that the GC’s interpretation of the SIEC test would leave unscrutinised transactions significantly strengthening the market power of one or several oligopolists. On the other hand, the ruling did not expressly address how the interpretation of the various factors enshrined in the Guidelines could impact legal certainty. Insofar as the relevant legal concepts (such as ‘closeness of competition’ or ‘important competitive force’) lack hard boundaries and can only be defined ex post (to the point that the authority enjoys de facto deference), it may not be obvious for the parties to anticipate the outcome of administrative action. Similarly (and this is a point raised by the GC), the authority may be in a position to find that the factors are present in virtually always and in every transaction. To the extent that this is the case, effective enforcement could be achieved at the expense of legal certainty.

While the latter principle did not feature in the Court’s analysis in CK Telecoms, it played a preeminent role in its subsequent judgement in Illumina.Footnote ¹¹⁷ The latter did not engage with substantive matters, but jurisdictional ones. This case is valuable, however, in that it provides an example of the tension that might arise between effective enforcement and legal certainty, and of how this tension might be resolved. More precisely, Illumina concerned the issue of whether the Commission could claim jurisdiction, pursuant to Article 22 of the Regulation 139/2004, in relation to transactions that do not have a Union dimension and also fail to meet the notification thresholds at the national level.Footnote ¹¹⁸ If effective enforcement were the only consideration, it would make sense to allow for the referral of such transactions. In fact, the response would meaningfully remedy the flaws of traditional notification thresholds, which may not always capture the potential significance of concentrations in certain industries, thereby jeopardising the regime’s ability to protect competition.Footnote ¹¹⁹

The Court ruled in Illumina that the Commission does not have the power to examine transactions referred by national authorities where the latter lack jurisdiction to consider their compatibility with the domestic regime.Footnote ¹²⁰ Crucially for the purposes of this discussion, legal certainty was the central consideration in its analysis. The Court noted, in particular, that effective enforcement was not the only principle underpinning the referral mechanism in Regulation 139/2004 (and, more generally, the merger control regime). The system had also been designed to provide predictable outcomes.Footnote ¹²¹ In this sense, the point of the referral mechanism was to strengthen the logic of the system, which revolves around the so-called ‘one-stop shop’ principle and seeks to avoid potentially conflicting decisions resulting from multiple notifications of the same transaction.Footnote ¹²²

The twin concern with legal certainty and effective enforcement in Regulation 139/2004 is not limited to jurisdictional matters. Recital 25, which has been discussed above and that was central to the outcome of CK Telecoms, makes an explicit reference to legal certainty. This general principle of EU law was, in fact, behind the shift to the SIEC test in Regulation 139/2004. Unlike Illumina, CK Telecoms did not clarify how legal certainty is to be balanced against effective enforcement. How to do so, as far as substantive issues are concerned, was ultimately left open in the judgement. It might arise in future cases. The fundamental question, if the issue is to be brought again before the Court, is whether a shift towards a reasonableness standard and process-oriented review would strike the right balance between legal certainty and effective enforcement. It is not clear that it would, and this insofar as it is likely to place too much emphasis on the latter.

It is equally unclear whether shifting the balance to favour effectiveness over legal certainty would necessarily lead to better enforcement. One cannot deny that deference on issues of law would give the Commission more leeway to test novel theories and to establish harm in a more straightforward way. It does not follow from this fact, however, that the quality of decision-making would necessarily improve. One can think of a number of reasons why more robust checks on administrative action might lead to better outcomes, both from a legal and a non-legal standpoint. This conclusion is, if anything, confirmed by the very history of EU merger control, which suggests that efforts to improve enforcement may be prompted by judicial review.Footnote ¹²³

One of the reasons why deference and process-oriented review may not necessarily lead to better decision-making is that they could increase the likelihood of enforcement errors. It is undeniable, on the one hand, that a system that gives the administrative authority a margin of discretion on issues of law may well substantially reduce the risk of underenforcement. On the other hand, it is not necessarily the optimal regime to minimise the likelihood of errors across the board. A second reason has to do with reliance on novel, unorthodox or untested theories. There is no guarantee that a system that relies on such theories would lead to better outcomes. Tentative doctrines, by their very nature, will in some instances prove incorrect or misguided. For the same reasons, peer review by experts in the field may be seen as an indispensable robustness check on the non-legal aspects of administrative action, as well as a mechanism to ensure that resources are put to the best use.