News Update Competition

17 March 2020

On 4 March 2020, the European Court of Justice ("ECJ") confirmed in its judgment (ECLI:EU:C:2020:149) that the European Commission ("EC") and the General Court ("GC") were right to impose and confirm double fines on Marine Harvest ASA (currently Mowi ASA, hereinafter "Marine Harvest"). The fines were imposed for (i) a breach of the notification obligation (Art. 4(1) Reg. 139/2004) and (ii) a breach of the standstill obligation (Art. 7(1) Reg. 139/2004).

The ECJ clarified the exemption from the standstill obligation in the case of public bids of Art. 7(2) Reg. 139/2004 and explained why imposing separate fines for simultaneous infringements of both Art. 4(1) and Art. 7(1) of Reg. 139/2004 does not violate the ne bis in idem principle.

Two transactions – one completed, the other pending

In December 2012, Marine Harvest acquired 48.5% of the shares in Morpol, a listed competitor, via a private transaction ("Transaction I"). According to Norwegian law, Marine Harvest was subsequently obliged to make a mandatory bid for the remaining shares in Morpol ("Transaction II"). After completion of Transaction I, Marine Harvest sent a request to the EC to allocate a case team for the acquisition of sole control over Morpol. Marine Harvest acknowledged that Transaction I had already been completed but claimed that Transactions I and II could jointly benefit from the exemption of the standstill obligation of Art. 7(2) Reg. 139/2004. It promised to refrain from exercising any of its voting rights acquired under Transaction I or II until the EC had cleared both Transactions.

The EC cleared the acquisition of sole control over Morpol by Marine Harvest subject to remedies.

Gun jumping decision

In its decision of 23 July 2014, the EC decided to impose two fines of EUR 10 million each on Marine Harvest for (i) a breach of the notification obligation (Art. 4(1) Reg. 139/2004) and (ii) a breach of the standstill obligation (Art. 7(1) Reg. 139/2004). The GC confirmed the EC's decision on 26 October 2017 (ECLI:EU:T:2017:753). This behaviour is colloquially called 'gun jumping'.

Appeal before the ECJ

Marine Harvest presented three grounds in support of its appeal to the ECJ. The third ground was only presented at the time of the hearing and therefore inadmissible. Its two other grounds were:

(i) Failure to apply Art. 7(2) of Reg. 139/2004; and

(ii) Infringement of the ne bis in idem principle, the set-off principle and the principle covering concurrent offences.

Failure to apply Art. 7(2) of Reg. 139/2004

Marine Harvest argued that both Transaction I and II should be seen as one concentration because the two were conditionally linked, the concept of a single concentration already had been provided in the recitals of Regulation 139/2004, and the scope of the exemption in Art. 7(2) of Reg. 139/2004 regarding public bids had been misinterpreted by the GC.

The ECJ set this ground aside, as Transaction I was not conditionally linked to Transaction II, even though Transaction II was a mandatory consequence of Transaction I. It further held that the recitals of Regulation 139/2004 were not legally binding, as is always the case with recitals in regulations. Therefore, the two transactions were not to be considered as one single transaction.

The ECJ held that the exemption in Art. 7(2) of Reg. 139/2004 only applies to transactions where control is acquired through a public bid, whereas Marine Harvest had already obtained control based on the private Transaction I. The ECJ clarified that a concentration arises as soon as the merging parties implement operations contributing to a lasting change in the control of the target undertaking. Given that Marine Harvest had completed Transaction I and that presence at Morpol's shareholders meetings was limited to the effect that Marine Harvest's 48.5% gave it a majority, there was already a lasting change in control in Morpol after Transaction I – regardless of whether Marine Harvest exercised its voting rights or not. The ECJ further held that exemptions such as Art. 7(2) of Reg. 139/2004 should be interpreted narrowly.

Ne bis in idem principle

The ne bis in idem principle prohibits both double proceedings and double penalties so that no one should be punished twice for the same offence. The ECJ judged that this principle was not applicable to this case, since the two infringements were different in nature: the infringement of the notification obligation was an instantaneous infringement, while the infringement of the standstill obligation was a continuous infringement. They also have different limitation periods. Hence, both infringements also justify different fines. The sole circumstance that an infringement of the notification obligation automatically leads to an infringement of the standstill period does not change this, since both provisions pursue autonomous objectives. Neither is there a ranking order to be found in these provisions in the sense that if art. 7(1) Reg. 139/2004 applies, art. 4(1) Reg. 139/2004 would no longer apply.

Consequences

This case confirms the EC's focus on sanctioning gun jumping cases. This trend is consistent with the EC's recent efforts to strengthen the enforcement of the procedural obligations in the context of merger control.

It is not the first time that two fines have been imposed for a breach of the notification obligation and a breach of the standstill obligation (see Samsung, A.P. Møller, Altice and Canon). In fact, all of the EC's gun jumping decisions imposing fines relate to infringements of both Art. 4(1) and Art. 7(1) of Reg. 139/2004. The only exception is the 2009 Electrabel decision, ultimately confirmed by the ECJ in 2014. This is probably due to the fact that in the Electrabel case, an infringement of art. 4(1) was already time-barred, making it impossible to impose a fine.

Businesses should be aware of the EC's increased attention to this type of case and of the possibility that two separate – high – fines are imposed if they do not take due account of their merger filing obligations in all M&A transactions.

The ECJ is sending a clear message that conduct contributing to change in control violates the standstill obligation of Art. 7(1) of Reg139/2004 and that it will be quick to judge that this is "a lasting change in control".

Conversely, actions that do not contribute to implementing a concentration are not prohibited under Article 7(1) EUMR. For example, in KPMG, the ECJ explained that acts which are preparatory or ancillary to the concentration, which do not lead to a change of control, do not fall within the scope of Article 7(1) EUMR. Parties contemplating acquiring minority stakes would be wise to investigate if these acquisitions, taking all circumstances into account, could lead to – or contribute to – a lasting change in control of the target undertaking.

For the time being, two other gun jumping cases that are relevant for the issue of double fines are pending before the GC (Altice and Canon/Toshiba Medical Systems Corporation). These cases will hopefully further clarify the extent to which two separate fines can be imposed in gun jumping cases even where the two infringements clearly consist of one single behaviour.