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European Commission must reassess Lufthansa's request to waive merger commitments

European Commission must reassess Lufthansa's request to waive merger

European Commission must reassess Lufthansa's request to waive merger commitments

01.06.2018 NL law

On 16 May 2018, the General Court partially annulled the European Commission's rejection of Lufthansa's request to waive pricing commitments it had given when it acquired Swiss International Air Lines (Swiss) in 2005. The Court held that the Commission had failed to fulfil its obligation to carefully examine all the relevant facts.

In 2005, the Commission approved the acquisition of Swiss by Lufthansa, subject to conditions. The conditions included pricing commitments in relation to the Zurich-Stockholm and Zurich-Warsaw routes operated by Swiss. On these routes, Lufthansa committed to apply an equivalent fare reduction each time it reduced a published fare on a comparable route. The commitments also contained a review clause providing that under specific circumstances Lufthansa could request a waiver, modification or substitution of the commitments.

In 2013, the parties requested a waiver of the pricing commitments on three grounds: (i) the termination of a joint venture agreement entered into between Lufthansa and Scandinavian Airlines System in 1995, (ii) the Commission's policy change in the treatment of alliance partners in the context of the Commission's merger review and (iii) increased competition in the market. The Commission rejected the requested waiver in 2016 and Lufthansa appealed this decision before the General Court.

The Court reiterated that the Commission has a certain discretion in its merger review, especially with respect to economic assessments. According to the Court, this discretion also applies in the assessment of a waiver request that entails complex economic assessments.

At the same time, the Commission is obliged to carry out a careful examination of that request, to conduct investigation if necessary, to make appropriate enquiries and to base its conclusions on all the relevant information. The Court also ruled that if the parties have adduced sufficient evidence to support the request, it is then for the Commission to show how the evidence is insufficient or unreliable and, if necessary, carry out an investigation to verify, supplement or refute that evidence.

As regards the Zurich-Stockholm route, the Court ruled that the matters relied on in the decision could not justify the rejection of the requested waiver. The Court found, for example, that the Commission had failed to examine the impact of the termination of the joint venture on competition and had not adequately answered Lufthansa's argument that the Commission had changed its policy by no longer taking alliance partners into account in determining affected markets. The Commission had also failed to undertake a concrete analysis of contractual changes and relied on purely speculative matters in that regard.

In the absence of contractual changes relating to the Zurich-Warsaw route, the Court saw no reason to annul the Commission's decision in so far as it concerned that route.
 
The case clarifies the standard of review and the burden of proof in proceedings concerning assessments of a request for a waiver of commitments. It is also the third ruling in a short period in which the Court has annulled a merger decision due to faulty analyses or procedures. 

This article was published in the Competition Law Newsletter of June 2018. Other articles in this newsletter:

European Court of Justice rules EY did not violate stand-still obligation in Danish merger
Dutch Appeal Court drastically reduces cartel fine Dutch construction company
District Court of Amsterdam declines jurisdiction in competition law damages case
Belgian Supreme Court confirms illegality of dawn raids due to the lack of a warrant

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