HvJ EG, 16-07-2009, nr. C-440/07 P

Pursuant to Article 2 of Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (OJ 1989 L 395, p. 1 and corrigendum OJ 1990 L 257, p. 13), as amended by Council Regulation (EC) No 1310/97 of 30 June 1997 (OJ 1997 L 180, p. 1, ‘the Regulation’), the compatibility with the common market of concentrations within the scope of the Regulation is to be appraised by the Commission.

In accordance with Article 4(1) of the Regulation, such concentrations must be notified to the Commission not more than one week after the conclusion of the agreement, or the announcement of the public bid, or the acquisition of a controlling interest.

Under Articles 6 and 8 of the Regulation:

Article 7(1) of the Regulation states that a concentration may not be put into effect either before its notification or until it has been declared compatible with the common market.

However, in accordance with Article 7(3), Article 7(1) must not impede the implementation of a public bid which has been notified to the Commission, provided that the acquirer does not exercise the voting rights attached to the securities in question or does so only to maintain the full value of those investments and on the basis of a derogation granted by the Commission.

Under Article 10(1), once a concentration has been notified, the Commission's decision either declaring the transaction compatible or initiating the in-depth investigation must be taken within one month at most, starting with the day following the receipt of a notification or, if the information to be supplied with the notification is incomplete, on the day following receipt of the complete information.

Paragraphs (2) and (3) of Article 10 provide that, in the context of the in-depth investigation, the Commission must take a decision concerning the compatibility of the transaction within not more than four months of the date on which the investigation is initiated.

In accordance with Article 10(5), where the Community judicature gives a judgment which annuls the whole or part of a Commission decision taken under the Regulation, the periods laid down therein are to start again from the date of the judgment.

Under Article 10(6), a notified transaction is to be deemed compatible with the common market where the Commission has not taken either a decision to initiate proceedings by the end of one month following notification or receipt of complete information, or where such proceedings have been initiated, a decision on the compatibility of the transaction within four months following the initiation of those proceedings.

Article 18(1) of the Regulation provides that, before taking any decision declaring a concentration to be incompatible, the Commission is required, at every stage of the procedure up to the consultation of the Advisory Committee provided for in Article 19, to give the undertakings concerned the opportunity of making known their views on the objections against them.

Article 18(3) provides that the Commission is to base its decision only on objections on which the parties have been able to submit their observations and that the rights of the defence are to be fully respected in the proceedings.

On 16 February 2001, Schneider and Legrand, the French parent companies of two groups engaged in the production and sale of products and systems in the electrical distribution, industrial control and automation sectors (Schneider) and electrical equipment for low-voltage installations (Legrand), notified the Commission, in accordance with Article 4(1) of the Regulation, of a proposal whereby Schneider would acquire control of Legrand in its entirety by means of a public exchange offer.

Considering that the transaction raised serious doubts as to its compatibility with the common market, the Commission initiated the in-depth investigation.

On 3 August 2001, the Commission sent Schneider a statement of objections in which it concluded that the transaction would create or strengthen a dominant position on a number of national sectoral markets.

On 6 August 2001, the Commission des opérations de bourse (French Stock Exchange Commission) announced the final outcome of Schneider's offer. On conclusion of that transaction, Schneider had acquired 98.7% of the shares in Legrand.

In their response of 16 August 2001 to the statement of objections, the parties to the transaction contested the market definition adopted by the Commission and its analysis of the impact of the transaction on those markets.

On 29 August 2001, a meeting was held between the parties to the transaction and Commission staff for the purpose of defining any modifications to the transaction which might resolve the competition problems raised by the Commission.

Schneider proposed corrective measures to the Commission on a number of occasions.

On conclusion of the in-depth investigation, the Commission found that the concentration was incompatible with the common market. In its view, the transaction, first, would create a dominant position as a result of which effective competition would be significantly impeded in various national sectoral markets, namely those of Denmark, Greece, Spain, France, Italy, Portugal and the United Kingdom and, second, that it would strengthen a dominant position on various French sectoral markets.

On 10 October 2001, the Commission thus adopted Decision 2004/275/EC declaring a concentration to be incompatible with the common market (OJ 2004 L 101, p. 1, ‘the negative decision’), in which it held that the corrective measures proposed by Schneider were not sufficient to resolve the competition problems identified.

On 24 October 2001, the Commission notified Schneider of a second statement of objections for the purpose of separating Schneider and Legrand.

On 13 December 2001, Schneider brought an action before the Court of First Instance for the annulment of the negative decision (Case T-310/01) and, by a separate document, asked the Court to adjudicate under the expedited procedure in accordance with Article 76a of its Rules of Procedure.

On 23 January 2002, the Court of First Instance dismissed the latter application.

On 30 January 2002, the Commission adopted Decision 2004/276/EC requiring undertakings to be separated adopted pursuant to Article 8(4) of Council Regulation (EEC) No 4064/89 (OJ 2004 L 101, p. 134, ‘the divestiture decision’).

That decision required Schneider to divest itself of Legrand within a period of nine months, expiring on 5 November 2002.

By documents lodged on 18 March 2002, Schneider brought an action for annulment of the divestiture decision (Case T-77/02), requested the Court of First Instance to adjudicate on that case under the expedited procedure, and made an application for suspension of the operation of the divestiture decision (Case T-77/02 R).

The application for recourse to the expedited procedure was granted in Case T-77/02 by decision notified on 25 March 2002.

After the hearing for interim relief of 23 April 2002 in Case T-77/02 R, the Commission, by letter of 8 May 2002, extended until 5 February 2003 the period within which Schneider was to divest itself of Legrand, without prejudice to the stages in the divestiture procedure being completed during the extended period.

On 3 May 2002, the Court of First Instance granted Schneider's application for Case T-310/01 to be adjudicated under the expedited procedure, since Schneider had confirmed that it would adhere to the abridged version of its application, submitted on 12 April 2002.

In view of the extension of the divestiture period granted by the Commission in its letter of 8 May 2002, Schneider withdrew its application for suspension of operation in Case T-77/02 R.

Schneider made preparations for the transfer of Legrand, which was to be carried out in the event of its two actions for annulment being dismissed. For that purpose, it entered, on 26 July 2002, into a sale and purchase agreement with the Wendel-KKR consortium (‘Wendel-KKR’). The agreement for transfer was to be implemented no later than 10 December 2002. It contained a clause enabling Schneider, in the event of annulment of the incompatibility decision, to cancel the agreement no later than 5 December 2002, in consideration of payment of compensation for cancellation of EUR 180 million.

On 22 October 2002 the Court of First Instance annulled the negative decision by its judgment in Schneider I on the grounds of errors of analysis and errors in the assessment of the impact of the transaction on the national sectoral markets outside France and breach of the rights of the defence vitiating the analysis of the impact of the transaction on French sectoral markets and of the corrective measures proposed by Schneider.

With regard to national sectoral markets outside France, the Court of First Instance held, in particular, that the Commission had overestimated the economic power of the new entity resulting from the concentration and, on certain markets, had under-estimated the economic power of two of the entity's main competitors, thereby correspondingly overestimating the new entity's strength.

With regard to the French sectoral markets affected by the transaction, the Court of First Instance ruled on Schneider's plea that the Commission had infringed the rights of the defence in the course of the in-depth investigation.

In that regard, the Court of First Instance held that it was not apparent on reading the statement of objections of 3 August 2001 that it dealt with sufficient clarity or precision with the strengthening of Schneider's position vis-à-vis French distributors of low-voltage electrical equipment as a result not only of the addition of Legrand's sales on the markets for switchboard components and panel-board components but also of Legrand's leading position in the segments for ultraterminal electrical equipment.

It also observed that the general conclusion in the statement of objections listed the various national sectoral markets affected by the concentration, without demonstrating that the position of one of the two undertakings on a given product market would in any way buttress the position of the other party on another sectoral market.

The Court of First Instance went on to conclude that the statement of objections had not permitted Schneider to assess the full extent of the competition problems to which the Commission claimed the concentration would give rise at distributor level on the French market for low-voltage electrical equipment.

It held that Schneider was thus not afforded the opportunity properly to challenge the substance of the Commission's argument or to submit, properly and in good time, proposals for appropriate corrective measures.

By the Schneider II judgment, the Court of First Instance annulled the divestiture decision on the ground that it was a measure implementing the annulled negative decision.

The Commission did not appeal against the Schneider I and Schneider II judgments, which therefore became res judicata.

By letter of 13 November 2002, the Commission informed Schneider that the concentration was liable to undermine competition in the French sectoral markets, by reason of the significant overlapping of the market shares of Schneider and Legrand, the end of their long-standing rivalry, the importance of the brands owned by the Schneider-Legrand entity, its power over wholesalers and the inability of any competitor to replace the competitive pressure exerted by Legrand before the transaction was effected.

According to the Commission, the transaction would result, in each of the affected markets on which one or other of the parties held a dominant position before the transaction, in the elimination of the only immediate competitor in a position to exercise any competitive restraint on the dominant undertaking owing to the support provided to it by the very strong positions held by the same group in other segments of the same sector.

On 14 November 2002, Schneider proposed to the Commission a number of corrective measures intended to remove the overlap between the businesses of Schneider and Legrand in the French sectoral markets affected.

On 15 November 2002, the Commission published in the Official Journal of the European Communities of 15 November 2002 (OJ 2002 C 279, p. 22) a notice concerning recommencement of the merger control procedure, stating that, under Article 10(5) of the Regulation, the investigation period would run from 23 October 2002, the day following delivery of the Schneider I judgment, inviting interested third parties to submit any observations to it.

By letter of 25 November 2002, Schneider informed the Commission that the arguments put forward in the statement of objections of 13 November 2002 remained, in the absence of a market-by-market examination of the effects of the transaction, imprecise in nature and scope and failed to demonstrate the existence of any anti-competitive effect on the affected markets and that the general considerations put forward by the Commission were belied by the actual situation.

By note of 29 November 2002, the Commission informed Schneider that the corrective measures successively submitted by it were not sufficient to eliminate all the restrictions of competition deriving from the transaction, because of persistent doubts as to the viability and independence of the businesses transferred and the inability of the proposed measures to create a counterweight to the strength of the Schneider-Legrand entity.

In a letter of 2 December 2002, Schneider responded that, at such an advanced stage in the proceedings, the Commission's attitude made further discussion pointless and that, to bring to an end uncertainty that had lasted for more than a year, it had decided to sell Legrand to Wendel-KKR.

By fax of 3 December 2002 sent to the Commission, Schneider confirmed its decision. It stated that, under the sale and purchase agreement of 26 July 2002, the sale of Legrand to Wendel-KKR required no further action on its part and would take place on 10 December 2002.

By decision of 4 December 2002, the Commission initiated the in-depth investigation on the ground that the corrective measures proposed by Schneider did not make it possible, at the investigation stage, to eliminate the remaining serious doubts as to the compatibility of the transaction, having regard to its effects on the French sectoral markets identified in the negative decision.

On 11 December 2002, Schneider confirmed to the Commission that the transfer to Wendel-KKR of its holding in Legrand had taken place on 10 December 2002.

By letter of 13 December 2002, the Commission informed Schneider that the investigation procedure had been closed as being devoid of purpose.

On 10 February 2003, Schneider brought an action for annulment of the decision of 4 December 2002 to initiate the in-depth investigation and of the closure decision of 13 December 2002 (Case T-48/03).

By orders of 29 October 2004 in Cases T-310/01 DEP and T-77/02 DEP Schneider Electric v Commission, the Court of First Instance set the amount of costs that Schneider could recover from the Commission at EUR 419 595.32 in Case T-310/01 and EUR 426 275.06 in Cases T-77/02 and T-77/02 R.

By order of 31 January 2006 in Case T-48/03 Schneider Electric v Commission [2006] ECR II-111, the Court of First Instance dismissed as inadmissible the application for annulment lodged in that case on the ground that the decision to initiate the in-depth investigation and the decision to close the procedure were not acts adversely affecting Schneider.

On 12 April 2006, Schneider appealed against that order.

The appeal was dismissed by order of the Court of Justice of 9 March 2007 in Case C-188/06 P Schneider Electric v Commission.

On 10 October 2003, Schneider brought an action before the Court of First Instance seeking compensation for the damage it claimed it had sustained as a result of the unlawfulness of the procedure examining the compatibility of the concentration with the common market.

It claimed that the Court should:

On 11 December 2003, the Court of First Instance decided to limit the scope of the pleadings to the principle of the Community's non-contractual liability and the method for evaluation of the loss.

By orders of 20 April and 6 December 2004, the Federal Republic of Germany and the French Republic, respectively, were granted leave to intervene, the first in support of the form of order sought by the Commission and the second in support of that sought by Schneider.

In the judgment under appeal, the Court of First Instance came to the decision described in paragraph 1 of this judgment.

In paragraphs 152 and 156 of the judgment under appeal, it was held that the infringement of the rights of the defence found in the Schneider I judgment concerning the French sectoral markets constituted a manifest and serious breach of the rule of law found in Article 18(1) and (3) of the Regulation, which is intended to confer rights on individuals.

In paragraph 155 of the judgment under appeal, the Court dismissed the Commission's argument concerning the particular constraints to which Commission staff are objectively subject during the in-depth investigation:

In paragraph 157 of that judgment, it was found that the breach of the rights of defence in question constituted a fault on the part of the Commission such as to cause the Community to incur non-contractual liability.

In its consideration of the question of the existence of a loss and a causal link between the Commission's fault and the loss, the Court stated, in paragraph 269 of the judgment under appeal, that whilst the sufficiently serious breach of Schneider's rights of defence had the effect of rendering the negative decision unlawful, it did not thereby follow that, in the absence of such a breach, the transaction would necessarily have been declared compatible with the common market.

The Court concluded, in paragraph 278 of the judgment under appeal, that the defect identified in the negative decision did not deprive Schneider of any right to a decision that the transaction was compatible such as to justify treating all the financial consequences of the loss of that right and, in particular, those deriving from the obligation to dispose of the assets in Legrand as damage attributable to the Community.

In paragraph 279 of the judgment under appeal, the Court held that Schneider could not claim that it had suffered harm equal to the entire loss of value of the assets in Legrand held by it as at 10 October 2001, in the absence of a sufficiently direct causal link between that harm and the infringement giving rise to liability on the part of the Community.

In paragraphs 288 and 316, on the other hand, the Court of First Instance accepted that there was a sufficiently close causal link between the unlawful act committed and two types of damage suffered by Schneider, namely:

With regard to the costs incurred in respect of the resumption of the merger control procedure, namely consultancy fees and administrative expenses of various kinds, it was stated, in paragraph 301, that if the objection relating to the buttressing of market positions had been set out in the statement of objections of 3 August 2001, Schneider would admittedly have had to give its views on that subject and, if appropriate, prepare adequate corrective measures before the Commission adopted its decision on the compatibility of the transaction, as it had to do after the annulment of that decision and subsequent resumption of the investigation of the transaction.

However, it was held, also in paragraph 301 of the judgment under appeal, that the fact of resuming, on new legal bases, an administrative procedure suspended 12 months earlier necessarily represented, for Schneider, an incomparably greater burden than that which the undertaking and its advisers, who were already fully involved in meetings and contacts with the relevant Commission staff, would have had to bear in responding to the same objection during the initial procedure.

With regard to the reduction in the purchase price which Schneider had to concede, the Court of First Instance noted, in paragraph 308, that Schneider had found itself constrained both to negotiate and to conclude, on 26 July 2002, the agreement for the transfer of Legrand and to put back the effective date of that transfer to 10 December 2002.

In paragraph 311, the Court of First Instance held that the obligation to defer effective completion of the sale of Legrand had necessarily prompted Schneider to grant Wendel-KKR a reduction in the transfer price in relation to the price it would have obtained in the event of a firm sale accomplished in the absence of a negative decision tainted by illegality.

In paragraph 312, the Court of First Instance accepted that deferral of the completion of the sale until 10 December 2002 meant that Wendel-KKR had to be paid for accepting the risk of depreciation of the assets in Legrand, arising from the possibility of an adverse variation in the prices of industrial stocks over the period of deferral.

In paragraph 322 of the judgment under appeal, the Court of First Instance took the view that the loss corresponding to the reduction in the transfer price was equal to the difference between the transfer price actually agreed and the price that Schneider could have obtained if, at the end of the first investigation of the transaction, on 10 October 2001, it had been given a lawful decision as to the compatibility of the transaction.

In paragraph 329, however, the Court of First Instance pointed out that Schneider, although acquiring control of Legrand in a manner that was entirely lawful had nevertheless assumed the risk that the investigation of the transaction would result in a decision declaring the transaction to be incompatible with the common market and in the imposition of a corresponding obligation for the assets of undertakings already merged to be separated.

In paragraph 330, the Court of First Instance held that, in view of the extent of the merger carried out and the appreciable increase of economic strength accruing to the only two protagonists present on the French low-voltage electrical equipment sectoral markets, Schneider could not have been unaware that the merger at the very least entailed the risk of creating or strengthening a dominant position in a substantial part of the common market and that, accordingly, the transaction would be prohibited by the Commission.

It concluded from that, in paragraph 334, that Schneider was responsible for one third of the loss connected with the reduction in the transfer price granted.

In those circumstances, the Court of First Instance held, in paragraph 335, that the Community would be required to make good only two thirds of that loss.

Finally, in paragraphs 342 and 344 to 346, the Court of First Instance decided that the compensation due to Schneider with effect from 10 December 2002, the date of materialisation of the loss related to the actual transfer of Legrand, would be adjusted by means of interest adjusted for the period ending on the date of delivery of the judgment determining the amount of the damage, and then increased by default interest as from the latter date until full payment.

The Commission claims that the Court should set aside the judgment under appeal and order Schneider to pay the costs.

Schneider contends that the Court should dismiss the appeal and order the Commission to pay the costs.

The Commission formally raises seven grounds of appeal in support of its action. These may, in essence, be regrouped into five grounds of appeal.

With its grounds of appeal, the Commission complains that the Court of First Instance, wrongly:

Under the first paragraph of Article 61 of the Statute of the Court of Justice, if the appeal is well founded, the Court of Justice is to quash the decision of the Court of First Instance. It may itself give final judgment in the matter, where the state of the proceedings so permits, or refer the case back to the Court of First Instance for judgment.

In the present case, the state of the proceedings permits final judgment to be given on Schneider's application for damages.

Under the first paragraph of Article 122 of the Rules of Procedure of the Court of Justice, where an appeal is well founded and the Court gives final judgment in the case, the Court is to make a decision as to costs.

Under Article 69(2) of the Rules of Procedure of the Court of Justice, which is applicable to appeals by virtue of Article 118 thereof, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party's pleadings.

The Commission claims that Schneider should pay the costs relating to the proceedings at first instance and the proceedings on appeal.

Since Schneider has, in respect of this judgment, been largely unsuccessful, it must be ordered to pay, in addition to its own costs relating to the proceedings at first instance and the proceedings on appeal, two thirds of the costs incurred by the Commission in both sets of proceedings.

On those grounds, the Court (Grand Chamber) hereby:

[Signatures]