Good things don't always come in small packages for the European Commission: Advocate General Kokott delivers her Opinion on the blocked UPS/TNT deal

On 25 July 2018, Advocate General Kokott proposed that the EU Court of Justice validate the annulment by the EU General Court of the European Commission’s 2013 prohibition decision of UPS's planned acquisition of its logistics rival, TNT. In particular, Advocate General Kokott has confirmed in her (non-binding) opinion that the General Court was justified in censuring the Commission and, in turn, quashing the prohibition decision, on account of a fatal procedural error committed by the Commission during its phase II administrative review.

In the event that the Court of Justice follows Advocate General Kokott's views (and thus confirms the General Court's findings), this would be an extremely rare instance of the EU Courts overturning a decision of the Commission to block a deal. It would also act as a strong (and possibly costly) reminder to the Commission of the importance of respecting procedural safeguards – 'procedural guarantees' which, Advocate General Kokott reminds us, cannot be compromised despite the understandable "desire to incorporate more economic expertise into the assessment of competition cases".


In 2012, United Parcel Service (UPS) notified the Commission under the EU Merger Regulation that it intended to acquire its Dutch rival, TNT Express (TNT). Following an in-depth phase II administrative review of the transaction (and despite commitments offered by the parties aimed at addressing competition concerns), the Commission issued a prohibition decision blocking the deal. Such a merger prohibition is a relatively rare occurrence, with the Commission having only blocked four deals in the preceding ten years and only a further four deals since.

The primary concern identified by the Commission was in relation to ‘international express small package delivery services’. At the time there were only four companies (also known as 'integrators') offering this service in the EEA – in addition to the transacting parties, these were DHL (considered to be the most important competitor) and FedEx (a global heavyweight but considered to be a weaker player in Europe). The Commission identified irreconcilable competition concerns in 15 EU Member States, in large part on the basis of an econometric model that showed likely price increases resulting from the proposed merger.

General Court judgment

UPS proceeded to lodge an appeal with the General Court for annulment of the prohibition decision on the basis that, amongst other things, the Commission had relied on an amended version of the econometric model (concerning the likely effects of the merger on price) which had not been discussed with the parties during the administrative procedure. In particular, UPS claimed that it had not been given the opportunity to challenge the model in question, which incorporated non-negligible changes to a version of it that UPS had seen previously. This omission by the Commission was, UPS argued, a fundamental procedural breach – amounting to an infringement of UPS's rights of defence.

The General Court agreed, noting that observance of the rights of the defence is a general principle of EU law (enshrined in the Charter of Fundamental Rights of the European Union) which must be guaranteed in all proceedings, including merger proceedings before the Commission. The implication of this procedural irregularity in the matter at hand meant that the Commission's decision needed to be annulled in its entirety, without it being necessary for the General Court to examine the other issues that were raised in UPS's appeal. That being said, the General Court noted that its conclusion was not based on any argument that the decision would necessarily have been different had such procedural safeguards been respected. Rather, its judgment focused on the issue of UPS not being afforded the opportunity to defend itself better, given the non-negligible changes made to the econometric model.

Whilst merger prohibition decisions are not common, instances of the General Court annulling such decisions are almost unheard of – the last (and only) time this happened previously was in 2002, when the General Court's predecessor (the Court of First Instance) nixed three Commission prohibition decisions: Tetra Laval/Sidel, Airtours/First Choice and Schneider/Legrand.

At the same time as UPS was challenging the Commission decision before the General Court, FedEx (which itself intervened in the UPS's appeal on the side of the Commission) was making its own moves on TNT – eventually agreeing a €4.4 billion tie-up in April 2015. This deal was also subject to in-depth scrutiny from the Commission but ultimately received the green light in 2016 (before the General Court's judgment was handed down in relation to UPS’s action for annulment).

Advocate General opinion

The Commission lodged an appeal with the Court of Justice requesting that the General Court judgment be set aside – arguing that UPS's rights were not infringed or, in the alternative (and even if its rights were technically infringed), that the decision to prohibit the deal would have been the same regardless.

Advocate General Kokott, however, disagrees in her opinion and concludes that the General Court was justified in annulling the decision on the basis of this procedural issue. In her view, the econometric model undoubtedly constituted an "element" on which the Commission based its decision. Furthermore, the "model was one of the key foundations for the objections" raised by the Commission when blocking the deal. As a result, UPS should have been given the opportunity to express its views on the amended model and exercise its rights of defence.

Advocate General Kokott's view on the implications for the Commission's substantive assessment goes slightly further than the findings of the General Court. In its judgment, the General Court set out that the relevant test for annulment is whether "there was even a slight chance that [UPS] would have been better able to defend itself". In her opinion, Advocate General Kokott considers that, based on the facts, "it cannot be ruled out that the procedural error affected the content…and the decision might have been substantively different". She goes on to note that, while the Commission's econometric model found competition problems in 15 Member States, the Commission only found a problem in two Member States based purely on qualitative considerations – ie, when not using the amended econometric model in question. She suggests that a company attempting to address competition concerns and offer commitments for two national markets, rather than substantially more, will obviously have a better chance of convincing the Commission.

Advocate General Kokott also notes that the final version of the model, which was not shared with UPS, existed over two months before the prohibition decision was taken. On this basis, she rejects the Commission's arguments that the legally-binding timing constraints of a merger control review prevented it from hearing UPS's views.

What's next?

The Court of Justice will now examine the case in light of Advocate General Kokott's advice and deliver its judgment likely some time later this year. Though not binding, Advocate General opinions are followed by the Court of Justice in the vast majority of cases. If this proves to be so here, such a judgment would be significant, serving as a reminder to the Commission about procedural requirements – when the Commission has itself in recent years been pursuing companies for alleged procedural merger control infringements (Marine Harvest, Facebook and Altice amongst others).

Although a judgment confirming the General Court’s findings would seem a somewhat hollow victory for UPS (given that the Commission's prohibition effectively allowed its rival, FedEx, the opportunity to move in itself and buy TNT), it could still be potentially significant in terms of a €1.74 billion damage claim that UPS is pursuing against the Commission as a result of its missing the opportunity to acquire TNT (UPS lodged an action for non-contractual liability with the General Court on 29 December 2017). It will also be interesting to see how a US company pursuing the Commission for significant compensation is perceived on the other side of the Atlantic, given the current political climate (and, in particular, in light of large antitrust fines and State aid reimbursement demands which the Commission has recently imposed on major US corporates).

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