FIRST PUBLISHED IN E-COMPETITIONS BULLETIN DEC. 2008-1
On 18 September 2007, the Paris Court of First Instance (the Court) adopted a judgement whereby it confirmed its competence to protect third party’s rights resulting from a merger authorisation decision and enjoined the new entity resulting from the merger to abide by its commitments.
Although this decision does not seem to have been subject to much publicity, it is, to the author’s opinion, a very important one, in particular for third parties that may be affected by a concentration and whose concerns may not always be sufficiently taken into consideration by the controlling authority.
On 30th August 2006, the French Minister of economy, finance and industry (the Minister) authorised the merger between TPS and Canal Sat, at the time the only two satellite broadcasting and television services providers in France. The Minister adopted this authorisation decision after almost 6 months of review and consultations with various authorities and regulators , including the Conseil de la Concurrence, and after the parties offered not less than 59 commitments to limit the effects of the concentration on the market.
Among these commitments, Canal Plus undertook to continue the existing contracts that TPS had entered into with Parabole Réunion (Parabole), which granted the latter exclusive rights for the broadcasting of certain TPS movies and sports channels in French overseas territories of the Indian Ocean (the Territory) . Canal Plus also undertook not to discriminate Parabole in the licensing of certain technological improvements in order to favour its subsidiaries operating in the Territory and that were the only competitors of Parabole at the time.
Shortly after the completion of the merger, however, Canal Plus decided to rationalise its programme offering to avoid duplication of offers, and decided to terminate the supply of certain (ex TPS) contents to Parabole and to replace them with similar (Canal Plus) contents.
Parabole rejected this offer, which it considered to be in breach of both (i) the agreement entered into with TPS and (ii) the undertakings made by Canal Plus to the Minister (and later confirmed to Parabole in a separate agreement) and decided to bring the matter before the Paris Court of First Instance, which was the competent court chosen by TPS and Parabole in their initial agreement.
Canal Plus, however, strongly opposed the claims made by Parabole.
Not only did Canal Plus consider that it had complied with all its undertakings but, first and foremost, it argued that the Court was not competent to opine on Parabole’s claims. To support its arguments, Canal Plus relied on Article L.430-8 IV of the French commercial code , which, inter alia, provides the following:
If the Minister considers that the parties have not fulfilled an order, requirement or commitment within the fixed periods, it may refer the matter to the Conseil de la Concurrence for an opinion. If the Conseil’s opinion indicates non-fulfilment, the Minister may
– withdraw the decision authorising the concentration, in which case, unless the situation is returned to the state prevailing prior to the concentration, the parties shall be required to notify the concentration again, within one month from the withdrawal of the decision, failing which they could incur penalties; or
– enjoin the parties on whom the unfulfilled obligation was incumbent, subject to a penalty, to fulfil, within a period which it shall fix, the orders, requirements or commitments.
In addition, the Minister may impose on the persons on whom the unfulfilled obligation was incumbent a financial penalty whose maximum amount shall be, for legal persons, 5% of their pre-tax turnover made in France during the last closed financial year, plus, if applicable, the turnover which the acquired party made in France during the same period, and, for natural persons, 1.5 million euro.
On the basis of the above provisions, Canal Plus argued that only the Minister could assess the scope of undertakings made as remedies to concerns raised by the concentration and determine whether undertaking 34 implies that Canal Plus respects Parabole’s exclusive rights in the Territory as initially granted by TPS.
The Court, however, agreed with Parabole that under French civil procedural law, a Court can only waive its competence to the benefit of another jurisdiction , which the Minister is not, and that the above referred article L.430-8 of the French commercial code does not grant the Minister the necessary powers to rule on a litigation in relation to the enforcement of commercial contracts.
The Court also recalls, in its judgement, that a third party which suffers damage(s) as a result of a concentration should always have the possibility to bring an action in court to claim compensation, regardless and independent from the actions that the Minister may take under L.430-8 if the conditions are met.
In the event that the Court were to rule positively on its competence, Canal Plus had sought, alternatively that the Court stayed proceedings pending the decision that the Minister would apply under L.430-8 of the French Commercial Code.
The Court, nevertheless, also rejected this claim on the grounds that (i) there was no indication that the Minister would adopt within a reasonably short period a decision on the enforcement of remedies it sought from the parties to the concentration and (ii) the procedure to control the enforcement of remedies as set out in Article L.430-8 of the French commercial code is independent from the action for breach of contract before Judiciary Courts.
The Court then underlined that when two companies merge, a complete transfer of all assets and liabilities of the absorbed entity is taking place, as a consequence of which Canal Plus is bound by the terms of the TPS agreement, including the exclusivity rights granted to Parabole.
Consequently, Canal Plus is prevented from licensing its subsidiary with the right to broadcast ex-TPS TV contents unless otherwise agreed with Parabole.
In its opinion to the Minister, the Conseil noted that post completion of the merger with TPS, Parabole would be in a situation of economic dependence from Canal plus. The Conseil further considered that since the new entity would be Parabole’s main supplier and only competitor in the Territory, there would be serious risks of foreclosure, either via discriminatory practices or via refusal to supply within the framework of the vertical relationship between the parties. (point 523 of the Conseil’s opinion)
As a remedy to the above concerns, Canal plus had offered the remedies referred to above in favour of Parabole. It nevertheless did not seem to be willing to abide by its commitments.
Interestingly, in July this year, Parabole and Canal plus acknowledged that they had entered into merger talks. Thus, after an unsuccessful appeal of the commented decision, Canal plus has apparently adopted a more radical strategy. This will certainly constitute interesting food for thoughts in the discussion on the efficiency of merger remedies recently launched by the European Commission.