Competition and EU Law | Hard turn for the Norwegian Competition Authority in the first Norwegian Supreme Court judgement on merger control
The parties
Schibsted is an international media group and the majority shareholder of Norway’s largest digital marketplace FINN.no (‘FINN’). FINN offers online classified advertising with sections on its marketplace devoted to inter alia used cars.
Nettbil was established in 2017, operating an online auction platform for used cars sold by private individuals to professional car dealers. The platform offers an easy and effortless way to sell used cars, and the offering includes a package of services such as car valuation, bidding process and the delivery of the car.
Background
The acquisition of Nettbil by Schibsted took place in December 2019. Due to Nettbil’s low turnover, the acquisition did not meet the turnover threshold for mandatory merger notification in Norway. However, following the implementation of the deal, the Norwegian Competition Authority (the ‘NCA’) used its power to order the notification over concerns that the acquisition could affect competition within online sales of used cars.
In November 2020, the NCA prohibited the acquisition. The NCA found that the parties were competitors on a market covering online marketplaces for the sale and purchase of used cars, and that the loss of competition between the parties would lead to increased prices, reduced quality, and stifled innovation on the market.
Schibsted appealed the decision to the Norwegian Competition Appeals Tribunal (the ‘CAT’), who upheld the prohibition of the acquisition in a decision of May 2021. The reasons put forward by the CAT for prohibiting the acquisition differed from those of the NCA. In the CAT’s view, the market on which FINN and Nettbil operated included more competitors than those identified by the NCA. However, the acquisition would nevertheless harm competition by allowing Schibsted to increase prices on its online classified advertisements in a segment for used cars with sales prices above NOK 50 000 (EUR 5 000). Similar to the NCA, the CAT substantiated its assessments of the market and competitive harm referring to statements in the parties’ internal documents.
Schibsted brought the case before the Gulating Court of Appeals. In March 2022, the appeals court annulled the prohibition decision following a full review of the case. The court held that the CAT had not provided sufficient evidence of FINN and Nettbil competing on the same market, or of the acquisition having significantly negative effects on competition.
The state (the NCA) appealed the judgement from the Gulating Court of Appeals to the Norwegian Supreme Court, who accepted the appeal for a full review. Now, the Supreme Court has handed down its judgement, annulling the prohibition decision from the CAT and confirming that there was no basis for the NCA to intervene against the acquisition in the first place.
The Supreme Court judgement – key takeaways
Clarification of the standard for judicial review
In its appeal, the state argued that the so-called ‘Swingball doctrine’, expressed by the Norwegian Supreme Court in several cases since 1975, entails that the courts should apply a limited judicial review of decisions issued by authorities with special knowledge and skills. The CAT should be considered such competent authority.
The Supreme Court did not dispute the Swingball doctrine or the special knowledge and skills of the CAT but nevertheless provided important clarification as to the standard for the substantial judicial review of merger cases.
The Supreme Court explained that it is not for the court to substitute its own economic assessment for that of the competition authorities. However, with reference to the General Court’s decision in T-584/19 Thyssenkrupp, the Supreme Court stressed that this does not mean that the court must refrain from reviewing the authorities’ interpretation of information of an economic nature. In fact, the court must, inter alia, establish whether the evidence relied on is accurate, reliable, and consistent, and also whether it provides sufficient basis for assessing the case and whether it is capable of substantiating the conclusions of the case.
The statements clarify that Norwegian courts can apply a broad judicial review (with the same limitations as under EU/EEA law), which can serve as useful guidance to the process of judicial review of merger control decisions going forward. It is also interesting to note that the Supreme Court refers to decisional practice from the EU when establishing the standard for the Norwegian court’s judicial review of merger cases. In this area, Norwegian law and EU/EEA law are not formally harmonised.
Defining the relevant market for differentiated products – price differences matter
In its judgement, the Supreme Court confirmed market definition as the starting point for the competitive assessment of any merger. The objective is to identify the competitors that constrain the commercial decisions of the companies involved in the merger.
With reference to the market definition notices of the European Commission and the EFTA Surveillance Authority (ESA), the Supreme Court considered that the main approach to define the relevant market is that of assessing the substitutability of products from the perspective of the customer. Although not binding upon the authorities, the theoretical criterion normally used to identify sufficiently close substitutes is whether a sufficient number of customers would switch to alternative products as a response to a small but significant non-transitory increase in price, making such price increase unprofitable (the ‘SSNIP-test’). The products that the costumers would switch to are considered substitutable.
In the case at hand, it was undisputed that the parties’ product offerings were differentiated with a significant price difference. Whereas FINN ‘only’ offered classified advertising for the sale of used cars, Nettbil offered a complete package for private persons to sell its cars easy and effortless to professional car dealers. The latter included a range of services and entailed no risk for the private person involved (e.g., with regards to claims). There was also a significant price difference between the products of FINN and Nettbil. FINN charged in average NOK 918 (EUR 91) for its advertisements, whereas the cost related to Nettbils product could amount to NOK 9 000 – 30 000 (EUR 900 – 3 000).
As regards the method for defining the relevant market and the burden of proof, the Supreme Court held that the that there is a general presumption that differentiated products with significant differences in prices belong to separate markets for the merger review. The reason is that it is less likely that a high-quality product sold at a significantly higher price will be an effective substitute to a low-cost product, in the event of a small increase in the price of the low-cost product. The presumption of separate markets is rebutted where it can be demonstrated that the likely response of the costumers following a small price increase would be to switch to the higher priced product, making such price increase unprofitable.
The Supreme Court’s approach to the substitutability of differentiated products is supported by case law from the EU courts (e.g., case T-432/99 Airtours), and clarifies further that substitutability of differentiated products cannot be presumed but must be assessed on a case-by-case basis.
Clear refusal of the threshold for intervention being met when effects on competition are above the de minimis threshold
As under EU merger control rules, the threshold for intervention under the Norwegian Competition Act is whether the merger results in a ‘significant impediment to effective competition, in particular as a result of the creation or strengthening of a dominant position’ (the SIEC-test).In its appeal, the state argued that the threshold for intervention is met where the negative effects on competition are more than non-appreciable (i.e., above the de minimis threshold). Not surprisingly, the Supreme Court firmly rejected this argument.
According to the Supreme Court, with reference to the wording of the Competition Act, the preparatory works of the Competition Act and the decisional practice from the EU, the requirement of a ‘significant’ impediment to effective competition entails that the negative effects on competition are qualified and thereby above a certain threshold. The threshold cannot be determined once and for all but must be assessed taking into account the specifics of the case.
Neither the CAT, nor the NCA, argued that the acquisition would meet the threshold for intervention because it created or strengthened a dominant market position, despite references to FINN holding market power and a high market share compared to its competitors. The case was therefore a so-called gap case, used to describe acquisitions in oligopolistic market structures that do not result in the combined entity becoming a dominant market player. The Supreme Court did not provide any clarification on the threshold for establishing a SIEC in such cases. The Supreme Court stated that such clarification was not necessary in order to conclude in the case, and did not find it appropriate to provide it’s view on the issue, given that the CK Telecoms case currently pending before the European Court of Justice (‘ECJ’) is dealing with the same issue. It therefore rests with the ECJ to clarify the threshold for SIEC in gap cases.
Standard of proof and the probative value of internal documents
In its judgement, the Supreme Court found that it is for the competition authority to demonstrate that a merger ‘most likely’ will result in significant impediment to effective competition (SIEC). The mere possibility of significantly negative effects is not sufficient.
The standard of proof (‘more likely than not’) corresponds to that generally recognised under Norwegian law in civil cases. Furthermore, the standard is not higher than that previously recognised by merger control case law in the EU. The exception to this is the General Court’s judgement in case T-399/16 CK Telecoms, where it was held by the court that the EU Commission must show a ‘strong probability’ of the existence of a SIEC. The General Court’s approach was criticised by Advocate General Kokott in her Opinion in the case, arguing that that there is no justification for introducing a higher standard of proof. It is expected ECJ will clarify the issue under EU law in its upcoming CK Telecoms judgement.
In the judgement at hand, the Supreme Court also confirmed that internal documents have a high probative value when assessing the markets and competitive effects of an acquisition. This applies in particular where the internal documents were drawn up in close connection with the events or by a direct witness of those events (e.g., by persons directly involved in the parties’ business). The Supreme Court also finds that internal statements running counter to the interests of the parties can have high probative value.
At the same time, and with reference to the General Court’s judgement in T-691/14 Servier, the Supreme Court emphasised that internal documents must be interpreted in light of their purpose and context. Authorities can therefore simply not base their assessments of a merger on the wording of the document but must determine the document’s content and probative value in a wider context.
The competition authorities have often been criticised for placing much weight on internal documents without to a sufficient extent considering their context or other evidence in the case. The above statements from the Supreme Court may therefore potentially contribute to an adjustment in the authorities’ practice going forward.
Substantial assessment – FINN and Nettbil were not competitors on the same market
In its substantive review of the case, using the standard of proof and the principals for assessing evidence as set out in the judgement, the Supreme Court found that the CAT had not established to the requisite standard that FINN and Nettbil were competitors on the same market.
In essence, the CAT had failed to assess the substitutability of FINN’s and Nettbil’s product offerings. The CAT focused on the ‘overlapping business activities’ of FINN and Nettbil within online sales of used cars, instead of assessing whether the product offerings of the parties in fact were substitutable. According to the Supreme Court, the differences between the products with regards to quality and price, challenged a conclusion that the parties’ products were substitutable.
The CAT had first and foremost assessed whether there were any factors indicating that the products of FINN and Nettbil were not substitutable. The Supreme Court rejected this approach, indicating that the assessment is rather the opposite – the CAT must demonstrate that the products in fact are substitutable.
Furthermore, the Supreme Court indicated that the CAT had based its definition of the relevant market on internal documents that were partly taken out of context or given too much weight in the assessment of the parties’ product offerings. Following a review of the parties’ internal documents, the Supreme Court concluded that the CAT had not demonstrated with a sufficient degree of likelihood that the products of FINN and Nettbil were substitutable.
As FINN and Nettbil were not competing on the same market – meaning that Nettbil’s product offering did not discipline FINN’s prices or quality – it was unlikely that the acquisition would result in significant impediment of effective competition with regards to increased prices or reduced quality. The Supreme Court did therefore not find it necessary to conduct a review of the effects on competition of the acquisition.
Finally, as regards the hindering of future product innovation, the Supreme Court concluded that the acquisition – with reference to the parties’ internal documents – was not capable of harming competition.
Final remarks
BAHR welcomes the first Supreme Court judgement delineating the legal framework applicable to the merger control assessment in Norway.
Court review of merger decisions are rare; most likely because the parties to a merger usually have limited time for a protracted battle in the courts. Schibsted/Nettbil is the exemption, as the acquisition had already been implemented when the NCA issued its prohibition decision.
In any event, the judgement constitutes an important contribution to scarce case law and provides clarification with regards to the standard for the courts’ substantial judicial review in merger cases. It is interesting to note that the Supreme Court refers to, and relies on, case law from the EU courts determining the standard for the judicial review – an area where Norwegian law is not formally harmonised with EU law. Regardless, the standard expressed by the Supreme Court in its judgement does not seem to deviate materially from the standard developed under previous Norwegian case law.
The judgement also provides guidance on the assessment of substitutability of differentiated product offerings, setting out the presumption that differentiated products with significant price differences do not belong to the same market – a presumption that can be rebutted in the individual case.
The Supreme Court has also made clear the high probative value of internal documents, especially where the documents run counter to the interest of the parties. At the same time, documents must be assessed in their proper context and weighted by the competition authority accordingly. The Supreme Court’s statements on internal documents as evidence is of relevance beyond merger cases.
The Supreme Court concluded that the CAT had failed to demonstrate that the threshold for intervention was met, inter alia, due to the authority seemingly placing too much weight on internal documents compared to other evidence. Reading between the lines, the Supreme Court was not impressed with the market definition and the competitive analysis performed by the CAT. Last year, in its decision overturning the NCA’s prohibition of DNB’s acquisition of its rival bank Sbanken, the CAT implied similar concerns with the NCA’s assessments placing too much weight on internal documents compared to other evidence. Hopefully, the Supreme Court judgement will contribute to both the NCA and the CAT adjusting its established practices and principles when assessing mergers and other competition law cases going forward.