No notification required on creation of non-full function joint venture
In a preliminary ruling of September 2017, the Court of Justice of the EU held that a joint venture created as a result of a shift from joint to sole control does not require prior assessment by the European Commission if the joint venture does not perform all the functions of an autonomous economic entity on a lasting basis.
Austria Asphalt and Teerag Asdag sought to establish a third company through which to buy a target undertaking. The sole target owner so far was Teerag Asdag. The transaction would lead to a change in control to be exercised in future jointly by the two companies. The national competition authorities were duly notified. The Austrian competition court held that the transaction constituted a concentration with an EU dimension within the meaning of the Merger Regulation (“EUMR”) and was beyond the jurisdiction of the Austrian courts. Austria Asphalt appealed against the decision, asserting that the joint venture would fall within the scope of the EUMR only where the undertaking represents a full-function joint venture. This was not the case, because the production of the incorporated undertaking would be exclusively used by the controlling companies. A question for preliminary ruling was submitted to the CJEU – whether a move from sole to joint control represents a concentration only where the undertaking has the functions of an autonomous entity on a lasting basis.
The CJEU confirmed that the concept of concentration encompasses only operations bringing about a lasting change in the control of undertakings and therefore capable of significantly impeding effective competition in the internal market or in a substantial part of it. Only joint ventures performing all the functions of an autonomous economic entity on a lasting basis will fall within the ambit of the EUMR. No distinction should be drawn between a newly-established undertaking and an existing one.
The criteria for defining full-functionality of an undertaking can be found in the Notice from the Commission. The relevant factors are: existence of its own management; access to sufficient resources; operation on the market in its own right; independence from parent companies; longer duration of operation on the market.
However, one should bear in mind that although non-full function joint ventures will not be reviewed under the EUMR, they will still require appraisal under Art. 101 of the TFEU as they represent coordination between undertakings which might result in distortion of competition.
Source: Austria Asphalt GmbH & Co OG v Bundeskartellanwalt (C-248/16); Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings; Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings.