Opinion of Advocate General Kokott delivered on 27 April 2017

I. Introduction

1. The minnesinger (Minnesänger) Ulrich von Liechtenstein may have been thinking many things as he passed through the locality of Mürzzuschlag⁽²⁾⁽³⁾ on his journey, now immortalised in literature, from Venice to Bohemia in 1227. Did he, though, have any inkling back then that this picturesque little Austrian town on the banks of the River Mürz would one day be the setting for the first reference for a preliminary ruling on the subject of the EU merger control regime?

2. These proceedings have their origin in an asphalt plant which has until now belonged exclusively to a single large construction company but is in future to be operated jointly by that self-same company and another construction company. In other words, therefore, the intention is to convert the existing asphalt plant into a joint venture. The issue which this raises, from the point of view of the merger control regime, is that that plant is not a full-function undertaking because its business is confined to supplying goods to its current parent company — and, in future, to its two parent companies — and does not otherwise have any significant presence on the market.

3. In that context, the Court is asked to answer the fundamental question of what constitutes a concentration between undertakings within the meaning of Article 3 of the EC Merger Regulation (‘the Merger Regulation’).⁽⁴⁾ More specifically, the present request concerns Article 3(1)(b) and Article 3(4) of the Merger Regulation, the point at issue being whether, under those provisions, undertakings such as that in Mürzzuschlag, which, although they cannot be regarded as full-function undertakings because they have no autonomous presence on the market, are nevertheless subject to the EU merger control regime in the event that third parties acquire an interest in them.

4. The issue described, involving the conversion of an existing non-full-function undertaking into a joint venture, may at first sight seem highly technical and is certainly drier than the song of a minnesinger such as Ulrich von Liechtenstein. From the point of view of the EU-law system for enforcing the competition rules in the European internal market, however, it has a practical significance which cannot be underestimated. After all, the interpretation of Article 3 of the Merger Regulation serves not only, at a horizontal level, to draw the dividing line between the control of concentrations under the Merger Regulation, on the one hand, and the enforcement of antitrust law under Regulation (EC) No 1/2003,⁽⁵⁾ on the other, but also, at a vertical level, to distinguish between the competences of the European Commission, as the merger control authority within the internal market, and the national bodies responsible for concentrations, respectively, the EU merger control regime being based on a precise division of powers.⁽⁶⁾

II. Legal framework

5. The EU-law framework relevant to this case is defined by Article 3 of the Merger Regulation, which is entitled ‘Definition of concentration’ and reads, in extract, as follows:

‘1.

A concentration shall be deemed to arise where a change of control on a lasting basis results from:

…

1. the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.

…

4.

The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a concentration within the meaning of paragraph 1(b).

…’

6. Recital 20 of the Merger Regulation clarifies Article 3(1) and (4):

‘It is expedient to define the concept of concentration in such a manner as to cover operations bringing about a lasting change in the control of the undertakings concerned and therefore in the structure of the market. It is therefore appropriate to include, within the scope of this Regulation, all joint ventures performing on a lasting basis all the functions of an autonomous economic entity. ...’

7. Mention should also be made of recital 8 of that regulation:

‘The provisions to be adopted in this Regulation should apply to significant structural changes, the impact of which on the market goes beyond the national borders of any one Member State. Such concentrations should, as a general rule, be reviewed exclusively at Community level, in application of a “one-stop shop” system and in compliance with the principle of subsidiarity. Concentrations not covered by this Regulation come, in principle, within the jurisdiction of the Member States.’

8. Lastly, reference must be made to Article 21 of the Merger Regulation, which is entitled ‘Application of the Regulation and jurisdiction’, and, so far as is relevant here, provides as follows:⁽⁷⁾

‘1.

This Regulation alone shall apply to concentrations as defined in Article 3, and [Regulation No 1/2003] shall not apply except in relation to joint ventures that do not have a Community dimension and which have as their object or effect the coordination of the competitive behaviour of undertakings that remain independent.

2.

Subject to review by the Court of Justice, the Commission shall have sole jurisdiction to take the decisions provided for in this Regulation.

3.

No Member State shall apply its national legislation on competition to any concentration that has a Community dimension.

…’

9. The Commission Consolidated Jurisdictional Notice⁽⁸⁾ does not form part of the legal framework applicable to the present case, since it is simply a non-legally-binding notification in which the Commission, for the sake of transparency, sets out its legal position and administrative practice in relation to jurisdiction over the control of concentrations.⁽⁹⁾

III. Facts and main proceedings

10. Austria Asphalt GmbH & Co OG (AA) is an indirect subsidiary of Strabag SE, whereas Teerag Asdag AG (TA) belongs to the Porr Group. Both Strabag and Porr are international construction companies whose activities include road construction.

11. The Mürzzuschlag asphalt mixing plant is located in the municipality of Mürzzuschlag, in the Austrian province of Styria. The plant produces asphalt for road construction and supplies its goods almost exclusively to TA, by which it is at present solely owned.

12. AA and TA are planning to set up a GmbH & Co KG (limited partnership with a limited liability company as its general partner) under Austrian law, with AA and TA each holding 50% of the partnership shares and 50% of the shares in the general partner. All decisions at the newly formed company’s general meeting are to require unanimity.

13. TA is to transfer the asphalt mixing plant to the newly formed company. From an economic point of view, as the order for reference explains, this means that AA will acquire a 50% shareholding in the asphalt mixing plant as the existing target undertaking, with TA, as the transferor having formerly exercised sole control over the target undertaking, retaining a holding in the target undertaking and henceforth exercising joint control over it. The asphalt produced in the plant is to be supplied almost exclusively to AA and TA.

14. On 3 August 2015, AA notified that transaction to the Bundeswettbewerbsbehörde (Austrian Federal Competition Authority), in accordance with the Austrian Kartellgesetz 2005 (2005 Law on cartels) (‘KartG’). As is clear from the documents before the Court, AA had previously been informed in a comfort letter from the European Commission’s Directorate-General for Competition that the plan did not appear to constitute a concentration within the meaning of Article 3 of the Merger Regulation.⁽¹⁰⁾ That letter came with the express disclaimer, however, that the view expressed in it was simply that of a Commission service and, as such, was not binding on the Commission as an EU institution.

15. Further to the notification of 3 August 2015, the Austrian Bundeskartellanwalt (Federal Cartel Prosecutor) lodged with the Oberlandesgericht Wien (Higher Regional Court, Vienna), acting as cartel court, an application for review under Paragraph 11(1) of the KartG. However, by decision of 6 October 2015, the cartel court refused that application. By way of justification, the cartel court stated that the notified transaction constituted a concentration with an EU dimension and was therefore subject not to Austrian competition law but exclusively to EU law in the form of the EC Merger Regulation.

16. The Oberster Gerichtshof (Supreme Court),⁽¹¹⁾ acting as higher cartel court, must now give a ruling on AA’s appeal against the aforementioned decision of the cartel court. By its appeal, AA seeks an order overturning the cartel court’s decision and declaring that its transaction is to be treated as a concentration plan requiring notification under Austrian competition law (Paragraphs 7 and 9 of the KartG).

IV. Request for a preliminary ruling and procedure before the Court

17. By order of 31 March 2016, lodged on 2 May 2016, the Oberster Gerichtshof referred the following question to the Court for a preliminary ruling under Article 267 TFEU:

‘Must Article 3(1)(b) and Article 3(4) of Regulation (EC) No 139/2004 be interpreted to mean that a move from sole control to joint control of an existing undertaking, in circumstances where the undertaking previously having sole control becomes an undertaking exercising joint control, constitutes a concentration only where the controlled undertaking has on a lasting basis all the functions of an autonomous entity?’

18. In the preliminary ruling proceedings before the Court, Austria Asphalt, the Bundeskartellanwalt and the European Commission submitted written observations and were also represented at the hearing on 22 March 2017.

V. Analysis

19. By its question, the referring court wishes, in essence, to ascertain whether a change in the control structure of an existing undertaking — in the present case, the transition from sole to joint control of the Mürzzuschlag asphalt plant — is to be regarded as a concentration within the meaning of Article 3 of the Merger Regulation even where the joint venture resulting from that transaction is not a full-function undertaking.

20. The starting point is a matter of common ground: in accordance with Article 3(1)(b) of the Merger Regulation, a concentration is any operation leading to the acquisition on a lasting basis of sole or joint control of an undertaking or part of an undertaking. The point of contention arises, however, when that provision is combined with Article 3(4) of the Merger Regulation. For the latter provision also includes within the concept of concentration the ‘creation of a joint venture’, albeit on condition that such a joint venture ‘perform[s] on a lasting basis all the functions of an autonomous economic entity’, in other words that it is full-function.

21. In the light of that wording and the position of Article 3(4) within the scheme of the Merger Regulation, it is unclear whether joint ventures are generally subject to the EU merger control regime only where they are ‘autonomous economic entities’, or, in other words, full-function undertakings. After all, Article 3(4) of the Merger Regulation might also be understood as meaning that the restrictive reference it makes to full functionality applies only to the creation of new joint ventures, but not to the change of an existing undertaking into a joint venture controlled by two companies. On that reading, all operations involving a lasting change in the control of existing joint ventures, within the meaning of Article 3(1)(b) of the Merger Regulation, would be subject to the merger control regime, irrespective of whether the entities in question are full-function undertakings or — as in the case of the Mürzzuschlag asphalt plant — merely production facilities with no autonomous market presence.

22. It is interesting to note that, in the present proceedings, the European Commission has advocated the latter reading, whereas the Commission service responsible for merger control, in relationtothe same case, had previously taken the diametrically opposed view.⁽¹²⁾ It is extremely regrettable that, on such a fundamental and recurrent issue of competence, the Commission did not first commit to a clear and uniform approach and then apply it consistently.⁽¹³⁾ For this is the only basis on which market operators can rely on statements and advice given by the Commission services responsible for concentrations between undertakings — even in non-binding comfort letters — and make a reasonable assessment of their obligations under EU law.

23. To my mind, there is little to be served by abstract reflections on whether Article 3(4) of the Merger Regulation has the effect of broadening, restricting or simply clarifying the meaning of concentration under Article 3(1)(b) of the Merger Regulation in relation to joint ventures. What is needed is, rather, a pragmatic approach to interpreting and applying Article 3 of the Merger Regulation. To that end, account must be taken, in accordance with settled case-law, of the wording, context and aims of that provision.⁽¹⁴⁾

Wording

24. The wording of Article 3 of the Merger Regulation provides no clear answer to the question at issue here. Article 3(4) of the Merger Regulation merely states that the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation. That wording leaves it unclear whether full functionality — that is to say, the fact of performing on a lasting basis all the functions of an autonomous economic entity — is necessary only where a new joint venture is created or whether it is a condition that also applies where an existing undertaking is changed into a joint venture, with the result that such a change is also subject to the EU merger control regime only where the undertaking concerned is a full-function undertaking.

25. It is readily apparent from the dispute before the Court that both interpretations are feasible. After all, Article 3(4) of the Merger Regulation can be understood, in accordance with the view expressed by AA, as meaning that, generally speaking, the only joint ventures subject to the EU merger control regime are those with full functionality, irrespective of whether their ‘creation’ involved establishing an entirely new undertaking or changing an existing undertaking into a joint venture. In the light of the wording of Article 3(4) of the Merger Regulation, however, one might also align oneself with the Commission in considering full functionality to be a condition of implementing an EU merger control only where a new joint venture is created, whereas a change in the control of an existing undertaking — as a result of its conversion to a joint venture — would be subject to the merger control regime in any event, even if the undertaking in question were not full-function. After all, neither Article 3(4) nor Article (3)(1)(b) expressly lays down the requirement that existing undertakings must also perform on a lasting basis all the functions of an autonomous economic entity.

26. If the wording of a provision of EU law — such as Article 3 of the Merger Regulation here — is open to a number of interpretations, the correct interpretation must be determined by reference to its purpose and the scheme of which it forms part. Account may also be taken of the provision’s drafting history.

Purpose

27. The provision at issue, contained in Article 3(4) of the Merger Regulation, is further clarified in the second sentence of recital 20 of the EC Merger Regulation. This states that that regulation also includes within its scope all joint ventures performing on a lasting basis all the functions of an autonomous economic entity, that is to say, all full-function joint ventures.

28. The preamble to the EC Merger Regulation therefore draws no distinction between newly created joint ventures and those — such as that here — that result from switching existing undertakings from sole control by one company to joint control by two companies. Against that background, it must be assumed that Article 3(4) of the Merger Regulation does not contain any such distinction either, but rather lays down the requirement of full functionality as being generally applicable to all joint ventures, irrespective of whether the joint venture concerned is newly created or owes its ‘creation’ to the conversion of an existing company into a joint venture.

29. Moreover, that view is also supported by the general purpose of the EU merger control regime. As is clear from recital 8 of the EC Merger Regulation, that regulation is intended to apply to significant structural changes the impact of which on the market goes beyond the national borders of any one Member State. To the same effect, the first sentence of recital 20 states that it is expedient to define the concept of concentration in such a manner as to cover operations bringing about a lasting change in the control of the undertakings concerned and therefore in the structure of the market.

30. In the light of that purpose, therefore, the EU merger control regime is aimed at operations which bring about a change in the structure of the market. However, such a change in the structure of the market takes place only in the event of significant changes in the control structure of undertakings which are actually active on the market or at least genuinely plan to be so.

31. It would run counter to the essence of the EU merger control regime to make the conversion of an existing non-full-function undertaking into a joint venture subject to mandatory ex ante control by the Commission against the criteria laid down in the EC Merger Regulation. After all, if an establishment does not have an autonomous presence on the market, it follows that any change in the control structure of that establishment cannot have the effect of changing the structure of that market.

32. The Commission’s reference to the adverb ‘auch’ (also) in the second sentence of recital 20 of the [German-language version of the] EC Merger Regulation seems to be of little help here. For, on the one hand, that form of words appears in only some versions of the regulation in the first place, such as the German for example, whereas, in many other language versions (not least the English and the French), it does not feature at all. On the other hand, the Commission’s argument is not particularly convincing from the point of view of its substance either. At first sight, the form of words to the effect that it is appropriate also to include, within the scope of the EC Merger Regulation, ‘all joint ventures performing on a lasting basis all the functions of an autonomous economic entity’⁽¹⁵⁾ may not rule out the possibility that the EU merger control regime applies not only to the foregoing but to other kinds of joint venture too, that is to say to those without full functionality. On closer examination, however, such a construction would be contrary to the EC Merger Regulation’s general objective of subjecting to ex ante control those plans that lead to changes in the structure of the market.

33. Contrary to the Commission’s view, the conversion of a non-full-function undertaking into a joint venture cannot be subjected to EU merger control on the basis of Article 3(1)(b) of the Merger Regulation either. After all, in order for an operation to constitute a concentration within the meaning of the general definition of that term given in that provision, it must give rise to a lasting change in the control of an undertaking or part of an undertaking. For these purposes (as for other purposes too in EU competition law), the concept of undertaking must be interpreted functionally and encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed.⁽¹⁶⁾ Since an economic activity is in turn understood to mean any activity consisting in offering goods and services on a given market,⁽¹⁷⁾ joint ventures without an autonomous market presence — in other words, without full functionality — are by definition not caught by Article 3(1)(b) of the Merger Regulation.

Context

34. An examination of the context of Article 3 of the Merger Regulation does not lead to a different conclusion.

35. Both the EC Merger Regulation and the related Regulation No 1/2003 serve ultimately to implement the competition rules for the internal market which are contained in Article 101 and 102 TFEU, only one of those regulations being capable of application at any one time (see, in that regard, Article 21(1) of the Merger Regulation).

36. While, within the ambit of the EC Merger Regulation, a system of preventive and mandatory ex ante control was established as being applicable to changes in the structure of the market, the behaviour in which undertakings engage on the market — be this collusive practices or unilateral abuse of a dominant position — is otherwise subject, pursuant to Regulation No 1/2003, only to punitive ex post control, the implementation of which, moreover, lies at the discretion of the competition authorities.

37. As is apparent from Article 21(1) of the Merger Regulation, the concept of concentration within the meaning of Article 3 of the Merger Regulation constitutes the dividing line between the aforementioned two areas of EU competition law.⁽¹⁸⁾ An understanding of Article 3 of the Merger Regulation which is consistent with that scheme therefore requires that the concept of concentration be interpreted as meaning that only genuine changes in the structure of the market are subject to the EU merger control regime, whereas the mere conduct in which undertakings engage on the market is not.

38. Accordingly, Article 3(4) of the Merger Regulation should be interpreted as meaning that, even in the case where an existing undertaking is converted into a joint venture, that operation constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation only if the undertaking in question is full-function. For it is only this scenario that brings about a change in the structure of the market such as to justify a merger control. If, on the other hand, the transaction in question gives rise to a joint venture which is not full-function, there will at most be a need to deal with any coordination by the two parent companies of the behaviour in which they engage on the market as part of their collaboration within the joint venture. Such coordination of market behaviour, even though it may be entirely relevant from the point of view of Articles 101 and 102 TFEU, is an issue to be considered not under the EU merger control regime but under Regulation No 1/2003.

39. The Bundeskartellanwalt submits that, if they were to refrain from carrying out ex ante control in cases such as that at issue, the competition authorities would no longer be able to act as promptly as they do to counter any adverse effects on competition on a market which is already highly concentrated. This, however, is the inevitable consequence of the system for the enforcement of antitrust law that was introduced by Regulation No 1/2003. The EU legislature made a conscious decision to dispense with the mandatory pre-notification of agreements, decisions and concerted practices between undertakings with effect from 1 May 2004, in order both to make market operators more accountable and to free up the resources of the competition authorities, thereby effectively giving them greater discretion to set their priorities in relation to the enforcement of antitrust law. To bring more cases within the scope of the EU merger control regime by broadening the interpretation of the concept of concentration would be to disregard the new system for the enforcement of the EU competition rules which was introduced by the EC Merger Regulation and Regulation No 1/2003 and has been in place since 1 May 2004. There is nothing to prevent the national competition authorities from making it one of their priorities in relation to the enforcement of antitrust law (Articles 101 and 102 TFEU) to pay special attention to occurrences on highly concentrated markets such as that in the present case.

Drafting history

40. Last but not least, an examination of the drafting history of Article 3(4) of the Merger Regulation does not lead to a different conclusion either.

41. Article 3(4) of the Merger Regulation has its origin in Regulation No 1310/97,⁽¹⁹⁾ which introduced an identical provision into the legislation previous to the EC Merger Regulation.

42. Even at that stage, the EU legislature was concerned to ensure that lasting changes in the structure of undertakings would be subject to merger control. The stated aim of the then new legislation, which, moreover, in so far as its wording is unchanged, still has legal force today,⁽²⁰⁾ was to include all full-function joint ventures within the scope of the EU merger control regime.⁽²¹⁾

43. Cooperation between undertakings which, although leading to the creation of a joint venture, does not give that joint venture an autonomous market presence, on the other hand, has never been the subject of the EU merger control regime, either under the EC Merger Regulation or under the legislation previous to it.⁽²²⁾

Concluding remarks

44. On balance, therefore, the concept of concentration within the meaning of Article 3 of the Merger Regulation is to be understood as meaning that the creation of joint ventures — be this by the formation of entirely new undertakings or the conversion of existing undertakings into joint ventures — is subject to the EU merger control regime only if the undertakings in question are full-function.

45. After all, if the foregoing principle applies to a newly created joint venture, it must a fortiori apply also to the conversion of an existing undertaking into a joint venture. This is particularly true in a situation such as that at issue here, in which the disputed transaction, having as its purpose the creation of a new commercial company,⁽²³⁾ is very similar to a new creation anyway.

46. I do not share the concern expressed by the Commission at the hearing that the continued application of the full-function criterion could lead to the emergence of a gap in the effective enforcement of the EU merger control regime. It seems to me, on the contrary, that the approach, favoured by the Commission, of refraining from applying the full-function criterion in cases involving the conversion of existing undertakings into joint ventures could have the effect of diluting the concept of concentration within the meaning of Article 3 of the Merger Regulation and diverting the Commission’s attention from the transactions that are truly relevant from the point of view of the structure of the market.

47. Furthermore, unlike the Commission, I do not consider it necessary to comment on the conditions under which the possible disappearance of a joint venture from the market is subject to the EU merger control regime. After all, the present case is concerned not with the disappearance but, on the contrary, with the emergence of a joint venture. A situation in which an undertaking is removed from the market by its parent company after it has been converted into a joint venture — that is to say, after the change in the control structure of that undertaking — would come under the heading of the market conduct of the parent company (Article 101 or 102 TFEU) rather than the heading of changes in the structure of the market.

VI. Conclusion

48. In the light of the foregoing, I propose that the Court’s answer to the request for a preliminary ruling from the Oberster Gerichtshof (Supreme Court, Austria) should be as follows:

The transfer of an existing undertaking or part of an undertaking from sole control by one company to joint control by the self-same company and another company unrelated to it constitutes a concentration within the meaning of Article 3 of Regulation (EC) No 139/2004 only where the joint venture resulting from that transaction performs on a lasting basis all of the functions of an autonomous economic entity.