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Editorial

Recent Developments of Finnish Merger Control

July 2013 - EU & Competition. Legal Developments by Merilampi.

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Finland's New Merger Control Rules

Merger control began in Finland in 1998. The rules originally applied were repealed, and new provisions were introduced in Chapter 4 of the Competition Act (948/2011). The new Competition Act entered into force in Finland on 1 November 2011. It introduces a number of amendments to merger control provisions aimed at harmonizing the Finnish rules with EU rules. The Finnish Competition and Consumer Authority (the "FCCA") published its own guidelines on Merger Control in 2011.

The Recent Merger Control Cases Under the New Competition Act

According to its statistics, the FCCA received notice of 24 concentrations during the calendar year 2012. Of the 22 cases, 19 were cleared unconditionally during the Phase I investigation. In the remaining three cases, the FCCA initiated Phase II investigations.

These Phase II cases include a merger in the field of production and sale of ready-made concrete, concrete and other building materials products (Rudus Oy ./. Lemminkäinen Rakennustuotteet Oy, No 214/14.00.10/2012); a merger in the field of agricultural trade (DLA International Holding A/S ./. Hankkija-Maatalous Oy, No 663/14.00.10/2012 ); and a joint venture in the field of plastic pipes, fittings, wells and other similar products designed for the construction and infrastructure technology (Uponor Oyj ./. KWH-Yhtymä Oy, No 661/14.00/2012). The first two cases were cleared unconditionally in Phase II.

As regards the joint venture between Uponor and KWH-Yhtymä, the FCCA proposed its prohibition to the Market Court, but later, on 24 May 2013, the Market Court conditionally cleared the concentration. The Market Court set as a condition of its approval the divestment of some production lines (structural remedies), and the requirement that the parties to the joint venture reserve production capacity for certain types of pipe for use by other manufacturers (behavioral remedies).

On the basis of the cases that the FCCA received notice of during 2012, as referred to above, it may still be too early to predict how the FCCA will apply the SIEC test in the future. At least based on remarks made from these cases, no major changes have been made by the FCCA thus far. Instead, the structural factors like market share still seem to play a decisive role in the assessment, overriding most of the economic factors.

The Merger Control Procedure in Finland
 

When is filing of the merger necessary?

Notice of the following transactions must be made to the FCCA:

-       The acquisition of control, of joint control or of business;

-       The merger;

-       The formation of a full-function joint venture.

 

If the following thresholds are exceeded:

-       The parties' combined worldwide turnover exceeds 350 million euros; and

-       The turnover of at least two of the parties generated in Finland exceeds 20 million euros each.

 

When?

Notice of a merger may be given at any time prior to its implementation once an agreement is concluded, control acquired or the public bid announced - or even earlier if the parties demonstrate with sufficient certainty their intention to conclude a concentration. If notice is not given, the FCCA may propose that the Market Court impose a fine up to 10 per cent of the parties' preceding annual turnover.

It is worth noting that a concentration may not be implemented prior to a final decision in the matter.
 

Procedural timetable

The FCCA's investigation process is divided into two phases. During Phase I, the FCCA may clear the concentration if it clearly does not have restrictive effects for competition, clear it conditionally if the restrictive effects are preventable by conditions proposed by the parties, conclude that the transaction does not fall under the Competition Act, or decide to initiate Phase II.

If the FCCA initiates a Phase II investigation, it must make its final decision within three months. The FCCA may seek permission to extend the duration of Phase II for a maximum of two additional months from the Market Court, making the Phase II up to five months long. During Phase II, the FCCA must either clear the concentration as such or with conditions, or request that the Market Court prohibit it.

If the FCCA proposes that the Market Court prohibit the concentration, the Market Court must decide on the proposal within three months.

The maximum time including both the FCCA and the Market Court investigations therefore is nine months. However, the Market Court's decision may be appealed to the Supreme Administrative Court. The Supreme Administrative Court has no specific time limit for merger decisions. It can take more than two years for a case to be finally settled. For instance, in one merger control case where the FCCA appealed the Market Court's decision (E.ON Finland Oyj ./. Fortum Power and Heat Oy, SAC-case:2006:78), the decision of the Supreme Administrative Court took about 28 months.

Formal requirements concerning the notification

The notification form used in Finland is to a large extent similar to the form used under the EU Merger Regulation. In certain cases, a short-form notification is also acceptable. The short form may be used if the concentration does not have connections to Finland. For instance, the short form may be used in joint ventures where no business activities of the joint venture are performed in Finland, and, thus, generate no turnover from Finnish market, even though the parties to the joint venture may themselves generate turnover in Finland.

Notice must be given in either Finnish or Swedish. In addition to the original notice, the FCCA requires four written copies and one electronic version to be given. All information considered confidential of nature must be clearly identified as such. 
 

The investigation process of the FCCA

The FCCA will assess the competitive effects of concentrations on the relevant product markets and geographic markets. For this purpose, the FCCA shall hear the merging parties' relevant competitors, customers and suppliers during both Phase I and II.

Once the FCCA has defined the relevant market, it shall assess the competitive effects of the merger. This includes assessing the current market situation, market entry and possible barriers to entry, as well as other factors that counterbalance the market power of the merging entity (e.g. customers' bargaining power). In addition, the FCCA may take efficiency gains resulting from the concentration into consideration. The parties giving notice, however, must demonstrate that the concentration will lead to efficiency gains benefitting consumers.

In connection with the new Competition Act, the dominance test has been replaced with a new substantive test (the "SIEC test") for clearance, pursuant to which a concentration, as described below, may be prohibited if it significantly impedes effective competition in the Finnish market or a substantial part thereof as a result of the creation or strengthening of a dominant position.

The SIEC test is intended to apply also in so-called "gap situations" in oligopolistic markets where the market leader is not involved but other competitors are, and no dominant position is created. It has been considered that the SIEC test focuses more closely on competitive effects and less on market shares and structural considerations.

Pursuant to the new rules, the FCCA also has powers to ‘stop the clock' if the parties fail to respond to the FCCA's request for additional information within the set time limit or provide essentially insufficient or incorrect information, until the request has been complied with by the parties. The preparatory works of the Competition Act state that the provision is intended to be applied in situations where the parties are withholding information deliberately.

It is worth noting that the FCCA has the right to conduct inspections on business and other premises, in connection with merger control investigations, to ensure that the rules are being complied with. The inspection of other than business premises is subject to the permission of the Market Court. In practice, the FCCA has not yet used its power to inspect any premises other than business premises. The officials of the FCCA conducting an inspection are empowered to examine and make copies of the business correspondence, bookkeeping, computer files, other documents, and data of an undertaking or association of undertakings which may be relevant for ensuring compliance with the Competition Act and with any subsequent rules issued under it. However, based on the defense right of the undertaking under inspection, an undertaking is not obligated to deliver to the FCCA documents that contain privileged attorney-client correspondence.

If the concentration is not cleared in the first place, what actions are available for the FCCA?

If the FCCA concludes that the concentration may significantly impede effective competition in or in a substantial part of the Finnish market, it may propose that the Market Court prohibit the concentration, order that it be dissolved or attach conditions on its implementation.

The FCCA and the Market Court should always seek to impose conditions on - rather than prohibit - a concentration. In order to solve the competition concern, the parties giving notice may propose commitments to the FCCA. The FCCA must consider whether the remedies proposed by the parties are sufficient to eliminate the competition concerns. The FCCA has no right to impose conditions other than those accepted by the parties. It is also responsible for ensuring that the remedies are implemented as agreed.

It should be noted that the remedies should not be more severe than necessary to eliminate the anti-competitive effects of the concentration. The FCCA usually prefers structural remedies, such as divestments, over behavioral remedies - which it is often unwilling to accept. For instance, in NCC Roads Oy ./. Destia Oy (No 913/14.00.10/2011), the parties giving notice proposed behavioral remedies and limited structural remedies, while the FCCA required clear structural ones. According to the FCCA, the fulfillment of the proposed remedies was uncertain and their implementation would have required constant surveillance by the FCCA.


Again, if the party giving notice is unwilling to submit commitments or to approve commitments, the FCCA's only course of action is to proceed to the Market Court with a prohibition proposal. If the Market Court does not agree with the FCCA's proposal to prohibit a concentration, it has power to dismiss the proposal and to either accept the transaction as such or to impose conditions it considers suitable to address the competitive concerns.

Since the introduction of the Merger Control rules in Finland, the FCCA has made only three proposals for prohibition of the concentration to the Market Court: in 2000 (Sonera Oyj./. Yleisradio Oy ./. Digita Oy (No 1010/81/99), in 2011 NCC Roads Oy ./. Destia Oy and Destia Kalusto Oy and, most recently, in 2013 (Uponor Oyj ./. KWH-Yhtymä Oy).

Who can appeal?

The decision of the FCCA made under the merger control rules may be appealed to the Market Court by parties whose rights, obligations or interests have been directly affected by the FCCA decision in the sense specified in the Finnish Administrative Judicial Procedure Act (586/19969). The same principle applies to Market Court decisions.

Both the Market Court and the Supreme Administrative Court have concluded that the FCCA's clearance decision does not normally have a direct effect on the rights, obligations or interest of the competitors of the undertakings concerned.

The notifying parties are not allowed to appeal a decision of the FCCA concerning conditional clearance of a transaction. The FCCA's decision to initiate Phase II cannot be appealed either. The FCCA does not require the consent of the parties to request an extension of Phase II from the Market Court, but its previous practice has been to ask for such consent.

It should also be noted that the time limit of three months set for the Market Court to decide on the proposed prohibition of a concentration is limited to prohibition cases only. In other kinds of appeals concerning the FCCA's decisions, there are no similar three month time limits for the Market Court.

 

Please contact Merilampi partner Arttu Mentula at arttu.mentula@merilampi.com or Senior Associate Heidi Väkeväinen at heidi.vakevainen@merilampi.com for more information.

 

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