119
The Western
Digital/Viviti and
Seagate/Samsung
Mergers reviewed in
the EU and China —
Different Priorities?
*
Manuel Kellerbauer
Brussels and Ting Gong, Hong Kong
A. Introduction
In 2011, two mergers in the Hard Disk Drive (HDD)
industry were notified to the European Commission and
the Chinese authorities almost simultaneously. Western
Digital (WD) intended to acquire control of Viviti
Technologies, (Viviti, formerly known as Hitachi Global
Storage Technologies). Seagate Technology Public
(Seagate) planned to purchase the HDD business of
Samsung Electronics (Samsung). The Seagate/Samsung
transaction was the first to be notified to the European
Commission, albeit only one day before the notification
of the proposed concentration concerning WD and Viviti.
In China, both transactions were equally under scrutiny,
although WD was the first to submit a complete
notification to the Chinese authorities whilst Seagate
followed suit.
Affecting largely the same markets, the two proposed
transactions required both competition authorities to
decide on their prioritisation. The procedure applied for
their review and the substantive assessment show both
similarities and divergences in China and the European
Union (EU). This article briefly recalls the basic rules of
merger control in the European Union and China. It then
analyses the different responses to the main legal issues
raised by the two parallel transactions in the HDD
industry, and explores the reasons for divergences in the
two jurisdictions regarding the review of two mergers
that essentially raised identical competitive concerns.
B. Merger control law in the European
Union and China: an overview
Merger Control in the European Union was put into place
in 1989.1 As the European single market involves
transnational restructuring of companies that can improve
competitiveness and strengthen European industry in a
globalised economy, one purpose of the EU merger
legislation was to provide companies with the advantage
of a “one-stop-shop” for EU merger control, thus relieving
them of the obligation of multiple filings in various EU
Member States. Since May 1, 2004 Council Regulation
139/2004 on the control of concentrations between
undertakings2 (EU Merger Regulation or EUMR), applies
a reformed merger control to EU Member States.
Concentrations within the meaning of the EUMR must
be notified to the European Commission provided that
the annual turnover of the combined businesses exceeds
specified thresholds in terms of global, European and
national sales.3 Generally speaking, once certain turnover
thresholds are reached, the Commission is solely
empowered to decide on the lawfulness of concentrations
under competition law in the European Union.4 In
principle, undertakings are prevented from implementing
the merger without prior clearance by the Commission.5
In China, the currently applicable merger control
regime was introduced by the Chinese Anti-monopoly
Law (AML) that entered into force on August 1, 2008.6
The Ministry of Commerce (MOFCOM), which assumes
the role of the Chinese merger review authority, is
empowered to enforce merger control for any transaction
that qualifies as a concentration of undertakings under
the AML provided that the relevant parties’ turnover
exceeds any of the thresholds determined by the Chinese
State Council.7 Such transactions are subject to pre-closing
review and may not proceed without prior clearance from
MOFCOM.8
The concept of what constitutes a concentration is
comparable in the European Union and China. It describes
instances where one or more undertaking(s) acquire(s)
the control of another undertaking, of a group of assets
*
Manuel Kellerbauer is a Member of the Legal Service of the European Commission. Ting Gong works as a Legal Consultant for Freshfields Bruckhaus Deringer. The
authors are grateful to Tobias Maass and Sophie Moonen for their comments on an earlier draft of this paper. All views expressed are strictly personal, and should not be
construed as reflecting the opinion of the European Commission, Freshfields Bruckhaus Deringer or any of the above mentioned persons.
1
Council Regulation 4064/89 of December 21, 1989 on the control of concentrations between undertakings ([1989] OJ L395/1).
2
Council Regulation (139/2004 of January 20, 2004 ([2004] OJ L24/1).
3
Articles 1(2) and (3) EUMR contains criteria based on the turnover of the parties in different geographic areas to determine whether a concentration has a Union dimension.
Where undertakings concerned obtain more than two-thirds of their aggregate EU turnover in the same Member State, their concentration is considered as having an
essentially national impact and will not be of Union dimension.
4
Possibilities to refer merger cases that have a Union dimension to the national authorities provide for exceptions from the rule. See, in this respect, arts 4(4) and 9 EUMR.
5
See arts 4, 7(1) EUMR. Pursuant to art.7(3) EUMR the Commission may grant derogations from the obligation to suspend the implementation of the concentration.
6
The AML is available at http://www.fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/BasicLaws/P020071012533593599575.pdf [Accessed January 6, 2013].
Previously, merger control in China was based on interim provisions “on mergers and acquisitions of a domestic enterprise by foreign investors” that applied to acquisitions
of Chinese companies by foreign investors between April 2003 and June 22, 2009. See 6/2009 Decree of the Ministry of Commerce PRC on Promulgation of the Provisions
on M&A of a Domestic Enterprise by Foreign Investors available at http://fdi.gov.cn/pub/FDI_EN/Laws/GeneralLawsandRegulations/RegulationsonForeignInvestment
/P020090727403337182397.pdf [Accessed January 6, 2013].
7
State Council 529/2008 Provisions on Thresholds for Notification of Concentrations of Undertakings, adopted on August 1, 2008, available at http://.mofcom.gov.cn
/aarticle/c/200903/20090306071501.html [Accessed January 6, 2013]. The thresholds are set out in art. 3 of these Provisions. It is noteworthy that art.4 of the Provisions
grants MOFCOM the discretion to investigate transactions that do not reach the thresholds if it considers that the transaction is likely to result in the elimination or restriction
of competition.
8
See arts 21, 25(2) or 26(2) and 48 AML.
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
120 European Competition Law Review
or where two previously independent undertakings
merge.9 What is decisive is a lasting change in the
structure of control over undertakings, which depends on
acquiring the means of exercising decisive influence.10
An essential procedural feature of both the European
Union and the Chinese merger control regimes is the strict
adherence to mandatory deadlines applicable in
proceedings that distinguish between a first and a second
phase. In the European Union, the first phase leads to the
clearance of unproblematic concentrations usually within
25 working days from the working day following effective
notification.11 Only if the proposed concentration raises
serious doubts as to its compatibility with the internal
market does the Commission decide to initiate phase II
proceedings to proceed to a detailed assessment, usually
within a further 90 working days.12 Transactions are
deemed to have been cleared where the Commission fails
to take a decision at the end of either the first phase or
the second phase within the applicable deadlines.13
The Chinese merger review process is generally
composed of two phases as well. The AML provides that
MOFCOM conducts a preliminary review and decides
within 30 calendar days after having received a complete
notification whether to clear the merger or proceed to an
in-depth review (Phase II) if necessary.14 Phase II merger
review in China takes up to 90 calendar days. It can be
extended by an additional calendar 60 days:
“if the undertakings concerned agree to extend the
time limit, the documents or materials submitted by
the undertakings are inaccurate and need further
verification, or material changes have occurred with
respect to relevant circumstances since the filing of
the notification by the undertakings”.15
If the deadline for a MOFCOM merger decision is not
respected, the transaction is deemed to have been
approved and the parties are entitled to implement the
concentration.16
Despite this comparable framework of deadlines, the
actual duration of merger proceedings in the European
Union and China differs significantly. Whilst phase II
in-depth review is the exception applied only in about 3
per cent of EU merger control cases,17 most transactions
have so far entered Phase II in China. This could be
explained by the fact that MOFCOM is still developing
its capacity to deal with the increasing case load and in
addition often needs to engage in time-consuming
consultations with other ministries and stakeholders in
China. At a press conference in December 2011,
MOFCOM pledged to streamline the review process to
enable quicker clearance for no-issue cases.18 In the
European Union, the notice on simplified mergers already
provides for a fast track procedure for certain categories
of mergers that do not raise any substantive doubts.19
Both in China and the European Union, notifying
parties usually seek pre-notification contacts with the
competition authority to clarify the information required
for notification and obtain first informal guidance as to
the competitive concerns the intended concentration might
raise.20 Although these pre-notification contacts can be
said to be voluntary in nature at least in the European
Union21 they de facto further extend the overall time
required for the approval of a merger. In China, the
pre-notification period usually takes four to six weeks.
The introduction of a more burdensome notification form
on July 7, 2012 may further have extended the
pre-notification period in China.22
For the substantive assessment of a proposed merger,
both MOFCOM and the Commission usually first define
the relevant product and geographic markets.23 Under EU
9
See art.3 EUMR and art.3 No.11 Decree [2009] of MOFCOM on Measures for the Undertaking Concentration Declaration, available at http://www.fdi.gov.cn/pub/FDI
_EN/Laws/law_en_info.jsp?docid=115877 [Accessed January 6, 2013].
10
See Commission Consolidated Jurisdictional Notice under Council Regulation 139/2004 on the control of concentrations between undertakings ([2008] OJ C 95/1) para.7
and arts 3 and 10(2) No 11 Decree [2009] of MOFCOM on Measures for the Undertaking Concentration Declaration.
11
Art.icle 10(1) EUMR. This period can be increased to 35 working days if there is a request for referral to a Member State or if the parties offer commitments.
12
Articles 6(1)(c) and 10(3) EUMR. The period may be extended by 15 additional working days if the parties concerned propose commitments at least 55 days after the
start of the second phase. Furthermore, the period can be extended by up to 20 working days at the request of or in agreement with the parties. Finally, according to art.10(4)
EUMR the period for adopting a first-phase and second-phase decision will exceptionally be suspended if, due to circumstances for which the undertakings involved in the
concentration are responsible, the Commission needs to make use of its decisional powers to obtain additional information.
13
Article10(6) EUMR.
14
Articles 25, 26 AML do not define the type of competition concerns that trigger phase II review. It would seem that MOFCOM is granted considerable discretion in this
regard.
15
Article 26 AML.
16
Articles 25, 26 AML.
17
From September 21, 1990 to September 30, 2012 only 211 concentrations entered into phase II although approximately 5,000 mergers were notified. See the “EU Merger
Statistics” available at http://ec.europa.eu/competition/mergers/statistics.pdf [Accessed January 6, 2013].
18
See the speech delivered by MOFCOM’s Director General Shang Ming on December 27, 2011 in Beijing on “the Main Issues of AML Enforcement in the year of 2011”.
A report on the press conference in Chinese is available at: http://www.mofcom.gov.cn/aarticle/ae/slfw/201112/20111207901483.html?2286561902=3683028003.
19
See Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation 139/2004, ([2005] OJ C 56/04).
20
Under EU law, the possibility of pre-notification contacts is explicitly mentioned in recital 11 Commission Regulation 802/2004 implementing Council Regulation
139/2004, ([2004] OJ L133/1) (“Regulation 802/2004”) and promoted in s.3 of the Commission’s Best Practices on the conduct of EC merger control proceedings, available
at http://ec.europa.eu/competition/mergers/legislation/proceedings.pdf [Accessed January 6, 2013]. Similarly, the possibility of pre-notification contacts is explicitly provided
for in art.8 No.11 Decree [2009] of MOFCOM on Measures for the Undertaking Concentration Declaration.
21
In principle, the Commission enjoys no discretion to reject a notification that satisfies the legal requirements set out in arts 3 to 5 Reg.802/2004, irrespective of whether
it was filed with or without prior pre-notification contacts. This is less clear in China, where MOFCOM seems to have discretion as to when the merging parties’ notification
is deemed complete within the meaning of art.23 AML. Such completeness has proved difficult to achieve at first attempt by merging parties.
22
The Chinese text of the new form is available at http://fldj.mofcom.gov.cn/aarticle/zcfb/201206/20120608166903.html?3988084421=243563766 [Accessed January 6,
2013].
23
The EU Court of Justice held that a proper definition of the relevant market is a necessary precondition for any assessment of the effect of a concentration on competition
under the EUMR. See Joined cases C-68/94 and C-30/95 SCPA and EMC v Commission [1998] E.C.R. I-01375 at [143]. Similarly, the importance of market definition is
highlighted in art.2(2) Guidelines on market definition issued by the Anti-Monopoly Commission of the State Council in China on May 24, 2009, available at http://fldj
.mofcom.gov.cn/aarticle/j/200907/20090706384131.html [Accessed January 6, 2013].
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
121
law, a relevant product market generally comprises all
those products and/or services which are regarded as
interchangeable or substitutable by the consumer, by
reason of the products’ characteristics, prices and intended
use.24 Similarly, in China, a relevant product market refers
to a market that comprises a group or a type of products
considered to be closely substitutable with each other by
the demand-side due to factors such as characteristics,
intended use, prices of the products, etc.25 According to
the Commission Notice on market definition, supply-side
substitutability can also be taken into account when
defining the relevant market, albeit only in those situations
in which its effects are equivalent to those of demand-side
substitutability in terms of effectiveness and immediacy.26
In the same vein, in China, where supply substitution
constitutes a similar competitive restraint on business
operators’ behaviour as does demand substitution, supply
substitution is also taken into consideration.27
In the European Union, the prohibition of a
concentration turns on the issue of whether it is likely to
significantly impede effective competition in the internal
market or in a substantial part of it, in particular as a result
of the creation or the strengthening of a dominant
position.28 Under the revised EU Merger Regulation the
latter is no longer a requirement for prohibition.29 Where
the parties to the concentration are actual or potential
competitors on the same market (horizontal mergers),
market shares and concentration levels provide the
Commission with useful first indications of the market
structure and of the competitive importance of the
merging parties and their competitors.30 The Commission
then examines in particular whether the merging firms
are close competitors, whether customers would have
limited possibilities of switching to other suppliers,
whether competitors would be unlikely to increase supply
if prices increase, whether the merged entity would be
able to hinder expansion by competitors and whether the
concentration would eliminate an important competitive
force.31 Competitive pressure ruling out a significant
impediment to effective competition can result from
customers of the merging firms with countervailing buyer
power and from companies whose entry in the concerned
markets is likely, timely and sufficient.32 Moreover,
efficiencies brought about by a merger may theoretically
counteract the negative effects on competition and the
potential harm to consumers brought about by an intended
concentration.33
The Commission also examines whether the structure
of the markets post-merger could be such that the
remaining firms on the market would consider it possible,
economically rational, and hence preferable, to adopt on
a sustainable basis a course of action aimed at selling at
increased prices,34 although the EU General Court’s
judgment in Airtours set a high threshold for prohibiting
a merger on the basis of such co-ordinated effects.35
The substantive test applied by MOFCOM is whether
a concentration “is likely to have effects of eliminating
or restricting competition”.36 Whilst this test presents
similarities with the one applied in EU merger control in
that it emphasises the anti-competitive effects rather than
requiring dominance, it does not explicitly require the
effects in question to reach a certain threshold, i.e. it
leaves open whether they would need to be substantial
or significant.37
Although Chinese merger review decisions are usually
brief and do not always allow for definitive conclusions
as to how MOFCOM proceeded, it would seem that the
criteria used to assess the likelihood of anticompetitive
effects are comparable to the ones used in the European
Union.38 The market share of the merging parties in the
relevant market, their power to control the market and
the concentration levels are usually the first factors to be
considered.39MOFCOM then looks into the likely impact
of the proposed transaction on consumer welfare, market
access of other undertakings and technological
development. The merging parties are given the
opportunity to prove that the pro-competitive effects of
their concentration on competition outweigh the potential
24
Commission Notice on the definition of relevant market for the purposes of Community competition law ([1997] OJ C372/5) para.7. The Notice has received the approval
of the EU Courts, see, e.g. AstraZeneca v Commission (T-321/05) [2010] E.C.R. II-2805 at [86] et seq.
25
Articles 3 Guidelines on market definition issued by the Anti-Monopoly Commission of the State Council in China.
26
Commission Notice on the definition of relevant market for the purposes of Community competition law ([1997] OJ C372/5), para.20.
27
See art.4 Guidelines on market definition issued by the Anti-Monopoly Commission of the State Council in China.
28
Article 2 EUMR.
29
The new test is supposed to facilitate the prohibition of mergers in cases of competitive concerns resulting from so called non-collusive oligopolies. See I. Kokkoris, “The
Treatment of Non-Collusive Oligopoly Under the ECMR and National Merger Control” [Routledge, 2010].
30
Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (“Horizontal Guidelines” ([2004]
OJ C31), para.14.
31
Horizontal Guidelines, paras 24 et seq.
32
Horizontal Guidelines, paras 64, 68.
33
Horizontal Guidelines, para.76. In practice, efficiencies have so far played a minor role in the Commission’s assessment at least of horizontal mergers.
34
Horizontal Guidelines, paras 39 et seq.
35
In a nutshell, according to , Airtours v Commission (T-342/99) [2002] E.C.R. II-2585 at [62], the Commission is required to show (i) the possibility for the (allegedly)
co-ordinating companies to monitor whether the terms of co-ordination are complied with; (ii) a credible deterrent mechanism to maintain the discipline of the co-ordinating
companies; and (iii) no constraints from other companies or customers that could render the coordination unstable. The EU Court of Justice held that these conditions should
not be applied in a mechanical way but taking into account “the overall economic mechanism of a hypothetical tacit coordination” (Bertelsmann AG v IMPALA (C-413/06
P) [2008] E.C.R. I-4951 at [25]).
36
See AML, art.28.
37
It can be argued that this omission gives more leeway to the Chinese competition authority to prohibit mergers that result in insignificant anticompetitive effects. See Ulf
Bernitz and Shouzhi An, “Convergence or parallel paths? Comparison of substantive tests of merger control in the EU and China” [2010] 6 E.C.L.R. 253.
38
The main elements to be considered in Chinese merger review are listed in art.27 of the AML. On September 2, 2011, MOFCOM issued Provisional Rules on the
Assessment of the Competitive Effects of a Concentration of Business Operators (Announcement [2011] N.55; the “Provisional Rules”) which are supposed to provide for
further guidance as to how these elements are applied in practice. The Provisional Rules in Chinese are available at http://fldj.mofcom.gov.cn/aarticle/c/201109/20110907723357
.html?1211318469=243563766 [Accessed January 6, 2013].
39
See art.4 of the Provisional Rules.
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
122 European Competition Law Review
adverse effects or that the concentration can be justified
by a public interest.40 It may be seen as a particularity of
Chinese merger control that MOFCOM also examines
whether a merger is likely to have an adverse effect on
national economic development.41
Whilst the rules applicable to Chinese merger control
do not use similar terminology, experience shows that
the theories of harm applied by MOFCOM to determine
the impact of a concentration, such as horizontal, vertical
and conglomerate effects, are largely in line with those
adopted in the European Union.42 By contrast, no
guidelines have so far been published that allow for the
precise determination of the criteria to be applied under
these theories, e.g. when it comes to assessing the possible
facilitation of the coordination in an oligopolistic market.43
Both in the European Union and China, decisions
prohibiting a merger are rare.44 One of the reasons lies in
the fact that the merging parties can submit commitments
that modify the intended concentration in order to resolve
the competition concerns and thereby gain clearance of
their merger. In the European Union, the Commission
renders commitments binding if they eliminate the
competition concerns entirely and if they are
comprehensive and effective from all points of view.
Although the Commission does not rule out that other
types of commitments may be capable of preventing the
significant impediment of effective competition,
commitments which are structural in nature, such as the
commitment to sell a business unit, are in its view
preferable because they prevent, durably, the competition
concerns which would be raised by the merger as notified,
and do not require medium or long-term monitoring
measures.45 In China, MOFCOM has the right to impose
conditions to alleviate a merger’s negative impact on
competition.46 Although MOFCOM adopted specific rules
on remedies that focus on structural remedies,47 its
decisional practice shows that MOFCOM takes advantage
of its wide discretion to impose a variety of conditions,
including structural and behavioural conditions or both.48
Pursuant to art.263(4) of the Treaty on the Functioning
of the European Union (TFEU), addressees can challenge
Commission merger prohibition decisions before the EU
General Court, with the possibility of an appeal to the EU
Court of Justice. The same is true of merger decisions
imposing remedies irrespective of the fact that such
decisions could not have been taken without the
commitments proposed by the parties.49 Similarly,
third-parties can bring an action against a merger decision,
provided that it is of direct and individual concern to them
within the meaning of TFEU art.263(4).
In China, addressees that are dissatisfied with a
MOFCOM merger decision may request a further
administrative review with MOFCOM’s Law and Treaty
Department and, ultimately, seek judicial review before
the Beijing Intermediate Court, with the possibility of an
appeal to the Beijing High Court.50 By contrast, it would
seem that the Chinese law does not grant third-parties the
right to judicial review in merger cases.51 To the authors’
knowledge, no action against a merger decision, which
could illustrate the scope and efficiency of judicial relief,
has so far been brought before the Beijing Courts.
C. The HDD Mergers subject to Merger
Control in the European Union and in
China
1. Overview of the course of the
proceedings
Whilst WD was first to initiate pre-notification contacts
with the Commission, the WD/Viviti transaction was
notified to the Commission only on April 20, 2011 and
therefore one day after the Seagate/Samsung transaction
had been notified.52 The Commission decided to raise
serious doubts as to their compatibility with the internal
market and initiated phase II proceedings for both
intended transactions on May 30, 2011. However, the
Commission decided to address a “Statement of
Objections” only to WD/Viviti. On August 18, 2011 it
provisionally concluded that the WD/Viviti concentration
would create a significant impediment to effective
40
Article 28 AML.
Article 27(5) AML.
42
According to art.4 of the Provisional Rules, if the merging parties are not actual or potential competitors, review of the concentration will focus on whether the concentration
would eliminate or restrict competition in upstream or downstream markets, or in a market that is related to the relevant market. This broadly corresponds to so called
“vertical” or “conglomerate” effects.
43
Article 4 of the Provisional Rules addresses the issue of so-called co-ordinated effects in oligopolistic markets. However, the Provisional Rules do not contain any details
regarding the assessment of non-horizontal mergers and horizontal mergers in concentrated markets.
44
According to the EU Merger Statistics, from September 21, 1990 to September 30, 2012 only 22 out of more than 5,000 mergers notified were prohibited by the Commission.
In China to date, 451 merger filings have been reviewed by MOFCOM, with only one prohibited transaction (Coca-Cola/Huiyuan). With regard to the latter see Fei Deng,
Adrian Emch and Gregory K. Leonard, “A Hard Landing in the Soft Drink Market—MOFCOM’s Veto of the Coca-Cola & Huiyuan Deal” GCP, April 2009(2), available
at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1396968 [Accessed January 6, 2013].
45
Commission notice on remedies acceptable under Council Regulation 139/2004 and under Commission Regulation 802/2004 ([2008] OJ C 267/01), para.15.
46
Article 29 AML.
47
Interim Provisions Concerning the Implementation of Divestments of Assets or Businesses of a Concentration between Business Operators, [2010] Order of the Ministry
of Commerce No.41, July 5, 2010, available in Chinese at http://fldj.mofcom.gov.cn/aarticle/c/201007/20100707012000.html [Accessed January 6, 2013].
48
See François Renard, “A Practitioner’s Look at Merger Control Remedies in China” in CPI Antitrust Chronicle January 2012 (2), pp.2 et seq.MOFCOM’s past decisional
practice even seems to indicate that it is more inclined than other competition authorities to accept behavioural remedies.
49
See , Cementbouw Handel & Industrie v Commission (T-282/02) [2006] E.C.R. II-319.
50
See art.53 AML and arts 11, 14, 17 and 58 Administrative Procedure Law Of The People’s Republic Of China, available at http://en.chinacourt.org/public/detail.php?id
=2695 [Accessed January 6, 2013].
51
See Giacomo Di Federico “The New Antimonopoly Law in China from a European Perspective” in (2009) World Competition 32, p.266.
52
In view of the obligation to hold pre-notification discussions in strict confidence and because of the voluntary nature of pre-notification discussions, the Commission had
no impact on the parties’ decision as to when to notify their intended transactions. Rather, it might have been decisive that the Seagate/Samsung transaction was kept secret
until notification whilst WD’s intention to acquire control of Viviti was publicly known beforehand.
41
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
123
competition on a number of HDD markets.53 On October
19, 2011, the Commission unconditionally cleared the
Seagate/Samsung transaction.54 By contrast, the WD/Viviti
transaction was approved only subject to far-reaching
conditions on November 23, 2011.55
In China, WD was the first to hand in a notification
that was deemed complete after supplementary
submissions on May 10, 2012. MOFCOM considered
that the proposed merger would be likely to restrict
competition and decided to initiate the Phase II review
process on June 8, 2011. On September 7, 2011,
MOFCOM further decided to extend its review to
November 6, 2011 in agreement with the notifying party.
Before the expiry of this deadline WD requested to
withdraw its filing on the ground of a material change in
circumstances.56 As MOFCOM approved the withdrawal,
the first review process was terminated and WD was in
a position to re-notify the proposed transaction on
November 7, 2011. The review process entered again into
Phase II on December 7, 2011 and MOFCOM eventually
cleared the merger subject to remedies on March 6, 2012.57
Seagate was second to notify its planned transaction to
MOFCOM with a filing that was accepted as complete
after supplementary submissions on June 13, 2011.
Competitive concerns prompted MOFCOM to enter the
Phase II review process on July 13, 2012. This process
was extended by another 60 days on October 11, 2012.58
The final decision was adopted on December 12, 2011,
when MOFCOM decided to clear the Seagate/Samsung
transaction subject to conditions.59 Accordingly,
MOFCOM’s review of the Seagate/Samsung transaction
took six months in total, while WD/Viviti required 11
months.
The Commission and MOFCOM co-operated closely
during the respective merger review proceedings. In
particular, the case teams had several phone conferences
to discuss the competitive situation of the relevant market
players and the market dynamics, which helped to
improve the general understanding of the cases.60 The
close collaboration between MOFCOM and the
Commission is also reflected in MOFCOM’s decision on
the WD/Viviti transaction, which explicitly refers to the
commitments rendered binding by the Commission.61
2. The Priority Rule applied
The Commission assessed the two transactions according
to a priority principle (“first come, first served” approach)
based on the notification dates. Accordingly, the starting
point for the Commission’s assessment of the WD/Vititi
transaction was a market structure on which the proposed
acquisition by Seagate of the HDD business of Samsung
had already taken place. This led to a market with the
following HDD suppliers: WD, Viviti, Seagate/Samsung
and, on some markets, Toshiba. By contrast, the
Seagate/Samsung transaction was assessed as if the
WD/Viviti transaction would not occur.
Assessing the competitive effects of a proposed
concentration under the EU Merger Regulation
necessarily involves a comparison of the competitive
conditions that would result from the notified merger with
the conditions that would prevail in its absence. According
to settled case law in the European Union, in principle,
the competitive conditions existing at the time of the
notification constitute the relevant framework of
comparison for evaluating the effects of a concentration.62
Therefore, the Commission argued that it was inherent
in the general system of the EU Merger Regulation that
a party that is the first to notify a concentration which,
assessed on its own merits, would not significantly impede
effective competition, is entitled to have its operation
declared compatible with the internal market within the
applicable time-limits.63
It can be argued that if, at the time of the notification,
a second concentration concerning the same markets has
not yet been notified, it is a factor that generally cannot
be taken into account as influencing the competitive
conditions decisive for determing the relevant framework
of assessment. This also results from the fact that
companies are not obliged to notify a planned transaction
until its implementation and contractual parties remain
free to abandon a planned concentration which was not
notified to the Commission.64 Until its formal notification,
it is entirely hypothetical whether a second transaction
will take place and at what point in time. The Commission
is obliged to examine a notification as soon as it is
received65 and the time limits are set by reference to the
date of notification.66 An obligation to wait and see if
other announced or pre-notified transactions are notified
53
Pursuant to art.18 EUMR, a statement of objections is issued to allow the parties to exercise their right to be heard with regard to the competitive concerns that may lead
the Commission to prohibit a merger at the end of phase II. Parties are also informed of the evidence on which these concerns are based and are given access to file.
54
See Decision C(2011) 7592 final in COMP/M.6214—Seagate/HDD Business of Samsung (“EU Seagate/Samsung Decision”). The decision was based on art.8(1) EUMR.
55
See Decision C(2011) 8644 final in COMP/M.6203—Western Digital Ireland/Viviti Technologies (“EU WD/Viviti Decision”). The decision was based on art.8(2) EUMR.
56
WD’s request for a withdrawal in China might have been an attempt to gain time in view of a likely negative outcome of the phase II merger review within the applicable
deadlines.
57
See MOFCOM’s WD/Viviti decision, available in Chinese at http://fldj.mofcom.gov.cn/aarticle/zcfb/201203/20120307993758.html [Accessed January 6, 2013].
58
The reasons for this extension are unknown to the authors.
59
See MOFCOM’s Seagate/Samsung decision, available in Chinese at http://fldj.mofcom.gov.cn/aarticle/zcfb/201203/20111207874274.html [Accessed January 6, 2013].
60
See the speech of the Director General of the Competition DG of June 26, 2012 at Beijing, China at the conference on Innovation, Competition Policy and Online Service
Providers, available at http://ec.europa.eu/competition/speeches/text/sp2012_04_en.pdf [Accessed January 6, 2013].
61
See MOFCOM’s WD/Viviti decision, para.20.
62
See, for instance, Airtours (T-342/99) [2002] E.C.R. II-2585 at[82] (“the level of competition obtaining in the relevant market at the time when the transaction is notified
is a decisive factor in establishing whether a collective dominant position has been created”); Air France v Commission (T-2/93) [1994] E.C.R. II-323 at [70] et seq.; Verband
der freien Rohrwerke v Commission (T-374/00) [2003] E.C.R. II-2275 at [170]; Éditions Odile Jacob v Commission (T-279/04) [2010] E.C.R. II-185, at[327].
63
See EU WD/Viviti Decision, para.33.
64
See art.4 EUMR. In the absence of a formal notification, abandoning a planned transaction does not need to be communicated to the Commission.
65
See art.6(1) EUMR.
66
See art.10(1) EUMR.
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
124 European Competition Law Review
subsequently would jeopardise this strict time-frame and
could call into question the efficiency of EU Merger
Control.
It is true that only one day lay between the notification
of the two proposed transactions. This may create the
impression that it was overly strict to give priority to
either of them. However, the Commission argued that the
principle of legal certainty requires that the same priority
principle be applied irrespective of the duration of the
“gap” between notifications of concentrations affecting
the same market. Any case-by-case approach would create
considerable legal uncertainty since companies would
not be in a position to anticipate which priority principle
would apply depending on the time-span lying between
two notifications.67
The Commission did not adhere to a so-called
“combined approach”, arguing that it does not provide a
clear benchmark for assessing the effects of mergers that
are notified almost simultaneously.68 Also, under that
approach, the Commission could be required ultimately
to prioritise between two concentrations and to decide
which concentration to prohibit, as it would be
disproportionate not to clear either of them if they did not
give rise to sufficient competitive concerns individually.
The EU Merger Regulation does not provide for clear
criteria on the basis of which it could be decided whether
one proposed concentration raises fewer competition
concerns than another. Therefore, the Commission
considered that a combined approach was generally not
suitable for EU Merger Control.69
Contrary to the Commission’s “first come, first served”
approach, the Chinese merger control authority assessed
the two concentrations on the basis of their cumulative
effect. The starting point for MOFCOM’s assessment of
both transactions was a market structure where the
proposed acquisitions would lead to the following three
remaining main HDD suppliers: WD/Viviti,
Seagate/Samsung and Toshiba. This “stricter” framework
of assessment for evaluating potential anticompetitive
effects was applied to both concentrations and arguably
led to the need for more far-reaching commitments to
obtain clearance at least for one of them. Since China has
the largest number of consumers in the world that would
be affected by price increases of HDDs, it seems plausible
that MOFCOM was ultimately led by the view that the
“combined analysis” seemed better placed to preserve a
market structure in which sufficient market players
competed with each other for the benefit of Chinese end
consumers. Furthermore, there was no “first come, first
served” priority principle rooted in the Chinese rules on
merger procedure and no precedent to this effect existed
in MOFCOM’s decisional practice. When the merger
review procedure was formally initiated for WD/Viviti,
the Chinese merger review authority was well aware of
Seagate/Samsung merger filings in other jurisdictions
and could expect that the two parallel mergers were
largely similar with regard to affected markets and
potential competitive concerns. It might therefore have
considered that the “combined analysis” was the most
appropriate in order thoroughly to assess the cumulative
effect of the two closely related transactions.
3. Market definition
With regard to the definition of the relevant market, the
Commission essentially found that customers appeared
unable to substitute HDDs produced for certain end uses
with other HDDs displaying a different form factor, (i.e.
the standardised size of the platter) or other technical
features required by different end use applications.70 The
Commission considered that there was also insufficient
supply-side substitution to conclude that HDD markets
should be defined more broadly than on the basis of a
combination of size (in particular 3.5” or 2.5” form factor)
and end-use categories.71 This lack of immediate and
effective supply-side substitution resulted in particular
from high costs that HDD producers incurred when
switching production between form factors or other
product characteristics decisive for different end uses and
the time required to do so. On this basis, the Commission
defined the following relevant HDD product markets72:
(i) Mission Critical Enterprise applications73; (ii) 3.5”
Business Critical applications74; (iii) 3.5” Desktop
applications75; (iv) 3.5” Consumer Electronics (CE)
applications76; (v) 2.5” Mobile applications77; and (vi)
2.5” CE applications.
67
See EU WD/Viviti Decision, para.42.
See EU WD/Viviti Decision, para.36.
69
The priority principle based on the date of the notification was consistently applied in the recent decisional practice see, e.g. Commission Decision of May 4, 2007 in
COMP/M.4601—Karstadtquelle / Mytravel ([2007] OJ C 113/1) paras 49 and 50 as well as Commission Decision of June 4, 2007 in COMP/M.4600—TUI/FIRST CHOICE
([2007] OJ C137/6) paras 67, 68 and 69. However, it is noteworthy that the Commission used different rules to prioritise mergers in the past; see e.g. IV/M.1016, Price
Waterhouse Coopers & Lybrand ([1999] OJ L50/27) para.108.
70
See EU WD/Viviti Decision, para.366; EU Seagate/Samsung Decision, para.260.
71
See EU WD/Viviti Decision, para.367; EU Seagate/Samsung Decision, para.261.
72
See EU WD/Viviti Decision, para.368; EU Seagate/Samsung Decision, para.262.
73
Mission Critical Enterprise HDDs are technically sophisticated and demand superior performance compared to other HDDs.
74
Business Critical HDDs have higher storage capacities than Mission Critical HDDs but do not require the same performance.
75
The Desktop segment consists primarily of HDDs that are incorporated in personal computers and that are intended for regular use at a single location.
76
The CE segment includes HDDs that are used in digital video recorders, satellite and cable set-top boxes and game consoles. They are generally subject to higher usage,
higher operating temperature environment and higher security features of the compressed, copyrighted multimedia content they store.
77
The Mobile segment consists of HDDs that are primarily incorporated in notebook and netbook computers. Most mobile HDDs are produced on the 2.5” form factor and
they are generally more expensive than 3.5” Desktop HDDs.
68
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
125
Furthermore, the Commission investigation revealed
that Solid State Drives (SSDs)78 and HDDs were not
sufficiently substitutable, in particular due to the
remaining significant price differential between the two
technologies and the limited storage capacity of SSDs.79
Finally, the market investigation demonstrated that
External Hard Disk Drives (XHDDs)80 constituted a
separate product market that was downstream of HDDs,
without a clear distinction between 2.5” and 3.5” form
factor from a demand or supply side perspective.81
In view of the fact that customers sourced HDDs
globally, that HDD prices did not differ between the
regions and that customers’ HDD requirements were
basically similar throughout the world, the Commission
concluded that the geographic dimension of the relevant
market for all HDD product markets was worldwide.82
By contrast, given that the competitive conditions (in
particular customer preferences) varied in different
regions (mainly EEA/EMEA, the United States,
Asia-Pacific-Japan) the Commission found that the
XHDD market was regional and therefore had to be
assessed at the EEA-wide level. 83
Similarly, MOFCOM took the view that HDDs
differed from other storage devices (such as SSDs) in
terms of capacity, price and end use. Accordingly,
MOFCOM concluded that HDDs constituted a distinct
relevant product market.84 By reference to the end use,
MOFCOM considered that the HDD market could be
further segmented into relevant product markets including
enterprise HDDs, desktop HDDs, laptop HDDs, and
consumer electronics HDDs.85 By contrast, MOFCOM
did not follow the Commission’s approach to further
segment the market for HDDs on the basis of their
technical characteristics, such as their size. More
importantly, it did not mention the market segmentations
in terms of end use in its competition assessment of the
proposed transaction, either.86 Rather, MOFCOM seems
to have taken the view that also on the wider product
market for HDDs, the merged entities’ combined market
power and the enhanced risk of co-ordination between
HDD manufacturers were sufficient to justify the
far-reaching remedies eventually imposed on the merging
parties. Furthermore, MOFCOM did not differentiate
between HDDs and XHDDs in its decisions on the two
mergers. Presumably, MOFCOM did not see sufficient
technical differences between the two types of hard disks
and considered the merging parties’ presence on the Asian
market for XHDDs relatively small. As to the geographic
market, MOFCOM identified the relevant geographic
market as worldwide, based on the fact that procurement
and supply of HDDs were carried out on a global basis.87
These findings also applied to the Seagate/Samsung case.88
4. The competitive assessment
The Commission concluded that a merger whereby WD,
already then the largest HDD supplier in terms of volume,
would reinforce its leading position to become the largest
HDD supplier on nearly all relevant HDD markets, would
significantly impede effective competition on the 3.5”
Desktop HDD market, the 3.5” CEHDD market and the
3.5” Business Critical HDD market. The Commission
considered that the likelihood of significant so-called
“non-coordinated” or “unilateral” effects resulted in
particular from the following elements89:
•
•
•
•
•
The merging parties had large market
shares (between 50 per cent and 60 per
cent) and the merger would have created a
duopoly on the relevant markets on which
Toshiba was not present.90
WD and Viviti were close competitors in
that their competitive strengths overlapped
on a number of important competition
parameters, such as product portfolio and
supply flexibility.
The merging firms’ customers had limited
possibilities of switching supplier, notably
because they needed to multisource from
at least two suppliers to ensure security of
supply.
The proposed merger eliminated an
important competitive force because Viviti
was the third strongest player on the
concerned markets and an important player
in terms of quality and innovation.
Customers did not possess sufficient buyer
power to counter the increase in market
power brought about by the proposed
transaction.
78
SSDs are storage devices that use semiconductor, non-volatile media, rather than magnetic media and magnetic heads. SSDs record, store and retrieve digital data without
any moving parts.
79
See EU WD/Viviti Decision, para.362; EU Seagate/Samsung Decision, para.235.
80
XHDDs provide stand-alone storage solutions that can supplement the storage space of PC systems, networks or CE devices. They use HDDs as inputs that are then
incorporated in a casing and built with the desired interface and power supply.
81
See EU WD/Viviti Decision, paras 379 et seq.; EU Seagate/Samsung Decision, paras272 et seq.
82
See EU WD/Viviti Decision, paras389 et seq.; EU Seagate/Samsung Decision, paras282 et seq.
83
See EU WD/Viviti Decision, paras390 et seq.; EU Seagate/Samsung Decision, paras283 et seq.
84
See MOFCOM’s WD decision, para.7.
85
See MOFCOM’s WD decision, para.7.
86
See MOFCOM’s WD decision, paras8 et seq.
87
See MOFCOM’s WD decision, paras 7 et seq.
88
See MOFCOM’s Seagate/Samsung decision, paras 7 et seq.
89
See s.5.4 of the EU WD/Viviti Decision.
90
Toshiba was only present in the worldwide markets for Enterprise Mission Critical HDDs, 3.5” Enterprise Business Critical HDDs, 2.5” Mobile HDDs and 2.5” CEHDDs.
On the basis of the Commission’s priority rule, only three market players, namely WD, Viviti and Seagate/Samsung, were present in the worldwide market for 3.5” Desktop
HDDs and 3.5” CEHDDs.
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
126 European Competition Law Review
•
A timely entry by new competitors (notably
Toshiba) into the concerned markets that
could replicate the competitive constraints
exercised by Viviti was not sufficiently
likely.
The Commission considered that there were
indications that the proposed concentration would also
give rise to a significant impediment to effective
competition on the downstream market for XHDDs.
However, it took the view that this point could be left
open because the remedies for the upstream market for
HDDs would in any event restore effective competition
on this downstream market.91
The competitive concerns outlined above did not arise
with regard to the Seagate/Samsung transaction, which
the Commission cleared without remedies. This was also
due to the priority rule applied by the Commission, as a
result of which the starting point of the assessment was
a market structure on which WD and Viviti would remain
as independent HD suppliers. On that basis, the merged
entity would continue to face competition from two strong
competitors and customers would have the possibility to
source from three competing HDD suppliers also in the
most concentrated HDD markets, which would ensure
sufficient possibilities to multi-source and switch
suppliers. Furthermore, the fact that Samsung had limited
competitive strength in the various HDD markets and
was not the closest competitor to Seagate shed a more
favourable light on the Seagate/Samsung transaction than
on WD/Viviti’s.92
Contrary to the Commission, MOFCOM considered
that both mergers were likely to result in eliminating or
restricting competition on the HDD market by removing
competitive pressure from the already limited number of
HDD manufacturers. MOFCOM also saw the danger of
collusion among the remaining market players.
Furthermore, the Chinese merger review authority
endeavoured to ensure that the prices for consumers of
HDD products remained fair and that markets remained
open, enabling new technology companies to blossom.93
MOFCOM based itself in particular on the following
elements94:
•
•
The merging parties were strong players
and close competitors that faced only
limited
competition
from
other
manufacturers. In particular, MOFCOM
pointed to the fact that the global HDD
market
had
become
increasingly
concentrated over the past 20 years.
There were a number of factors in place
that rendered co-ordination between the
remaining market players easier. In
particular, the homogeneity of the products
•
•
•
at stake and the transparency of the HDD
market made it easy for the HDD
manufacturers to gain information from
their
competitors
through
shared
distribution channels, all the more so
because a limited number of large computer
manufacturers were the main downstream
clients of all HDD producers.
The capacity utilisation rate of the HDD
manufacturers was very high, indicating
that the market had limited possibilities to
counteract the additional market power
gained by the parties to the proposed
transactions. It was considered unlikely that
competitors of the merging parties would
increase their supply substantially if prices
increased.
Large computer manufacturers were
generally unlikely to oppose price increases
but would rather pass them on to end
consumers. Price increases as a result of
floods in Thailand, which impaired part of
WD’s production for a considerable period,
served as a recent example for the veracity
of this hypothesis.
High barriers to entry existed in the HDD
market, which were witnessed by the fact
that no new entry into the global HDD
market had occurred in the past 10 years.
5. The commitments rendered binding
In order to prevent a Commission decision declaring the
WD/Viviti transaction incompatible with the internal
market, WD offered commitments which were supposed
to allow for the emergence of a viable and effective
competitor capable of replicating the competitive
constraint that Viviti exercised on the markets of concern.
In essence, these commitments consisted in95: (i) divesting
a production plant, production lines and other tangible
assets used to manufacture and assemble 3.5” Desktop,
CE and Business Critical HDDs; (ii) transferring or
licensing certain IP rights relating to these products; (iii)
transferring the necessary personnel to operate the
divested business and (iv) concluding supply agreements,
under which WD would supply HDD components at
then-prevailing market prices for a limited time period.
Furthermore, an “upfront buyer” clause and specific
suitable purchaser criteria ensured that WD could not
implement the transaction before it completed the sale of
the divestment business to a suitable purchaser that was
committed and competent to maintain the long-term
competitiveness of the divestment business in the markets
of concern.
91
See EU WD/Viviti Decision, paras 913 et seq. In particular, the Commission took the view that the emergence of a new, viable and effective competition on the upstream
3.5” HDD markets as a result of the remedies would render it unlikely that the merged entity would be able to increase its rival’s costs in the EEAXHDD market.
92
See EU Seagate/Samsung decision, in particular s.5.3.2.3.
93
See MOFCOM’s WD/Viviti decision, para.19; MOFCOM’s Seagate/Samsung decision, para.19.
94
See MOFCOM’s WD/Viviti decision, paras 8 et seq; MOFCOM’s Seagate/Samsung decision, paras 8 et seq.
95
The commitments are described in detail in s.5.6 of the EU WD/Viviti Decision.
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors
127
In China, both transactions were approved only subject
to far-reaching remedies, which consisted of a relatively
unusual set of structural and behavioural elements.
With regard to WD/Viviti, the structural remedies
imposed by MOFCOM were in line with the Commission
decision in that they obliged WD to divest the 3.5” inch
HDD business carried out by Viviti. However, MOFCOM
went further than the Commission by requiring additional
behavioural remedies which were to ensure that Viviti
would remain as a viable independent competitor on the
HDD market for a period of at least two years. Essentially,
the merging parties were required to maintain Viviti’s
subsidiary as an independent competitor that would
develop and market its products separately and to
establish a firewall that would prevent the exchange of
information between the two parties. Viviti was required
to continue to produce with its existing production lines
and to sell under the original brands via the original sales
team following an independent and reasonable pricing
mechanism. WD was given the possibility to request
MOFCOM to withdraw or modify this hold-separate
obligation after two years, if the competitive conditions
at the time of the request no longer justified this measure.
Interestingly, whilst WD/Viviti were obliged to keep their
manufacturing and market facing activities separate
subject to future review, MOFCOM permitted R&D
co-operation between the merged entities subject to its
supervision, and even stipulated that both parties were
obliged to continue to invest in innovation.
With regard to the Seagate/Samsung transaction,
MOFCOM imposed no structural remedy but a hold
separate obligation comparable to the one applied to
WD/Viviti, albeit with a review clause that potentially
allowed for modifications already after 12 months.
Besides, Seagate was essentially obliged not to coerce
customers to purchase HDD products from Seagate and
to refrain from coercing TDK China to supply HDD heads
exclusively to Seagate. Finally, Seagate was also required
within three years following the decision to invest in
innovation to ensure that it would bring more innovative
products and solutions to consumers. MOFCOM imposed
these requirements despite the fact that the US and EU
authorities had already cleared the Seagate/Samsung
merger without conditions.
The remedies which MOFCOM imposed in the
Seagate/Samsung and WD/Viviti mergers can be
understood as temporary “prohibitions in disguise”, since
the parties had to maintain the independent management
of the two merged entities in a pre-merger-like situation
for a significant period of time.
D. Conclusions
A comparison between the merger control rules applied
in the European Union and China suggests that there is
substantial convergence between the two jurisdictions.
In particular, the differences in the substantive test applied
to merger review are limited and the theories of harm as
well as the main criteria used in their support seem
comparable. Nevertheless, an analysis of how the
Commission and MOFCOM reviewed the two parallel
mergers in the HDD industry shows more divergences
than similarities. Although the mergers largely took place
on identical global markets and arguably gave rise to
comparable competitive issues, MOFCOM imposed
far-reaching remedies with regard to the Seagate/Samsung
transaction, which was cleared unconditionally in the EU,
and went substantially beyond what was considered
necessary under EU merger control by obliging the parties
to both concentrations to maintain the two merged entities
in a quasi pre-merger-like situation for a significant period
of time.
The application of different priority rules to mergers
notified almost simultaneously can only partially explain
these diverging results. Although Chinese merger
decisions are briefer and less detailed, also with regard
to references to the evidence on which they are based, it
would seem that a preference to err on the side of caution
in terms of protecting Chinese consumers was the driving
force behind the far-reaching remedies imposed by
MOFCOM. In the European Union, where merger
prohibition decisions have been annulled by the Union
Courts when they were not backed by sufficient evidence
and convincing reasoning, the Commission seems to
favour an interpretation of largely identical rules that is
hallmarked to a greater extent by the principle of
proportionality.
2013 34 E.C.L.R., Issue 3 © 2013 Thomson Reuters (Professional) UK Limited and Contributors