EU Court Tosses Sony-BMG Merger Annulment

     LUXEMBOURG (CN) – Europe’s highest court cleared the path for a merger between Sony and international music company Bertelsmann, overturning a lower court’s decision to annul a joint venture that would operate under the name Sony BMG.

     The ruling is a setback for the Independent Music Publishers and Labels Association (Impala), a Belgian association of independent music production companies that had claimed that the merger would allow Sony BMG to dominate the global recording industry. The companies planned to combine their international music businesses, with the exception of Sony’s activities in Japan, into three or more new companies that would operate as Sony BMG. Sony BMG would be responsible for discovering new talent and promoting their albums, but would not be involved in music publishing, manufacturing or distributing.
     In 2004, the European Commission sent out questionnaires about the merger to a number of players in the music industry, including Impala, and relayed a compilation of their objections to Bertelsmann and Sony.
     After a hearing where the companies responded to the concerns, the commission declared the merger compatible with the market.
     Impala successfully challenged that decision in the Court of First Instance, Europe’s second-highest court, which annulled the commission’s approval of the deal.
     The Court of First Instance said the commission’s finding falls short of the required legal standing and “is vitiated by a manifest error of assessment.” The merger would create a collective dominant position, the court concluded, so the challenged ruling must be annulled on that basis alone.
     The high court found flaws in the lower court’s judgment, in the way it treated objections raised by Impala and other music associations as fact, imposed particularly demanding requirements on Bertelsmann and Sony, and relied on confidential documents submitted by Impala that the commission itself could not use. The lower court also applied the wrong legal criteria to assess whether the merger would create a monopoly in the global recording market, the Court of Justice ruled.
     Finally, the high court rejected Sony and Bertelsmann’s argument that a court can never annul the commission’s approval of a merger based on inadequate reasoning. Though the lower court was free to exercise judicial review, the ruling states, it had no choice but to find that the commission had properly stated its reasons for the challenged decision.
     The Court of Justice set aside the annulment order and remanded.

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