The EC's Trustbuster on Trial
European Commissioner Mario Monti has known better days. On Oct. 25, Europe's high priest of competition and his Brussels-based Merger Task Force--a 75-strong group of lawyers and economists that reviews and occasionally disallows proposed mergers in the European Union--suffered their third reversal in less than five months from Europe's second-highest court. Worse, it was the second slap in a single gruesome week. Before then, the task force had been overruled only twice in its 12-year history.
For the legendary trustbuster who blocked General Electric Co.'s bid to buy Honeywell International and has taken on software giant Microsoft Corp., this setback is a watershed. True, nothing in the rulings by the Luxembourg-based Court of First Instance questioned Monti's authority or weakened the laws under which he operates. But the political effect was obvious: In its rapid-fire reversals, the court put the EU's competition gang on notice that their swashbuckling days are over. "It was a major blow to the institution," says Alec J. Burnside, a Brussels-based partner with British law firm Linklaters & Alliance, which does work for Microsoft.
CEOs who crossed swords with Monti undoubtedly exulted. So, probably, did European policymakers who prefer a weak Brussels to a strong one. But don't think this defeat will force Monti out. To restore his credibility, he's already rooting out the rot. The three cases were lost mostly because staff attorneys stitched together evidence into incomplete or even contradictory scenarios. Blame that in part on a workload that tripled during the final years of the economic boom. "The court said the work itself was sloppy," says attorney Jacques Bourgeois, a former antitrust adviser to the European Commission and now a partner at Akin Gump Strauss Hauer & Feld LLP in Brussels. To fix that, Monti aims to hire a chief economist to beef up his team's analysis. He and new director general Philip Lowe will more closely supervise junior staff, who in their zeal may have pushed the legal envelope. So Monti will expand the use of so-called Devil's Advocate Panels--moot courts that vet controversial decisions before they're released. "I am determined to do my utmost to ensure [these problems] not happen again," he told reporters in Brussels at an unusual public appearance on Oct. 25.
Monti has to whip the merger group into shape before what could be an even bigger loss. The courtly Italian leapt to global renown after he stared down former GE CEO Jack Welch in 2001. Now, given the court's greater scrutiny of EU decisions--and its apparent willingness to reverse them--experts think Monti could be hit again. "It seems likely that GE/Honeywell will be overturned because it relies on the same legal logic," says Ernest Gellhorn, an antitrust specialist and professor at George Mason University School of Law in Arlington, Va. Any such decision would come far too late to resurrect a deal with Honeywell, but GE is pursuing the case as a matter of principle.
The possibility of a reversal in the GE case will be hanging over Monti's office as he pursues his landmark antitrust case against Microsoft (MSFT ). The EU alleges the software giant abused its market power in Europe by using dominance in desktop operating systems to move into media software and operating systems for computer servers. A preliminary decision on the charges is now expected before the end of the year, most likely after U.S. District Judge Colleen Kollar-Kotelly rules on the remnants of Microsoft's U.S. antitrust case. The judge is examining the settlement made between Microsoft and the U.S. Justice Dept. and deciding whether to accept alternate remedies sought by nine states that balked at the deal.
Some legal experts now question whether a chastened Monti will have the gumption to go forward with a European case if Kollar-Kotelly sides with Washington. "If she accepts the Microsoft settlement, it will be awfully hard for him to press forward," says an ex-Justice official who worked on the case. Assuming he does, Monti has the authority to impose fines of up to $2.5 billion against Microsoft.
Most experts think Monti's setbacks will make him more determined than ever to make his mark. "I don't expect the commission to lower its enforcement activism just because it has lost a few cases," says Frédéric Louis, a partner in the Brussels office of law firm Wilmer, Cutler & Pickering. For one thing, Microsoft is being pursued by the antitrust division, which operates under different statutes.
Of course Monti will be working in a tougher legal climate, now that the Luxembourg court has bared its teeth. "The commission will have to be extra careful to make sure it has proved its case and that the economic argument is sound," says Stephen D. Houck, a New York attorney who led the case by 19 U.S. states against Microsoft. If Microsoft doesn't like Monti's decision, it can appeal to the same Luxembourg court that has caused him such grief. Still, European law makes sticking monopoly charges easier. "It's more interventionist than the U.S.," says Professor Eleanor M. Fox, an antitrust expert at New York University School of Law. For instance, the theory of leveraging--that a monopoly is guilty of abuse if it uses its power in one market to horn in on another business--has been largely discredited in the U.S. but is still recognized in Europe.
To avoid running afoul of the court, Monti and crew need to scrupulously avoid procedural errors. Judges overturned the EU's ban of a merger between two French electrical equipment makers partly because the Commission didn't give plaintiffs adequate opportunity to respond or propose remedies. Microsoft won't say how much access it has to Monti, but it has complained privately that its efforts to forge a settlement have been rebuffed. Blame that in part on the commissioner's aversion to backroom deals--a tendency that will surely be heightened by the unwelcome new scrutiny he is receiving.
The wild card is the Luxembourg Court of First Instance. If Microsoft is celebrating the rise of a new counterweight to Monti, it's not letting on. A more aggressive judiciary, providing greater checks and balances on the EU's administrators, could go some ways toward closing the gap between the U.S. and European antitrust systems. But if Monti throws the book at Microsoft, all bets are off.
By Andy Reinhardt in Paris, with Dan Carney in Washington