A European Union court Thursday (July 13) annulled the European Commission's 2004 decision authorizing the merger of Sony Music and BMG. The ruling has prompted the Commission to say it will re-examin

A European Union court Thursday (July 13) annulled the European Commission's 2004 decision authorizing the merger of Sony Music and BMG. The ruling has prompted the Commission to say it will re-examine the case.

The European Court of First Instance in Luxembourg declared that the Commission -- the EU's antitrust authority -- failed to establish that the-then five music majors were not colluding over market prices.

"The Commission did not demonstrate to the requisite legal standard either the non-existence of a collective dominant position before the concentration or the absence of a risk that such a position would be created as a result of the concentration," Europe's second-highest court said.

The Commission can appeal against the ruling, but a spokesman said that if the Court's decision is upheld, it would simply re-examine the case. "We will study the ruling and, if the merger is annulled, then we will relaunch the merger review process," a Commission spokesman said.

The Commission has two months in which to appeal the decision to the European Court of Justice.

The case was brought by Impala, the Brussels-based trade group for independent record companies, which claimed the music majors carved up the music market into an effective cartel. "This is a watershed in European affairs. A landmark judgment for music," comments Patrick Zelnik, president of French indie Naive and newly appointed president of Impala.

Although the Commission's initial findings suggested it agreed there was tacit price collusion among the major music companies, it failed to find any evidence strong enough to block the merger.

However, Impala said the Commission overlooked the merger's potential impact on such issues as collective dominance and market access when it unconditionally accepted the amalgamation of Sony and BMG's recording divisions. The integration of the two units gave birth to Sony BMG, the second-largest record company after Universal Music.

The Court also criticized the Commission for carrying out "an extremely cursory examination" and for presenting "only a few superficial and formal observations."

The decision has implications for the other music majors: EMI and Warner Music -- who are circling one another over merger plans -- and Universal Music. Stock in EMI Group was hard hit following the announcement. During morning trading, the company's shareprice was down 7.8% to 282 pence.

Impala has vigorously spoken out against any combination of EMI and Warner, the world's third- and fourth-largest music companies, respectively, saying some a move would make it even tougher for independents to compete.

The trade body lodged its suit in December 2004, and the Court examined the case in an "expedited" procedure, taking three to six months to hear it rather than the usual 12-18 months. However, the decision was not a total victory for Impala: the lobby was criticized for its conduct, as its demands for an expedited procedure were undermined by its own delays of the proceedings -- which was why the Court ordered Impala to bear a quarter of its costs for the case.