Commission accused of not assessing merger impact.

The European Commission was accused in court today (Sept. 22) of not conducting a comprehensive review before authorizing the merger of Sony Music and BMG last year.

At a hearing at the European Union's Court of First Instance in Luxembourg, independents' labels trade body Impala said the Commission failed to conduct a proper analysis of the consequences of the merger, and ignored its own rules for merger control.

The Commission also struggled to answer questions from the Court's judges about how it reached its conclusions about the merger, and how it investigated the possible consequences of the link-up.

"The Commission did not respond to many of the court's questions about the market analysis, even though the questions were reasonably simple and precise," Impala deputy secretary general Helen Smith tells "There were times when the Court asked whether the Commission had data on a certain issue that might have been relevant, and the Commission said it simply had not asked for it."

Impala told the three magistrates who are in charge of the case that the Commission made a whole series of errors of law, assessment and reasoning on the question of collective dominance in the recorded music market as well as the impact of the merger in relation to the online markets and music publishing.

Impala, which represents over 2,500 music companies across Europe, wants the court to annul Commission's July 2004 decision to clear the merger.

Impala also accused the Commission of failing to appreciate that the merger could lead to coordination of Sony and BMG's respective music publishing businesses, which are not covered by the merger.

The Commission's competition spokesman, Jonathan Todd, says the executive stands by its decision. "We looked at the merger very carefully," he says. "On balance, we concluded that there was not sufficient evidence to show coordinated pricing behavior existed in the past. Nor could we say that a reduction from five to four major recording companies would create a collectively held dominant position in the future."

The case was sent on an expedited course to hearing, cutting the usual 12-18 months wait to three to six months. A ruling by the court is expected within three to six months.

Should the court decide in favor of the EC, a status quo will prevail. But if the court rules for Impala, the EC will have to review the process by which it handles competition cases, and the Sony BMG merger will be nullified. Sony BMG would then need to adjust operations and submit a new transaction to the EC.