Impala Could Face Tough Legal Battle Over Sony BMG

A legal challenge by opponents to the proposed merger of Sony Music and BMG is unlikely to succeed, according to some legal experts here. On June 17, sources at the European Commission said Competitio

BRUSSELS -- A legal challenge by opponents to the proposed merger of Sony Music and BMG is unlikely to succeed, according to some legal experts here.

On June 17, sources at the European Commission said Competition Commissioner Mario Monti planned to recommend approving the merger. Officials say a legal challenge is possible in the same way that Sony and BMG could challenge the EC in court if the merger was not authorized.

In a letter sent to Monti on June 22, independent labels body Impala said its members "protest fiercely" at reports that he was going to allow the proposed merger to proceed, without concessions from either Sony or BMG.

In the letter, Impala writes: "Any decision to approve the merger ... would be fatally flawed. Our lawyers have identified numerous errors in the Commission's analysis and process. That would leave us with no choice but to appeal before the Court of First Instance in Luxembourg."

It is typically up to 18 months before an appeal before the Court in Luxembourg is heard, although there is the possibility of an expedited procedure that could see the case brought up in nine to 10 months.

"We are investigating all the options," says Martin Mills, chairman of British indie company Beggars Group and a vice chairman of Impala.

Impala believes that authorizing the merger "without any conditions" would be an error of economic, cultural, political and legal terms.

"This is a very significant battle," Mills says. "Even more so when you consider that we could be in danger of going through yet another merger after this one. We are very concerned about market consolidation."

However, the chances of Impala succeeding with a legal appeal are considered slim. "It's so close to zero that it is effectively zero," says one Brussels-based anti-trust lawyer. "Impala would be throwing money away with this appeal."

The lawyer says that in the unlikely event the decision to approve the merger is overturned, it would then be appealed again at the EU's highest court, the European Court of Justice (ECJ). And again, if the ECJ ruled to overturn the decision, Sony and BMG could they themselves appeal, starting a new legal process.

"Even if every step went Impala's way, there would be no resolution for at least eight years -- by which time, who knows? No one would be listening to CDs anymore," says the lawyer.

Since 1990, a handful of merger decisions have been successfully appealed, but only by the parties directly involved, not by third parties like Impala. "Why should the Commission listen to Impala and now ask for conditions?" the lawyer asks. "Impala themselves have not provided any evidence that they did not produce four years ago."

Many observers were shocked that the merger was cleared in spite of a scolding Statement of Objections (SO) issued by the Commission in May. The SO accused the music majors of tacit collusion. But the evidence was never convincing, officials conceded.

"If we had blocked the merger on the basis of the SO, we would have been taken to court by the parties, and we would probably have lost," admitted one EU official.

Mills says the EC does not appear to have evidence of market collusion among the major record companies, but he believes the issue is larger than that. "There are more issues of greater importance," he says. "It is about access to the market, access to the media, leverage power, vertical integration, all the things we've seen happening recently will be getting exacerbated. We are concerned that the Commission has not looked at all the implications of the merger."

Sony and BMG declined comment for this story.

The Biz premium subscriber content has moved to

To simplify subscriber access, we have temporarily disabled the password requirement.