Kinepolis Merger Conditions - Brussels Court of Appeal Annuls Decision to Lift Conditions

On 28 February 2018, the Brussels Court of Appeal (the “Court”) held that the decision of the Belgian Competition Authority (Belgische Mededingingsautoriteit / Autorité belge de la Concurrence) (“BCA”) to partially lift specific conditions imposed on Kinepolis was poorly reasoned and it therefore annulled the decision. 

This judgment constitutes the latest episode in a long-running legal saga in the Belgian cinema sector.  In November 1997, the former Belgian Competition Council (later replaced by the BCA) cleared the merger of the Claeys and Bert groups which gave rise to the Kinepolis group.  The decision was subject to conditions, including the obligation on Kinepolis to obtain the approval from the competition authority prior to any form of growth, including organic growth (i.e., any increase in the number of screens or seats operated by Kinepolis).  The Competition Council imposed these conditions on Kinepolis for an indefinite period of time.

In 2010, after a four-year legal battle, Kinepolis only managed to have part of these conditions lifted (See, VBB on Belgian Business Law, Volume 2010, No. 4, available at www.vbb.com).  In 2017, nearly twenty years after the merger, Kinepolis made a new attempt to have all the conditions removed.  After analysing the necessity of the remaining conditions to prevent a restriction of competition in the prevailing market structure, the BCA decided in May 2017 to lift the restriction on organic growth, subject to a two-year transition period. It left the other remaining conditions in place. These were the conditions preventing Kinepolis from (i) growing through acquisition without prior approval from the BCA; (ii) obtaining exclusive or priority rights to distribute films; and (iii) concluding programming agreements with independent cinema owners (See, VBB on Belgian Business Law, Volume 2017, No. 5, available at www.vbb.com).

This decision was appealed by two competing cinema operators, Euroscoop and I-Magix, and gave rise to the most recent judgment of the Court.  The appellants argued before the Court that the BCA’s decision was insufficiently reasoned to justify that the condition regarding organic growth be lifted. 

In its judgment of 28 February 2018, the Court examined the role of the BCA and its responsibility to reason its decisions.  The Court held that the BCA, as an administrative authority, is required to reason its decisions adequately.  Such an obligation is even more concrete and precise when the decision concerned derives from a proposal or an advice.  This applies to the BCA, as its main decision-making body, the Competition College, adopts its decisions on the basis of a draft received from the College of Competition Prosecutors, the investigatory arm of the BCA. 

The Court further considered the role of the Competition College, which it held to exercise a control function over the draft decisions proposed by the College of Competition Prosecutors.  It then connected the Competition College’s role with the obligation to reason its decisions.  The Court stated that “[t]his control does not preclude the Competition College from departing from the draft decision prepared by the College of Competition Prosecutors. The Competition College – in the framework of its control function – has to ensure that each modification to the draft decision of the College of Competition Prosecutors is complete and adequate, both in fact and in law.

The Court then compared the draft decision of the College of Competition Prosecutors and the final decision of the Competition College.  In the Court’s view, the Competition College provided insufficient reasoning to justify a departure from the draft decision.  More specifically, according to the Court, the Competition College insufficiently reasoned why it lifted the condition preventing Kinepolis from growing organically in its entirety, while the College of Competition Prosecutors had limited its proposal to lifting the condition with respect to minor forms of organic growth only. The Court added that the Competition College insufficiently reasoned its decision to grant a two-year interim period. 

The judgment is another setback for Kinepolis and underlines the importance of the draft decision prepared by the College of Competition Prosecutors as well as the obligation of the Competition College to justify any deviation from that draft decision.

Martin Favart

Femke Vanderhaeghen