EU high court throws out Sony BMG annulment

LUXEMBOURG (Reuters) - The European Union's highest court on Thursday threw out a lower court ruling that annulled the European Commission's approval of a merger between the Sony Music and BMG record labels.

Although the decision has no immediate consequence for the companies, it was an important victory for the Commission as the lower court decision had considerably narrowed the EU executive's margin for error in approving or rejecting mergers.

The European Court of Justice also ordered that the lower court, the Court of First Instance, reconsider its decision in order to review three of five pleas it had not dealt with.

"The Court of Justice sets aside the judgment of the Court of First Instance relating to the Sony BMG joint venture," the high court said in a statement.

"Since the Court of First Instance examined only two of the five pleas relied on by Impala, the Court of Justice considers that it is not in a position to give a ruling itself on the dispute. It is accordingly referring the case back to the Court of First Instance," the court said in a statement.

In July 2006, the lower Court of First Instance threw out the Commission decision at the request of Impala, an independent group of music producers.

Impala said on Thursday that the lower court remained free to conclude that the commission had got it wrong, in which case the merger approval decision could be annulled all over again.

"When the Court of First instance overturned the first approval, it was with good reason," Impala co-president Michel Lambot said in a statement. "This final judgment confuses the issue. Music is different to widgets."

Commission spokesman Jonathan Todd said the decision leaves it in the unusual position of now having two valid approvals of the Sony BMG merger. Those will stand unless and until the Court acts otherwise, which could take years.

INSUFFICIENT CARE

The lower court had said the Commission took insufficient care in giving its approval. It should have looked more carefully at whether collective market dominance existed in the music industry and could grow after the merger, the court said.

The Commission approved the deal for a second time in October 2007, saying it had taken care to meet the standards set by the Court of First Instance.

Impala challenged that second decision in June, again before the Court of First Instance. The high court's decision on Thursday concerns the annulment by the lower court in July 2006, saying the lower court had been wrong to equate statement of objections with conclusive findings of fact.

The high court also said the lower court made an error in law "in relying on documents submitted by Impala on a confidential basis".

So far, the decisions have made no practical difference to Japanese electronics and entertainment giant Sony and BMG, owned by Germany's Bertelsmann. Bertelsmann is intensifying talks with Sony to pull out of the joint venture, media have reported.

No one at Sony BMG was immediately available to comment.

(Additional reporting by Kate Holton in London)

(Reporting by David Lawsky; Editing by David Brunnstrom/Elaine Hardcastle)