The European Court of Justice, or the ECJ, delivered a stiff rap over the knuckles in a judgment, effectively overturning the quashing by the Court of First Instance, or the CFI, of the European Commission's original 2004 decision to clear the merger.

The champagne corks must have been popping -- at least figuratively -- in the Competition Directorate last week. The implications of the judgment will resound well beyond the boundaries of EC merger control. Essentially the ECJ considered that the CFI had applied unduly demanding standards when reviewing the Commission's decision and had lacked commerciality -- as practitioners might put it of an errant junior lawyer -- in applying the criteria of collective dominance as laid down by the CFI itself in its groundbreaking judgment in Airtours v. Commission.

First, the ECJ pointed out that a statement of objections -- DG Comp's prosecution case -- was only a provisional document and that the Commission was not required to support or ratiocinate every departure from the statement of objections in its final decision. Secondly, the ECJ found that the CFI had violated the rights of defense of the merging parties by relying on evidence from Impala, upon which Sony and Bertelsman had not had a proper opportunity to comment.

Both these findings have general implications. But perhaps the most interesting feature of the judgment -- at least for public lawyers -- was the ECJ's restatement of the ambit of the Commission's duty to give adequate reasons in support of its decision. The ECJ recalled that this ground of review under Article 234 of the EC Treaty was part of the fundamental right of judicial challenge. If decisions were not transparent in their reasoning, the right of judicial review, in effect, would be lost. On this point the ECJ said:

"The duty to state adequate reasons in decisions is an essential procedural requirement which must be distinguished from the question of whether the reasoning is well founded, which is concerned with the substantive legality of the measure at issue. The reasoning of a decision consists in a formal statement of the grounds on which that decision is based. If those grounds are vitiated by errors, the latter will vitiate the substantive legality of the decision, but not the statement of reasons in it, which may be adequate even though it sets out reasons which are incorrect. It cannot therefore be claimed that it was impossible for the Court of First Instance to exercise its power of judicial review."

This is a welcome reminder of the judicial distinction between review based on lack of reasoning and review based on manifest error.

The ECJ also found the CFI had applied the criteria for establishing collective dominance in a mechanical way without sufficient regard to the realities of the music industry. The CFI should, in the ECJ's view, have examined whether Impala's contention that the market was sufficiently transparent to allow coordination translated into a practical reality.

Another important finding of the ECJ ended debate on the question of whether the Commission is subject to a higher standard of proof in prohibiting concentrations than in approving them. The same standard applies but the theory of harm upon which a prohibition rests may involve complex issues of fact and economic theory upon which cogent and well-founded conclusions are obviously required, as the ECJ emphasized in Tetra Laval. It is gratifying to find the ECJ agreeing with the view Chris Kerse and I expressed over 15 years ago in the first edition of our book on EC merger control!

While some might be concerned that the judgment gives unwise leeway to the Commission the internal checks and balances introduced after Airtours, the creation of the office of Chief Economist, and the extensive recent jurisprudence of the ECJ and CFI resulting from challenges to Commission competition decisions will, in the author's view, guarantee the correct balance between executive discretion and judicial zealousness.

John Cook is of counsel in O'Melveny & Myers LLP's Brussels and London offices and is co-author of "EC Merger Control," published by Thomson/Sweet & Maxwell (4th ed. 2005).