[JURIST] The European Court of Justice (ECJ) [official website] ruled Tuesday that a German law protecting Volkswagen AG [corporate website] from hostile takeovers is illegal [press release, PDF; ECJ materials], saying the law limits "the free movement of capital" and discourages foreign direct investment in Germany. The ruling could have a wider effect throughout EU member states because many governments have passed similar laws protecting domestic companies from foreign takeovers. The German federal government and the region of Lower Saxony [government website] hold 20.36 percent of Volkswagen, while car maker Porsche AG [corporate website] owns 31 percent of Volkswagen. Tuesday's ruling could pave the way for Porsche to take over Volkswagen. Germany on Tuesday said it will quickly change the law [Reuters report] in accordance with the ruling.

The European Commission (EC)[official website] initially challenged the "Volkswagen Law" in 2005. In February, Advocate General Damaso Ruiz-Jarabo of the ECJ advised the court that the law should be repealed [JURIST report], saying the law restricts the free movement of capital [press release, PDF] and "strengthens the position of the Federal Government and the land, preventing any intervention in the management of the company." The EC has filed similar suits or threatened to file suit against Spain and its energy companies, Italy and highway company Autosrade SpA, and Poland for intervening in Italy's UniCredit SpA business in Poland. AP has more.