EU/UK Competition Law Newsletter - May 2010

May 4, 2010

ECJ Advocate General Supports Status Quo on Legal Professional Privilege

On April 29, 2010, Advocate General Kokott of the European Court of Justice (ECJ) handed down her opinion in the high-profile appeal brought by Akzo Nobel and its subsidiary Akcros Chemicals against the September 2007 judgment of the General Court concerning legal privilege issues. The ECJ is not obliged to follow an advocate general's opinion, but it usually does.

The General Court's judgment arose out of a dawn raid on Akzo by the European Commission and disagreements between the commission and Akzo as to whether certain documents removed by the commission were protected by legal professional privilege. The General Court considered several issues, but most notably decided not to change the rule established by the ECJ in its 1982 AM & S judgment under which intra-company communications with in-house lawyers are not privileged under EU law (communications with external lawyers from outside the EU are also not privileged under EU law).

The advocate general recommends that the ECJ uphold the General Court's finding and therefore dismiss Akzo's appeal. She found that none of the very wide range of arguments put forward by Akzo and its supporters in the proceedings (which included the European Company Lawyers Association, the American Corporate Counsel Association (European Chapter) and the International Bar Association) were convincing.

In brief, her view is that "an enrolled in-house lawyer, despite his membership of a Bar or Law Society and the professional ethical obligations associated with such membership, does not enjoy the same degree of independence from his employer as a lawyer working in an external law firm does in relation to his clients. Consequently, an enrolled in-house lawyer is less able to deal effectively with any conflicts of interest between his professional obligations and the aims and wishes of his client than an external lawyer."

Further, she states that "At worst, [if in-house lawyer/company communications are treated as privileged] the functional departments of an undertaking may be tempted to misuse the company's or group's internal legal departments as a place for storing illegal documents such as cartel agreements and records of meetings between the parties to those cartels and of the modus operandi of a cartel."

It is notable that in-house lawyer/company communications are privileged under the laws of some EU Member States (the UK, Ireland, Greece, Portugal, Poland and the Netherlands). In the context of a dawn raid, if a national authority conducts the investigation then the rules governing the investigation are determined by the relevant national law. This means that the position in relation to privilege may differ depending upon whether it is the national regulator or the European Commission which conducts the search.

The advocate general, in considering this issue, noted it would simplify the position if the rules on legal professional privilege were harmonised throughout the EU. This is a question of legislative policy, but it seems likely that, assuming the ECJ follows the advocate general's opinion, any future EU harmonising legislation would not extend legal professional privilege to in-house lawyer/company communications.

Large UK Fine for Retail Pricing Practices

On April 16, 2010, the UK Office of Fair Trading (OFT) announced total fines of GBP225 million on two tobacco manufacturers and 10 retailers for retail pricing practices concerning tobacco products in the UK – the largest total fine imposed by the OFT in a case under the UK Competition Act 1998. Apart from the sizes of the total and individual company fines, the case is interesting for several reasons:

  • The OFT identified a type of "hub-and-spoke"/indirect horizontal infringement, explaining in its press release that each manufacturer had a series of individual arrangements with each retailer whereby the retail price of a tobacco brand was linked to that of a competing manufacturer's brand. There is no finding of direct horizontal collusion between competitors, just this series of vertical “price-matching” arrangements (giving rise to a coordinated retail price level).
  • Retailer Sainsbury's alerted the OFT and gained complete immunity under the OFT's leniency programme.
  • Three other parties gained fine reductions under the leniency programme for cooperation during the investigation.
  • Six parties (including three of those already benefiting from fine reductions under the leniency programme) gained reductions for admitting liability under the OFT's early resolution (settlement) procedure.
  • At the time of the Statement of Objections (April 2008) and also when the early resolution (settlement) of this case was announced (July 2008), the OFT had identified possible concerns in relation to other related hub-and-spoke arrangements. These were indirect exchanges of proposed future retail prices between competitors (which the OFT had described by way of specific named examples ("[retailer] to [retailer] via [supplier]" or "[supplier] to [supplier] via [retailer]")). However, these allegations were not pursued due to lack of evidence.
  • The OFT found that the agreements had an anti-competitive object, therefore it did not need to identify an effect on competition, this being assumed.

European Commission Review of EU Public Procurement Rules

On April 19, 2010, the European Commission announced it "is embarking on a comprehensive evaluation of EU procurement legislation" which will examine its "effectiveness" and inform the need for a "modernisation" of the rules. It appears that, although started with little fanfare, this is a full bottom-up review which will cover the justification for the detailed procurement rules and how they operate in practice, on the basis of evidence.

Third parties such as public body purchasers in the EU (entities subject to the rules) and suppliers which deal with such purchasers are able to comment. It further appears that the commission is unlikely to produce any kind of conclusions until mid-2011. However, as with all similar reviews, the best time to comment is early in the process, before positions have been set.

Note: EU public procurement law is a linked specialization to competition law in the EU, and an area often of interest to our competition law contacts. Accordingly, the McGuireWoods EU/UK Competition Law Newsletter reports on the most significant public procurement developments in the EU.

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