No fishing allowed: court limits European Commission’s powers on a dawn raid
On 14 November 2012, the General Court of the European Union (General Court) held that the European Commission (EC) must have reasonable grounds for suspecting an infringement of the EU competition rules in a particular sector before it can carry out an “inspection” (dawn raid). The EC’s decision authorising its staff to carry out a dawn raid (an “inspection decision”) can therefore only validly refer to sectors of activity in relation to which the EC has such grounds.
The valid scope of an inspection decision is important because, as the court pointed out, during a raid the EC must restrict its search to the sectors indicated in the decision and if it finds, after examination, that a document does not relate to those activities, it must refrain from using it for the purposes of its investigation. If this were not the case, the EC would be able to carry out a dawn raid (on the basis of reasonable grounds for suspicion in any sector) which could in practice cover all the activities of a company, with the aim of trying to detect any infringement of the competition rules which might have been committed by that company (in any sector). This would be a classic “fishing expedition”.
Companies must still be careful not to obstruct the EC when it carries out dawn raids. However, this case emphasises that they should nevertheless monitor the EC officials closely during a raid to ensure that they take away documents only in sectors covered by the decision. The EC will inevitably be more sensitive to arguments that it is going beyond the scope of its decision.
Compliance warning: don’t break seals
Energy company E.ON has fought long and hard to escape, but on 22 November 2012 the Court of Justice of the European Union (ECJ) confirmed that it must pay a fine of EUR38 million imposed by the EC for breaking a seal affixed during a dawn raid.
The story began in May 2006, when the EC carried out a raid at an E.ON subsidiary. As the raid could not be completed in one day, certain documents were stored in a room overnight. The door of the room was locked and an official EC seal affixed. EC seals are designed so that, if removed, ‘VOID’ markings appear. When the EC team returned on the morning of the second day of the raid, they found that the ‘VOID’ marking was visible on the seal. As a result, in 2008, the EC imposed the fine.
E.ON lost its appeal to the General Court against this decision and has now lost its subsequent and final appeal to the ECJ. To escape, the ECJ found, E.ON would have needed to demonstrate that it had not broken the seal. It had however not produced evidence to this effect. Further, the fine was not excessive, bearing in mind the company’s group turnover.
The EC is still intent on these cases. In May 2011, it fined a subsidiary of French group Suez for the same offence and it has made it clear that it will continue to pursue this and other types of obstruction issues which occur during raids.
There is a simple message from this: if the EC uses a seal at your premises, pay someone to guard it overnight (and, more generally, be very careful with non-cooperation on a raid). The downside could be huge.
Be careful with information flow in a joint venture
On 21 November 2012, the Germany competition regulator (the Federal Cartel Office (FCO)) took action against the parties to a chemical wholesaling joint venture. The JV was active on the same markets as its parents and together the parties had a combined 70 per cent market share in certain areas. The FCO found that the parents had used the JV to exchange information between themselves. The parents were ordered to dissolve the JV and bring their behaviour into line with competition law.
The case provides a reminder that parent companies in a joint venture must be careful not to use it to co-ordinate their own behaviour or to exchange confidential information between themselves. Even if a joint venture is legally operating, the parents are independent companies and must behave as such.
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