European s investigative powers and the rights of defence A Lexis PSL document produced in partnership with Two types of inspections Content of inspection decisions The s powers of inspection Limits to the s powers of inspection Duty of active cooperation during inspections Rights of defence Judicial review Fishing expeditions Compatibility of dawn raids with fundamental rights The European has been granted broad investigative powers in order to uncover cartel conduct. Amongst others, the has the power to conduct unannounced inspections at the premises of any undertaking located in the European Economic Area ( EEA ). Two types of inspections Article 20 of Regulation 1/2003 provides for two types of inspections ( dawn raids ), namely: inspections based on a binding decision, to which undertakings are legally required to submit. If not, they risk being forced to comply and incurring penalties, and inspections based on a written authorisation, to which undertakings may refuse to submit without risking the imposition of penalties. There can be no partial or conditional submission to such inspections. The fact that undertakings have the right to object to them does not mean that (if they agree to be subject to them) the inspections will be conducted in a less robust manner than inspections based on a decision. These two types of inspection constitute alternative options for the, and not parts of a two-stage process (ie there is no requirement that a decision-based inspection only takes place after an attempt to inspect the undertakings on the basis of a written authorisation). The type of inspection opted for is upon the s discretion. Inspections conducted in the context of cartel investigations are typically conducted on the basis of binding decisions. Regulation 1/2003, art 20 Case 136/79 National Panasonic v
Inspections are almost always carried out without any advance notice to the undertaking (it is these inspections that are known as dawn raids ). Content of inspection decisions According to Article 20(4) of Regulation 1/2003, an inspection decision must contain: the subject-matter and purpose of the inspection the date on which the inspection is to begin the potential penalties for refusing to submit to the inspection, or for not (actively) cooperating with the inspection officials, and information on the right to have the inspection decision reviewed by the General Court. In addition to the above, the inspection decision must indicate the essential features of the suspected infringement, namely: the market thought to be affected the nature of the suspected restrictions of competition the supposed degree of involvement of the inspected company the evidence sought and the matters to which the inspection must relate, and the powers conferred on the inspection officials. See further the General Court s judgment in Deutsche Bahn and Others v. Even though not explicitly mentioned in Article 20(4) of Regulation 1/2003 the inspection decision also needs to identify the undertaking under inspection. The s powers of inspection The s powers of inspection are laid out in Article 20(2) of Regulation 1/2003 and are the same, notwithstanding whether the inspection is based on a written authorisation or a binding decision. In particular: The may enter premises, land and the means of transport of the undertaking. This power is not limited to premises owned or leased by the undertaking, but extends to all premises where the business of the undertaking is carried out and, therefore, relevant records may be found. Premises of external counsels and accountants are, in principle, exempted. The may examine all documentation (eg correspondence, memoranda, records of internal and/or external meetings, financial documents) relating to the business activities of the undertaking, irrespective of the medium in which such documentation is stored (including email accounts, workstations, servers, local drives and mobile devices). The documentation needs not physically be at the undertaking s premises, as long as it is accessible from them. Access to electronic data systems forms an increasingly important part of inspections. The inspection officials may not only use any built-in (keyword) search tool, but may also use their own software or hardware. The undertaking may be requested to undertake tasks such as temporarily blocking individual email accounts, temporarily disconnecting running computers from the network, removing and/or re-installing hard drives from computers and providing administrator access rights support in order to facilitate the inspection. Regulation 1/2003, art 20(4) Case T-339/04 France Télécom v Regulation 1/2003, art 20(2) Decision 94/735/EC--AKZO Chemicals s Explanatory Note to an Authorisation to conduct an inspection in execution of a decision under Article 20(4) of Council Regulation 1/2003 Case C- 37/13 P Nexans and Nexans France v (dawn raids and powers of inspection)
During the inspection, the is not required to only look for information that supplements the information that it already has in its possession. The may take hard and/or electronic copies of the documentation that directly or indirectly relates to the subject-matter and the scope of the inspection. The is not entitled to retain the original documentation. The may ask any representative or member of staff for oral explanations on facts or documents relating to the subject-matter and purpose of the inspection and record the answers provided. The decision of who will be designated as the person(s) to represent the undertaking during an inspection falls within the undertaking s discretion. In case a member of staff which is not authorised to provide explanations gives incorrect, incomplete and/or misleading answers, the sets a time-limit for the undertaking to rectify them. In case explanations cannot be provided on the spot, the inspection officials will generally agree to receive them subsequently in writing. The may seal any business premises, IT infrastructure, books or records for the period and to the extent necessary for the inspection. Normally, seals should not be affixed for more than 72 hours. The may also enter non-business premises, including premises, land and the means of transport of the undertaking s directors and employees. To do so: (i) the must have reasonable suspicions that business records relating to the subject-matter of the inspection are being kept there and (ii) such business records must be likely to prove a serious violation of EU competition law. The must also obtain judicial authorisation from the relevant Member State. The has the power to examine and take copies of documentation found in non-business premises, but does not have the power to ask for explanations or place seals. The s power to conduct inspections is not conditional upon the prior exercise of the s power to request the undertaking to supply it with information on the investigated conduct. Limits to the s powers of inspection Case T-402/13 Orange v Cases T- 289-290 and 521/11 Deutsche Bahn and Others v (appeals in relation to dawn raids) The above mentioned powers of inspection are subject to the following constraints: In principle, a document will be deemed to be a business record if it is found on the premises of the undertaking and, therefore, will be subject to examination by the inspection officials. However, if after examination it appears that the document is of a (purely) private nature, it will be returned by the inspection officials to the undertaking. While there are virtually no limits to what the inspection officials may see and examine during the inspection, they may only make copies of documents that directly or indirectly relate to the subject-matter of the inspection. Inspection officials may not examine correspondence that is covered by the legal professional privilege, ie correspondence between the undertaking and EEA-qualified external counsel that has been exchanged for the purpose and in the interest of the undertaking s rights of defence. Correspondence between companies and non-eea-qualified external counsel, as well as between companies and internal counsel does not enjoy such protection. See further, Applying legal privilege to competition advice. In case of doubt, the burden is on the undertaking to prove that the correspondence at issue benefits from legal professional privilege. This may be done, for example, by providing a brief description of the content of the correspondence, disclosing the header and subject-matter appearing on the front page or certain of its passages, or producing other documentation which makes reference to it. Joined Cases T-125/03 R and T-253/03 R Akzo Nobel Chemicals Ltd/ Ackros Chemicals Ltd v Case T-30/89 Hilti v Case 155/79 AM & S Europe Limited v
Duty of active cooperation during inspections Undertakings have a duty of active cooperation with the inspection officials. The duty of active cooperation applies in the same way, notwithstanding whether the inspection is carried out on the basis of a written authorisation or a binding decision. The may impose penalties on an undertaking that is not (actively) cooperating with or obstructs its investigation. Penalties Pursuant to Articles 23 and 24 of Regulation 1/2003, hefty fines may be imposed on undertakings on account of procedural infringements (eg refusal to submit to inspections based on a binding decision, or failure to fulfil obligations during inspections). Such penalties may be imposed irrespective of whether a substantive infringement is later found or not. Penalties may consist of: a fixed fine of up to 1% of the total turnover of the undertaking in the preceding business year, and/or a daily periodic penalty of up to 5% of the average daily turnover of the undertaking. Indicatively, in the past the has imposed penalties on undertakings for: tampering with access to email accounts during a dawn raid tampering with a seal placed on an office door overnight denying the inspection officials access to a director s office on the ground that there were no documents relating to the alleged infringement in it not allowing the inspection officials to enter the company s premises until legal counsel had arrived refusing to hand over to the inspection officials requested documents, alleging that such documents were irrelevant to the subject-matter of the investigation, and not producing specific documents requested by the inspection officials, despite giving the inspection officials access to all premises and records. Rights of defence The Court of Justice has ruled that the rights of defence must be observed by the not only in administrative procedures which may lead to the imposition of penalties, but also in the course of preliminary investigation procedures (such as inspections), in order to prevent those rights from being irremediably impaired. See also the Court of Justice s judgment in Nexans v. Legal representation Regulation 1/2003, arts 23, 24 EPH and others (under appeal in Case T-272/12 - Energetický a průmyslový and EP Investment Advisors v ) Case C-89/11 P E.ON Energie v Case T-357/06 Koninklijke Wegenbouw Stevin v Case T-357/06 Koninklijke Wegenbouw Stevin v Decision 92/500/EEC CSM NV Decision 80/334/EEC Fabbrica Pisana Case T-34/93 Société Générale v Joined Cases 46/87 and 227/88 Hoechst v Case 374/87 Orkem v Undertakings have the right to be assisted by legal counsel during an inspection. However, the presence of legal counsel is not required: the is under no obligation to await arrival of the legal counsel prior to commencing an inspection.
Right against self-incrimination In order to prevent the rights of defence from being irremediably impaired during inspections, the may not compel an undertaking to provide it with answers which might involve admission on its part of its participation in an infringement. However, purely factual questions (even if they result in acquiring information that may be used to establish the existence of anti-competitive conduct) are not regarded as requiring the undertaking to admit the existence of an infringement. Subject-matter and purpose of the inspection Case T-34/93 Société Générale v Case 374/87 Orkem v The obligation of the to specify the subject-matter and purpose of the inspection is a fundamental guarantee of the undertaking s rights of defence. In practice this means that: The must indicate in the inspection decision the presumed facts which it intends to investigate. However, the is not required to communicate to the undertaking all the information at its disposal concerning the alleged infringement, or to make a precise legal analysis of such infringement, including its impact or effect in the EEA. The must identify with sufficient (but not absolute) precision in the inspection decision the business sectors covered by the alleged infringement, so as to enable the undertaking to assess the scope of its duty to cooperate with the inspection officials. The recent ruling by the Court of Justice in Nexans and Nexans France v provides additional clarity on the extent to which the needs to define precisely in the inspection decision the (i) product and (ii) geographic markets that form the subject-matter of the investigation: - some ambiguity in the inspection decision as to the products it covers does not render the inspection decision unlawful. The crucial question appears to be whether the ambiguity prevents the inspected undertaking from assessing the scope of its duty to cooperate with the inspection officials - in the same way, the is not required to delimit the geographical scope of the inspection with precision. Where the is investigating infringements with a potentially global reach, it is not required to limit its searches to business records relating to projects which have an effect on the EU market. See further the Court of Justice s judgment in Nexans and Nexans France v. Judicial review Undertakings may lodge actions for annulment against inspection decisions. While such actions do not prevent inspections from being carried out, if successful, they may prevent the from using (some of) the information obtained during the inspection. Energia v Joined Cases 97 to 99/87 Dow Chemical Ibérica and Others v Cases T-289, T-290 and C-521/11 Deutsche Bahn and Others v (appeals in relation to dawn raids) Energia v Case T-340/04 France Télécom v Energia v Energia v
In the aftermath of Nexans and Prysmian, companies are left with limited room to challenge inspection decisions on the basis that the geographic and product market(s) are defined imprecisely and/or somewhat ambiguously. However, both Nexans and Prysmian leave open the possibility to challenge the product and/or geographic scope of inspection decisions on the basis that the lacked reasonable grounds to suspect that an antitrust violation had such a scope. In that regard, (at least) the General Court has indicated that it is prepared to conduct a thorough review of the evidence in the s possession at the time of the inspection in order to determine the lawfulness of the inspection decision. This, in turn, suggests that the ought to ensure that the information that it receives from leniency applicants or complainants prior to launching a dawn raid is as precise and reliable as possible. A review by the Court of Justice of the way in which an inspection was conducted falls within the scope of an action for the annulment of the final decision adopted by the under Article 101 TFEU. In particular, copying documents and asking questions during an inspection are not regarded as acts separate from the inspection decision (and, therefore, as acts that can be independently challenged before the Court of Justice), but rather as measures implementing that decision. Accordingly, irregularities arising from copying documents or acquiring information by the may be challenged at the time of an action for the annulment of the final decision adopted under Article 101 TFEU (see further the Court of Justice s judgment in Nexans and Nexans France v ). This being said, an undertaking may move to challenge such implementing measures on the spot, ie during the inspection, which in turn could give rise to a separate action for annulment before the Court of Justice. In particular, it may: refuse: (i) the to copy the relevant document or (ii) to reply to the relevant question. In case the moves forward to penalise such refusal, it will adopt a procedural infringement decision. The undertaking may then contest the legality of such a decision before the Court of Justice argue that the relevant information is eligible for protection under EU law and, therefore, the mere copying of the document or acquisition of the information by the constitutes in itself a decision withholding such guaranteed protection. This is especially relevant in so far as the information is protected under legal professional privilege (see further the Court of Justice s judgment in Nexans and Nexans France v ). However, such a move is not without risks. The Court of Justice has recently held that the may impose penalties for procedural infringements in case of an undertaking s evident obstruction or abusive use of the right to object. See further the General Court s judgment in Deutsche Bahn and Others v. Fishing expeditions Any inspection decisions adopted by the must only cover activities for which the has reasonable grounds to justify an inspection. Nexans and Prysmian constitute rare instances in which the Court of Justice partly annulled the inspection decision because it found that it covered more activities than it should have, in view of the evidence in the s possession when the inspection was ordered. Joined Cases T-125/03 R and T-253/03 R Akzo Nobel Chemicals Ltd/Ackros Chemicals Ltd v Case 155/79 AM & S Europe Limited v Energia v Case C-37/13 P Nexans and Nexans France v (dawn raids and powers of inspection)
Moreover, when the carries out an inspection, it is required to restrict its searches to the activities of the undertaking that relates to the sectors indicated in the inspection decision. The s right to investigate implies the power to search for various items of information which are not already known to it or cannot be fully identified by it. The may examine any business records in order to ascertain whether these relate to the activities covered by the inspection decision. If, upon examination, it appears that the business records do not relate to those activities, the must refrain from using the information contained therein for the purposes of its investigation. However, this does not mean that the cannot issue a new inspection decision to check the accuracy of or acquire complementary information on evidence that incidentally came to its knowledge during the first inspection. See further the General Court s judgment in Deutsche Bahn and Others v. Compatibility of dawn raids with fundamental rights The Court of Justice has confirmed that dawn raids do not infringe an undertaking s fundamental rights due to a number of guarantees provided for under Regulation 1/2003, namely: the required content of inspection decisions and, in particular, the requisite for the to state the reasons on which they are based the limits to the s powers of inspection, including the right to privacy, the legal professional privilege and right against self-incrimination the fact that penalties for procedural infringements are only to be imposed in cases of evident obstruction or abusive use of the right to object, and may be subject to review by the Court of Justice the requirement for the to have recourse to the national authorities of the Member State(s) where the inspection takes place in cases where the undertaking does not submit to the inspection The ex-post control that the EU courts may exercise (see further the General Court s judgment in Deutsche Bahn and Others v ). Regulation 1/2003, art 20(6)
Yves Botteman Partner, Steptoe and Johnson LLP Described by The Legal 500 EMEA as a very passionate young partner with brilliant knowledge of antitrust law and cases, Yves Botteman represents companies in high-profile cartel investigations and has secured early termination without fines or very favorable outcomes in several recent European proceedings. In that capacity, he works in close coordination with his US colleagues in order to devise the most effective defense strategy on both sides of the Atlantic, taking into account the benefits of cooperation and settlements with the antitrust regulators. He also advises companies in abuse of dominance litigation and antitrust commitments proceedings and has been instrumental in obtaining the necessary merger approvals in several large acquisitions and strategic joint ventures. Agapi Patsa Associate, Steptoe and Johnson LLP Agapi Patsa is an associate in Steptoe s Brussels office, where she is a member of the Antitrust & Competition Group. Ms. Patsa deals with all aspects of EU competition law. She has substantial experience not only in defending companies involved in multi-jurisdictional cartel investigations, but also in guiding companies through abuse of dominance proceedings on both the complainant and defendant sides. Ms. Patsa regularly advises clients on the antitrust implications of commercial transactions and conducts antitrust compliance trainings for trade associations and companies staff. Ms. Patsa is particularly familiar with the chemicals, air transportation, telecommunications and nanotech-nology industries. Steptoe & Johnson Steptoe & Johnson s US antitrust and EU competition law practice has five major areas of focus: mergers, acquisitions and cartels; regulated and deregulated industries; complex litigation, including class actions; criminal antitrust investigations and prosecutions; and EU State aid notifications, investigations, and com-plaints. With more than 25 attorneys practicing antitrust and competition law across various industry sectors, Steptoe has the depth of experience to effectively assist clients with their antitrust and competition needs. If you would like to contribute to Lexis PSL Competition please contact: Hannah Bates LexisNexis Lexis House 30 Farringdon Street London, EC4A 4HH hannah.bates@lexisnexis.co.uk +44 (0) 20 7400 4625 For details of how to access more practice notes like this one, please visit www.lexislegalintelligence.co.uk/psl Reed Elsevier (UK) Limited trading as LexisNexis. Registered office 1-3 Strand London WC2N 5JR Registered in England number 2746621 VAT Registered No. GB 730 8595 20. LexisNexis and the Knowledge Burst logo are trademarks of Reed Elsevier Properties Inc. 1014-062