On 18 March 2013, the European Commission issued an updated explanatory note on its procedures during unannounced inspections, commonly referred to as "dawn raids".[1]

The note provides guidance to companies that are subject to dawn raids, and will be handed to company representatives by inspecting officials. It briefly outlines the scope of the Commission's investigatory powers, and gives some guidance on investigatory procedures such as the identification of officials, companies' ability to consult legal advisors, and the sealing of premises overnight in the case of multi-day raids. In particular, the note discusses access to documents (in both electronic and hard copy), and the copying and removal of materials.

While many of the changes to the explanatory note are purely formalistic in nature, the new guidance also expands on substantive aspects of the Commission's information technology (IT) review procedure.[2] The changes reflect recent developments in case-law, including the Commission's decision in EPH and others[3] and the General Court's findings in Nexans v. Commission[4] (both of which are currently under appeal).

EPH and others

The new explanatory note goes into considerably more detail than the previous version on the subject of companies' obligations to assist in IT-based aspects of inspections. Thus, the new note emphasises that companies should make their IT experts available during raids, to explain how their systems work, and to help with practical tasks such as the blocking of email accounts, temporarily disconnecting running computers from networks, and providing "administrator access rights" support.

The guidance also specifies that the Commission will "cleanse" all of the forensic IT tools that it has used in an inspection, in order to erase all of the undertaking's data from its equipment. In doing so, only hard copy documents are ultimately added to the Commission's investigative file.

This update appears to reflect in large measure the Commission's experience gained in its investigation into Czech energy company EPH. In March 2012, the Commission imposed a fine of EUR 2.5 million on EPH and its affiliates, for their tampering with a password set by the Commission during its raid, and for diverting email traffic so that incoming emails were not visible to inspectors.

Nexans v. Commission[5]

For some time, the Commission has claimed the right to copy large volumes of documents in electronic format, and remove the copy from a company's premises for processing and review off-site, without having first assessed the documents for relevance. This claim is controversial, since many practitioners believe that the Commission does not have the right to take copies of any documents that are not directly relevant to its inquiry and within the scope of the inspection decision. Private practitioners also tend to be unwilling to endorse a "seize and sift" system of this sort, as it has the potential to allow inspectors ready access to irrelevant or legally privileged materials.[6] While other competition regimes specifically allow off-site reviews in carefully-defined contexts,[7] the European Union rules do not explicitly address this.[8]

These concerns do not often arise in practice, because the majority of reviews are conducted in situ over the course of several days, with relevant materials being sealed overnight on the company's premises. However, this does occasionally become a live issue.

In the 2009 dawn raids in the Power Cables case (COMP/39.610), the Commission took away a copy of the entire hard drive of an employee of French cable producer Nexans for review at the premises of DG Competition.

Nexans appealed to the General Court against several procedural aspects of the Commission's dawn raids[9]On the issue of seize and sift, Nexans argued that the Commission had exceeded its powers by taking copies of documents that were not relevant to its inquiry. In the particular circumstances of that case, Nexans did not argue that the documents in question were protected by legal professional privilege.

The Court declined to rule on the lawfulness of the Commission's seize and sift procedures. It held that taking a copy of an employee's hard drive, pursuant to a lawful decision authorising the inspection, does not in and of itself constitute an actionable measure subject to the Court's jurisdiction. Consistent with past cases, the Court found that any challenge on this basis must instead be addressed by way of an appeal against the Commission's expected final decision in the cartel case itself (i.e., a decision adopted under Article 101 TFEU).

Effect on companies subject to inspections

Thus, the Nexans ruling left a number of important practical issues unresolved. Nonetheless, the Commission has reissued its guidance, in which it maintains its previous position.

Companies facing a seize and sift situation therefore essentially have two options. They can choose to comply with the Commission, and postpone any legal challenge they deem necessary until such time as a final decision is adopted under Article 101 or 102 TFEU -- a delay which is likely to be lengthy (for example, the Power Cables investigation itself is already more than four years old and still on-going). Alternatively, they might refuse to comply, thereby compelling the Commission into adopting a formal decision that the company has unlawfully obstructed its investigation -- a confrontational course of action which risks a fine of up to 1% of the company's worldwide turnover, and which might detrimentally affect the company's position in the main investigation. Neither of these options is likely to be particularly appealing to a company under investigation.

Protections for companies

Despite the unfortunate lack of legal clarity, it is important to note that the picture is not as bleak as it may seem. While the principle of seize and sift remains controversial, the Commission has set out a number of safeguards to help protect investigated parties' rights of defence.

Under these protocols, the inspecting officers will place the copied data in a sealed package, and provide a copy to the company. The Commission will undertake to return the package, still sealed, to the company in due course, or to invite the company and its legal representatives to attend the opening of the sealed package and the screening of its contents at the Commission's premises.

The Commission followed its own procedures in the Nexans raid, by placing the copies in sealed envelopes and inviting Nexans' legal representatives to be present at the time of the review. It was thus the fact of removal of the copied hard disc, rather than the subsequent review of its contents, which was the subject of the legal dispute.