On April 3, 2014, Advocate General (AG) Julianne Kokott issued her non-binding opinion on the appeal that Nexans SA and Nexans France SAS (together, Nexans) lodged against the EU General Court’s (GC) ruling in Case T-135/09. The AG’s opinion focuses on two geography-related questions that may arise in the context of European Commission (EC) surprise inspections (dawn raids) at the premises of companies suspected of having engaged in cartel conduct:

  • To what extent is the EC required to specify in its inspection decision the geographic scope of its investigation?
  • To what extent is the EC required to state reasons in its inspection decision as to why business records relating to projects outside the EU are relevant to its investigation?

Both questions remain largely unanswered. The AG’s opinion provides a good indication of the direction that the EU’s highest court, the Court of Justice (CoJ), is likely to take in answering them in the coming months.

Background to the Appeal Proceedings before the CoJ

Nexans’ premises were dawn raided by the EC in 2009 following allegations that it had engaged in anticompetitive conduct in relation to the supply of electric cables and material associated with such supply. Nexans initiated proceedings before the GC, asking for the annulment of the decision on the basis of which the dawn raid had been conducted. Nexans argued that the decision’s (i) product and (ii) geographical scope were overly broad.

The GC sided with Nexans with regard to the product scope of the inspection decision, but dismissed Nexans’ action as to the decision’s geographical scope. The GC held that, by indicating that the suspected anticompetitive conduct “probably [had] a global reach,” the EC had described in sufficient detail the geographical scope of the suspected cartel. The GC added that the purpose of the EC’s inspection powers is to implement the competition rules laid down in Articles 101 and 102 of the Treaty on the Functioning of the EU (TFEU). In particular, Article 101 TFEU prohibits certain conduct in so far as (i) it may affect trade between Member States, and (ii) it has as its object or effect the prevention, restriction or distortion of competition within the internal market. The GC noted that, while this means that the EC may not raid companies on the basis of suspicions of anticompetitive conduct producing effects exclusively outside the EU market, it does not prevent the EC from examining documents relating to those markets to detect conduct which falls within the scope of Article 101 TFEU.

Nexans appealed the GC’s ruling before the CoJ. First, it alleged that the EC should have defined more clearly the geographically-relevant market in the inspection decision, rather than merely stating that the alleged anticompetitive conduct "probably [had] a global reach." Second, it argued that the EC should have indicated in the inspection decision to what extent electric cable projects outside the EU were relevant to the investigation.

The AG’s Opinion

In her opening remarks, the AG Kokott reiterated that inspection decisions need to stipulate the subject-matter and purpose of the inspection. This is meant to prevent the EC from engaging in "fishing expeditions" and to enable the inspected companies to assess the scope of their duty to cooperate with the EC whilst at the same time safeguarding their rights of defense. On this basis, she moved to examine Nexans’ arguments.

  1. To what extent the inspection decision should specify the geographically-relevant market

The AG noted that dawn raids normally take place very early in the investigation process. At that stage, the EC inevitably lacks the information to make a specific legal assessment and is yet to verify the accuracy of its initial suspicions, as well as the scope of the relevant incidents. As a result, the inspection decision need not define precisely the relevant market, or set out the exact legal nature and timeline of the alleged infringement. Rather, it must define the suspected infringement in a way that is understandable to the inspected companies. In the present case, the AG found that the inspection decision was precise enough, having stated that its inspection related to "agreements and/or concerted practices" which "probably [had] a global reach" and concerned the "supply of electric cables and material associated with such supply."

  1. To what extent the inspection decision should specify the types of business records to be examined

The AG rejected that the EC has a legal duty to indicate what type of business records its inspectors may or may not examine during dawn raids. The AG referred to the case-law of the European Courts which affirms that during dawn raids, the EC need not limit itself to examining documents it can identify precisely in advance. The EC’s right to conduct dawn raids implies the power to search for sources of information which are not already known or fully identified. The AG added that the examination of business records relating to projects taking place outside the EU does not require an explicit, separate statement of reasons in the inspection decision.

Finally, the AG noted that this stance does not run counter to international law. Indeed, the EC is obligated to confine its inspections to practices which can affect competition on the EU market because of the effects they may have. However, this does not mean that the EC is obliged to confine its inspections exclusively to business records which relate to the cartel participants’ projects within the EU. Conclusions of anticompetitive conduct with potential adverse effects on competition on the EU market may conceivably be drawn also from business records relating to projects in third countries. It could be that those business records shed light on the modus operandiof a globally-operated cartel (e.g. by revealing that the cartel participants engaged in market-partitioning to avoid competition in their home markets), or that those projects have had an impact on commerce in the EU through their links to transactions within the EU.

A Further Boost to the EC’s Cartel-Raiding Powers?

Were the CoJ to follow the opinion of the AG, the EC would have the EU Courts’ rubber stamp to expand the type of business records it may wish to examine during dawn raids. In essence, the EC would be allowed to scrutinize business records relating to projects and operations outside the EU, which could affect competition on the EU market despite not being directly linked to EU commerce. Such a wide interpretation would leave little room for investigated companies to argue that certain business records do not fall within the geographical scope of the inspection decision – especially for allegations of anticompetitive conduct which may well affect trade beyond and/or outside the EU, given the profile of the implicated companies and the products/services concerned.