On June 25, 2014, the EU Court of Justice (CoJ) rendered its ruling in the appeal lodged by Nexans against a General Court (GC) judgment regarding the scope of the European Commission’s (EC) powers during dawn raids at the premises of companies suspected of having engaged in cartel conduct.
Read together, the GC and CoJ rulings set a relatively low bar for the EC to delimit the market(s) that form the subject-matter of its investigation: even vague and ambiguous indications of the relevant product and geographic market(s) in the inspection decision are deemed adequate, as long as they enable companies to assess and understand the boundaries of their duty to cooperate with the inspectors.
On a positive note for companies, however, the GC and CoJ rulings leave open the possibility to challenge the product and/or geographic scope of inspection decisions on the ground that the EC lacked reasonable grounds to suspect that the alleged infringement of the antitrust rules had such a scope.
Background to the Dispute
The EC raided Nexans’ premises 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 authorizing the dawn raid. Nexans argued that the decision’s product and geographic scope were vague and overly broad. The GC (partly) sided with Nexans with regard to the product scope of the inspection decision, but dismissed Nexans’ action as to the decision’s geographic scope. Nexans appealed the GC’s ruling before the CoJ in so far as the geographic scope of the inspection decision was concerned.
No Need for the EC to Define Precisely and Unambiguously the Relevant Market(s)
The GC and the CoJ took the view that even if the inspection decision defines the product and geographic market(s) rather vaguely and ambiguously, this does not necessarily render it unlawful.
The Product Scope of the Inspection Decision
The EC had stated in the Nexans inspection decision that the subject-matter of its investigation was “the supply of electric cables and material associated with such supply, including, among others, high voltage underwater electric cables, and, in certain cases, high voltage underground electric cables.”
The GC found that the EC’s inspection decision essentially (i) referred to all electric cables (i.e. any sort of cable used in the transmission of electrical current), and (ii) did not specify at all the products which might fall within the category of material associated with the supply of electric cables. As a result, the GC recognized that the inspection decision covered a very large number of products (e.g. from cables to household electrical products to high voltage electric cables, also including products such as transformers and electricity meters).
Despite this, the GC found that the EC had met its obligation to define the subject-matter of its investigation. It noted that even though the inspection decision “could have been less ambiguous,” it did enable Nexans to assess the limits of its duty to cooperate with the inspection officials. In particular, Nexans was in a position to understand it had to provide the EC with information relating to all electric cables and to the material normally marketed with those cables or intended for complementary use.
The Geographic Scope of the Inspection Decision
The Nexans inspection decision stated that the agreements and/or concerted practices covered by the decision “probably ha[d] a global reach.”
The GC held that, by indicating that the alleged anticompetitive conduct probably had a global reach, the EC had described in sufficient detail the geographic 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.
On appeal, the CoJ sided with the GC. It held that, while the inspection decision must indicate as precisely as possible the evidence sought and the matters to which the investigation relates, it need not define precisely the relevant market. The CoJ found that the EC’s statement of reasons in the inspection decision as to the geographic scope of the suspected infringement was adequate, and did not require more details on the type of conduct suspected outside the common market, on the effect such conduct might have on that market, or on the type of documents which the EC was entitled to examine during the inspection. In that regard, the CoJ added that the EC was not required to limit its searches to records relating to projects which had an effect on the EU market: taking account of the EC’s suspicions concerning an infringement with a potentially global reach (including client attribution), even records linked to projects located outside the EU market were likely to provide relevant information on the suspected infringement.
A Window Left Open to Challenge the Scope of Inspection Decisions?
In the aftermath of Nexans, companies are left with limited scope to seek the judicial review of inspection decisions on the ground that they do not define the product and geographic market(s) with sufficient precision. However, it appears that a window to challenge inspection decisions remains open, namely: the EC must have reasonable grounds to suspect that the alleged infringement had the product and geographic scope as described in the inspection decision.
In a rare instance, after an in-depth examination of all evidence in the EC’s possession prior to the dawn raid, the GC concluded in Nexans that the EC only had reasonable grounds to conduct an inspection in so far as high voltage underwater and underground cables and the material associated with them were concerned. The GC annulled the inspection decision as to the rest of the products covered by it. As a result, the EC is not allowed to use the evidence collected during the dawn raid that relates to the products for which its inspection decision has been annulled.
In examining the geographic scope of the inspection decision on appeal, the CoJ hinted that it was prepared to take a similar approach as the GC (i.e. conduct an in-depth examination of the evidence in the EC’s file to decide whether the EC reasonably suspected that the anticompetitive conduct at issue, linked to projects outside the EU market, could have had an effect within the EU). However, given that Nexans had not raised any argument(s) relating to the lack of reasonable grounds in that respect before the GC, the relevant plea was held to be inadmissible – a missed opportunity.
Nexans confirms that the Courts in Luxembourg continue to show a great deal of deference to the EC’s powers during dawn raids. The Courts have regularly noted that such broad powers are necessary for the effective enforcement of EU antitrust rules. At the same time, however, the GC’s and (to a certain extent) the CoJ’s rulings in Nexans constitute a warning to the EC that no fishing expeditions will be tolerated: any inspection decisions adopted must only cover activities for which the EC has reasonable grounds to justify an inspection. In this regard, the Courts in Luxembourg have indicated that they will conduct a thorough review of the evidence in the EC’s possession at the time of the inspection in order to determine whether the inspection decision is lawful. This will likely cause the EC to examine more closely the precision and reliability of the information it receives from leniency applicants or complainants prior to launching dawn raids.