The General Court of the European Union confirms the Commission’s powers of inspection with regard to fundamental rights

The Commission’s powers of inspection have recently been challenged in several procedures before the General Court. Two judgments of November 14, 2012 partially annulled the Commission’s inspection decisions as they targeted sectors for which it did not have sufficiently serious grounds for suspecting an infringement (see Competition Bulletin of December 2012).

This time a further General Court judgment of September 6, 2013 dismissed all the arguments raised by the applicants, companies of the Deutsche Bahn group, and validated the three inspections conducted one after the other by the Commission in 2011.

First, the Court dismissed the applicants’ arguments that the Commission’s powers of inspection were contrary to the right to the inviolability of the home and the right to effective judicial protection. The Court, analyzing the case law of the European Court of Human Rights, ruled that the fact that the Commission is able to conduct an inspection without obtaining prior judicial authorization is not decisive in itself and recognized that EU law provides five adequate safeguards – which were respected in this case – regulating the Commission’s powers sufficiently strictly: the reasons for the inspection decision, the limits imposed on the Commission when the inspection is conducted, the fact that the Commission cannot forcibly impose the inspection, the intervention of the national authorities and the existence of remedies at law after the inspection.

Second, the applicants argued that the Commission had violated their rights of defense for having deliberately looked for information during the first inspection about an alleged infringement not referred to in the inspection decision. They alleged that the Commission seized this information illegally and then used it to order a second, then a third inspection. The Court recalled the prior case law, indicating that while the information seized during an inspection must only be used for the purposes indicated in the inspection decision, the Commission is still at liberty to decide a new inspection to check “the accuracy and completeness of the information which it came upon incidentally” during a preceding inspection. The Court added that the fact that the Commission obtained documents, for the first time, in a given matter was not an absolute protection against those documents being legally requested in another matter and used as proof. According to the Court, “otherwise, undertakings would be tempted, during a verification in a first case, to give over all the documents able to establish another infringement and thereby prevent themselves from being pursued in this second case”. In light of these principles and after a detailed review, the Court concluded that the arguments put forward by the applicants did not establish that the Commission had conducted an illegal targeted search.

The judgment confirms the Commission’s extensive powers of inspection and highlights the difficulty in proving the existence of an illegal targeted search. It contrasts to a certain extent with the November 2012 judgments, where the Court seemed to give the impression that it intended to supervise more closely the Commission’s powers of inspection.

Imputing liability for a joint venture’s anti-competitive practices to both parent companies

In two judgments of September 26, 2013 (Dow Chemical Company and El du Pont de Nemours), the European Court of Justice (ECJ) adopted the position that liability for the anti-competitive practices of a joint venture (JV) could be imputed to each of its two parent companies. It is consistently held that in terms of imputing liability for anti-competitive practices, a parent company is liable for its subsidiary’s practices to the extent that the parent company has actually exercised decisive influence over the subsidiary’s commercial policy.

The ECJ judgments confirm that the same principles apply to undertakings controlled jointly by two parent companies. In this case, Dow and Pont each held 50% of the shares of a JV which took part in a cartel. The JV’s rules of governance ensured that each had so-called “negative” control over the JV, as decisions concerning the JV had to be taken unanimously. To impute liability for the JV’s practices to the two parent companies, the Commission relied particularly on the fact that the executives who were managing the JV had been appointed by both parent companies.

In their appeals, the parent companies asserted that imputing the practices to each of them was incompatible with the concept of an economic unit, which underlies the rules of imputation from subsidiary to parent. They maintained that a subsidiary cannot form an economic unit simultaneously with two different entities which have no structural links between them. They also advanced that negative control did not give them decisive influence over the subsidiary. Finally, the JV’s autonomy in its day-to-day management was allegedly incompatible with the imputation of the practices to the two parent companies.

The ECJ confirmed the first instance judgment, dismissing all those arguments. It considered that for the imputation of anti-competitive practices, a JV can form an economic unit with its two parent companies. It also confirmed that in that situation the Commission must demonstrate that each of the parent companies has exercised influence over the joint subsidiary. The influence concerns only the JV’s commercial strategy and not its day-to-day management, where the JV can have complete autonomy, or the anti-competitive practices themselves, of which the parent companies can even be unaware. While the Commission must produce proof of the effective exercise of decisive influence, it is understood from reading the judgment that decisions where each of the parent companies has a right of veto which are taken in the JV during the period concerned by the practices are sufficient proof.

Only the undertaking making the application, and the entities in whose name it was made, can benefit from the leniency program

On September 16, 2013, the General Court of the European Union ruled on a series of actions for the annulment of a Commission decision imposing fines on 17 undertakings totaling 622 million euros for a cartel in the bathroom fittings and fixtures sector.

In one of these actions, the applicant, Laufen Austria AG, a subsidiary of the Roca group, asked to benefit from the reduction of the fine granted to a fellow subsidiary Roca France in the application of the 2002 notice. It maintained that the concept of a single undertaking implied that any advantage stemming from the Notice must benefit all the companies forming part of the single undertaking. The Court dismissed this argument on the grounds that only the undertaking which applied for leniency and the entities on whose behalf the application was made and which actually cooperated with the Commission may benefit from it.

Here the application was not made in the applicant’s name so the Commission had no obligation to extend to it the benefit of the leniency granted to its fellow subsidiary. On the other hand, the Court ruled that the parent company could benefit from the leniency as its liability was purely derivative, secondary and dependent upon that of its subsidiary. Accordingly it reduced the fine imposed jointly on the Roca group, merely because it was the parent company of Roca France.