General Court reviews the legality of two inspection decisions in Ceske drahy v Commission (T-325/16 and T-621/16)
Posted by Chantal Lavoie on 22 June 2018
The General Court’s judgments of 20 June 2018 in Ceske Drahy v Commission deserve some attention. In these two judgments, the General Court examines the legality of two inspection decisions adopted by the European Commission under Regulation 1/2003 against the Czech national railway.
The Falcon inspection decision related to a possible infringement under article 102 TFEU, in particular predatory pricing on the Prague-Ostrava link. Of particular interest is the fact that, when the European Commission adopted the Falcon inspection decision in 2016, the Czeck competition authority had carried out inspections and had a pending investigation against the Czech national railway since 2012 and national court proceedings were still pending, in relation to the same matter. The General Court judgment confirms the right of the Commission under Regulation 1/2003 to carry out inspections for the application of articles 101 and 102 TFEU, even where the same matter is under investigation by a national competition authority (albeit under its national laws) and proceedings are pending before national courts. Nevertheless the General Court annuls partially the Falcon inspection decision in relation to matters it intended to inspect but which were not based on sufficiently serious evidence.
The Twins inspection decision – subsequent to the Falcon inspection decision – related to a possible infringement under article 101 TFEU and was based exclusively on documents seized during the Falcon inspection. The General Court finds in this judgment that the partial annulment of the Falcon inspection decision does not lead to the automatic annulment of the Twins inspection decision. In addition it confirms the legality of the evidence obtained during the Falcon inspection which the Commission relied upon to adopt the Twins inspection decision, even though some of the evidence was not directly related to the Prague-Ostrava link or did not provide concrete and precise evidence on costs and foreclosure strategy.
General Court findings
The key findings of the General Court in the judgment on the Falcon inspection decision (T-325/16) are:
- the Falcon decision is partially annulled since the Commission did not have sufficiently serious indicia to allow it to suspect a possible infringement of Article 102 on links other than the Prague-Ostrava link and in relation to infringements other than predatory pricing. Interestingly, the General Court reached this conclusion following an examination of the Commission’s evidence because the statement of reasons on which the inspection decision was based was not sufficient in of itself to show that the inspection was justified;
- the General Court rejected the Commission’s argument that the scope of the inspection could be extended beyond the Prague-Ostrava link in order to examine the commercial strategy of the Czech national railway. The Commission argued that evidence on commercial strategy could be relevant in cases of predatory pricing where prices may cover average variable costs but may not cover average total costs. Upon review of the evidence, the General Court found that the Commission’s evidence did not contain serious indicia of predatory pricing on other links or of abusive conduct other than predatory pricing;
- the General Court reaffirms the right of the European Commission to investigate and carry out inspections for the application of article 101/102 TFEU, even if a national jurisdiction is already dealing with the same matter. Furthermore, the General Court confirms that in principle the Commission is not even bound by a decision of a national jurisdiction (competition authority or court) under article 101/102 TFEU. In this instance the Commission is even less impacted by the parallel proceedings as they were carried out under national laws and not under articles 101/102 TFEU;
- the Commission has the right to carry out its own inspection - which is only a preparatory act that does not entail the opening of formal proceedings - even if a national competition authority has already carried out its own inspection; and
- the 2004 Communication Notice on cooperation within the Network of Competition Authorities (the Communication) cannot be relied upon to argue that there exists a legitimate expectation that if a national competition authority has taken up an investigation into a matter, the European Commission will not. The General Court finds that the Communication applies only where a national competition authority applies article 101/102 TFEU, which is not the case in this instance.
The key findings of the General Court in the judgment on the Twins inspection decision (T-621/16) are:
- the partial annulment of the Falcon inspection decision cannot entail the automatic annulment of the Twin inspection decision, even though the latter was adopted solely on the basis of documents seized during the Falcon inspection;
- it is possible for a document seized during an inspection to contain information relevant to an inspection under article 101 TFEU and to another inspection under article 102 TFEU;
- documents obtained during the Falcon inspection and relied upon to adopt the Twins inspection decision were legally obtained, even though the documents did not have a direct link to the Prague-Ostrava link and did not disclose precise or concrete information regarding costs and strategy in relation to suspected predatory pricing on this link. The General Court found that the evidence could be relevant when combined with other evidence, in part because common costs and indirect costs may be taken into account in predatory pricing cases;
- the General Court confirms that there is no need for the Commission in the inspection decision to indicate the period during which the suspected infringement would have been committed. It was sufficient for the Commission to refer to a suspicion that anti-competitive agreements were entered into at least since 2011; and
- the European Commission was not required to disclose in its inspection decision the evidence it relied upon, other than to mention in the decision the suspected infringement it intended to investigate. Such evidence will be disclosed to defendants at a later stage if and when the statement of objections is adopted, thereby preserving the balance between the need to protect the efficiency of the investigation process and the rights of defendants.
Concluding remarks
The judgments are important because they confirm (i) the wide powers and discretion of the Commission during inspections to seize documents, some of which may not be directly related to the scope of the investigation; and (ii) the Commission’s right to adopt inspection decisions, notwithstanding the existence of ongoing national investigations by a competition authority or national court proceedings in relation to the same matter but under equivalent national laws. Nevertheless the judgment in the Falcon inspection decision (resulting in partial annulment of the Falcon inspection decision) does also highlight the valuable ‘checks and balances’ role played by the General Court to review the legality of inspection decision and in particular, to ensure that the scope of inspections is limited to matters based on sufficiently serious evidence.
Save for the partial annulment of the Falcon decision, these judgments are a clear win for the European Commission. Query whether the General Court’s conclusions would have been different had the national proceedings been pending under articles 101/102 TFEU? Does the Communication create a legitimate expectation that the European Commission would abstain from intervening where national proceedings under articles 101/102 TFEU are pending? The judgments also raise questions regarding parallel competition proceedings within the EU and concerns regarding efficiency, duplication, costs and resources involved for defendants, particularly where EU/national competition rules are equivalent. What about Non bis idem? These questions are particularly relevant in the context of ongoing efforts to reinforce and improve the efficiency of the European Competition Network, including the proposal for a directive to make national competition authorities more effective enforcers (ECN+).