Dawn raids - Linklatersthe dawn raid > Thin balance between the defence of the company’s interest versus duty to cooperate! > KWS case - denying inspectors entry to the company’s

Dawn raids

Webinar

Sir Christopher Bellamy QC Jonas Koponen Nicole Kar Daniela Seeliger Olivier d’Ormesson

June 2013

1

Agenda and speakers

1. The first hour (Jonas Koponen)

2. Digital evidence (Nicole Kar)

3. Other evidence issues (Daniela Seeliger)

4. Seals, obstruction and follow-up (Olivier d’Ormesson)

5. Questions and discussion

6. Close

2

The first hour

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EPH: the duty to cooperate

Background > Regulation 1/2003:

> duty to cooperate with inspectors, give correct information and access to all relevant documents

> possible fine up to 1% of total turnover for a company that intentionally or negligently > produces incomplete books or records, or > refuses to submit to an inspection

> November 2009: inspections at Czech electricity and lignite companies > EPH was requested to block key e-mail accounts (password-protect)

Commission decision > Obstruction, breach of obligation to cooperate: EPH fined EUR 2.5 million

4

Nexans and Prysmian: scope of the duty to cooperate

Background > January 2009: inspections at Nexans in France, Prysmian in Italy re Power Cables.

The inspection decisions had broad scope: “the supply of electric cables and material associated with such supply, including … and, in certain cases … ”

> the decision was appealed as a “fishing expedition”

The General Court held that a Commission inspection decision must:

> state the essential characteristics of the suspected infringement

> identify the sectors covered with a degree of precision sufficient to

> enable the company to limit its cooperation to activities in the respect of which the Commission has “reasonable grounds” for suspecting an infringement

> make it possible for the Court to determine on appeal whether those grounds are “sufficiently reasonable”

> the scope defined in Power Cables was adequate (though not adopted on “sufficiently reasonable” grounds)

5

KWS: the presence of external lawyers

Background > during the inspection in Bitumen (NL), KWS denied inspectors entry to

company premises for 47 minutes, awaiting arrival of external counsel > the Commission characterised the delay an “aggravating circumstance”

> KWS’ ultimate fine increased by 10% (EUR 1.71 million; EUR 36,282 / minute)

Judgment of the General Court > the company can ask that external counsel be present, BUT > the Commission officials should at least be able to

> have access to the premises to serve the inspection decision, and > ensure that key evidence is not destroyed

6

Objectives for the first hour

> Take service of the inspection decision

> Understand the decision: it defines your duty of cooperation

> keep a detailed record of the investigation

> Organise your team, instruct them to ensure cooperation

> in-house and external counsel, IT staff, etc.

> Secure potentially relevant evidence

> take guidance from inspectors

> Assist the Commission’s team to get organised

> ensure inspectors are accompanied and observed

Maintain contact with counsel throughout the initial phase

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Digital Evidence

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“e- raiding”

Revised Guidance on dawn raids procedure (March 2013) > Clear focus: the IT environment, storage media and company’s hardware > All electronic data accounts are usually blocked from the beginning,

including Blackberries > Inspectors will search laptops, desktops, tablets, mobile phones, CD-

Roms, DVDs, USB sticks, electronic diaries etc > Inspectors can keep storage media until end of inspection but may return

it earlier after having made a forensic copy of the data > Obligation to co-operate “fully and actively” with the investigation > Commission now systematically takes electronic copies (and no longer

paper copies) of electronic documents > Inspectors can use company hardware (not wiped at the end of the raid)

but experience to date is Commission brings its own hardware

9

Forensic IT tools

> Revised Guidance published to coincide with introduction of new workflow > The Commission uses a software package called Nuix > All documents considered relevant are imaged and transferred to a Nuix

server without directly operating a target device > The Commission then carries out forensic searches on the basis of

keywords and selects/tags files of interest > The inspectors will give the lawyers a draft list on a USB-key, CD Rom or

DVD which contains the documents they would like to take > You will have to check which documents are relevant or not (i.e. out of

scope, privileged, etc.). You can make the selection on screen or print the documents

> The documents that the inspectors will finally agree not to copy after discussion with you will be removed from the draft list and at the end of the raid, the final list and documents will be burned onto DVDs (3 copies, 2 for the Commission (encrypted) and one for the company)

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Practical tips

> Must have an IT specialist dedicated to the Inspectors’ requests (accessibility; encryption). Organise this early

> Ensure (ideally before a raid occurs) that IT teams understand in-house databases and limitations of these (e.g. databases managed or accessible only by third party providers)

> Location of the server

> Demo CD / DVD

> Forensic images of hard drives for continued inspection at the Company's premises or at the Commission’s premises in Brussels.

> Ensure lawyers are present as there is continued scope to challenge relevance/privilege etc.

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Other evidence issues

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Right to privacy

> Based on Regulation 1/2003, the Commission conducts its inspections based on inspection decisions issued by itself, without any warrant issued by a court.

> In a client‘s appeal against an inspection decision, we have argued that the right to privacy as defined in the European Court of Human Rights’ case-law requires that an inspection is carried out on the basis of a court warrant. The case is still pending.

> Practical tip:

> Do not refuse access because the Commission has no court warrant.

> Do formally protest in order not to lose your right to appeal based on the Commission‘s lack of a court warrant.

13

Fishing expeditions – the Nexans case

> Commission must limit its search to documents which relate to the subject of the inspection

> When it is clear that a document is not covered by the subject of the inspection decision, the Commission must not read or copy it:

> “… the exercise of [the] power to search for various items of information which are not already known or fully identified makes it possible for the Commission to examine certain business records of the undertaking […], even if it does not know whether they relate to activities covered by that decision, in order to ascertain whether that is so and to prevent the undertaking from hiding from it evidence which is relevant to the investigation, on the pretext that that evidence is not covered by the investigation.” (Case T-135/09 – Nexans, para. 63) (judgment 14/11/2012)

14

Fishing expeditions – recent experience

> In an appeal against a dawn raid decision, we have argued that the Commission on purpose examined (and put aside) documents outside the scope of its inspection decision and based a later inspection decision on these documents.

> Evidence relied upon: shadowers’ protocols citing statements of Commission officials.

> Following this, in a recent dawn raid the Commission wanted us to sign a statement confirming that communication had only taken place with the team leader, and that statements of other inspectors and overheard conversations of inspectors were irrelevant.

> Practical tip: Decide on a case-by-case basis whether to sign such a statement, depending on whether any statements of the Commission have been made which could be used in an appeal.

15

Legal professional privilege (LPP)

> LPP protects the communication between lawyers and their clients

> The Commission cannot request or seize documents covered by LPP

> Key requirements:

> Purpose of the communication must be giving or receiving legal advice;

> Communication must be between a lawyer and his/her client;

> Under EU law, only communication with an external lawyer is protected; communication with in-house lawyers is not covered by LPP (Case C-550/07 P – AKZO) (judgment 14/09/2010)

> Sealed envelope procedure in case of dispute over LPP

16

Self-incrimination (Orkem principle)

> An undertaking subject to an investigation cannot be compelled to provide answers to requests for information that might: > involve an admission of the existence of an infringement that it is

incumbent on the Commission to prove; or > require it to assess its position as regards the application of the

competition rules in any response. > Narrow scope of application:

> An undertaking can still be required to provide answers that might involve the admission of an infringement.

> In practice the Orkem principle only prevents the Commission from asking leading questions.

> Fine borderline between what is and is not permissible by way of questioning: the requirement to answer factual questions means that a company, even though it cannot be required to admit guilt, can be required to answer questions that establish guilt.

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Business secrets

> Commission’s right to examine extends to inspecting documents that may be confidential or contain business secrets.

> The Commission considers business secrets to be an especially sensitive category of confidential information.

> It is for the Commission to determine whether a document contains business secrets.

> Use of confidential information by the Commission: > Business secrets cannot be disclosed to third parties by the Commission

without the consent of the undertaking to which they relate, but “confidential” information may be disclosed if necessary for the proper conduct of the investigation.

> Parties are required to identify relevant documents and substantiate their claims for confidentiality in writing and are asked to provide a non-confidential version of their confidential documents.

> In the publication of decisions and at the oral hearing stage, the Commission must have regard to the protection of business secrets, and it must observe the general principle of confidentiality.

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Obstruction, seals and follow-up

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Obstruction

> Duty to cooperate

> The Commission is quick to seize upon a lack of cooperation during the dawn raid

> Thin balance between the defence of the company’s interest versus duty to cooperate!

> KWS case - denying inspectors entry to the company’s premises for 47 minutes while awaiting arrival of external counsel

20

Obstruction

> 2 ways to fine

i. Increase in the company’s base amount of fine in the final infringement decision (i.e. 4 / 5 years in practice after the facts)

> 30% for Sony case - refusing to answer oral questions and shredding documents increase of the base amount of fine: EUR 9.9 million

> 10% for KWS case - increase of the base amount of fine: EUR 1.7 million

ii. Standalone procedure for obstruction: EPH case (March 2012)

> November 2009: inspections at Czech electricity and lignite companies

> EPH was requested to block key e-mail accounts (password-protect), but

> one password was modified, so account holder had access the account

> incoming e-mails to certain accounts were diverted to a different server, “hidden” from inspectors

> Fine for obstruction of EUR 2.5 million (0.25 % of EPH’s annual turnover)

21

Breaking the seals

> E.ON case

> E.ON’s attempt to explain the breach of seals: vibrations caused by the preparation of a conference next door, use of an aggressive cleaning product, age of the seal, high level of humidity

> Fine: EUR 38 million (0.14 % of E.ON’s annual turnover)

> Lyonnaise des Eaux case

> Lyonnaise des Eaux admitted promptly that one employee unintentionally breached the seal

> Fine: EUR 8 million (0.065 % of Suez Environnement’s annual turnover)

> Legal issue: calculation of the fine based on the turnover sales of Lyonnaise des Eaux’s parent company i.e. Suez Environnement!

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Breaking the seals

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Follow up – After-stages in Brussels

> The practice of “continued inspection”

> The data under investigation is copied and placed in a sealed envelope

> The company is invited to attend at the opening of the envelope at the Commission’s premises in Brussels

> Pros

> Shortens inspections on the company’s premises and minimises disruptions on-site

> Cons

> Irrelevant documents (i.e. outside the scope of the inquiry and/or privileged documents) might be taken by the Commission at a glance

> This interlude will allow the Commission to gain more knowledge of the case, i.e. to better focus the subsequent data review in Brussels

24

Follow up – Challenging Commission’s inspection

> The legality of the dawn raid Decision itself may be contested within 2 months and 10 days before the General Court once it has been received (Art. 263 of the TFEU)

> However, any action taken by the Commission during the dawn raid (e.g. out of scope interviews) can only be challenged once the final infringement decision is pronounced (4 - 5 years in practice!) - a denial of justice

> See Case T-135/09 Nexans (judgment of 14 Nov. 2012)

> Specific approach of the Commission – to be compared with Member States procedure

25

Questions and discussion

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Dawn raids Agenda and speakersThe first hourEPH: the duty to cooperateNexans and Prysmian: scope of the duty to cooperateKWS: the presence of external lawyersObjectives for the first hourDigital Evidence“e- raiding”Forensic IT toolsPractical tipsOther evidence issuesRight to privacyFishing expeditions – the Nexans caseFishing expeditions – recent experienceLegal professional privilege (LPP)Self-incrimination (Orkem principle)Business secretsObstruction, seals and follow-upObstructionObstructionBreaking the sealsBreaking the sealsFollow up – After-stages in BrusselsFollow up – Challenging Commission’s inspectionQuestions and discussion