Now that the COVID 19 pandemic seems to be – at least temporarily – under control, competition authorities in Europe have gone back to performing dawn raids on companies in the second half of 2021.
Legal Context
Unannounced inspections at the premises of companies are part of the investigative toolkit of the European Commission (the “Commission”) and the National Competition Authorities (“NCAs”). Such on-site inspections are commonly referred to as “dawn raids” and allow the authorities to investigate potentially anti-competitive conduct under EU or domestic competition laws.
Under Regulation 1/2003, there are two types of investigation carried out by the Commission. In the first case, the inspection is made on the basis of a written authorization, where the targeted company is asked to comply voluntarily. In case of refusal to comply, the Commission can quickly turn its investigation into a formal one by issuing a binding decision. The Commission’s decision must clearly and specifically set out the scope and the details of the investigation (e.g., suspected practices, affected markets, the evidence sought etc.), the date on which the inspection is set to begin, as well as the penalties for non-compliance and the right of the inspected companies to have the inspection decision reviewed by the General Court. In 2020, the General Court (“GC”) partially annulled the Commission’s dawn raid decisions on two French retailers. According to the GC, the Commission failed to show that it had sufficiently strong evidence to suspect exchanges of information concerning the future commercial strategies of the retailers (see General Court partially annuls dawn raid decisions).
The Commission’s inspectors have wide powers, including entering the premises of the undertaking in question (and even the homes of the directors and employees), examining documents (except privileged ones), taking copies, sealing any business premises, and asking for clarifications.
A Snapshot of 2021
2021 has seen a significant increase in dawn raids across Europe. Due to the Covid-19 pandemic which resulted in social distancing rules and travelling restrictions, many competition authorities suspended their planned dawn raids in the previous year. In the second half of 2021, both Executive Vice-President Margrethe Vestager and Andreas Mundt, the president of the Bundeskartellamt, signaled the intention of restarting dawn raids. Indeed, while in 2020 only 24 dawn raids took place at the EU and Member States’ level, the number of inspections increased to 40 in 2021.
In addition to the Commission, NCAs that carried out dawn raids in 2021 include those in Austria, France, Greece, Hungary, Norway, Poland, Portugal, Romania, Slovenia and Spain. Among these authorities, the most vigilant one is the Hellenic Competition Commission (“HCC”) (with 12 dawn raids), followed by the Romanian Consiliul Concurenţei (“RCC”) (with 10 dawn raids).
The most targeted industries relate to food retail, pharmaceuticals, electronics and IT equipment, military defense, and wood or gravel products.
Suspected Anti-Competitive Practices
Although the most common basis for dawn raids are concerns over cartel-practices, the Commission and the NCAs have also used the tool to investigate abuse of dominance issues.
- Article 101 TFEU
In 2021, the Commission targeted a company active in the defence sector, as well as companies in the wood pulp industry, including Södra, Mercer Stora Enso, UPM-Kymmene, Metsä. At the Member States’ level, the HCC and the RCC have repeatedly investigated companies involved in public tenders, that have allegedly engaged in bid-rigging, price-fixing or market allocation (see, for example, in relation to the construction of natural gas networks; and in relation to an electronic services project). Further, the Norwegian Competition Authority carried out dawn raids, specifically focusing on exchange of commercially sensitive information (see, for example, the inspection against Norsk Medisinaldepot). Finally, a particular concern of the Polish Competition Authority has been resale price maintenance, since it raided Dahua Technology Poland and three distributors of its monitoring equipment, as well as Kärcher in relation to its cleaning devices.
- Article 102 TFEU
In October 2021, Commission officials raided the premises of the animal pharmaceutical manufacturer Zoetis in Belgium, alongside their counterparts from the Belgian competition authority. Earlier that month, a similar investigation on abuse of dominance in the production and supply of pharmaceuticals was undertaken by the HCC. Lastly, following an unannounced inspection in July 2021, the Hungarian Competition Authority launched an investigation against a company active in gravel production, that has allegedly reduced its extraction capacity in the Central Hungary region in order to sell gravel at higher prices, despite increasing demand.
Takeaways for Companies
The Commission’s and the NCAs’ investigative appetite is back. Therefore, it is important that companies are well-prepared in the event of a dawn raid. In particular, businesses should have in place detailed procedures, such as written guidelines and training of staff, so that they can either defend themselves against illegal inspections, or cooperate with the officials as appropriate (especially in view of the heavy fines in case of obstruction of an inspection). Finally, in the era of digitalization, special attention must be placed on the competition authorities’ powers in relation to IT searches (e.g., accessing electronic devices, deploying IT forensic tools) and the corresponding obligation of the IT staff to co-operate (e.g., by temporally blocking email accounts of specific individuals) (see Explanatory note on Commission inspections pursuant to Article 20(4) of Council Regulation No 1/2003). Especially in times of COVID-19 where working practices have inevitably changed, it may be worthwhile to review companies’ dawn raid guidelines to ensure they properly reflect the companies’ internal processes.