In one of its last judgments of 2010, the EU General Court
affirmed the European Commission (EC) decision to impose a
€38 million fine on the German energy provider, E.ON, for
breaching an area sealed during an antitrust inspection or
"dawn raid." This is the EC's first fine for such an
action. The case against E.ON is one of several reflecting the
EC's efforts to stop behaviour that may jeopardise its
investigations under EU competition rules.
Some practical lessons can be drawn from the E.ON case for
companies subject to an on-site inspection, where seals are placed
at the premises of these companies, including that all persons with
access to the concerned areas should be informed of the existence
of the seals and the consequences of breaching a seal.
Facts of the case
The EC is empowered under EU procedural rules "to seal any
business premises and books or records for the period and to the
extent necessary for the inspection." (EU Regulation 1/2003,
Article 20(2)(d)) Broken seals may be sanctioned under the
Regulation: "The Commission may by decision impose on
undertakings...fines not exceeding 1% of the total turnover in the
preceding business year where, intentionally or negligently...,
seals affixed...by officials or other accompanying persons
authorised by the Commission have been broken." (Article
23(1)(e))
After descending on E.ON premises in May 2006, EC officials, at the
end of the first day of the dawn raid, sealed the door frame to a
room at E.ON's premises where the EC had stored all documents
collected that day, to safeguard against any overnight
tampering.
On the second day, EC officials noticed that the seal to the room
appeared as "VOID" (the seal is designed to display
"VOID" when the seal is broken), and traces of residual
glue around the sticker suggested that the sticker had been
slightly displaced.
After some investigation and proceedings, in January 2008 the EC
concluded that the seal had either been negligently (perhaps by
cleaning personnel) or intentionally removed and then reaffixed. It
thereby imposed a fine for breach of seal of €38 million,
0.14% of E.ON's turnover. In setting this first-time fine, the
EC took into account:
Seriousness of the infringement. "The use of seals is intended
to prevent...evidence being lost during the inspection, thus
undermining the effectiveness of the inspection... It was of
particular importance that the seal remained intact, since the
documents stored in the room were not (completely) catalogued and
copied and it was no longer possible to ascertain...whether some
documents were missing."
Ensuring deterrent effect. "It cannot pay off for an
undertaking involved in an inspection to break a seal... This
implies taking into account...the size of the company as well as
its previous practice in cases of breaches of procedural
provisions."
First-time application of fine. The EC took into account the fact
that the fining provision of the Regulation was being applied for
the first time, but stated "this circumstance cannot result in
a level of fine which would risk undermining the deterrent
effect" and highlighted the fact that E.ON is "one of the
largest energy producers in Europe which has at its disposal
extensive legal expertise with regard to antitrust law
('inhouse' as well as external)."
Judgment of the EU General Court
E.ON sought judicial review of the decision before the EU
General Court, which confirmed the EC's decision.
The General Court ruled that the EC made a proper finding of an
infringement, under the terms of the Regulation, by the mere fact
that the seal had been broken, whether negligently or
intentionally. The EC was not required to further establish that
someone had actually entered the room or that documents had been
removed.
The General Court also validated all elements taken into account by
the EC in setting the level of the fine. It concluded that the fine
was not disproportionate to the infringement, in particular given
the infringement's serious nature, the company's size, and
the need to ensure the fine was sufficiently dissuasive of any
temptation for a company to break a seal affixed by the EC during
its inspections.
E.ON has indicated it will challenge the General Court judgment
before the EU Court of Justice. The Court of Justice (like the
General Court) cannot revisit the facts of a dispute, but only
reconsider issues of law raised by E.ON in its appeal.
Similar EC enforcement
The E.ON case should be understood in the context of a line of
cases in which the EC has pursued conduct that may jeopardise its
investigations.
In June 2008, the EC opened proceedings to determine whether a
French pharmaceutical company had obstructed an inspection of its
premises. EC officials had identified certain documents during the
inspection, allegedly relevant to the EC's competition sector
inquiry on the pharmaceutical sector. The company had refused to
allow the EC officials to examine and copy such documents unless
the French authorities (accompanying the EC during the inspection)
produced a national search warrant (subsequently produced).
In May 2010, the EC opened an investigation against Czech company
J&T for suspected obstruction of the Commission's
inspection of its premises. The EC is examining J&T's
production of e-mail accounts and electronic records –
more particularly (1) failure to block access to an e-mail account
(during inspections, inspectors block access to certain e-mail
accounts in order to prevent destruction), (2) failure to open
encrypted e-mails (the EC's right to uninhibited access to
companies' premises and business documents implies that
passwords used to secure e-mails must be given to the inspectors),
and (3) diversion of incoming e-mails (officials wish to review not
only e-mails that pre-date the inspection, but also those exchanged
during the inspection). In question is whether the company provided
these in incomplete form and, if so, whether such behaviour
effectively constitutes a refusal to submit to an inspection, in
violation of EU rules governing antitrust investigations. The EC
announced in September 2010 that it had sent a Statement of
Objections to the company.
In June 2010, the EC opened an investigation of the French firm
Suez Environnement for suspected breach of a seal during a dawn
raid at the premises of Lyonnaise des Eaux, a fully owned
subsidiary of Suez Environnement.
Practical advice on seals
At the General Court hearing in the E.ON case, an EC official
reportedly stated that "[t]he company has special
responsibility to keep the seal intact."
Clearly, the EC expects large companies, with security services and
legal advisors at its disposal, to take the necessary measures to
prevent the breaching of seals.
If seals are placed at the premises of your company, all persons
with access to the concerned areas must be explicitly informed of
the existence of the seals and the consequences of a breached seal.
The sealed doors and the seal itself should remain untouched.
Additional precautions, such as setting up "airport
style" cordons, should be considered if needed to minimise the
risk of breaching the seal.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.