The European Commission (as well as national competition authorities in the EU) have the right to request that companies submit internal documents. They also have powers to force companies, within certain boundaries, to hand over specific documents. This applies to merger investigations as well as to cartel or other infringement investigations. At the same time, there is an increase in damages claims before national courts in the EU and here too the rules on access to documents are being further shaped. We describe some of these developments from 2013 below – they may be worth bearing in mind when creating and managing your internal documents and running your IT systems.
MERGER INVESTIGATIONS: DOCUMENT COLLECTION
On 1 January 2014, the Commission’s revised rules on certain aspects of its merger control procedure entered into force (see our article in the October 2013 issue of The In-House Lawyer and our Advisory at www.arnoldporter.com). Included in this package are revised rules on the scope of documents notifying parties need to submit with their merger filings.
The scope of these documents has significantly increased and now includes (i) documents received by, as well as prepared by, or for members of the board of directors, ‘board of management’ and the shareholders meeting, (ii) minutes (or relevant extracts) of board meetings etc where the transaction has been discussed, (iii) documents discussing the transaction in relation to potential alternative transactions, and (iv) analyses, reports, studies, surveys etc that cover market shares, competitive conditions, competitors (actual and potential) and/or potential for sales growth or expansion into other product or geographic markets. For item (iv), where there are affected markets (ie where the parties are in a horizontal relationship and their combined share is at least 20% or parties are in a vertical relationship and at least one of them has a share of 30% or more) documents going back two years need to be provided. For items (iii) and (iv), the Commission is prepared to discuss waivers to provide some of the documents concerned.
There was considerable concern over these proposed document requests at the time of the market testing of the Commission’s draft procedural changes. In reply, in the final version the Commission reduced the amount of documents to be provided, but only in relation to simplified cases (eg Short Forms). In such cases, documents only need to be provided if the merger gives rise to horizontal and vertical relationships between the merging companies in the European Economic Area (EEA). If no such relationships (ie no reportable markets) exist, no documents need to be provided.
According to the Commission, the criticism mainly concerned the request for documents on alternative mergers that were presented to company decision makers (ie item (ii) above). The Commission clarified that it does not want to look at a company’s entire internal M&A track record and documents which are completely unrelated to the notified transaction do not have to be provided – only relevant documents which analyse the transaction that is notified in relation to alternative acquisitions.
In addition, but this is voluntary, parties are ‘encouraged’ to identify the type of quantitative data the parties collect in the ordinary course and may be useful for the assessment of the transaction – eg bidding data.
In sum, the document collection that will need to take place at the time of Commission filing, risks taking significantly more time and effort, not unlike the US merger filing process. Identifying the relevant company decision makers and the type of documents that are responsive will be key, and indeed may be worth seeking guidance on from the Commission ahead of time or waivers for individual filings. Also, care will have to be taken to ensure the content of potentially relevant documents is accurate and properly drafted.
CARTEL INVESTIGATIONS: DAWN RAIDS AND DOCUMENT ACCESS
Earlier in 2013, the Commission revised its Explanatory Note on dawn raids. The Note contains, among others, a detailed description of the Commission case team’s search powers and practices in the IT environment – that is, its searches of laptops, desktops, tablets, mobile phones, CD-ROM, DVD, USB keys, etc. Traditionally, the Commission would have searched these media at the company’s premises with the equipment’s built-in search tools, using certain keywords. More recently, the Commission has started to use dedicated forensic IT tools that allow it to copy, search and recover data from the undertakings systems and data. The case team is free to bring its own hardware or to use the company’s hardware if available. If it brings its own hardware, it is obliged to cleanse all the forensic IT tools at the end of the inspection so that the company’s data is removed in a way that does not allow it to be reconstructed.
At the end of the inspection, the case team will make a forensic copy of the data under investigation and the company will receive a paper or electronic copy of the documents selected. If the selection of relevant documents for the investigation is not finished during the inspection, the case team will copy data to be searched (eg on a USB stick) and place it in a sealed envelope. The Commission will then, during its later investigation, either return the sealed envelope (if it sees no need to investigate the additional data) or invite the undertaking to attend the opening of the sealed envelope at the Commission premises and assist in the selection process in much the same way as the on-the-spot investigation.
This has a number of practical consequences for the companies being investigated.
First, the company will need to make available appropriate (internal and/or external) personnel to assist the case team with specific IT tasks, such as temporary blocking of individual e-mail accounts, temporarily disconnecting running computers from the network, removing and reinstalling hard drives from computers and providing ‘administrator access rights’ support. Staff will need to be warned that their laptop, desktop, mobile phone and other storage media may be kept by the inspectors during the entire inspection.
Secondly, it may be more difficult in practice to pre-empt any access to privileged documents. It is important, therefore, to take care (i) that all privileged communications are stored in a separate folder clearly marked as such, and (ii) each privileged communication is clearly marked as such in the subject line as well at the top of the e-mail and of the attachments concerned.
Finally, for further assistance, the Commission has made a demo available on its website (http://ec.europa.eu/competition/antitrust/information_en.html) showing how electronic documents are exported during inspections, so companies and their advisors can understand how the Directorate-General for Competition takes electronic copies of inspection documents.
By way of footnote, electronic data exchanges can have their challenges too, as the Commission found out in its derivatives cartel investigation. As is customary, at the access to file stage, the Commission will share with the undertakings under investigation documents collected from the various parties, but after confidential information has been redacted by the parties concerned. In this case, it appears that some of the documents concerned had been redacted using inadequate IT software to redact the information. The Commission halted the access to the file and asked that the DVDs containing the documents be destroyed and new non-confidential versions be submitted.
DAMAGES CLAIMS: DOCUMENT RETENTION AND CREATION
In June 2013, the Commission published its draft proposal for a directive on actions for damages before national courts for infringements of Commission competition rules. The proposal is currently under discussion before the European Parliament.
One of the aspects the directive proposes to harmonise, is the document retention obligations of parties being sued for damages. Several EU member states currently provide for some form of document retention in case of litigation. The draft directive proposes a legal obligation on all member states to provide that national courts impose sanctions on parties which destroy relevant evidence, provided that at the time of destruction:
- the destroying party was or had been a party to the proceedings of a competition authority in relation to the conduct underlying the action for damages; or
- the destroying party knew or should reasonably have known that an action for damages had been brought before the national court and that the evidence was of relevance in substantiating either the claim for damages or a defence against it; or
- the destroying party knew the evidence was of relevance to pending or prospective actions for damages brought by it or against it.
Therefore, should your company become involved in a cartel investigation, it would be advisable to verify the document retention rules in all of the relevant national jurisdictions, and to issue instructions accordingly to the personnel concerned as to the scope and duration of these retention obligations.
Finally, one of the aspects of the proposal currently under discussion is the extent to which information provided to the Commission in the context of cartel investigations should be protected against disclosure in court. The Commission is keen to avoid that the disclosure of evidence jeopardises its public enforcement of competition rules. Therefore, it proposes there is (i) absolute protection from disclosure in court for a company’s leniency statements and settlement submissions (including in the hands of other companies under investigation who have obtained access to those documents during the public proceedings) and (ii) temporary protection (until closure of the Commission’s proceedings) of any other documents companies or the Commission have specifically prepared for these proceedings (eg replies to information requests and the Commission’s Statement of Objections – again, including in the hands of other companies in the investigation). Some European Parliament members, however, are suggesting that there should not be absolute protection for whistleblower documents to the extent that they are an important source of evidence for the plaintiff. It’s worth keeping an eye on where this will all end up, as it may affect a company’s approach towards leniency documents.
By Marleen Van Kerckhove, partner, Arnold & Porter LLP.