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Print articleThe Hunt for Alleged Competition Sinners – This Time the Commission Has Gone Too Far
March, 2008 - Elisabeth Legnerfält and Helene Andersson
In the middle of January, the European Commission started a sector inquiry into the pharmaceutical industry and in doing so exposed several pharmaceutical companies to dawn raids.
We think that it is positive that the Commission is investing more and more resources into identifying and taking measures against serious competition restrictions, but we are critical of the way in which the Commission has now exposed a large number of the industry’s players to the serious action which a dawn raid involves, without any concrete suspicions against individual companies.
The background to the sector inquiry is that the Commission is of the view that there are signs that competition in the pharmaceutical industry does not work. According to the Commission the manufacturers of generic pharmaceuticals no longer produce new pharmaceuticals at the same pace as before. The Commission suspects, amongst other things, that this is due to some pharmaceutical companies unlawfully using their patent rights to limit the occurrence of competing pharmaceuticals.
This is not the first time the Commission has conducted a sector inquiry. They have been conducted in, inter alia, the banking and energy sectors, and have resulted in reports with proposals on how the competition may be improved. In those cases, the Commission’s investigation method has been to ask, in writing, the companies to answer a number of questions. What is completely new in the on-going investigation is that the Commission has now used its authority to conduct unannounced investigations on the companies’ premises – dawn raids. Under these circumstances, the action could be compared to a search without any actual suspicion of a crime.
A dawn raid constitutes a serious infringement of the integrity of the individual company and its employees. The Commission is entitled to go through all material on the company’s premises – from e-mail and book-keeping material to the employees’ calendars. Normally, a dawn raid is conducted in conjunction with investigation of specific competition violations. The Commission must then clearly specify why the dawn raid is being conducted and what the individual company is suspected of. In our opinion, the Commission cannot, in the way it now have, circumvent these requirements by conducting the dawn raids within the framework of a “sector inquiry”. So-called fishing expeditions, dawn raids which are carried out without any suspicion against the companies concerned, are prohibited. On several occasions, the Commission has been criticized by the Court of Justice of the European Communities for conducting dawn raids on grounds which were too vague.
In all circumstances, we are of the view that the Commission’s actions are in conflict with the proportionality principle which prohibits the Commission from taking actions which are more intrusive than necessary. The Commission justifies its decision to conduct dawn raids with the fact that the information it is seeking is secret and that the documentation is easy to withhold or destroy. This would, however, be true for most sector inquiry, regardless of the industry.
We believe that any company which challenges the actions of the Commission will prevail. The question is whether anyone dares to appeal. A pertinent point here is that companies which do not cooperate with the Commission can be ordered to pay a fine for, inter alia, insufficient cooperation.
Companies in all industries should be aware that it is costly to have the Commission’s search light directed at them. This is true even if the companies are eventually acquitted. The sheer suspicion of a competition violation often creates serious damage to goodwill. Now, the Commission has given itself even more far-reaching authority to discover competition violations than many thought possible. We hope that the issue will be tried in the ECJ and that the court will once more strike a blow for law and order.
We think that it is positive that the Commission is investing more and more resources into identifying and taking measures against serious competition restrictions, but we are critical of the way in which the Commission has now exposed a large number of the industry’s players to the serious action which a dawn raid involves, without any concrete suspicions against individual companies.
The background to the sector inquiry is that the Commission is of the view that there are signs that competition in the pharmaceutical industry does not work. According to the Commission the manufacturers of generic pharmaceuticals no longer produce new pharmaceuticals at the same pace as before. The Commission suspects, amongst other things, that this is due to some pharmaceutical companies unlawfully using their patent rights to limit the occurrence of competing pharmaceuticals.
This is not the first time the Commission has conducted a sector inquiry. They have been conducted in, inter alia, the banking and energy sectors, and have resulted in reports with proposals on how the competition may be improved. In those cases, the Commission’s investigation method has been to ask, in writing, the companies to answer a number of questions. What is completely new in the on-going investigation is that the Commission has now used its authority to conduct unannounced investigations on the companies’ premises – dawn raids. Under these circumstances, the action could be compared to a search without any actual suspicion of a crime.
A dawn raid constitutes a serious infringement of the integrity of the individual company and its employees. The Commission is entitled to go through all material on the company’s premises – from e-mail and book-keeping material to the employees’ calendars. Normally, a dawn raid is conducted in conjunction with investigation of specific competition violations. The Commission must then clearly specify why the dawn raid is being conducted and what the individual company is suspected of. In our opinion, the Commission cannot, in the way it now have, circumvent these requirements by conducting the dawn raids within the framework of a “sector inquiry”. So-called fishing expeditions, dawn raids which are carried out without any suspicion against the companies concerned, are prohibited. On several occasions, the Commission has been criticized by the Court of Justice of the European Communities for conducting dawn raids on grounds which were too vague.
In all circumstances, we are of the view that the Commission’s actions are in conflict with the proportionality principle which prohibits the Commission from taking actions which are more intrusive than necessary. The Commission justifies its decision to conduct dawn raids with the fact that the information it is seeking is secret and that the documentation is easy to withhold or destroy. This would, however, be true for most sector inquiry, regardless of the industry.
We believe that any company which challenges the actions of the Commission will prevail. The question is whether anyone dares to appeal. A pertinent point here is that companies which do not cooperate with the Commission can be ordered to pay a fine for, inter alia, insufficient cooperation.
Companies in all industries should be aware that it is costly to have the Commission’s search light directed at them. This is true even if the companies are eventually acquitted. The sheer suspicion of a competition violation often creates serious damage to goodwill. Now, the Commission has given itself even more far-reaching authority to discover competition violations than many thought possible. We hope that the issue will be tried in the ECJ and that the court will once more strike a blow for law and order.
