The Competition Authority dismisses suggestions of tension in the electricity market
Summary
On 8 June 2011, the French Competition Authority (FCA) rejected a request for interim protective measures from the SNPIET (union for independent thermal electricity producers) in relation to claims brought against the electric network administrator, RTE and the electricity provider, EDF. The FCA declared that tenders relating to the establishment of quick and supplementary electricity reserves were outside the scope of its jurisdiction by virtue of RTE’s status as a public service provider. The FCA also concluded that the SNPIET had not submitted sufficient evidence to support its claims that EDF had been engaging in predatory pricing when bidding for tenders, nor was there sufficient evidence to prove its allegations relating to EDF’s abuse of a dominant position.
In December 2010, the SNPIET brought a claim before the FCA concerning the liberalisation of the electricity market. The claim was against; (i) RTE for including conditions in its tenders that impeded the ability of SNPIET’s members to put forward a bid, (ii) EDF for engaging in predatory pricing in the bids it proposed, (iii) EDF for abusing its dominant position in order to buy back electricity that producers had been unable to sell to RTE. In addition to the substantive claim, the SNPIET also requested interim measures from the FCA. The FCA rejected this request for interim measures and, in doing so, seemed to approve the way the market was operating.
RTE argued that as it is responsible for maintaining a balance in the French electricity market, it could not afford to restrict itself exclusively to non-contractual offers when securing electricity reserves. Unconventionally, the FCA accepted RTE’s argument that its tenders fell outside the FCA’s jurisdiction by virtue of its status as a public service provider. This argument is frequently put forward by defendants but is generally rejected. While the FCA stated that contracts for the provision of electricity were an economic activity that came under its authority, it also accepted that tenders were essential to RTE’s public duties in contracting quick and supplementary electricity supplies.
In relation to prices offered in EDF’s bids, the FCA carried out an opportunity cost test, analysing the benefits obtained from responding to the tender. The FCA concluded that EDF was able to show that its prices were, prior to the bid, devised on a profitable basis. The FCA seems to adopt a somewhat innovative approach to predatory pricing compared to the test used in cases like Glaxosmithkline. However, the FCA did confirm the previous definition of predatory pricing which must involve a sacrifice by the dominant undertaking.
The SNPIET’s claimed that EDF was abusing its dominant position by buying electricity at a cheaper rate from smaller producers who, alienated from RTE’s electricity markets, had no other choice than to sell it. The FCA rejected these claims arguing that EDF was under no obligation to buy electricity produced by its competitors. Legislation which created this obligation had been repealed. Although EDF’s market position imposes a certain level of responsibility on it, this does not entail an obligation to purchase electricity from its competitors. SNPIET producers should have adapted to the liberalisation of the electricity market, and explored alternative solutions, such as bidding in RTE’s tenders. While the FCA made it clear that the analysis of these tenders were outside its jurisdiction, it did note that these tenders allowed for participation of all producers, which could imply, for some of them to do it as a group.
The decision highlights the importance of evidence: sufficient proof is required from the moment interim measures are sought. The FCA reminded the parties that assertions about the opportunity cost of EDF’s pricing policy were no substitute for real evidence.
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Data seizure: the need for IT expertise is dismissed
Summary
On 16 June 2011, the criminal section of the French Supreme Court (Cour de Cassation) quashed a decision by the Paris Court of Appeal which had requested the opinion of a technical expert. The appointed expert had been asked to verify whether electronic mailboxes are technically indivisible and can therefore only be seized as a whole. The French Competition Authority (FCA) relies on this theory of indivisibility to justify its seizure methods. Through this judgment, the Cour de cassation has further reduced the scope of judicial control over the way in which the FCA conducts search and seizure operations (SSO).
CSTB contested the legality of the SSOs carried out in its premises, arguing it was the victim of a violation of legal professional privilege which protects correspondences with lawyers. This violation should, in its view, lead to all seizures being cancelled and not to the mere restitution of the documents unduly seized. In the proceedings, the FCA was granted an immediate assessment of its appeal and the suspension of the measure requested by the Paris Court of Appeal. The measure which was eventually quashed was to determine whether it would be technically possible to seize messages in a selective manner, by limiting seizures to only documents or files relevant to the investigation and listing them in a comprehensive inventory, while preserving the authenticity of the documents.
The FCA argued in favour of the legality of its SSOs “having regard to the technical restraints concerning the seizures of electronic documents”; the Court of Appeal requested a technical expert opinion aimed at clarifying the scope and the extent of those “restraints”. The Cour de Cassation’s decision is both surprising and definitive, holding that such a measure could not be ordered as it had “no practical relevance for the litigation”. Furthermore, the Cour de Cassation declared the Court of Appeal should have confined itself to (i) “specifically verifying the legality of the SSOs, on the basis of the minutes and the inventory”, and (ii) “ordering the restitution of the documents it believed to be illegally seized or in violation of the defendants’ rights”.
The decision to quash the measure by the criminal section of the Cour de Cassation mirrors three decisions made by the commercial section on 18 January 2011. The decisions suggest that the presence of messages covered by legal professional privilege within the seized mailboxes is not sufficient to invalidate the whole seizure operation and can only lead to the restitution of the documents concerned. The criminal section however went even further in its reasoning, by considering that the FCA is not obliged to even try to identify seizure techniques which would be less invasive having regard to the defendants’ rights. According to the Supreme Court, the matter of knowing if these techniques exist is irrelevant to the litigations’ subject matter.
The outcome of this decision is radical, in that even if there is an appeal against the procedure of the SSO, this does not automatically suspend the investigation. Consequently, the FCA may unduly examine information which it would otherwise have no right to seize. This process is less protective than, for instance, the one used by the European Commission, which sorts out electronic messages on the spot. This decision effectively allows the authorities in France, a country renowned for its human rights and individual liberties policies, to carry on using seizure mechanisms which arguably violate fundamental principles, especially the legal privilege principle.
In addition, there are doubts as to the effectiveness of any control operated over SSOs when the judges’ involvement in the matter is limited to obscure minutes and inventories which regroup thousands of messages and documents. Contrary to the Cour de Cassation’s statements, the matter of indivisibility of e-mail accounts remains the core of the debate.
The likelihood that the Supreme Court will overturn its decision are diminishing - but it will nevertheless be interesting to know the conclusions reached by experts appointed by the Paris Court of Appeal in a different case which was heard on 2 November 2010 (see Competition Newsletter n° 9); in this case, the appointment of experts was not cancelled despite the appeal lodged against this Measure by the FCA (Court of Appeal, 10 May 2011).
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Judgments of the General Court of the EU: the presumption of 100% parent company’s liability under close scrutiny
Summary
On 16 June 2011, the General Court of the European Union (GC) partially annulled three decisions of the European Commission (Commission) which held parent companies jointly and severally liable with their 100%-owned subsidiaries. While the presumption of parent company’s liability established by the Court of Justice of the European Union (CJEU) in the Akzo judgment has not been undermined, these judgments still indicate a willingness to submit Commission’s decisions to greater judicial review, which might, as in the present cases, lead to their annulment.
Since the Akzo judgment of the CJEU, it has been established case law that parent companies can be deemed liable for the anticompetitive actions of their 100%-owned subsidiaries, without any other evidence. While in principle, it is possible to escape from this presumption by showing the absence of any “decisive influence” of the parent company over the behaviour of its subsidiary, in practice, this hurdle is extremely difficult to overcome. This has led to legal authors criticising the GC for its excessive “deference” towards the Commission.
The three judgments adopted by the GC on 16 June 2011, may however make a shift in this attitude. The most striking judgment is the one handed down in case T-209/08, where the parent company successfully rebutted the presumption of decisive influence on its 100%-owned subsidiary. On closer inspection the case’s significance is reduced due to the very specific nature of the facts involved. Notably, the GC first noted that the parent company could not be considered as an undertaking within the meaning of competition law, and that the Commission could not therefore hold it liable for an infringement of Article 101 of the Treaty on the Functioning of the European Union (TFEU). In addition, the administrative board of the parent company only met once during the period where it held its subsidiary, which obviously rendered difficult any exercise of decisive influence over the activities of the latter.
The key development in this area appears to come from the other two judgments, cases T-185/06 (Air Liquide) and T-196/06 (Edison). Both judgments criticised the Commission’s lack of reasoning by not having sufficiently explained why it rejected numerous elements of evidence raised by the companies to rebut the presumption of “decisive influence” on their subsidiary.
The GC stated that the rejection of evidence must be sufficiently justified in light of the circumstances of each case, only irrelevant or meaningless arguments regarding the legal matter at hand can be ignored by the Commission. In particular, the GC stated that the Commission cannot rely on evidence intended to demonstrate the existence of a “decisive influence” over a subsidiary, without assessing the evidence to rebut this presumption. As the Commission proceeded in this way in both cases, the only remedy was the annulment of the whole decision for lack of reasoning.
These three judgments do not directly call into question the mechanism of the presumption of a parent company’s liability established in Akzo. However, the increased review on the Commission’s analysis initiated by the GC undoubtedly offers an interesting possibility to fight joint and several liability of parent companies before EU Courts.
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