Reform of Regulation 1/2003 and access to the file: is the DMA/DSA approach helpful?

The answer to the question posed in the title is simple: “No”. This note explains the reasons why.

Access to the file after the adoption of a Statement of Objections (SO) in EU competition law enforcement procedures is a time consuming and painful process for all involved. It is, however, an essential way to ensure that the Commission’s (EC) processes comply with the need for competition investigations, which can lead to enormous fines being levied upon companies, qualify as a “fair trial”. This is because it allows the defendant the right to see all inculpatory and exculpatory evidence obtained and considered by the Commission in its provisional decision against it.

However, it is understood that the EC, in its current review of Regulation  1/2003 and its procedural implementing Regulation 773/2004 is considering radical reforms which would take inspiration from the access to file provisions that apply in proceedings under Regulations 2022/1925 (the Digital Markets Act, “DMA”)  and 2022/2065 (the Digital Services Act, “DSA”). If that is the case, this would result in potentially significant infringements of due process.

This note summarises the current state of play, including a brief background to the relevant and currently applicable provisions of Article 15, Regulation 773/2004. We then assess the problems that would arise if the DMA/DSA methodology was applied to competition cases and why it would be wholly inappropriate to copy and paste what is presently contained in Article 8 of the DMA’s Implementing Regulation and Article 5 of the DSA’s Implementing Regulation.

Background

The ability of undertakings under investigation for EU competition law infringements to have access to the EC’s investigation file is a fundamental element in the rights of defence. It was not always thus.  There were no specific provisions in either Regulation 17/62 which brought into effect the application of Articles 101 and 102 (ex Articles 85 and 86) or its implementing Regulation 99/63 allowing for access to the file.

Access to the file developed through case law and most notably in a series of early cases before the newly established Court of First Instance (now the General Court). The Court established principles that allowed for full access to relevant documents on the EC’s case file based on the need to ensure “equality of arms” in compliance with the fundamental legal principle of “audi alteram partem” (the right to be heard). In Case T-7/89 Hercules and in Cases T-30/91 and T-31/91 Solvay I and II the Court held that the EC’s previous practice of providing selected documents was inadequate. Access must include all inculpatory and exculpatory material to ensure that the undertaking under investigation could defend itself effectively against the allegations contained in the Statement of Objections (SO). However, such access was not absolute as those documents which contained business secrets or which comprised EC internal documents were not required to be disclosed. In 1997 the situation was helpfully clarified with the adoption of a Notice on the Internal Rules for Access to the File.

It was not until the adoption of Regulation 1/2003 that access to the file was codified into actual legislation, building on what the Court had decided in previous cases as well as the practice that had developed since the adoption of the 1997 Notice.

Current position regarding access to the file in competition cases

Article 15(1) of Regulation 773/2004 provides that after the notification of an SO the EC must, if so requested, grant access to the case file to the addressees of the SO. Article 15(2) states that the right of access does not extend to certain categories of documents, namely those which contain business secrets, other confidential information and internal documents of the EC or of the competition authorities of the Member States. Article 16 sets out the process by which confidential information is to be identified and protected.

The case team has to ensure that all documents provided by or obtained from the investigated undertaking and third parties have non confidential versions (NCVs) available on the case file immediately after an SO is issued. In order to comply with Article 16(3) of Regulation 773/2004 the case team and the undertakings providing the documents engage in what is often a lengthy back and forth where the confidentiality claims and their summaries are checked and verified, with those that appear inaccurate, excessive or unjustified being provisionally rejected by the EC. The undertaking concerned is given the opportunity to provide a revised version. Once agreement has (eventually) been reached, the NCVs will be made available on the accessible case file. Certain documents/data may be provided in confidential form to the external legal and economic advisors in a physical or more frequently a virtual data room subject to disclosure restrictions; this process often results in additional issues. 

It is often the case that the investigated undertaking will seek to challenge the confidentiality designations by making representations to the case team on the grounds that they appear excessive/unjustified. If the investigated undertaking considers that no satisfactory solution can be reached with the case team, it can then appeal to the Hearing Officer (whose decision can challenged on appeal). There are many examples of such appeals being successful in whole or in part. Often it is found that important portions of documents have been redacted which contain information that contradicts the theory of harm set out in the SO and/or contains exculpatory information.

As can be imagined, the preparation of the case file for access after the notification of an SO and the subsequent verification procedure is a time consuming and resource intensive process imposing considerable costs on both the EC and the undertakings that provided the documents concerned. It can also result in significantly slowing down the EC’s investigative process. Having both been civil servants as well as defence lawyers, we sympathise with anyone having to prepare a file for the EC and with those having to scrutinise the resulting redactions for their clients.

It is therefore right that a number of commentators, including the authors of this note, have suggested that alternative methods be devised that would speed up investigations and reduce costs. Suggestions include the use of enforceable confidentiality rings so as to allow for the full and complete disclosure of documents on the case file without the need to create NCVs and all the time/complexity that involves.

Access to the file in DMA and DSA cases

As is well known, the EU introduced two sets of ambitious new Regulations to regulate the digital economy, the DMA and the DSA. In both cases, the Commission also adopted Implementing Regulations, namely Regulation 2023/814 for the DMA, and 2023/1201 for the DSA.

Articles 8 of the DMA Implementing Regulation and 5 of the DSA version contain the specific rules for access to the file in DMA and DSA procedures. It is important to note that, as is the case in competition law, DMA and DSA investigations can result in significant financial penalties for the companies involved. For ease, we will refer below to the DMA Implementing Regulation, but in each case there is a DSA equivalent.

Article 8(2) of the DMA Implementing Regulation provides that when providing access to the file, the EC is only required to provide to the investigated undertaking only NCVs of those documents specifically mentioned in the preliminary findings (the DMA and DSA’s equivalent to an SO). No other documents on the case file are to be provided directly to the investigated undertaking even in non-confidential form, unless the EC itself decides to do so by applying Article 8(9).

Articles 8(3) enable the external advisers of the investigated undertaking to have access to all documents on the case file without any redactions, subject to disclosure restrictions that are similar to those provided for in current data room procedures. Under Article 8(5), the undertaking’s external advisers can make a reasoned request for an NCV of any document not already provided to the undertaking. However, it appears that this is intended to apply only in exceptional circumstances and “provided that it is indispensable for the proper exercise of the addressee’s right to be heard”.

The key differences with the procedure under competition law are therefore: (i) the investigated undertaking itself only receives the documents relied upon in the preliminary findings, nothing more; and (ii) the investigated undertaking’s external advisers are given access to all documents on the file without redactions (except in exceptional circumstances).

The EC’s recent DMA decision against Apple gives a flavour of how this process works in practice. The decision explains, at paragraph 13 et seq, that Apple’s external legal counsel requested access to the documents references in the preliminary findings under Articles 8(1) and (2) of the DMA Implementing Regulation, as well as full access to all documents on the EC’s case file under Article 8(3). The EC then provided all documents referred to in the preliminary findings via OneDrive. Separately, it set up a data room at the Commission’s premises for Apple’s external advisers to access the full case file. Apple’s external advisers prepared a report on the documents in the data room which was reviewed and approved by the Commission before it could be shared with Apple. It is not clear from the Decision whether Apple’s external advisers requested additional access under Article 8(6) of the DMA Implementing Regulation.

The future: review of Regulations 1/2003 and 773/2004

It is understood that the EC  is considering proposing a similar access to file procedure in competition cases as part of its review of Regulations 1/2003 and 773/2004. On its face, this seems reasonable and would reduce the administrative burden on the EC and the undertakings which have provided the said documents, as only a limited portion of the case file documents will have to go through the confidentiality redaction process. The investigated undertaking’s external advisers would also have the benefit of seeing all documents without any redactions.

However, there are issues with such an approach, some of which are very serious.

First, the degree of access that the recipient of an SO would have to case file documents is significantly reduced from that which applies in competition cases under the presently applicable regulations. The defendant will only see NCVs of those documents referred to in the SO and nothing else, except for the non-confidential summaries provided by its external advisers who have access to the full case file in unredacted form in accordance with whatever would be the equivalent of Article 8(3) of the DMA Implementing Regulation. This is inadequate as there are often documents on the case file whose exculpatory nature may not be apparent to external advisers due to the technical or factual information they contain. It is important to note, as the UK’s Competition Appeal Tribunal held in BMI Healthcare, that it is the undertaking and not its external advisers, that will be adversely affected by the Commission’s decision. Only the undertaking, as the party accused in the SO, will know the full details of the allegations against it and why a certain document may exculpate it.

From their practices, the authors are aware of many examples where documents in the case file, not relied on in the SO, put other documents – which were relied on – in their proper context, or where documents of a technical nature turned out to reveal exculpatory evidence when properly explained by the client’s expert staff. Two of the more egregious examples are noted here:

• in the Cement cartel investigation it was alleged that a client of one of the authors, Castle Cement was involved in a multi-faceted European wide conspiracy. On appeal in Case T-56/95 , the EC’s infringement decision was overturned in part because there were documents in the case file, not relied on in the SO, which put other documents – which were relied on – in their proper context. In particular, there were a series of documents which showed that documents relied on in the SO to implicate Castle Cement did not in fact relate to the cartel as alleged but in fact to other, entirely different, arrangements with another defendant, Blue Circle as a result of which the appeal succeeded. The relevance of these documents would never have been fully understood by external counsel had it not been for the client’s ability to explain what they revealed as on their face they looked as if they merely confirmed the SO’s allegations but, in fact, they did not.
• in Qualcomm’s appeal in  Case T-235/18 against the EC’s Article 102 infringement decision where case file documents not relied on in the SO contained technical information about the capabilities of allegedly competitive chipsets which, when reviewed by the client, showed that they were exculpatory and entirely contradicted the EC’s theory of harm.

Second, the access granted to external advisers to the full unredacted case file under Article 8(3) of the DMA Implementing Regulation is subject to significant restrictions:

• the EC can decide not only on the technical means of disclosure (whether by way of a confidential VDR or physically at the EC’s premises for some or all of the documents) but also the duration. At present there is no time limit imposed on the ability of the investigated undertaking or its external advisers to review the entire case file’s NCV documents. Replacing that with a time limited opportunity for external advisers to review case file documents not specifically referred to in the SO (and there may be very many of them), the summarise them in non-confidential form will result in defendant undertakings having an incomplete view of the case file documents and it is certain, based on past empirical experience, that documents of potential importance may not be identified by external counsel in the time available.
• it appears from the Apple case that access to the VDR or the documents on the EC’s premises is allowed once, and one time only. There are no provisions that enable return visits.
• the EC can determine the duration of the access to the VDR or the documents on its EC’s premises. The amount of time provided may well be insufficient.
• apparently, as shown in the Apple case, the EC considers that it has the right to review the defence lawyers’ report of the documents contained in the data room before that report is shared with the undertaking. Although the precise form of that review in the Apple case is not clear from the Decision, this appears to at least create a risk that attorney/client privilege is breached.

Article 8(5) of the DMA Implementing Regulation gives external counsel the ability to make a reasoned request to the EC to allow the investigated undertaking to receive NCVs of documents that on the case file but not relied on and hence have only been seen by external counsel in the VDR or at the EC’s premises. However, this possibility is hedged about with restrictions that significantly reduce it utility, as follows:

• the request must be made very quickly, within just one week of receiving access to the case file.
• a reasoned request must be made for each and every document that external counsel considers should be seen by the investigated undertaking in redacted form.
• such additional access is to be granted only “exceptionally” and “provided that it is shown to be indispensable for the proper exercise of the addressee’s right to be heard”. As the Cement and Qualcomm examples above show, external advisers are often not in a position to determine why certain seemingly irrelevant documents might be pertinent to their clients’ defence, and certainly not within one week.

The burden thus placed on external counsel in a very short time frame is wholly unreasonable especially as regards case files where there are, as is often the case, significant numbers of documents. This undermines an investigated undertaking’s ability to prepare a robust defence.

Why the DMA/DSA approach is unfit for competition cases

Leaving aside whether the procedures adopted for DMA and DSA cases will stand up to scrutiny (which is very much an open question), we would respectfully submit that they are not fit for purpose in competition cases.

First, the number of companies and issues affected by the DMA and DSA is, to a degree, finite, which is not the case in competition investigations. Leaving aside some exceptions, the digital undertakings involved in DMA and DSA enforcement and their advisers will be intimately involved in the regulatory process and well aware of the views held on both sides of the argument. In essence, when presented with a case file, they will have some idea of where to look for exculpatory materials. Therefore, the EC could perhaps take the view that external advisers in DMA and DSA cases are better placed to make the determination as to whether there are certain documents on the EC’s file that the EC did not include in its preliminary findings, but that their client must see. That does not apply in competition cases, which can be launched in a wide variety of sectors, often requiring external advisers to come to grips with industries they have never encountered before in their professional careers.

Second, competition cases often centre around agreements, exchanges of information and unilateral decisions that are not (fully) recorded. Only the individuals present at those relevant moments will know exactly what was said and agreed. For a proper defence to be mounted, external counsel must have the views of these individuals on the documents in the EC’s case file.

Third, by nature, an SO is a “charge” against the undertaking(s) in question. It is the role of this document to lay out the case against the undertaking and the EC will have made a selection of the strongest documents when considering all evidence obtained against the undertaking. It can therefore not be expected of the EC to mention each possibly exculpatory document in the SO. Therefore, whether or not a document is referred to in the SO is a poor determinant of its value for the defence.

Fourth, the use of a data room is highly restrictive. Depending on what information is contained in the data room, it may be the case that preparing a defence is made materially more difficult by the use of a data room. Such an additional burden must be justified by more than just procedural efficiency, especially when the majority of documents contained in the EC’s case file will not be particularly sensitive in nature either because they are historic or because they do not contain commercially sensitive information the disclosure of which could harm the undertaking that provided them.

Accordingly, the DMA and DSA procedures seem to us to be a dead end when it comes to improving access to file in competition cases. The EC would risk that its procedures would be held to be unfit for purpose, which could affect multiple ongoing cases at the same time once the General Court has held this to be so. We have already seen, on a much smaller scale, the EC looking to rectify its flawed approach to meeting minutes in ongoing cases, but this process would be much more complicated if it were to be the case that access to the file has been granted in a way that breaches the rights of defence.

As the EU’s top enforcer, the protection of fundamental rights must be at the heart of the EC’s procedures at all times. We would therefore urge the EC to engage with the Defence Bar to identify procedures that streamline access to file while continuing to respect the rights of defence.