České dráhy saga: CJEU upholds judgments of General Court and rules on European Commission’s powers of inspection

On January 30, the Court of Justice of the European Union (“CJEU”) ruled against the appeals filed by the Czech Republic’s national railway operator Ceské dráhy, in cases involving the dawn raids carried out at its headquarters by the European Commission (“EC”) in 2016 (joined cases C-538/18 P and C-539/18 P).

In April 2016, the EC carried out a first dawn raid in the context of the “Falcon” investigation, based on allegations of predatory price-fixing by the Czech operator on the Prague-to-Ostrava railway line. As the Czech authorities had previously done, the EC was investigating a possible abuse of dominant position by Ceské dráhy, in breach of Article 102 of the Treaty on the Functioning of the European Union (“TFEU”), which would have affected the markets for provision of passenger transport services and railway infrastructure management services in the Czech Republic.

In June 2016, based on three documents found during the first inspection, the EC carried out a second dawn raid as part of a separate investigation named “Twins,” aimed at determining whether Ceské dráhy had entered into anticompetitive agreements with competitors in breach of Article 101 TFEU.

As we explained here, Ceské dráhy filed appeals against both of those inspection decisions before the General Court (“GC”). The GC ruled partially in favor of the appeal against the Falcon inspection (case T-352/16), partly annulling the EC’s first decision where it referred to other forms of infringement of article 102 TFEU and to routes other than the line for which sufficient evidence existed (the Prague-Ostrava line). In relation to the Twins investigation (case T-621/16), after analyzing the content of the documents, the GC concluded that they had been legally obtained during the first inspection because the scope of the infringement for which there was sufficient supporting evidence had not been exceeded. Therefore, as the first decision had been only partially annulled, the GC dismissed that appeal.

Ceské dráhy then filed an appeal with the CJEU, which has now upheld the GC’s judgments. Below are our main takeaways from its ruling of January 30:

Falcon

The Czech railway operator claimed that the GC had not adequately motivated or assess the evidence, which would have led it to conclude that the EC had breached the principle of proportionality in the Falcon case, as it had not considered the exculpatory documents in its possession, and because the Czech authority had provided the EC with sufficient information and that made unnecessary to carry out a dawn raid.

It also claimed that the GC had breached article 102 TFEU by not addressing the issue of whether the EC had correctly defined the relevant geographic market. Specifically, it claimed that it was inappropriate to consider the effects on trade between Member States, which had been used to justify the intervention of the Commission.

The CJEU has now declared that when there is reasonable grounds to suspect infringement of the competition rules., the EC does not have to assess all of the evidence against the investigated party, because that evidence could be used by the company being investigated as part of its defense during the subsequent proceedings.

In addition, the EC’s possession of the information sent by the Czech authority did not alter its legal obligation to have due grounds for any conclusion drawn in relation to an alleged infringement, and therefore it was able to order the inspection. Also, that information had not been obtained on the basis of EU competition law, but instead national law, so it cannot be expected that the EC would use it as the sole basis for its decision.

Regarding the effects on trade between Member States, the CJEU added that the GC clearly considered various factors when it declared that the Prague-Ostrava line is considered to be part of a main route between Poland and Slovakia and, therefore, that the conduct of Ceské dráhy affected trade between EU Member States.

Based on the above, the CJEU dismissed the Czech operator’s appeal and upheld the GC’s judgment (case T-352/16).

Twins

Ceské dráhy also filed an appeal before the CJEU seeking annulment of the Twins inspection, as it was derived from the EC’s first decision, and because the EC only had evidence for an alleged breach of Article 102 TFEU, not 101.

The CJEU has now concluded that in the context of a dawn raid, the EC must limit its activities to gathering evidence related to the subject matter of that inspection (Deutsche Bahn case).

However, it accepted the GC’s argument that a document can contain elements relevant to both an investigation into a possible infringement of Article 102 TFEU and an investigation into a possible infringement of Article 101; and this is especially true considering that, according to the GC, to assess the legality of a pricing policy applied by a dominant company, it is necessary  to rely on price-fixing criteria based not only on the costs incurred by the company, but also on the company’s strategy.

As the documents that led to the second inspection contained information regarding the structure and nature of the costs incurred by Ceské dráhy and the evolution of its revenue figures, the CJEU has concluded that the GC had the right to consider those documents relevant for the investigation of predatory pricing and, therefore, that they fell within the scope of the part of the first inspection that was validated by the GC.

This is a relevant judgment that can now be added to existing case law; it supports the broad powers of inspection possessed by the EC for infringements of competition law, as well as its authority to gather documentation related to the conduct being investigated. It should be noted that if the first inspection had been annulled or if the documents that led to the second were found to be related to the part of that first inspection that was declared unlawful, the CJEU would also have annulled Twins in application of what is known as the “fruit-of-the-poisonous-tree” doctrine. However, as the CJEU upheld the Falcon inspection decision, it also ruled against the second appeal, just as the GC had done.

Authors: María López Ridruejo and Marta Simón