Gentle touch could bring ‘disappointing dawn raids’ era to an end

Date: 29/04/04

NO ONE seriously believes the Lisbon Agenda mantra - that the EU will become the world's most competitive knowledge-based economy by 2010.

But, while many have thrown in the towel, Mario Monti, the competition commissioner, has a cunning plan that could, at least, help to inject a bit more oomph into the Union's hottest sectors.

The logic is simple.

He wants to cut the time that his staff spends toiling on long investigations into obscure sectors, with little impact on EU growth, jobs or competitiveness. Many cases are complaint-driven - reflecting the special interests, even if they are legitimate ones, of a narrow group of companies, or a single firm acting on its own. Take the Coca-Cola case, which has tied-up some of competition directorate-general's finest brains for the best part of half-a-decade.

They won't actually say the case is a waste of time. But the Monti camp reckons that the hours they spent pursuing the ongoing case against one American soft drinks giant on behalf of another, Pepsi, could have been better deployed, to Europe's advantage.

The Microsoft case is another example of time largely spent sorting out US problems. Monti argues, though, that the principles at stake will help draw the line on the future behaviour of all monopolists active in the Union, the world's biggest software company included.

Yet, even when the Commission is pursuing a classic case with a real impact on the EU economy, the path that runs towards the level playing field is often a tortuous one. And by the time DG Competition's team gets there, the game has ended and the market has moved on.

Officials say that the infamous dawn raids are often a disappointment.

Companies, advised by smart in-house counsel and international firms with "dawn-raid hot lines", are often a step ahead of the most intrepid Brussels investigators.

As one trust-buster put it, the victims of what is otherwise known as a surprise inspection "clam-up". They know that the onus is on the investigators to find evidence that could be buried deep in the minds of senior sales directors or impenetrable computer files, if it exists at all, so they refuse to cooperate.

What is the new approach? The idea is that Monti's team will in future conduct more and more "sector inquiries" into areas which it believes are key to economic performance.

A sector inquiry - such as the one recently launched into the market for content for third-generation (3G) mobile phones - is basically a friendlier way to conduct investigations.

Instead of parachuting into company HQs before bosses can reach for the shredding machine, Monti's elite corps are more likely to come for a pre-arranged chat over an espresso and a biscuit.

And, instead of pointing the finger and firing off a statement of objections, they nurture contacts with a number of companies, seeking information about competition bottlenecks.

The goal is to get to know a specific industry and all its quirks, free from the tension and suspicion that accompanies a formal anti-trust case.

Monti's experts say the new approach inevitably means there will be fewer random dawn raids in future. However, there will not necessarily be fewer cases. It is just that the cases the Commission pursues will be tailored more closely to fit the EU economy.

They argue that putting the onus on more "up-front and focused economic analysis", developed in a sector inquiry, is a sounder way of making decisions than just collecting and stacking tons of documents from companies and complainants alike.

In turn, they say, better up-front analysis of markets and their functioning - supply and demand structure, contract duration, legal or technical barriers to entry and so on - will yield quicker and more timely probes in individual cases.

So which sectors are ripe for the sector inquiry treatment?

The answer, say Monti's aides, is all the hi-tech areas that are strategic for making Europe more competitive. The 3G mobile phones inquiry is one example of that.

Another ripe area, officials say, could be the interactive TV market and the set-top boxes that drive the services. Monti's team insists that the Lisbon Agenda aim is not limited to consumer goods and services. "It all depends what the knowledge-based economy is moving towards," said one.

That is the theory. But EU competition lawyers are paid to be cynical.

True, the professionals admit that the sector route can certainly be helpful.

For example, it could be a useful way for the Commission to continue to set the agenda when national competition watchdogs and courts in the enlarged EU take on more responsibility for applying European competition law, come 1 May.

Matthew Hall, a partner with Ashurst, says the Commission is "likely to be emboldened" by the experience of national regulatory authorities which have taken action after former EU sector inquiries.

This has enabled the Commission to drop any lengthy follow-up of its own, satisfied that the job has been done for it.

That is just as well, since the Commission, unlike member states, has few powers to take direct action after a sector inquiry other than launch a formal case against companies.

"For example, it closed its telecom leased line inquiry due to a significant drop in prices since the inquiry's launch," Hall said. "Its landing fees inquiry was closed following the elimination of discriminatory fees at all EEA [European Economic Area] countries.

"However, and these are big howevers, there are a number of negatives," he adds. "Will they be properly done and does the Commission have the resources?" Hall asks.

Johan Ysewyn, a partner at Linklaters, adds that sector inquiries are often little more than "fishing expeditions".

"They are very unfocused and it's actually sometimes very unclear what the Commission's anti-trust concerns are. I find it a very odd way of prioritizing workload for a number of reasons."

First, says Ysewyn, is the tricky issue of how to pick the right industries.

"It is definitely unclear" how the Commission would select the sectors it would prioritize - and "what criteria would it use to do that?", he wonders.

Second, Commission experience shows that sector inquiries take a lot of time and resources out of the companies involved. It launched one on leased lines in July 1999 and closed it in December 2002, and it launched an inquiry into landing fees at airports in 1995 which it closed in 2001.

The reality, claims Ysewyn, is that, because of the unfocused nature of sector inquiries, the Commission asks for a lot of information, data and documents, which are completely irrelevant for a finding of an anti-trust infringement.

Third, he points to a glaring inconsistency. "On the one hand, the Commission is saying: complaints take too much time and energy to deal with. So let's go for sector inquiries. On the other hand, they are encouraging people to submit complaints or information on suspected infringements.

"They set up a website where you can lodge your concerns," he says.

Finally, adds Ysewyn, the Commission could find itself alone, in need of a helping hand.

"As a competition law enforcer, the big advantage of working with a complaint system is that you have somebody working alongside you to prove your case.

"You get insider info on how the market works, you get legal and economic support - whereas if you just decide to go into a sector in a very unfocused fashion, that support may just not be there."

Commission insiders say the change is partly inspired by the UK's anti-trust authorities, which have long favoured the sector route.

But Matthew Hall says experience of sector inquiries in the UK has been mixed.

For example, an investigation of the supermarkets sector resulted in a code of conduct for dealing with suppliers, which is largely considered to be ineffectual - and is being reviewed.

The so-called new cars inquiry, also from 2000, lasted for nearly 13 months, involved thousands of man hours at companies and produced a regulation which is seen as having little impact, he adds.

Whether or not Monti succeeds in helping the EU economy change gear, he will, unwittingly at least, help promote the knowledge-based economy - if you count lawyers and economists.

Even though the sector inquiries are less confrontational than a dawn raid, firms still need to protect themselves from being caught in DG Comp's "fishing net".

"In terms of work for lawyers, if properly defended - which they should be - these inquiries demand significant sophisticated external advice.

"This means lawyers in particular but also economists," adds Hall.

Mario Monti, European Commissioner for Competition, wants to cut the time his staff spend working on long investigations that provide little benefit to European Union growth, jobs or competitiveness.