Where does the proposed EU AI Act place procurement?

Thinking about some of the issues raised in the earlier post ‘Can the robot procure for you?,’ I have now taken a close look at the European Commission’s Proposal for an Artificial Intelligence Act (AIA) to see how it approaches the use of AI in procurement procedures. It may (not) come as a surprise that the AI Act takes an extremely light-touch approach to the regulation of AI uses in procurement and simply subjects them to (yet to be developed) voluntary codes of conduct. I will detail my analysis of why this is the case in this post, as well as some reasons why I do not find it satisfactory.

Before getting to the details, it is worth stressing that this is reflective of a broader feature of the AIA: its heavy private sector orientation. When it comes to AI uses by the public sector, other than prohibiting some massive surveillance by the State (both for law enforcement and to generate a system of social scoring) and classifying as high-risk the most obvious AI uses by the law enforcement and judicial authorities (all of which are important, of course), the AIA remains silent on the use of AI in most administrative procedures, with the only exception of those concerning social benefits.

This approach could be generally justified by the limits to EU competence and, in particular, those derived from the principle of administrative self-organisation of the Member States. However, given the very broad approach taken by the Commission on the interpretation and use of Article 114 TFEU (which is the legal basis for the AIA, more below), this is not entirely consistent. It could rather be that the specific uses of AI by the public sector covered in the proposal reflect the increasingly well-known problematic uses of (biased) AI solutions in narrow aspects of public sector activity, rather than a broader reflection on the (still unknown, or still unimplemented) uses that could be problematic.

While the AIA is ‘future-proofed’ by including criteria for the inclusion of further use cases in its ‘high-risk’ category (which determines the bulk of compliance obligations), it is difficult to see how those criteria are suited to a significant expansion of the regulatory constraints to AI uses by the public sector, including in procurement. Therefore, as a broader point, I submit that the proposed AIA needs some revision to make it more suited to the potential deployment of AI by the public sector. To reflect on that, I am co-organising a webinar on ’Digitalization and AI decision-making in administrative law proceedings’, which will take place on 15 Nov 2021, 1pm UK (save the date, registration and more details here). All welcome.

Background on the AIA

Summarising the AIA is both difficult and has already been done (see eg this quick explainer of the Centre for Data Innovation, and for an accessible overview of the rationale and regulatory architecture of the AIA, this master class by Prof Christiane Wendehorst). So, I will just highlight here a few issues linked to the analysis of procurement’s position within its regulatory framework.

The AIA seeks to establish a proportionate approach to the regulation of AI deployment and use. While its primary concern is with the consolidation of the EU Single Digital Market and the avoidance of regulatory barriers to the circulation of AI solutions, its preamble also points to the need to ensure the effectiveness of EU values and, crucially, the fundamental rights in the Charter of Fundamental Rights of the EU.

Importantly for the purposes of our discussion, recital (28) AIA stresses that ‘The extent of the adverse impact caused by the AI system on the fundamental rights protected by the Charter is of particular relevance when classifying an AI system as high-risk. Those rights include ... right to an effective remedy and to a fair trial [Art 47 Charter] … [and] right to good administration {Art 41 Charter]’.

The AIA seeks to create such a proportionate approach to the regulation of AI by establishing four categories of AI uses: prohibited, high-risk, limited risk requiring transparency measures, and minimal risk. The two categories that carry regulatory constraints or compliance obligations are those concerning high-risk (Arts 8-15 AIA), and limited risk requiring transparency measures (Art 52 AIA, which also applies to some high-risk AI). Minimal risk AI uses are left unregulated, although the AIA (Art 69) seeks to promote the development of codes of conduct intended to foster voluntary compliance with the requirements applicable to high-risk AI systems.

Procurement within the AIA

Procurement AI practices could not be classified as prohibited uses (Art 5 AIA), except in the difficult to imagine circumstances in which they deployed subliminal techniques. It is also difficult to see how they could fall under the regime applicable to uses requiring special transparency (Art 52) because it only applies to AI systems intended to interact with natural persons, which must be ‘designed and developed in such a way that natural persons are informed that they are interacting with an AI system, unless this is obvious from the circumstances and the context of use.’ It would not be difficult for public buyers using external-facing AI solutions (eg chatbots seeking to guide tenderers through their e-submissions) to make it clear that the tenderers are interacting with an AI solution. And, even if not, the transparency obligations are rather minimal.

So, the crux of the issue rests on whether procurement-related AI uses could be classified as high-risk. This is regulated in Art 6 AIA, which cross-refers to Annex III AIA. The Annex contains a numerus clausus of high-risk AI uses, which is however susceptible of amendment under the conditions specified in Art 7 AIA. Art 6/Annex III do not contain any procurement-related AI uses. The only type of AI use linked to administrative procedures concerns ‘AI systems intended to be used by public authorities or on behalf of public authorities to evaluate the eligibility of natural persons for public assistance benefits and services, as well as to grant, reduce, revoke, or reclaim such benefits and services’ (Annex III(5)(a) AIA).

Clearly, then, procurement-related AI uses are currently left to the default category of those with minimal risk and, thus, subjected only to voluntary self-regulation via codes of conduct.

Could this change in the future?

Art 7 AIA establishes the following two cumulative criteria: (a) the AI systems are intended to be used in any of the areas listed in points 1 to 8 of Annex III; and (b) the AI systems pose a risk of harm to the health and safety, or a risk of adverse impact on fundamental rights, that is, in respect of its severity and probability of occurrence, equivalent to or greater than the risk of harm or of adverse impact posed by the high-risk AI systems already referred to in Annex III.

The first hurdle in getting procurement-related AI uses included in Annex III in the future is formal and concerns the interpretation of the categories listed therein. There are only two potential options: nesting them under uses related to ‘Access to and enjoyment of essential private services and public services and benefits’, or uses related to ‘Administration of justice and democratic processes’. It could (theoretically) be possible to squeeze them in one of them (perhaps the latter easier than the former), but this is by no means straightforward and, given the existing AI uses in each of the two categories, I would personally be disinclined to engage in such broad interpretation.

Even if that hurdle was cleared, the second hurdle is also challenging. Art 7(2) AIA establishes the criteria to assess that an AI use poses a sufficient ‘risk of adverse impact on fundamental rights’. Of those criteria, there are three that in my view would make it very difficult to classify procurement-related AI uses as high-risk. Those criteria require the European Commission to consider:

(c) the extent to which the use of an AI system has already caused … adverse impact on the fundamental rights or has given rise to significant concerns in relation to the materialisation of such … adverse impact, as demonstrated by reports or documented allegations submitted to national competent authorities;

(d) the potential extent of such harm or such adverse impact, in particular in terms of its intensity and its ability to affect a plurality of persons;

(e) the extent to which potentially harmed or adversely impacted persons are dependent on the outcome produced with an AI system, in particular because for practical or legal reasons it is not reasonably possible to opt-out from that outcome;

(g) the extent to which the outcome produced with an AI system is easily reversible …;

Meeting these criteria would require for the relevant AI systems to basically be making independent or fully automated decisions (eg on award of contract, or exclusion of tenderers), so that their decisions would be seen to affect the effectiveness of Art 41 and 47 Charter rights; as well as a (practical) understanding that those decisions cannot be easily reversed. Otherwise, the regulatory threshold is so high that most likely procurement-related AI uses (screening, recommender systems, support to human decision-making (eg automated evaluation of tenders), etc) are unlikely to be considered to pose a sufficient ‘risk of adverse impact on fundamental rights’.

Could Member States go further?

As mentioned above, one of the potential explanations for the almost absolute silence on the use of AI in administrative procedures in the AIA could be that the Commission considers that this aspect of AI regulation belongs to each of the Member States. If that was true, then Member States could further than the code of conduct self-regulatory approach resulting from the AIA regulatory architecture. An easy approach would be to eg legally mandate compliance with the AIA obligations for high-risk AI systems.

However, given the internal market justification of the AIA, to be honest, I have my doubts that such a regulatory intervention would withstand challenges on the basis of general EU internal market law.

The thrust of the AIA competential justification (under Art 114 TFEU, see point 2.1 of the Explanatory memorandum) is that

The primary objective of this proposal is to ensure the proper functioning of the internal market by setting harmonised rules in particular on the development, placing on the Union market and the use of products and services making use of AI technologies or provided as stand-alone AI systems. Some Member States are already considering national rules to ensure that AI is safe and is developed and used in compliance with fundamental rights obligations. This will likely lead to two main problems: i) a fragmentation of the internal market on essential elements regarding in particular the requirements for the AI products and services, their marketing, their use, the liability and the supervision by public authorities, and ii) the substantial diminishment of legal certainty for both providers and users of AI systems on how existing and new rules will apply to those systems in the Union.

All of those issues would arise if each Member State adopted its own rules constraining the use of AI for administrative procedures not covered by the AIA (either related to procurement or not), so the challenge to that decentralised approach on grounds of internal market law by eg providers of procurement-related AI solutions capable of deployment in all Member States but burdened with uneven regulatory requirements seems quite straightforward (if controversial), especially given the high level of homogeneity in public procurement regulation resulting from the 2014 Public Procurement Package. Not to mention the possibility of challenging those domestic obligation on grounds that they go further than the AIA in breach of Art 16 Charter (freedom to conduct a business), even if this could face some issues resulting from the interpretation of Art 51 thereof.

Repositioning procurement (and other aspects of administrative law) in the AIA

In my view, there is a case to be made for the repositioning of procurement-related AI uses within the AIA, and its logic can apply to other areas of administrative law/activity with similar market effects.

The key issue is that the development of AI solutions to support decision-making in the public sector not only concerns the rights of those directly involved or affected by those decisions, but also society at large. In the case of procurement, eg the development of biased procurement evaluation or procurement recommender systems can have negative social effects via its effects on the market (eg on value for money, to mention the most obvious) that are difficult to identify in single tender procurement decisions.

Moreover, it seems that the public administration is well-placed to comply with the requirements of the AIA for high-risk AI systems as a matter of routine procedure, and the arguments on the need to take a proportionate approach to the regulation of AI so as not to stifle innovation lose steam and barely have any punch when it comes to imposing them on the public sector user. Further, to a large extent, the AIA requirements seem to me mostly aligned with the requirements for running a proper (and challenge proof) eProcurement system, and they would also facilitate compliance with duties of good administration when specific decisions are challenged.

Therefore, on balance, I see no good reason not to expand the list in Annex III AIA to include the use of AI systems in all administrative procedures, and in particular in public procurement and in other regulatory sectors where ex post interventions to correct market distortions resulting from biased AI implementations can simply be practically impossible. I submit that this should be done before its adoption.

Recent case law on EU Institutional Procurement under the Financial Regulation (I): Self-Cleaning

Before the summer recess, the General Court adopted two interesting decisions on public procurement carried by the EU Institutions. One concerns the debarment of tenderers that have been found to breach EU procurement rules and negatively affect the financial interests of the Union (T-151/16). The other concerns the obligation to state reasons in the context of allegations that a tender is abnormally low (T-392/15). This blog discusses the first case, while a subsequent post comments on the second.

Judgment of 27 June 2017, NC v Commission, T-151/16, EU:T:2017:437, is concerned with the registration in the Early Warning and Detection System database (ie the registry of tenderers and contractors debarred from EU Institutional procurement, currently relabelled as Early Detection and Exclusion System, EDES) of tenderers that have been found  to have committed serious breaches of contractual obligations--in this case, as established by OLAF, the simulation of procurement procedures for the acquisition of equipment ultimately funded by the EU. The case is affected by the additional difficulty that the rules controlling EU Institutional procurement (ie the Financial Regulation and its Rules of Application) were modified in the period between the irregularities were committed (2008 and 2009) and the time of the imposition of the sanction of debarment by the Commission (which crossed over between 2015 and 2016). This triggered two legal complications in terms of retroactivity of most favourable/lenient substantive rules: first, the effect that needed to be given to a reduction in the maximum period of debarment from 5 to 3 years; second, the possibility to neutralise a ground for exclusion on the basis that the affect undertaking had taken sufficient remedial measures demonstrating its reliability (ie had self-cleaned). On top of that, there were procedural complications due to the revised procedures leading to registration in EDES, which currently require a panel opinion that was not part of the pre-2016 procedure for the registration in the Early Warning and Detection System database.

On the procedural point, which the GC examines first, the dispute hinges on the fact that the debarment decision was adopted on 28 January 2016 (which would have required an involvement of the EDES panel, active from 1 January 2016; see para 32), but the Commission considered the administrative procedure 'completed' on 17 December 2015 (thus subjecting it to the 'no-panel' procedure in force until 31 December 2015; see para 34). This ground is ultimately dismissed by the GC on the basis that there is no reason to establish the retroactive application of the procedural rules to investigations started before 1 January 2016, which would 'imply recommencing the preliminary procedure completed properly before that date, in particular having regard to compliance with the adversarial principle' (para 43).

This decision goes against the general principle that new procedural rules that do not contain specific transitional provisions accompanying the fixing of their general application date also apply to on-going/pending procedures (see para 36). The decision is based on an exception to such created in the Judgment of 8 November 2007, Andreasen v Commission, F-40/05, EU:F:2007:189, whereby that rule can be excluded to avoid 'the retroactive annulment of procedures or procedural steps which complied with the rule in force when they were completed' (para 38; see also para 43 of T-151/16).

What I find interesting, though, is that the GC considers that such assessment is not altered '[e]ven if the introduction of that panel was intended to strengthen the rights of the defence of parties contracting with the Union who may be subject to a penalty under the Financial Regulation' (ibid). In my view, this is a very ad hoc finding, which the GC reaches only because it considers the pre-2016 rules already sufficiently protective of individual rights of the affected undertaking, and to have been adequately followed in the specific instance. Had this not been the case (eg, had the previous procedure been seen to fall short of complying with the adversarial principle), the decision by the GC may well have been the opposite. Thus, on this point, the decision of the GC seems difficult to extrapolate to other contexts and the exception that seems to derive from Andreasen and now NC needs to be taken with a pinch of salt.

On the substantive points, first concerning the retroactivity of a more lenient rule allowing for self-cleaning, the GC takes the view that the possibility to self-clean and thus exclude debarment makes the new rules clearly more favourable (para 57). On that basis, the GC takes issue with the fact that the Commission took into account remedial measures for the purpose of setting the duration of the exclusion below the maximum exclusion period (initially at 2 years, later reduced to 18 months) but did not assess it with a view to completely exclude the debarment on the basis of satisfactory self-cleaning. As the GC put it: 'Although the contested decision shows that the remedial measures taken by the applicant were taken into account to determine the duration of the exclusion imposed, no reason is given in that decision as to why those measures were insufficient to satisfy the conditions' for an operator that has taken certain remedial measures demonstrating its reliability not to be excluded from the contracts and grants of the Union (para 58). Second, and along the same lines, on the assessment of the implications of a reduction the maximum debarment period from 5 to 3 years, the GC considers that the new spread of debarment times should have been explicitly taken into account by the Commission (paras 59-60). This eventually leads to an annulment of the debarment decision (para 63).

In my view, this strict approach adopted by the GC on the basis of the guarantees enshrined in Article 49 of the Charter of Fundamental Rights of the EU and interpretive case law (paras 53-55) comes to strengthen the procedural guarantees involved in the adoption of debarment decisions. Extrapolating this to procedures not covered by the rules on EU Institutional procurement, but rather by the 2014 Public Procurement Package and its transposition at domestic level by the Member States, it seems clearer than ever to me that there is a need for the revision of the remedies directive in order to ensure the effectiveness of the same level of protection--as discussed, over a year ago, in A Sanchez-Graells, '"If It Ain't Broke, Don't Fix It"? EU Requirements of Administrative Oversight and Judicial Protection for Public Contracts' (August 11, 2016), to be published in S Torricelli & F Folliot Lalliot (eds), Administrative oversight and judicial protection for public contracts (forthc). Available at SSRN: https://ssrn.com/abstract=2821828.

Could Intel challenge its 1bn Euro fine on grounds of 'corporate human rights'?

After last week's General Court Judgment in Intel v Commission, T-286/09, EU:T:2014:475, the 2 month period for Intel to appeal the confirmation of its 1bn Euro fine before the Court of Justice of the EU on points of law is ticking. I guess that few doubts can be harboured as to the likelihood of such an appeal, given the very significant financial implications for the company. However, the more interesting question is whether Intel will eventually appeal the fine before the European Court of Human Rights on the basis that its 'corporate human rights' have been violated.

 

At first thought, the claims could be two-fold. On the one hand, Intel could argue procedural issues related to the enforcement and decision-making processes at the European Commission (art 6 ECHR, on fair trial). On the other hand, Intel could try to challenge the volume of the fine on the basis of the protection of its right to private property (art 1 protocol 1 ECHR, on property).

 

In my view, such an appeal would be undesirable, but it would at least offer the ultimate test case for the jurisdiction and actual ability of the Strasbourg court to deal with highly-complex (third) competition reviews. I have been arguing that due process rights in competition law enforcement against corporate defendants should be limited [“The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?”, in Kosta, Skoutaris & Tzevelekos (eds), The Accession of the EU to the ECHR, Oxford, Hart Publishing, 2014, forthcoming] and, more generally, together with Francisco Marcos, that 'corporate human rights' should be limited if not totally abolished ["'Human Rights' Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?" (February 2, 2014). University of Leicester School of Law Research Paper No. 14-04]. For previous entries in this blog, see here and here.

 

In a very timely fashion, the June 14(1) Antitrust Chronicle of Competition Policy International [Spring 2014, Volume 6 Number 1] "highlights a number of recent developments adding fuel to the fire: the ECtHR's ruling in Menarini and other cases, whether the concept of a "corporate human rights" principle should be applicable [... and] conclude(s) with an insightful discussion of impartiality" (including a summary of our thoughts, for which Francisco and myself are honoured and grateful).

 

Also in good time, these issues will be soon discussed at ASCOLA's conference on "Procedural fairness in competition proceedings", where Francisco will be presenting our paper. Hopefully, these discussions will shed light on the problems that the (excessive) protection of 'corporate human rights' can create. In our view, a reduction in the effectiveness of both competition law enforcement and human rights protection (for humans) itself.

 

In my personal view, all these debates (and the eventual Intel case before Strasbourg) should result in a significant restriction of corporate human rights protection, if not their abolition. I know that this is not a 'popular' position, so I expect heated debate in the coming months...

Coauthored paper with @pacomarcos: “Human Rights” Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?

There seems to be a clear trend of increased protection of ‘corporate human rights’ and, more specifically, due process rights (or procedural fairness) in the field of enforcement of competition law. To a large extent, that trend is based on the uncritical extension of human rights protection to corporate defendants by a process of simple assimilation of corporate and individual defendants.

 

This new coauthored paper briefly explores the rationale behind the creation of due process rights when the individual is the beneficiary of such protection. It then goes on to critically assess if the same need exists for the extension of those protections to corporate defendants, particularly in the field of competition law or antitrust enforcement. It concludes with some warnings concerning the diminishing effectiveness of competition law prohibitions and of human law protection that can result from an overstretched conception of due process protection in this area of EU economic law.

From a substantive perspective, this paper submits that the extension of human rights to corporations cannot be uncritical and should not be completely symmetrical to that for human beings; but that it rather needs to be necessarily adapted to their circumstances. To put it more bluntly, it is suggested that in the field of the enforcement of economic law, administrative law procedures should be sound and there should clearly be a strong system of judicial review in place, but corporations should not have access to broader constitutional or human rights protections and any perceived shortcomings in the design and application of those procedures should remain within the sphere of regulatory reform.

 

Sánchez Graells, Albert and Marcos, Francisco, “Human Rights” Protection for Corporate Antitrust Defendants: Are We Not Going Overboard? (February 2, 2014). University of Leicester School of Law Research Paper No. 14-04. Available at SSRN: http://ssrn.com/abstract=2389715.

It's for the GC to decide, but it's not ok: CJEU rules on 'excessive duration' of competition law litigation (C-40/12 P)

In a batch of impatiently expected Judgments of 26 November 2012, the CJEU has ruled on the procedural and substantial rules applicable to a claim that (competition law) litigation before the General Court was of an 'excessive duration' and, consequently, breached Article 47 of the Charter of Fundamental Rights of the EU. In my view, this is another instance of a rather convoluted legal construction by the CJEU whereby it rejects its jurisdiction (on formal points), but actually addresses the substantial points in a way that leaves no room whatsoever for the GC when the matter is presented before it for a fresh consideraton--and, consequently, raises the question whether the system is sensibly designed to begin with...

 

In its Judgment in case C-40/12 P Gascogne Sack Deutschland (anciennement Sachsa Verpackung) v Commission, the CJEU has clearly indicated that

89 [...] the sanction for a breach, by a Court of the European Union, of its obligation under the second paragraph of Article 47 of the Charter to adjudicate on the cases before it within a reasonable time must be an action for damages brought before the General Court, since such an action constitutes an effective remedy.

90 It follows that a claim for compensation for the damage caused by the failure by the General Court to adjudicate within a reasonable time may not be made directly to the Court of Justice in the context of an appeal, but must be brought before the General Court itself.

91 As regards the criteria for assessing whether the General Court has observed the reasonable time principle, it must be borne in mind that the reasonableness of the period for delivering judgment is to be appraised in the light of the circumstances specific to each case, such as the complexity of the case and the conduct of the parties (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 181 and the case-law cited).

92 The Court has held in that regard that the list of relevant criteria is not exhaustive and that the assessment of the reasonableness of a period does not require a systematic examination of the circumstances of the case in the light of each of them, where the duration of the proceedings appears justified in the light of one of them. Thus, the complexity of the case or the dilatory conduct of the applicant may be deemed to justify a duration which is prima facie too long (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 182 and the case-law cited).

93 In examining those criteria, it must be borne in mind that, in the case of proceedings concerning infringement of competition rules, the fundamental requirement of legal certainty on which economic operators must be able to rely and the aim of ensuring that competition is not distorted in the internal market are of considerable importance not only for an applicant itself and its competitors but also for third parties, in view of the large number of persons concerned and the financial interests involved (see, in particular, Der Grüne Punkt – Duales System Deutschland v Commission, paragraph 186 and the case-law cited).

94 It will also be for the General Court to assess both the actual existence of the harm alleged and the causal connection between that harm and the excessive length of the legal proceedings in dispute by examining the evidence submitted for that purpose.

95 In that regard, it should be noted that, in an action for damages based on a breach by the General Court of the second paragraph of Article 47 of the Charter, in so far as it failed to have regard to the requirement that the case be dealt with within a reasonable time, the General Court must, in accordance with the second paragraph of Article 340 TFEU, take into consideration the general principles applicable in the legal systems of the Member States for actions based on similar breaches. In that context, the General Court must, in particular, ascertain whether it is possible to identify, in addition to any material loss, any other type of harm sustained by the party affected by the excessive period, which should, where appropriate, be suitably compensated.

96 It is therefore for the General Court, which has jurisdiction under Article 256(1) TFEU, to determine such claims for damages, sitting in a different composition from that which heard the dispute giving rise to the procedure whose duration is criticised and applying the criteria set out in paragraphs 91 to 95 above (C-40/12 P at paras 89-96, emphasis added).

So far, the general framework depicted by the CJEU makes sense and, even if it creates a potential problem of conflict of interest derived from the 'self-assessment' required from the GC (despite its seating in a different composition), the remedy is clearly outlined and the material or substantive conditions that should be taken into account are also spelled out in a relatively easy to apply test (although some deference towards lengthy competition litigation seems to be readable between the lines).

 

However, the temptation ends up being too strong and the CJEU, maybe aware of the intractability of that conflict of interest, cannot refrain itself from actually settling the matter (despite concluding it has to reject the ground for appeal!). Hence, the CJEU carries on to make clear that

97 That said, it must be stated that the length of the proceedings before the General Court, which amounted to approximately 5 years and 9 months, cannot be justified by any of the particular circumstances of the present case.

98 It is apparent, in particular, that the period between the end of the written procedure, when the Commission’s rejoinder was lodged in February 2007, and the opening, in December 2010, of the oral procedure lasted for approximately 3 years and 10 months. The length of that period cannot be explained by the circumstances of the case, whether it be the complexity of the dispute, the conduct of the parties or supervening procedural matters.

99 As regards the complexity of the dispute, it is apparent from examining the action brought by the appellant, as summarised in paragraphs 12 and 13 above, that, while requiring a detailed examination, the pleas relied on did not present any particular difficulties. Although it is true that around 15 addressees of the contested decision brought actions for its annulment before the General Court, that fact could not prevent it from scrutinising the documents in the case and preparing for the oral procedure within a period of less than 3 years and 10 months.

100 It must be pointed out that, during that period, the procedure was not interrupted or delayed by the adoption of any measures of organisation of procedure by the General Court.

101 As regards the conduct of the parties and supervening procedural matters, the fact that the appellant requested, in October 2010, the reopening of the written procedure cannot justify the period of 3 years and 8 months which had already elapsed since it was closed. In addition, as the Advocate General observed in point 134 of her Opinion, the fact that the appellant was notified in December 2010 that there would be a hearing in February 2011 shows that that procedural matter had only a minimal effect on the overall length of proceedings, or even no effect at all.

102 In the light of the foregoing, it must be found that the procedure in the General Court breached the second paragraph of Article 47 of the Charter in that it failed to comply with the requirement that it adjudicate within a reasonable time, which constitutes a sufficiently serious breach of a rule of law that is intended to confer rights on individuals (Case C-352/98 P Bergaderm and Goupil v Commission [2000] ECR I-5291, paragraph 42).

103 It is, however, clear from the considerations set out at paragraphs 81 to 90 above that the fourth ground of appeal must be rejected (sic) (C-40/12 P at paras 97-103, emphasis added). 

In my view, even if there is no question that the formal treatment of the claim for damages (ie the ground for appeal) is correct, the fact that the CJEU felt the urge to settle the matter from a substantive perspective shows that the attribution of the competence to hear cases concerned with the excessive duration of litigation before the GC to the GC itself (albeit in a different seating) makes poor sense and is likely to result in almost 100% of cases in a further appeal before the CJEU.

 

To be fair, if the CJEU assumed the competence from the beginning, other problems derived from a single-step or one-shot system where the claims would be shielded from potential appeals would also arise. So, it looks like we may be facing one of those areas where a clear limitation of the institutional design of the EU Courts seems apparent and where pressure for the future potential referral of the cases to the Strasbourg Court may be felt.

 

However, as indicated yesterday when commenting a timely editorial opinion of Advocate General Sharpston (here), it may well be that the granting of excessive procedural rights to competition law defendants end up in an unmanageable workload for the EU Courts (as well as for the European Court of Human Rights) and, consequently, a deeper revision of the system seems necessary [see my further developed aruments in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?].

"You have been warned": AG Sharpston's concerns should be sorted out differently

In an interesting and provocative editorial comment entitled 'Effective Judicial Protection through Adequate Judicial Scrutiny—Some Reflections' [Journal of European Competition Law & Practice (2013) 4(6): 453-454], Advocate General Eleanor Sharpston comments on the difficulties that the Court of Justice of the EU faces in its endeavor to uphold the right to effective judicial protection enshrined both in the European Convention of Human Rights (art 13) and in the Charter of Fundamental Rights of the European Union (art 47)--which, in competition law enforcement, also involves some due process guarantees of Article 6 ECHR.

 

Basically, AG Sharpston is concerned with whatever can be done to ensure that effective judicial review of competition law sanctions does not produce unreasonable delay and thus defeats the purpose of the exercise.

 

By reference to recent cases in which the review conducted by the General Court has been challenged on the basis of the fundamental right to obtain judicial review within a reasonable time, AG Sharpston offers a rather detailed account of the practical difficulties and burdens derived from the way the EU Courts work and explores potential avenues of (institutional) reform that could alleviate those constraints. Maybe not surprinsingly, after considering that incremental change (or change by means of internal reform) has clear limits, AG Sharpston suggests that the EU Courts (particularly the General Court) should grow in terms of available judicial manpower and that the members of the EU Courts should be given more continuity and stability in their appointments. A political economy analysis of these proposals may be interesting (is it not in the essence of any institution to aim to grow and perpetuate itself?), but is not what I consider more interesting after reading the editorial. I think that there are two elements in AG Sharpston's reflections that deserve some emphasis.

 

On the one hand, I think that this is a case that shows the need for some clear boundaries in what active members of the judiciary in its highest ranks, such as an Advocate General, may say and publish. There is a clear need for them to thread lightly and think carefully about the (personal) opinions that they decide to make public. I say this because, in a very provocative passage, AG Sharpston advances a 'creative' solution to the problem of the excessive workload of the EU Courts in the following terms:

the advocate pleading competition cases before the EU courts, or the in-house adviser analysing the merits of challenging a Commission decision or lodging an appeal—can also make a major contribution towards ensuring that the courts function effectively and smoothly and can deliver effective judicial review. Please (I beg you) consolidate your arguments and only run with the points that have some real substance to them. Don't put in an application with six grounds of appeal, each divided into several sub-points (you know, and I know, that not all are of equal merit!). Please plead succinctly and clearly (think of translation!) and please don't throw in an additional 600 pages of annexes in case something there might help to swing the case your way. And, by the way: please don't appeal a clearly hopeless case to the Court of Justice just to show the client that you've tried everything you can. We too are worried about our workload—particularly the part of that workload that consists of wholly unmeritorious or manifestly inadmissible appeals—and we are looking at ways to streamline how we deal with such cases. You have been warned.

This half friendly, half jokingly-made warning may not be totally void of an underlying truth (in some cases at least), but many (myself for one) may see it as rather confrontational and such undercover criticisms of the bar may not sit well with non-UK practitioners. Moreover, it may put the Advocate General in a difficult situation when she has to intervene in cases where she may want to consider the claims unmeritorius (surely, if everybody is warned, she may feel more at ease to hand down rather blunt opinions, won't she?).

 

But, more importantly, I think that AG Sharpston is caught in the 'thinking inside the box' approach that she somehow criticises when she dismisses the potential for incremental change (or change by means of internal reform) to contribute to alleviate the current (permanent?) excessive workload of the EU Courts. Most of her views, and those expressed more generally by the CJEU when it comes to the interpretation and application of Articles 6 & 13 ECHR or 47 CFREU derive from the premise that

'[These rights are] increasingly frequently invoked by individuals claiming individual rights under EU law. [They are], however, no less a right for ‘undertakings’ (ordinary businesses) who fall foul of the competition rules and who find themselves on the receiving end of adverse decisions' (emphasis added).

I beg to fundamentally disagree with AG Sharpston on this crucial point. As I submitted in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?, undertakings (or companies) deserve a relatively more limited protection than individuals under the ECHR and, more specifically, under Article 6(1) ECHR—at least as regards non-core due process guarantees, such as the standard of review applicable to the revision of competition law decisions. In my opinion, only by acknowledging this and redimensioning the procedural guarantees granted to undertakings can the system be made manageable and the workload of the EU Courts rationalised and focused in areas of EU Law that require more effort and investment in terms of (human capital, judicial) resources. By following in the path dependence of granting undertakings full protection (ie implicitly, by making them beneficiaries of 'corporate human rights'), the problems can only become more and more intractable.

 

This is an issue on which I am conducting further research (which I hope to be able to publish soon) but, for the time being, suffice it to say that I consider AG Sharpston's editorial comment a clear indication of the fact that the CJEU does not seem to be aware that it is putting a nose around its neck by part-taking in the inflation of 'corporate human rights'--just as it is doing by favouring the hypertrophy of the preliminary reference mechanism, as already criticised here. If it wants to be part of the solution, maybe it could well start by minimising the problem.

Missed opportunity for the CJEU to confirm 'non bis in idem' in State aid enforcement (C-560/12 P and C-587/12 P)

In contrast to its very recent Judgment in case C-77/12 P Deutsche Post, where the CJEU clearly barred the European Commission from adopting an indefinite number of 'follow up' decisions concerned with a single State aid investigation (in what I read as an incipient 'ne bis in idem principle' in State aid enforcement); in its  twin Judgments of 7 November 2013 in case C-560/12 P Wam Industriale v Commission and in case C-587/12  P Italy v Commission (only available in French and Italian), the CJEU has brushed aside a similar argument on the basis of its insufficient development by the appellant (C-560/12 P) and (implicitly) on the basis of the lack of independent legal effects of the fresh assessment carried out by the European Commission of the evidence on file after the initial decision had been quashed at judicial review (C-587/12 P). In my view, the Deutsche Post and (the set of) Wam Judgments are difficult to reconcile

 

In Wam, the European Commission had adopted a 2004 decision declaring the unlawfulness of State aid granted by the Italian State to support market expansion projects in Japan, Korea and China. After the quashing of the Commission's 2004 Decision by the GC in 2006 (T-304/04 and T-316/04) and the confirmation of that decision in 2009 by the CJEU (C-494/06), the Commission adopted a new incompatibility Decision in 2010.

 

In its challenge against the Commission's 2010 Decision (C-560/12 P), Wam argued that

the contested [2010] decision is not [merely] vitiated either by a 'procedural irregularity' or a 'formal defect', since the failure to state reasons does not constitute such a defect, but it rather lacks an "essential element", which effectively determines its nullity. In this case, therefore, there is a subjective claim preclusion between the parties [res iudicata] and, accordingly, the Commission, being under the obligation to give effect to the judgments of the Court in Italy and Wam v Commission [T-304/04 and T-316/04] and Commission v Italy and Wam [C-494/06], could not "in any way have adopted a new decision on the matter". The Court should therefore "for this [reason] only", have annulled the contested decision (C-560/12 P, para 6, own translation from Italian).

The argument sounds very similar to the one raised by Deutsche Post (although in that case the 'follow up' decision was not concerned with a full reassessment of the same measures, but with a fresh assessment of measures not expressly considered in the initial Decision eventually quashed), which the CJEU analysed in detail and actually backed in C-77/12 P.

However, in Wam the CJEU does not show the same appetite for the development of a strong limit on the Commission's ability to reopen a case after losing it on appeal (a sort of procedural estoppel or ne bis in idem), and dismisses the argument on the (very formal basis) that

15 By the first part of the first plea, it should be noted that the applicant merely submits that, for the mere fact [of the existence of] the judgments of the Court in Italy and Wam v Commission and Commission v Italy and Wam, the Commission would have been in any case precluded from adopting a new decision.
16 In that regard it should be noted that the argument concerning that matte is limited to a dozen lines on pages 26 and 27 of the appeal, the substance of which is taken up in paragraph 7 [sic, 6] of this judgment.
17 However, such an argument, marred by a lack of precision, clearly does not fulfill the conditions laid down in Article 169, paragraph 2, of the Rules of Procedure of the Court. Consequently, it must be rejected as inadmissible (C-560/12 P, paras 15-17, own translation from Italian).

In my view, in adopting this approach, the CJEU has been too keen to take an easy way out and has missed an opportunity to reaffirm and give further guidance on the limits applicable to the reopening of State aid investigations by the European Commission. However, the CJEU does look into more detail to a similar submission made by Italy in the other Judgment concerned with the same State aid measures, of the same date (C-587/12 P).

According to the Italian Republic,

7 [ ...] the Court erred in holding that the Commission did not have an obligation to open a new contradictory investigation procedure with the national authorities. Contrary to what the Court found, the point would not have been to establish, in general and in theory if, after a judgment of annulment for failure to state reasons, the Commission could or could not take up the procedure from the adoption of the [annulled] act.
8 The Italian Republic considers that, given that the Commission has "renew[ed] completely" the examination of all matters in the contested decision, introducing new facts, it has hence recognized that the "defects criticized", despite being considered as defects of the duty to state reasons, actually had substantial implications that made ​​it necessary to "redo from scratch" the 2004 decision.
9 The Italian Republic considers that the [...] factual elements consisting of the alleged "relative strengthening" of Wam and the alleged "freeing up of resources" could never have been deducted from the [initial] investigation procedure. Consequently, them being decisive elements for the demonstration of the existence of aid, the Commission should have opened a new adversarial procedure with the parties concerned [...]
10 The Commission claims that the first part of the first plea is unfounded. It points out that the annulment of the 2004 decision was based on a lack of motivation because [...] that decision did not explain in what way the aid in question could affect competition and trade between Member States. On the contrary, the Court failed to criticize the inquiry into the matter as carried out during the administrative procedure, nor did it identify any deficiency in this regard (C-587/12 P, paras 7-10, own translation from Italian).

The CJEU sides with the European Commission in the following terms:

11 It should be remembered that in the judgment of the Court in Italy and Wam v Commission as well as in the judgment in Commission v Italy and Wam, the investigation conducted by the Commission on the aid in question was not at all criticized.
12 [...] the General Court correctly pointed out that, according to settled case-law, the procedure for replacing an unlawful act that has been cancelled can be resumed at the point at which the illegality occurred, that the cancellation of a Union act does not necessarily affect the preparatory acts and, furthermore, that the annulment of an act that puts an end to an administrative proceeding which comprises several stages does not necessarily entail the annulment of the entire procedure prior to the adoption of  the contested measure for whatever reason, procedural or substantive, taken into account in the judgment of annulment.
13 [...] the Court also correctly pointed out that if, despite of the investigations that enable a comprehensive analysis of the compatibility of the aid, the Commission's analysis is found to be incomplete, and it involves the illegality of the decision, the procedure for replacing such a decision may be resumed at that point making a new analysis of the investigatory measures.
14 As regards the present case [...] the Court stated that the illegality of the 2004 decision [...] concerned the inadequate statement of reasons thereof. [...] the Court has, in fact, merely stated that this decision did not contain sufficient arguments that would allow the conclusion that they met all the conditions for the application of Article 107, paragraph 1, TFEU which was confirmed by the Court in its judgment in Commission v Italy and Wam. The illegality of the 2004 decision did not affect the proceedings before it. No argument leads to the conclusion that that procedure was, in itself, vitiated by any illegality.
15 As to the argument put forward by the applicant's claim that the Court failed to take account of the fact that the Commission has completely revisited the examination of all the evidence in the file and introduced new elements, it should be noted that this argument is not supported by anything which could demonstrate a misrepresentation of the facts relating to it by the Court.
16 As regards the applicant's claim that the Court, in the remainder of its reasoning, ignored any arguments to refute the conclusion set out in paragraph 50 of the judgment under appeal, the Court notes that, in paragraph 57 of that judgment, the Court stated that the circumstances relating to the strengthening of Wam's position and the release of resources were correctly assessed in the contested decision. The Court added in such a point that, in any case, it was not new factual circumstances, but considerations arising from the analysis of the Commission, based on elements with respect to which nothing allowed it to believe that they were not known at the time when the decision was taken in 2004. [...]
19 In these conditions [...] the General Court correctly concluded that the execution of the judgment of the Court in Italy and Wam v Commission and the judgment in Commission v Italy and Wam did not require the Commission to take on again the whole process provided for in Article 108 TFEU and that the Commission had erred, as a result of the same judgment, by not initiating a new formal investigation procedure.
20 The first part of the first plea is therefore unfounded (C-587/12 P, paras 11-20, own translation from Italian, emphasis added).

In my view, this is contradictory with Deutsche Post. There, the CJEU basically prevented the Commission from conducting a fresh (additional) assessment of the facts already contained in the file because, even if they were present from the beginning and known by the parties, because the initial decision adopted had exhausted the procedure and closed the investigation completely. Following the same line of reasoning, the Judgment in Wam should have been pointing in that direction by preventing the Commission from adopting a fresh 'theory of harm' on the basis of the facts already on file, as that would equally alter the legal position of the parties and would disregard the fact that the Commission had completely closed the investigation when adopting the initial (now quashed) incompatibility decision.

 

Effectively, Deutsche Post denied the Commission a second bite of the cherry, whereas Wam basically (potentially) allows for multiple bites. I find this inconsistency insatisfactory and, as I said already I would advocate for an approach where once a measure has been analysed and the Commission reaches a final decision, then the same measure should not be subjected to additional enquiries and no new findings of incompatibility should be acceptable.

 

In maybe more blunt terms, the Commission should have one shot (and only one) at each controversial State aid measure, in order to protect legal certainty and as an (implicit) requirement of the principle of good administration.

 

Overall, I would consider such a general principle a positive development in EU State aid law. It remains to be seen, however, whether there is true CJEU appetite for such a development.

"Ne bis in idem" in State aid control? CJEU quashes Deutsche Post decision (C-77/12 P)

In its Judgment of 24 October 2013 in case C-77/12 P Deutsche Post v Commission, the Court of Justice of the EU quashed a Judgment of the General Court (T-421/07) and (indirectly) questioned a decision taken by the European Commission concerning the State aid granted by Germany to Deutsche Post in the 1990s. The Commission had adopted an initial negative decision in 2002 (ultimately quashed by the CJEU in C-399/08 P) and, following a request by the initial complainants to look into the matter in more detail, it decided to extend the scope of the original investigation in a 'follow-up' enquiry carried out in 2007 (while the GC was still considering the legality of the original negative decision).

 

Germany challenged the decision of the European Commission on the general basis that, contrary to its allegations, this 'follow-up' enquiry would alter the legal effects of the initial decision (now annulled) and that such an enforcement strategy would be against the most fundamental principles of due process and good administration.

 

The GC (T-421/07) took no issue with the opening of the 'follow-up' investigation, as it considered that such a decision did not alter the legal standing of the State aid measures under investigation, since they had already been flagged as potentially illegal in the initial decision to open an investigation that the Commission adopted in 1999 (and regardless of the fact that they were not included in the original negative decision of 2002). In even more controversial terms, the GC brushed aside the argument that the annulment of the 2002 negative decision should also be taken into consideration in order to bar any 'follow-up' investigation that ultimately had the same origin. As the CJEU summarises,

In addition, the [General] Court observed in paragraphs 77 and 79 of the contested judgment, that this conclusion is not undermined by the judgment in Deutsche Post / Commission [...]. Indeed, this decision did not rule on the question whether the formal investigation procedure initiated in 1999 in respect of the disputed measures has been closed. The Court further considersed that this decision had the effect of retroactively eliminating the 2002 negative decision, so that "this decision can in no way affect the conclusion that the 2002 [negative] decision had no impact on the existence of any independent legal effects generated by [the contested decision] (C-77/12 P at para 37, own translation from French).

On the basis of those considerations, the GC considered that the 2007 decision to carry out a 'follow-up enquiry' was not open to an annulment action under Article 263(4) TFEU and, consequently, dismissed Deutsche Post's challenge. The CJEU has taken a different view.

 

I find it interesting to stress that the CJEU has argued that:

52 As regards, in particular, the binding legal effects of a decision to initiate the procedure provided for in Article [108], paragraph 2 [TFEU] with respect to a measure running and qualified as new aid, such a decision necessarily changes the legal status of the measure, as well as the legal position of the beneficiaries, particularly in regard to its implementation. After the adoption of such a decision, there is at least a significant doubt about the legality of this measure, which must lead the Member State to suspend the payment, since the opening of the procedure laid down in Article [108], paragraph 2 [TFEU] excludes an immediate decision on the compatibility with the common market that would allow for the regular execution of the measure. Such a decision could be invoked before a national court called upon to draw all the consequences of the violation of Article [108], paragraph 3, last sentence, [TFEU]. Finally, it is likely to lead beneficiaries of the measure to refuse in any event new payments or to provision the necessary funds for any subsequent repayments. The beneficiaries will also be affected in their relations with other agents, which will take into consideration the weakened legal and financial situation of the former (see judgment of 9 October 2001, Italy / Commission, C-400/99, Rec . P. I- 7303, paragraph 59).

53 It should be added that […] such a decision to open an investigation with respect to a measure that the Commission describes as new aid is not simply a preparatory step in that it has independent legal effects, particularly with regard to the suspension of the measure under consideration.

54 In this case, it should be noted that […] in the contested decision, the Commission qualified as new aid the transfer payments made by DB-Telekom and the system of public guarantees. Furthermore, as regards the public pension fund, this institution has expressed its doubts about the extent to which this funding granted an economic advantage to [Deutsche Post]. The Commission also pointed out […] that Germany was under the obligation to suspend the measures challenged by the decision.

55 It follows that the 2007 opening decision is an act that is likely to affect the interests of [Deutsche Post] by altering its legal status and, therefore, it meets all the elements of an act within the meaning of Article [263 TFEU].

56 Contrary to what the Court considered […] that finding is not challenged by the existence of the decision to open an investigation in 1999, by which the Commission opened the procedure laid down in Article [108], paragraph 2 [TFEU] in respect of a series of measures being implemented.

57 Indeed, it is clear that, in any event, the Commission, by its negative decision of 2002, closed the formal investigation procedure in 1999.

58 In this regard, it should be noted that the Commission dealt in its negative decision of 2002, of all the measures challenged by the opening 1999 decision, as argued rightly [Deutsche Post] (C-77/12 P at paras 52-58, own translation from French, emphasis added).

Even if this may not be the end of the story in this particular case, which has been sent back to the GC, I think that the principle established by the CJEU could be read as a sort of 'ne bis in idem' in the area of State aid enforcement. Once a measure has been analysed and the Commission reaches a final decision, then the same measure should not be subjected to additional enquiries and no new findings of incompatibility should be acceptable.

 

In maybe more blunt terms, the Commission has one shot (and only one) at each controversial State aid measure, in order to protect legal certainty and as an (implicit) requirement of the principle of good administration.

 

Overall, I would consider such a general principle a positive development in EU State aid law. It remains to be seen, however, whether this reasoning is only case-specific or the CJEU is willing to flesh out such a general principle in even clearer terms, should the opportunity arise in the future.

UK's Competition Commission findings on private healthcare markets unfair, says UK CAT

The UK's Competition Appeals Tribunal has disapproved the Competition Commission's provisional findings on private healthcare markets published at the end of August 2013 (see CPI press release here). 

 

In its Judgment of 2 October 2013, the UK CAT found that "the Commission’s rules governing the disclosure room were not fit for the purpose of allowing a proper and informed response to be made to the Commission’s provisional findings. Accordingly, the decision was in breach of the Commission’s statutory duty in section 169 of the Enterprise Act 2002 and in breach of the rules of natural justice". In my view, the path through which the UK CAT reaches this decision deserves some attention.

 

Generally, the UK CAT finds no fault in the design of the access to confidential information by means of a data room: "We do not consider that the decision of the Commission, in this case, to protect the Confidential Information by way of a data room instead of one or more of the other ways contemplated in paragraph 9.14 of the CC7 Guidance, to be susceptible of criticism. We accept the Commission’s view that the confidential material in this case was extremely sensitive and, in all the circumstances, the decision to protect the "specified information" in this case by way of a data room is unchallengeable on a judicial review basis." (para 49).

 

However, the UK CAT takes issue with the specific rules on access to the data room that the Commission imposed, which restricted access to the legal and economic advisers of the undertakings concerned and which prevented them from taking copies of the information (and only notes, subjected to scrutinity and redaction by the Commission could be retained). In the UK CAt's view:

62. The short conclusion is that consideration by the Applicants of the Confidential Information is the starting point for examining what fairness requires. It will be the Applicants who will be affected by any adverse decision of the Commission, not their advisers. Implicit in this starting point is the fact that it is for the Applicants to decide how they wish to respond. In cases like the present, doubtless that will involve the retention of an expert legal team, and expert economists and accountants. But, at the end of the day, what the "interested person" (we shall use this term as shorthand to refer to parties like the Applicants, who may be affected a decision, and who are entitled to be consulted on it) chooses to do to respond is a matter for that person, and not for that person’s legal or advisory team, still less for the body whose provisional decision is being responded to. [...]

63. This starting point may be modified and derogated from to take account of the confidential nature of the information in question. We recognise that market investigations involve – as here – considerable amounts of very confidential material, and that if that material is not appropriately safeguarded, confidence in Commission investigations will be eroded and – quite possibly – damage done to the operation of markets because of the market sensitivity of the information involved. But it must always be borne in mind that derogations from the starting point that we have identified must be such as to enable the party affected to respond.

67. A data room operates very differently from a confidentiality ring. Not only is access to the room limited to a defined class of person (in this, data rooms are similar to confidentiality rings), but also the confidential information is retained at a secure location – in the data room. This prevents the sort of accidental disclosure of confidential information that can occur in the case of confidentiality rings.

68. Use of a data room will certainly involve additional inconvenience to an interested party and its advisers. It may well mean more than this: it may mean that the drafting of a response is made materially more difficult. But this additional burden can be justified provided:

(i) the sensitivity of the material in question warrants it; and (ii) the interested person is still – despite the additional difficulties – able to make worthwhile representations [...]

69. This means that where a data room is deployed to protect sensitive information, there must be facilities available in the data room so as to enable a proper and informed (or "worthwhile") response.

After setting this background, the UK CAT considers that the rules governing the Competition Commission were faulty in three main aspects. First, "confining the Advisers to recording in their notes only Own Client Data or information derived solely from Own Client Data and/or from data in the public domain is wrong in principle" (para. 71), despite the fact that, informally, the Commission decided to oversee breaches consisting of the taking of notes concerned with other confidential information and to treat them as further disclosures of evidence (para. 58). Secondly, the UK CAT criticises the fact, that while at the data room, advisors were not provided with means to draft a response to the confidential information they could not take away (para. 72). Finally, the UK CAT considers that "the period of time in which the Advisers were allowed access to the Disclosure Room [ie 2 working days] was unreasonably short" (para. 73).

Interestingly, the UK CAT also expressly dismissed the Commission's argument that the applications against its (process leading to its) provisional findings were premature and rejected the contention that the Commission could cure any shortcomings in the access to confidential information during the remainder of the procedure (or, indeed, even after releasing the provisional findings, as they are still under review and the Commission has until April 2014 to publish its final findings and recommendations). The UK CAT considered that an initial restriction to the amount of information and the conditions for access to that information by counsel of some of the main players involved in the market investigation suffices to taint the procedure with unfairness. However, the UK CAT made no finding as to the appropriate relief and waits for the parties to request a hearing, if needed.

 

In my view, this is a case where 'due process' rights have been upheld to the highest possible level (maybe even to excess), and even in a setting that is not properly leading to the imposition of fines, but more of a regulatory exercise. Instances such as these may become even more common after the EU accedes the EU Convention on Human Rights and, if not properly weighed, may create a significant burden for competition law investigation and enforcement [for general discussion, see my "The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?"].

 

Therefore, it will be interesting to see whether the Competition Commission's investigation in this sector can proceed after this significant blow by the UK CAT and, if so, whether the UK Competition Commission amends significantly its rules on access to evidence. The knock-on effect of this case on 'proper' competition law investigations in infringement procedures by the new Competition and Markets Authority (or the European Commission, as a spillover and due to the anglosaxon influence in Luxembourg) seems hard to predict, but I would submit that it will not be neutral.

Soft Administrative #EULaw? Some comments on Temple Lang's views on #DGComp Manual of Procedure

Prof. Temple Lang has published an interesting assessment of the European Commission's Antitrust Manual of Procedures: 'The strengths and weaknesses of the DG Competition Manual of Procedure' (2013) Journal of Antitrust Enforcement 1-30. In his very detailed account, Temple Lang identifies a rather lengthy list of shortcomings of the Manual. The most relevant are that:

The Manual does not deal with submissions made to other parts of the Commission. It says nothing about the need for impartiality, or the duty to respect the Charter of Fundamental Rights, or the need to expect judicial review of all decisions. It allows officials to hold meetings without keeping minutes. It says too little about interim measures, and does nothing to reduce the two basic flaws in the Commission's procedure: the same officials draft the statement of objections and the decision, and none of the Commissioners who formally take the decision have seen the evidence or read the arguments. There are several examples of failure to deal with difficult questions, which are precisely those on which guidance is needed.

Certainly, as Temple Lang further elaborates in the paper and despite the general administrative practices of DG Comp meeting a high standard of procedural requirements, there are some shortcomings that, given the increasing transparency of the competition investigation procedures, will most likely lead to actions for judicial review. 

Even if the Manual is only adopted as guidance (and only after the Commission was forced to do so, precisely as a result of Temple Lang's request to access the document under Regulation 1049/2001), it is easy to see how its content, its shortcomings and any instances of non-compliance will be exploited to the furthest possible extent by defendant companies, despite the Commission stressing that 'the fact that the [Manual is] in the public domain does not change [its] character as purely internal guidance to staff. The published modules therefore do not create or alter any rights or obligations arising under the competition rules of the Treaty' (which remains to be seen). As Temple Lang rightly points out 'It seems [...] that companies will be able to claim that they have legitimate expectations that their cases will be dealt with in accordance with the Manual, and that they will be treated equally in whatever way the Manual provides' (p. 15). Therefore, a proper understanding of the content of the Manual and a future correction of its shortcomings are much needed in order to avoid excessive litigation--potentially, on the basis of formalities without significant impact on the outcome of the cases (as Temple Lang acknowledges in p. 26).

In Temple Lang's view, the Manual is particularly lacking as regards the regulation of due process and impartiality, and he raises the issue that the 'principle of good administration' is not expressly discussed, whereas 'this is a legal rule with legal consequences and not merely an administrative standard' (p. 5). This point is relevant. However, the Manual does refer (once...) to the Code of Good Administrative Behaviour, which does analyse and impose compliance with the principle of good administration on all staff of the European Commission [see J Mendes, ‘Good Administration in EU Law and the European Code of Good Administrative Behaviour’, EUI Working Paper Law 2009/09]. A similar criticism is raised by Temple Lang in relation with the duty of sincere cooperation in Article 4(3) TEU (pp. 24-25), but it may equally be counter argued that this is an issue that applies across the broad and that DG Comp staff must know about it as a matter of general training.

Similarly, Temple Lang criticizes that the Manual fails to remind DG Comp officials about the Charter of Fundamental Rights and the European Convention of Human Rights, particularly as regards 'the possibility and intensity of judicial scrutiny' (p. 5). In this regard, the silence in the Manual may be understandable, given the heated debate that surrounds this issue [as I already discussed here]. I agree with Prof. Temple Lang that 'an introduction to the Manual calling attention to the Charter and the fundamental principles of due process would add much to the stature of the document, and to the professionalism of its approach' (p. 5). However, I also see how drafting such an introduction could backfire and could come to restrict the Commission's space for manoeuvre, particularly on the basis of the hardening of such soft law instruments due to the extensive application of the principle of legitimate expectations. Therefore, maybe such omission is not that negative after all.

Other than on these matters of principle, where the position of the Commission may be more justifiable than in Temple Lang's view, the rest of the detailed assessment that he carries out is very accurate and practically oriented, and definitely offers lessons and valuable recommendations for the review of the Manual--which the European Commission has endeavored to undertake 'from time to time'. As Temple Lang suggests, it would be desirable that they do so rather soon, and that they open a proper public consultation along the way. After all, every improvement that can be introduced in the procedures of the European Commission will increase the quality of its Decisions and will reduce the need for judicial scrutiny (as Temple Lang stresses in p. 21, with reference to the case law of the ECtHR)--and, consequently, is a worthy effort.

More generally, the publication of the Manual and the controversies that may arise from it come to support the need for a further development of a consistent set of 'hard' EU Administrative Law rules, particularly as regards infringement procedures against private parties, not only in Competition Law (as Temple Lang also supports, pp. 27-28). In that regard, there are some interesting projects carried out by the members of ReNEUAL.

If you fine me, I have the right to appeal ~ even if someone else foots the bill (C-652/11)

In its Judgment of 11 April 2013 in case C-652/11 Mindo, the Court of Justice of the EU (CJEU) has reversed a prior Judgment of the General Court (GC) whereby it denied active standing to appeal a competition fine to an undertaking that was jointly and severally liable for its payment, on the basis that the other jointly liable party had already paid the fine in full and had not seeked recovery of any amounts for a period of 5 years.

The CJEU Judgment is interesting because it comes to set the general principle that, as long as there is a possibility of being made to pay the amount of the fine (fundamentally, because the claim is not time-barred and there are no specific indemnity agreements between the jointly liable parties), there is always a residual benefit for the undertaking to appeal the fine.

I think that the Mindo Judgment must be welcome and the CJEU has rightly quashed the prior GC ruling, which was basically relying on a set of 'factual' assumptions that were too far fetched. As the CJEU clearly emphasises, the GC erred in law in assuming that, by simply waiting to claim, Mindo's co-debtor had waived its right to seek reimbursement of the fine (particularly in a scenario where there was a pending appeal and, on top of that, Mindo had filed for bankruptcy and was under administration in accordance with Italian law--which justify the 'wait and see' strategy adopted).

However, I think that the CJEU could have even gone one step further and set the broader principle that the addressee of a fine is always entitled to appeal it if there are sufficient legal grounds, regardless of who ends up paying the fine. Otherwise, in cases where there is a dissociation between the fined undertaking and the payee of the fine (not necessarily due to their joint liability), it could be that no one has standing to appeal. 

The CJEU ducked this issue by not addressing the second ground of appeal, submitted in the alternative, where it was alleged that denial of active standing to appeal would infringement Mindo’s right to a fair trial. The fact that the CJEU did not address this issue derives probably only from the fact that it was presented in the alternative. However, given that the CJEU made no reference to the right of a fair trial, this can also be read as an exercise of certain self-restraint on the part of the Court, and as an attempt to open that Pandora's box only when necessary (since, indeed, the extension of fair trial rights to companies in the setting of EU competition law is not without problems, as I have discussed in The EU’s Accession to the ECHR and Due Process Rights in EU Competition Law Matters: Nothing New Under the Sun?). Be it as it may, in general terms, the referral of the case back to the GC should be welcome.

Again on the protection of confidentiality in procurement evaluation: A step forward? (T-339/10 and T-532/10)

In its Judgment of 29 January 2013 in Joined Cases T‑339/10 and T‑532/10 Cosepuri Soc. Coop. pA v European Food Safety Authority (EFSA), the General Court has ruled again on the topical issue of the protection of confidentiality and business secrets in tender evaluation--and, in principle, has shown a more balanced approach than in previous Judgments concerned with transparency at debriefing stage. 

However, in my opinion, the case law in this area still falls short from guaranteeing a proper balance between transparency and protection of business secrets and continues to promote excessive disclosure.

In the case at hand, Cosepuri challenged the EFSA's evaluation procedure on the basis of the confidential treatment of financial assessment. The GC has taken no issue with the degree of confidentiality imposed by EFSA, but on a series of grounds that still seem (partially) inadequate:

32 First, the applicant calls into question the fact that Part II.8.2 of the tender specifications provided that the tender evaluation procedure was to be confidential. It should be noted in that regard that the applicant has the right to challenge, as an incidental plea, the lawfulness of the specifications in the present action (see, to that effect, Case T‑495/04 Belfass v Council [2008] ECR II‑781, paragraph 44). […]

33 Article 89(1) of the Financial Regulation provides that all public contracts financed in whole or in part by the budget are to comply, inter alia, with the principle of transparency. In the present case, it must be noted that Part II.8.2 of the specifications, which provides that the procedure for the evaluation of the tenders is to be conducted in secret, satisfies the requirement of preserving the confidentiality of the tenders and the need to avoid, in principle, contact between the contracting authority and the tenderers (see, on this point, Article 99 of the Financial Regulation and Article 148 of the Implementing Rules). The principle of transparency, referred to in Article 89(1) of the Financial Regulation, which is invoked by the applicant, must be reconciled with those requirements. Accordingly, there is no basis on which it can be concluded that Part II.8 of the specifications is vitiated by unlawfulness.

34 Second, the applicant challenges the fact that it was not able to ascertain the price proposed by the successful tenderer. In particular, the applicant states that EFSA ensured that it would not be possible for any subsequent verification to be carried out by redacting from the evaluation report the price offered by the successful tenderer. In that regard, without there being any need to rule in the present case on whether the price proposed by the successful tenderer formed part of the information which the contracting authority should have communicated to the unsuccessful tenderers (sic), it is clear from the evidence submitted that the applicant was in a position to ascertain the price in question. It is apparent from Section 2.4 of the evaluation committee report that the applicant and the successful tenderer offered the same price in respect of points 2 to 7 of the financial bid, both obtaining the maximum score of 15 points. The price offered by the successful tenderer in respect of points 2 to 7 of the financial bid is therefore abundantly clear from the evaluation committee report. Moreover, with regard to point 1 of the financial bid, the evaluation committee report indicated the price offered by the applicant and the mark obtained. Although it does not expressly refer to the price offered by the successful tenderer, that report specifies the mark obtained by it. Taking account of those factors, it was possible to calculate, without any difficulty, the price proposed by the successful tenderer in respect of point 1 of the financial bid, as submitted by EFSA in connection with the second plea. Furthermore, the Court has been able to verify, by way of the measure of inquiry adopted at the hearing (see paragraph 16 above), that the price mentioned by EFSA in its written pleadings was in fact the price proposed by the successful tenderer. In view of all the foregoing considerations, the Court considers that, even if EFSA had erred by failing to indicate expressly to the applicant the price proposed by the successful tenderer, such an error would have had no effect on the lawfulness of EFSA’s decision to reject the applicant’s tender and award the contract at issue to another tenderer whose bid was considered to be better, since the applicant was in a position to ascertain that price. The applicant’s arguments in that regard must therefore be rejected.

35 Third, with regard to the principle of sound administration relied on by the applicant, according to case‑law, guarantees afforded by the European Union legal order in administrative proceedings include, in particular, the principle of sound administration, which entails the duty on the part of the competent institution to examine carefully and impartially all the relevant aspects of the individual case (see the judgment of 15 September 2011 in Case T‑407/07 CMB and Christof v Commission, not published in the ECR, paragraph 182 and the case‑law cited). In the present case, the arguments put forward by the applicant in the first plea, which essentially consist in criticising the fact that it was not granted access to the financial bid of the successful tenderer, do not demonstrate that EFSA failed to examine carefully and impartially all the relevant aspects of the case. In the absence of more detailed evidence, the applicant’s arguments in that regard must be rejected. (T-339/10 and 532/10 at paras. 32 to 35, emphasis added).

In my view, paragraphs 33 and 35 of the Cosepuri Judgment must be welcome, as they set a more balanced framework for the assessment of the obligation to disclose confidential information and business secrets under the principles of transparency and good administration.

On the contrary, paragraph 34 deserves a clear rejection, given that the GC keeps a very formalistic approach to the protection of confidential information and takes no issue with the fact that such sensitive information as price can be disclosed indirectly, and considers that that does not infringe either the rights of the 'disclosed' undertaking to protection of its business secrets, nor the procedural rights of the disappointed bidder that is granted indirect access to that information.

I think that the GC should have taken a stronger position and clearly confirmed that both direct and indirect disclosure of price elements and financial evaluations can be restricted or excluded on grounds of protection of confidentiality. Otherwise, the incentives continue to push contracting authorities for an excessive degree of transparency in public procurement settings--which creates significant risks of collusion [Sánchez Graells, "Public Procurement and Competition: Some Challenges Arising from Recent Developments in EU Public Procurement Law" in Bovis (ed) Research Handbook on European Public Procurement  (forthcoming), http://ssrn.com/abstract=2206502].