EU General Court Restricts Scope of Dawn Raids

The European Commission's decision to inspect Michelin’s premises has been partially annulled by the General Court due to a lack of evidence. The judgment highlights the Commission’s evolving approach to detecting collusion. It also underscores the need for companies to ensure rigorous competition law compliance when making public statements. Our Competition, Antitrust & Foreign Investment team reviews the decision.

What you need to know

• The European Commission carried out an unannounced inspection of Michelin’s premises to collect data for an investigation into alleged anti-competitive conduct in the tyre industry.

• Michelin sought the annulment of the Commission’s inspection decision authorising the dawn raid on the basis that it was “vague, ambiguous and generic.”

• The General Court partially annulled the Commission’s decision due to a lack of “sufficiently serious” evidence of a potential infringement during an earlier time period covered by the inspection.

• The General Court’s decision reveals that the European Commission is investing significant resources to detect collusion, including by collecting and quantitatively analysing masses of public announcements.

• Anyone involved in drafting or delivering public communications, especially for earnings calls, should be thoroughly briefed on the company’s competition law obligations.

The European Commission, in 2024, exercised its power under Regulation 1/2003 to conduct an unannounced inspection of Michelin’s premises. The inspection was prompted by suspicion that the company may have coordinated pricing decisions with other tyre manufacturers in breach of Article 101 TFEU. The Commission’s decision was based on suspected anti-competitive conduct arising from market monitoring by the Commission. The scope of the monitoring involved the analysis of hundreds of thousands of earnings calls in different sectors. Michelin appealed the inspection decision, arguing that the Commission violated its duty to state reasons for the inspection.

The Commission’s inspection decision identified the alleged anti-competitive behaviour as coordination between Michelin and the main tyre manufacturers on prices for new replacement tyres for cars and trucks in the European Economic Area. The coordination was alleged by the Commission to have been achieved through public statements communicating future intentions and strategies for tariffs to influence pricing policies. The problematic public statements were identified in earnings calls that took place during a “main period”. However, the Commission considered that the behaviour may have commenced in an “earlier period” when the tyre manufacturers were assumed to be sowing the seeds for collusion. Consequently, the Commission’s inspection covered both the main period and the earlier period.

Michelin contested the dawn raid by appealing the inspection decision issued by the Commission on two main grounds:

1. The Commission’s decision was based on insufficient reasoning under Article 296 TFEU, and

2. The inspection decision was “arbitrary and disproportionate” and violated Michelin’s fundamental right to the respect of the home under Article 8 of the European Convention on Human Rights, as a legal person

Collection and analysis of mass data to support an inspection decision

The Commission carried out a quantitative analysis of a database of earnings calls using key search terms over an extended period. This analysis covered both the main period and the earlier period. The purpose of the analysis was to identify signs of possible collusive behavior. The analysis helped determine which sectors' earnings calls would undergo a more detailed qualitative review. The Commission applied bigram frequency analysis to identify phrases linked to pricing strategies or references to competitors. Bigram frequency analysis is a method used to count the occurrences of two-letter sequences.

By applying the relevant search terms, the Commission retrieved hundreds of thousands of earnings calls containing terms indicative of coordination amongst competitors. In particular, terms such as “we strive to stick to”, “the strategy is to focus on”, or “not our intention to go for” were identified by the Commission as indicative of attempts to encourage competitors to adopt the suggested conduct.

Historically, most of the European Commission’s inspection decisions have relied on evidence provided by whistleblowers through leniency applications. However, the General Court judgment reveals a shift in the Commission’s enforcement strategy. It is now adopting a more proactive approach to detecting anticompetitive behaviour. This evolution is unsurprising, given the notable decline in leniency applications in recent years, which poses a challenge to the Commission’s enforcement objectives. The growing use of quantitative analysis of large datasets is expected to drive further inspections across various industries. This development should serve as a warning to companies that regularly participate in earnings calls or make public statements about pricing and strategic plans.

Inspection covering the principal period was justified

Michelin argued that the decision to inspect Michelin’s premises was not justified as it lacked reasoning due to its “generic, broad and ambiguous” nature. Michelin also argued that the Commission should have specified the timeframe of the suspected coordination in its decision. The General Court rejected Michelin’s arguments, finding that the Commission had valid grounds to justify the inspection decision. It also found that the Commission was under no obligation to specify the timeframe under investigation.

The General Court also rejected Michelin’s argument that the Commission violated its right to privacy under Article 8 of the European Convention on Human Rights, and the confidentiality of communications by conducting the inspection. In reaching this decision, the General Court held that the Commission was not obliged to communicate or disclose all the information available to it which motivated the inspection decision. The Commission was entitled to carry out the dawn raid alongside the French Competition Authority thanks to “sufficiently serious evidence” to support its suspicion of price coordination during the principal period. The inspection decision was therefore not found to be “arbitrary and disproportionate”.

A lack of sufficiently serious evidence during the earlier period

The General Court did however agree with Michelin on one key point: the Commission did not present “sufficiently serious evidence to support suspicions of price coordination during the previous period”. Although the Commission had completed a quantitative analysis of the earlier period, it yielded no evidence of possible coordination prior to the main period. The General Court held that the evidence submitted from the earlier period did not concern any future intentions or planned pricing strategies likely to be implemented during that period.

As a result, the Commission’s analysis of mass data could not justify extending the inspection to cover the earlier period. This finding led the General Court to partially annul the inspection decision. The Commission is reportedly considering its next steps, noting that inspections at other relevant premises “were neither challenged nor annulled”.

Competition law implications for companies

The idea that companies can infringe the competition laws by signalling prices or other commercial strategies to competitors in public announcements is nothing new. Ireland’s competition authority, the CCPC, opened an investigation into alleged ‘price signalling’ in the motor insurance industry in 2016, which lasted several years. The main takeaway from the General Court’s decision is that companies should be aware that the European Commission is moving away from its traditional practice of relying on leniency applications for evidence of collusion. Instead, it is now investing significant resources to detect collusion in other ways, including by parsing vast troves of data. We are also aware that the detection of algorithmic pricing collusion is an enforcement priority for the European Commission, and is another area where the European Commission is likely to deploy data analytics to mass data.

Companies must remain increasingly vigilant about competition law compliance and invest in fostering a culture of compliance throughout their organisation. Notably, the public statements that prompted the Commission’s inspection decision were not part of scripted investor presentations, but emerged during unscripted Q&A sessions. This highlights the limitations of relying solely on prepared remarks to manage legal risk. Everyone involved in drafting or delivering public communications, especially for earnings calls, should be thoroughly briefed on the company’s competition law obligations.

Please get in touch with a member of our Competition, Antitrust & Foreign Investment team for more information.

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