If in-house counsel advise their coworkers based anywhere in the European Union on a competition matter, the conversations, e-mails, and documents aren’t protected by attorney-client privilege, according to a controversial decision handed down on September 17, 2007. General counsel across Europe roundly condemned Akzo Nobel Chemicals Ltd. v. Commission, which found that attorney-client privilege in antitrust cases occurring within the 27 European Union member states can only be claimed by attorneys who’ve passed the bar in an EU country and are affiliated with a law firm.

In the U.S. and UK, where communications with in-house counsel are protected by attorney-client privilege, the decision seems particularly surprising and, to some, counterproductive. Hiring an outside law firm for all European antitrust or cartel issues is potentially quite expensive and might hamper general counsels’ ability to ensure their employers are complying with competition law.

The Law Society in the UK vilified the decision; its chief executive Des Hudson criticized what it called “a foolish move by the court not to refresh its case law to reflect the realities of the 21st century.” And Joachim Scholz, general counsel at BASF, a competitor to Akzo Nobel, said, “Obviously, we don’t share the view, and we regret the decision.”

Strong opinions notwithstanding, Akzo Nobel doesn’t dramatically alter the role of in-house counsel but instead perpetuates an uncomfortable situation that has existed for the past 25 years. The European Court of First Instance, the second-highest court in Europe, confirmed the findings of 1982 AM&S v. The Commission. Both Akzo Nobel and AM&S say that in-house lawyers are not sufficiently independent from their employers because of their employment covenants, and so attorney-client privilege doesn’t apply.

Hoare

“Emotionally, Akzo Nobel is a very important case because it reminds everyone of a situation that just doesn’t seem right,” says Edward Hoare, partner in the London office of Faegre & Benson. He continues: “Many had hoped that the court would find [the earlier decision] perverse in this day and age. That didn’t happen.”

The Implications

Four years ago, the European Commission made a dawn raid on Akzo Nobel’s offices in Manchester, England, seizing documents from the Dutch chemical concern’s in-house lawyers that those lawyers claimed were confidential, explains Martin Buntscheck, head of the German antitrust practice for Weil, Gotshal & Manges. European regulators can take the same actions against EU subsidiaries of American or Asian companies if they suspect that competition laws have been broken.

Buntscheck

Although many dislike the decision, few dispute it on strictly legal grounds. “The court did a thorough review of national laws, and indeed they’re very different from country to country. The judgment is not positive, but it is logical,” says Buntscheck. He notes that in places like Germany and France, attorney-client protection for in-house counsel simply doesn’t exist.

Making matters more confusing, the European Commission can initiate an investigation and cartel proceedings anywhere in the EU—but so can each nation’s own competition authority. When the European Commission is not involved, national law applies, says Buntscheck. Consequently, there are 27 different sets of privilege laws for companies to consider, and it’s important to know both national and EU law when deciding how to handle any potential EU competition dispute.

While Akzo Nobel applies only to EU antitrust proceedings, there are hundreds of such cases a year, according to Hoare. He points out that infringing competition law in Europe carries a maximum fine of 10% of worldwide global sales. The stinging rebuke of Microsoft’s EU antitrust appeal—delivered on the same day and by the same court as Akzo Nobel—meant $689.7 million in fines, illustrating the “serious money” at stake in competition cases, says Hoare.

In addition, Akzo Nobel delivers a potentially serious blow to companies’ efforts to carry out their own antitrust compliance. “General counsel try and solve problems and create compliance,” says Hoare. “It’s difficult for in-house counsel to do what the Commission would like them to do—stop [antitrust infringement] from happening—if they can’t communicate freely with their business people for fear that whatever is said becomes subject to public disclosure.”

A. Jan A. J. Eijsbouts, general counsel and director of legal affairs at Akzo Nobel before retiring in June, said that the September 17th decision is particularly disappointing for complex organizations, where “it’s impossible for outside counsel to know all the relevant details and structures and responsibility lines to such an extent that they could take the lead of a compliance effort.”

On the other hand, he emphasized that the recent court decision clarified a few important procedural aspects of EU cartel cases. First, the court ruled that any documents in which privilege is disputed should be placed in a sealed envelope for an independent body to review. Regulators are no longer free to seize and read documents, which might later be deemed confidential.

And second, the court specified that a document exclusively drawn up by a business for the purpose of asking legal advice of an external law firm is considered privileged, said Eijsbouts. He applauded this clarification as “a major achievement in the context of compliance programs.”

Boon for Outside Counsel

From a business standpoint, Akzo Nobel is positive for EU-based law firms with antitrust practices. “We’re not exactly crying about the decision,” acknowledges Mike Pullen, head of antitrust and trade law for the European Union at DLA Piper.

Specifically, the decision benefits external counsel licensed to practice in the European economic area, observes Pullen. Were a company to consult outside counsel in the U.S., those communications are not protected. Hoare illustrates the problem this way: “If someone in a European subsidiary of an American company were to e-mail one of my colleagues in the U.S., an American lawyer, it wouldn’t be protected by privilege.”

That said, Hoare emphasizes that EU antitrust lawyers want to be retained because they add value, not because they help companies get around a lack of attorney-client privilege: “Most of us don’t want to be hired as just a post box.”

Although Akzo Nobel represents a setback for in-house counsel in the antitrust realm, the Association of Corporate Counsel (ACC) cautions against cutting in-house counsel out of the loop. General counsel are still able to handle “routine issues concerning matters such as distribution agreements or pricing practices,” says the ACC.

Finally, the legal crusade to gain attorney-client privilege for in-house counsel in competition matters will almost certainly continue. Akzo Nobel is considering an appeal, said Eijsbouts, and the ACC has announced its intention to appeal the decision as an intervener in the case.

Topics