Final report of the hearing officer in case COMP/38.381/B2 — De Beers  (pursuant to Articles 15 and 16 of Commission Decision (2001/462/EC, ECSC) of  23 May 2001  on the terms of reference of Hearing Officers in certain competition proceedings —  OJ L 162, 19.6.2001, p. 21 )   (Text with EEA relevance)
Date: 2006-07-27
Institutions: European Commission
Subjects: application of EU law, economic concentration, merger control, mining extraction, precious stones, report, self-employed person

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Final report of the hearing officer in case COMP/38.381/B2 — De Beers

(pursuant to Articles 15 and 16 of Commission Decision (2001/462/EC, ECSC) of 23 May 2001 on the terms of
reference of Hearing Officers in certain competition proceedings — OJ L 162, 19.6.2001, p. 21)

(2006/C 175/04)

(Text with EEA relevance)

The draft Decision presented to the Commission under Art. 9 of Council Regulation No 1/2003 concerns
the trade relations of De Beers as regards rough diamonds. It is addressed to De Beers SA (‘De Beers’) as the
parent company of, amongst others, City West and East limited (‘CWEL’) and De Beers Centenary Aktienge-
sellschaft (‘DBCAG’) (hereinafter ‘the Parties’).

Origin of the case: Merger Regulation and 17/62 of Council Regulation

In the course of the investigation on the merger case M.2333 (De Beers/LVMH/Rapids World) which was
concluded in July 2001, the Commission services became aware of the existence of a trade agreement
(‘Trade Agreement’) between De Beers and ALROSA Company Limited (‘ALROSA’) for the sale of rough
diamonds. On 5 March 2002, following further investigation by the Commission, CWEL, DBCAG and
ALROSA, in accordance with Articles 2 and 4 of No 17/62 of Council Regulation jointly applied to the
Commission for negative clearance or, alternatively, for an individual exemption under Article 81(3) of the
EC Treaty in respect of the Trade Agreement.

On 14 January 2003, the Commission issued a statement of objections (‘SO’) under Article 82 EC
addressed to De Beers, CEWL and DBCAG in respect of the Trade Agreement and granted them access to
the Commission's file (1). On 1 July 2003, a supplementary SO was addressed to the Parties, to the effect of
adding Article 54 of the European Economic Area Agreement as an additional legal basis for the SO of
14 January 2003.

De Beers submitted written observations in response to the Commission's SO's and an oral hearing was
held on 7 July 2003. ALROSA participated at this oral hearing, as the oral hearing also addressed objec-
tions based on Article 81 which were separately addressed both to De Beers and ALROSA.

The Commission then received a complaint on 25 September 2003 against the Trade Agreement, alleging
an infringement of Articles 81 and 82 of the Treaty.

Change in the applicable law: Council Regulation (EC) No 1/2003 (in particular its Art. 9, which is
being applied to the case)

As a result of the applicability as from 1 May 2004 of Regulation (EC) No 1/2003, the application made
by De Beers and ALROSA lapsed but the procedural steps already taken continued to develop their effects
for the purpose of applying Regulation (EC) No 1/2003.

On 14 December 2004, CWEL and DBCAG on one side, and ALROSA on the other, submitted commit-
ment proposals to the Commission in response to the Commission's statements of objections, which were
deemed to constitute a preliminary assessment within the meaning of Art. 9(1) of Regulation (EC)
No 1/2003.

On 3 June 2005, the Commission published a notice according to Article 27(4) of Regulation (EC)
No 1/2003 in the Official Journal of the European Union. The Notice informed the public of the Commis-
sion's perceived competition concerns, the corresponding remedies, and invited interested parties to submit
comments by 4 July 2005 (‘the market test’) (2).

(1) As well as to ALROSA, to which an SO under Article 81 EC had been addressed.
(2) OJ C 289, 26.11.2004, p. 10.

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In response to the Notice, the Commission received 21 observations from interested third parties. The
effectiveness of the commitments proposed by De Beers and ALROSA in addressing the Commission's
concerns was not fully confirmed. On 27 October 2005 the Commission informed De Beers and ALROSA
of these observations and handed over a non-confidential summary. On 25 January 2006 De Beers
submitted an amended commitment proposal. The Commission has now come to the conclusion that, in
view of the commitments proposed by De Beers in response to the preliminary assessment and as later
amended to take account of the relevant observations by interested third parties, and without prejudice to
Article 9(2) of Regulation (EC) No 1/2003, there are no longer grounds for action.

Application of the principle of equality of arms (1) in this case. Decision under Article 9, Regulation
(EC) No 1/2003

Towards De Beers

The essence of the principle of equality of arms is that both the Parties in a case and the Commission, as a
body whose Decisions are appealable to the EU Courts, should have the same knowledge of the administra-
tive file.

In a Decision under Art. 9 of Regulation (EC) No 1/2003, violation of the competition rules is not estab-
lished, but the Parties accept to remedy the concerns expressed by the Commission in a preliminary assess-
ment.

There is in this process a willingness on both sides to simplify the administrative and legal requirements
which are inherent in a full investigation of a suspected infringement.

This is the reason why in two Decisions taken already by the College (2), it has been accepted that due
process is satisfied when the Parties inform the Commission that they have received sufficient access to the
information that was necessary for them to propose commitments in order to meet the concerns expressed
by the Commission.

This case has also been dealt with in the same manner, De Beers having submitted on 19 January 2006 a
Declaration to the Commission to this effect after having received the results of the market test.

Towards ALROSA

ALROSA has raised a specific procedural question by letter of 6 December 2005, in which ALROSA
requested to have ‘[…] access to file in this matter, in particular in respect to the third parties comments following
the market test, whether pursuant to the current Article 9 procedure and/or pursuant to the statement of objections or
the existing Article 7 procedure’.

ALROSA has not received a Statement of Objections in these proceedings under Art. 82, is not a party to
these proceedings and therefore does not benefit from a right to be heard equivalent to the one granted to
the parties pursuant to Article 27(1) Regulation (EC) No 1/2003.

One has to consider that, due to the very particular features of this case, ALROSA is in fact the only under-
taking directly and individually affected by part of the commitments proposed by De Beers.

ALROSA was therefore informed of the essence of De Beers' amended commitment proposal insofar as it
referred to them and was allowed to comment by 2 February 2006.

By letter of 30 January 2006, ALROSA requested an extension of the time-period to respond, to which
I partially agreed. Therefore ALROSA's reply was expected to reach the Commission on 6 February 2006,
which it did.

By letter of 6 February 2006, ALROSA expressed their views on the results of the market test. In this
letter, ALROSA took the view that their rights of defence had been infringed because the Commission had
not stipulated which objections it considered were warranted before accepting the commitments, and
claimed that they did not know precisely which objections justified the commitments.

(1) Cf. CFI, 29.06.95, case T-30/91 (‘Solvay’).
(2) Cf. decision of 22.06.2005 COMP/39.116 — Coca-Cola and decision of 19.01.2005 COMP/37.214 – DFB.

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I replied on 8 February 2006, expressing the view that ALROSA was not a party to the proceedings
conducted against De Beers under Article 9 Regulation (EC) No 1/2003. It was in particular in view of the
exceptional circumstances of this case that they had been afforded a right to be heard, to the extent that
they were directly and individually affected by the commitments. Furthermore, I expressed the view that in
view of the information provided to ALROSA in the course of the proceedings, the company could not
claim to be ignorant of the competitive concerns on which the commitments have been based.

In the light of the above, I consider that the rights to be heard of De Beers and ALROSA have been
respected.

Brussels, 10 February 2006

Serge DURANDE