Since the 2009 Akzo Nobel case, it is a well-established principle of EU antitrust law that parent companies may be held liable for infringements committed by wholly-owned subsidiaries, on the basis of a presumption that has proved virtually impossible to rebut in practice.i This principle is commonly referred to as parental liability. While many businesses may not consider themselves as parent companies as such, the practice of the European Commission (the Commission) and EU courts over the last years shows that the concept of parental liability is broad and may also apply to infringements by joint ventures and even minority-owned/portfolio companies.
Can a company be held liable for EU antitrust breaches by its joint venture?
Yes. The Commission may hold parent companies liable for infringing conduct committed by their joint venture (JV) if it establishes that the parent companies actually exercised decisive influence over the conduct of the JV. This was exemplified by two Commission decisions upheld in 2013 and 2017 by the EU courts: in the Chloroprene Rubber cartel case, the Commission held The Dow Chemical Company and EI du Pont de Nemours and Company jointly and severally liable for the conduct of their 50/50 JV;ii in the TV and Computer Monitor Tubes cartel case, the Commission held Toshiba and Panasonic jointly and severally liable for the conduct of their 35.5%/64.5% JV.iii
Can a company be held liable for EU antitrust breaches by a company in which it holds only a minority stake?
Yes. This may apply to a JV in which one partner holds only a minority stake, as illustrated by the Panasonic/Toshiba JV (see above). The Commission may even hold institutional investors (e.g. private equity firms) liable for infringing conduct committed by a minority-owned investment or portfolio company if it establishes that the parent company actually exercised decisive influence over the entity's conduct. This is illustrated by the EU General Court's judgment in 2018 in the Power cables cartel case, in which Goldman Sachs was held jointly and severally liable for Prysmian's conduct, although it ownedas little as 31.7% of its shares for part of the infringement period.iv
Does the company need to be aware of the illegal conduct to incur liability?
No. It is well-established that a parent company may incur liability for EU antitrust breaches independently of whether it was involved in, or even aware of, the entity's infringing conduct.v
What is the key test to establish parental liability under EU antitrust rules?
The Commission may hold a parent company liable for infringements of its JV or a company in which it holds a minority stake if it establishes,vi based on economic, organizational and legal links, that the parent company actually exercised decisive influence over the market conduct of the infringing entity. The Commission is not required to adduce evidence of the parent or investor's influence in relation to the entity's infringing conduct, or its day-to-day management, or even its commercial policy in the strict sense (such as its distribution or pricing strategy) but the focus is more on the level of influence over the entity's general strategy.vii
The exercise of decisive influence may be inferred from a body of consistent evidence. While no exhaustive list of relevant circumstances has been defined, and a case-by-case assessment needs to be conducted, the following are examples of the types of factors that have been taken into account in concluding that the parent/investor had the requisite level of influence to be held liable for infringements by its JV/minority-owned company:
- rights of co-determination or veto rights relating to decisions on business strategy issues, such as the business plan, or the course of action on the market, the budget, major investments or acquisitions or the appointment of senior management;
- overlaps in management between the parent and the entity in which it holds a stake;
- information flows between the parent and the entity, reporting obligations to and monitoring by the parent; and
- a business relationship between the parent and the entity.viii
Does parental liability have an impact on the magnitude of EU antitrust fines?
Yes. The Commission may impose a fine of up to 10% of the worldwide revenues generated by the undertaking, viewed as an economic entity rather than just the specific entity involved in the infringement. Where a parent company and its JV/minority-owned company are held jointly and severally liable, the maximum amount of the fine will be based not only on the revenues generated by the JV/minority-owned company, but also on the revenues generated by the parent company group.ix
Is the exposure to parental liability limited to decisions adopted by the Commission?
No. Parental liability may also arise from decisions adopted by national antitrust authorities in EU Member States. In addition, as confirmed by a recent judgment of the EU Court of Justice in the Vantaan kaupunki case,x issues of parental and successor liability for EU antitrust infringements may arise in the context of private damages claims initiated in EU Member States.
How can a parent company avoid EU antitrust liability?
Structuring the business in a way to keep the level of involvement in the entity so low that parental liability will not be triggered may be very difficult to achieve in practice and may not make sense from a business perspective. Moreover, EU antitrust rules on successor liability are complex but the parent company can remain liable for the past infringing conduct of an entity following its sale to another party. Therefore, parent companies should carefully assess their potential exposure to EU antitrust liability based on their involvement in JVs and minority investments. Beyond a certain level of involvement, it is advisable to consider designing and implementing tailored and effective antitrust compliance programs for such entities.
i EU Court of Justice, judgment of 10 September 2009, Case C-97/08 P, Akzo Nobel e.a. v Commission, ECLI:EU:C:2009:536, paras. 60-61 and 63. The presumption also applies in similar situations, in particular where a parent company holds close to 100% of the shares of its subsidiary or where it holds 100% of the voting rights.
ii EU Court of Justice, judgments of 26 September 2013, Case C‑172/12 P, EI du Pont de Nemours and Company v Commission, ECLI:EU:C:2013:601, in particular paras. 11-12, 22-24, 47 and 52 and Case C‑179/12 P, The Dow Chemical Company v Commission, ECLI:EU:C:2013:605, in particular paras. 11-12, 22-24, 58 and 65.
iii EU Court of Justice, judgment of 18 January 2017, Case C‑623/15 P, Toshiba v Commission, ECLI:EU:C:2017:21, in particular paras. 7-8, 14-17, 48 and 71-74.
iv EU General Court, judgment of 12 July 2018, Case T-419/14, The Goldman Sachs Group v Commission, ECLI:EU:T:2018:445, in particular paras. 17-18, 86, 138 and 143 (currently subject of an v v See, for example, EU General Court, judgment of 12 July 2011, Case T‑132/07, Fuji Electric v Commission, ECLI:EU:T:2011:344, para. 196.
vi As noted above, such a demonstration is not required in relation to wholly-owned subsidiaries and similar situations. In those cases, the Commission may presume, without any supporting evidence, that the parent company actually exercised decisive influence over the subsidiary.
vii See, for example, EU Court of Justice, judgment of 24 June 2015, Joined Cases C‑293/13 P and C‑294/13 P, Fresh Del Monte Produce e.a. v Commission, ECLI:EU:C:2015:416, paras. 75-76; EU General Court, judgment of 9 September 2015, Case T‑104/13, Toshiba v Commission, EU:T:2015:610, para. 121.
viii See, for example, EU General Court, judgment of 12 December 2018, Case T-705/14, Unichem Laboratories v Commission, ECLI:EU:T:2018:915, paras. 81 and 84 (currently subject of an appeal before the EU Court of Justice, Case C-166/19 P); EU General Court, judgment of 9 September 2015, Case T‑92/13, Koninklijke Philips Electronics v Commission, ECLI:EU:T:2015:605, para. 52; EU General Court, judgment of 9 September 2015, Case T‑104/13, Toshiba v Commission, EU:T:2015:610, para. 100.
ix See, for example, EU General Court, judgment of 27 March 2014, Cases T‑56/09 and T‑73/09, Saint-Gobain Glass France e.a. v Commission, ECLI:EU:T:2014:160, paras. 450-453 and 457.
x EU Court of Justice, judgment of 14 March 2019, Case C‑724/17, Vantaan kaupunki e.a., ECLI:EU:C:2019:204, paras. 28, 32, 36-37 and 51.