Since the introduction of the EU Private Damages Directive 2014/104, the amount of private damages actions following competition law infringements have grown exponentially. Indeed, enforcement by private parties is viewed as a complementary limb to the enforcement of competition law by the European Commission and the national competition authorities. One aspect that deserves special attention in that regard is the “single economic entity” doctrine which allows several or all companies belonging to a group of companies to be held liable for an infringement of competition law they did not themselves commit.
This client alert delves deeper into the possible liability of the different members of a group of companies when only one of them has been found to infringe EU competition law. Who can be liable, and how to manage this risk?
First things first: the single economic unit doctrine and its impact on liability
EU competition law is addressed to “undertakings”, meaning any entity engaged in an economic activity, regardless of its legal status and the way it’s financed. This is a functional concept and, unlike in (national) corporate law, does not refer to legal entities with a distinct legal personality. In EU competition law, an undertaking can, in some cases, correspond to a natural or legal person but may, in others, comprise several of said persons.
In the latter scenario, the term “single economic unit” is used. Two companies are generally considered to form part of a single economic unit when (i) there are economic, organizational, or legal ties between the entities involved and (ii) one exercises decisive influence over the other which does not act autonomously (Akzo Nobel (C-97/08, § 60)). The most common example is that of a parent company holding 100% of the shares in a daughter company. In such situation, the whole group will be considered to be the “undertaking” to which EU competition law rules are addressed.
This also means that when an undertaking is found to have infringed EU competition law, the different members of the economic unit can be held jointly and severally liable for infringements. Over the course of the last years, the case law of the Court of Justice of the European Union (CJEU) has fleshed out different scenarios under which this can be the case. These are presented below.
The parent company is liable for the misbehavior of a subsidiary – Skanska
It is settled case law from the CJEU that a parent company can be held liable for anti-competitive conduct of its subsidiary when the parent exercises a decisive influence over its subsidiary. In its judgment Skanska (C-714/19), the CJEU clarified that this also extends to civil liability through private damages claims.
It is therefore of essence that parent companies are aware when they can be considered to be part of the same economic unit as their misbehaving subsidiary. As stated above, this is the case when they exercise decisive influence over their subsidiary. In that regard, a rebuttable presumption exists that a parent company exerts decisive influence over a subsidiary when it holds, directly or indirectly, all or almost all of the capital in a subsidiary that has committed an anti-competitive infringement. In Goldman Sachs v Commission (C-595/18 P), the CJEU expanded this presumption to the hypothesis where the parent company holds all of the voting rights instead of all or almost all of the share capital in a subsidiary. It is thus the degree of control of the parent company over its subsidiary that is relevant for the presumption and that can ultimately lead to the liability of the parent company.
The recent Athenian Brewery case (C-393/23) furthermore shows that the presumption of decisive influence can be used to bring a case against a parent company located in one member state even when all other elements of the case relate to a different member state. Also seemingly ‘purely domestic’ cases can thus be brought in front of the seat of a parent company when the presumption is fulfilled, making it an interesting forum shopping tool for claimants.
A subsidiary is liable for the misbehaviour of the parent – Sumal
Perhaps less intuitive, a subsidiary can also be held liable for the misbehavior of a parent. In the Sumal case (C-882/19), the CJEU found that when a parent and a subsidiary form an economic unit, the subsidiary can be liable for the infringement of the parent when there is a specific link between the subject matter of the infringement and the economic activity of subsidiary. In other words, when the subsidiary and parent company operate on the same cartelised market, the subsidiary can be held liable for the parents’ infringements.
This also has implications in terms of forum shopping: since according to the rule of thumb defendants can be sued in their place of residence, large groups with subsidiaries operating on the same market as the parent company should be prepared to be sued in the countries where their subsidiaries are located.
A sister company can, in specific circumstances, be liable for the misbehaviour of another sister – Jungbunzlauer
While a more unlikely scenario, the CJEU (General Court) held in the Jungbunzlauer case (T-43/02) that one sister company can be liable for another sister’s cartel infringement. However, in this case it was found that the sister company that was held liable had decisive influence over the sister company that committed the infringement. It can be assumed that sister companies that do not exert such decisive influence over one another, cannot be held liable for each other’s conduct.
Lessons learned: keep tabs on the different group members, notably those operating on the same market
It is clear from the above that subsidiaries, sister and parent companies in one group can be held liable for infringements of competition law by any of them. Companies are therefore advised to be aware of the conduct of its group members, since collective compliance with EU competition law is of the essence. This is especially the case for group members operating on the same market. To mitigate risks, clear compliance policies across the entire group can be considered, complemented by regular self-assessments to enable early detection of compliance issues.
M&A lawyers are furthermore advised to keep tabs during a due diligence on the competition compliance of the group and consider additional warranties in the SPA with regard to liability resulting from infringements of group members, if appropriate.
