Parent responsible for actions of its subsidiaries

A parent company is liable for any anti-competitive conduct engaged in by its subsidiaries even if it does not itself participate in such behaviour, the European Court of Justice recently affirmed. What matters is whether the parent and its subsidiaries can be considered as a single economic unit.

Way back in 2004, the European Commission had fined the company Akzo Nobel NV together with four of its subsidiaries €20.99 million for engaging in anti-competitive conduct involving price fixing, market sharing and agreeing to actions against competitors in a cartel with other chemical producers of a particular feed additive.

The level of the fine for Akzo Nobel was set to take account of the economic strength of the whole undertaking, that is, including parent and subsidiaries, even though the parent company had not actually participated in such a cartel. This decision was confirmed by the Court of First Instance and has now been reaffirmed by the European Court of Justice.

The ECJ upheld that Community competition law refers to the activities of "undertakings". Such economic units may consist of several legal persons. The fact that a parent company and its subsidiary constitute a single undertaking enables the Commission to address a decision imposing fines to the parent company, without having to establish the personal involvement of the latter in the infringement.

In such cases, it is sufficient for the Commission to prove that the subsidiary is wholly owned by the parent company in order to create a rebuttable presumption that the parent company exercises a decisive influence over the commercial policy of the subsidiary.

It then falls squarely on the shoulders of the parent company to show that its subsidiary acted independently on the market and to put forward evidence relating to the economic, organisational and legal links between the subsidiary and itself which goes to prove that they do not constitute a single economic entity. Failing such test, the parent company must respond jointly and severally with its subsidiaries for their participation in a cartel.

Both the European Court of Justice and the European Commission stand strong in their determination to eradicate anti- competitive practices which make consumers bereft of the advantages of a single market economy and competitors of the certainty of a level playing field.

Price fixing and market sharing practices are simply not tolerated in a single market economy as is the European Union, and no excuse is good enough to soften the tough stance taken by the EU authorities against such practices.

Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a visiting lecturer at the University of Malta.

mariosa@vellacardona.com