A parent company will be held liable and fined for the anti-competitive conduct of its subsidiary whenever it is defined either by law or contract that the commercial conduct of the subsidiary must be determined by its parent company. It is up to the parent company to bring forth strong evidence in order to rebut such a presumption.
In terms of EU competition law, a parent company is deemed responsible for the behaviour of its subsidiaries and it can be fined directly for a breach by its subsidiary of EU competition laws. This is the case because of a rebuttable presumption that a parent exercises decisive influence over its subsidiary. Such a presumption can only be rebutted if it can be proven by the parent company that the subsidiary acted independently on the market. This is determined on the basis of the subsidiary’s conduct as well as the relevant organisational, economic and legal links between the two companies.
In 2012, the European Commission imposed fines on seven undertakings which had participated in cartels on the market for cathode ray tubes. The cartels involved price-fixing, market and customer-sharing and output limitations. The participating undertakings also regularly exchanged commercially sensitive information. A fine of €86,738,000 was imposed on Toshiba jointly and severally with Panasonic and their joint subsidiary, MTPD, as participants in the cartel.
Toshiba appealed the Commission’s decision to the General Court but the fine was upheld by the court – though reduced. Toshiba appealed once again to the Court of Justice of the European Union (CJEU) requesting the latter court to set aside the judgment of the General Court and to annul the said fine. Toshiba alleged that it was not in a position to exercise decisive influence over MTPD throughout the duration of the infringement and that it therefore could not be held liable for the infringement committed by its subsidiary. The CJEU confirmed the ruling of the General Court. It maintained that where it was laid down by law or contract that the commercial conduct of a subsidiary must be determined jointly by its parent companies, it was reasonable to conclude that the conduct of the subsidiary was indeed determined jointly. This means that, in the absence of evidence to the contrary, the parent companies must be regarded as having exercised decisive influence over their subsidiary and are hence liable for its conduct.
The abuse by companies of competition rules is never taken lightly – neither by the European Commission nor by the European courts
The CJEU observed that Toshiba had a right of veto over MTPD’s business plan for the entire duration of its existence. The holding of such a right was in itself sufficient to arrive at the conclusion that Toshiba had indeed exercised decisive influence over its subsidiary together with Panasonic. In its appeal, Toshiba alleged that it was necessary to ascertain whether it had in practice influenced MTPD’s operational management in order to conclude that the two companies formed part of a single economic unit. The CJEU ignored such an assertion and maintained that the mere fact that Toshiba never exercised its right of veto does not mean that it did not exercise decisive influence over MTPD’s conduct. The Court also confirmed the General Court’s analysis that the possibility for Toshiba to prohibit MTPD from taking decisions in relation to the budget constitutes an indication of Toshiba’s capacity to exercise decisive influence over the subsidiary. The fact that Toshiba appointed one of the two directors entitled to represent MTPD also militated in favour of such a presumption, the CJEU concluded.
The abuse by companies of competition rules is never taken lightly – neither by the European Commission nor by the European courts. It is therefore of the utmost importance that undertakings ensure that they do not fall foul of such rules either directly or indirectly through their subsidiaries in order to avoid the imposition of hefty fines by the relevant authorities.
mariosa@vellacardona.com
Mariosa Vella Cardona is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.