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Parent Companies, Their Subsidiaries and Competition: How the General Court Decided an Interesting Dispute

Parent Companies, Their Subsidiaries and Competition: How the General Court Decided an Interesting Dispute

29.04.2013 10:25
Autor: Martin Vráb, KŠB

The General Court (third chamber) dealt with the conditions of imputability in a case involving a cartel agreement to which an applicant’s 70% subsidiary was a party.

At the beginning of its reasoning, the General Court reiterated that a legal entity that is not the perpetrator of an infringement may nonetheless be penalised. Thus, the conduct of a subsidiary may be imputed to the parent company, particularly when the subsidiary does not decide independently on its own conduct on the market but carries out its parent company’s instructions, especially with regard to the economic, organisational and legal links between those two legal entities.

The applicant claimed that although it had the potential to control the subsidiary it did not in fact exercise that control. The applicant submitted that it is an investment company that acts as a “pure financial investor” and that it does not participate in the day-to-day management of the companies in which it invests. Moreover, the applicant emphasised that the subsidiary and the applicant itself have always presented themselves as two distinct companies, with different names and logos, and that they even had separate representation during the prior administrative procedure before the European Commission.

The General Court held that, according to EU case-law, in order to impute a subsidiary’s anti-competitive conduct to its parent company, the Commission must prove that the parent company actually exerted influence over its subsidiary’s conduct. Such evidence may include the fact that the two companies were controlled by the same persons, i.e. by persons who held key functions on both company’s management boards, or the fact that the companies were bound to follow instructions issued by their single management and could not act independently on the market.

According to the General Court, when analysing a single economic entity among a number of companies forming part of a group, consideration should be given to whether the parent company influenced the subsidiary’s pricing policy, production and distribution activities, sales objectives, gross margins, sales costs, etc.

Control Was Exerted

The General Court held that throughout almost the entire period of the infringement the subsidiary’s board of directors was controlled by the applicant, since a majority of the board members were representatives of the applicant as well. It thus followed that, during the period in question, the subsidiary’s board of directors could not take any decision without the agreement of certain members who were also members of the applicant’s board of directors. The subsidiary’s board members who were members of the applicant’s board of directors and who had been chosen by the applicant were always in a position to form a majority and to take decisions without the agreement of the other members of the subsidiary’s board.

The General Court believed this to be sufficient reasoning. Accordingly, the Commission need not prove the decisive influence that the applicant exercised over its subsidiary by referring to particular decisions adopted by the subsidiary’s board. Since the subsidiary’s board of directors was, according to the company’s articles of association, its main decision-making body, and the subsidiary was effectively controlled by the applicant, the General Court could reasonably conclude that the board took all the important decisions in relation to the operation and management of the subsidiary and that those decisions were essentially taken by the applicant.

The General Court also commented on the term “pure financial investor”, which it said must be understood as referring to the case of an investor who holds shares in a company in order to make a profit but who refrains from any involvement in its management or control. That was evidently not the case with regard to the applicant.

As concerns the distinction between the business name, logo and legal representation, the General Court once again referred to EU case law and stated that one cannot conclude that a parent company does not exert decisive influence over a subsidiary simply because the subsidiary has its own representation during an administrative procedure and its own name and logo, distinct from those used by its parent company. 

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