Confirmation of the EU Parental Liability Doctrine
In a Dec. 30, 2014 decision, the Dutch competition authority, the Authority for Consumers & Markets (ACM), followed the European Commission’s parental liability doctrine for infringements of article 101 of the Treaty on the Functioning of the European Union (TFEU). For the first time in the Dutch competition enforcement history, the ACM imposed fines on the former private equity firms that invested in the Dutch flour producer Meneba Meel B.V. (Meneba).
The case concerned the participation of Meneba in a price and output-limiting “flour-cartel” from 2001 to 2007, which infringed Article 101 TFEU and the Netherland’s equivalent of that article (Article 6 of the Dutch Competitive Trading Act). In 2010, the ACM imposed fines on (amongst others) Meneba and its direct shareholder Meneba B.V., as well as the latter’s direct shareholder Meneba Holding B.V. (Meneba Holding). Based on the advice of its Advisory Committee, the ACM conducted a more detailed investigation to assess whether Meneba’s infringement could be attributed to the shareholders of Meneba Holding B.V., the private equity companies Capital Investors Group Limited (“CIGL”), CVC Capital Partners Europe Limited (CCPEL) and CVC European Equity Limited (CEEL).1
In its Nov. 20, 2014 decision, published on Dec. 30, 2014, the ACM decided that Meneba’s conduct was attributable to Meneba Holding’s former owners–CIGL, CCPEL and CEEL–on the basis of the parental liability doctrine. The ACM based this conclusion on its finding that the controlling shareholders exercised decisive influence over Meneba during the period of their ownership. The decisive influence of the private equity funds was grounded on the relationship between Meneba and the private equity funds from organizational, economic, and legal perspectives.
The Meneba case demonstrates that the parental liability doctrine is based on the principle that parent companies that have a decisive influence over the commercial policies of their subsidiaries can be held liable to the same extent as their directly infringing subsidiary.
Previously, the European Commission had announced on Sept. 3, 2014, that it had fined four smart card chip producers a total of EUR 138 million ($210 million) for breaching Article 101 TFEU and Article 53 of the Agreement on the European Economic Area (EEA), and held the parent company liable even though it had divested its smart card chips subsidiary after the infringement.
To determine whether a parent company has decisive influence over an infringing subsidiary, several factors should be considered. In its Dec. 13, 2013 decision,2 the General Court of the European Union3 indicated that the following factors will be taken into account in this inquiry:
i. whether the parent company presents the cartel participant as part of its group;
ii. whether the parent company controls the cartel participant’s supervisory board;
iii. whether the parent company obtains the cartel participant’s report on its commercial activity;
iv. whether the parent company has an influence on the nomination of the cartel participant’s members of management;
v. the fact that the parent company and the cartel participant are not active in the same field does not preclude the parent company to have a decisive influence; and
whether the parent company and the cartel participant form a single economic entity.4
The General Court furthermore determined that when a parent company has an 100 percent shareholding in a subsidiary that infringed the competition rules of the European Union, the parent company can exercise decisive influence over the conduct of the subsidiary and, moreover, there is a rebuttable presumption that the parent company does in fact exercise such decisive influence. In those circumstances, it is sufficient to prove that the subsidiary is wholly owned by the parent company to trigger the presumption that the parent company exercises a decisive influence over the commercial policy of the subsidiary. In these circumstances, the parent company can be regarded as being jointly and severally liable for the payment of the fine imposed on its subsidiary, unless the parent company, which has the burden of rebutting that presumption, adduces sufficient evidence to show that its subsidiary acts independently on the market.5 In the Meneba case, the ACM applied these factors and presumptions to hold the parent company and the controlling shareholders liable for Meneba’s violation.6
1 ACM decision of Nov. 20, 2014, para. 4.
2 This decision concerned the General Court’s assessment of the imposed fine by the European Union on a parent company of an entity that had participated in a cartel in the calcium carbide and magnesium sector.
3 The intermediate appellate court of the European Union.
4 General Court T-399/09 decision of Dec. 13, 2013.
5 General Court T-399/09 decision of Dec. 13, 2013, para. 16.
6 ACM decision of Nov. 20, 2014 para. 106 et seq.