GOOD PARENTING, AN UNDERTAKING IN ITS OWN RIGHT ATTRIBUTION OF CARTEL LIABILITY TO JOINT VENTURE
A.M. (Stijn) Huijts
Competition Lawyer at the Office of Fair Trading (OFT)
SUMMARY: 1. INTRODUCTION 2. LEGAL FRAMEWORK 2.1. Introduction 2.2. Legal framework of fines for infringement of the competition rules 2.2.1. Regulation 1/2003 2.2.2. Fining Guidelines
2.2.3. Applicability of the ECHR 2.3. The concept of undertaking 2.4. Parental liability 2.4.1. Introduction 2.4.2. Scenario 1: 100% subsidiaries: presumption of decisive influence 2.4.3. Scenario 2: partially-owned entities and joint ventures: no such presumption 3. RECENT CASE LAW ON JOINT VENTURES 3.1. Introduction 3.2. Recent case law 3.2.1. Rubber chemicals 3.2.2. Avebe 3.2.3. Gas insulated switchgear and the Fuji judgment 3.2.4. Chloroprene rubber and the DuPont and Dow judgments 3.2.5. Other recent cases
3.3. Specific issues in case of fining joint venture parents 3.3.1. Introduction 3.3.2. Fine calculation 3.3.3. Leniency 3.3.4. Intra-group conspiracy 4. DISCUSSION 4.1. Introduction 4.2. Avebe and
The views expressed in this article are the author’s own and are not attributable to the OFT. This text was originally written as a dissertation for the Brussels School of Competition. Those familiar with the relevant legislation are advised to refer directly to Sections 3 and 4.
subsequent reliance on it 4.3. Dow and Dupont: overstretching the concept of ‘undertaking’? 4.3.1. Full-functionality and the Consolidated Notice 4.3.2. The concept of ‘undertaking’ is decisive for attribution 4.4. Holding the right companies liable without overstretching 4.4.1. Introduction 4.4.2. Majority shareholders with sole control 4.4.3. Parent companies with joint control over joint ventures 5. CONCLUSIONS.
This dissertation discusses recent case law of the European Commission (“Commission”) and the General Court in which both parent companies of a full-function joint venture are held jointly and severally liable for an infringement committed by the joint venture. The Commission bases the imputation of liability on the fact that the joint venture and each of the joint venture parents form part of the same economic entity. As both joint venture parents are clearly different undertakings, it seems counterintuitive that the joint venture can form part of the same economic entity as each parent, while the parents are each part of different economic entities
(i.e. their respective groups).
This dissertation seeks to explain the Commission’s reasoning behind the imputation of liability to both joint venture parents and to establish whether this reasoning is correct, or whether there are alternatives.
The dissertation focuses on fines imposed on the basis of Article 23 of Regulation 1/2003. Fines can be imposed under this provision for both infringement of Article 101(1) of the Treaty on the functioning of the EU (TFEU) (the cartel prohibition) and of Article 102 TFEU (the prohibition of abuse of a dominant position). As the main inspiration for this dissertation comes from the recent case law in which the Commission imposed fines for infringement of Article 101(1) TFEU, infringement of Article 102 TFEU shall not be discussed individually. However, the general rules relating to imputation of liability for infringement of Article 101(1) TFEU also apply in Article 102 cases, albeit that it is normally the entire group of the parent company that has a dominant position and not a specific joint venture.
2. LEGAL FRAMEWORK
Article 101(1) TFEU prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market. This dissertation shall focus on a particular type of infringement of Article 101(1) TFEU, being cartels. A cartel can be defined as a collective organisation of undertakings, whose members enter into a secret agreement to suspend competition among themselves.1
If discovered, cartels are often penalised by the Commission or national competition authorities (“NCAs”) with severe fines. These fines serve not only to punish the undertakings involved, but also to deter them and others from forming cartels in the future.
Fines are usually imposed on the companies directly involved in the infringement. However, it is also common practice of the Commission and the European Courts to hold parent companies of the companies directly involved in the infringement jointly and severally liable for the behaviour of its subsidiary (parental liability).
This chapter will set out the legal framework under which the Commission imposes fines, by looking at infringement proceedings and the way in which the Commission calculates fines (paragraph 2.2), the concept of ‘undertaking’ (paragraph 2.3), and parental liability (paragraph 2.4).
2.2. LEGAL FRAMEWORK OF FINES FOR INFRINGEMENT OF THE COMPETITION RULES
2.2.1. Regulation 1/2003
1GERADIN, D., LAYNE-FARRAR, A. and PETIT, N., EU Competition Law and Economics, Oxford 2012, p. 391.
Regulation 1/2003 provides the Commission with a number of ways to address cartel infringements. For example, the Commission can adopt ‘cease and desist’ decisions, impose interim measures and make commitments offered by the companies involved to meet the concerns expressed to them by the Commission binding. However, one of the most important arrows in the Commission’s quiver, and definitely the instrument best known to the public, is the imposing of fines on companies that infringe the competition rules, as set out in Articles 23 and 24 of Regulation 1/2003. This dissertation will focus on Article 23.2
It is safe to say that the most important provision is paragraph 2 of Article
23. This paragraph allows the Commission to impose fines on undertakings and associations of undertakings by decision, where they infringe Article 101(1) and 102 TFEU.
The purpose of imposing fines is primarily to ensure that the prohibited conduct does not recur.3 The essential purpose can thus be summarised as to deter and persuade.4In this respect, fines have a twofold character: they punish past acts and have a general deterrent effect for the future, both for the infringing undertakings (special prevention) and for others (general prevention).5
The maximum fine under Article 23(2) is 10% of the relevant undertaking’s total turnover in the preceding year. It is important to note that if
2Art. 24 allows the Commission to impose periodic penalty payments on undertakings to compel them, for example, to end an infringement of Art. 101(1) or 102 TFEU, to comply with a decision ordering interim measures under Art. 8 of Regulation 1/2003, or to comply with a commitment made binding by a decision under Art. 9 of Regulation 1/2003. Art. 24 penalties are not the type of penalty for which parent companies are held jointly and severally liable in the recent case law discussed in this dissertation.
3Judgment of the CFI of 28 February 2002 in Case T-18/97, Atlantic Container Line AB and others v. EC Commission  ECR II-1125, para 50.
4ORTIZ BLANCO, L., European Community competition procedure, Oxford University Press, 2nd edition, 2006, para 11.17.
5See inter alia Joined Cases 100-103/80 Musique Diffusion Française v. EC Commission (Pioneer)  ECR 1825, para 106.
responsibility for an infringement is attributed to a parent company6, this raises the maximum amount of the fine to 10% of the turnover of the parent’s group.
Article 23(3) clarifies that the Commission is required to take into account both the gravity of an infringement and its duration when fixing the amount of the fine. On the other hand, the Commission must also take into account the principle of proportionality.7
2.2.2. Fining guidelines
Although Regulation 1/2003 provides a maximum amount of the fine and the additional rule that account should be had to gravity and infringement, it does not provide detailed rules on the way the Commission calculates a fine in a specific case. To this end, the Commission has adopted guidelines that it uses when setting fines to be imposed on undertakings for violations of Article 101(1) and 102 TFEU (the “Fining Guidelines”).8 The Fining Guidelines set out a two-step methodology for the setting of fines: first the Commission determines a basic amount for each undertaking concerned, second, it may adjust that basic amount upwards or downwards.
The basic amount is set as a percentage of the value (before tax) of the undertaking’s sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area within the EEA.9The Commission normally takes the sales made by the undertaking during the last full business year of its participation in the infringement. The percentage to be applied will depend on the gravity of the infringement, but in general the maximum percentage is 30%. For hard-core infringements the
6Attribution to parent companies is discussed in detail in paragraph 2.4 below.
7ORTIZ BLANCO, L., European Community competition procedure, Oxford University Press, 2nd edition, 2006, para 11.24.
8Commission Guidelines of 1 September 2006 on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No. 1/2003, OJ C210/2.
9Commission Guidelines of 1 September 2006 on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No. 1/2003, OJ C210/2, paras 12, 13 and 17.
percentage will generally be set at the higher end of the scale.10The amount thus determined is then multiplied by the number of years of participation in the...