The ECJ Judgment in the "Akzo Nobel" Case: an almost strict liability of parent companies for cartel violations committed by their wholly-owned subsidiaries

October 5, 2009

1. Background


In every case in which the European Commission penalizes a cartel offense, the question arises as to the attribution of that conduct to a specific legal person.  It is already common Commission practice that the legal person actually responsible for a cartel offense is not, or not solely, the person who might appear to be the cartel participant.  Direct or indirect parent companies are more and more often held jointly and severally liable for Article 81 EC Treaty violations which were committed by their subsidiaries and, consequently, statements of objections and fine decisions tend to be addressed to both.  Where the parent does not get involved in the day-to day business of its subsidiary, the cartel activities are often completely unknown to the parent company.  Even in such cases the Commission tends to hold the parent companies liable since they "form an economic entity/unit with its subsidiary."


2. The case


On 10 September 2009, the European Court of Justice (ECJ) dismissed an appeal by the Dutch company Akzo Nobel BV (Akzo) against a 2007 judgment adopted by the European Court of First Instance (CFI).  Confirming a decision of the European Commission, the CFI had found that Akzo was jointly and severally liable for the activities of four of its wholly-owned subsidiaries in the animal feed vitamin cartel which lasted from 1992 to 1998.  In 2004 the Commission concluded that the major producers of choline chloride in Europe, the USA, and Canada had colluded in secret to set prices and share markets for this product in the European Economic Area (EEA) in violation of the general prohibition of restrictions of competition under Article 81 EC Treaty.  The Commission addressed its decision not only to the subsidiaries but also to the ultimate parent company of the group, Akzo, considering that it formed an economic unit with its subsidiaries.  The Commission took the view that the wholly-owned subsidiaries of Akzo lacked commercial autonomy, entitling the authority to address its decision to the parent company, despite the fact that it had not participated individually in the cartel.  


3. The ECJ's findings 


The ECJ confirmed the joint and several liability of Akzo.  It followed the CFI's view that in the case of a parent company holding 100% of the capital of a subsidiary which has committed an infringement, there is a rebuttable presumption that the parent company exercises decisive influence over the conduct of its subsidiary and that they therefore constitute a single undertaking within the meaning of Article 81 EC Treaty.  Unless the parent company is able to refute that presumption by producing sufficient evidence to show that its subsidiary acts independently on the market, the Commission will be entitled to find the parent company to be jointly and severally liable for the fine imposed on the subsidiary.  The ECJ took the view that there is no basis in the case law for making the application of the presumption subject to the production of additional indicia relating to the actual exercise of influence by the parent company ("100% + x requirement").  Consequently, the court held that there was no need for the Commission to ascertain whether Akzo actually exercised influence over the conduct at issue.


As regards the rebuttal of the presumption by the parent company, the ECJ upheld the CFI's view that in order to ascertain whether a subsidiary determines its conduct on the market independently, account must be taken not only of factors relating to the commercial policy of the subsidiary, such as the extent of the parent company's influence over pricing policy, sales objectives, growth margins, sales costs, cash flow, stocks and marketing, but also of all the relevant factors relating to the economic, organizational and legal links which tie the subsidiary to the parent company.  The conduct of the subsidiary on the market does therefore not constitute the only factor that enables the liability of the parent company to be established, but is only one factor that can indicate the existence of a single economic unit.


4. What are the consequences from the judgment


In order to establish the responsibility of the parent company for the infringements of its wholly owned subsidiary, it is sufficient for the Commission merely to set out the shareholding structure in the Statement of Objections (SO).  By virtue of the rebuttable presumption, the Commission is not required to provide evidence that the parent company exercised decisive influence over the subsidiary's conduct, to prove the lack of autonomy of the wholly owned subsidiary.  It is for the parent company, in responding to the SO, to rebut the presumption with cogent evidence showing that no decisive influence was exerted.


5. Comment


The Akzo judgment of the ECJ must be welcomed insofar that it appears to finally clarify the requirements under which parent companies may be held liable for their subsidiaries' anticompetitive conduct.  However, in doing so, the ECJ adopted a very strict standard under which it appears very unrealistic to rebut the presumption of control.  Prior to the Akzo judgment, the question was which requirements should be applied to prove that the parent actually exercised decisive influence over its subsidiaries.  While the CFI in the Akzo case had taken the view that it is sufficient for the Commission to provide evidence that the subsidiary is wholly owned, the same court had ruled in the Bolloré judgment that a 100% shareholding is not sufficient in itself to establish decisive influence, thereby applying a "100% + x" rule.  The Bolloré judgment is itself under appeal to the ECJ.


It is disappointing that the ECJ did not follow the Bolloré approach.  There is no doubt that the rebuttable presumption in case of a mere 100% shareholding provides a clear rule and is straightforward to apply in practice.  However, such low burden of proof which the Akzo judgment imposes on the Commission as regards the liability of a parent company does not appear appropriate.  The Akzo judgment confirms a questionable Commission practice which in fact has over the past years resulted in an almost strict liability regime for parent companies - without having a sufficient legal basis.    


Contrary to the findings of the ECJ in Akzo, there appears to be case law - in particular, the ECJ's Stora judgment of 2000 - which makes the application of the presumption subject to the production of additional indicia relating to the actual exercise of influence by the parent company ("100% + x requirement").  Furthermore, in its judgment Imperial Chemical Industries of 1972, the ECJ ruled that in order to determine whether a parent company is to be regarded as being responsible for the unlawful conduct of its subsidiary, it needs to be established [by the Commission] that the subsidiary "does not decide independently upon its own conduct on the market, but carried out, in all material respects, the instructions given to it by the parent company".  This ruling was quoted by the European Commission in its 2004 decision "Raw Tobacco Spain" which appears to be the only recent case in which the Commission did not attribute a cartel violation committed by a wholly-owned subsidiary (i.e. Taes) to its parent companies.  The Commission reasoned that "apart from the corporate link between the parents and their subsidiaries, there is no indication in the file of any material involvement of Universal Corporation and Universal Leaf in the facts which are being considered in this decision.  It would therefore not be appropriate to address them a decision in this case".  Where a group has a decentralized structure with no lines of communication between the parent company and its wholly-owned subsidiaries regarding their conduct on the market, there does not appear to be any justification for holding the parent company jointly and severally liable for its subsidiary's infringements. 


However, the above mentioned example Taes/Universal appears to constitute an exemption in the case law of the Commission and this will not change after the Akzo judgment.  The ECJ took the view that its approach in Akzo does not amount to the introduction of a strict liability regime.  It is however difficult to imagine a situation in which a parent company could be successful in rebutting the presumption given that, following the ECJ, it shall not be sufficient for the parent to provide evidence that it did not make actual use of its rights to give instructions or guidance in relation to the commercial policy of the subsidiary.  The Absence of those factors shall not infer a subsidiary's autonomy.  The ECJ took the view that a single group commercial policy which justifies the attribution of cartel violations to the parent may be inferred from the totality of the economic, organizational and legal links between the parent and its subsidiaries.  In the case of a 100% subsidiary such kind of links will almost always exist. 


In any event, the Akzo judgment is clear in imposing high hurdles for parent companies who are confronted with cartel violations committed by their subsidiaries.  It would be on the EU legislator to establish a well-balanced liability system.