On February 2, 2012, the EU General Court rendered two judgments regarding if and when joint venture parents can be held liable for the cartel behavior of their 50/50 joint venture. In T-77/08 (Dow Chemical v Commission) and T-76/08 (El DuPont de Nemours and Others v Commission), the General Court held that both Dow Chemical and El DuPont were jointly and severally liable for the conduct of their jointly owned subsidiary DDE, where each held 50 percent of the shares, despite the fact that (i) each parent could not individually impose decisions on DDE, but only had negative control, and (ii) DDE was a so-called "full function" joint venture (as defined in the EU Merger Regulation).
In 2007, the European Commission imposed substantial fines on a number of companies, including El DuPont and Dow, relating to having participated in a pricefixing and market-sharing cartel in relation to chloroprene rubber. In that decision, El DuPont and Dow were held to be jointly and severally liable for the conduct of their 50/50 joint venture, DDE. This was based on DDE not having an autonomous position, and Dow and EI DuPont jointly having "decisive influence" on the commercial conduct and policies of the joint venture.
In this respect, the Commission held that the parent companies could influence the general market behavior of DDE, given the actual role and composition of DDE's supervisory "Members Committee," which had as members high level executives of both parent companies.
In EU competition law, liability is imposed on "undertakings." An "undertaking" is an entity or group of entities that effectively function as a single economic unit. A parent company and its subsidiaries constitute an undertaking if the parent company exercises "decisive influence" over the conduct of the subsidiary. Decisive influence is deemed to exist if the subsidiary, although being a separate legal entity, does not independently determine its own market conduct, and operates in accordance with its parent company’s control. Such parental liability has a severe impact on the amount of the fine that may be imposed — when the parents are joint and severally liable, the fine limit is higher, i.e., the fine is based on the turnover of the whole group.
The General Court found both El DuPont and Dow to be jointly and severally liable with DDE for the infringement and inter alia held that the conduct of a subsidiary may be imputed to the parent company if such company does not independently determine its conduct, but
"carries out, in all material respects, the instructions given to it by the parent company, regard being had in particular to the economic, organisational and legal links between the two undertakings".
The Commission, however, cannot base that liability on the mere finding that the parent company has the possibility to exercise decisive influence over the conduct of its subsidiary. It must also be established on the basis of factual evidence that such influence was actually used.
It was held that a parent can have decisive influence over a subsidiary
"even when it does not make use of any actual rights of co-determination and refrains from giving any specific instructions or guidelines on individual elements of commercial policy".
Such a single commercial policy may be inferred
"indirectly from the totality of the economic and legal links between the parent company and its subsidiaries. For example, the parent company's influence over its subsidiaries as regards corporate strategy, operational policy, business plans, investment, capacity, provision of finance, human resources and legal matters may have indirect effects on the market conduct of the subsidiaries and of the whole group".
In respect of DDE, the General Court based its judgment that the two parent companies and DDE formed a single undertaking on the following factors:
- DDE's Members Committee was established to supervise the business of DDE and to approve certain matters pertaining to the strategic direction of DDE.
- The establishment of DDE was approved by the Commission under the EU Merger Regulation in February 1996 (Case IV/M.663 - DuPont/Dow), the Commission having ruled the parent companies acquired joint control of DDE for the purposes of the EU Merger Regulation, which implies having the possibility to determine, as a consequence of rights, contracts or any other means, the activities of DDE.
- The Members Committee of DDE filled top management posts of DDE with persons from senior management positions within the parent companies, and these very persons were systematically involved in the participation in, and organization of, the anti-competitive meetings.
- The Members Committee decided to close a DDE production facility, which could not be done without the consent of the parent companies.
- The parents ordered an internal investigation, which was held in 2003, to investigate if DDE participated in the cartel, which was found to indicate that the parents assumed they could instruct DDE on matters of competition law.
In arriving at its finding, the General Court inter alia held:
- it not to be relevant that DDE was a full function joint venture for the purposes of the EU Merger Regulation. The operational economic autonomy a full function joint venturer is to have does not imply that per se the joint venture enjoys autonomy regarding its strategic decisions, excluding decisive influence of the parents for the purposes of the application of Article 101.
- the fact the joint control in the case of DDE was only “negative” did not pre-empt the parents to have decisive influence over DDE.
- DDE and its parents forming a single undertaking was not inconsistent with applying Article 101 to the relationship between a joint venture and its parents.
The judgments may be seen to support a tough approach by the Commission, where holding parent companies are made liable for the EU competition law infringements of subsidiaries. The judgments make it very clear that management and control of joint ventures needs to be competition law compliant, not only when creating a full function joint venture, and avoiding coordination and/or information exchange between the parents, but also moving forward, as it is clear that it will be very difficult for parents to avoid liability for their joint ventures, even when;
- the joint venture is a full function joint venture;
- the parents merely have negative control;
- and where the parent companies do not engage themselves in competition law infringements.
The seconding of high ranking management from the parents to the decision making bodies of the joint venture needs to be avoided, not only to preclude indirect coordination, but also to prevent the creation of a parental liability in such cases.