In Article 101 TFEU decisions, the European Commission (EC) appears to be obsessed with holding parent companies responsible for the actions of their subsidiaries regardless of how tenuous the relationship is among the various legal entities. However, it appears that the EC went a step too far in this frenzy of finger pointing when it tried to hold a subsidiary responsible for the actions of its previous parent companies in its Marine Hoses proceedings.

The case is an appeal before the General Court (Court) brought by Parker ITR Srl and Parker-Hannifin Corp against the EC (Case T-146/09). While the Court addresses a number of pleas, most of which are commonly found in EU cartel cases, the Court does tackle one issue of note since it deals with companies which can be held liable for an infringement of Article 101 TFEU. More specifically, the Court engages into a detailed discussion about when the EC may apply the economic continuity criterion when establishing personal liability.

Personal Liability and Economic Continuity

Under the principle of personal liability (or responsibility), the legal person, who ran the business at the time the infringement was committed, answers for the illicit behavior, even though when the infringement decision is adopted, a different natural/legal person has taken control of the undertaking.

The Court explains that the “economic continuity (or succession) criterion” provides that a natural/legal person who has not committed an infringement may nevertheless be penalized – that is, it may be held personally liable for the infringement - if the natural/legal person that did commit the infringement has ceased to exist and either:

  1. The former undertaking that infringed EU competition law is linked economically and organizationally to the current natural person/legal entity. For example, the former undertaking changes its name and/or legal form but is otherwise the same undertaking or the former undertaking is absorbed as a result of a merger; or
  2. The legal person that committed the infringement has been transferred to a third party under something other than normal market conditions with the intention of avoiding antitrust law penalties.


Like many subsidiaries that have been around for more than 50 years, Parker ITR had a rather complicated “family tree.”

  • 1966: The Pirelli Group’s company, Pirelli Treg SpA, got into inter alia the marine hose business.
  • December 1990: ITR SpA, another company in the Pirelli Group, took over Pirelli Treg’s marine hose business.
  • 1993: Saiag SpA acquired ITR SpA.
  • June 27, 2001: ITR SpA created a subsidiary, ITR Rubber Srl.
  • December 19, 2001 (with effect from January 1, 2002): ITR SpA transferred its marine hose business to ITR Rubber Srl.
  • January 31, 2002: Parker-Hannifin Holding acquired ITR Rubber Srl. It later renamed it Parker ITR. Through a subsidiary, Parker-Hannifin holds 100% of the shares in Parker ITR.

In the Marine Hose investigation, the EC concluded that Parker ITR, in its various forms, had participated in a cartel from April 1, 1986 until May 2, 2007. As a result, it held Parker ITR liable for the full period of the infringement and Parker-Hannifin liable from January 31, 2002 (when it acquired ITR Rubber Srl) until the end of the cartel on May 2, 2007. The EC relied on the economic continuity criterion in order to hold Parker ITR liable for the full duration of the infringement. The Court, however, disagreed.

Personal Liability: With or Without the Economic Continuity Criterion?

The Court reminded the EC that the “economic continuity” criterion only applies if one of the two above exceptions applies. The criterion was not designed so that the EC could hold an undertaking responsible retroactively for acts committed by another undertaking - barring the two exceptions. Therefore, according to the Court, the EC should have applied the principle of personal responsibility full stop.

Under the principle of personal responsibility, the EC could penalize the legal person that was transferred (as from the date it was established) for the period that it, itself, participated in the infringement since it could be held individually responsible. Typically, this is a subsidiary. The EC could also penalize the legal person managing the undertaking in question when the infringement was committed. Typically, this is a parent company.

In this case, this meant: ITR Rubber Srl was established and functioning as a marine hose business as of January 1, 2002. Therefore, it could be held individually responsible from January 1, 2002 onward. Parker-Hannifin, as a parent company, could also be held responsible from January 31, 2002. As for the marine hose business’ anticompetitive conduct prior to January 1, 2002, when ITR participated in the cartel, the EC should have held ITR and Saiag, as the parent company, responsible for the infringement (and to conclude whether, as we suspect, it was time-barred).

The Good News

Parent companies are regularly held responsible for their subsidiaries’ (and even joint ventures’) indiscretions. Therefore, this Court ruling is welcomed. The Court cleared up any confusion, at least any the EC may be struggling with, as to when it may apply the economic continuity criterion. The EC should only find a legal person responsible for an infringement committed by another via economic continuity under one of two narrow exceptions outlined above. Otherwise, the EC should hold the distinct entity who committed the infringement personally liable for the illicit behavior. The additional good news is that, while a subsidiary may be penalized instead of the parent company (to the extent that it participated in the infringement), it may not be held retroactively responsible for an infringement committed by its parent company before it was formed.

The judgment allows everyone to enjoy a tiny sigh of relief. In most cases, it is right to fear the worst since if feels like the EC typically enjoys more than just a little discretion when it comes to assigning liability. This is not to say that parent companies should become complacent in their dealings. Indeed, Parker-Hannifin is still on the hook (jointly and severally) for € 6.3 million, in addition to the € 6.4 million its subsidiary will have to pay. Even though speculation can be made on all of the ways this could have been avoided it is a step in the right direction. In this case, like in others, the EC clearly states that it has discretion to choose the person responsible for the infringement both in cases of economic continuity and, more generally, with respect to parent companies and their subsidiaries. The Court disagrees with the EC’s definition of “discretion” and it clearly says so in its judgment. Discretion is not the same thing as carte blanche. The economic continuity criterion may only be applied under narrow specific conditions. Hopefully, the Court will continue to draw some bright lines with respect to liability – practitioners and industry would welcome a little less “discretion” in the application of parental liability and the definition of an “undertaking” under EU competition law.