The preliminary ruling by the European Court of Justice (CoJ) in VM Remonts (C-542/14) is a rare occurrence: a judgment that lets everyone sit back with a little sigh of relief. In a case that dealt with a crucial question – to what extent can a company be held liable for the anticompetitive behavior of one of its service providers – Advocate General Wathelet’s opinion was unnerving in that he suggested that a brand new rebuttable presumption of liability for third-party infringements should be created (see our briefing about his opinion). Fortunately, the CoJ has chosen not to follow his advice in its subsequent ruling.
The Latvian city of Jūrmala issued a call for tenders to supply food to kindergartens. Three undertakings submitted tenders in response to the call, including Pārtikas kompānija (PK). PK prepared its initial draft tender, including the prices that it planned on submitting, and then passed it on to SIA ‘Juridiskā sabiedrība “B&Š partneri’” to provide legal assistance. B&Š partneri sent PK’s draft tender to a subcontractor, SIA “MMD lietas,” to complete the work. Unbeknownst to PK, MMD lietas was also preparing the tenders for the two other companies (DIV un KO and Ausma grupa) that were bidding for the project. One of MMD lietas’ employees used PK’s draft tender, in particular the prices, while preparing the other two tenders. The employee made Ausma grupa’s tender approximately 5% lower than PK’s tender and DIV un Ko’s tender approximately 5% lower than Ausma grupa’s tender.
Subsequently, the Latvian Competition Council held that the three bidding companies had engaged in an anticompetitive concerted practice and fined them. They, in turn, went before the Regional Administrative Court and challenged the decision. The court annulled the decision with respect to PK, but upheld it with respect to the other two undertakings. The court concluded that there had been a concerted practice, but that PK had not been involved in it. DIV un Ko, Ausma grupa and the Latvian Competition Council appealed before the Latvian Supreme Court. The Supreme Court stayed proceedings so that it could ask the CoJ a specific question: If an undertaking (PK) is answerable for participation in a concerted practice within the meaning of Article 101(1) TFEU due to the actions of an independent service provider (MMD lietas) that supplied the undertaking with services, since the undertaking had not authorized the conduct nor was aware of it?
The CoJ began by distinguishing employees from service providers.
- Employees perform their duties for and under the direction of the undertaking that employs them.
- Therefore, employees are part of the undertaking.
- As part of the undertaking, any employee’s anticompetitive conduct is attributable to the undertaking.
- Therefore, as a matter of principle, the undertaking is liable for the anticompetitive conduct.
Independent Service Providers
- Independent service providers offer services:
- in return for payment;
- on a given market; and
- on an independent basis.
- Therefore, they are separate undertakings from those that use their services (client undertakings).
- Because they are separate undertakings, independent service providers’ anticompetitive behavior cannot automatically be attributed to the client undertaking.
The CoJ further elaborates that there may be instances where the line between employee and independent service provider blurs – where the service provider is acting under the direction or control of the client undertaking. This would be the case if the service provider had little or no autonomy or flexibility in how it provided its services to the client undertaking. In order to evaluate such a shift from nominal independent service provider to employee (for competition law purposes only) you have to look at the organizational, economic and legal links between the service provider and client undertaking. If this sounds familiar, it is because it is the same type of analysis that needs to be done when determining parental liability (see our numerous briefings on this subject, including this overview).
Client undertakings are not totally in the clear though. Even if a service provider is truly independent, a client undertaking can be liable for the service provider’s anticompetitive conduct if:
- The client undertaking was aware of its competitors’ and the service provider’s anticompetitive objective and intended to contribute to it (i.e., it used the service provider to share commercially sensitive information with competitors); or
- The client undertaking could have reasonably foreseen that the service provider would share its commercially sensitive information with competitors and it was willing to take the risks associated with such conduct.
The CoJ’s judgment seems reasonable. Undertakings should not be able to hire independent service providers to undertake anticompetitive practices. They can be held liable regardless of the fact that it is an entirely separate undertaking that is executing the anticompetitive tasks while the client undertaking is reaping the rewards.
For service providers, the case creates an interesting dynamic. Arguably, looking at AC-Treuhand (C-194/14 P – see our briefing), depending on how the authorities see things, an independent service provider can either be independently held liable for its conduct or its client can be held liable for it. From a financial perspective, it may make sense for a service provider to rely on the exceptions in this case – the client undertaking gave it little room to maneuver and/or knew/should have known what it was up to.
The initial sigh of relief by client undertakings may be short-lived. There could be a significant amount of finger-pointing in years to come between service providers and client undertakings. To the extent that these types of issues can be anticipated, both parties should carefully consider how services are contacted and instructions are given.