On February 2, 2012, the European Union 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 50/50 owned subsidiary DDE, 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).

The Dispute

In 2007, the European Commission imposed substantial fines on a number of companies, including El DuPont and Dow, relating to having participated in a price-fixing 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.

Specifically, 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 a fine that may be imposed by the Commission for an antitrust violation.  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 Judgments

The General Court found both El DuPont and Dow to be jointly and severally liable with DDE for the infringement, and held inter alia 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 ability to exercise decisive influence over the conduct of its subsidiary. There must also be factual evidence that such influence was actually used.

The General Court 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 that the parent companies acquired joint control of DDE for the purposes of the EU Merger Regulation, which implies having the ability to determine the activities of DDE as a consequence of rights, contracts or any other means.
  • The Members Committee of DDE filled top management posts of DDE with persons from senior management positions within the parent companies, who systematically participated in anti-competitive meetings.
  • The Members Committee decided to close a DDE production facility, which required the consent of the parent companies.
  • The parents ordered an internal investigation in 2003 to investigate whether DDE participated in the cartel, which indicated that the parents assumed they could instruct DDE on matters of competition law.

In arriving at its decision, the General Court inter alia held that:

  • for the purposes of the application of Article 101, it was irrelevant that DDE was a full functioning joint venture. The operational economic autonomy a full function joint venture has does not per se imply that the venture enjoys autonomy regarding its strategic decisions without the decisive influence of the parents.
  • the fact that the joint control in the case of DDE was only “negative” did not eliminate the parents decisive influence over the venture.
  • Concluding that DDE and its parents formed a single undertaking was not inconsistent with applying Article 101 to the relationship between a joint venture and its parents.

Lessons Learned

The General Court DDE decision may support a tough approach by the Commission -- not just joint venture, with respect to parent company potential liability for EU competition law infringements of subsidiaries. As to joint ventures, the decision makes it very clear that management and control of such ventures must be competition law compliant. The seconding of high ranking management from the parents to the decision making bodies of a joint venture should be avoided, if possible not only to preclude indirect coordination, but also to prevent the creation of  parental liability in such cases.  Moving forward, it is clear that it may be very difficult for parents to avoid liability for the conduct of their joint ventures, even when;

  1. the venture is a full function joint venture;
  2. the parents merely have negative control; and
  3. the parents  do not themselves, engage in competition law infringements.