In VM Remonts (link here), the EU Court of Justice ("ECJ") ruled for the first time on whether a company can be liable for competition law infringements that resulted from the actions of a third party service provider that was not an agent of the company and was taking initiatives that clearly exceeded the tasks assigned to it.
The judgment confirms that a company can be held liable for a concerted practice carried out by an independent service provider if:
- the service provider was acting under the direction or control of the company,
- the company was aware of the anti-competitive objective and intended to contribute to it by its own conduct, or
- the company could reasonably have foreseen the anti-competitive acts of its competitors and the service provider, and was prepared to accept the risk of the concerted practice.
Though this scales back the test proposed by the Advocate General - suggesting a presumption of liability that the defendants would have to rebut - it has important implications for competition compliance and counselling.
On its face, the case concerned facts so extreme that they would appear highly unlikely to transpire in practice. Three tenderers for school food contracts each mandated the same third party consultant to draft their responses to the tender. The consultant - an independent company - drafted tenders that carefully offered slightly, but sufficiently, different prices to ensure that only one of the tenderers would win. All tenderers were accused of being party to a bid rigging cartel. On appeal the national court asked the Court of Justice to what extent a company who claims to know nothing of an independent service provider's actions still be liable for cartel type conduct.
The Court has clarified that employees and genuinely independent service providers should be looked at very differently. An employee or a consultant acting under a company's direction or control will automatically create liability for the company. It is no good arguing that the employee or controlled entity "went rogue". The company's relationship is such that it cannot avoid liability.
Conversely if the entity is truly independent, then the company can only be liable if (i) it is aware of the anticompetitive objective and contributes to it or (ii) should have known that of the anticompetitive outcome but is prepared to take the risk.
The case thus goes much further than the extreme facts at issue. Though it will be a rare occurrence when competitors appoint the same consultant to answer tenders, the use of consultants for benchmarking studies, statistical collection or marketing surveys is very common. So too for competitors who may have common suppliers, consultants or advisors with whom they share information that could be of use to rivals. In those circumstances, the risk of intentional or negligent conduct that leads to sharing of pricing or future bidding strategies could risk liability under the tests posited by the ECJ.
When considering instructing a service provider in a sensitive area (relating to pricing, tenders or anything else involving competitors):
- Ask if the service provider genuinely is independent from the contracting company or is it acting under the User's direction or control? Two things are relevant here:
- How much autonomy or flexibility does the service provider have with regard to the way in which the activity concerned is to be carried out?
- Slightly vaguer is the question of whether there are any "organisational, economic and legal links" between the service provider in question and the contracting company. This will involve consideration of the corporate/shareholding links between the two.
- Assuming the service provider is genuinely independent from the contracting company, the Court is happy to distinguish its conduct from that of an employee whose acts are in principle attributed to their employer. However, there are two caveats which would lead to the contracting company being back on the hook:
- Was the contracting company aware of the anticompetitive objectives pursued by its competitors and the service provider, and did it intend to contribute to them by its own conduct?
- Could the contracting company reasonably have foreseen the anticompetitive acts of its competitors and the service provider and was it prepared to accept the risk?
- Make sure that the service provider is independent:
Consultants likely to be collecting or using sensitive information should be independent service providers rather than agents or quasi-employees. Boiler plate language in the assignment agreement can be used to make this clear, as well as making clear in the specification of services that the consultant is free to deliver on the project under its own responsibility, rather than working to the direction or under the control of the customer.
- Make sure employees are aware of the risks of outsourcing to service providers projects involving sensitive information:
Those instructing service providers in high risk contexts (bids, pricing, customer or market opportunities) should understand the risk of using the service provider as a knowing or inadvertent conduit to communication illegally with competitors. Information should be provided under a suitable non-disclosure arrangement and obligation to abide by all laws, including competition law in undertaking the project. Any red flags (for example that information will also be collected from competitors or disseminated to them) should be noted and escalated to the legal department.