On February 27, 2014, the General Court of the EU (GC) issued its judgments in Cases T-91/11 and T-128/11. The cases involved appeals lodged by InnoLux Corp. (InnoLux) and LG Display (LGD), respectively, against the fines imposed by the European Commission (EC) on each company for participating in a cartel on IT and TV liquid crystal display (LCD) panels. In both judgments, the GC fully endorsed the EC’s methodology of including intra-company sales in the calculation of the fines imposed on the cartel participants.
The EC’s Methodology
In its Decision, the EC distinguished among three categories of sales of LCD panels made in the European Economic Area (EEA) by the cartel participants:
- Sales of LCD panels to independent third parties within the EEA (direct sales)
- Sales of LCD panels to an entity within the group to which the cartel participant belonged, which incorporated them into finished products that were subsequently sold to independent third parties within the EEA (direct sales of transformed products)
- Sales of LCD panels to independent third parties outside the EEA, which then incorporated the LCD panels into finished products and sold them within the EEA (indirect sales)
In determining the basic amount of the fine under recital 13 of the EC’s Guidelines on Fines, the EC has to take into account the value of sales of “goods or services to which the infringement directly or indirectly relates” in the EEA. In relation to LCD panels, the EC took into account the first two categories of sales, i.e. the direct sales and the direct sales of transformed products. As to the third category, the EC noted that, although the value of indirect sales into the EEA could also have been included in the relevant value of sales, there was no need to do so because sufficient deterrence was already achieved by the inclusion of the first two categories of sales.
In so far as InnoLux was concerned, the EC held that it formed a single undertaking with its two European subsidiaries, Chi Mei Optoelectronics BV and Chi Mei Optoelectronics UK Ltd. (both, Chi Mei). As a result, any sales made by InnoLux to Chi Mei were not considered to be sales to independent third parties under the category of direct sales, but rather fell under the category of direct sales of transformed products.
In contrast, the EC calculated the fine imposed on LGD by treating its sales to LG Electronics (LGE) and Koninklijke Philips Electronics (Philips) as direct sales, i.e. sales to independent third parties. While both LGE and Philips held stakes in LGD throughout the infringement period, the EC considered that LGD, LGE and Philips did not form a single undertaking, and concluded on that basis that LGD’s sales to LGE and Philips should not be treated as direct sales of transformed products.
Bizarre, Yet Not Discriminatory Outcomes
On appeal, both InnoLux and LGD made claims regarding discriminatory treatment, albeit on somewhat different grounds.
InnoLux argued that the distinction between direct sales and direct sales through transformed products led to discriminatory outcomes. Sales of LCD panels made by a cartel participant to its European subsidiary, which then incorporated them into finished products, were taken into account as direct EEA sales through transformed products only when the finished products were sold to an independent third party within the EEA. In contrast, any LCD panels sold by InnoLux to the European subsidiary of another cartel participant for final incorporation into a finished product were taken into account as direct sales, even when the finished products were eventually sold outside the EEA.
For its part, LGD argued that, under the distinction between direct sales through transformed products and indirect sales, finished products were treated differently depending on whether the LCD panels were incorporated in them by companies belonging to the same group as the cartel participant, or by unrelated companies located outside the EEA – given that indirect sales were not taken into account by the EC in the calculation of the fines imposed.
The GC rejected the applicants’ arguments. It reiterated that the principle of equal treatment requires comparable situations not to be treated differently, and different situations not to be treated in the same way – unless such treatment is objectively justified. On that basis, the GC found that ‘direct sales’ and ‘direct sales through transformed products’ are not comparable situations, as the existence of a single undertaking is a differentiating factor. The GC observed that the focus is on sales made by entities of the group to which the cartel participant belongs to the first independent customer in the EEA, irrespective of whether that independent customer is also a member of the cartel. In addition, the GC found no error on the part of the EC for looking at EEA sales of finished products, provided that adequate adjustments were made to capture the value of the LCD panel. According to the GC, such method allowed the EC to capture the harm inflicted to competition by vertically integrated companies.
In rebutting LGD’s claims of discriminatory treatment, the GC noted that the exclusion of indirect sales applied to all cartel participants. In passing, it also found that the link between the cartel and the territory of the EEA was weaker for indirect sales than for direct sales through transformed products.
A Step towards More Extra-Territorial Application of EU Competition Law?
The GC’s judgments constitute a significant step towards the amplification of the EC’s extra-territorial jurisdiction to apply EU competition law to cartel conduct. The GC essentially confirmed that the EC may assert territorial jurisdiction over cartel conduct when, before reaching the EEA, the cartelized products are incorporated into final products by a legal entity which is part of the group of companies that has participated in the cartel.
The GC did not go as far as to make a similar finding regarding indirect sales. However, it appeared not to close the door to such a possibility in the future, provided that an adequately strong link exists between such sales and the EEA territory.