On 6 October 2021, the European Court of Justice (the “ECJ”), sitting in a Grand Chamber composition, delivered its decision in Case-882/19 Sumal SL v Mercedes Benz Trucks España. The judgment provides clarity on issues relating to the imputability of anticompetitive conduct within a group of companies and the related private enforcement consequences.
On 19 July 2016, the European Commission (the “EC”) imposed fines on the German company Daimler AG (“Daimler”) and a number of European truck manufacturers for their participation in a cartel contrary to Article 101 of the Treaty on the Functioning of the European Union (the “TFEU”). Daimler had entered into a series of agreements with fourteen other European truck manufacturers to increase truck prices between January 1997 and January 2011.
Between 1997 and 1999, Sumal SL (“Sumal”) had purchased two trucks from Mercedes-Benz Trucks España (“MBTE”), a Spanish subsidiary of Daimler. Following the Trucks decision, Sumal sued MBTE before the Audiencia Provincial de Barcelona (the “APB”) for damages for the abovementioned anticompetitive conduct. The EC’s Trucks decision was not addressed to MBTE. This led the APB to dismiss the action at first instance on the ground that MBTE could not be a defendant, as the EC’s decision only applied to Daimler.
Sumal appealed against this decision and the APB decided to suspend proceedings and refer to the ECJ for a preliminary ruling the question of whether a subsidiary can be held liable for the anticompetitive conduct of its parent.
The Single Economic Entity Doctrine
According to settled case law, an ‘economic unit’ consists of ‘a unitary organisation of personal, tangible and intangible elements, which pursues a specific economic aim on a long-term basis and can contribute to the commission of an infringement of the kind in Article 101(1) TFEU’ (C-407/08 P – Knauf Gips v Commission). It should be remembered that the SEE doctrine, as developed in EU competition law, is also reflected in recital 37 of the GDPR.
Prior to the decision in Sumal, parent companies could be held liable for the anticompetitive conduct of their subsidiaries. Whether subsidiaries could be held liable to pay damages for the anticompetitive conduct of their parent company, however, was a question that had never been addressed prior to Sumal.
The ECJ stresses that the concepts of an ‘undertaking’ and ‘economic entity’ cannot have a different scope for the purposes of private enforcement than in public enforcement of EU competition law, since such actions for damages for competition law infringements are an integral part of the system for its enforcement. The ECJ then recalled the concept of an ‘undertaking’ within the meaning of Article 101 TFEU stating that it covers ‘any entity engaged in economic activity, irrespective of its legal status and the way in which it is financed, and thus designates an economic unit even if in law that unit consists of several natural or legal persons’.
The ECJ clarifies that these concepts provide the basis for joint and several liability among the entities of which the economic unit is made up at the time that the infringement was committed. The ECJ rejected the view that it is decisive influence or control over the infringing legal entity that triggers the application of joint and several liability.
In order for damages to be recovered from a subsidiary before a national court for the anticompetitive conduct of its parent company, the claimant must prove both:
- the existence of the abovementioned economic, organisational and legal link between the entities (i.e. that they form part of the same economic unit), and
- the existence of a specific link between the subsidiary’s economic activity and the subject matter of the parent company’s anticompetitive conduct.
Although the above test allows room for rejection of liability in cases where the activities of the subsidiary are not so related to the parent’s activity for which liability was found, it remains to be seen how this will be applied in practice. In the case in question, the subsidiary was marketing the very products for which an anticompetitive agreement was established with the prior decision.
Although Sumal concerned a situation where there was an earlier infringement decision by the EC finding the parent company liable, the ECJ repeats on several instances that where no earlier infringement decision was adopted under Article 101 TFEU, the defendant to the action for damages will also be entitled to dispute the very existence of the conduct alleged to amount to an infringement.
According to the ECJ, the earlier finding of an infringement by the EC against an undertaking should also be definitive with regard to a subsidiary company’s liability, since it is for the whole economic unit which constitutes the undertaking that has committed the infringement to answer for it. In so far as the decision has been addressed to one of the companies that form part of the relevant undertaking, it was held that the rights of the defence of the other companies are not breached when the existence of that infringement is taken into account in a later action for damages.
The ECJ also reminds us that under the system established by Regulation 1/2003 the EC is free to choose which legal entity belonging to an undertaking that commits an infringement to hold liable and punish, but that choice does not mean that other subsidiaries are not part of the same infringement and must answer for it. The ECJ then concludes that the victim may either sue the parent company which has been punished by the EC or the subsidiary which is not referred to in the previous decision where those companies together constitute the same economic unit.
The ECJ has, for the first time, set out the logic behind the SEE doctrine and the extension of liability to pay damages to entities that form part of the same economic unit, but which do not exercise control and are not themselves referred to in a prior EC decision finding an infringement of the competition law rules.
The decision of the ECJ in Sumal undoubtedly broadens the list of potential defendants that may be sued in cartel damages proceedings. Yet, it is quite likely that the implications of the decision reach beyond the realm of liability (and ability to sue) for private enforcement and cartel damages. In relation to public enforcement, the decision may have an impact on the options available to a competition authority when exercising its enforcement discretion.
Even after Sumal, some things remain uncertain, such as the way in which ‘the existence of a specific link between the economic activity of [a] subsidiary and the subject matter of the infringement for which the parent company was held to be responsible’ is to be interpreted. However, as Aristotle has said ‘well begun is half done’ and we await further developments on the application of the SEE doctrine with anticipation.
Chrysses Demetriades & Co. LLC