In the EU, it is exceptionally difficult for parent companies to escape liability for antitrust wrongdoing by wholly owned subsidiaries. The fact of being a parent company (purely as a matter of corporate structure) gives rise to a presumption that the parent and its subsidiaries are a single economic entity for the purposes of EU antitrust law. Even if the parent company has only marginal involvement in the affairs of its subsidiaries, it will be on the hook for their misdemeanours.
The issue of bad behaviour attribution also arises for companies involved in joint ventures. Two parent companies can both exercise joint control over their joint venture and both be held responsible for the actions of their joint venture, even where the venture is 50/50 and one of the parents has a veto over strategic decisions. Whether or not a joint venture parent will be held liable depends upon a range of economic, organisational and legal factors (including in particular how the joint venture has operated and been managed as a matter of fact).
The single economic entity rule matters for two key reasons:
- First, the level of fines for antitrust infringements in the EU is subject to a cap that is determined by the turnover of the entire corporate group, rather than just the turnover of the subsidiary or joint venture. The group figure will be a much bigger number than the subsidiary or joint venture figure.
- Second, recidivism is fine multiplier. If any entity in the parent company group(s) has infringed previously, there is a risk that this will engage the multiplier.
Avoiding active involvement in and oversight of the activities of subsidiaries and joint ventures will not be an effective route to avoiding liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
