This dissertation discusses recent case law of the European Commission (“Commission”) and the General Court in which both parent companies of a full-function joint venture are held jointly and severally liable for an infringement committed by the joint venture. The Commission bases the imputation of liability on the fact that the joint venture and each of the joint venture parents form part of the same economic entity. As both joint venture parents are clearly different undertakings, it seems counterintuitive that the joint venture can form part of the same economic entity as each parent, while the parents are each part of different economic entities
(i.e. their respective groups).
This dissertation seeks to explain the Commission’s reasoning behind the imputation of liability to both joint venture parents and to establish whether this reasoning is correct, or whether there are alternatives.
The dissertation focuses on fines imposed on the basis of Article 23 of Regulation 1/2003. Fines can be imposed under this provision for both infringement of Article 101(1) of the Treaty on the functioning of the EU (TFEU) (the cartel prohibition) and of Article 102 TFEU (the prohibition of abuse of a dominant position). As the main inspiration for this dissertation comes from the recent case law in which the Commission imposed fines for infringement of Article 101(1) TFEU, infringement of Article 102 TFEU shall not be discussed individually. However, the general rules relating to imputation of liability for infringement of Article 101(1) TFEU also apply in Article 102 cases, albeit that it is normally the entire group of the parent company that has a dominant position and not a specific joint venture.
Article 101(1) TFEU prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market. This dissertation shall focus on a particular type of infringement of Article 101(1) TFEU, being cartels. A cartel can be defined as a collective organisation of undertakings, whose members enter into a secret agreement to suspend competition among themselves.1
If discovered, cartels are often penalised by the Commission or national competition authorities (“NCAs”) with severe fines. These fines serve not only to punish the undertakings involved, but also to deter them and others from forming cartels in the future.
Fines are usually imposed on the companies directly involved in the infringement. However, it is also common practice of the Commission and the European Courts to hold parent companies of the companies directly involved in the infringement jointly and severally liable for the behaviour of its subsidiary (parental liability).
This chapter will set out the legal framework under which the Commission imposes fines, by looking at infringement proceedings and the way in which the Commission calculates fines (paragraph 2.2), the concept of ‘undertaking’ (paragraph 2.3), and parental liability (paragraph 2.4).
Regulation 1/2003 provides the Commission with a number of ways to address cartel infringements. For example, the Commission can adopt ‘cease and desist’ decisions, impose interim measures and make commitments offered by the companies involved to meet the concerns expressed to them by the Commission binding. However, one of the most important arrows in the Commission’s quiver, and definitely the instrument best known to the public, is the imposing of fines on companies that infringe the competition rules, as set out in Articles 23 and 24 of Regulation 1/2003. This dissertation will focus on Article 23.2
It is safe to say that the most important provision is paragraph 2 of Article
23. This paragraph allows the Commission to impose fines on undertakings and associations of undertakings by decision, where they infringe Article 101(1) and 102 TFEU.
The purpose of imposing fines is primarily to ensure that the prohibited conduct does not recur.3 The essential purpose can thus be summarised as to deter and persuade.4In this respect, fines have a twofold character: they punish past acts and have a general deterrent effect for the future, both for the infringing undertakings (special prevention) and for others (general prevention).5
The maximum fine under Article 23(2) is 10% of the relevant undertaking’s total turnover in the preceding year. It is important to note that if
responsibility for an infringement is attributed to a parent company6, this raises the maximum amount of the fine to 10% of the turnover of the parent’s group.
Article 23(3) clarifies that the Commission is required to take into account both the gravity of an infringement and its duration when fixing the amount of the fine. On the other hand, the Commission must also take into account the principle of proportionality.7
Although Regulation 1/2003 provides a maximum amount of the fine and the additional rule that account should be had to gravity and infringement, it does not provide detailed rules on the way the Commission calculates a fine in a specific case. To this end, the Commission has adopted guidelines that it uses when setting fines to be imposed on undertakings for violations of Article 101(1) and 102 TFEU (the “Fining Guidelines”).8 The Fining Guidelines set out a two-step methodology for the setting of fines: first the Commission determines a basic amount for each undertaking concerned, second, it may adjust that basic amount upwards or downwards.
The basic amount is set as a percentage of the value (before tax) of the undertaking’s sales of goods or services to which the infringement directly or indirectly relates in the relevant geographic area within the EEA.9The Commission normally takes the sales made by the undertaking during the last full business year of its participation in the infringement. The percentage to be applied will depend on the gravity of the infringement, but in general the maximum percentage is 30%. For hard-core infringements the
percentage will generally be set at the higher end of the scale.10The amount thus determined is then multiplied by the number of years of participation in the infringement, to account for duration of the infringement. The Commission, furthermore, includes in the basic amount a sum of between 15% and 25% of the value of sales to deter undertakings from entering into horizontal price-fixing, market-sharing and output-limitation agreements.11
Once the basic amount is determined, the Commission can make adjustments upwards or downwards for a number of reasons, including aggravating circumstances (such as recidivism), attenuating circumstances (such as negligence), increase for deterrence, immunity or leniency under the Leniency Notice or an undertaking’s inability to pay.
Fines calculated in accordance with the Guidelines can reach significant amounts. This has raised the question whether fines imposed by the Commission are criminal in nature and, therefore, subject to the European Convention on Human Rights (“ECHR”). Article 23(5) of Regulation 1/2003 is quite clear on this, as it states that decisions imposing a fine pursuant to Article 23(2) are not of a criminal nature. On the other hand, recital 37 of Regulation 1/2003 provides that the Regulation should be interpreted in accordance with the rights and principles recognised in the Charter of Fundamental Rights of the European Union12. Moreover, Article 6(1) of the Treaty on European Union (“TEU”) states that the Charter has the same force as the other Treaties.
Indeed, the Court of Justice relied on the Charter in competition case Knauf KG/Commission13, when allowing an appeal by Knauf which claimed that its
rights of defence had been infringed. When the Italian state claimed in the Menarini case14that a cartel fine was strictly administrative and not criminal in nature, the European Court of Human Rights made clear that cartel fines are of a criminal nature and that...