On 6 October 2021, a preliminary ruling of the Court of Justice of the European Union (“CJEU”) in Sumal confirmed that follow-on damages actions can be brought against subsidiaries of companies found to have infringed EU competition law. This note briefly analyzes the judgment and the implications thereof.
The request for the preliminary ruling was made in connection with follow-on damages actions arising from the European Commission’s (“the Commission”) 2016 trucks cartel decision, which related to alleged collusion regarding the factory prices of trucks and agreements on timing and costs related to emission reduction technologies.
Sumal, a Spanish company, sought compensation from Mercedes Benz Trucks España, a subsidiary of Daimler, relating to the purchase of two trucks between 1997 and 1999. In 2019, a first instance court of Barcelona rejected the action on the ground that the Commission decision was addressed to Daimler, not Mercedes Benz Trucks España, such that Daimler was solely liable for participation in the cartel. Sumal appealed the judgment to the Provincial Court of Barcelona, which requested the preliminary ruling from the CJEU.
Judgment of the CJEU and potential implications
Sumal provided an opportunity for the CJEU to address the concepts of “undertaking” and “single economic unit” in the context of attribution of liability between parents and subsidiaries in the context of damage claims. In its 2019 Skanska judgment, the CJEU applied the “single economic unit” doctrine to find “upward” liability, namely that parent companies can be liable for damages for competition infringements committed by their subsidiaries.
In Sumal, the CJEU agreed with Advocate General Pitruzzella’s Opinion and applied the “single economic unit” doctrine to find “downward” liability, finding that subsidiaries can be the subject of damages claims relating to cartels in which their parent companies are involved, provided that (i) the subsidiary and the infringing parent company are part of a single economic unit and (ii) there is a specific link between the subsidiary’s business and the subject matter of the cartel. This means that claimants can recover damages from a subsidiary if they can establish that there are legal, economic, and organizational links between the parent and the subsidiary, and show that there is a link between the activity of the subsidiary and the infringement for which its parent is liable.
Private enforcement. Not surprisingly, the CJEU followed well-established precedent (Courage and Crehan, recently re-iterated in Skanska), acknowledging the value of private enforcement as “an integral part of the enforcement system” and stressing that the determination of the entity liable is a matter of EU law. However, it did not go as far as establishing downward liability in all circumstances. Rather, it confirms that EU law would not impede such attribution of liability in specified circumstances.
Notion of undertaking. The CJEU then reaffirmed that the concept of an “undertaking” is an autonomous concept that identifies both the perpetrator of an infringement and the entity on which the Commission may impose a fine relating to that infringement on the basis of “economic unity”, thus attributing responsibility “without allowing the formal separation between various companies that results from their separate legal personalities to preclude such unity for the purposes of the application of the competition rules”. “Downward” liability is not (in contrast to “upwards” liability) based on the fact that parent companies are liable because of their capacity to control the conduct of an affiliate, but on the idea that all legal entities within a group form an economic unit.
“Downward” liability. In examining the link between the legal entity against which the damages claim is made and the undertaking liable for the infringement, the CJEU required that, in addition to there being economic, legal and organizational links between parent and subsidiary, the subsidiary must be engaged in the specific economic activity related to the infringement, e.g., it must sell the goods that were the subject of the cartel. Taking conglomerate groups as an example, the Court notes that a corporate group may actually contain several separate “economic units” without a clear connection between them, such that a subsidiary “could not be held liable for infringements committed in the context of activities entirely unconnected to its own activity”, thus potentially limiting exposure
The implications of Sumal for the broader interpretation of “specific economic activity” concept remain to be seen. However, non-EU companies found to have infringed competition law should expect that the judgement may increase the number of private damages actions brought against them in national courts, through local subsidiaries marketing the products at issue. National courts will need to determine whether there is the necessary “connection” between the activities of the parent that was the subject of the alleged infringement and the subsidiary’s activities.