One question discussed (not only) by antitrust practitioners from time to time is whether and to which extent Art. 101 TFEU applies in the relationship between a joint venture and its parent companies. The European Commission addresses the issue in the Draft Horizontal Guidelines (on which we have already blogged here and here). This post explores what the statements in the Draft Horizontal Guidelines might mean for parent companies and joint ventures in the future.
What is the problem anyway?
As we all know, Art. 101 TFEU prohibits all agreements and concerted practices between undertakings which have as their object or effect the restriction of competition. In order to reflect corporate reality, however, Art. 101 TFEU – in simplified terms – does not apply between a parent company and its fully owned subsidiaries as long as these subsidiaries are under the decisive influence by the same ultimate parent company (“single economic unit”). Thus, generally no problems arise for corporate groups with one ultimate shareholder.
There is more of a debate on whether and under what circumstances Art. 101 TFEU is also not applicable in the relationship between a joint venture and its parent companies, e.g., can a parent company and its joint venture agree on prices or allocate customers (outside of what is regulated in the Notice on ancillary restraints):
- The European Court of Justice held that parent companies are liable for cartel infringements of a joint venture when a parent company and the joint venture form a “single economic unit” and therefore constitute a single undertaking in the sense of Art. 101 TFEU. This is the case when a parent company exercises decisive influence over the joint venture.
- However, it remains unclear whether the same criteria also apply with regard to the relationship between a parent company and a joint venture. Instinctively, one would probably say that one and the same legal concept cannot be interpreted differently depending on
whoever it suitsthe issue at hand, i.e., there cannot be a broad concept of a single economic unit in the case of liability and a narrow concept of a single economic unit with regard to the application of Art. 101 TFEU. But is it that simple?
What has been said until today?
In (the admittedly older cases) Gosme Martell and Ijsselcentrale, the European Commission held that the parent companies and their respective joint venture were independent companies and did not form a single economic unit, with the consequence that Art. 101 TFEU was applicable. In Baustahlgewerbe, the EU General Court also held that the parents companies in the case at hand (four in number) and their joint venture did not form a single economic unit and, thus, that Art. 101 TFEU was applicable.
Some believe that the European Court of Justice deviated from the above in its 2013 Dow Chemical decision, when it stated under para 58: Where two parent companies each have a 50% shareholding in the joint venture which committed an infringement of the rules of competition law, it is only for the purposes of establishing liability for participation in the infringement of that law and only in so far as the Commission has demonstrated, on the basis of factual evidence, that both parent companies did in fact exercise decisive influence over the joint venture, that those three entities can be considered to form a single economic unit and therefore form a single undertaking for the purposes of Article 81 EC.
However, since the case was solely about the liability of the parent companies for the conduct of the joint venture, one can also take the position that the European Court of Justice did not want to make a statement – by way of an obiter dictum – on the applicability of Art. 101 TFEU.
What do the Draft Horizontal Guidelines say?
Under para 13 of its Draft Horizontal Guidelines, the European Commission states that it will typically not apply Art. 101 TFEU to agreements and concerted practices between the parent(s) and the joint venture concerning their activity in the relevant market(s) where the joint venture is active when it is demonstrated that the parents exercised decisive influence over the joint venture.
Some read this as the European Commission considering the parents and the joint venture as one economic unit and thus a single undertaking in the sense of Art. 101 TFEU (as long as the parents have decisive influence).
But let’s have a closer look: Basically, the current wording in the Draft Horizontal Guidelines says that the European Commission will not apply Art. 101 TFEU to such cases. One could also read this as the European Commission avoiding taking a stand with regard to the fundamental legal question discussed above, but rather giving an indication on whether it will investigate such agreements in the future, i.e., its enforcement priorities.
Moreover, the European Commission further clarifies that it will very well apply Art. 101 TFEU to a number of agreements in the joint venture context, namely agreements:
- “between the parents to create the joint venture;
- between the parents to alter the scope of the joint venture;
- between the parents and the joint venture outside the product and geographic scope of the activity of the joint venture; and
- between the parents without involvement of the joint venture, even concerning the relevant market where the joint venture is active”.
This leaves a long list of scenarios in which Art 101 TFEU will (still) be applied by the European Commission. Each of scenarios mentioned above might raise a multitude of questions in practice.
As things currently stand, I am not sure whether I share the optimism that is being expressed in some publications. At first glance, if the wording of the draft is retained in the final version of the Horizontal Guidelines, it would appear that a major step has been taken in the direction of greater clarity.
On the other hand, the scenarios for which the European Commission states that it will continue to apply Art. 101 TFEU leave a lot of room in the joint venture context, potentially still making it difficult to assess whether certain agreements fall in the scope of Art. 101 TFEU.