In European antitrust law practice, the question whether the cartel prohibition of Art. 101 (1) TFEU (and the corresponding national rules) applies in the context of parent companies and a joint venture arises every now and then. Now, the German Federal Cartel Office (FCO) dealt with this question in a recently published commitment decision, which unjustly seems to have remained under the radar of the broader antitrust community.
The competitive situation surrounding a JV is often complex. Typically, there are relevant relationships between:
- the JV and the parent companies (often in upstream or downstream markets)
- the parent companies (especially if they are direct competitors)
- the JV and/or the parent companies and third parties.
Parent companies, joint ventures and antitrust law
The question of whether and to what extent the cartel prohibition of Art. 101(1) TFEU applies between several parent companies and their JV has been the subject of numerous discussions for some time. As we have already blogged about here, the European Commission’s Horizontal Guidelines only provide clarity at first glance. In general, one can distinguish between two situations:
- On the one hand, a restriction of the JV’s activities by the parent companies (e.g., in favour of the parent companies).
- On the other hand, a restriction of the parent companies in favour of the JV.
The second point is – at least to a certain extent – laid out in the Commission’s Notice on ancillary restraints. In para. 36, for example, some non-competition obligations imposed on the parent companies of a JV are considered to be in line with antitrust law. However, the FCO has now dealt with the first constellation – the restriction of the JV’s activities by the parent companies.
The FCO enters the room
In its recently published commitment decision, the FCO dealt with the question of whether the restriction of the JV by the two parent companies constitutes an infringement of the cartel prohibition of Art. 101 (1) TFEU and the corresponding German rule (for ease of reference I will hereinafter refer to Art. 101 TFEU only). However, the FCO does not discuss the question of whether Art. 101 TFEU is applicable to the relationship between the parent companies and the JV, but rather whether there is an infringement of Art. 101 TFEU between the parent companies, who were also competitors.
In a nutshell, the two parent companies had an agreement in place which (i) required consent of the parent companies in case the JV wanted to produce a certain input product for (one of) it’s parent companies; (ii) allowed the two parent companies to prevent the production and supply of certain input products for third-party competitors of the two parent companies; and (iii) terminated existing third-party customer business of the JV at the expense of the third-party customers. As the FCO emphasises, the JV was originally free to sell to third parties and these restrictions were subsequently added by the parent companies.
The FCO considered this practice to be questionable under antitrust law – but only regarding the competitive relationship between the parent companies. The letter in which the FCO expresses its preliminary concerns to the parties stated that:
- the requirement of prior consent by the parent companies could lead to a coordination and restriction of competition between the two parent companies since the requirement allowed one parent company to prevent the JV from supplying the other company;
- the requirement of prior consent also enables the parent companies to coordinate the supply to third parties and to foreclose the market to potential third-party competitors; and,
- finally, it allowed the parent companies to end the existing business relationships for the production and supply between their JV and third parties at the expense of the third-party customers.
To resolve these concerns, the parties agreed to withdraw the agreements and to refrain from influencing the JV’s supply to third parties and the respective other parent company. Furthermore, a trustee will be installed (and paid by the parties) to monitor compliance with these commitments for the next three years. The FCO has made the commitments legally binding with its decision, thereby concluding the proceeding.
Outlook
The decision is interesting for various reasons:
- The FCO did not touch the question whether and to which extent Art. 101 TFEU applies to the relationship between the JV and its parents but rather held that there was an anticompetitive agreement directly between the two parent companies.
- Thus, the question remains whether the FCO would have taken a different view in case the JV parents had not been competitors.
- Furthermore, it is not clear whether the FCO had come to the same conclusion if the restriction had not been a subsequent restriction (as the FCO has emphasised several times in this case) but the JV had been founded with restrictions from the very beginning.
- It is also noteworthy that – as part of the commitments – the parties agreed to have a monitoring trustee (also paid by the parties) in place for a minimum of three years.
- The FCO did not address whether and to what extent an exchange of information between the JV and its parent companies is (un)lawful, although this is an important (antitrust) aspect in many JVs. However, from a footnote in the decision it can be concluded that the parties took care of this point.
- Finally, it is also worth mentioning that the FCO appears to have involved the European Commission (EC) extensively in the process.
In a nutshell: Companies and their antitrust lawyers should always have the intricacies of antitrust law on their radar when dealing with JVs!
Photo by Charles Deluvio on Unsplash
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