News Update Competition Litigation

On 6 October 2021, the Court of Justice of the EU ("CJEU") ruled in its judgment in the Sumal case that an injured party of a competition law infringement committed by a parent company may, under certain conditions, also seek compensation for the resulting damage from that company’s subsidiary.

To that end, both entities must form part of the same economic unit at the time of the infringement. In contrast to establishing an economic unit for the purpose of parental liability (upward attribution of liability) which can be solely based on the economic, organisational and legal links between the infringing subsidiary and its parent company, for the purpose of subsidiary's liability (downward attribution of liability) there must also be a link between the subsidiary's economic activity and the infringement's subject matter.

The Sumal case is related to the European Commission's ("EC") 19 July 2016 decision in the Trucks case, in which the EC established that truck manufacturers MAN, Daimler, Iveco, Volvo/Renault and DAF had infringed Article 101 TFEU between January 1997 and January 2011 (the "Decision"). Based on this Decision, Spanish container manufacturer Sumal sued Daimler’s subsidiary Mercedes Benz Trucks España ("MBTE"), an entity which is not an addressee of and is not referred to in the Decision, claiming compensation for having acquired two trucks during the infringement period.

The Audiencia Provincial de Barcelona requested the CJEU for a preliminary ruling on the question, in essence, whether and if so, under which conditions Article 101 TFEU must be interpreted as meaning that the injured party of an infringement by an undertaking may initiate damages proceedings either against the fined parent company or against a subsidiary of that company which is not referred to in the fining decision, where those entities constitute a single economic unit within the meaning of EU competition law.

Essence of the judgment

In its judgment on potential subsidiary's liability (downward attribution of liability), the CJEU first reiterates its settled case law on parental liability (upward attribution of liability) and clarifies the following aspects:

• It is settled case law (for instance, the Skanka case) that any person who has suffered harm as a result of an infringement of Article 101(1) TFEU is entitled to claim compensation for damage if there is a causal link between the damage and the infringing conduct.
• The determination of which entity is liable is governed directly by EU law.
• Private enforcement forms an integral part of the system for enforcement of the EU competition rules, which implies that the concept of "undertaking" cannot have a different meaning in the context of damages claims before the national courts than in the context of public enforcement.
• According to the EU Court’s established case law, the concept of an "undertaking" within the meaning of Article 101 TFEU covers any entity engaged in an economic activity, irrespective of its legal status and the way in which it is financed. Therefore, it refers to an economic unit even if in law that unit consists of several natural or legal persons.
• Where it is established that a company belonging to such an economic unit has infringed Article 101(1) TFEU, the concept of an "undertaking" then gives rise to the joint and several liability of all the entities of which the economic unit was made up at the time that the infringement was committed.
• The concept of an "undertaking", however, is a functional concept. The economic unit of which it is constituted must be identified having regard to the subject matter of the infringement at issue.
• As a result of this, if a parent company's infringement has been established, the injured party of that infringement has the possibility to bring a damages claim against a subsidiary of that parent company if it is able to prove that the subsidiary and the parent company, constitute an economic unit concerning:
  (i) the economic, organisational and legal links that unite the two legal entities; and
  (ii) the existence of a specific link between that subsidiary's economic activity and the subject matter of the infringement for which the parent company was held liable.
• To fulfil these conditions, an injured party must, in any event, establish that the parent company's infringing conduct concerns the same products as those marketed by the subsidiary and to which the claim relates.
• In the hypothetical situation of a conglomerate with separate products being sold by different subsidiaries, the subsidiary selling one product can therefore not be held liable for an infringement committed by the parent company in respect of another product.
• In conclusion, a subsidiary that has been sued for damages caused by its parent company's infringing conduct must dispose of all means necessary for the effective exercise of its rights of defence. It can therefore still dispute that it belongs to the same undertaking as the infringing parent company. For this part, a claim against a subsidiary should factually be regarded as a stand-alone claim rather than a follow-on action.

Practical implications

On the one hand, this judgment may have a significant impact on the private enforcement of EU competition law as the CJEU has now explicitly confirmed (i) that determining which entity is liable is generally governed directly by EU law and (ii) the possibility of downward attribution of liability to a subsidiary.

On the other hand, such attribution is only possible if certain conditions have been met. As an injured party will need to establish a link between the subsidiary's activity and the subject matter of the infringement of the parent company, existing at the time of the infringement, the concepts of an "undertaking" and a "single economic unit" can clearly not be considered as equivalent to a corporate group or concern. As a result of this, the possibilities for forum shopping are still limited. Moreover, the burden of proof relating to the required links lies with the injured party for which such party cannot refer to a fining decision addressed to only a parent company.