The EU Court of Justice’s Ruling in European Commission v. Parker ITS Srl and Parker-Hannifin Corp: Towards an Extensive Concept of Economic Continuity?

February 10, 2015

In our previous briefing on the General Court’s (GC) judgment in Parker ITR Srl and Parker-Hannifin Corp v. Commission (T-146/09), we discussed the interplay between two challenging legal principles: (i) personal liability and (ii) economic continuity (or succession).  We are revisiting them in this briefing as a result of the EU Court of Justice’s (CoJ) judgment on appeal (C-434/13 P), which set the grounds for an extensive interpretation of the economic continuity principle.

Under the principle of personal liability, it is only the legal person that ran the infringing assets at the time of the antitrust violation that must answer for the illicit behavior, even when a different legal person has taken control of the said assets at the time the infringement decision is adopted.

By way of exception, economic continuity provides that a legal person that took over the infringing assets after the period of infringement may also be held personally liable for the infringement if the legal person that ran the infringing assets during the period of infringement either:

  • Has ceased to exist; or
  • Is part of the same group, i.e. in cases of intra-group transfers of infringing assets. If infringing assets are transferred to an independent legal entity, there is no economic continuity.

In this judgment, the CoJ assessed whether the European Commission (EC) may apply the economic continuity principle to cases where an intra-group transfer of the infringing assets to a newly-formed subsidiary takes place for the sole purpose of subsequently selling this subsidiary to an independent third party.  More broadly, this raises the issue of how extensive the economic continuity principle should be.


By way of reminder, Parker ITR had a rather complicated "family tree."

  • 1993: Saiag SpA acquired ITR SpA, which ran, among others, a marine hoses business.
  • June 27, 2001: ITR SpA created a subsidiary, ITR Rubber Srl.
  • December 19, 2001 (in effect from January 1, 2002): ITR SpA transferred its marine hose business to ITR Rubber Srl, in view of the acquisition of the latter by Parker-Hannifin.
  • January 31, 2002: Parker-Hannifin acquired ITR Rubber Srl.  It later renamed it Parker ITR. Through a subsidiary, Parker-Hannifin holds 100% of the shares in Parker ITR.

In the marine hoses investigation, the EC relied on economic continuity to conclude that Parker ITR, in its various forms, had participated in a cartel from April 1, 1986 until May 2, 2007. As a result, it held Parker ITR liable for the full period of the infringement and Parker-Hannifin liable from January 31, 2002 (when it acquired ITR Rubber Srl) until the end of the cartel on May 2, 2007.

Parker ITR and Parker-Hannifin brought an appeal before the GC.  Unlike the EC, the GC ruled out the economic continuity principle.  Instead, it applied the personal liability principle, according to which ITR SpA should have been held liable for the infringing assets until the latter were transferred to Parker-Hannifin on January 31, 2002.  As for Parker ITR, liability should have been limited to the period it actually and personally took part in the infringement (i.e. as from January 1, 2002).

The EC challenged this finding before the CoJ on the grounds that the GC misapplied the economic continuity principle in cases where structural links can be observed between the transferor and the transferee.

Assessment of the Applicability of the Economic Continuity Principle to Complex Transactions

As a preliminary point, the CoJ found that the transfer of ITR Rubber from ITR SpA to Parker-Hannifin had been a two-step process:

  1. The intra-group transfer of the infringing marine hoses business from ITR SpA to one of its subsidiaries, ITR Rubber Srl, with the purpose of selling it to Parker-Hannifin (January 1, 2002).
  2. The sale by Saiag SpA of ITR Rubber Srl – which was later renamed Parker ITR - to an independent third party, i.e. Parker-Hannifin (January 31, 2002).

The CoJ noted that the GC had only assessed the applicability of the economic continuity principle upon completion of the second transaction.  As there was no structural link between Saiag SpA and Parker-Hannifin, no finding of economic continuity could be made.

Yet, such links may have existed between ITR Srl and ITR Rubber Srl after the intra-group transfer of the marine hoses business.  The GC simply chose not to take into account this first transaction on the grounds that it had lasted only a month and it "was clearly part of an objective of selling that subsidiary’s shares to a third undertaking."

The CoJ rejected this analysis because the economic continuity principle:

  • Could apply to any intra-group transfer irrespective of its temporary nature. If this were not the case, the infringing undertakings could have avoided any penalty through creative restructuring or sales.
  • Could apply regardless of the transaction’s objective. This is because an analysis of the objective would necessarily include a review of subjective factors, which in turn would make the court’s application of the principle of economic continuity unpredictable.

As a result, the CoJ found that the GC committed an error in law when it ruled that the economic continuity principle was not applicable in the present case. The GC should have also looked at the first transaction in the two-step process - i.e. intra-group transfer of the infringing marine hoses business – to see if the economic continuity principle applied.  It did not matter that the transfer was no more than a transitory step aimed at transferring such business to an independent third party.

Consequently, the CoJ referred the case back to the General Court, to review the case on its merits.


While it is admittedly challenging to call into question the CoJ reasoning, this judgment is nonetheless troubling insofar as it significantly extends the temporal boundaries of economic continuity.

While there is little doubt that no economic continuity can be found when assets are transferred to an independent third party, the EC will now be able to bypass this rule by relying on internal restructurings realized in view of the sale of the assets to an independent third party. As a result, the EC may follow the assets rather than the legal person that ran them at the time of the infringement - thus (over?) extending the temporal liability of the purchasing undertaking.

In light of this judgment, companies should be cautious when acquiring assets from an independent third party which has lodged them in a new corporate vehicle set up specifically for the purpose of divesting them because the economic continuity principle will likely apply.

What does this judgment mean for businesses? When an acquirer suspects its target of possible antitrust violations, it should consider buying the underlying assets under an asset transfer agreement as opposed to acquiring the legal entity under a share purchase agreement.