Keeping it Strictly…Parental

February 7, 2013

One appeal before the European Court of Justice (ECJ) that has gotten a significant amount of attention in the EU competition press is European Commission (EC) v. Tomkins (Case C-286/11 P).  The outcome is not particularly surprising—the Court ruled on the issue as we anticipated (or at least hope) it would.  The reason the case caught our attention is the EC’s grounds of appeal.

Tomkins was a parent company of Pegler.  Pegler participated in the Copper Fittings cartel.  In its decision, the EC held Tomkins and Pegler jointly and severally liable for the infringement and the resulting fine.  Tomkins was only liable because of what Pegler had done—it did not separately participate in the cartel.  Pegler and Tomkins separately challenged the EC’s decision on inter alia duration (although each alleged slightly different shorter durations).  In Pegler’s case, the General Court found that indeed it had participated in the cartel for a shorter duration and therefore amended the decision (Case T-386/06).  The General Court on its own then amended the duration for Tomkins (Case T-382/06).

The EC challenged the General Court’s ruling, saying in part that the General Court had confused ”undertaking” under competition law with ”legal entity” under rules of procedure.  No one would dispute the fact that “undertaking” and “legal entity” are different, although some would argue that this fact is rather unfortunate.  The ECJ disagreed with the EC—the General Court had not confused the two.  What was the EC really going after with this argument (and a number of others)? 

The EC did not like the fact that the General Court had taken it upon itself to amend Tomkins’ duration even though the parent company was only liable because of its subsidiary.  Among its pleas, the EC clearly states that it is for the EC, and not the General Court, to draw the appropriate conclusions from a judgment, and if necessary to reduce or annul the fine in question in order to comply with that judgment for annulment.  As a result of this jurisdiction flag waving, the EC wound up arguing that the General Court should have maintained the original fine imposed on the parent  even though the duration of the infringement for which it had been found strictly liable had changed as a result of its subsidiary’s appeal.  The EC’s pill was just too difficult for even the ECJ to swallow.  While it appears that the EC was making these arguments for policy reasons—it does not want the Court to be running around willy-nilly amending decisions as it pleases, this was clearly not the case for such posturing.

The Court had its ground and understood the efficiency of the General Court’s approach:

[I]n a situation in which the liability of the parent company is wholly derived from that of its subsidiary, and in which both of those companies have brought actions seeking, inter alia, that the General Court reduce the fine by reason of a reduction in the duration of the infringement committed by the subsidiary, the notion of the ‘same object’ does not require that the scope of the applications of those companies, and the arguments on which they relied to contest the duration of the infringement accepted by the Commission, must be identical.

Why is this case interesting?  This case is refreshing in that under competition law the EC continues to stretch the definition of undertaking and the notion of parent-liability, from wholly-owned subsidiaries to less than 50% owned joint ventures.  But, when it comes to legal proceedings, the EC reads legal entity as narrowly as possible.  While legally speaking this may be true, it’s a bit hypocritical and something that should be reviewed.  If parents are going to be lumped together with subsidiaries and joint ventures, they should be able to benefit from successful challenges made by these related entities, even if the arguments on the substance of the matter slightly differ.