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Benefiting from Leniency Applications Made by Subsidiaries: The EU Competition Law Version of Your Typical Dysfunctional Family

November 22, 2013

In September 2013, the General Court of the EU (General Court) issued a judgment dealing with the extent to which all entities belonging to the same group of companies should benefit from the leniency application made by one of them.

The case arose in the context of the cartel in the bathroom fittings and fixtures sector.  In its decision, the European Commission (EC) fined a number of companies for coordinating price increases, fixing rebates and minimum prices, and exchanging sensitive business information.  Among the addressees of the EC decision were the following three legal entities belonging to the Roca group: (i) Roca Sanitario SA (Roca Sanitario); (ii) Roca Sarl (Roca France); and (iii) Laufen Austria AG (Laufen).  The EC imposed fines on all three legal entities, without any reduction on the basis of the Leniency Notice.  Specifically, during the EC investigation Roca France applied for leniency and the EC conditionally granted leniency to the Roca group.  However, in its final decision the EC did not reduce any of the fines because the applicant did not provide significant added value compared to the information already in the EC’s possession.

Laufen lodged an appeal against the EC’s decision before the General Court.  Among others, Laufen argued that the EC misapplied the Leniency Notice by withdrawing the conditional reduction of the fine, which the Roca group had been informed about during the investigation.  Laufen maintained that if the General Court were to consider that Laufen formed a single economic entity with Roca Sanitario and Roca France, any error made by the EC in applying the Leniency Notice to Roca France should affect the fine imposed on Laufen (or, to state it otherwise, any advantage stemming from the Leniency Notice would have to benefit all of the entities forming the single economic entity).  The General Court was, therefore, called upon to answer the following question: should a legal entity benefit from a reduction in fine based on the leniency application of another entity belonging to the same group of companies?

The General Court reiterated its established case-law regarding parental liability: where the parent company has not actually participated in the cartel and is held liable solely on account of its subsidiary’s participation therein, the parent’s liability cannot exceed that of the subsidiary.  As a result, a leniency application made by the subsidiary will, in such circumstances, also benefit the parent company.

The General Court then proceeded to separate the parent/subsidiary situation from that of a sister company.  The General Court noted that the EC is not obliged to extend to one sister company the benefits of a leniency application made by another sister company, merely because the two of them form a single economic entity together with their parent company.  This is because, while the parent company’s liability may be considered to be purely derivative, secondary and dependent, the sister company’s liability is not: it arises as a result of that sister company’s own participation in the cartel.

In the present case, the General Court noted that the leniency application was submitted by Roca France.  While the application was apparently also made on behalf of the Laufen group, the General Court found that: (i) it was only to the extent that the Laufen group’s activities in France had been integrated into Roca France; and (ii) the information submitted by Roca France related exclusively to the infringement committed in relation to ceramics in France in 2004, while no information was submitted concerning the infringement in Austria where Laufen was active.  On that ground, the General Court concluded that the EC was not obliged to reduce Laufen’s fine and, therefore, dismissed the application.

This case highlights the importance of correctly identifying the applicants in a leniency application.  Where various subsidiaries belonging to the same group are involved in an infringement, the identity of the entity which submits the leniency application (or on behalf of whom the leniency application is submitted) to the EC becomes an issue of strategic importance and may, eventually, have a considerable impact on the amount of the fine that the group as a whole may have to pay.

NB: The case was appealed (C-637/13 P).