EU Court hands down groundbreaking decision formally extending presumption of liability to parent companies holding 100% of their subsidiaries’ voting rights
On January 27, 2021, the Court of Justice of the European Union (the “CJEU”) handed down an additional judgment in the power cable cartel case, rejecting Goldman Sachs’s appeal for the annulment of the judgment issued by the EU General Court on July 12, 2018, and definitely confirming the fine initially imposed by the European Commission (the “Commission”) on Goldman Sachs, jointly and severally with its former subsidiary Prysmian, for its participation in the cartel.
Lionel Lesur – Partner
The CJEU’s judgment definitively validates the extension of the presumption of effective exercise of decisive influence to cases in which a parent company exercises all voting rights associated with the shares of its subsidiary, even if it does not own 100% of the subsidiary’s share capital. Therefore, this judgment is a further warning to companies, private equity funds, and institutional investors to ensure that their portfolio companies fully comply with competition law.
Involvement in global cartels carries significant fines often imposed jointly and severally on subsidiaries and parent companies
As a reminder, for almost ten years from 1999, several producers of high-voltage underground and submarine power cables divided up markets and customers around the world. The cartel members also agreed on price levels and rigged bids for power projects by sharing information on prices.
On April 2, 2014, the Commission fined the largest power cable manufacturers €302 million, including joint and several fines with their parent companies, which exercised decisive influence over them.
Most of the cartel members and their parent companies appealed to the EU General Court to have the decision set aside or their fines reduced. However, on July 12, 2018, the General Court issued 15 judgments dismissing all of these appeals.
Presumption of parental liability arising from the holding of 100% of the subsidiary’s voting rights
Some of the parent companies specifically challenged their joint and several liability for the payment of the fine imposed on their subsidiary.
For example, the Commission imposed a fine of €104.6 million on Prysmian, including a €37.3 million joint and several fine with Goldman Sachs, its parent company during part of the infringement period.
Breaking new ground, the Commission applied the presumption of effective exercise of decisive influence (i.e., the capacity to determine commercial strategy) in a case where the parent company did not own substantially all of the share capital of its subsidiary, but held all of its voting rights. In doing so, the Commission formally extended the (rebuttable) presumption laid down in the Akzo judgment that where a company owns all, or almost all, of its subsidiary’s share capital, the two companies form a single economic entity or “undertaking” for liability purposes.
The General Court then upheld the Commission’s view.
Confirmation by the CJEU
On September 21, 2018, Goldman Sachs appealed to the CJEU to set aside the judgment of the General Court and overturn the Commission’s decision insofar as it concerned Goldman Sachs, and/or reduce the amount of the fine.
Goldman Sachs challenged the Commission’s finding that it had had a decisive influence on its (former) subsidiary Prysmian both before and after Prysmian’s IPO.
In support of its appeal, Goldman Sachs first argued that the General Court had misapplied Article 101 TFEU in holding it liable for an infringement committed by Prysmian during the pre-IPO period, since its shareholding in the GSCP V funds, which controlled its subsidiaries, was only about 33%. It further argued that during the period in question, these funds’ holding in Prysmian’s share capital had dropped first to 91%, then to approximately 84%.
However, since the Akzo judgment, the CJEU has consistently held that it is not the mere holding of all or almost all of the share capital of the subsidiary in itself that gives rise to the presumption of the effective exercise of decisive influence, but the degree of control of the parent company over its subsidiary. Therefore, contrary to the claimant’s argument, the CJEU found that the General Court had not committed an error of law in holding that, where a parent company held all the voting rights associated with the shares of its subsidiary, the Commission was entitled to rely on a presumption that the parent company actually exercised decisive influence over its subsidiary’s conduct in the market.
Therefore, it stems from the CJEU’s judgment that voting power trumps the mere ownership of shares as the ultimate test of control.
Goldman Sachs also contended that it had not exercised decisive influence within the meaning of EU case law during the post-IPO period. Here again, the CJEU concluded that the General Court had not made an error of law in finding that personal links between two companies, in this case the fact that a person sitting on the board of directors of one company was linked to another company “by means of previous consultancy services or consultancy contracts”, could be relevant in order to establish that a parent company exercised a decisive influence on the market conduct of its subsidiary.
For these reasons, the CJEU dismissed the appeal and confirmed that Goldman Sachs had exercised a decisive influence over the conduct of Prysmian and, therefore, confirmed the joint and several fine imposed on Goldman Sachs and its former subsidiary.
This CJEU judgment constitutes another warning to industrial groups, but also to institutional investors and investment funds, to be ever more attentive to ensuring full compliance of their portfolio companies with antitrust rules, including by implementing tailored and robust antitrust policies and compliance programs to minimize any risk of infringement.
Lastly, this judgment provides a further illustration of the strong practical difficulty, except in very specific circumstances, for parent companies, including financial investors, of overcoming the theoretically rebuttable presumption of decisive influence to escape liability for antitrust violations committed by their subsidiaries.
 The author would like to thank Francesca Casalone, intern in Franklin’s antitrust department, for her precious contribution to the drafting of this article.
 Commission, April 2, 2014, Case AT.39610, Power cables.
 “Amende : Le Tribunal de l’Union européenne confirme en tous points la décision de la Commission européenne prononcée dans l’affaire du cartel des câbles électriques, E. Thomas, Concurrences No. 4-2018.
 CJEU, September 10, 2009, Case C-97/08, Akzo Nobel v Commission.
 CJEU, October 26, 2017, Joined cases C-457/16 P and C-459/16 P to C-461/16 P, Global Steel Wire and Others v Commission and CJEU, June 24, 2015, Joined cases C-293/13 P and C-294/13 P, Fresh Del Monte Produce v Commission and Commission v Fresh Del Monte Produce.