EU Court Ruling Highlights Antitrust Risks For Investment Funds

• Published date: 06 October 2021
• Subject Matter: Corporate/Commercial Law, Anti-trust/Competition Law, Compliance, Corporate and Company Law, Directors and Officers, Antitrust, EU Competition , Shareholders
• Law Firm: Paul Hastings
• Author: Mr Michael S Wise, Juliette Hua, Pierre Kirch and Camille Paulhac

A recent decision by the European Court of Justice ("ECJ"), the European Union's highest court, underscores the importance of antitrust compliance for investors that hold portfolio companies.

On January 27, 2021, the ECJ upheld a decision to hold a private equity ("PE") investor liable for an antitrust violation committed by a controlled entity, concluding that there was no need to show that the investor knew of or contributed to the infringement. According to the ECJ, it was sufficient to show that the investor had control ("decisive influence") over the portfolio company, and that this control could be demonstrated by various indicia. The PE investor claimed that it had only a minority interest in the infringing company and no direct involvement in the unlawful conduct. Based on these principles, the investor was determined by the ECJ to be jointly and severally liable for the antitrust violation.

The decision follows news in other major jurisdictions, including the United States and China, that antitrust compliance is increasingly in focus. The current environment is one in which PE houses and other investors must take affirmative steps to ensure that their de jure or de facto controlled companies adopt sound antitrust compliance regimes.

Factual background

In 2014, the European Commission ("EC") fined 11 high voltage power cables producers, including Prysmian, '302 million for operating a market-sharing cartel from 1999 to 2009. Parent companies exercising a decisive influence over the producers were held jointly liable. This notably concerned Goldman Sachs ("GS"), owner of Prysmian as from July 2005. GS appealed the EC decision before the General Court, disagreeing with the EC's presumption that it had exerted a decisive influence over Prysmian during the cartel period.

For background, GS initially owned all the equity in Prysmian. Over time, its economic rights gradually decreased, but GS kept 100% of the voting rights until May 2007. At that point, GS launched an IPO, which resulted in GS holding a minority of the outstanding voting and economic rights. The Board of Prysmian, however, did not change over the period. GS had nominated a Board pre-IPO, which governed Prysmian until April 2009.

The General Court dismissed the appeal. GS further appealed its ruling before the ECJ. On January 27, 2021, ECJ likewise dismissed the appeal.¹ The ECJ confirmed several holdings of the General Court:

• It can be presumed from the fact that GS held 100% of...