Background Note - The EU Power Cables Case: Antitrust Parental Liability Of Private Equity Management Companies

On 2 April 2014, the European Commission imposed fines totalling EUR 301.6 million on eleven producers of underground and submarine high voltage power cables for their participation in an alleged bid-rigging scheme. (Please click here for the Commission's press release). The decision is striking in that the Commission has significantly expanded its "parental liability" doctrine by applying it to a private equity management company in respect of an infringement committed by a portfolio company: it held fund manager Goldman Sachs Capital Partners jointly and severally liable for part of the EUR 104.6 million fine it imposed on Prysmian, an Italian cable maker that was acquired, for part of the alleged infringement period, by GS Capital Partners V, a fund managed by Goldman Sachs Capital Partners. This note sets out the background of this decision and suggests various ways to mitigate this new antitrust risk.

The Commission's Parental Liability Doctrine

In the EU, competition rules are addressed at "undertakings", that concept being defined as entities or groups of entities (companies or otherwise) that operate as a single economic unit. (This holds true both at central EU level and under the national competition rules of the 28 EU member states.)

Where an infringement of the competition rules is committed by a company that is part of a group, the Commission and EU national competition authorities have drawn on this technical definition to impose fines not only on that company, but also, under joint and several liability, on its ultimate parent company. This approach, which is referred to as the "Parental Liability Doctrine", aims at enhancing the deterrent effect of fines and at preventing the parent company from allowing the subsidiary to go bankrupt in order to escape the fine.

Although this approach results in a situation where the corporate veil between the subsidiary concerned and its parent companies is pierced, the latter are not fined because of any independent, direct or indirect, involvement in or awareness or encouragement of the infringement, but merely because the parent companies are part of the same "undertaking" as the subsidiary that directly committed the infringement. This approach has been validated from the outset by the EU Courts (see, e.g., Case 107/82, AEG v. Commission [1983] ECR 3151, para. 50) and is automatically applied, in antitrust cases involving subsidiaries, by all EU competition authorities, i.e. both by the Commission and by the EU's 28 national competition authorities.

Expanding the Parental Liability Doctrine

A parent...