This paper, available here , contrasts how law parent companies can be fined for antitrust infringements by their subsidiaries under EU competition law, while courts in the US are reluctant to hold parent companies directly or indirectly liable in private damages suits. The author argues that one of the main reasons why EU competition law holds parent companies liable is to solve an under-deterrence problem that occurs when subsidiaries lack sufficient assets to pay fines or damages. US antitrust law uses other enforcement instruments to address under-deterrence by, in particular the individual liability of managers and employees.

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The article consists of four substantive parts:

In section 2, the paper reviews the case law and literature on parent company liability for antitrust infringements by subsidiaries in the European Union and the United States.

In the EU, the single economic entity doctrine is deeply ingrained in competition law. The European court interprets the concept of ‘undertaking’ in a functional way: it is the economic entity (and not the legal or natural persons therein) that is deemed to infringe the competition laws, and is thus to be held accountable. However, this approach does not apply anywhere else under EU law other than antitrust context.

This control-based approach to assigning liability is exceptional because it is strict, i.e. it is not based on fault and it does not matter whether the parent company was involved in the antitrust infringement or could have prevented it. Under the Akzo presumption, which is widely perceived as being very hard if not impossible to rebut, a parent company with 100% shareholding in a subsidiary is presumed to hold a decisive influence over the conduct of this subsidiary. While parent company liability under the single economic entity doctrine has been applied mainly as regards fines, the EU Damages Directive is likely to extend parent company liability to private antitrust litigation and damages claims as well.

In the US, in contrast, courts are traditionally reluctant to extend antitrust liability to parent companies that are only incidentally connected to the infringement. In criminal cases, parent companies are not liable unless the government establishes that they participated directly in the antitrust violation. In private antitrust suits, courts will typically only hold parent companies liable if: (1) the parent itself was actively involved in the antitrust violation (direct liability), e.g. its employees actively participated in price-fixing talks between a subsidiary and its competitors, or if (2) a plaintiff succeeds in meeting corporate law’s stringent requirements for piercing the subsidiary’s corporate veil (indirect liability). There is no special US doctrine for piercing the veil in antitrust suits, and courts apply the general veil piercing doctrines as they have been developed in state corporate law.

Section 3 compares the antitrust enforcement regimes of both the European Union and the United States.

While public enforcement is important in both the US and Europe, private compensation is much more developed in the US, where it has a punitive element absent in Europe. An area of even starker contrast is criminal liability. In the United States, the individual liability of managers and employees – both in terms of prison terms and fines – plays an important role in antitrust enforcement. EU competition law, by contrast, does not impose liability on individuals; and, while in many EU Member States individuals can be sanctioned for infringing EU as well as national competition law, the practical relevance of these provisions has been low and NCAs are not known to have imposed any such sanctions following a decision by the European Commission.

Section 4 argues that parent company liability can be justified by two main objectives.

On the one hand, parent company liability restores effective deterrence where subsidiaries are under-deterred, in particular because they lack sufficient assets to pay a fine or damages. On the other hand, parent company liability prevents parent companies from opportunistically exploiting the principle of limited liability to separate their liability from their assets. Both are problems that can be solved through vicarious liability, among other tools.

Section 5 argues that parent company liability has not been adopted under US antitrust law because the US can rely on existence other enforcement instruments that serve as functional substitutes, such as the individual liability of managers and employees.

Both parent company liability and individual liability help to maintain incentives for efficient behaviour where the primary target of liability is under-deterred. On the other hand, both enforcement instruments differ in important respects. Individual criminal liability often leads to higher enforcement costs, but addresses agency problems in a way that corporate liability fails to do. Parent company liability, by contrast, is relatively inexpensive, but it can naturally only contribute to deterrence where a parent company actually exists and has assets in the jurisdiction.

 

Comment:

This is a solid analysis of parental liability – with the added advantage of providing a high-level, comparative overview of the EU and US systems.

However, I am not sure that the paper provides an explanation for differences between the EU and the US, as it seems to try to do. The author’s thesis would make sense if one starts from a (normative and empirical) assumption that both the EU and the US seek to achieve – and do achieve – equivalent deterrence levels. If this were true, one would need to explain how this occurs given the differences in enforcement mechanisms, and the author’s thesis would be a plausible explanation.

If this assumption is not correct, however, then the author is merely describing different ways to achieve deterrence in the EU and the US, but it is not explaining why each system has evolved as it did. Personally, I do not find the argument that the differences between the EU and the US can be explained (solely) by concerns with achieving equivalent levels of deterrence is very persuasive. For example, one of the reasons why EU competition law does not impose criminal sanctions is because the EU as a whole lacks such competence, but I am not aware of any source connecting this lack of competence with the development of the single economic entity doctrine. Nor is it plausible to think that the concept of undertaking took its present form because the European courts thought that they needed to do so to achieve equivalence with US levels of deterrence in competition matters.

In short, I think this is a very interesting paper, which works very well from a descriptive standpoint, and as an analysis of the different ways in which Europe and the US seek to ensure that competition law enforcement is deterrent.

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