The Sumal-judgement: reshaping the notion of ‘undertaking’ in EU competition law

Introduction

The Sumal case is originally a private enforcement case in which a Spanish customer (Sumal – a company manufacturing roll containers) claimed damages as a result of the Truck-cartel. Sumal bought two trucks from Mercedes Benz Trucks España SL, which is a subsidiary of Daimler AG. While Daimler AG was an addressee of the Commission’s sanction decision in the Truck-cartel case, Mercedes Benz Trucks España SL was not mentioned in the decision. However, instead of taking legal action against Daimler AG, Sumal claimed damages from its subsidiary before a local Spanish court. A paramount question was born: can a subsidiary be held liable for damages resulting from the participation of the parent company in a cartel and can the action be brought before a local court?

Sumal-judgement

Yes, is the short answer from the ECJ. But the longer answer is the more interesting one with consequences reaching far beyond the scope of liability for cartel damages.

From Skanska and Akzo Nobel we already know that parent companies can be held liable for the infringement of their subsidiaries (upward liability) if they form an ‘economic unit’, meaning that the subsidiary does not independently determine its own conduct in the market, but essentially carries out the instructions given to it by the parent company, having regard especially to the economic, organisational and legal links between the parent and the subsidiary (Sumal, par. 43).

To answer the question from the Spanish court whether liability can also exist in the opposite direction (downward liability) affirmatively, the ECJ proceeds from the objective of full effectiveness of Article 101 TFEU and the importance for any individual to claim damages for loss caused by an infringement. The ECJ regards actions for damages as an integral part of the system for the enforcement of the EU competition rules, intended to punish anticompetitive behaviour and deter undertakings from engaging in such conduct (Sumal para. 37).

However, the ECJ observes that it is possible for groups of companies to conduct a variety of economic activities. As a result, subsidiaries are not ‘automatically’ liable for parent companies since it is possible that they do not form an economic unit (Sumal, par. 46). Therefore, the same parent company may be part of several economic units, depending on the economic activity in question (Sumal, par. 47). This is new. The general opinion has always been that a company is part of only one ‘economic unit’. The implications of this will be discussed below.

So – subsidiaries can be liable for parent companies if they form part of the same economic unit engaged in the anticompetitive behaviour addressed by the cartel decision (Sumal, par. 50). To demonstrate the ‘economic unit’ between the subsidiary and the parent company, it is necessary to establish:

1. the economic organisational and legal links between the subsidiary and the parent company (Sumal, par. 51); and
2. the specific link between the economic activities of the subsidiary and the parent company (Sumal, par. 52).

Implications for private and public enforcement

The ECJ is strikingly silent on the definition of ‘economic activities’ in relation to the notion of single economic unit. Only regarding the specific Sumal-facts, the ECJ rules that the claimant should establish that the cartel concerns “the same products as those marketed by the subsidiary” (Sumal, par. 52). However, it is unclear whether ‘economic activities’ should involve the service/product in the same relevant product market or whether it can have a broader meaning.

Related to private enforcement this judgement has the result of broadening the access to justice of claimants for damages caused by anticompetitive behaviour. Sumal makes clear that claimants can sue any subsidiaries that form an economic unit with their parent company resulting in more possible ‘anchor defendants’ (see article 8(1) of the Brussels Recast Regulation). Furthermore, nothing in the judgement indicates that this reasoning does not apply to sister companies forming an economic unit.

Related to public enforcement this judgement will likely have an impact on the options for the supervision authority to address an infringement decision to the ‘economic unit’, which includes the subsidiary company in certain cases. However, this might be more of a theoretical discussion since it seems the most logical option for the supervising authority to address the parent company. Of a bigger practical influence might be that Sumal will play a role in the calculation of the turnover of the ‘economic unit’.

Related to intra-group relations this judgement might even have the most far-reaching implications. It follows from the judgement that a group company can consist of multiple economic units and a parent company can be part of all of them. Subsidiaries form an economic unit with their parent company when there is a ‘specific link between the economic activities’. When such a specific link is absent, there is no economic unit. This means that the companies, despite being part of the same group, are not part of the same ‘undertaking’ as referred to in article 101 TFEU so that the cartel prohibition is applicable to those relationships. On the basis of this development in the notion of undertaking, many group companies in the EU may need to reconsider and reassess their intra-group relationships and contracts.

Conclusion

Whether or not one agrees with the far-reaching implications of this judgement, all competition lawyers will need to study Sumal and assess the potential impact of this case in their daily practice. One thing is clear: Sumal will lead to many more discussions and undoubtedly more case law will follow on the notion of ‘undertaking’ in EU competition law.

For more information, please contact Pauline Kuipers or Joost van Roosmalen