A Warning For Corporate Parents In The EU’s Akzo Nobel Case

Being a parent means great responsibilities – especially if you’re a corporate parent with subsidiaries active in the European Union.  As a result of the European Commission’s Akzo Nobel case, such corporate parents now face greater antitrust liability for the conduct of their 100%-owned subsidiaries.

On September 10, 2009, the European Court of Justice dismissed Akzo Nobel’s appeal of a 2007 judgment of the Court of First Instance.  The 2007 judgment confirmed a 2004 European Commission decision that fined Akzo Nobel subsidiaries for their participation in a cartel.  What makes this decision particularly noteworthy is that the subsidiaries’ parent company, Akzo Nobel, NV, was held jointly and severally liable on the basis of its 100% ownership of those subsidiaries.

The European Court endorsed the proposition that a parent company may be held liable for anticompetitive behavior of its subsidiaries even when the parent did not participate in or have control over those activities.  The Court confirmed that when a parent company forms a single economic unit or “undertaking” together with its subsidiaries, there is a rebuttable presumption that the parent company exercised decisive influence over the market conduct of the subsidiary.  Furthermore, absent the parent coming forward with convincing evidence that it did not influence its subsidiary’s market conduct, a parent’s 100% ownership of a subsidiary is sufficient to find an undertaking and therefore hold the parent jointly and severally liable.

The Akzo Nobel decision is directly contrary to a fundamental principle of U.S. law – namely that a corporation can limit its liability through incorporation of subsidiaries.  In America, a parent corporation is presumptively separate from, and not liable for, the acts of its subsidiaries.

In light of the European Court’s decision, companies with wholly owned subsidiaries must consider the risk of being held liable in the European Union for any anticompetitive conduct by their subsidiaries.  Such companies should explore ways to rebut the rebuttable presumption that they have decisive influence over their subsidiaries.  For example, some parent companies may wish to consider corporate structures or protocols that preclude their influencing the market conduct of their wholly owned subsidiaries.

Of course, one has to question what is the purpose of being a parent company if not to have influence over wholly owned subsidiaries.  The Akzo Nobel decision will force companies to confront this question and evaluate their corporate structures, internal policies and procedures, and competitive strategies so that the liabilities of parenthood don’t outweigh the benefits.