More specifically, the questions referred to the CJEU by the Finnish Court stemmed from a civil damages case concerning a number of companies that had participated in a cartel between 1994 and 2002, in breach of Article 101 TFEU. These companies subsequently were restructured, split up, merged, or dissolved, so that the original addressees of the cartel decision no longer existed at the time the victims of the cartel pursued damages in court.
The key issue addressed in the judgment centers around the concept of “undertaking” in EU competition law and its consequences in the field of private enforcement, in other words, the question of which legal persons are liable in an action for damages caused by an antitrust infringement and whether this determination should be made based on national law or EU law.
In line with its earlier ruling in Kone (C‑557/12), the judgment confirms that the matter should be determined based on EU law (in this case Article 101 of the Treaty on the Functioning of the European Union, a.k.a. TFEU), which directly applies in all Member States. However, the judgment also clarifies that this principle extends to the application of the so-called “economic continuity rule”, aimed at preventing undertakings from escaping antitrust liability by changing their identities following restructuring or organizational change (as further explained below). Hence, national law cannot prevent the direct application of this principle by national courts to determine which person is liable to compensate for damages in violation of Article 101 TFEU.
What is the economic continuity rule?
According to this rule – established by European Commission case-law of and further developed by the CJEU – liability for an antitrust infringement may, under certain circumstances, follow the assets of the company involved in the infringement rather than staying with the legal entity which possessed or controlled such assets at the time of the infringement (see e.g. Commission v Parker Hannifin Manufacturing and Parker-Hannifin, C-434/13). The conditions under which this principle may apply are not set in stone, but rather, they may vary depending on the specific circumstances of the case. According to existing CJEU case-law, the minimum requirement for this principle to apply is a pre-existing economic or organizational link between the transferor and the transferee of the undertaking involved in the infringement. However, the cessation of the legal existence of the predecessor has not been considered by case-law as an essential condition for the application of the economic continuity rule.
As a result, a company purchasing assets or a business involved in an infringement may be held liable for the infringement, even though it occurred before the purchase, in apparent exception to the fundamental principle that liability for antitrust infringements is individual (or personal) in nature. This consequence results from applying the definition of “undertaking” and “single economic unit” enshrined in EU competition law (an autonomous concept of EU law, as further explained in the following paragraphs) and therefore does not necessarily clash with the principle of personal liability.
The reasoning of the CJEU
The CJEU first explained that, according to its established case-law, “undertaking” within the meaning of Article 101 of the TFEU) is an autonomous concept of EU law that covers any entity, regardless of its legal status, engaged in an economic activity (see ETI and others, C-280/06).
For instance, under competition law, an undertaking may be a legal entity (for example, a company, person, or non-profit organization) together with all of its assets or only those assets which constitute e defined business with a market presence, to which a market turnover can be clearly attributed. Conversely, a legal entity that is just an empty shell (e.g. a newco or a vehicle without any business or potential market turnover) is not an undertaking within the meaning of competition law. Furthermore, this concept of an undertaking is intrinsically intertwined with that of a “single economic unit”, according to which all the companies or assets directly or indirectly controlled by the same entity or person (as is the case with groups of companies) constitute a single undertaking for the purposes of competition law (C‑516/15 P, Akzo Nobel).
It follows that the concept of undertaking, within the meaning of Article 101 TFEU, cannot have a different scope with regard to the imposition of fines by the European Commission as compared to actions for damages for infringement of EU competition rules before national courts. In fact, actions for damages form an integral part of the system for enforcement of those rules and pursue the same objective of punishing and deterring violations of Article 101.
It is worth mentioning that deterrence, along with compensation for damages, is considered one of the objectives of the private enforcement of EU competition law (as well as for its public enforcement). This statement, in turn, builds on the Courage and Manfredi judgments of the CJEU, which affirmed the right of individuals to claim damages arising from harm caused by a violation of EU competition law. National law, however, is still relevant in determining how and when this right can be exercised in each Member State, in accordance with the principle of equivalence and effectiveness (which however was not deemed relevant in this case as EU law applies directly to the matter at hand).
That being said, the CJEU has clarified that the entities or persons required to compensate for the damages caused by an infringement of Article 101 TFEU are the undertakings, as defined for the purposes of competition law, which participated in that cartel. Furthermore, in light of the principle of economic continuity, as defined and elaborated by EU case-law, the ECJ held that, in the event an undertaking undergoes a legal or organizational restructuring, such a change does not necessarily mean that the new undertaking is free from liability for the conduct of the past undertaking if, from an economic standpoint, the two are identical (see Commission v Parker Hannifin Manufacturing and Parker-Hannifin, C-434/13). In this regard, the legal form of the entity that committed the infringement and the entity that succeeds it are also irrelevant, according to CJEU case-law. This is due to the fact that, from an economic perspective, the undertaking remains the same.
Therefore, the CJEU found that extending liability for damages to a company that has taken over the undertaking that committed the infringement is not always contrary to the principle of individual liability, especially if the previous company has ceased to exist either legally or economically. In fact, as explained in previous CJEU cases, if a penalty were imposed on an undertaking that continued to exist legally but had ceased its economic activity and no longer owns any valuable assets or resources, such a penalty would have no deterrent effect.
The rationale underlying this conclusion is explained by the CJEU in these terms: “If the undertakings responsible for damage caused by an infringement of the EU competition rules could escape penalties by simply changing their identity through restructurings, sales or other legal or organizational changes, the objective of suppressing conduct that infringes the competition rules and preventing its reoccurrence by means of deterrent penalties would be jeopardized” (para. 46 of the judgement).
In light of these considerations, the ECJ concluded that Article 101 TFEU must be interpreted as meaning that, in a case where all the shares in the companies which participated in a cartel were acquired by other companies which have dissolved the former companies and continued their commercial activities, the acquiring companies may be held liable for the damage caused by the cartel in question (para. 51).
This judgment, together with the Opinion delivered by Advocate General Wahl, sheds light on a fundamental aspect of the private enforcement of EU competition law: the interplay between EU law and the domestic laws of the Member States in regulating claims for antitrust damages based on an infringement of EU competition law. More specifically, the CJEU was called upon to decide to what extent EU law dictates how liability should be attributed in private law actions for antitrust damages instigated before national courts.
By extending the application of the concept of economic continuity to claims for damages caused by violations of Article 101 of the TFEU, the CJEU has definitively confirmed that the same entities that have violated the rules of EU competition law are subject to sanctions by a competition authority and legally liable for private damages. The same assessment should apply in the context of Article 102 of the TFEU as the judgement states a general a principle of competition law and there is no reason to apply a different principle in the case of abuses of a dominant position.
For firms and businesses, the case remarks the importance of carrying out a full due diligence exercise prior to completing M&A transactions, given the significant competition law risks involved. In fact, in certain circumstances, the purchaser of an undertaking may be held jointly and severally liable for the past antitrust infringements of that undertaking (both for public sanctions and for restoration of damages), regardless of whether the seller disclosed or should have disclosed the infringement to the purchaser during the transaction.