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

Last Updated: 30 April 2014
Article by Thomas Verstraeten, Herman Speyart and Barbara Nijs

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 company and its subsidiaries will constitute a single economic unit when the parent can exercise "decisive influence" over the subsidiary, the standard of proof being that the subsidiary carries out, in all material respects, the instructions of the parent company.

In principle, it is not sufficient for an EU competition authority to merely find that the parent company is in a position to exercise decisive influence over the conduct of its subsidiary: it must demonstrate that influence was actually exercised. In practice, however, this test is relatively easy to satisfy: liability may be imposed on the parent even if its influence only relates to high level strategy or commercial policy and does not entail day to day instructions on how to run the business.

This doctrine has already been expanded in various ways.

First, under a rebuttable presumption rule recognized by the EU Courts, a 100% or near-100% shareholding gives rise to the rebuttable presumption that the parent has indeed exercised decisive influence over its subsidiary (Case C-97/08 P, Akzo Nobel and Others v. Commission [2009] ECR I-8237, para. 60). As a result, it is sufficient for the competition authority to prove that (almost) all of the capital in the subsidiary is held by the parent to attribute parental liability. (In the absence of a near 100% stake, the competition authority must prove the actual exercise of decisive influence). That presumption can in principle be rebutted by showing that the subsidiary has actually acted quite independently from its parent, but such a defence has so far never been accepted by the EU Courts.

Secondly, the EU Courts have accepted that, where the infringing company is a joint venture, parental liability can be applied to both joint venture partners, allowing for the strange reasoning that the joint venture acts as a single economic unit with both of its parents (See Cases C-171/12 P Du Pont de Nemours/Commission and C-179/12 P Dow Chemical/Commission).

Thirdly, the text for an EU Directive on antitrust damage claims voted on 17 April 2014 by the EP also refers, when it comes to defining the claims concerned, the word "undertaking", which is certain to open the door for parental liability claims in private damage cases. (Please click here for the text voted by the EP).

The Parental Liability Doctrine applied to Financial Investors and Private Equity Companies

In a first step to expand its Parental Liability Doctrine to entities that participate in a company for financial reasons only, the Commission targeted financial investors.

In the Calcium Carbide Case, the Commission held Arques and 1. garantovaná, private equity companies specializing in the direct acquisition and restructuring of companies in distress, jointly and severally liable for infringements committed by their respective subsidiaries SKW and NCHZ (Commission decision of 22 July 2009 in Case COMP/39.396). Both companies argued that they acted as pure financial investors and were not involved in management decisions of SKW and NCHZ, but these arguments were dismissed by the Commission and, on appeal, by the EU General Court (Case T-392/09, 1. garantovaná a.s. v. Commission, not yet published, para. 52; and Case T-395/09, Gigaset AG v. Commission, not yet published), para. 26 a.f.).

Arques argued that it focused on strategic and restructuring decisions and did not engage in portfolio company business decisions, because it lacked the know-how to do so. It did receive information on turnover, results, cash-flow, liquidity planning and it monitored the restructuring process, but did not consider this decisive influence. The Commission and the General Court, however, dismissed these arguments, indicating that (i) Arques closely monitored the restructuring process and (ii) the private equity company had the interests of the group in mind when taking decisions in relation to its portfolio company such as whether the subsidiary should be sold and for which price.

In earlier cases, however, investor companies have been able to escape parental liability by arguing that they behaved like pure financial investors, without actively becoming involved with the business decisions of the portfolio company (See, e.g., Commission decision of 20 October 2004 in Case COMP/38.238 – Raw Tobacco Spain, para. 383).

The next step is to look at portfolio management companies. In the Shrimp Case, in which it fined three North Sea shrimp traders for a total of EUR 28.7 million, a fourth cartel member having received immunity, the Commission refrained from imposing a fine on private equity company Gilde Buy Out Partners in relation to the behaviour of portfolio company Heiploeg (Case COMP/AT.39633 – Shrimps). It has now crossed the Rubicon in the Power Cables Case.

The Parental Liability Doctrine applied to GS Capital Partners in the Power Cables Case

GS Capital Partners V is an investment fund managed by GS Capital Partners, a full Goldman Sachs subsidiary. Under a management agreement with the fund, GS Capital Partners exercises the voting rights in respect of the fund's portfolio companies. Another Goldman Sachs entity also invests in the fund, having committed $ 2.5 billion, or 30%, of the fund's total capital.

In July 2005, the fund acquired Prysmian SA from Pirelli. In 2007, Prysmian held an IPO, reducing the shares held by the fund to 31.8%. In 2009, the fund sold its last shares.

In its decision, the Commission takes the view that Prysmian has participated in a cartel that lasted from 1999 to 2009. It applies the Parental Liability Doctrine to GS Capital Partners. Although the decision has not been made public and cannot, therefore, be analysed in detail, the Commission points at the following elements in its press release:

  • During the period 2005-2007, GS Capital Partners held 100% of the voting rights in Prysmian, which enabled it to remove and nominate the board of directors at any time;
  • The decisive influence is deemed to continue even after GS Capital Partners reduced its stake to 31.8% in 2007 because it still had employees, rather than representatives, sitting on Prysmian's board of directors;
  • This board representation and certain voting rights still enabled GS Capital Partners to be involved in Prysmian's management decisions; and
  • GS Capital Partners was regularly updated on Prysmian through monthly reports.

In his speech introducing the decision, Competition Commissioner Almunia issued a clear warning to financial investors and private equity management companies:

"I would like to highlight the responsibility of groups of companies, up to the highest level of the corporate structure, to make sure that they fully comply with competition rules. This responsibility is the same for investment companies, who should take a careful look at the compliance culture of the companies they invest in."

(Please click here for the full text of the speech.)

Open issues

This decision and similar decisions that are pending in various EU member states raise various issues.

First, GS Capital Partners will certainly challenge the question of principle whether a private equity portfolio manager (as opposed to a private equity company that invests itself in a subsidiary) can indeed be deemed to operate as a single economic unit with the portfolio companies of the fund it manages. The company only manages the fund on behalf of the investors. It may exercise certain voting rights in order to protect the financial interests of the fund, but usually does not involved itself with core business decisions or coordinate the market behaviour of various portfolio companies.

If that hurdle is overcome, the case also raises specific issues relating to the concept of "decisive influence": was it enough for GS Capital Partners to have certain voting rights, or was the nomination of GS employees as Prysmian board members decisive in attributing parental liability? Can a distinction be drawn, in relation to the voting rights, between active voting rights requiring the portfolio manager to agree with certain decisions, and negative voting rights, enabling it to intervene in certain specific cases? Can a distinction be drawn, in terms of representation in two-tier systems, between the managing board and the supervisory board?

How can private equity portfolio management companies protect themselves?

Pending clarification of these issues, private equity firms should consider appropriate risk mitigation strategies for dealing with the antitrust risk relating to portfolio companies.

  • To prevent is always better than to cure. Effective competition compliance programmes should be implemented both at the level of the private equity management company and at the level of its portfolio companies.
  • Risks can also be mitigated by avoiding the near-100% area where a competition authority can rely on the rebuttable presumption that there has been decisive influence, by avoiding to appoint employees as board members and by preferring negative control rights above positive control rights.
  • In the selection of potential investments, a thorough competition risk due diligence should be undertaken.
  • Warranties and indemnities and other contractual provisions should be tailored to account for anti-trust risks.
  • Portfolio management companies may choose to take out a separate insurance covering theses same risks.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions