In the draft horizontal guidelines (DHGL) that were published for public consultation on 1 March 2022, the European Commission has made another attempt to clarify the applicability of Article 101(1) TFEU to agreements between joint ventures and their parents.

What is the issue?

The applicability of Article 101(1) to agreements and concerted practices involving joint ventures and their parents is a recurring topic which is likely to have given a headache to many of our readers during their careers.

The assessment boils down to whether a joint venture and its parents constitute separate undertakings. This is because Article 101(1) presumes some form of coordination between at least two separate undertakings. An agreement or concerted practice between two entities forming part of the same undertaking therefore falls outside the scope of Article 101(1).

Where does this lack of clarity come from?

What looks like a straightforward question becomes less clear when looking at the case law and becomes even more blurred when also considering the merger control rules relating to the assessment of joint ventures.

The main difficulty in understanding the case law arises from the fact that there are two separate strands of case law. Their conflicting incentives relate to how broadly the term ‘undertaking’ should be interpreted.

On the one hand, there are a few old cases relating to instances where the Commission has challenged agreements or concerted practices involving joint ventures and their parents. For instance, in order to apply Article 101 in Gosme/Martell-DMP and Welded steel mesh, the Commission treated them as separate undertakings.

On the other hand, more recently in cases relating to parental liability for cartel infringements, the Commission has endorsed a much broader concept of the term. In order to hold parent companies responsible for cartel infringements of joint ventures, the Commission considered that joint ventures and their parents exercising decisive influence form part of one and the same undertaking. The CJEU has upheld this approach.

While the more recent case law seems at first glance to leave no room for the application of Article 101(1) to agreements between a joint venture and its parents when decisive influence is exercised, legal uncertainty persists. This relates to the CJEU’s pronouncement in EI du Pont de Nemours and Company that a joint venture and its parents could be considered as forming a single undertaking “only for the purposes of establishing liability”.

Treating parents and joint ventures as a single undertaking similarly appears difficult to reconcile with the merger control rules. For instance, the ancillary restraints notice allows non-competes between joint ventures and their parents only if subject to narrow limitations, and Article 2(4) of the Merger Regulation suggests that parents of a joint venture are “undertakings that remain independent”.

The Commission undertook a first attempt at clarifying the law in the draft horizontal guidelines, which were published in 2010, but the relevant language was dropped in the final version of the current guidelines.

What does the Commission propose?

Remarkably, the Commission has now undertaken another attempt to clarify the applicability of Article 101(1) in joint venture scenarios. The proposed guidance at paragraphs 13 and 14 of the DHGL reads as follows:

(13) […]“Hence when it is demonstrated that the parents exercised decisive influence over the joint venture, the Commission will typically not apply Article 101(1)(1) to agreements and concerted practices between the parent(s) and the joint venture concerning their activity in the relevant market(s) where the joint venture is active. Nevertheless, the Commission will typically apply Article 101(1)(1) to agreements:

• between the parents to create the joint venture;
• between the parents to alter the scope of the joint venture;
• between the parents and the joint venture outside the product and geographic scope of the activity of the joint venture; and
• between the parents without involvement of the joint venture, even concerning the relevant market where the joint venture is active.

(14) The fact that a joint venture and its parents are considered to form part of the same undertaking on a certain market does not prevent the parent companies from being independent on all other markets.” (emphasis added)

This new attempt to clarify the applicability of Article 101(1) in joint venture scenarios is very welcome. However, the proposed guidance is much more hesitant than what had been included in the 2010 draft guidelines:

(11) […]“As a joint venture forms part of one undertaking with each of the parent companies that jointly exercise decisive influence and effective control over it , Article 101 does not apply to agreements between the parents and such a joint venture, provided the creation of the joint venture did not infringe EU competition law. Article 101 could, however, apply to agreements  between the parents outside the scope of the joint venture and with regard to the agreement between the parents to create the joint venture.” (emphasis added)

The new proposed guidance does not state that Article 101(1) “does not apply to” agreements between a joint venture and its parents but solely specifies in paragraph 13 that “the Commission will typically not apply” Article 101(1) to such agreements. This wording, and more specifically the word “typically”, suggests that the Commission does not exclude the possibility that Article 101(1) may apply. Indeed, rather than stating that agreements and concerted practices between a joint venture and its parents cannot be challenged, the Commission only signals that it would not challenge them if they concern activities in the markets where the joint venture is active.

In paragraph 14 DHGL, the Commission appears to go one step further, conceding that a joint venture and its parents may be considered to form part of the same undertaking in some markets but not in others. The increment in legal certainty brought about by the sentence though is limited, since it does not go beyond quoting parts of the CJEU’s ruling in LG Electronics and Koninklijke Philips Electronics.

What does the proposal mean?

The absence of a clear statement in the DHGL on the applicability of Article 101(1) suggests that the Commission did not find sufficient support in the CJEU’s most recent case law to confirm that Article 101(1) does not apply to agreements between joint ventures and their parents. It seems that the Commission therefore decided to provide some guidance on its enforcement priorities in that area.

For those who were hoping that the Commission would once and for all confirm that Article 101(1) does not apply to agreements between joint ventures and their parents, the proposed new guidance will be disappointing. But also for those who were at least hoping for a clear statement, the proposal likely falls short of expectations.

Moving forward, it appears that the Commission has no intention to challenge agreements between parents and joint ventures that concern markets where the joint venture is active. As a result, our readers will need to be patient in order to see a more explicit CJEU ruling which makes the Commission feel comfortable enough to take a firmer view.