European Court of Justice rules on liability for independent service providers
In its judgement of 21 July 2016, the European Court of Justice (ECJ) (C-542/14) ruled that under certain conditions an undertaking may be liable for infringements of competition law committed by an independent service provider.
The case is based on a request for a preliminary ruling by the Latvian Supreme Court concerning an appeal of the fining decision of the national antitrust authority. The National Competition Council found an infringement by three Latvian undertakings that submitted tenders for the supply of food products to educational establishments in Latvia. One of them contacted an external service provider to get legal assistance for the preparation of its tender. However, the undertaking did not know that the same service provider was also instructed by two competitors to prepare their respective tenders. The service provider used the prices given in the draft tender of the first undertaking when drafting the offers for the latter two. He positioned one undertaking’s bid at 5 % below the first offer and the other one another 5 % below the second offer.
The Latvian Supreme Court essentially asked the ECJ for a preliminary ruling on the question whether “Art. 101(1) TFEU must be interpreted as meaning that an undertaking is liable for a concerted practice on account of acts of an independent service provider supplying it with services”.
As a more general point, the ECJ emphasized that EU competition law understands that an undertaking is one economic unit even if based on national corporate law that economic unit consists of several persons. Since an independent service provider is not part of the economic unit comprised by the directing undertaking, its actions cannot automatically be attributed to it.
However, the ECJ held that there are circumstances under which an undertaking can be accountable for unlawful conduct of a service provider.
This can, firstly, be the case, if the service provider is in fact not independent but part of the economic unit of the undertaking, i.e. if the service provider is acting under the control or the direction of the undertaking. That might be the case, if the service provider has only little autonomy or flexibility or if its notional independence disguises an employment relationship. Also economic, organisational or legal links – comparable to the relationship between parent companies and their subsidiaries – might indicate such a direction or control.
Secondly, the ECJ also considers liability possible, if, even though the service provider is genuinely independent, the directing undertaking was aware of the conduct at hand and intended to contribute to it by its own conduct. The ECJ specifies that this is not the case if the undertaking does not know that the service provider uses its commercially sensitive data for other purposes than the services the undertaking intended the information for.
Lastly, the ECJ held that a service provider’s conduct can be attributed to undertakings which could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the entailed risk.
In summary, the ECJ outlined three criteria under which liability can be attributed
- The service provider was in fact acting under the direction or control of the undertaking concerned, or
- that undertaking was aware of the anti-competitive objectives pursued by its competitors and the service provider and intended to contribute to them by its own conduct, or
- that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the entailed risk.
The judgment follows last year’s General Court decision in Voestalpine (T-418/10), in which the General Court held that an agent’s conduct can be attributed to its principal if the agent forms part of the principal’s economic unit and acts within the context of the activities entrusted to it.
From a practical perspective, both decisions warrant a closer scrutiny of the contractual relationships with and the actual conduct of third parties entrusted with competition law sensitive activities. This applies for existing as well as new relationships with service providers regardless whether they are active in the sales or the procurement context.
Any questions? Please contact: Alexander Israel or
Jan Moritz LangPractice Group: Antitrust & Competition