Pirelli appeal reinforces EU line on parental liability issues

The European Court of Justice recently dismissed an appeal by Pirelli over its EUR 67m fine for anti-competitive conduct carried out by a subsidiary of Pirelli  (subsequently sold on - the purchaser of the subsidiary received a separate fine).

Under competition law, where a parent company owns 100% (or near 100%) of the shares of a subsidiary, there is a rebuttable presumption that the parent company actually exerts decisive influence over that subsidiary, such that it can influence the subsidiary's conduct. This presumption means parent companies can be considered liable for competition law breaches of subsidiaries.

Pirelli argued before the General Court that the presumption was rebutted in this case as:

• its' structure was so large that it could not influence its' subsidiary's activities; and
• the subsidiary continued the cartel conduct post-sale, 

indicating a level of independence from the parent company. The ECJ affirmed the General Court's rejection of this line of argument.

The ECJ's judgment reinforces the perception that presumptions of decisive influence for parent companies are very hard to rebut, particularly where it allows the EU Commission to have a greater reach in fining terms.

 It also reinforces the importance for parent companies to exercise good governance over subsidiary companies and detailed due diligence during a sale process.