January 28, 2021

Direct Liability of Financial Investors for Portfolio Companies’ Antitrust Infringements


Today, the European Court of Justice (“ECJ”) rendered a landmark decision concerning the liability of financial investors for their controlled portfolio companies’ behavior. With this decision, it is now final that financial investors can be held directly liable for antitrust infringements committed by their controlled portfolio companies, even if

  • the investor only holds a minority of the company shares; and
  • was neither involved in nor aware of the infringing behavior.

Traditionally, financial investors such as PE funds did not need to be concerned to be held liable for their portfolio companies’ anti-competitive conduct. They could take comfort that a fine for an antitrust infringement would generally remain the problem of the portfolio company. Particularly, they could rely on limited participation and control rights in the portfolio company as a defense.
On 27 January 2021, the ECJ upheld a European Commission (“EC”) decision of 2014 according to which a major PE fund was held directly liable for a cartel infringement of a portfolio company controlled by the fund – even for a period in which the fund only held a minority (yet controlling) stake. The EC imposed a EUR 37 million fine for which the PE fund was held jointly and severally liable. Upon the PE fund’s first appeal, the General Court of the European Union (“GC”) upheld the EC’s decision in 2018 and rejected the appeal in its entirety.

The ECJ Decision
As the European Court of last instance, the ECJ upheld the EC’s and GC’s decisions by fully rejecting the second appeal lodged by the PE fund.
With the ECJ’s ruling, an important aspect of the case has now become final: A financial investor such as a PE fund can be held directly liable for infringements of its portfolio companies, even if it holds only a minority of the shares, as long as it exercises control over the infringing portfolio company. For establishing control in case of a minority investment, it is sufficient for the PE fund to have veto rights concerning the appointment/dismissal of the portfolio companies’ senior management or regarding its annual budget or business plan.
Where the financial investor holds either (i) all (or virtually all) shares of the portfolio company or (ii) a substantial majority (in the case at hand, 84.4%) of the shares plus all voting rights, the EC is even entitled to presume that the financial investor exercised control over the company without the need of additional evidence.
Resulting in an extremely wide scope of liability, this also confirms that financial investor can be held directly liable even if the investor was not involved in, and did not know of, the infringing behavior.
Consequences for PE Investors
If financial investors including PE funds are held directly liable for their portfolio companies’ behavior, the consequences can be severe. In particular, the investor can be

  • fined up to the (theoretical) maximum of 10% of its yearly group turnover including all of its controlled portfolio companies;

  • a direct subject of official investigations and infringement proceedings by the regulators, which are costly, time-consuming and bind management resources; and

  • held directly liable for damages incurred by market participants that were affected by the competition law infringement. In an increasing number of cases, the damages sought in the aftermath of a cartel significantly exceed the fines imposed by the competition authorities.

Since PE funds generally aim to exercise control over their portfolio companies it will in most cases not be possible to elude direct liability for competition law infringements. The focus must thus be on prevention:

  • Pre-acquisition due diligence should include a thorough investigation of the antitrust risk exposure, e.g., the general antitrust risk in the affected market, the existence of sound internal compliance structures, pending investigations involving the target etc.

  • During the investment period, financial investors should ensure that their controlled portfolio companies stay compliant, e.g., by establishing or maintaining:

    • an effective antitrust compliance program including regular trainings and standardized control mechanisms,

    • an internal whistle blower system to detect potential infringements early on to mitigate the risks,

    • a monitoring mechanism by the financial investor itself to maintain the awareness for antitrust compliance throughout its portfolio.