Last month the European Court of Justice rendered its judgement in case C‑680/20 (Unilever) extending the scope of dominant companies’ liability for anti-competitive conduct of their distributors and providing useful insight as to the applicability of the Intel case to exclusive dealing.

The Italian competition authority found that Unilever had abused its dominant position on the market for the out-of-home sale of individually packaged ice creams by implementing an exclusionary strategy consisting of Unilever’s distributors imposing exclusivity clauses on the operators of sales outlets. Although the conduct in question was committed by Unilever’s distributors, the competition authority considered that it had to be imputed to Unilever based on the ‘single economic unit’ concept. In particular, the authority considered that the distributors did not act independently when they imposed exclusivity clauses on the operators of sales outlets.

On appeal, two questions related to the scope of the dominant undertaking’s liability and the applicability of the Intel case-law (Case C‑413/14 P) to exclusive dealing where raised before the ECJ.

Single economic unit and liability

It is a settle case-law of the ECJ that two or more legally separate entities could be regarded as a single undertaking where, having regard especially to the economic, organisational and legal links between them, it is found that they do not act independently on the market, but under the decisive influence of one of them (Case C‑516/15 P, Akzo Nobel). The ECJ has already ruled on previous occasions that a parent company can be held liable for a competition infringement committed by a dissolved subsidiary if the parent company has continued its economic activity (Case C-724/17, Skanska) and, vice versa, a subsidiary can be pursued for anti-competitive conduct of its parent company (Case C-882/19, Sumal, discussed here).

What distinguishes the Unilever case from most of the preceding case-law is that there is no legal relationship on a corporate level between Unilever and its distributor. The case concerns distribution agreements which in principle fall under Art. 101 TFEU. Nevertheless, the ECJ found that Art. 102 TFEU may be applied where the distributors’ conduct is a mere “instrument of territorial implementation of the commercial policy” that the dominant company decided unilaterally and with which the relevant distributors were required to comply. This could be the case where standard contracts are drawn up entirely by a dominant undertaking and contain anti-competitive clauses which the distributors of that producer are required to have signed by the sales outlets without being able to amend them without that undertaking’s consent.

The ECJ’s approach in the Unilever case is commendable in that it avoids applying the ‘single economic unit’ concept and, in doing so, it spares distributors from the wide consequences that the application of that concept could have on them, as noted by Advocate General Rantos, e.g. joint liability in both public and private enforcement cases, significantly higher fines due to a possible combination of turnovers etc. This is a sensible approach which reflects real-life business logic as it takes into account the imbalance and economic dependence that often exists between a supplier and distributors and assigns to the dominant company the risks of enforcing its own commercial policy.

Applicability of the Intel case-law

In responding to the second preliminary question, the ECJ somewhat expectedly (due to similarities between loyalty rebates and exclusive dealing arrangements) extended its conclusion from Intel to exclusive dealing cases. It held that where a dominant company suspected of abuse provides a competition authority with an analysis based on the ‘as efficient competitor test’, that authority cannot disregard such evidence (i) without examining its probative value and (ii) without setting out the reasons why it considers that the analysis does not demonstrate lack of restrictions to effective competition on the relevant market and, consequently, (iii) without giving the dominant undertaking the opportunity to determine the evidence which could be substituted for that analysis.

* The opinions expressed in this article are not a legal advice and should not be relied or acted upon as such.