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Archive for January 20th, 2023

Unilever (case C-680/20) and the notion of undertaking (by Marcos Araujo Boyd)

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In a judgment delivered yesterday, the CJEU answered two questions referred by the Italian Consiglio di Stato. Understandably most comments have focused on the clarifications given by the Court in relation to the second question, concerning the obligation of competition to verify the capability of exclusivity clauses to exclude equally efficient competitors and to examine the economic analyses produced by the party in that respect, adorned with the perpetual question of whether the ‘as efficient competitor’s test must always be applied in these situations. That discussion clearly deserves attention; this post, however, is reserved to discussing the first and, at first sight, less relevant question of the Court’s approach to the ‘single economic entity’ doctrine.

The questions addressed in the Judgment concern the review of a decision of the Italian competition authority (Autorità Garante della Concorrenza e del Mercato or AGCM) of 31 October 2017. That decision declared that Unilever Italia Mkt. Operations S.r.l. (“Unilever”) abused its dominant position on the market for the distribution and marketing of ice cream to the operators of ‘out-of-home’ sales outlets through various mechanisms in breach of Article 102 TFEU, and imposed on that entity a fine of EUR 60 668 850.

For the purposes of the discussion on the ‘single economic entity’ doctrine, it is relevant to note that the AGCM Decision had imputed the conduct to Unilever, despite that the conduct (imposing exclusivity and a range of other alleged exclusionary initiatives) had been materially implemented by its distributors. The AGCM Decision justified this on the basis of a ‘single economic entity’ logic. In short, the AGCM declared that Unilever and its distributors were a single entity for the purposes of competition law (in the words of the AGCM Decision, ‘i concessionari e Unilever costituiscono un unico complesso unitario che adotta un univoco comportamento sul mercato’, see para 476 of the AGCM Decision and 9 of the Judgment).

One might wonder why the AGCM was bringing the notion of ‘single economic entity’ or undertaking to the table. In a way, that  was not entirely surprising; as discussed below in this post, the ‘single entity’ doctrine is commonly invoked for multiple purposes. In this case it appears that the fine was calculated based on the combined sales of Unilever and its distributors, so that may explain it. It could also be that the authority wanted to highlight distributors dependence on Unilever, probably to better justify imposing the fine only on Unilever and not on the distributors, and to avoid portraying the abuse as resulting from an exclusionary cartel formed by Unilever and those distributors. In the end, the AGCM drew an analogy between these intermediaries and the commercial agents whose activity the CJEU had attributed to their principal in Suiker Unie, a judgment expressly relied on by the AGCM Decision.

That logic however was not free from danger. Indeed, if the distributors and their supplier were treated as a single entity, their agreements might fall outside the scope of Article 101 TFEU. It would also be necessary to define the circumstances under which the cooperation between independent legal entities (leaving aside ownership control) would constitute such an economic entity.

In his Opinion of 14 July 2022 AG Rantos tried to address this matter with the classic tools crafted by the case-law. While being vocal about the difficulties of accepting that a contractual cooperation may give rise to an economic entity (and raising a flag about the risks of ditching the application of Article 101 TFEU to those structures), he seemed to accept that, in some limited circumstances, such reality might exist provided that there is a clear ‘unity of action in the market’ and that the leading entity can exert power over the other participants (amounting, in practice, to the ‘decisive influence’ standard), a fine line that the Court itself had suggested in VM Remonts with respect to subcontractors.

In yesterday’s judgment, the Court has adopted a very different perspective. Instead of looking at the matter from the viewpoint of the notion of undertaking or of the single economic entity doctrine, the Court has pierced the veil of the matter and exposed the real underlying question, which is one of attributability. Did the conduct of the distributors originate in Unilever? Did Unilever’s longa manu instruct the concessionaires to act as they did? Is it not true that, as the AGCM Decision notes, the distributors were implementing the purportedly abusive conduct through instructions and agreements drafted and imposed on them by Unilever? If so, should EU competition law not simply attribute the conduct to Unilever, without there being any need to apply the single economic entity doctrine?

Under that viewpoint, and after confirming that, in principle, contractual coordination would fall under Article 101 TFEU (para 26), the Court recognises that an undertaking may be regarded as being the perpetrator of that conduct (and, therefore, where appropriate, as being solely liable for it for the purposes of the application of Article 102 TFEU) where the distributors were  “merely an instrument of territorial implementation of the commercial policy of that undertaking and, on that basis, as being the instrument by which, as the case may be, the exclusionary practice at issue was implemented” (para 30).

More specifically, “the imputability to the undertaking in a dominant position of the conduct implemented by the distributors forming part of the distribution network for its goods or services is not conditional either on the demonstration that the relevant distributors are also part of that undertaking, or even on the existence of a ‘hierarchical’ link resulting from a systemic and consistent range of guidelines given to those distributors likely to influence the management decisions which they adopt as regards their respective activities” (para 32).

With these statements, the Court seems to have realised that the notion of undertaking does not need to be brought to assist in every situation where a ‘unity of conduct’ appears on the market, not even where liability is transmitted. For many it will seem obvious that this is the right solution. Let us, however. note that this was not the approach followed by the Court in multiple judgments, where that notion (and especially its first limb, the single economic entity doctrine) was brought in to support multiple propositions that arguably did not need it. By way of example, in the 1972 judgment in ICI, a building block on the construction of the notion of undertaking, the Court also confronted a situation where a parent company was using its subsidiaries as a mere tool, sending its affiliates ‘orders as to the prices which they were to charge and  other conditions of sale which they were to apply in dealing with their customers.  Instead of simply making the parent entity directly liable for its own acts implemented through others, the Court affirmed that the parent should answer under a ‘single entity’ logic.

Since then, the Court has used that notion to attain multiple objectives, including better articulating the calculation of sanctions, justifying expansive theories of succession, exempting from scrutiny the agreements within an economic group, or making parent entities liable regardless of their not being involved in the specific conduct under consideration. While many of these developments do require a solid theory of the undertaking, others do not. Sumal is arguably a good example. Instead of merely affirming subsidiary liability by reason of the involvemen of a subsidiary and articulating a clear and fitting theory of the ‘link’, the Court felt it necessary to bring to invoke the notion of undertaking, arguably quartering conglomerate economic groups in the way.

In today’s Judgment in Unilever it seems that the Court has not fallen to that temptation, and it should be commended for that. Let the notion be reserved to the situations where it is truly needed, and not as a Friar’s balm for every situation where an argument could potentially be strengthened by vague notions of a ‘unity of conduct on the market’.

The theory of the undertaking has enough challenges on its plate to deal with additional confusion.

Written by Alfonso Lamadrid

20 January 2023 at 11:49 am

Posted in Uncategorized