Lopez-Balboa and Myers: Jurisdictional Standards Under EEC Competition Law: The Evolution
Journal of Comparative Business and Capital Market Law 6 (1984) 383-407
North-Holland
383
JURISDICTIONAL STANDARDS UNDER EEC COMPETITION LAW:
THE EVOLUTION OF THE ECONOMIC ENTITY TEST
Victor M. LOPEZ-BALBOA * and Jennifer MYERS
**
1. Introduction
This comment examines the jurisdictional standards which the European
Economic Community (EEC) employs when applying its competition laws to
foreign companies that own subsidiaries operating in the Community. In
Imperial Chemical Industries, Ltd. v. Commission of the European Communities
[1] (the Dyestuffs case), a 1972 opinion, the Court of Justice of the European
Communities (the Court) first applied the "economic entity" test to assert
jurisdiction over non-EEC companies [2]. Under this test, the Court claimed
jurisdiction by imputing the actions of the EEC-based subsidiaries to their
respective foreign parents. By adopting the economic entity test, the Court
attempted to avoid the controversy of using an effects-based method of
extraterritorial jurisdiction [3]. The Court was, however, criticized for its liberal
application of the economic entity test [4]. The basis for this criticism stemmed
from the Court's failure to examine properly the overall control relationship
between the parent and its subsidiary before imputing the subsidiary's actions
to its parent [5]. Without this requisite finding of a control relationship, it was
difficult to justify viewing the parent and subsidiary as an economic entity.
The cases from 1969 to 1973, as exemplified by the Dyestuffs case, reflect
the EEC's emphasis on the foreign parent; the actions of EEC-based subsidiaries were imputed to their respective parents. This approach was used both
by the Court and the Commission of the European Communities (the Commission), the administrative agency empowered to apply the Community's laws [6].
The use of the economic entity test in these early cases [7] would have been less
controversial had the Commission and the Court thoroughly examined the
nature of control between the parent and its subsidiary before imputing the
subsidiary's actions to the foreign parent.
* J.D./M.B.A. candidate 1986, University of Pennsylvania Law School/Wharton School.
•* Associate, Shearman & Sterling, New York.
0167-9333/84/$3.00 © 1984, Elsevier Science Publishers B.V. (North-Holland)
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The more recent cases illustrate the EEC's greater sophistication in applying
its competition laws to foreign companies [8]. In the cases from 1975 to 1980,
the EEC tended to hold the foreign parent liable only when it exerted actual or
overall control over its EEC-based subsidiary [9]. This approach created less
controversy in the area of international law because the economic entity test
was invoked only after a requisite finding of parent control.
The cases from 1980 to present illustrate a shift from suing the parent to
suing only the subsidiary [10]. Nonetheless, the practical result is that the
parent still feels a deterrent effect because its subsidiary's potential liability
affects the parent's overall profitability. Indeed, case analysis suggests that the
EEC may be partly targeting its antitrust cases to foreign companies even
though they may not be named in the suit. By suing only the subsidiary, the
EEC has avoided the controversies of extraterritorial jurisdictional standards
while providing foreign companies the incentive to ensure that their EEC-based
subsidiaries comply with the Community's competition laws.
Although the Commission has never explicitly noted this shift in focus, this
comment will evaluate the changes by which the EEC has applied its competition laws to foreign companies that have EEC-based subsidiaries. The comment begins by discussing the EEC's objectives, the principal competition law
provisions - Articles 85 and 86 of the Treaty of Rome, and the roles that the
Commission and the Court assume in formulating and applying competition
policy and laws. The following section presents the reference points from
which to view the evolution of the Community's jurisdictional standards principles of international law and the Commission's characterization of their
application of competition law against foreign companies with EEC-based
subsidiaries. Against this background, the EEC case law on competition and
the jurisdictional standards that have evolved therefrom are analyzed.
2. Competition law - policy, treaty, and institutions
The European Economic Community (EEC) is a supranational institution
which was established in 1957 [11] to promote the formation of one common
market [12]. In order to fulfill this broad goal of market integration, the EEC
formulated competition laws to prevent the fragmentation of the Community
and to protect competition within it. Two of the EEC's institutions, the
Commission and the Court, are responsible for interpreting and applying the
EEC's competition laws consistently with the Community's objectives.
The manner in which the EEC applies its competition laws to foreign
undertakings is influenced by the policies underlying the Community's competition laws, the structure of the competition law provisions, and the characteristics of the Commission and the Court. Analysis of these considerations serves
as a useful background from which to study the evolution of the jurisdictional
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standards used to bring foreign enterprises within the purview of the EEC's
competition laws. Moreover, the flexibility inherent in the Commission's and
Court's roles illustrates that the means of implementing competition laws are
susceptible to change.
2.1. Policy
Application of the EEC's competition rules is influenced by policy considerations [13]. Because an important focus of the Community's antitrust laws is to
preserve competition only insofar as it serves the other aims of the EEC [14],
the underlying tenets of these antitrust provisions shed light on the evolution
of standards used to gain jurisdiction over foreign undertakings.
Three policies buttress the EEC's competition rules. First, the Treaty
provisions are intended to further the EEC's objective of integrating the
economies of the member states by establishing a common market among the
member states [15]. By creating a common market, the EEC can "promote
throughout the Community a harmonious development of economic activities
[and] a continuous and balanced expansion..." [16]. One commentator characterized this objective more poignantly: "To prosper, Europe must establish
itself as an independent counterbalance to the United States" [17]. Thus, a goal
of the EEC is to establish Europe as a viable competitor in world markets.
The second policy behind the EEC's competition laws is articulated in
Article 3(f) of the Treaty of Rome: "The activities of the Community shall
include ...the establishment of a system ensuring that competition shall not
be distorted in the Common Market" [18]. In the first of its annual reports on
competition policy, the Commission stated that the Community's antitrust
laws would serve to protect and promote competition by preventing member
states and undertakings from implementing programs and agreements designed
to fragment the Common Market [19]. Nevertheless, because the competition
laws are also a means of achieving market integration, exemptions are given for
reasons of public interest and efficiency [20]. For example, exemptions are
granted for joint research and development ventures [21].
The third objective, the encouragement of cooperation among Community
firms [22], is closely related to the first two. Indeed, as the Commission stated:
"The Commission welcomes cooperation among small and medium-sized
enterprises where such cooperation enables them to work more economically
and increase their productivity and competitiveness in a larger market" [23].
One commentator noted that this policy is perceived as an anti-American or
antimultinational attitude because smaller EEC firms are competitively disadvantaged vis-h-vis larger non-EEC corporations [24]. While the EEC's competition laws cannot fairly be characterized as directed solely against foreign
enterprises, an awareness concerning the activities of multinational enterprises
has influenced the EEC's approach towards cooperation among Community
firms [25].
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Given the foregoing policies, what type of jurisdictional criteria would best
fulfill the Community's objectives? Since the competition laws have a protectionist bias [26], the EEC's objectives are best served by broadly asserting
jurisdiction over foreign undertakings to the extent permitted by international
law.
2.2. Articles 85 and 86 of the Treaty of Rome
The main EEC competition law provisions are contained in Articles 85 and
86 of the Treaty of Rome [27]. Article 85(1) prohibits "agreements between
enterprises, any decisions by associations of enterprises and any concerted
practices which are likely to affect trade between the Member States" [28]. Any
arrangement which violates Article 85(1) is declared "automatically void"
under Article 85(2). If an agreement violates Article 85(1) but enhances the
growth and integration of the Common Market, the Commission may grant an
exemption under Article 85(3) [29]. Such exemptions include mergers and
contracts among small and medium size firms as well as joint research and
development ventures involving foreign undertakings [30]. Article 86 proscribes
any abuse of competition by a company in a dominant position that may affect
trade between member states [31]. Unlike Article 85, Article 86 does not
provide any exceptions.
Although a detailed analysis of Articles 85 and 86 is beyond the scope of
this comment, it is important to note that the terms of Articles 85 and 86
neither restrict their applicability to nationals of the member states nor require
that the anticompetitive arrangement or behavior occur within the EEC [32].
As a result, the Commission and the Court enjoy wide latitude in developing
jurisdictional standards to be used against foreign undertakings to the extent
that such standards comport with the principles of the EEC and international
law [33].
2.3. The roles of the Commission and the Court of Justice
2.3.1. The Commission
The Commission's tasks, although largely administrative, are also political,
executive and judicial in nature. The Commission fulfills its political function
by issuing its annual Report on Competition Policy [34]. These reports present
the Commission's competition policy with respect to general and specific
issues, and describe the previous year's developments in the competition area
[35]. In particular, these reports explain how the Commission balances the
Community's interest in promoting a common market and each member state's
interest in protecting national industries.
The Commission fulfills its executive and judicial functions by enforcing
Articles 85 and 86 of the Treaty of Rome. It is empowered to initiate
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investigations on possible infringements of the Treaty of Rome [36], and in so
doing can create standards upon which to analyze competition cases. Moreover, this institution can exercise discretion 13y granting a party "negative
clearance" [37], which is a determination that Article 85(1) does not apply, or
by providing an exemption under Article 85(3) [38].
The Commission can also shape competition policy by the size of fines it
chooses to levy. In order to deter future violations, the Commission recently
stated it will levy larger fines for flagrant violations of the competition laws
[391. Furthermore, the Commission has the general power to make regulations,
issue directives and deliver opinions in the furtherance of its responsibilities
[40]. These specific examples are instances of the "power of initiative" reserved
to the Commission to "... express the general interests of the Community"
[41].
2.3.2. The Court of Justice
The Court of Justice has jurisdiction over the Commission's decisions. While
the Court largely has upheld the Commission's findings [42], it is important to
understand the nature of the Court's judgments in order to appreciate the
status of existing jurisdictional standards.
Three aspects are worthy of note. First, the Court's opinions consist of
single judgments and dissenting or concurring opinions are not allowed [43].
Perhaps because a consensus is sought, one commentator has observed that the
Court's judgments often avoid controversy and lack ratio decidendi [44].
Second, the Court is not bound by the doctrine of stare decisis [45]. Nonetheless, "[l]ike any court, the Court of Justice seeks to be consistent, and to the
extent that consistency prevails over the competing pressure to adjust Community law to ever-changing circumstances, the Court's decisions are 'precedents' ... being at most persuasive and never binding upon the Court for the
future" [46]. Third, the Court interprets the EEC laws with reference to
Community policies [47].
The flexibility inherent in the Commission's and the Court's roles allows
these institutions to adopt and change jurisdictional standards in order to best
fulfill the Community's objectives while still complying with the limits of
international law. The following section will consider what limits international
law imposes on extraterritorial jurisdictional standards and what the Commission considers to be the EEC's well-defined approach of claiming jurisdiction
over foreign undertakings.
3. Perspectives of extraterritorial jurisdiction: International law and the Commission
To the extent that the EEC must abide by principles of international law
[48], it is important to assess the Commission's and the Court's exercise of
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jurisdiction over foreign undertakings against principles of international law.
In particular, this section will present the foundations and requirements of the
economic entity under international law. By studying these issues, the groundwork will be established for analyzing the evolution of jurisdictional standards.
Apart from considerations of international law, there are additional issues
raised by the Commission's recent statement on its assertion of jurisdiction
over foreign undertakings [49]. The Commission indicated that it considers its
exercise of jurisdiction over foreign undertakings valid and stressed that
defenses based on the impropriety of the economic entity test would prove
futile [50]. Analysis of the issues raised by the Commission's statement is useful
in assessing whether its characterization of past events and of future developments accurately depicts the evolution of jurisdictional standards in the EEC.
3.1. Extraterritorial
jurisdiction under internationallaw
3.1.1. The economic entity test under internationallaw
Under the economic entity test, the Commission imputes the illegal actions
of an EEC-based subsidiary to its parent in order to bring the parent company
within the Community's jurisdiction [51]. In order for the economic entity test
to be valid in international law, it appears that evidence of actual and overall
parent control over the subsidiary is required.
In 1972, the International Law Association (ILA) endorsed the practice 6f
imputing a subsidiary's actions to its parent as a means of claimingjurisdiction
in antitrust cases [52]. In its Resolution on the ExtraterritorialApplication of
Restrictive Trade Regulation, the ILA stated, "[a] State has jurisdiction to
prescribe rules governing conduct. originating outside of its territory if and
insofar as such conduct is implemented within its territory by an employee or
agent acting within the scope of his authority" [53]. The ILA, therefore,
considered the economic entity test as a valid assertion of extraterritorial
jurisdiction. However, the ILA observed that the economic entity test must be
carefully applied to be consistent with international law:
It is, we believe, important that the separate corporate identity of parent and subsidiary be
respected while at the same time we recognize the need to make a realistic and functional
assessment of the working relationship between the two. The test in each case is whether the parent
company is so directly and intimately connected with the conduct of the subsidiarythat it is proper to
regard the conduct of the subsidiary as that of the parent company as well. This may well involve an
exhaustive examination of the general relationshipbetwveen the two related companies not confined to
the particularconduct which has led to the institution of anti-trustproceedings. However, apartfrom
cases where the subsidiary can be readily characterized as a tool of the parent company, we would
doubt whether it could often be said that a parent company had acted within the territory of the
prescribing State through the medium of its subsidiary [54].
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The ILA, therefore, argued that international law requires a state to prove that
a parent company systematically controlled its subsidiary before that state can
impute the subsidiary's actions to its parent. Moreover, the parent must have
overall control apart from the specific allegation which constituted the subsidiary's illegal action.
The International Court of Justice (ICJ) recognized the appropriateness of
"piercing the corporate veil" in international law in Concerning the Barcelona
Traction, Light and Power Company, Limited [55]. Barcelona Traction was a
Canadian holding company which owned subsidiaries operating in Canada and
Spain, and was itself majority owned by Belgian shareholders [56]. The
Barcelona Traction litigation arose out of bankruptcy proceedings brought
against Barcelona Traction in Spain. Belgium argued that the veil of the
Canadian incorporation should be lifted to enable the Belgian shareholders to
claim the diplomatic protection of the Belgian government [57]. The ICJ
rejected Belgium's argument, but stated that, " the process of lifting the veil
being an exceptional one admitted by municipal law ...is equally admissible
to play a similar role in international law" [58]. Although Barcelona Traction
involved the issue of determining the nationality of the corporation, the
analysis is similar to that of imputing the actions of a subsidiary to its parent.
Both circumstances require inquiries into the true character of the corporation
before attributing to it a nationality or responsibility for its subsidiary's
actions.
In his Separate Opinion to the Barcelona Traction case, Justice Jessup
articulated several representative conditions required for piercing the corporate
veil:
To look for the link between a corporation and a State is merely another example of what is now
the familiar practice of "lifting the veil" ... [lln cases which are now very common in the
commercial life of the world, the corporation may have various links with more than one State ....
International law cannot be oblivious to these corporate links. As already indicated above, they
include the place of incorporation, the place of management, the place of operation (probably
including employment of labour and payment of taxes), the nationality of the persons (natural or
artificial) who exercise control, whether through the board of directors and management, or
through stock interests, which not infrequently may exercise control even when a relatively small
minority [59].
Justice Jessup, therefore, emphasized factors that must be analyzed in order
to establish a .genuine link between the parties concerned and the states
asserting the claim. By analogy, Justice Jessup's analysis would similarly
require evidence illustrating the actual links, or control relationship, between a
parent company and its subsidiary. The factors Justice Jessup outlined support
the argument that international law demands a showing of actual parental
control over its subsidiary before invoking the economic entity standard.
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Under the principles articulated by the'ILA and Justice Jessup, it appears
that overall control is required before imputing the subsidiary's actions to its
parent. International law thus recognizes that a state cannot presume a
parent's control of its subsidiary based on the parent's majority ownership. In
other words, formal owners may be divorced from the actual control of their
subsidiaries.
3.2. The Commission's approach to extraterritorialjurisdiction
The Commission's most recent and thorough policy statement concerning
the economic entity test is contained in its Eleventh Report on Competition
Policy [601. This report generates several questions. For instance, has the
Commission been free from difficulties and criticisms in applying the economic
entity test? Has the Commission called attention to any changes in the way it
applies the competition laws to foreign undertakings? Are there any alternative
tests available? If so, does the Commission favor any of these tests?
The Commission's report stated that it would continue to use the economic
entity test by imputing the actions of a subsidiary to its parent "in particular
where subsidiaries in the common market act on instructions from a decisionmaking centre located abroad" [61]. The Commission further noted that it had
"not experienced any particular difficulties in applying the competition rules
to multinationals" [62 and that the economic entity test is so "firmly established in Community case law" that it is futile for a foreign company and its
subsidiary seeking to evade the competition laws to pose jurisdictional defenses
[63].
In its report, the Commission did not identify any change in how it asserts
jurisdiction over foreign undertakings. Moreover, the Commission's statements, prompted by its new policy of imposing substantial fines for flagrant
competition law infringements [64], imply that the Commission will not
hesitate to sue the foreign parents which control their EEC-based subsidiaries
[65].
The following case analysis will evaluate the accuracy of the Commission's
characterizations.
4. The evolution of the economic entity standards
The EEC has changed the manner in which it applies its competition laws
against foreign undertakings that have physical contacts within the Common
Market. The 1969-1973 cases, Dyestuffs [66], Continental Can [67], and Commercial Solvents [68], developed the economic entity test and reflected the
EEC's preoccupation with suing the foreign parent company. Contrary to the
Commission's recent suggestions, the application of the economic entity test
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proved controversial in international law because the Commission and the
Court did not properly examine whether the parent exercised overall control
over its subsidiary before imputing the subsidiary's actions to its parent.
The 1969-1973 cases were followed by two trends. In the cases from 1975 to
1980, United Brands [69], Hoffman-LaRoche [70], and Johnson and Johnson
[71], the Commission and the Court held foreign parent companies liable by
focusing on the parents' overall control of their respective subsidiaries. This
trend evidenced a more rigorous application of the economic entity test and
therefore more closely comported with principles of international law [72].
In the cases after 1980 - Pioneer [73], Ford Werke [74], and National
Panasonic [75] - the EEC only sued the EEC-based subsidiaries of foreign
parents, even though the parent may have been involved. This tactic is effective
because the foreign parent still feels the deterrent effect if it must ultimately
bear the burden of the fine levied on its wholly-owned subsidiary. As a result,
the parents have an incentive to ensure that their subsidiaries comply with the
Community's competition laws.
The following analysis reveals that while the foreign parent company may
not be named in the antitrust suit, it may well be the target of the EEC
proceedings.
4.1. In search of a theory - Dyestuffs, ContinentialCan and CommercialSolvents
4.1.1. The Dyestuffs Case
In the Dyestuffs case [76], the Commission fined six Community, one British
and three Swiss manufacturers for conspiring to fix the price of dyestuffs sold
within the Common Market [77]. In holding that it has the authority to fine the
non-EEC companies, the Commission relied on an effects-based notion of
jurisdiction:
This decision is applicable to all the undertakings which took part in the concerted practices,
whether they are established within or outside the Common Market. Under Article 85(1) of the
Treaty instituting the E.E.C., all agreements between undertakings and all concerted practices
which may affect trade between member-States and the object or effect of which is to prevent,
restrict or distort competition within the Common Market shall be prohibited as incompatible with
the Common Market. The competition rules of the Treaty are, consequently applicable to all
restrictions of competition which produce within the Common Market effects set out in Article
85(1). There is therefore no need to examine whether the undertakings which are the cause of these
restrictions of competition have their seat within or outside the Community 178).
The Commission, therefore, concluded that it had jurisdiction over the non-EEC
companies under an effects-based principle of jurisdiction. Six Community and
three non-EEC companies appealed the Commission's decision to the Court
[79].
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On appeal, the Commission changed its jurisdictional focus, arguing that it
has jurisdiction over the foreign companies because each non-EEC parent and
its respective Community-based subsidiary formed a single economic unit [80].
As a result, the Commission could impute the actions of each subsidiary to its
foreign parent. As an alternative basis of jurisdiction, the Commission also
presented an effects test similar to that articulated in its appealed decision.
Two other developments may have affected the Court's judgment. In
response to the Commission's decision, the United Kingdom presented its
position in an aide m~moire which stated that the adoption of an effects
doctrine violated principles of international law and that any reliance of an
economic entity standard must be substantiated by evidence of a parent's
actual control over its subsidiary [81]. Second, the Advocate-General, an
impartial adviser responsible for presenting his opinion of the case to the
Court [82], argued that the EEC should adopt an effects test [83]. Indeed, the
Advocate-General cited U.S. authorities in supporting the validity of the
effects doctrine in international law [84]. Confronted by these various perspectives, the Court adopted the economic entity basis of jurisdiction without
referring to the effects doctrine which the Commission and the Advocate-General had espoused and the British had denounced.
In its attempt to avoid using an effects test, the Court abused the economic
entity standard by failing to examine the actual control relationship between
the parent and its subsidiary [85]. In applying the economic entity test, the
Court held:
The fact that a subsidiary has a separate legal personality is not sufficient to exclude the possibility
of imputing its conduct to the parent company.... Where a subsidiary does not enjoy real
autonomy in determining its course of action in the market, the prohibitions set out in Article
85(1) may be considered inapplicable in the relationship between it and the parent company with
which it forms one economic unit. In view of the unity of the group thus formed, the actions of the
subsidiaries may in certain circumstances by attributed to the parent company [86].
The Court based its findings of control on two factors. First, each non-EEC
company was either a full or majority owner of its respective subsidiary [87].
Second, telex messages relating to the first of three price increases were issued
to the subsidiaries by their foreign-based parents in the apparent form of an
order [88]. The Court further assumed that the last two price increases were
ordered by the parents - even though there was no evidence of any communications relating to the last increases: "In the absence of evidence to the
contrary, it must be assumed that on the occasion of the [price] increases of
1965 and 1967, the applicant [non-EEC companies] acted in a similar fashion
in [their] relations with [their] subsidiaries established in the Common Market"
[89].
Under the Court's formulation of the economic entity standard, there were
two possible interpretations of the type of control the parent company must
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exercise over its subsidiary: actual control or the potential for control. If the
Court intended to prove that the non-EEC companies actually controlled their
respective subsidiaries, the Court's arguments'are unconvincing. International
law recognizes that formal ownership and actual control are not necessarily
synonymous [90]. Similarly, the Court's assumption that the telex communication between the parents and their subsidiaries indicated control does not
prove that the non-EEC companies actually controlled the subsidiaries.
The mere proof that the non-EEC companies were majority owners of their
respective subsidiaries is sufficient to establish that the parents had the
potential to control their subsidiaries. The standards outlined by the ILA and
Justice Jessup, however, suggest that international law requires more than the
parent's potential for control before holding it liable for its subsidiary's actions
[91]. Indeed, as the British government stated in its aide m~moire:
(3) A foreign parent company may not be considered to "carry on business" within the jurisdiction by a subsidiary company, unless it can be shown that the subsidiary is the agent for the
parent in the sense of carrying on the parent's business within the jurisdiction.
(4) The separate legal personalities of a parent company and its subsidiary should be respected.
Such concepts as "enterprise entity" and "reciprocating partnership" when applied for the
purpose of asserting personal jurisdiction over a foreign company by reason of the presence
within the jurisdiction of a subsidiary ... are contrary to sound legal principle in that they
disregard the distinction of personality between parent and subsidiary [92).
One should note that the use of the economic entity doctrine best served the
Community's interest. Since either the economic entity or effects standards
would have led to the same jurisdictional result [93], the Court chose the test
which was the least politically sensitive. Moreover, the Court selected the
economic entity approach without foreclosing the option of using an effects
test in the future. Finally, the application of an economic entity standard
obviated any difficulties of personal service or enforcement since the subsidiaries, were located in the EEC [94].
4.1.2. Continental Can
The Court upheld the Commission's use of the economic entity standard in
Re Continential Can [95]. Continental Can, a U.S. corporation, owned Europemballage, a Delaware corporation that had offices in Belgium. Europemballage, which controlled 85% of the Common Market's largest canning company,
attempted to acquire a Dutch-based competitor [96]. The Commission found
that the attempted merger constituted an abuse of Europemballage's dominant
position under Article 86 because the acquisition would eliminate competition
in the canning industry in the Common Market [97]. The Commission based its
jurisdictional claim on evidence that Continental Can had financed Europemballage's purchase of the Dutch competitor and that Europemballage had not
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been fully organized when it made its takeover bid [98]. Continental Can
Company appealed.
Although the Commission's decision was reversed due to its failure to define
the appropriate market in which Europemballage operated, the Court coneluded that the Commission had jurisdiction under the economic entity standard [99]. While the Advocate-General argued that an effects test, as well as
the economic entity standard, was applicable [1001, the court did not offer any
comment on the effects doctrine.
The facts of the Continental Can case demonstrated a greater degree of
parental control than those of the Dyestuffs case. Nevertheless, the Court was
again criticized for not analyzing whether the parent company exercised actual
control over its subsidiary [1011. Moreover, under the formulation of the ILA
and Justice Jessup, the facts did not illustrate that the parent exerted overall
control over its subsidiary.
4.1.3. The Commercial Solvents case
Laboratorlo Chimico FarmaceuticoGiorgio Zoja SpA v. CommercialSolvents
Corp. [102] (the Commercial Solvents case) represents the Commission's and the
Court's most liberal application of the economic entity standard. Instituto
Chemioterapica Italiano (ICI) was an Italian subsidiary of Commercial Solvent
Corporation (CSC), a U.S. company. From 1962 to 1970 ICI was principally
responsible for reselling a chemical on which CSC held a worldwide monopoly.
In early 1970, Farmaceutica Giorgio Zoja S.P.A. (Zoja), a longstanding Italian
customer of ICI, cancelled a supply contract with ICI in the hope of obtaining
more favorable terms from other suppliers. When Zoja was unable to find an
alternative supplier for the chemical, it contacted ICI to arrange a new supply
contract. CSC informed ICI that the chemical would not be available since
CSC had stopped distributing the chemical in its raw form td the EEC [103].
Zoja then filed a complaint with the Commission against ICI and CSC alleging
abuse of their dominant positions under Article 86 [104].
The Commission found CSC and ICI jointly and severally liable for their
violation of Article 86. In claiming jurisdiction over CSC, the Commission
relied on the economic entity standard [105]. Although CSC held only 517o of
ICI's voting stock and did not have majority representation on either ICI's
board of directors or executive committee, the Commission summarily concluded that CSC exercised control over ICI [106]. Thus, while the Commission
had previously attempted to offer proof of actual parental control, in addition
to majority ownership, in Dyestuffs and Continental Can, it merely assumed
CSC's control based on CSC's majority ownership of ICI.
On appeal to the Court, the Commission presented both the economic entity
and effects standards. The Commission's proposed application of the economic
entity test was even broader than the formulation presented in its Commercial
Solvents decision. Under the new formulation, the Commission would assume
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control whenever the parent was the majority owner of its subsidiary while still
allowing the Commission to demonstrate parental control when the parents
were minority shareholders [107]. The Commission also used the effects test as
an alternative form of jurisdiction [108]. As one commentator observed: "The
resort to this discarded basis of jurisdiction may well indicate a measure of
doubt on the Commission's part concerning the applicability of the [economic
entity] theory to this particular case" 11091.
The Court affirmed the Commission's decision and adopted the economic
entity test [110]. Once again, no mention was made of the applicability of the
effects test. In asserting CSC's control, the court relied on three factors: (1)
that CSC was the majority owner of ICI; (2) that it could be "inferred from
the prohibition issued in 1970 by [Commercial Solvents Corp.] to its distributors ... that [Commercial Solvents Corp.] was not abstaining from exercising
its power of control over Instituto [ICI]"; and (3) that when ICI attempted to
acquire Zoja in 1968 and 1969, it was "unlikely that [Commercial Solvents
Corp.] played no part" [111]. The Court concluded that CSC exercised control
at least with respect to ICI's relations with Zoja.
The low level of proof that was needed to demonstrate CSC's control does
not satisfy the requirements of actual and overall control. Furthermore, the
Commercial Solvents case appeared to suggest that a parent's potential control
over its subsidiary is all that need be demonstrated in the specific circumstance
which led the Commission to investigate for possible Treaty violations. Broadly
construed, this approach would have enabled the Commission and the Court to
claim jurisdiction over any foreign-based enterprise that had a majority-owned
subsidiary operating in the Community.
The Commission and the Court, however, did not pursue such a liberal
approach [1121. The latest cases reflect these institutions' greater sophistication
in applying the Community's competition laws to foreign undertakings. Thus,
the EEC's application of the economic entity test has undergone changes which
conform with principles of international law articulated by the ILA and by
Justice Jessup in the Barcelona Traction case.
4.2. Suing the parents - United Brands, Hoffnian-LaRoche, and Johnson and
Johnson
In Re United Brands [113] the Commission found United Brands Company,
a U.S. enterprise, guilty of abusing its dominant position in the banana market
by engaging in discriminatory pricing and distribution practices [114]. United
Brands, whose banana division is vertically integrated, owned several subsidiaries operating in the EEC. Applying the economic entity test, the Commission did not attempt to show an actual or potential exercise of control in the
particular transaction that constituted the alleged abuse. Nevertheless, the
Commission observed that United Brands' production and distribution opera-
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tions were controlled by the company's New York headquarters and concluded
that the subsidiaries "[did] not possess any real autonomy" [1151. United
Brands' majority ownership of eight EEC-based subsidiaries combined with
evidence of United Brands' centrally controlled, vertically integrated operations was sufficient to establish control for the purposes of the economic entity
standard.
The Commission's approach to the economic entity test had therefore
changed from that used in the earlier line of cases. In UnitedBrands, a showing
of overall control was necessary for the economic entity test, whereas in the
earlier cases only evidence of the potential for control or actual control in the
specific illegal transaction was necessary [116]. Furthermore, the UnitedBrands
approach better satisfied the ILA's and Justice Jessup's construction of the
economic entity test. The Court affirmed the Commission decision [117]
although the issue of extraterritorial jurisdiction was not submitted for review.
The Commission similarly evaluated evidence of the foreign parent's overall
control in Re Hoffman-LaRoche [118]. Hoffman-LaRoche, a Swiss-based
pharmaceutical company, was found guilty of violating Article 86 for executing
exclusive or preferential agreements in supplying vitamins to the Common
Market. The Commission asserted jurisdiction over Hoffman-LaRoche, describing how the parent company directed its eight wholly owned subsidiaries
to implement these illegal agreements: "A number of circulars from the parent
company of the Roche group to its subsidiaries and minutes of meetings of the
officers of the company confirm the main features of the 'fidelity' system and
clearly show the benefits accruing to Roche" [1191. Although it never explicitly
stated so, the Commission was using the economic entity test. The Court
upheld the Commission's findings [120].
Eurim Pharm GmbH v. Johnson and Johnson, Inc. [121] is the most recent
case in which the Commission has found a foreign parent company guilty of
violating the Community's competition laws [122]. It is also the Commission's
most cautious use of the economic entity test. The Commission examined the
actionis of Johnson and Johnson (a U.S. company) and its British, German,
and Swiss subsidiaries in their attempts to prohibit the export of laboratory
pregnancy tests from England to Germany [123]. This export ban was designed
to prevent German dealers from importing the less expensively priced tests
from England. The Commission found that all three subsidiaries were knowingly encouraging the export bans while the parent company was merely
informed of the "very unpleasant and important problem" [124]. Nevertheless,
the Commission found the parent company liable since it did not stop the
subsidiaries from engaging in the export ban. This finding indicates that a
parent's tacit approval of its subsidiaries' actions is sufficient to impose
liability under the economic entity test. If the parent alone had been sued in
this case, the Commission's assertion of jurisdiction would have been
questionable under principles of international law which require actual control
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by the parent. The Commission, however, avoided this difficulty by holding
Johnson and Johnson and its subsidiaries jointly and severally liable for the
Article 85 infringement.
From the foregoing case law, it appears that the EEC has changed the way
in which it applies the economic entity test. Under the Dyestuffs, Continental
Can, and Commercial Solvents line of cases [125], the EEC asserted jurisdiction
on the basis of the parent's control or potential for control over its EEC-based
subsidiary in the specific incident that constituted the violation. Such an
approach, because it did not focus on the actual overall control relationship
between the parent and its subsidiary, contrasted with that of the ILA [126].
The United Brands, Hoffman-LaRoche, and Johnson and Johnson cases signalled a trend to the more conservative approach advocated by the ILA.
In subsequent cases, the Commission and the Court pursued an approach to
avoid the problems of proving a control relationship under the economic entity
test. The following analysis demonstrates that in these cases the EEC did not
have to consider the problems of extraterritorial jurisdiction because it only
sued the EEC-based subsidiaries of the foreign parents. Nevertheless, the
economic consequences of these cases were felt by the parent companies.
4.3. Suing the subsidiaries- Pioneer,Ford Werke, and National Panasonic
In Re "Pioneer" Hi-Fi Equipment [127], the Commission fined Pioneer
Electronic NV Antwerp (Pioneer NV), a wholly-owned marketing subsidiary of
a Japanese parent company, and German, French, and British exclusive
distributors for violating Article 85. The infringement involved arrangements
among the three exclusive distributors to prevent the export of Pioneer
products from Germany and England to France. Although Pioneer NV had
not initiated the arrangements, it had transmitted information and organized
sales and marketing meetings which enabled the anticompetitive arrangements
to take place. The Commission characterized Pioneer NV's efforts "as an
active attempt to prevent parallel imports into France" [128]. The Commission
levied substantial fines on Pioneer NV and its exclusive distributors, the largest
fine being levied on Pioneer.
In the Pioneer case, the Commission began its practice of imposing larger
fines for flagrant violations in order to establish a deterrent effect against
future competition law infringements. Although the Court of Justice reduced
the fines, it affirmed the Commission's decision [129]. In analyzing Pioneer's
involvement, the Court stated:
[l]t should be remembered that the purpose of Pioneer [NVI, which is a wholly-owned subsidiary of
the parent company in Japan, is to import Pioneer equipment into Europe and to organise sales of
such equipment. To that end, it attempts to find a distributor in each of the member-States in
question, offers it an exclusive distributorship agreement, divides the products imported amongst
the national distributors and seeks to co-ordinate their sales efforts, inter alia by holding regular
meetings.
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Even if those activities do not necessarily confer on Pioneer [NV] a decisive influence on the
conduct of each of the distributors, that does not alterthe fact that,on account of its centralposition,
it was obliged to display particularvigilance in order to prevent concerted efforts of that kind from
giving rise to practices contraryto the competition rules [130].
Given the Court's reasoning, it is interesting to note that the Commission
did not bring suit against Pioneer NV's parent company. The parent company
is always in the central position, ultimately interested in efficiently coordinating responsibilities among its subsidiaries. Under the Dyestuffs, Continental
Can and Commercial Solvents line of cases [131], the Commission may well
have been successful in a suit against the parent company.
The Commission's and the Court's growing sophistication in their application of the Community's competition laws explains why only the EEC-based
subsidiary was sued. If the Commission had pursued the approach formulated
in CommercialSolvents, it might have provoked the response that international
law requires that a parent company actually control its subsidiary before the
subsidiary's actions can be imputed to the parent [132]. Suing the EEC-based
subsidiary allowed the Commission to avoid controversy while still accomplishing its goal of applying the EEC's competition laws to foreign undertakings.
Moreover, although not directly involved, the parent company felt the effects
of an adverse judgment against its subsidiary. Any fine levied on the subsidiary
will affect its profitability; to the extent that the parent fully owns its
subsidiary, the parent will be affected by the fine. Given that the Commission's
fines are now intended to deter future violations [133], the parent company will
have a greater interest in ensuring that its subsidiary complies with the
competition laws. As a result, this deterrent effect can be accomplished without
making the parent company a party in the suit.
In Re Ford Werke AG [134], the Commission issued an interim order
requiring Ford Werke AG, the German subsidiary of the U.S.-based Ford
Motor Company ("Ford"), to resume its supply of right-hand-drive cars to
England. Ford Motor Company Limited, Ford's British subsidiary, had notified Ford Werke that the export of such cars from Germany would cause
revenue losses to Ford Britain. The Commission, after having evaluated the
likelihood of an Article 85 violation, entered the interim order. Indeed, the
Commission noted: "Ford [Werke] AG itself manufactures the right-hand
drive vehicles in question. It achieves ample profits on its sales.... Some loss
on profits on the part of Ford AG's fellow subsidiary, Ford Britain, may have
to be accepted" [135]. The Court affirmed the Commission's use of the interim
order [136]. Again, the EEC accomplished its objectives without involving the
parent company. Moreover, it appears that the parent company was more
involved than the parent in Pioneer.It is difficult to imagine that Ford Werke
would have consciously decided to forgo profits had it been operating autonomously.
The Commission found a marketing subsidiary guilty of violating Article 85
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Jurisdictional standards under EEC competition law 399
for imposing export restrictions on a distributor in Re National Panasonic
[137]. National Panasonic U.K. (NPUK) is one of ten EEC-based marketing
subsidiaries owned by Matsushita Electric Trading Company Ltd. (MET) of
Japan. NPUK prohibited one of its distributors from exporting Panasonic
products to other EEC countries which sold the same products at higher prices
[138]. While MET was not sued, the suit appears to have been partially
directed at MET. First, it is apparent that NPUK imposed the export bans for
the benefit of its fellow subsidiaries. This imposition could not have been the
design of an autonomous actor. Second, during the Commission's investigations, MET announced that it was imposing a "code of conduct" on its
marketing subsidiaries in an effort to ensure compliance with the EEC's
competition laws. MET's actions served to reduce the fine levied on NPUK. As
the Commission noted:
Such action must be considered a positive step which contributes to an awareness at all levels of
the group of the daily impact of competition policy. It tends to ensure that senior management is
in a position to control the behaviour of the whole group in the market place and thereby to
establish effective internal rules for the compliance with EEC competition law 11391.
If the suit had not been directed at MET, its "code of conduct", imposed
after the violation had occurred, would not have served to reduce the fine
ultimately levied on NPUK. Once again, the Commission was able to influence
the parent company without making it a party to the litigation.
5. Conclusion
The foregoing analysis has evaluated the evolution of the jurisdictional
standards used to apply the EEC's competition laws to foreign undertakings
that have contacts in the Community. In the earlier cases [140], the EEC
developed the economic entity test to impute the actions of an EEC-based
subsidiary to its foreign parent. This exercise of jurisdiction proved controversial because the Commission and the Court did not examine the overall control
relationship between the parent and its subsidiary before gaining jurisdiction
over the subsidiary [141].
The more recent cases demonstrated a move away from this controversial
practice. In suits in which the EEC sued the parent company, the Commission
and the Court searched for an overall control relationship before asserting
jurisdiction over the parent [142]. In the most recent cases, however, the EEC
has sued only the EEC-based subsidiary of the foreign parent, and thus
avoided the controversies of extraterritorial jurisdiction [143]. Nevertheless, it
appears that the parents are highly vulnerable to these suits because they must
ultimately bear the burden of their wholly-owned subsidiaries' fines. As a
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result, foreign parents still have an incentive -to ensure that their subsidiaries
comply with the EEC's laws. Given this evolution, it appears that the EEC has
changed its jurisdictional approach in order to comply with the principles of
international law [144] articulated by the ILA and in the Barcelona Traction
case. Nevertheless, this new approach continues to enable the EEC to remedy
past violations and deter future infringements of its competition laws.
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Notes
[1] 1972 CJ. Comm. E. Rec. 619, 11 Comm. Mkt. L.R. 557 [hereinafter cited as Dyestuffs].
[2] Id. at 661-63. See infra text accompanying notes 76-84.
[3) See infra text accompanying notes 76-94. The Dyestuffs case was appealed from a
decision by the Commission of the European Communities (the Commission), Re Cartel in Aniline
Dyes, 12 J.O. Comm. Eur. (No. L 195) 11, 8 Comm. Mkt. L.R. D23 (1969). The Commission. the
administrative agency empowered to apply the Community's laws. see infra note 38. applied an
effects-based method of jurisdiction in its decision. 8 Comm. Mkt. L.R. at D33. On appeal to the
Court, the Commission presented both an effects test and an economic entity test. In response to
the Commission's-decision, the British government issued an aide mnioire,stating that the effects
test violated international law. 1967 Brit. Prac. Int'l L. 58 [hereinafter cited as "Aide Mmoire"].
This comment will not analyze the EEC's use of an effects test. The Commission has, however.
used an effects-based notion of jurisdiction in situations when the foreign company did not have
subsidiaries operating in the Community. See, e.g., The Community v. Members of the Genuine
Vegetable ParchmentAss'n., 21 O.J. Eur. Comm. (No. L 70) 54. 21 Comm. Mkt. L.R. 534 (1977)
(restrictive practices between a Finnish company and EEC firms); Re the French and Taiwanese
Mushroom Packers, 18 O.J. Eur. Comm. (No. L 29) 26, 15 Comm. Mkt. L.R. D83 (1975)
(price-fixing scheme between Taiwanese export association and five French companies); Re the
Franco-JapaneseBallbearingsAgreement, 17 O.J. Eur. Comm. (No. L 343) 19, 15 Comm. Mkt.
L.R. D8 (1974) (price-fixing arrangements between French and Japanese manufacturers).
In a recent report, the Commission considered the effects test a valid principle in Community
case law:
The Commission was one of the first antitrust authorities to have applied the internal effect theory
to foreign companies.... Putting the theory into practice can, it is true, have repercussions outside
the Community: but that is not a reason for regarding it as an inadmissible exercise of
extra-territorial jurisdiction. To assert the contrary would be tantamount to preventing public or
judicial authorities from effectively dealing with competition cases falling within their jurisdiction.
Commission of the European Communities. Eleventh Report on Competition Policy 36 (1981)
[hereinafter cited as "Eleventh Report"].
The Court has not formally ruled on the validity of the effects test. Nevertheless, it appears that
the Commission will continue to use the effects test in circumstances when the foreign company
that has violated the EEC's competition laws has no subsidiary operating in the Community.
[4] See Griffin, The Power of Host Countries Over the Multinational:Lifting the Veil in the
European Community and the United States, 6 Law& Pol'y Int'l Bus. 375 (1974); Mann, The
Dyestuffs Case in the Court of Justice of the European Communities. 22 Int'l &Comp. LQ. 35,
48-50 (1973); see also infra text accompanying notes 84-93.
[5] See infra text accompanying notes 76-92. The International Law Association (ILA)
argued that international law requires that the parent company must exert overall control over its
subsidiary before imputing the subsidiary's actions to its parent. Moreover, the parent's control
must exist outside-of the specific incident which constituted the breach. Int'l L Ass'n, Report of
the Fifty-fifth Conference Held at New York, August 21 to August 26, 1972, at 107, 171-72 (1974)
[hereinafter cited as Report of the Fifty-fifth Conference]. See infra notes 52-54 and accompanying text.
[6]See mfra text accompanying notes 34-41.
[7] Laboratorto Chimico Farmaceutico Giorgio Zoja SpA v. Commercial Solvents Corp. and
Instituto Chemioterapico Italiano, 15 J.O. Comm. Eur. (No. L 299) 51, 12 Comm. Mkt. L.R. D50
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(1972), affd 1974 E. Comm. CL J. Rep. 223, 13 Comm. Mkt. L.R 309 [hereinafter cited as
Commercial Solvents]; Re ContinentalCan Co., 15 J.0. Comm. Eur. (No. L 7) 25, 11 Comm. Mkt.
L.R. DII (1971), reo'donother grounds sub nom. EuropemballageCorporationand ContinentalCan
Co. Inc. v. Commission of the European Comnunities, 1973 E. Comm. Ct. J.Rep. 215, 12 Comm.
Mkt. LR. 199 [hereinafter cited as Continental Can]; Re Cartel in Aniline Dyes, 12 .O. Comm.
Eur. (No. L 195) 11, 8 Comm. Mkt. L.R. D23 (1969), affd sub non Imperial ChemicalIndustries
Ltd v. Commission of the European Communities, 1972 CJ.Comm. E. Rec. 619, 11 Comm. Mkt.
L.R. 557 [Dyestuffs].
[8] See infra text accompanying notes 113-26.
[9] Eurim Pharm GmbH v. Johnson andJohnson, Inc., 23 O.J. Eur. Comm. (No. L 377) 16, 31
Comm. Mkt. L.R. 287 (1980); The Community v. Hoffman-La Roche, 19 O.3. Eur. Comm. (No. L
223) 27, 18 Comm. Mkt. L.R. D25 (1976), affd sub nom. Commission of the European Communities
o. Hoffman-La Roche and Co. AG, 1979 E.Comm. Ct. J.Rep. 461,26 Comm. Mkt. L.R. 211; Re
United Brands, 19 OJ. Eur. Comm. (No. L 95) 1, 17 Comm. Mkt. L.R. D28 (1975), affd sub nom.
United Brands Co. and UnitedBrands ContinentalB. V. v. Commission of the European Communities,
1978 E. Comm. CL J. Rep. 207,23 Comm. Mkt. L.R. 83.
[101 Re National Panasonic,25 O.J. Eur. Comm. (No. L 354) 28, 36 Comm. Mkt. L.R. 497
(1982); Re Agreement of FordWerkeAG, 25 OJ. Eur. Comm. (No. L 256) 20,35 Comm. Mkt. L.R.
267 (1982), affd sub nom. Ford Werke AG and Fordof Europe Inc. v. Commission of the European
Communities, 1982 E. Comm. CL 3. Rep. 3091, 36 Comm. Mkt. L.R. 673; Re "Pioneer" Hi-Fi
Equipment, 23 O.J. Eur. Comm. (No. L 60) 21, 27 Comm. Mkt. L.R. 457 (1979). affd sub non.
Musique Diffusion FranqaiseSA v. Commission of the European Commission, [1983] E. Comm. Ct. J.
Rep. 1825, 38 Comm. MkL L.R. 221.
[11] Treaty Establishing the European Economic Community, March 25, 1957, 298 U.N.T.S.
11 (English translation) [hereinafter cited as "Treaty of Rome"].
[12] The European Common Market is comprised of three institutions, each governed by a
separate treaty: the European Coal and Steel Community (ECSC), Treaty Instituting the European
Steel and Coal Community, 261 U.N.T.S. 140; the European Economic Community (EEC), see
supra note 11; and the European Atomic Energy Community (Euratom), Treaty Establishing the
European Atomic Energy Community, 29 U.N.T.S. 169.
[13] Hawk, Antitrust in the EEC - The First Decade, 41 Fordham L. Rev. 229, 231 (1972). A
method of interpreting the Treaty of Rome is called "functional interpretation" since the Court
may choose "the interpretation which best serves the further development of the Communities
(effet utile)", E.Stein, P. Hay, and M. WVaelbroeck, European Community Law and Institutions in
Perspective 139 (1976).
[14] See infra notes 15-41 and accompanying text. For example, under Article 85(3) of the
Treaty of Rome, the Commission may grant exemptions to anticompetitive agreements which still
enhance efficiency in the Community.
[15] Article 2 of the Treaty of Rome reads:
It shall be the aim of the Community, by establishing a Common Market and progressively
approximating the economic policies of Member States, to promote throughout the Community a
harmonious development of economic activities, a continuous and balanced expansion, an increased
stability, an accelerated raising of the standard of living and closer relations between its Member
States.
298 U.N.T.S. at 15.
[16] Id.
[17] Adler and Belman, Antimerger Enforcement in Europe - Trends and Prospects,8 J.Int'l
L. & Econ. 31, 36 (1973).
[18] 298 U.N.T.S. at 16.
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[191 Commission of the European Communities, First Report on Competition Policy, points
11-20 (1971).
[201 These exemptions are permitted under Article 85(3) of the Treaty of Rome, 298 U.N.T.S.
at 48. See also infra notes 29-30, 37-38 and accompanying text.
(21] See, e.g., Re Henkel and Colgate-Palmolive,J.0. Comm. Eur. (No. L 14) 14 (1972); Re
De Lavai-Stork VOF, 20 OJ. (No. L 215) 11, 20 Comm. Mkt. L.R. D69 (1977).
[22] Commission Notice of July 3, 1968 [1965-1969 Transfer Binder] Comm. Mkt. Rep.
(CCH) 19248.
[23] Id. at 8517.
[24] Hawk. supra note 13. at 235.
125] Id.
[26] See, e.g., Wolff and Pugliese, European Antitrust Law: The Development of European
Protectionism within the Common Market, 83 Com. U. 129, 133 (1978); Hawk, supra note 13. at
235.
J27] Articles 85 and 86 provide:
Article 85
1. The following shall be deemed incompatible with the Common Market and shall hereby be
prohibited: any agreements between enterprises, any decisions by associations of enterprises and
any concerted practices which are likely to affect trade between the Member States and which have
as their object or result the prevention, restriction or distortion of competition within the Common
market, in particular those consisting in:
(a) the direct or indirect fixing of purchase or selling prices or of any other trading conditions;
(b) the limitation or control of production, markets, technical development or investment;
(c) market-sharing or the sharing of sources of supply;
(d) the application to parties to transactions of unequal terms in respect of equivalent supplies,
thereby placing them at a competitive disadvantage; or
(e) the subjecting of the conclusion of a contract to the acceptance by a party of additional
supplies which, either by their nature or according to commercial usage, have no connection
with the subject of such contract.
2. Any agreements or decisions prohibited pursuant to this Article shall be null and void.
3. Nevertheless, the provisions of paragraph I may be declared inapplicable in the ease of:
- any agreements or classes of agreements between enterprises,
- any decisions or classes of decisions by associations of enterprises, and
- any concerted practices or classes of concerted practice which contribute to the improvement of
the production or distribution of goods or to the promotion of technical or economic progress
while reserving to users an equitable share in the profit resulting therefrom, and which:
(a) neither impose on the enterprises concerned any restrictions not indispensable to the
attainment of the above objectives;
(b) nor enable such enterprises to eliminate competition in respect of a substantial proportion
of the goods concerned.
Article 86
To the extent to which trade between any Member States may be affected thereby, action by
one or more enterprises to take improper advantage of a dominant position within the Common
Market or within a substantial part of it shall be deemed to be incompatible with the Common
Market and shall hereby be prohibited.
Such improper practices may, in particular, consist in:
(a) the direct or indirect imposition of any inequitable purchase or selling prices or of any other
inequitable trading conditions;
(b) the limitation of production, markets or technical development to the prejudice of consumers;
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(c) the application to parties to transactions of unequal terms in respect of equivalent supplies.
thereby placing them at a competitive disadvantage; or
(d) the subjecting of the conclusion of a contract to the acceptance, by a party, of additional
supplies which, either by their nature or according to commercial usage, have no connection
with the subject of such contract.
298 U.N.T.S. at 47-49.
[28] Id. at 47-48.
[29] Id. at 48. See generally Hawk, United States, Common Market and International
Antitrust: A Comparative Guide (1983) (for applications of Articles 85 and 86); Note, Antitrust
Law of the European Economic Community - An InterpretationofArticles 85 and 86 of the Treaty of
Rome, 4 Int'l Trade LJ.251, 259 (1979).
[30] See supra notes 21-23 and accompanying text.
[31] See supra note 27.
[32] See B. Barack, The Application of the Competition Rules (Antitrust Law) of the
European Economic Community to Enterprises and Arrangements External to the Common
market (1981).
[33 InternationalFruit Company NV v.Produktschapvoor Broenten en Fruit, 1972 E. Comm.
CL J. Rep. 1219, 16 Comm. Mkt. L.R. 1 (1972). The Court "has recognized that the Communities
are bound by the rules of international law and that these rules prevail over Community law
itself". Schermers, The European Court of Justice: Promoter of European Integration, 22 Am. J.
Comp. L. 444, 454 (1974).
[34] The Commission began issuing these reports in 1971. See generally Commission of the
European Communities, Report on Competition Policy, 1st-13th (1971-83).
[35] Id.; see also Hawk, supra note 29, at 424.
[36] See Treaty of Rome, art. 189, 298 U.N.T.S. at 78-79.
[37] Regulation No. 17, art. 2, 5 J.O. Comm. Eur. 204, 205 (1962).
[38] Regulation No. 17, 5 J.0. Comm. Eur. 204 (1962). See also Temple-Lang. The Procedure
of the Commission in Competition Cases, 14 Common Mkt. L. Rev. 155 (1977); Graupner,
Commission Decision-Makingon CompetitionDirectives, 10 Common Mkt. L. Rev. 291, 295 (1973).
Several categories of agreements have been broadly exempted through Commission directives;
these include exemptions for wholesale contracts, exclusive distribution and purchasing arrangements, and agreements among small and medium-sized EEC firms. See Regulation No. 1983/83,
26 O.J. Eur. Comm. (No. L 173) 1 (1983) and Regulation No. 1984/83, 26 J.0. Eur. Comm. (No.
L 173) 5 (1983); see also Announcement by the Commission of 27 May 1970 Concerning Minor
Agreements which are not covered by the Provisions of Article 85 Paragraph I of the Treaty
Establishing the European Community, 13 J.0. Comm. Eu. (C 64) 1 (1970); Announcement
Concerning Agreements, Decisions and Concerted Practices in the field of Co-operation Between
Enterprises, 11 J.0. Comm. Eur. (C 75) 3 (1968).
[39] Eleventh Report, supra note 3, at 14, 39.
[40] Treaty of Rome, art. 155, 298 U.N.T.S. at 71.
[41] Noel, The Commission's Power of Initiative, 10 Common Mkt. L. Rev. 123 (1973).
[42] lbraupner, supra note 38, at 303; Hawk, supra note 13, at 236-37.
[43] The Court's judgment is rendered after a vote in the Deliberation Room. Court of
Justice, Rules of Procedure, art. 27, 17 O.1. Eur. Comm. (No. L 350) 1, 7 (1974). Since the
deliberations of the Court are secret under Article 32 of the Protocol on the Statute of the Court of
Justice of the European Economic Community, Treaty of Rome, 298 U.N.T.S. 147, 153. "[t]he
outside world has no way of knowing whether the judgment was unanimous or by a majority".
L.N. Brown & F.G. Jacobs, The Court of Justice of the European Communities, 169 (1977). For
the reasons for this procedure, see T.C. Hartley, The Foundations of European Community Law,
28-29 (1981).
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[44] See Hartley, supra note 43, at 55-56 for an illustration of how the Court's consensusseeking procedure sacrifices its statement of a ratio decidendi. See also Plender, In Praise of
Ambiguity. 8 Eur. L. Rev. 313 (1983).
[45] Hartley, supra note 43, at 56.
[46] Brown and Jacobs, supra note 43, at 190.
[47] See, e.g., the Court's decision in ContinentalCan, which stated:
In order to answer this question [whether Art. 86 applies to changes in the structure of an
undertaking], one has to go back to the spirit, general scheme and wording of Article 86, as well as
to the system and objectives of the Treaty.
Cited in Brown and Jacobs. supra note 43, at 213. See also supra note 13.
[48] See Schermers, supra note 33. at 444.
[49] Eleventh Report, supra note 3, at 36-39.
[50] Id. at 39.
[51] See infra notes 60-112 and accompanying text.
[52] Report of the Fifty-fifth Conference, supra note 5, at 107-75.
[53] Id. at 171.
[54] Id. at 172 (emphasis added).
[551 1970 l.CJ. 3.
[56] Id. at 7.
[57] Id. at 12, 129.
[58] Id. at 130.
[59] Id.at 186, 200.
[60] Eleventh Report, supra note 3, at 36-39.
[61] Id. at 37.
[62] Id. at 39.
[631 Id.
[64] Id. at 14, 39.
[65] Cf. infra text accompanying notes 113-40.
[66] See supra note 7.
[67] Id.
[68] Id..
[69] See supra note 9.
[70] Id.
[71] Id.
[72] See supra text accompanying notes 52-54.
[73] See supra note 10.
[74] Id.
175] Id.
[76] 12 O.J. Comm. Eur. (No. L 195) 11 (1969).
177] Id. at 16-17. At the time of the Dyestuffs case, the United Kingdom was not a member of
the EEC.
[78] Id. at 16.
[79] 1972 CJ. Comm. E. Rec. 619.
[80] Id. at 632; see also Note, Comment on the ICI-Dyestuffs Case, 14 Harv. Int'l L.J. 621.
627 (1973) [hereinafter cited as Comment on Dyestuffs]; Allen, The Development of European
Economic Community Antitrust Jurisdiction Over Alien Undertakings, 2 Legal Issues of European
Integration 35, 60 (1974).
[81] Aide-Mhmoire, supra note 3, at 58. For a traditional exposition of the British approach to
extraterritorial jurisdiction, see Jacobs, The ExtraterritorialApplication of Competition Laws: An
English View, 13 Int'l Law. 648 (1979).
[82] Article 166 of the Treaty of Rome provides:
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406 V.M. Lopez -Balboa and J. Myers / Jurisdictionalstandardsunder EEC competition law
The duty of the advocate-general shall be to present publicly, with complete impartiality and
independence, reasoned conclusions on cases submitted to the Court of Justice, with a view to
assisting the latter in the performance of its duties as laid down in Article 164.
298 U.N.T.S. at 74.
[83] 1972 C.J. Comm. . Rec. at 632-34.
[84] Advocate-General Mayras cited both United States v. Aluminum Co. of America, 148 F.
2d 416 (2d Cir. 1946), and Restatement (Second) of Foreign Relations Law of the United States
§18 (1958); 1972 C.J. Comm. E. Rec. at 624, 630.
185] See, eg., Griffin, supra note 4, at 391-93; Mann, supra note 4. at 48-50.
[86] 1972 CJ. Comm. E. Rec. at 662.
[87] Id.
[88] Id. at 663.
[89] Id.
[90] See supra text accompanying notes 51-59.
[91] Id.
[92] Aide Mhmore, supra note 3, at 59-60.
[93] Griffin, supra note 4, at 391-93.
[94] Allen, supra note 80, at 60; see also Comment on Dyesuffs, supra note 80, at 629.
[95] 15 J.0. Comm. Eur. (No. L 7) 25 (1972); see also supra note 7.
[96] Id. at 25-27.
[97] Id. at 37-38. Continental Can is a crucial case in Community antitrust case law since it
brings mergers and acquisitions within the purview of Article 86. See generally Hurwitz, The
Impact of the Continental Can Case on Combinations and Concentrations within the Common
Market, 25 Hastings L.J. 469 (1974); Singley, Abuse of a Dominant Position by Acquisition in the
Common Market: The Continental Can Cases, 12 Column. J. Transnat'l L 359 (1973); Haubert,
ContinentalCan - New Strengthfor Common Market Anti-trust, 11 San Diego L.R. 227 (1973).
[98] 15 J.0. Comm. Eur. (No. L 7) at 25-26, 35.
[99] 1973 E. Comm. Ct. . Rep. at 241-42.
[100] Id. at 262-63.
[101] Griffin, supra note 4, at 393.
[102] 15 J.0. Comm. Eur. (No. L 299) 51 (1972); see also supra note 7.
[103] Id. at 53.
[104] Id.
[105] Id. at 54.
[106] Id.; see Allen, supra note 80, at 66.
[107] 1974 E. Comm. Ct. J. Rep. at 229-30.
[108] Id.
[109] Harding,Jurisdictionin EEC CompetitionLaw: Some Recent Developments, 11 J.W. Tr. L.
422, 433 (1977).
[110] 1974 E. Comm. Ct. . Rep. at 255-57.
[111] Id. at 253-54.
[112] Cf. Eleventh Report, supra note 3, at 36-39; see infra text accompanying notes 113-39.
[113] 19 O.J. Eur. Comm. (No. L 95) 1 (1975); see also supra note 9.
[114] Id. at 13-17. See Bishop, Price DiscriminationUnder Article 86: PoliticalEconomy In the
European Court, 44 Mod. L. Rev. 282 (1981) for a criticism of the Commission's and the Court's
faulty economic analyses in deciding the case; see also Swan, The EEC United Brands Decision:
Can Chiquita Find Happiness in Europ4 7 Cal. W. Int'l L.J. 385 (1977).
[1151 19 O.J. Eur. Comm. (No. L 95) at 3-6, 11.
[116] See supra text accompanying notes 66-112.
[1171 1978 E. Comm. Ct. J. Rep. 207.
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[118] 19 OJ. Eur. Comm. (No. L 223) 27 (1976); see also supra note 9.
[119] Id. at 32.
[120] 1979 E. Comm. Ct. J. Rep. 461.
[1211 23 O.J. Eur. Comm. (No. L 377) 16 (1980).
1122] The Commission also applied the economic entity test in Lipton Cash Registers and
Business Equipment Ltd. v. Hugin KassaregisterLtd., 21 O.J. Eur. Comm. (No. L 22) 23. 21 Comm.
Mkt. L.R. D42 (1980), reo'd on other grounds sub nom. Hugin KassaregisterAB and Hugin Cash
Registers Ltd. v. Commission of the European Communities; 1979 E. Comm. Ct. . Rep. 1869.
[123 Id. at 21-22.
[124] Id. at 21 (quoting letter of March 22, 1976, from Cilag Schaffhausen).
[125] See supra text accompanying notes 76-112.
[1261 See supra text accompanying notes 52-54.
[127] 23 OJ. Eur. Comm. (No. L 60) 21 (1979).
[128] Id.
[1291 [19831 E. Comm. Ct. . Rep., 38 Comm. Mkt. L.R. at 328.
[1301 Id. (emphasis added).
[1311 See supra text accompanying notes 76-112.
[132] See supra text accompanying notes 52-59.
[133] See supra text accompanying notes 64-65.
[134] 25 OJ. Eur. Comm. (No. L 256) 20 (1982); see also supra note 10.
1135] Id. at 27.
[136] 1982 E. Comm. Ct. . Rep. 3091.
[137] 25 OJ. Eur. Comm. (No. L 354) 28 (1982): see also supra note 10.
[138] Id. at 30-31.
[139] Id. at 34.
[140] See supra text accompanying notes 76-112.
[1411 See, e.g., supra note 101.
[1421 See supra text accompanying notes 113-26.
[143] See supra text accompanying notes 127-39.
[144] See supra text accompanying notes 52-59.
Victor M. Lopez-Balboa is a student at the Law School and the Wharton School, University of
Pennsylvania. He is a graduate of Columbia University (B.A. 1982) and was a general course
student at the London School of Economics and Political Science.
JenniferMyers is a member of the New York bar and is an associate at Shearman & Sterling, New
York. Ms. Myers received her B.A. from Yale University in 1980 and her J.D. degree from
Harvard University in 1983.
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