RECENT EU ANTITRUST DEVELOPMENTS AFFECTING CHINESE COMPANIES

In the last year, there have been severalmeasures and decisions by the European Commission and Courts which may poseantitrust risks for Chinese companies doing business within the EuropeanUnion.
First, on 26 September 2013, in appealsrelating to the chloroprene rubber cartel (Cases C-172/12P and 179/12P), theCourt of Justice held that the parents of a joint venture, DuPont and DowChemical respectively, were jointly and severally liable for the cartelbehavior of their JV, even though the parent companies did not themselvesparticipate in the cartel. Nor was itmaterial whether the parents approved of the cartel or even knew about it. The parents were held responsible solelybecause they jointly exercised a decisive influence over the conduct of thejoint venture. Decisive influenceexists when one or more parents exercise the power to control strategiccommercial decisions of the JV, such as selection of its upper management,business plan and major investments. Thisdecisive influence may be exercised affirmatively or solely by veto power.
In an extension of the above ruling, in its2 April 2014 decision in the high voltage cable cartel, the European Commission not only affirmed thejoint and several liability of parent companies for the cartel conduct of theirjoint venture, but did so where one of the parents was Goldman Sachs. Financial investors, such as banks andprivate equity firms, are therefore subject to such liability simply by virtueof the operational control that they exert over the joint venture.
Still more recently, on 25 June 2014, the European Commission issued a “staffworking document” setting out its policy as regards to conduct consideredanti-competitive “by object,” meaningthat the conduct is deemed, by its very nature, to be anti-competitive withoutproof of any anti-competitive effects. This document should be seen as an affirmation and elaboration of the Expedia judgment of the Court of Justiceof 12 December 2012 (Case C-226/11), which clarified that no effects need to beshown in “object” cases. Notsurprisingly, cartels fall within this categorization (including price-fixing,market sharing, output restrictions and bid rigging. Also, vertical price-fixing and resale pricemaintenance are considered “object” restrictions, thus affirming that the EU is more severe than the
US on RPM.
The above measures and decisions taken bythe European Commission and Courts have potentially strong ramifications forChinese companies. Firstly, theydemonstrate that while the Chinese company may not face much antitrust scrutinyat home (perhaps because it is owned and controlled by the State), they act attheir peril by ignoring or discounting the risks of doing business in theEU. Actually, all that they need is arigorous antitrust compliance program so that employees are properly educatedas to conduct that they should avoid.
Also, given that joint ventures are apopular vehicle for many Chinese companies seeking EU market entry, the above case decisions imply that theChinese investor must extend its due diligence to include the pre-existingantitrust risks lurking within the company that will be joint controlled (iethe joint venture)—even where the Chinese company is purely a financialinvestor. For example, antitrust counselshould conduct a review of the joint venture’s agreements, files and emails todetermine whether any employees have reached anti-competitive understandings(or had unjustified contacts with) any competitors.
These EU developments should not discourageChinese companies from investing in the EU. They simply imply that the EU regulatory environment should be respectedas a matter of good corporate governance. With proper measures, it is possible to greatly reduce or even eliminatethe antitrust risk.