General Court dismisses Goldman Sachs’ appeal for infringement decision against its portfolio company

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The EU General Court (“GC“) recently handed down its judgment in the case of Goldman Sachs Group v Commission. The judgment can be found here.

The GC upheld an infringement decision by the European Commission (“EC“) made in April 2014, in which Goldman Sachs Group Inc (“Goldman Sachs“) was held jointly and severally liable with its indirect subsidiary Prysmian for breaching Article 101(1) of the Treaty on the Functioning of the European Union.

Background to the case

The EC imposed total fines of €301 million on 11 producers of underground and submarine high-voltage cables for having participated in a worldwide market and customer sharing cartel. Notably, the entities fined by the EC included not only the companies directly involved and their industrial owners but also an investment firm, Goldman Sachs, whose private equity arm owned Prysmian, one of the producers that was found to have participated in the cartel. Goldman Sachs was held jointly and severally liable for €37 million of the €104.6 million fine imposed on Prysmian, a share corresponding to the four-year period during which it held a stake in Prysmian. There was no evidence that Goldman Sachs (or its investee vehicle) had instigated or been involved in the cartel.

The EC held Goldman Sachs liable for the conduct of its subsidiary on the basis that it exercised “decisive influence” by virtue of:

  • the level of Goldman Sachs’ shareholding held in Prysmian
  • its economic, organisational and legal links which resulted in Goldman Sachs’ exercising decisive influence over Prysmian’s during the cartel period.

What are the EU rules on parental liability?

Attributing liability to the parent is part of a deliberate EC policy intended to focus group management on the need to ensure compliance by their subsidiaries.

Prior to this case, it was already an established principle of EU competition law that parent companies could be held liable for the antitrust activities of their subsidiaries. Liability is imposed on “undertakings”. An “undertaking” is an entity or group of entities which effectively function as a single economic unit. A parent and its subsidiaries will form such a unit when the parent exercises “decisive influence” over the subsidiary. Decisive influence may be established where the subsidiary carries out, in all material respects, the instructions given to it by the parent, with regard being had in particular to the economic, organisational and legal links between the two entities. Parental liability can be triggered even if the parent has no involvement or awareness of the breach and did not in any way encourage or participate in the breach. There is a rebuttable presumption of decisive influence where the parent has a 100% shareholding in the subsidiary.

General Court judgment

Goldman Sachs appealed the EC’s decision holding it jointly and severally liable for a fine imposed on Prysmian’s participation in the cartel. Goldman Sachs’ main argument was that it was not a parent company of Prysmian, but instead, owned the funds that they themselves had invested in the company, classifying them as “investment vehicles”. Furthermore, Goldman Sachs argued that its interest in Prysmian was only “a pure financial investment”.

The GC rejected these arguments and held that Goldman Sachs was able to “exercise decisive influence” over Prysmian on the basis of the nature and amount of its shareholding which was comparable to “the ability it would have enjoyed as sole owner”. The GC noted that Goldman Sachs’ very high majority stake in Prysmian gave it the ability to exercise all the voting rights in the company’s shares.

The GC also concluded that the EC was correct to take into account the following criteria when making its infringement decision:

  • Goldman Sachs’ power to appoint and dismiss board members
  • Goldman Sachs’ ability to call shareholders meetings
  • the role of Goldman Sachs’ board within Prysmian’s own strategic committee.

The GC dismissed Goldman Sachs’ arguments that its interest in Prysmian was one of a “pure financial investor” that had made a temporary financial investment in Prysmian only.

Parental liability does not extend to purely financial investors who hold shares in the company in order to make a profit but are not involved in the company’s management or control, but whether or not an investment is purely financial depends on the facts and circumstances of each case. In light of its findings on decisive influence, the GC held that Goldman Sachs had failed to establish that its shareholding in the Prysmian Group had been a purely financial investment with no involvement in the management and control of the company.

Goldman Sachs has said that it will appeal the GC’s decision to the European Court of Justice.


The GC’s judgment serves as an important reminder to private equity investors that they are not immune from antitrust fines imposed as a result of the conduct of companies within their investment portfolio. This is the case even after the disposal of the company which has infringed antitrust law because fines can be imposed for the period of ownership.

This case demonstrates the need for thorough due diligence at the point of acquisition and high levels of ongoing compliance monitoring and risk management during ownership, regardless of whether the investor considers these assets to be purely financial investments.

This risk mitigation strategy could include:

  • the introduction or strengthening of antitrust compliance programmes throughout the investment portfolio;
  • only taking rights over portfolio companies amounting to “decisive influence” where the investor is in a position to ensure antitrust compliance; and
  • drafting appropriate contractual protection to deal with antitrust risk, including warranties and indemnities.

If you have any questions in respect of this briefing note or require further information or assistance, please contact a member of the Competition Team below, or your usual contact at Walker Morris.