The Regional Administrative Court of Milan (Section IV) has recently ruled (21/2/2018, n.500) on the principles of "exclusivity" and "non-fungibility" and on whether they are sufficient grounds for not carrying out a public tender procedure.

The specific case concerns a public administration that had announced a tender, only to cancel it when they subsequently learned that there was an exclusive provider of the good in question, therefore awarding the tender to the company holding the exclusive rights.

However, the Administrative Court of Milan annulled this award due to the distinction between "exclusivity" and "non-fungibility" (also referred to in the Guideline No. 8 of the ANAC- Anticorruption National Association of Italy). In fact, exclusivity occurs when industrial property rights are concerned, while non-fungibility is determined by the uniqueness of the good, which is the only good that meets the needs of the public administration. In such way, "the existence of an exclusive right does not necessarily imply that the need of the contractor cannot be adequately met even by turning to other products".

Therefore, "exclusivity" and "non-fungibility" are not equivalent terms since exclusivity can be one of the causes of non-fungibility, but the opposite is not necessarily true, as a product can be non-fungible even if it no company has exclusive rights on it.

This implies that the need of the contracting authority, even in the case of an exclusive right, can also be met with the supply of alternative products (ie having the characteristics required by the public administration), or there may be other "independent distributors or economic operators that have access to the asset". (Guideline No. 8).

Hence the sentence of the Court, which establishes that the exception to the obligation to call for a competition is only possible when there is an actual non-fungibility and not in case of exclusive rights. So much so that the Procurement Code, in the case of exclusivity, allows for the possibility - and not the obligation - of derogation from the obligation to tender under Art. 63, paragraph, 2 °, lett. b), point 3) of the Legislative Decree n. 50/2016.

The decision of the Court is also supported by the principle of "community exhaustion", according to which the holder of a patent right loses the rights on that product once it has been placed on the Community market. This principle was drafted by the Court of Justice and is intended to favor parallel imports, to protect consumer rights and guarantee the free movement of goods in the European economic area.

In conclusion, therefore, the contracting Public Administration must carry out a detailed market investigation aimed at verifying which products and/ or services can meet its needs, not relying on any declarations of non-fungibility of the outgoing company or on exclusivity statements of other economic operators.

Only an objective (and proved) non-fungibility may justify a negotiated procedure without prior publication of a tender notice. In the case of mere exclusive rights, it is always possible for the public administration to launch a call for tenders. This is because there may be companies that provide equivalent products to those tendered or companies that, through parallel imports or purchases made prior to the tendering process, may be able to participate (and win) the tender.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.