Italy: Cartel Regulation In Italy: Recent Cases And Developments

"An extract from The European Antitrust Review 2008, a Global Competition Review special report - www.GlobalCompetitionReview.com"

Except for differences in procedural law, Italian competition rules mirror those of the European Union. This article provides a brief overview of the applicable cartel law in Italy. The Italian Competition Authority (ICA) has also recently been granted new powers, such as the power to adopt interim measures and to accept commitments and make them binding and finally the possibility to accept leniency applications. Some of the cases mentioned below give an example of how the ICA enforces these new rules.

Cartel law enforcement in Italy

The ICA is responsible for controlling (i) agreements that impede competition, (ii) abuses of dominant position and abuses of economic dependence, (iii) mergers and acquisitions that create or strengthen a dominant position with the effect of eliminating or restricting competition, (iv) misleading and comparative advertising and (v) conflicts of interest.

Pursuant to article 2 of Law 287 of 10 October 1990 (Law 287), which reproduces almost entirely article 81 of the EC Treaty, agreements are prohibited between undertakings that have as their object or effect appreciable prevention, restriction or distortion of competition within the national market or within a substantial part of it.

The ICA enforces article 81 of the EC Treaty, instead of article 2 of Law 287, in all those cases in which an anti-competitive agreement could affect, with a certain degree of probability, trade between member states, notwithstanding that the relevant geographic market extends only throughout the Italian territory or a part thereof.

The ICA may grant temporary exemption for those agreements that, although formally against competition rules, have the effect of improving the conditions of supply in the market, leading to substantial benefits for consumers. Such improvements are identified taking also into account the need to guarantee to the undertakings the necessary level of international competitiveness and are related, in particular, with increases in production, improvements in the quality of production or distribution, or with technical and technological progress.

The ICA has the power to start an investigation following a complaint filed by competitors or consumers, or at its own initiative.

With regard to dawn raids and the way the ICA actually gets incriminating information, the powers of the ICA are similar to those of the EU Commission, with the only difference that in Italy it is not possible to access private homes of the investigated company’s management or staff.

In case of infringement, the ICA can impose remedies as well as impose a fine up to 10 per cent of the Italian turnover of each undertaking or entity during the prior financial year.

In the first months of 2007 the ICA introduced a leniency programme, similar to that of the European Commission. The programme foresees a sliding scale of reductions according to the usefulness of the collaboration offered by ‘penitent’ companies. These go as far as total immunity for a company that is first to provide the ICA spontaneously with decisive proof of a secret cartel where such information is not available to the ICA.

It is in any case possible for a company whose cooperation contributes significantly to the evidence available to the Authority to benefit from a reduction in its fine, usually of not more than 50 per cent. Obviously account will be taken of the timeliness of the company’s collaboration and the value of the evidence produced.¹

It is possible that the company may not be in a position to supply the elements of proof necessary to obtain immunity immediately, but may be able to procure them within a short time. In that case, it may present an incomplete application and request that the Authority fix a date for completing the application with the information and documentation relevant to the case.²

Appeals against the ICA’s decisions must be filed, within 60 days from the date of the decision, before the Lazio Regional Administrative Tribunal, the decision of which can also be appealed, in 30 days, before the Council of State, Italy’s supreme administrative court.

Actions to obtain damages, interim relief and the declaration of nullity of illegal agreements must be filed before civil courts. The Italian legislation, however, is characterised by what appears to be a major paradox: the Civil Court of Appeal is competent for the application of Law 287, in this way skipping the judgment of the first instance court, while article 81 cases must be filed before the territorially competent first instance civil court (a lesser and, supposedly, less specialised court).

It is worth noting that, although theoretically possible pursuant to article 33 of Law 287, and articles 2033, 2043 and, in some cases, 2598 (paragraph 3) of the civil code, private enforcement of cartel law in Italy is extremely limited. The victim of a cartel, that is, an individual, undertaking or competitor damaged by the illegal agreement could, in theory, bring a damage action against these competitors showing (i) the existence and (ii) the amount of damages suffered, (iii) the misconduct (unfair competition) of the defendants, and (iv) the link between the defendants’ misconduct and the claimed damages.

In particular two problems arise with regard to private enforcement. First, the high burden of proof is a deterrent: the victim of a cartel is not often in a position to produce sufficient evidence of a secret agreement among competitors, unless there has previously been an ICA decision establishing the infringement. Second, it might be difficult for the damaged party to determine ex ante whether article 2 of Law 287 or article 81 of the EC Treaty is applicable and therefore whether the claim should be filed with the Court of Appeal or the first instance court or maybe both, thus creating a certain degree of uncertainty and a disincentive for private actions.

Interim measures and commitments: new powers for the ICA

Based on the new powers specified in Law 248 of 4 August 2006 (Bersani Law), the ICA may, where a cursory examination reveals the existence of a contravention, decide ex officio that interim measures must be adopted. In the case of non-compliance, the ICA may levy fines up to 3 per cent of turnover.

The other change introduced by the Bersani Law is that companies being investigated for possible anti-competitive conduct may give undertakings that would eliminate the anti-competitive behaviour under investigation. Should the ICA adjudge these commitments suitable, it will render them obligatory and close the proceeding without ascertaining a misdemeanour. If the commitments are not adhered to, the ICA may levy a fine of up to 10 per cent of turnover.

A list of examples of cases in which the ICA used these new powers for the first time follows.³

Italian Banking Association (ABI)

The ICA decided, for the first time, to apply the new powers contained in the Bersani Law and require ABI (the Italian Banking Association) to suspend immediately the circular it distributed on 7 August 2006 dealing with the application of new rules on unilateral changes to the contractual conditions governing current accounts. According to the ICA, which opened an inquiry into ABI’s move, the circular could constitute an anti-competitive arrangement in violation of article 81 of the EC Treaty.

In fact, the circular very well represents a means to facilitate the exchange of information and restriction of competition. More precisely, ABI’s circular, in reviewing the strategic economic variables upon which competition among the member banks is based, provides an orientation which, on the one hand, clarifies the real and potential incentives to competition among the members, and on the other hand, facilitates maintaining the high costs imposed on customers wishing to close their accounts. The instructions provided, though they are not binding, nevertheless influence the conduct of the individual operators and represent a common point of reference which – by rendering aspects of their market strategies uniform – could reduce the level of uncertainty as to competitors’ conduct in the marketplace.

Pharmaceuticals distributors

In September 2006, the ICA opened an inquiry into a possible anti-competitive arrangement by seven distributors of pharmaceuticals. According to a number of complaints it received, the seven wholesalers are reported to have refused, without good reason, to supply non-prescription medicines to retailers of over-the-counter products. The conduct of these companies, in which pharmacies have significant shareholdings, leads the ICA to deduce the existence of a coordinated refusal to supply these medicines so as to obstruct the entry of new competitors into the retail marketplace. The ICA, seeing here the risk of serious and irreparable damage to competition, decided, as an interim measure, that the seven companies should desist from their conduct in refusing to supply overthe- counter products to non-pharmacy outlets and should inform the ICA in a timely fashion as to the steps they have taken. The wholesalers’ conduct is unjustifiably delaying the implementation of the liberalisation measures introduced by the Bersani Law, which legalised the sale of non-prescription drugs by retailers other than pharmacies so long as they have a special department for the purpose staffed by one or more qualified pharmacists who are registered with their professional association.

Order of Veterinarians: alleged anti-competitive fixing of minimum fees

In March 2007, the ICA decided to accept the commitments presented by the Order of Veterinary Surgeons of the Province of Turin and the National Federation of Italian Veterinary Orders which were intended to permit the closure of the investigation launched in May 2006 into a possible anti-competitive arrangement. The parties have undertaken to abolish minimum fees; they will not initiate disciplinary proceedings (and will discontinue any proceedings already under way) over violations of rules on fixed fees or limitations on advertising; veterinarians will be allowed to advertise their professional qualifications and specialisations, the characteristics of the service they offer, their fees and the overall cost of a treatment; other regulations that conflict with competition, even if not included in this investigation, will also be repealed.

Interbank commissions for deposit, payment and ATM services

At its meeting on 19 April 2007, the ICA accepted and made obligatory the commitments proposed by ABI and CO-GE-BAN (a business association for the promotion of the use of certain ATM services at POS terminals and whose members are banks and bank holding companies belonging to ABI) to stop the proceeding against them started on March 2006: the ICA suspected that there were violations of the antitrust rules in the collective fixing by the banks’ associations of the maximum interbank commissions for ATM cash withdrawals from the ATMs of other banks and for the payment services known as RID (direct interbank transfers) and RiBa (electronic bank receipt).

The commitments consist of reductions in five interbank commissions – the prices banks charge each other and which become the basis for prices to the customer – varying from a minimum of 11 per cent on ATM withdrawals from the ATMs of other banks to 64 per cent for fast RID services.

Specifically, the parties, following the first version of the commitments, have already done away with the commission on the ‘RiBa with intermediary’ service, merged the ‘utility bill RID’ and ‘business RID’ commissions into a single fee structure and reduced the remaining commissions. These reduced charges result from the application of a new method of calculation which looks only at direct costs and now excludes, for instance, the items called ‘indirect costs’ and ‘mark-up’ (profit margin), as well as reflecting cost savings from changed business processes.

The parties undertook to set minimum future commission to be calculated from July 2007 after a new survey of costs has been carried out on a more representative sample of banks than the one currently used. The lower charges have been calculated on the basis of stringent efficiency criteria, excluding the 50 per cent of banks having the highest costs, with specific corrective factors for each individual commission.

Lastly, a new assessment will be made every two years to see if commission charges can be further reduced as a result of cost savings, it being understood that the previous survey in any case represents a price cap.

Other recent cases

The above-mentioned cases show that the ICA is already using the new powers recently introduced by the Bersani Law and this might very well affect the ICA’s approach on cartel law enforcement. There are two pending cases, namely the professional orders case and the oil companies price fixing case, in which respectively the possibility of commitments and the leniency programme might come into play. In particular, in the oil companies case, it will be interesting to see whether the leniency programme, introduced just few months ago, will somehow encourage the accused parties to release evidence of the alleged cartel, if it exists.

Professional orders

Although not strictly a cartel case, this is an interesting example of how professional orders might act like a trade association establishing anti-competitive conditions or delaying the introduction of a more competitive system.

In January 2007, the ICA opened a fact-finding investigation to assess whether the Italian professional orders are introducing competitive principles into their statutes and codes of practice in line with the Bersani Law. The investigation will concentrate specifically on the orders covering architects, lawyers, tax accountants and bookkeepers, workplace consultants, pharmacists, geologists, building surveyors, journalists and freelancers, engineers, doctors and dentists, notaries, industrial technicians and psychologists. In particular, the inquiry will check on the abolition of professional rules limiting competition by way of fixed or minimum fee scales and the effective freedom professionals have to advertise or, in the case of lawyers, to work on a contingency fee basis, and recognition of the freedom to set up interdisciplinary firms of professionals.

It is worth mentioning, at this stage, that the ICA has intervened many times in the area of professional services, including launching inquiries into the professions over anti-competitive agreements, principles that are now enshrined in the liberalising measures of the Bersani Law. According to the ICA, a number of the professionals’ representative bodies have interpreted the new rules restrictively.

Investigation into oil companies over price fixing

The ICA has recently opened an investigation into nine of the biggest oil companies operating in Italy for unlawful exchange of information and price fixing.

The nine companies are: ENI, Royal Dutch Shell, Total, ExxonMobil, Kuwait, Tamoil, ERG, API and IP. According to the ICA, these companies may have been sharing information since the end of 2004 to fix petrol prices in Italy’s service station network, limiting competition and maintaining prices at the pump that are some of the highest in the European Union. Moreover, according to the ICA, the Italian petrol retail network has high barriers to entry, with few opportunities for newcomers to enter the market. The ICA’s investigation will focus mainly on ENI, Italy’s biggest oil company, which decided to substitute its own method for calculating the industrial costs of oil production (which is crucial to set retail prices) in place of the PLATTS calculation, the current international standard. The ICA claims that ENI may have acted as a "price leader", with the other eight companies changing their strategies accordingly. A high degree of information exchange in this industry may also have made this collusion easier. It is still uncertain what role, if any, the government might play in this investigation, ENI being formerly a stateowned company.

Aviation fuel

In June 2006 the ICA fined six oil companies (ENI, Esso, Kuwait, Shell, Tamoil, Total) €315.4 million for an anti-competitive arrangement in airport fuel supply. The agreement was aimed at dividing up the market and barring airlines willing to provide their own supplies. The companies exchanged information and coordinated their tendering strategies for refueling contracts and made common cause to counteract any attempts to change the makeup of the market. One of the remedies imposed by the ICA is to allow third parties access to the jet fuel market. Moreover, ENI, Esso and Kuwait in the case of Hub and Par, Shell IAV, Tamoil and Total in the case of Rai and ENI, Esso, Kuwait, Shell IAV and Total in the case of Disma and Seram must eliminate joint shareholdings in these common businesses as well as ceasing the exchange of information.