Antitrust Bites - Newsletter

Autonomous undertakings and single economic unit. The Council of State makes a request for a preliminary ruling

In its recent Order No. 7713 of 7 December 2020, the Council of State has made a request for a preliminary ruling to the Court of Justice in order to receive - inter alia - clarifications on the application, for the purposes of the attribution of antitrust liability, of the concept of “single economic unit” to legally and economically autonomous undertakings having a contractual link.

The issue arose in the context of a case concerning the legitimacy of a decision of the Italian Antitrust Authority holding a manufacturer liable for the conduct (deemed to constitute an abuse of dominant position) carried out by its wholesale distributors on which the manufacturer relies and to which the latter is contractually bound.

The Council of State - having reconstructed the case-law on the concept of a single economic unit and its application to the phenomenon of groups of undertakings - recognized the existence of “many doubts” and the absence of indications from EU case law on “the nature and consistency of the factors indicating the structural link that - abstractly - must exist between the manufacturer and its intermediaries in order to configure a single economic unit for antitrust purposes”.

The Council of State therefore referred the following question to the Court of Justice for a preliminary ruling: “1) Outside cases of corporate control, what are the relevant criteria for determining whether contractual coordination between formally autonomous and independent economic operators gives rise to a single economic unit for the purposes of Articles 101 and 102 TFEU; in particular, can the existence of a certain level of influence on the commercial choices of another undertaking, which is typical of commercial collaboration relationships between manufacturers and distribution intermediaries, be considered sufficient to classify those entities as part of the same economic unit? or is a ‘hierarchical’ link between the two undertakings necessary, which can be seen in the presence of a contract under which several autonomous undertakings ‘place themselves under’ the direction and coordination of one of them, thus requiring from the Authority evidence of a systematic and constant plurality of acts of direction capable of affecting the management decisions of the undertaking, that is to say, the strategic and operational choices of a financial, industrial and commercial nature”.

The Digital Services Act package: The Commission's proposals for reform of the European digital space

As part of the European digital strategy, on 15 December the European Commission presented a legislative package - the Digital Services Act package - consisting of two proposals on the regulation of digital services, including social media, online marketplaces and other online platforms operating in the EU: the Digital Services Act and the Digital Markets Act.

The two legislative proposals address the need to reform the current European regulatory framework for digital services, which dates back to Directive 2000/31/EC on e-commerce and is now inadequate to tackle the new challenges of digital innovation. Although in recent years the development of online platforms has brought significant benefits to businesses and consumers, facilitating cross-border trade within and outside the EU, at the same time, the use of these platforms has facilitated the spread of fake news and the sale of illegal goods and services, putting users' rights at risk.

The Digital Services Act package aims to create a safer digital space in which the fundamental rights of users of digital services are protected, as well as to establish a level playing field to foster innovation, growth, and competitiveness, both in the European Single Market and globally.

In particular, the Digital Service Act provides for binding obligations at European level that will apply to all digital services that connect consumers to goods, services or content, including the adoption of transparency measures with reference to online advertising and algorithms used to recommend content to users. It will also provide for new procedures for the rapid removal of illegal content; new rules on traceability of business users in online marketplaces, to help identify sellers of illegal goods or services; and an innovative cooperation process between online service intermediaries and regulators.

The Digital Markets Act, on the other hand, addresses the conduct of online platforms that have taken on the role of gatekeepers. This legislation aims to ensure a fairer business environment by defining and prohibiting unfair practices by gatekeepers - inter alia, promoting services and products offered by the gatekeeper itself to the detriment of services and products offered by third parties on the gatekeeper platform, and preventing users from uninstalling any pre-installed software or applications on their electronic devices - and providing for an enforcement mechanism based on market investigations.

In the coming weeks, the European Parliament and the Council will discuss the Commission's legislative proposals under the ordinary legislative procedure. Once adopted, the new rules will be directly applicable across the EU.

Ad hoc rules for “digital champions”

The new section 19A of the German competition act (ARC), still under parliamentary discussion, provides for the attribution to the German competition authority (FCO) of special powers of intervention towards undertakings holding a “paramount cross-market significance for competition”.

The procedure envisaged by the new legislative framework is divided into two steps.

First of all, the FCO will establish whether an undertaking has PCMS or not, taking into account the following criteria:

• if the undertaking concerned is significantly active on several markets;
• if the undertaking concerned holds a dominant position in one or more of these markets;
• the financial position of the undertaking concerned or the possibility to have access to other resources;
• the existence of a vertical integration and the activities carried out by the undertaking in the other related markets; and
• the relevance of the activities carried out by the undertaking for third parties’ access to procurement or sales markets, as well as the influence exercised by the undertaking on third parties’ business.

The FCO could then prohibit the undertaking concerned from engaging in the following behaviors (listed by the law), unless objectively justified:

1. when acting as an intermediary for access to procurement or sales markets, treating its own offers more favorably than the competitors’ offers;
2. directly or indirectly impairing competitors on a market in which the undertaking, despite not dominant, may rapidly enhance its positioning, to the extent that such impairment is able to significantly impede effective competition;
3. use of commercially sensitive information obtained in a dominated market, also in combination with sensitive information deriving from other sources, to create or increase entry barriers in another market, to otherwise impair third parties or to demand business conditions allowing the use of such information;
4. jeopardizing the interoperability of products or services or the portability of data, so as to restrict competition;
5. providing other undertakings with insufficient information about the scope, quality and success of the offered or assigned service or rendering the evaluation of the service more difficult.

Binding effect of the European Commission’s settlement decisions in follow-on cases: the decision of the England and Wales Court of Appeal

On 11 November 2020, the England and Wales Court of Appeal rejected the appeals brought by five truck manufacturers against a judgment of the Competition Appeal Tribunal (CAT) and provided clarifications on the evidential weight to be attributed to the recitals of an infringement decision of the European Commission issued under a settlement procedure pursuant to Article 10a of Regulation 773/2004.

The case originates from a decision of the European Commission in July 2016 issued as a result of a settlement procedure that had held several truck manufacturers liable for an agreement restricting competition. This decision was followed by several follow-on actions for damages, in the context of which the question arose as to the evidential weight to be attributed to the recitals of a settlement decision in which the facts found in the proceedings and admitted by the parties are depicted.

Confirming the March 2020 CAT ruling, the Court of Appeal clarified that in follow-on actions based on settlement decisions, allowing parties to deny facts admitted by them in the Commission’s settlement decision would constitute an “abuse of process” and “an affront to most people’s ideas of justice”.

In this decision, the Court of Appeal clarified that the admission of facts in the settlement procedures prevents undertakings from challenging before the English national courts those facts previously admitted by them before the European Commission.

Abuse of economic dependence: AGCM opens an investigation against Benetton

With a decision published on 25 November, the Italian Antitrust Authority (AGCM) has opened an investigation against two companies of the Benetton group, an undertaking operating in the fashion and retail sectors, to ascertain a possible abuse of economic dependence under Article 9, paragraph 3 bis, of Law 18 June 1998, no. 192, relevant for the protection of competition and the market.

The proceeding was initiated following a complaint submitted by a former franchisee, who claimed that the franchising agreements concluded with the Benetton group (the franchisor) included clauses that would have hindered, or even prevented, the profitable performance of his business activity, to the point of causing its termination.

In the decision opening the investigation, the Authority alleges that the franchisor may have abused the economic dependence of its franchisee by imposing unjustifiably onerous contractual clauses and applying them discretionally, so as to affect the franchisee’s economic activity. In the opinion of the Authority, such clauses, being capable of affecting the franchisee’s strategic choices, such as the quantitative and temporal definition of proposals and/or purchase orders, would lead to an excessive imbalance between the franchisee and the franchisor, such as to make it difficult, if not impossible, to seek satisfactory commercial alternatives on the market.

The Authority observes that in view of the prominent position in the clothing market enjoyed by the Benetton group and the strong commercial attractiveness of its brand, the case at issue is relevant not only with reference to the individual contractual relationship, but also in relation to the protection of competition and the market, a circumstance that motivates and justifies its intervention.

In the past, the AGCM has opened only three other investigations concerning cases of abuse of economic dependence: in two cases the proceedings were closed with the finding of abuse of economic dependence and the provision of fines, while the third case is currently pending.