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A step-change in merger control and antitrust enforcement in Italy

IAA granted significant new powers under Italian Annual Market and Competition Law 2021.

The annual Market and Competition Law (Law), which came into force on 27 August 2022, introduces significant innovations in the area of merger control and for digital platforms. These changes to the antitrust rules long advocated by the Italian Antitrust Authority (IAA) open a new chapter in antitrust enforcement, allowing the IAA to make use of more incisive investigative tools and enabling investigations to be closed through settlement proceedings.

The IAA is facing new challenges and therefore the update to its toolkit ‒ which has remained largely unchanged since antitrust laws were introduced in Italy ‒ is a necessary improvement.

At the same time, the Law calls upon the IAA to establish the requirements and procedures through which it will exercise its new powers. This is a crucial step, as a sufficient degree of legal certainty is indispensable for the conduct of business.

Below are our initial comments on the changes introduced by the Law.

Merger control

Control of “killer acquisitions”

The Law gives the IAA the power to 'assess the anti-competitive effects of acquisitions of control over small undertakings characterized by innovative strategies, also in the field of new technologies'.

To this end, the IAA may request the undertakings concerned to notify a concentration if:

  • one of two domestic turnover thresholds is exceeded (ie aggregate turnover in Italy of the undertakings concerned > EUR517m and at least two parties each have turnover in Italy > EUR31m), or if the aggregate worldwide turnover of the undertakings concerned exceeds EUR5 billion; and
  • it raises serious concerns for competition in the national market, or in a relevant part of it, also taking into account the detrimental effects on the development and establishment of small undertakings with innovative strategies.

The IAA must make its request to notify a concentration within six months of completion of the transaction. The undertakings concerned then have 30 calendar days to do so. In the event of non-notification, the IAA may impose sanctions equivalent to between 1% and 10% of the turnover achieved by the parties in the markets affected by the concentration.

The purpose of the new rules is to allow the IAA to intervene in transactions that do not trigger the turnover thresholds but which may nevertheless be capable of causing anti-competitive effects. These expressly include so-called “killer acquisitions”, i.e. transactions through which large undertakings restrict competition by acquiring start-ups typically in innovative sectors such as digital or life-sciences.

Similar rules have already been adopted by several European countries, such as Germany, Norway, Sweden and Lithuania, as well as non-European countries such as the U.S. and Japan. It should be noted, however, that in the Italian context, the IAA's new powers may be used more extensively given that the Italian turnover thresholds, despite reform and amendments, are still considered inadequate to allow the scrutiny of transactions that may have significant impact on local markets.

At the same time, this new review power may lead to considerable uncertainty, in particular as the IAA could intervene at any point up to six months from the completion of the transaction. It is to be hoped that the procedural rules that the IAA has been asked to adopt will contribute to maintaining a sufficient degree of certainty.

In particular, a mechanism to shorten the deadline to intervene, e.g. by allowing the parties to notify their intention to complete the sub-threshold transaction (or to notify its completion), thus triggering an accelerated deadline within which the IAA may request the parties to notify the transaction would be welcome. It would also be appropriate to coordinate this mechanism with the 15-working day time limit for national competition authorities (NCAs) to make an Article 22 EU Merger Regulation (EUMR) referral, including of below-threshold mergers, to the European Commission (EC).

In addition, the IAA’s procedural rules should indicate the criteria the IAA will use to identify relevant sub-threshold transactions, as well as clarify which party should notify the transaction. The Law makes reference to the "undertakings concerned"; however, in order to ensure consistency, this obligation should be limited to the undertaking that acquires control (ie the undertaking obliged to notify when the transaction meets the standard Italian jurisdictional thresholds).

Furthermore, the Law does not indicate the powers the IAA may exercise in the event that the parties have already closed a transaction which, after scrutiny, the IAA decides to prohibit. The current expectation is that the IAA will clarify that in such a case it may act pursuant to Article 18(3), Law 287/1990, thus prescribing the measures necessary to restore effective competition.

Harmonisation of merger control rules with EU law

The Law updates the Italian merger control rules to reflect the current EUMR.

The most relevant change concerns the substantive test for mergers: the Law introduces the test used by the EC and NCAs, which requires that the merger "does not significantly impede effective competition in the national market or in a relevant part thereof, in particular as a result of the creation or strengthening of a dominant position" (the so-called SIEC test). The new test ‒ which means it is no longer necessary for the IAA to establish dominance ‒ makes it possible for the IAA to bridge the “enforcement gap” relating to transactions that occur in oligopolistic markets with differentiated assets or with particularly complex vertical relationships and that may therefore adversely affect effective competition.

Although EC gap cases have been relatively rare, harmonisation is certainly appropriate as it minimises the risk of inconsistency between decisions adopted by the IAA and those adopted by the EC and other NCAs. Moreover, the SIEC test appears particularly suitable for the assessment of killer acquisitions, which can rarely in themselves lead to the creation or strengthening of a dominant position unless the acquiring company is already in a dominant position.

Another equally important innovation set out by the Law concerns the treatment of joint ventures. Merger control is extended to all so-called “full-function” joint ventures, even if their object or effect is coordination between independent undertakings. In the assessment of such coordination, the Law recalls the criteria already introduced by the EUMR: (i) the significant and simultaneous presence of two or more parent undertakings on the same market as the joint venture, on a market upstream or downstream of that market, or on a market which is adjacent and closely related to it, and (ii) the possibility for the undertakings concerned to eliminate competition through the coordination resulting from the creation of the joint venture.

Moreover, the Law also introduces new criteria on the calculation of the turnover of credit and other financial institutions for merger control purposes. One-tenth of total assets is replaced by the various items of income, in particular: (i) interest income and similar income; (ii) income from shares and other variable yield securities, income from participating interests, income from shares in affiliated undertakings; (iii) commissions receivable; (iv) net profit on financial operations; and (v) other operating income.

In relation to insurance companies, the Law clarifies that the basis of calculation is the value of gross premiums written, instead of gross premiums received. The turnover calculation criteria applied by the EC and IAA are identical, in line with the one-stop shop principle.

Settlement procedures in cartel and abuse cases and more effective investigative powers

Introducing settlement as an option in cartel and abuse cases

The Law introduces settlement procedures through which undertakings can obtain a sanction reduction in return for acknowledging their participation in the infringement.

The relevant rules substantially follow the EC’s procedure, in particular: (i) the setting by the IAA of a deadline within which the undertakings concerned may express their intention to engage in settlement discussions; (ii) communication by the IAA of its objections together with the range of potential fines; (iii) the possibility for the parties to have access to the non-confidential version of the documents contained in the investigation file; and (iv) in the event of a favourable outcome of the discussions with the IAA, the setting of a deadline within which the undertaking may file its settlement proposal, which should include an acknowledgement of its liability.

However, in contrast to the EC’s settlement procedure, the IAA’s settlement tool will apply not only to cartel cases, but also to all types of restrictive agreements as well as abuse of dominance cases.

Further relevant differences may result from the procedural rules that the IAA is called upon to introduce under the Law. Such differences may concern the extent of the reduction in sanction, which the IAA has already indicated it wishes to set at a level equivalent to 20% (whereas the maximum that can be granted by the EC is 10%).

It will be interesting to see how successful this tool will be. Its attractiveness has traditionally been linked to the possibility for undertakings to quickly close an investigation by reducing defensive efforts and limiting the risk that its scope may be extended. In addition, the brevity of settlement decisions has also been considered useful to discourage potential victims of the infringement from bringing antitrust damages actions.

There is, however, the fact that it is precisely private enforcement ‒ which has become widespread following the transposition of Directive (EU) 104/2014 in the Member States ‒ that may discourage undertakings from using the settlement instrument. Significantly, the most relevant wave of damages actions at European level, originated from the truck cartel, which was sanctioned in 2016 by a settlement. In the context of such actions, the Italian Courts have clarified that settlement decisions are binding and that the presumptions in favour of the victims of the infringement ‒ at least when the infringement is qualified as a cartel ‒ mean that the latter do not even need to adduce specific factual details.

On the other hand, with regard to non-cartel cases, it is reasonable to expect that commitments ‒ to which the IAA has resorted with increased frequency ‒ will remain more attractive as they allow undertakings to avoid both an infringement finding and a sanction.

Strengthening powers to obtain information

The Law grants new powers to the IAA to obtain information and documents from third parties, even before the opening of an antitrust investigation, backed up with a power to impose fines for non-compliance. We expect the IAA to make full use of these powers together with the ones recently granted to it as a result of implementation in Italy of the ECN+ Directive.

Abuse of economic dependence

Extending scope of application to digital platforms

The Law introduces a simple presumption of economic dependence in the context of relationships between end users or suppliers and digital platforms that offer intermediary services and which play a decisive role in reaching such end users or suppliers. The Law specifies that whether digital platforms play a “decisive role” can be established 'also' on the basis of network effects or data availability.

Moreover, the Law adds to the list of practices that typically constitute an abuse of economic dependence the following behaviours that specifically relate to digital platforms: (i) providing insufficient information or data on the scope or quality of the service provided and requesting undue unilateral services not justified by the nature or content of the activity performed; and (ii) adopting practices that inhibit or hinder the use of different providers for the same service, also through the application of unilateral conditions or additional costs not regulated by contractual agreements or existing licences.  

The introduction of this provision is important in two key respects.

First, the Law confirms the increased applicability of the abuse of economic dependence in the repression of infringements that have an impact on competition and the market. It is a tool that has been available to the IAA for a very long time, but which for two decades remained essentially unused. Indeed, the IAA had clearly expressed that it was an instrument that should only concern relationships between undertakings and therefore, by its very nature, should have fallen outside the toolkit of an antitrust authority.

Recently, however, the IAA has made use of it with increased frequency and, following the entry into force of the Law, one wonders what is the residual space of antitrust law (in particular, the prohibition of an abuse of a dominant position) vis-à-vis digital platforms. The types of conduct falling within the scope of the two prohibitions are substantially equivalent; however, through the presumption introduced by the Law the IAA will be able to apply the prohibition of abuse of economic dependence much more easily. 

Second, the expansion of the IAA's powers seems to be consistent with the approach adopted by the EU in the Digital Market Act (DMA) concerning the need for more incisive control of the conduct of digital platforms. The two regulatory frameworks partially share the same objective: the protection of contractual relations where there is a significant asymmetry in the bargaining power between two undertakings. However, the layering of the two regulations is not without critical aspects. The same conduct of a digital platform may in fact be subject to scrutiny by the EC under the DMA and by the IAA as abuse of economic dependence, as amended by the Law. The consequence of this may be the adoption of competing infringement decisions in potential violation of the ne bis in idem principle. There may also be conflicting decisions, where conduct of a digital platform is deemed lawful by the EC but sanctioned by the IAA (or vice versa).

Additionally, there is an uncertainty, which is common to the DMA and to the abuse of economic dependence, concerning the identity of the digital platforms subject to the relevant prohibitions. In this respect, it seems inevitable that, whatever the IAA's interpretation may be, it will be subject to judicial review to such an extent that it will take years before a sufficient degree of certainty can be achieved. To avoid this, the Law gives to the Prime Minister in conjunction with the Ministry of Justice and having consulted the AGCM, the task to implement guidelines which should facilitate the application of the new provisions which will enter into force on 31 October 2022.   

Extending competence to the Civil Court sections specialized in IP and antitrust disputes

The Law gives the Civil Court sections specialized in IP and antitrust disputes (Specialized Sections) jurisdiction over civil actions relating to the abuse of economic dependence. This overcomes the traditional approach of the Italian Supreme Court, which has consistently denied the Specialized Sections jurisdiction over civil actions relating to the abuse of economic dependence in light of the contractual nature of the abuse of economic dependence and of their irrelevance for the purposes of protecting competition.

The first consequence is that private antitrust enforcement and abuse of economic dependence cases will be lodged before the same courts. This is appropriate considering that the related litigation often involves the concurrent application of the two laws. However, unlike the antitrust private enforcement system, the Law does not ‒ as it probably should ‒ provide that the Courts of Milan, Rome and Naples shall be exclusively competent for abuse of economic dependence private enforcement cases (as is provided in relation to antitrust actions).    

A further consequence of this devolution of functional jurisdiction is that actions concerning abuse of economic dependence will be removed from the jurisdiction of the Civil Courts in monocratic composition (ie single Judge), with the consequent reservation of collegiality and the exclusion of the summary procedure (contemplated only in relation to cases in which the Court judges in monocratic composition).

What next?

The reform introduced by the Law will be completed only once the related implementing measures will be adopted. It is to be hoped that the relevant measures will be adopted before the end of the year, following a public consultation on the proposed measures.

Indeed, the new rules will have a very significant impact on the IAA’s enforcement activity in the years to come. Such activity is closely related to enforcement by the EC and NCAs, as well as even more so to private enforcement. It is, therefore, imperative that such implementing measures are carefully considered and align with the rules that apply to other antitrust authorities in the EU, so as to promote effective competition, as well as to avoid over-deterrence and lack of legal certainty with regards to the applicable rules.