Italian Antitrust Authority’s proposed reform of the national antitrust rulebook: what’s in it for digital players?

Background

Last week, the Italian Antitrust Authority (the IAA) sent to the Italian government its proposal for changes to the Italian Competition Law. The proposed changes were prompted by President Mario Draghi during his first speech as Italian Prime Minister on 17 February. President Draghi included the promotion of competition among the priorities of his government and asked the IAA to submit any proposals for changes to the Italian Competition Law “shortly”. The Italian government followed-up with a formal request to the IAA, on 8 March.

The request issued by the Italian government falls within the framework of the Italian annual law on competition. This tool was introduced in 2009 to promote competition and ensure high levels of consumer protection. In principle, the law on competition should be passed every year, after considering the proposals and advocacy measures of the IAA. However, in practice, this tool has often been neglected – from 2009 onwards, the (“annual”) law on competition has only been passed once, in 2017.

In essence, President Draghi’s government is dusting off a tool that has rarely been used in the past. Now the ball is in the Italian lawmakers’ court. That said, the Italian Parliament is under no obligation to implement the proposals coming from the IAA – in principle, they could pass into law only a few of them or even disregard them all (which is however unlikely, considering the momentum and the political pressure to “do something” in the competition arena to counter conduct which is perceived as detrimental to smaller business, which have inter alia suffered significantly due to Covid-19 restrictions).

We provide below a brief summary, focusing on the proposed changes that would affect companies active in the digital sector.

Companies of primary importance for competition in multiple markets

First, the IAA recommends introducing a new provision to address competitive distortions in markets where a digital platform is active or where market players require a digital platform to reach end-users or suppliers. The IAA points out that the new provision should be “modelled on the German experience”.

More specifically, the proposal consists in expanding the scope of the Italian equivalent of Article 102 TFEU (prohibiting abuse of a dominant position). According to this new draft provision, the IAA would be empowered to issue a decision qualifying certain undertakings as having “primary importance for competition in multiple markets” (such definition seems to echo the German reference to companies with “paramount significance for competition across markets”). This qualification would last for 5 years. The proposal also includes a non-exhaustive list of criteria that could lead the IAA to qualify an undertaking as having primary importance for competition in multiple markets, i.e. (i) holding a dominant position in one or more markets; (ii) degree of vertical integration and/or being active in adjacent markets; (iii) access to competitively relevant data; (iv) being a gateway to upstream or downstream markets; or (v) influence on the economic activity of third-parties. This list is non-exhaustive and the criteria do not appear to be cumulative, thus not requiring a finding of dominance.

The decision qualifying an undertaking as having primary importance for competition in multiple markets could also prohibit such undertakings from adopting the following “black-listed” conducts, that are considered to be particularly distortive of competition:

• self-preferencing when being a gateway to upstream or downstream markets, particularly by favoring its own products in terms of display or pre-installing its products or services or integrating them in other offers;
• hindering other undertakings in their activities on upstream or downstream markets, particularly in cases where the undertaking’s own activities are relevant to access these markets;
• hindering other undertakings on markets where the company (although not being dominant) could rapidly expand, in particular through bundling or tying offers;
• strengthening barriers to entry through competitively relevant data processing strategies;
• preventing interoperability of products, services or data portability;
• providing other companies with insufficient information on the services provided or creating obstacles to their capacity to assess these services;
• demanding disproportionate advantages for the handling of other companies' offerings.

The undertakings concerned would be able to prove that their conduct is objectively justified. In case of non-compliance, the IAA could fine the undertakings concerned and/or impose behavioral or structural remedies to put an end to the infringement and its effects or to prevent a repeat of the conduct.

Such provisions are not aimed at implementing EU law provisions and do not appear to be coordinated (at least for the time being) with the EU’s draft DMA. As pointed out by the IAA itself in its proposal, the new provision is actually very similar to the new Section 19A of the GWB, although the proposal does not indicate whether this new (possible) regime would be subject to judicial review. Also, the Italian proposal partially resembles the two-step procedure provided by the current EU regulatory framework for telecommunications, which requires national regulatory authorities to conduct annual market reviews to determine whether a particular market should be regulated due to the presence of entities enjoying significant market power.

The proposal put forward by the IAA is still relatively rough and will be further developed by the Italian law-makers. Yet, it provides some food for thought.

• First, conceptually the new provisions seem to build upon some finding of market power and of an associated prohibited unilateral conduct. However, they would run parallel to the provisions on dominance – based on the draft, undertakings having primary importance for competition in multiple markets might also be dominant, but may not be. From a procedural standpoint, this means that the new provision would not necessarily require the IAA to assess dominance (and – arguably – define relevant markets). This seems to aim at taking into account the competitive position of undertakings that are active across multiple markets, thus possibly eluding the ordinary rules on market definition.
• Second, companies that are likely to be found to have primary importance for competition in multiple markets usually have cross-border operations. This means that they will have to comply with multiple regulatory regimes, meaning reduced legal certainty and efficiency (e.g. in terms of higher compliance costs). Also, as with any national regulation of a global phenomenon, the system carries an inherent risk of divergent outcomes. The Italian and the German regimes thus could hinder the creation of an EU digital single market, at the same time that the new EU regulatory package is under discussion.
• Third, the proposal includes a brief reference to “structural remedies” that could be imposed in case of non-compliance with any prohibition. The provision of structural remedies in case of non-compliance would help addressing the concerns voiced at an EU level on the power of competition decisions to effectively restore competition, particularly when it comes to markets prone to tipping (like the digital ones). While this will have to be developed by the Italian law-makers, the provision sounds quite far-reaching and intrusive, since the precise way in which a “cease and desist” order is implemented may put at risk the business model of certain platforms.

Abuse of economic dependence and digital platforms

The IAA has also proposed modernising the existing rules on abuse of economic dependence (a concept existing in several other EU member States, e.g. Belgium, France and Germany).

More specifically, Italian law no. 192/1998 prohibits the abuse of economic dependence. Economic dependence arises where one undertaking is able to cause an excessive imbalance of rights and obligations in its commercial relationship with another (i.e. holding so-called “relative market power”). The abuse of economic dependence does not require market dominance, but just a significant imbalance of powers between market players, and can take place in many forms. The law provides a non-exhaustive list, that refers to the refusal to sell or buy, the imposition of unjustifiably onerous or discriminatory contractual conditions or the arbitrary interruption of existing commercial relationships.

The IAA is now proposing to introduce a rebuttable presumption of economic dependence for digital platforms. This would apply when the platform represents a key gateway (also due to network effects and/or to the available data it can leverage) in reaching end users and/or suppliers.

Furthermore, the IAA suggests providing a non-exhaustive list of “blacklisted conduct” that falls under the prohibition. This builds upon the prohibitions stemming from Article 102 TFEU and from the relevant case-law, as it includes:

• directly or indirectly imposing unfair purchase or selling prices, other unfair conditions or retroactive non-contractual obligations;
• applying dissimilar conditions to equivalent transactions;
• denying interoperability between products or services or denying data portability, thus harming competition;
• making the conclusion/execution of contracts and/or the continuity of the resulting business relationships subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts;
• provide insufficient information or data on the scope or quality of the service provided;
• unduly benefitting from unilateral obligations that are not justified by the nature or the scope of the activity provided, particularly by making the quality of the service provided conditional upon data transfer in an unnecessary or disproportionate amount.

The amendment to the rules on economic dependence might sound less important than the ones on undertakings having primary importance for competition in multiple markets. However, the opening of investigations for abuses of economic dependence is becoming increasingly frequent in Italy and the impact of the proposed change should not be underestimated.

Merger control

Third, the IAA sought to add to its toolbox new powers to ensure that it can review M&A transactions falling below the applicable thresholds. While the IAA makes it clear that the proposed changes aim not only at capturing concentrations in the digital sector, these are clearly one of the IAA’s targets.

More specifically, the IAA is seeking to be empowered to issue a notification order similar to the one which recently became applicable in Germany (see the new Section 39a ARC). In a similar fashion, the IAA could request the notification of concentrations falling below the Italian thresholds if:

• there is a prima facie risk that the concentration would harm competition on the Italian market (or on a relevant part of it);
• the concentration has occurred within the 6 months before the notification order;
• at least one of the applicable Italian filing thresholds (i.e. combined turnover in Italy of the undertakings concerned higher than EUR 511 million and turnover in Italy of at least one of the undertakings concerned higher than EUR 31 million) is met, or the worldwide overall turnover of the undertaking concerned is higher than EUR 5 billion.

Supplementary powers of investigation prior to the formal opening of a case

Finally, the IAA proposed to expand the scope of its investigative powers.

More specifically, it is proposed to allow the IAA to issue fines in case of refusal or delay to provide information in response to requests issued “at any point in time” before the opening of a formal investigation (so far, recipients of questionnaires were not technically bound to respond, even if the threat of opening a formal investigation as a rule resulted in the submission of exhaustive answers). The same would apply in case of incorrect, partial or misleading information being provided. In essence, the new pre-investigation powers would be conceived so as to mirror the ones the IAA has during an investigation. The proposed changes clearly increase the IAA’s fact-finding powers, even where the potential case is not strong enough to warrant the formal opening of an investigation and its impact should not be underestimated. In any event, the IAA points out that it is necessary to ensure consistency with the regime provided under Directive no. 2019/1 (so-called ECN Plus).

Next Steps

What happens next?

The IAA’s proposals have now landed on the Italian lawmakers’ desks. As discussed above, there are not many precedents to refer to. The Italian annual competition law has only been issued once in the past. At the time of the 2017 (and so far only) annual competition law, the Italian law-makers actually implemented a fair number of proposals coming from the IAA. That was also the occasion to amend the Italian merger control thresholds.

The Italian lawmakers have wide discretion as to whether to take on board the proposals coming from the IAA. However, the Italian Prime Minister hinted at the annual law on competition as one of the priorities of his government and, so far Italy is perceived as lagging behind other major EU countries when it comes to regulating digital markets (while the IAA is by no means shy to bring cases using the existing tools, often triggering action by the EU and/or other EU member States) . Therefore, it seems likely that the Italian law-makers will implement at least some of the proposals put forward the IAA – although it is extremely hard to predict to what extent the proposal will change as a result of Parliamentary scrutiny.

Some of the proposals put forward by the IAA (which are not specific to the digital sector and e.g. include alignment of the Italian merger control system to the EU one when it comes to the applicable substantive test and the treatment of JVs) have actually been envisaged for a long time and are more likely to find their way into the law. The provisions on digital markets are more controversial by their very nature and might give rise to controversy. Much will also depend on the steer that might be given from the European Commission in light of the outcome of discussions on the EU regulatory package.

In terms of timing, there is a good chance that the new law will be approved as soon as sometime this year, given that President Draghi’s mandate might be limited in time and that Italy will not want to be left behind in the regulatory jigsaw on digital markets – but once again this is very hard to predict given the heterogeneous Parliamentary majority backing the Draghi government.