Antitrust Bites – Newsletter

Paragraph 2-quater of Article 8 of Law 287/1990 repealed: ICA identifies competition issues

On 16 September 2024, the ICA published an opinion in which it set out the competition issues related to the repeal of paragraph 2-quater of Article 8 of Law 287/1990, provided by Article 10, paragraph 2, of Law Decree No. 113 of 9 August 2024. The paragraph states that companies operating services of general economic interest (SIEG) or operating under a monopoly regime have to make goods or services made available to their subsidiaries or affiliates also accessible to directly competing companies under equivalent conditions.

First, the ICA recalled the rationale of the provision. It was introduced to rebalance the advantage that the owner of a SIEG or legal monopoly can give its subsidiaries in related markets by making available to them the assets used to operate the SIEG or monopoly. The rule aims to ensure a “level playing field” among competitors active in the related markets. This level playing field would be undermined if an operator were allowed to enter a market in free competition having exclusive access to assets as the operator of the SIEG or legal monopoly and if those assets weren’t available to third parties.

The ICA pointed out that repealing the rule could affect competition in markets in which companies owned or controlled by companies that operate SIEG or operate under a monopoly are active. These companies would have an advantage over other companies, which wouldn’t have access to the same resources, violating the principle of equality of arms.

The opinion also noted that the effects of Paragraph 2-quater of Article 8 of Law 287/1990 – unlike what was indicated in the explanatory report of Law Decree No 113/2023 to justify its repeal – don't seem to be fully transposed and absorbed in the other sectoral disciplines in force in Italy.

Certain disciplines, for example those pertaining to the energy, railway and telecommunications sectors, transpose the principle underlying paragraph 2-quater. But similar rules aren't present in other sectors characterized by the presence of SIEGs provided on an exclusive basis, such as integrated water service, public lighting, urban hygiene, district heating and universal postal service. So, the ICA believes that the reference to the general principle contained in the rule intended to be repealed is essential to fill any gaps in the sector regulations.

In conclusion, in the light of the observations set forth in its opinion, the ICA supports the importance of maintaining Article 8, paragraph 2-quater, of Law 287/1990 in the national legal system, asking the relevant institutions to consider the deletion of the rule repealing it.

 

CJEU issues first ruling on the scope of application of Article 22 EUMR

On 3 September 2024, the EU Court of Justice – concluding a significant judicial case – issued its first ruling on the scope of application of Art. 22 of Regulation (EC) No. 139/2004 (EUMR). The article provides that EU Member States “may request the Commission to examine any concentration [...] that does not have a Community dimension [...] but affects trade between Member States and threatens to significantly affect competition within the territory of the Member State or States making the request” (paragraph 1).

The ruling originated from an appeal against a decision – annulled by the Court – through which the General Court had confirmed requests from some EU member states to the Commission, and the Commission's decision itself, to accede to a referral request under Art. 22(1) EUMR submitted by the French Competition Authority. The referral request concerned a merger operation that fell below the thresholds set out in the EUMR and national regulations.

The parties to the transaction challenged before the General Court the Commission's decision to accept the referral and the requests for accession from the Member States. The parties contested the ability to activate the referral mechanism when a concentration doesn’t meet the national nor the EU notification thresholds. The General Court decided that, based on a literal, historical, contextual, and teleological interpretation of Art. 22 EUMR, Member States can ask the Commission to examine a concentration that doesn’t have a community dimension, even if the states can’t review the concentration under their own national laws.

In its ruling, however, the Court held that the correct application of the interpretative criteria adopted by the General Court should lead to the opposite conclusion with respect to the contested decision, aligning itself with the opinion expressed by Advocate General Emiliou in his conclusions of March 2024 (see Antitrust Bites – March 2024).

In the ruling under consideration, the Court clarified that, contrary to the General Court's assertions, no preparatory document concerning the review of concentrations demonstrates an alleged intention by the EU legislator to resort to the referral mechanism under Art. 22 EUMR to remedy the rigidity of the thresholds set out by the merger control regulation. Nor can it be said, according to the Court, that the referral mechanism under review aims to fill a gap in the concentration control framework. Similarly, the General Court’s contextual interpretation according to which the referral request can be submitted independently from the existence or the scope of a national rule on merger control review is wrong.

The Court concluded that Member States lacking competence to examine a concentration cannot refer the examination to the Commission under Art. 22(1) EUMR, annulling the challenged decisions.

 

The European Commission publishes Draft Guidelines on exclusionary abuses – public consultation open until 31 October 2024

The European Commission has released the draft of its new guidelines on abuses of dominant position, focusing exclusively on exclusionary abuses. The guidelines outline the Commission's approach to applying Article 102 TFEU, drawing from its own decision-making practice and the case law of the EU courts.

The draft guidelines state that, to determine whether conduct constitutes an abuse, it's necessary that:

• the conduct departs from “competition on the merits”; meaning a conduct that goes beyond the scope of “normal competition” based on the performance of economic operators. “Normal competition” is a situation in which consumers benefit from lower prices, better quality and a wider choice of goods and service;
• the conduct is capable of producing exclusionary effects; and
• the conduct is not objectively justified or efficiency-enhancing.

One of the main innovations of the guidelines concerns the classification of the relevant conduct into three different categories and a corresponding allocation of the burden of proof.

• In the first category of conduct, not covered by the other two categories, the Commission has to demonstrate the ability of the challenged conduct to produce exclusionary effects on the basis of “precise and concrete elements of analysis and evidence.”  The Commission's burden of proof appears to be relatively low.  It doesn’t have to show that the conduct is capable of foreclosure for competitors that are at least “as efficient” as the dominant undertaking (as efficient competitor test (AEC test)) or how the conduct has caused direct consumer harm.
• The second category introduces a rebuttable presumption for certain types of conduct: exclusive supply or purchase agreements, rebates linked to exclusivity, predatory pricing, margin squeeze in the case of negative mark-ups, and certain forms of tying. These conducts, if proven, are presumed to be capable of producing exclusionary effects. But the dominant undertaking can seek to rebut this presumption by providing evidence that the Commission has then to assess.
• The third, and last category, covers conduct by a dominant undertaking which serves no economic interest other than to restrict competition (naked restrictions). This includes, for example, a dominant undertaking dismantling part of its infrastructure used by a competitor or paying a customer not to launch a product incorporating a competitor's input. These practices are by their very nature likely to restrict competition, meaning the Commission doesn’t have to prove exclusionary effects, and the burden of proof shifts to the undertaking. But, in contrast to rebuttable presumptions, the draft guidelines provide that only in “exceptional circumstances” can a dominant undertaking prove that the practices are unlikely to have exclusionary effects.

All interested parties can submit their comments on the draft guidelines as part of the public consultation by 31 October 2024. The Commission expects to adopt the final text of the guidelines over the course of 2025, taking comments into account.

 

Mario Draghi's report on the future of European Competitiveness published

On 9 September 2024 Mario Draghi’s report on “The future of European competitiveness” was published on the European Commission website.

The report analyses the challenges in the EU single market, highlighting some potentially critical aspects and offering recommendations for future industrial strategy. They include proposals for actions in competition law and targeted measures for key sectors.

One section of the report is devoted to measures that are considered necessary for “revamping competition.” The report states that innovation and future competition should play a more prominent role in the Commission’s decisions (DG COMP), enhancing progress in areas where developing new technologies would make a difference for consumers.

The report calls for a change in approach and recommends issuing updated guidelines that would make EU Regulation 139/2004 (EUMR) fit for purpose. These guidelines should indicate what evidence merging parties can present to prove that their merger increases the ability and incentive to innovate, allowing for an “innovation defence.” The report also emphasises there should be mechanisms to prevent the misuse of such "defence".

The report recommends streamlining decision-making processes and increasing the predictability of outcomes in antitrust proceedings. It highlights, for instance, the increasing complexity and uncertainty concerning merger control because of practices such as applying Article 22 of EU Regulation 139/2004 (EUMR) to concentrations that don’t meet the thresholds set by EU and Member States' merger control legislations. But this specific issue appears to have been resolved by a recent Court of Justice ruling, which we also discuss in this newsletter.

The report dedicates a section also to the electronic communications sector (high-speed/capacity broadband networks). As the report points out, the presence of a large number of telecommunications operators in the EU has led to lower prices for consumers, but it’s also eroded industry profitability, limiting the ability of EU companies to achieve the scale and resources needed to drive innovation.

With this in mind, the report outlines several key objectives for the telecommunications sector, including harmonising legislation and facilitating cross-border mergers in such sector. To achieve these goals, the report proposes inter alia to redefine telecommunications markets at EU level, rather than at individual Member State level, and reducing ex ante national telecommunications regulations – which tend to discourage investment and risk-taking – in favour of ex post competition enforcement in cases of anti-competitive conduct.

 

Recent developments on parity clauses before the ICA and the EU Court of Justice

Parity clauses (or Most Favoured Nation clauses - MFN) are clauses by which a seller of goods or services has to offer them to another party on terms that are no less favourable than those offered by the seller to other parties or through other channels. These clauses have recently been assessed both in Italy and EU level, with reference to Booking.com implementing them, expanding the long-standing debate about the legitimacy of their use by Online Travel Agency platforms (OTAs). The clauses can be wide – concerning any sales channel of the product or service, including third parties' – or narrow – only referring to the sales channel of the counterparty to the agreement.

On 12 March 2024, the ICA opened an investigation into Booking.com to determine whether two of its programs are likely to constitute a possible abuse of dominant position:

• its "Preferred Partner Program” (PPP, including its “Preferred Plus version”), which guarantees an improvement in the visibility of the hotel facilities that adhere to it. To access this program, hotel facilities have to comply with the “external prices” requirement: the facility has to apply on Booking.com a price equal or lower than the price on the hotel's or other OTAs' websites.
• And "Booking Sponsored Benefit” (BSB), which allows Booking.com to apply an additional discount to customers, according to the platform's choice, if the price offered by the property offered on Booking.com is not the most competitive in the market (ascertained through a monitoring system).

According to the Authority, applying both the PPP and BSB could restrict hotel establishments in autonomously defining their pricing strategy. This could have effects similar to those of parity clauses (which have been prohibited by Italian law in agreements between booking platforms and hotel facilities since 2017).

This is the ICA’s second investigation, ten years after the first, into the same company for using parity clauses.

On 8 August 2024, the Authority published Booking.com’s commitments to collect any comments from interested third parties. As a result of these commitments, applicable for ten years, Booking.com will not emphasize “external prices” either for the purpose of participation in the PPP, or with reference to the BSB program. Booking.com will no longer give relevance to external prices as inputs and remove any reference to the distinction between competitive and non-competitive prices.

In a decision from 19 September 2024, the EU Court of Justice also ruled on parity clauses used by Booking.com in its contracts with various hotel establishments. The Court clarified that both types of MFN clauses (both wide and narrow) included in the agreements concluded by OTAs, cannot escape the application of Article 101(1) TFEU by qualifying as ancillary restrictions (not excluding that they may benefit from the exemption under Article 101(3) TFEU).

The Court recalled that for a restriction to qualify as ancillary, first it has to be objectively necessary to implement the agreement and, second, it has to be proportional, meaning that there is no other realistic, less-restrictive option to the one under consideration.

The Court excluded that this restriction can be justified. Since providing the hotel intermediary service wouldn't be impossible in the absence of parity clauses, these clauses (wide or narrow) cannot be qualified as ancillary restraints because they wouldn't meet the requirement of objective necessity.

The MFN clauses saga continues. This approach is also in line with the prohibition on gatekeepers using such clauses, regardless of whether they're wide or narrow, in Article 5(3) DMA. It should be noted, however, that Booking.com is nevertheless subject to this prohibition, as it was designated as a gatekeeper in May 2024.