Antitrust Bites - Newsletter

ICA opens investigation against Ryanair for alleged abuse of dominant position

With its decision of 14 September 2023, the Italian Competition Authority (ICA) opened an investigation procedure against Ryanair DAC, an Irish company belonging to the Ryanair Group, which is active in the passenger air transport sector in Italy. The investigation concerns a potential abuse of dominant position by Ryanair DAC in the air transport markets, allegedly aimed at excluding travel agencies from the markets for booking and selling tourism services.

The ICA has identified two relevant markets: (i) scheduled air passenger transport services; and (ii) booking and sale of tourism services.

With regard to the first market, while recalling the well-established case law that identifies a distinct market for each connection between city/airport pairs, after assessing the substitutability between direct and stopover flights and having excluded it for domestic flights, having also considered the competitive constraint of intermodal competition, the ICA concludes that, in light of the large number of routes affected by the conducts at stake and given the homogeneous features of Ryanair’s offer of air transport services, a broader definition of the relevant market including all domestic and European connections to and from Italy cannot be excluded. According to the ICA, Ryanair would hold a dominant position on such markets, given its position on individual routes and other factors, such as the circumstance of being the leading domestic operator in terms of routes served and number of passengers, fleet characteristics, range and flexibility of the offer, and its established reputation as a low-cost operator.

The market for the booking and sale of tourism services covers a range of services (flight, hotel, car rental, etc.), which can be purchased individually or as part of a so-called tourism package by operators such as traditional and online travel agencies (OTAs) and others, including air carriers. Considering the homogeneous business conditions and the language factor, to a first approximation the ICA identifies a market with a national dimension.

Under the Authority’s investigative hypothesis, by using its dominant position in the air transport markets, Ryanair would have implemented an articulated strategy to extend its market power to the market for supplying other tourist services. This would make it more difficult for travel agencies to sell airline tickets, typically the first purchase when planning a vacation and the access point with the greatest cross-selling potential for other services. This strategy would have consisted of implementing systematic discrimination between passengers who purchase through the Ryanair website/app and those who buy through traditional agencies or OTAs. Ryanair’s goal would be to push sales of airline tickets and other tourism services to its own channels, marginalizing intermediaries.

In particular, Ryanair had formally imposed a ban on the use of its website for commercial purposes, requiring physical agencies to buy tickets through a computer system (GDS) with worse conditions (in terms of offer, pricing, and after-sales services, precluded through this channel) than those applied on its own website. Furthermore, for agency purchases only, monitoring systems and technical blocks would have been applied by the company such that any post-sale transaction (including online check-in) would be precluded if customer did not complete a verification process. Ryanair would have spread disparaging statements about agencies, qualifying their activities as illegal.

EU Regulation on Foreign subsidies begins to apply

Since 12 July 2023, the new EU Regulation 2022/2560 on foreign subsidies distorting the internal market (Foreign Subsidies Regulation or FSR) is applicable. Previously, on 10 July 2023, the Implementing Regulation 2023/1441, setting out the implementing rules, has also been published.

The main purpose of the FSR is to enable the European Commission to examine foreign subsidies granted by non-EU countries in favor of economic activities inside the EU and to remedy potential distortions caused by such financial contributions.

The Foreign Subsidies Regulation provides for the obligation to notify concentrations where (i) at least one of the merging undertakings, the acquired undertaking or the joint venture is established in the Union and generates an aggregate turnover in the Union of at least EUR500 million; and (ii) the acquirer and the acquired undertakings, the merging undertakings or the undertakings creating a joint venture or the joint venture itself, have been granted combined aggregate financial contributions of more than EUR50 million from third countries in the three years preceding the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest.

As concerns procurement procedures, under FSR, there is the obligation to notify foreign financial contributions where (i) the estimated value of that public procurement or framework agreement net of VAT is equal to or greater than EUR250 million; and (ii) the economic operator (and other subjects involved in the same tender, such as the main subcontractors and suppliers) was granted aggregate financial contributions equal to or greater than EUR4 million per third country. Additional requirements are provided if procurement is divided into lots.

The notification obligations described above will apply from 12 October 2023. Transactions for which the relevant contract was concluded after 12 July 2023, but which are not yet implemented as of 12 October 2023, are also subject to the notification requirement.

Since 12 July 2023, the European Commission can exercise an ex officio actionable investigative power in case it finds potential distortions of competition in the internal market caused by the granting of foreign subsidies.

As concerns concentrations, the European Commission can initiate an in-depth investigation, to be concluded within the maximum period of 90 days with a decision: (i) clearing the notified transaction by adopting a “no objection decision”; (ii) approving the notified transaction with commitments; or (iii) prohibiting the notified transaction where the Commission finds that a foreign subsidy distorts the internal market.

Under the FSR, the European Commission will have the power to impose periodic penalty payments (up to 5% of average daily aggregate turnover) and fines on undertakings in a measure that can vary based on the type of violation. For example, in case of failure to notify a transaction that falls within the scope of FSR or in case of implementation of a prohibited concentration, the Commission can apply fines up to 10% of the concerned undertakings’ aggregate turnover in the preceding financial year.

Application of Article 14 Law 689/1981 to ICA proceedings: The floor to the EU Court of Justice

With decision No. 13016 of 2 August 2023, the Lazio Regional Administrative Court (TAR Lazio) referred to the EU Court of Justice the question of the applicability of the 90-day limitation period provided by Article 14 of Law 689/1981 to proceedings of the Competition and Market Authority (ICA) on unfair commercial practices.

The orientation of the Council of State on the subject was by now “granitic” – as noted by the TAR Lazio itself. The Council of State considered that Article 14 L. 689/1981 should apply in proceedings conducted by the ICA concerning unfair commercial practices (as well as those concerning antitrust matters). So, the Authority must, under penalty of forfeiture, open the investigation within 90 days from the knowledge of the essential elements of the violation (which can occur as early as the first report received). Based on this guideline, there are dozens of ICA decisions that administrative judges have annulled due to the late opening of proceedings by the Authority.

The “Office of Studies and Training of Administrative Justice” (Ufficio Studi e formazione della Giustizia amministrativa), with its opinion published in July 2023, had reiterated the solid orientation in favor of the applicability of the 90-day peremptory time limit for opening the preliminary investigation.

The ICA had previously urged the administrative courts to make a preliminary reference under Article 267 TFEU aimed at verifying the compatibility of the orientation with EU law.

The TAR Lazio recognized the need and took action. They asked the EU Court of Justice to clarify whether the application of a 90-day limitation period for the opening of proceedings on unfair commercial practices, running from the time when the Authority has knowledge of the essential elements of the violation, “which could be complete since the first report of the offence”, is compatible with Article 11 of Directive 2005/29/EC. Article 11 requires Member States to ensure the existence of “adequate and effective means to combat unfair commercial practices”, read in light of “the principles of consumer protection and effectiveness of administrative action.”

Data portability: ICA accepts Google’s commitments

In a decision published on 31 July 2023, the ICA closed with acceptance of commitments the proceeding opened against Google in July 2022, concerning a possible abuse of a dominant position that the company would have realized by hindering the exercise of the right to personal data portability.

The proceeding originates from a report that said Google would have hindered the portability of its users’ data by not providing for interoperability mechanisms with the reporter’s system and, instead, by making it necessary for the user to intervene to carry out the data transfer. The only procedure provided by Google to transfer data outside its system would have been extremely articulated and complex, to the point of discouraging - in the reporting company’s opinion - users to exercise the right to data portability, realizing a restriction of competition.

In response to the competitive concerns that had led ICA to open the proceedings, Google submitted a proposal for commitments based on three measures:

1. A commitment to make a link available to third party operators that they can embed in their applications or websites to facilitate the selection and export by end users of their data from Google’s system, so it can be shared with third party operators.
2. A commitment to make documentation and detailed information available to third-party operators regarding data fields related to searches and browsing history on certain browsers.
3. A commitment to make available a program (early adopter program) that allows third-party operators to begin testing a new solution - currently under development - that allows direct service-to-service data portability for third-party operators, authorized by an end-user, who request the transfer of data provided by the user or generated through activity on Google’s online search engine.

The ICA found the commitments to be suitable for removing the anticompetitive aspects and enabling users to exercise their right to data portability, and on that basis, it closed the proceeding by making the commitments binding and without a finding of infringement and penalty.

UK Antitrust Authority’s report on AI Foundation Models

The UK Antitrust Authority, the Competition and Markets Authority (CMA), has published a report on the impact of “foundation models” on competition and consumers. The report includes the results of the CMA’s initial review which was launched in May.

Foundation models are AI-based systems that include “Large Language Models”, and generative AI systems, trained on vast datasets and adaptable for a wide range of tasks and operations, such as chatbots or generating images for artistic or commercial purposes.

The CMA has taken into consideration three main profiles: (i) the development and use of foundation models; (ii) the impact of foundation models on competition in other markets; (iii) the impact of foundation models on consumers.

The CMA points out that the more limited the access to the key inputs for developing foundation models (for example, computing power, access to data and funding), the greater the risk that small developers of foundation models will not be able to compete effectively with bigger companies. This could be detrimental to competition and innovation in the sector and ultimately cause harm to consumers.

The Authority also highlights how foundation models have the potential to transform a wide range of services and influence innovation and competition in other markets, although it remains unclear which markets are most likely to be affected by foundation models.

In the view of the CMA, it’s necessary to ensure that consumers are protected from the damages deriving from the use of tools based on foundation models and that consumers and businesses are fully informed about the risks associated with using them.

The CMA proposes some guiding principles with the aim of ensuring the effectiveness of competition and consumer protection in the context of foundation models’ evolution. In particular, according to the CMA, it should be ensured:

1. the responsibility of the developers and deployers of foundation models for the products and services provided (Accountability);
2. the possibility for developers, in particular new entrants to the market, to have access to key inputs for the realisation of foundation models (Access);
3. the diversity in the development of foundation models also in an open-source perspective (Diversity);
4. a wide range of deployment options of foundation models, depending on their intended use (Choice);
5. the flexibility to switch from one foundation model to another or to use multiple foundation models according to needs (Flexibility);
6. the absence of anticompetitive conduct in the development and provision of foundation models (eg, avoiding tying or bundling practices) (Fair Dealing);
7. the provision of information to businesses and consumers concerning the risks and limitations of content created through foundation models (Transparency).