The European, Middle Eastern and African Antitrust Review 2018

Italy: Competition Authority

14 August 2017

Chairman

The age of complexity

During the past few years, the Italian Competition Authority (ICA) - as indeed is the case for most of the world's competition agencies - has been confronted with an increasingly complex situation, characterised by profound instability. We are experiencing growing disaffection for competition principles among citizens and the powerful lure of the siren song of protectionism. Though this is occurring all over the world, it is particularly serious in Italy, where the process for market opening has not yet been completed - as shown by the OECD's Goods Market Efficiency Index, which still places Italy behind most major European countries.

Some data will help to better understand the anxiety lying behind this wave of criticism. In 2016, approximately 14% of Italian families had no income and almost a quarter of people aged 15-29 neither worked nor studied. Ten years on, the 2007 crisis is still weighing on the Italian economy. According to IMF's World Economic Outlook, Italy's output increased by 0.9% in 2016, against +3.1% of world output and +1.7% of advanced economies. Prospects are no more encouraging at an international level: global trade seems to have lost its driving force and has been declining over the past five years, while Europe is facing hurdles in its path towards economic integration.

Obviously not all changes are for the worse. Greater sensitivity for efficient use of public resources and a stronger demand for legality, as well as corporate social responsibility and broader environmental awareness, are uncovering new opportunities. Globalisation and innovation have facilitated productivity gains and economic growth, but it is true that they have not benefited everyone in the same way, leading to increased inequality.

In such a complex scenario, it is clear that competition issues cannot be addressed from a single perspective, but rather require a complex strategy, encompassing a series of consistent actions. If I had to depict the ICA's recent lines of action, I would use the image of a cross vault - like those that you find occurring in many Italian churches. Although it rests on four pillars and clearly consists of four distinct rib vaults, the cross vault is a single architectural unity in which all four components are equally necessary.

Competition enforcement and competition advocacy are the two foremost pillars of the ICA's antitrust strategy, because they constitute the Authority's most prominent area of engagement. Besides tackling infringements and promoting a competition-friendly environment, they are fundamental in consolidating the ICA's reputation, conveying incentives to businesses for compliance and disseminating competition culture. But competition enforcement and advocacy cannot support the vaulted ceiling alone. They need to be complemented by two less visible but equally important pillars, which affect the capacity of the Authority to cope with increasing complexity in the longer term: knowledge and competition compliance.

Competition enforcement: focus on cartels while exploring new paths

Enforcement ought to be the first concern for any competition agency. Numbers show that this is the case for the ICA. In 2016, antitrust sanctions peaked at €306 million; from January 2016 to April 2017, the ICA conducted 13 cases of agreement, nine cases of abuse and 73 merger reviews. Cartel decisions in 2017 involved important Italian sectors, such as pharmaceuticals (the Oxygen Therapy and Ventilotherapy cases), food distribution (the Vending Machine case, in a market worth over €2.5 billion) and fashion. With regard to bid rigging, the numerous ongoing investigations are the result of the ICA's close cooperation with the Anti-Corruption Agency, procurement agencies and the judiciary. In February 2017, the Council of State upheld a recent bid rigging decision concerning a centralised procurement procedure worth €1.6 billion.

From a qualitative standpoint, it should be highlighted that, while confirming its focus on cartels and bid rigging, the Authority did not hesitate to address more controversial types of infringement, such as excessive pricing.

Through an aggressive negotiation strategy, which included the credible threat of interrupting the supply of drugs to the Italian market, Aspen had forced the Italian Medicines Agency to accept price increases ranging from 300% to 1,500% for a life-saving cancer drug package, without economic justifications. Being aware that excessive pricing is a contentious topic in antitrust enforcement, the ICA fined the company following a robust analysis that carefully took into account the specific circumstances of the case.

Furthermore, over the past three years the ICA has performed a record number of in-depth merger reviews, in the context of a consolidation process resulting from technological changes that are affecting several sectors - from banking and insurance to publishing and the media. In 2016 the ICA imposed structural remedies on two major mergers in the radio and publishing sectors. We have repeatedly advocated for a revision of the current notification thresholds (which could be improved, although they allow us to capture the most significant transactions) and for a full alignment of the substantive test to the European SIEC standard.

Notably, as an authority with a dual competence in competition and consumer protection, we have the opportunity to analyse market issues from a twofold perspective. We noticed that our intervention was particularly powerful when these two competences were used cooperatively. A clear example was in the automotive sector. In 2016, the ICA sanctioned three major car manufacturers for unfair practices. The firms had advertised the sale of their cars at a certain price, which in reality was subject to signing a loan contract. The implications on competition are evident: the advertised price loses its signalling value, because companies might decide to advertise very low prices but then impose high interest rates on the loan contract, which offset the apparently convenient nominal price. Meanwhile, from an antitrust angle, the ICA opened an investigation on an alleged collusion between ‘captive banks' (ie, the banks owned by car manufacturers) aimed at coordinating the interest rates applied to loan contracts for the purchase of cars.

Competition advocacy: fostering innovation with a human touch

As stated, competition advocacy is another major pillar of the antitrust strategy undertaken by the ICA. We are extensively using the full range of advocacy powers provided by the law. On top of 79 recommendations on competitive restrictions arising from existing or draft legislation, the ICA sent 12 opinions to public administration bodies pursuant to article 21bis of the Competition Act, that is, with the possibility for the ICA to challenge the act before the Administrative Tribunal if they were not to comply with the opinion.

A successful example in the application of article 21bis concerns regulatory measures adopted by Lazio Region for non-hotel accommodation services, which could have hindered the entry and growth of innovative operators, such as the Airbnb platform. Following a judgment in favour of the ICA made by the administrative court in June 2016, the Lazio Region not only implemented the pro-competitive amendments required by the ICA, but also engaged in a fruitful dialogue with our institution to further improve the design of the regulation.

The ICA actively participates in the current debate on reforms, by means of written opinions and hearings before Parliament. In 2016 the government approved several legislative decrees implementing the law on the reform of the Italian public administration (Madia Law). A number of provisions concerning state-owned enterprises, local public services and the simplification of administrative acts reflect ICA's recommendations. The implementing acts have not been fully adopted yet, in light of an intervention by the Constitutional Court. Furthermore, the new Italian Public Procurement Code of April 2016 - which transposed EU Directives 2014/23/UE, 2014/24/UE and 2014/25/UE - includes numerous provisions that have been consistently advised by the ICA, for example, with regard to award criteria focused on the lowest bid and the partition of contracts in lots to foster participation by SMEs.

The task of the ICA is particularly delicate in markets directly affected by the disruptive impact of digitalisation and the sharing economy. Online platforms often facilitate the match between demand and an increased supply, resulting in the development of competitive dynamics and undeniable benefits to consumers. Nevertheless, disruptive change alters the nature of work and the functioning of labour markets. Therefore, the ICA is conscious of its duty to help to identify suitable solutions that also take into account the serious social issues that market transition might raise.

The Uber saga has been going strong in Italy, where some taxi driver associations obtained an interim injunction from the Courts of Milan and Rome that prohibited Uber from providing Uber Pop services (car rides with private car owners) and, for a certain period, also Uber Black services (limousine services) in Italy on the grounds of unfair competition. The ICA has repeatedly intervened in the debate, by means of opinions to the government, Parliament and the Council of State, and lately through an amicus curiae opinion in support of Uber before the Court of Rome. The Authority suggested a ‘minimal regulation' that would reap the benefits of these new forms of transportation while ensuring competition and safety. At the same time, the ICA observed that a pro-competitive reform should not cause excessive harm to taxi drivers, many of whom are subject to heavy financial burdens due to initial investments. To this end, the Authority advocated mitigation of taxi drivers' operational restraints and financial compensation.

In the field of competition advocacy, it is worth mentioning that since 2014 the ICA has engaged in regular monitoring of the outcome of its initiatives. This allows us to learn from experience and improve the quality of our action. In general terms, we saw that our opinions are usually considered by recipients; however, the success rate is much higher when we manage to intervene before the adoption of the relevant acts, meaning that swiftness is crucial.

Knowledge: in-depth analysis for informed action

Knowledge and competition compliance are the two less visible, ‘forward-looking' pillars of our antitrust infrastructure, crucial to preserve and consolidate the skills and the prestige of our institution in the future.

Knowledge is key in enabling the ICA to adopt informed decisions. This is why we decided to devote significant resources to market studies. In 2016 the Authority concluded five market studies on solid waste management, local public transport, milk supply, vaccines for human use and the audiovisual sector. In particular, the market studies on waste management and public transport were intended to contribute, on an informed basis, to the ongoing reforms carried out by the Italian government. Indeed, following the market studies the ICA formulated a set of proposals to increase the degree of competition in urban waste management, while encouraging recycling and the spread of waste-to-energy plants, and suggested an overhaul reform of the institutional framework and regulation of local public transport.

Furthermore, a comprehensive market study on big data has just been launched, in cooperation with the Italian Data Protection Authority and the Italian Telecoms Regulator. Still with a view to improving our understanding of innovative markets, the ICA is in the process of hiring a number of technical experts, including an algorithm specialist.

External analysis is complemented by internal training and knowledge management. Every year the Authority elaborates a staff training programme, after identifying training and professional development needs. Training sessions include lectures, seminars, case studies and peer-to-peer discussions. They are frequently carried out by leading international experts from academia. In addition, staff participate in training events organised by prestigious institutions specialised in competition law and policy.

An internal knowledge management system ensures the sharing of information among staff. It includes an electronic database with the full set of ICA's decisions and the relevant judicial review, all non-confidential documents in each closed file, all market inquiries and the agenda of all board meetings over the years.

Competition compliance: the fruit of hard work, dialogue and transparency

There is wide consensus that the ultimate purpose of antitrust policy is not to levy fines but to have no need for fines at all. Indeed, competition authorities are increasingly aware of the importance of encouraging businesses to develop a real commitment to competition principles. To this end, in its Guidelines on fines issued in 2014, the ICA introduced the possibility for a reduction up to 15% of the fine in case of adoption and observance of a compliance programme. The initial results seem encouraging, in light of the relevant number of compliance programmes adopted over the past two years, whose actual implementation is being monitored. Moreover, in April 2016 the main association of Italian businesses Confindustria published its Competition Compliance Guidelines, which were disseminated among its 150,000 member companies.

A real culture of compliance needs to be supported by a fruitful dialogue between the competition enforcer and the business community, as well as by the guarantee of the rights of defence. An impartial, transparent and predictable decision-making process allows the parties to participate in the proceedings and reinforces the credibility of the institution.

The ICA undertakes regular contact with firms, which play an important role as stakeholders and partners in our enforcement and advocacy initiatives. Businesses are also an important source of information, helping the ICA to better understand the functioning of specific sectors. While conducting a merger review, the ICA endeavours to ensure full transparency and active participation by third parties, despite the narrow time frame imposed by the law.

As regards due process, the Authority is committed to keeping the adjudicative function of the board independent from the investigative function of the staff. This was particularly evident in two recent decisions: in one case, the Authority maintained that the alleged infringement was not confirmed by the investigation; in the other, it did not impose sanctions in light of the explanations provided by the parties with regard to the theory of harm indicated in the opening decision. In two other instances, the Authority decided to suspend the final hearing and extend the deadline of the proceedings following requests by the parties to have access to additional documents.

Making markets work for people

Looking back over 2016, I think that the ICA can be pleased with its achievements, but we know that we cannot rest on our laurels. Many are the challenges ahead, especially when we consider the pace and unpredictability of market developments in many sectors. In an age of complexity, we need to constantly reinforce the four pillars of our vaulted ceiling.

With regard to competition enforcement, the main challenge is to select the right cases, discerning between sectors that should be left to market dynamics and sectors that require swift intervention. Sometimes market changes are so rapid that it is not easy to understand market conducts, foresee their effects, clarify the theory of harm and take the right decision. Similar issues tend to arise in merger review, given that in fast-moving sectors even the boundaries of the markets may be unclear.

The ICA intends to persist in its advocacy efforts, attempting to be swift, accurate and credible. In protecting innovation from restrictive regulations in favour of the incumbents, we endeavour to proactively suggest well-balanced competition-friendly solutions to manage the transition.

We are confident that the resources invested in knowledge development and management are well-spent. They provide us with a better understanding of market evolution and novel business models, often based on multi-sided markets.

An open and transparent dialogue with the business community, complemented by constant attention to due process in our proceedings, is proving beneficial to encourage competition compliance.

All of this is being done in close cooperation with other competition agencies, to ensure consistent approaches and coordinated outcomes at a global level. Moreover, international cooperation and assistance reinforce the competition authorities and convey the message that mutual understanding and help are the right answer to globalisation, rather than isolation and protectionism.

In conclusion, the ICA is committed to using its technical skills in contributing to growth and innovation, while taking into account social equity and the need for a recovery of trust in the market as an institution. The ICA's challenge in the near future is, to borrow a salient expression from Professor Eleanor Fox, ‘making markets work for people'; while pursuing, to quote Nobel Prize winner Jean Tirole, an ‘economie du bien commun'.

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