Private enforcement of competition rules Italy

21 November 2005

Charlotte de Panafieu

As noted by Neelie Kroes, the Competition Commissioner, private enforcement of the competition rules has direct benefits for the functioning of the market as it has a strong deterrent effect and it promotes a culture of competition. It also provides direct justice for those who have suffered losses due to breaches of the competition rules. The Commission is keen to develop private enforcement in Europe and is due to issue a Green Paper on this topic by the end of the year, considering such issues as the passing-on defence, calculation of damages, indirect purchasers and collective actions. This is clearly a very important issue for the future development of EC competition law.

In this report, we discuss the possibilities, advantages and obstacles to the private enforcement of competition rules, i.e. (civil) actions between private parties with respect to alleged infringements of the competition rules and/or claims for damages following such infringements, for the following European countries: UK, Sweden, The Netherlands, Belgium, France, Germany and Italy.

Instead of merely listing the pros and cons of private enforcement actions in various countries, we have chosen a more practical approach. We discuss the various aspects of civil actions in the countries mentioned above by discussing the possible strategies in three different types of competition law disputes:

1. cartel agreements – cartel agreements can be damaging to third parties, e.g. competitors that are excluded or foreclosed from a market or purchasers who are overcharged for the products/services of the cartel members;

Case 1: cartel agreement

Hospital X purchases vitamin supplies on a regular basis. When attending a conference organised by a European branch organisation for hospitals, the head of X’s purchasing department learns that the same vitamins are sold at much lower prices by the same suppliers outside the country where X is located. However, upon X’s request, the vitamin suppliers refuse to sell the vitamins to X for the lower price at which they sell the same vitamins in other European countries. X has the impression that this is caused by an agreement whereby the larger pharma­ceutical companies jointly set minimum prices for their products in certain territories.

2. horizontal or vertical agreements – these can cause damage to the other party. We have chosen a vertical agreement for our example, but the strategies and considerations are not much different in the event of parties seeking enforcement of the competition rules with respect to a horizontal agreement, to which they are party.

Case 2: vertical agreement

A and B are parties to a distribution agreement. A is the producer and has a market share of 40% of the market for sales of sports gear and equipment in the EEA. B has been appointed as A’s sole distributor of its sport shoes in the national territory concerned. B has a market share of 30% on the national retail market for sport shoes.

According to their distribution agreement, which has a duration of 10 years, (i) A imposes on B an exclusive purchase obligation; (ii) B is compelled to purchase a fixed minimum quantity of products from A; and (iii) B must sell the products at prices specified in a price list applicable to A’s distributors. B wishes to challenge the distribution agreement and subsequently ask for damages.

3. abuse of dominant position – a purchaser or competitor can be the victim of abusive behaviour by a dominant undertaking and suffer damage as a result of excessive pricing, exclusionary practices, refusal to deal or grant access etc.

Case 3: abuse of dominant position

X is an alternative provider of fixed telephone services which entered the national market for fixed telephone services a few years ago. Originally X, like other new entrants to this market, was able to win a substantial amount of customers for its services. Recently, however, X has seen a substantial number of its customers switch to the incumbent operator Y, which holds a dominant position on the national market for fixed telephone services. Based on rumours in the market and implicit indications from its lost customers, X suspects that Y lures back customers by offering loyalty rebates and package deals for fixed telephone services and leased lines, on which market Y is also dominant.

X files a complaint with the national competition authority, who concludes – after a thorough investigation of Y’s business practices – that Y has abused its dominant position against X and other new market entrants. X wants to obtain compensation for the damage, which it suffered as a result of Y’s abusive behaviour.

We hope this case-by-case overview will help you to decide whether or not to engage in private enforcement actions and which jurisdiction you may choose, if you have a choice between various jurisdictions in view of the cross-border effect of the infringement concerned.

Italy

The basic principles of Italian competition law are set out in Legge 287/1990 on “Protection of competition and market”. This law covers a great variety of cases, including those included in this Bulletin.

Legge 287/90 also provides for civil action procedures in relation to breaches of competition law. In particular, Article 33 provides that all “actions for nullity and damages compensation, and petitions for urgent interim injunctions pertaining to violations of provisions set forth in Titles I to IV are to be commenced before the Court of Appeal which is territorially competent”.

This general rule applies to all the cases discussed below.

Case 1: cartel agreement

Hospital X purchases vitamin supplies on a regular basis. When attending a conference organised by a European branch organisation for hospitals, the head of X’s purchasing department learns that the same vitamins are sold at much lower prices by the same suppliers outside the country where X is located. However, upon X’s request, the vitamin suppliers refuse to sell the vitamins to X for the lower price, at which they sell the same vitamins in other European countries. X has the impression that this is caused by an agreement whereby the larger pharmaceutical companies jointly set minimum prices for their products in certain territories.

Purpose of an action by X

Hospital X can bring an action before the competent civil courts for infringement of Article 81 EC and its Italian equivalent, Article 2 of the Law 287/90, by the pharma­ceutical companies for agreeing minimum prices for their products. During the court proceedings, X can demand the agreement to be held null and void and at the same time claim damages for losses suffered as a consequence of the infringement. An interim injunction is possible, but would be unusual, due to the complexity of such cases.

Legal basis for the action

Article 33.2 of the Law 287/90 is the legal basis for actions for nullity and damages. However, this Article applies only to breaches of national competition rules.Damages actions based on the application of Article 81 EC can be brought on the basis of the direct applicability of Articles 81 and 82 by the national courts and on Article 2043 of the Italian Civil Code, which is the article established in tort liability.

Standing and jurisdiction

The competent court depends on the value of the claim.

The “Giudice di Pace” has jurisdiction for claims with a value not exceeding € 2,582.28, whereas the “Tribunale” has jurisdiction for claims above that amount. Furthermore, the “Corte d’Appello” has jurisdiction for actions of nullity, actions aimed at interim relief and claims for damages arising out of breaches of national competition rules. Therefore, in the present case, X should bring its action before the Corte d’Appello to have the cartel declared void under national rules.

Under Article 100 of the Italian Code of Civil Procedure, any natural or legal person allegedly injured by an unlawful conduct of a third party is entitled to claim damages.

As X is directly affected by the alleged cartel, it (or the legal entity running the hospital) is allowed to initiate proceedings.

Collective action

Italian law does not include any specific provision allowing for collective actions, though a bill of law introducing a form of class action in Italian law is currently under the Senate’s examination.

On the other hand, Article 103 of the Italian Code of Civil Procedure provides for the possibility for a group of persons to sue or to be sued in the same proceedings, provided that the different claims are connected by their title or object or that the decision depends on the solution of identical issues.

In spite of the possibilities to start proceedings on its own, X may thus decide to join forces with other injured parties and initiate joint actions either by instructing the same lawyer or by assigning the individual claims to a particular legal entity. The result would be a bundle of claims brought to court by one authorised legal person.

Burden of proof

As a general rule, each party bears the burden of proof for all the facts upon which its claim is based. Therefore X has to prove all the facts that it relies upon in its claim.

Causation and calculation of damages

X has to prove that the losses suffered are the “direct and immediate consequence” (Article 1223 of the Italian Civil Code) of the alleged cartel.X therefore needs to prove the existence of losses and the causal link between such losses and the cartel in question.

Evidence

X must substantiate with sufficient evidence that an infringement of EC or national competition law has occurred.

Two main rules govern the types of evidence that may be brought by the plaintiff. First, under the so-called rule of “tipicità delle prove” (types of acceptable evidence), the parties may only rely on the evidence explicitly contemplated by law.Such evidence includes witnesses, documentary proof (which is the core evidence in most antitrust litigation cases) and confessions and declarations under oath. On the other hand, they cannot bring any other evidentiary proof.

Recognition of National Competition Authority/Commission decisions

Civil courts are not bound by the findings and decisions of other authorities, whether national or international.In particular, civil courts are not bound by the decisions of the National Competition Authority (the AGCM) and their assessment of the merits of the case is independent from the one made by the AGCM.In practice, however, the AGCM’s findings prove extremely valuable for the civil courts, particularly regarding the economic assessment. The same principle would apply to decisions rendered by other national competition authorities.

On the other hand, national courts are bound by the European Commission’s decisions, particularly on the compatibility of an agreement or practice with Articles 81(1) and 82. However, in the present case, there would not be any specific Commission precedent on which X could rely to assert the anti-competitive nature of the suspected cartel.

Calculation of damages

Under Italian law, damages can include both the actual damage and the profit lost, provided they are the direct consequence of the alleged cartel. Assessing the amount of damages in actions for breach of the competition rules is however usually very delicate, as the plaintiff must bring evidence as to its actual loss. However, under Article 1226 Civil Code, the judge can determine the precise amount of damages by means of an equitable assessment, when it cannot be proved by the plaintiff. Damages thus only have a compensatory nature, and any “punitive” damages are excluded. The general rule is therefore that the basis for the calculation of damages is the loss suffered by the plaintiff and not the profit made by the defendant.In other words, the amount of damages awarded should (as far as possible) put X in the same (financial) position it would have been in had the infringement not occurred.

X will presumably find it difficult to determine actual losses, as it is not easy to establish what the market prices for vitamins would have been had the cartel not existed. However, damages may be estimated as long as it can be established that some sort of actual damage has occurred. In the present case, it may actually be less difficult for X to claim loss of profits, i.e. the profits it would have made had its business carried on in the same way.

Passing-on defence

Under Article 1227 of the Italian Civil Code (which applies to contractual liability but which also applies to tort liability), the compensation of losses should take into account the claimant’s contribution to causing the losses. Furthermore, the Turin Court of Appeal has already applied the “passing-on” theory to deny the existence of any losses for the claimant, in a case where only the end-consumers (and not the claimant) had suffered from the anti-competitive behaviour at stake.

In the present case, the defendant can therefore arguably rely on the passing-on defence, by stating for instance that (i) X has adjusted its (retail) prices on the basis of the prices charged by the pharmaceutical companies and has passed on these prices to customers and that, consequently, (ii) there was no or little damage suffered by X.

Timing

Proceedings have to be initiated within five years from the date when the injured party should have known of the existence of the damage (i.e. the objective manifestation of the damage).

The average duration of first proceedings before the “Corte d’Appello” is about two to three years.

Costs

All court fees must be paid up front by the claimant. The party losing the case will normally have bear the full costs of the proceedings, including the opponent's attorney’s fees. However, costs may be apportioned between the parties when the case is complex or when some justified reasons exist in this respect.

Advice to X

Considering the duration and costs of private enforcement and the lack of actual evidence as to the existence of the alleged cartel, X may prefer to enter into a settlement as an alternative to litigation. However, initiating proceedings is often necessary to force the defendants to negotiate. Provided that X can produce some evidence of the alleged infringement, we would advise X to initiate proceedings against the members of the cartel and request:

1. A declaration that the members of the cartels have infringed Article 2 of the Law 287/90 (and Article 81 EC); and

2. Compensation for the losses caused by the infringement.

If X cannot satisfy the burden of proof with respect to the infringement, other options may be considered. For instance, if one of more of the defendants is established in a common law country, it may be worthwhile to start pre-trial discovery proceedings to gather the necessary evidence before initiating proceedings for damages in Italy. But before starting those proceedings, it is worth considering whether the evidence gathered can really be used as evidence in front of Italian courts. Another option would be to file a complaint with the AGCM. If the AGCM starts its own proceedings, the decision can be used in a claim for damages.

Case 2: vertical agreement

A and B are parties to a distribution agreement. A is the producer and has a market share of 40% of the market for sales of sports gear and equipment in the EEA. B has been appointed as A’s sole distributor of its sport shoes in the national territory concerned. B has a market share of 30% on the national retail market for sport shoes.

According to their distribution agreement, which has a duration of 10 years, (i) A imposes on B an exclusive purchase obligation; (ii) B is compelled to purchase a fixed minimum quantity of products from A ;and (iii) B must sell the products at prices specified in a price list applicable to A’s distributors. B wishes to challenge the distribution agreement and subsequently ask for damages.

Purpose of an action by B

B could have two different reasons to take action: either (i) B has not suffered any losses but wants to get out of the agreement, in order to be free to enter into an agreement with another supplier, or (ii) B has suffered losses as a result of the restrictive conditions of the agreement and wants to recover these losses from A.

Legal basis for the action

B could file a complaint with the AGCM (the Italian competition authority) to denounce the agreement. However, as B is also part of the agreement and in view of the timing of such actions, B can also enforce the competition rules through civil proceedings, due to the restrictive contractual clauses in breach of the provisions of Article 2 of the Law 287/90.

Indeed, in the present case, the distribution agreement does not fall under the vertical agreements block exemption because A’s market share is above the 30% threshold and the agreement contains a restriction on B’s ability to determine its sale price (which is a hard-core restriction). Furthermore, an exclusive purchase obligation has been agreed upon, the duration of which exceeds five years. The exemption would also not apply to this obligation. Given the exclusive purchase obligation, the minimum purchase requirements, fixed sale prices and the length of the distribution agreement, the agreement will most likely restrict competition.

B can bring an action before the civil courts:

1. B can invoke nullity of the provisions in the agreement that are in breach of Article 81 EC/ Article 2 of the Law 287/90, so that B is no longer bound by the agreement; and

2. B can claim damages on the basis of A's wrongful (unlawful) act because A has breached a duty imposed by law by breaching Article 81 EC/Article 287/90.

Standing and jurisdiction

B can bring an action before the “Corte d’Appello”. B will be assumed to have sufficient interest to bring the claim, even though B is a party to the contested agreement, so standing can be granted. The judge can declare the provisions in breach of the competition rules and therefore consider them null and void.

Evidence and burden of proof

According to Article 2697 of the Italian Civil Code, the claimant, B, has to prove its case. Furthermore, B has to bring evidence that comes within the list of acceptable evidence.In the present case, the main evidence would be the agreement itself, which is documentary proof and which is therefore amongst the acceptable types of evidence.

On the basis of that agreement, B must therefore prove that: (a) A has infringed Articles 81 EC and Article 2 of the Law 287/90; and (b) as a result of that infringement, B has suffered losses. B must therefore prove the breach, the causality link and the existence of losses. These elements may be difficult to prove. To determine whether damage is attributable to the infringement, the judge has to weigh all the relevant aspects of the case.

Timing

The five year time limit for initiating proceedings may be extended to ten years (i) for actions aimed at obtaining the restitution of payments made in performing a contract, which is subsequently declared null and void in breach of the national competition rules and (ii) for actions based on contractual liability. In this case, the timing for initiating the proceedings is therefore ten years.

With respect to the calculation of damages, the passing on defence, the length of the proceedings and the costs, the same principles as set out under Case 1 apply to this Case 2.

Advice to B

Given the fact that in this case a party to a distribution agreement wants to contest the terms of the agreement, this case could be appropriate for private enforcement. However, considering that private damages actions for breach of competition law remain rather exceptional in Italy, we would not necessarily advise B to start an action in this respect.Indeed, if B only wants the agreement annulled, it could either (i) consider the agreement void and wait for A to take legal action or (ii) initiate summary proceedings to obtain a declaration that the agreement is null and void. If B wants to recover damages, we would advise B to initiate proceedings against A and request:

1. A declaration that A has infringed Article 2 of the Law 287/906 and Article 81 EC; and

2. Compensation for the damages caused by the infringement.

Case 3: abuse of dominant position

X is an alternative provider of fixed telephone services which entered the national market for fixed telephone services a few years ago. Originally X, like other new entrants to this market, was able to win a substantial amount of customers for its services. Recently, however, X has seen a substantial number of its customers switch to the incumbent operator Y, which holds a dominant position on the national market for fixed telephone services. Based on rumours in the market and implicit indications from its lost customers, X suspects that Y lures back customers by offering loyalty rebates and package deals for fixed telephone services and leased lines, on which market Y is also dominant.

X files a complaint with the national competition authority, who concludes – after a thorough investigation of Y’s business practices – that Y has abused its dominant position against X and other new market entrants. X wants to obtain compensation for the damage, which it suffered as a result of Y’s abusive behaviour.

Purpose of an action by X

Since it is likely that the abusive behaviour will have been terminated following the Competition Authority’s investigation, X is likely to want to claim compensation for the losses suffered as a result of Y’s abusive behaviour.

Legal basis for the action

Where a decision of the national competition authority has been made declaring the existence of an abuse of dominant position, an action for damages can be commenced in Italy before the Court of Appeal according to Article 33 of Legge.287/90.

Standing and jurisdiction

Being a direct victim of the abuse, it may be assumed that X has sufficient interest to bring an action before the court, i.e. locus standi. This claim is an ordinary damages claim from a procedural point of view, the only difference being that according to the law, the competent judge is the Court of Appeal.

Collective action

If there are several alternative providers of fixed telephone services which are affected by Y’s abusive behaviour, X may decide to join forces with them (see above Case 1).



Recognition of National Competition Authority decision

The value placed of statements or decisions by the Italian competition authority (AGCM) as evidence is at the court’s discretion. A decision by the AGCM does not in itself constitute irrefutable proof, although it will rarely be ignored by Italian courts.

Burden of proof

According to Article 2697 of the Italian Civil Code, the claimant, X, has to prove its case. Furthermore, X has to produce evidence that comes within the list of acceptable types of evidence.In this case, there is a good chance that the court would accept the AGCM’s decision as proof of infringement. That means that X will still have to prove:

1. Attributability: the damage caused must be attributable to Y;

2. Damage: X must establish the existence of its damage; and

3. Causation: a causal link between the unlawful act and the losses incurred.

Evidence

Since X is unlikely to have much trouble proving infringement of Article 82 EC and/or its Italian equivalent, Article 3 of Law 287/90, X can focus on proving the losses suffered.

Causation

X has to prove that the losses suffered would not have occurred without the infringement of Article 82 EC. Furthermore, X has to prove that Y is responsible for the losses suffered by X. Both these elements may be very difficult to prove. To determine whether the losses are attributable to Y, the judge has to weigh all the relevant aspects of the case.

Calculation of damages

The damages include the actual damage and the loss of profit.In the present case, the actual damage would be the actual loss of consumers directly to Y, while the loss of profit would probably require an evaluation of the loss of traffic that would have been billed to these customers, should there have been no abuse.

There is no maximum limit to the damages that can be awarded (with the limit that damages may not be awarded in excess of the claimant’s actual injury). However, the judge is free to limit the amount of damages.

With respect to the calculation of damages, the passing on defence, timing and costs, the same information as set out above in relation to Case 1 also applies to this Case 3.

Advice to X

Although proving the infringement will probably not present an obstacle in this case, X may still encounter some difficulties in obtaining compensation for the losses caused by the infringement. However, these mainly relate to producing evidence of the losses suffered by X and it will often be clear beforehand whether X can establish the necessary evidence. Also, initiating proceedings may prompt Y to negotiate a settlement and pay damages without going through a lengthy court procedure.

Summary

To summarise our experiences with private enforcement in the various European countries, we have drawn up the two matrices below, in which the obstacles and advantages to private enforcement have been indicated.

Matrix I: Obstacles to private enforcement

The matrix below indicates which factors may present obstacles (on a scale of 1 to 5) to private enforcement in the main EU Member States.

1=no problem, 2=minor problem, 3=neutral, 4=possible problem, 5=major problem

UKSwedenNetherlandsBelgiumFranceGermanyItaly
standing

1

1

1

1

1

1

1

obtaining evidence

1

4

5

5

5

5

3

collective action

4

4

4

4

4

5

4

limitations on forms of evidence

1

1

1

2

1

1

3

witness hearing

1

1

3

4

4

3

3

expert evidence

1

1

2

1

2

1

3

recognition of NCA / Commission decisions

1

2

1

1

1

1

3

burden of proof

4

4

4

4

4

4

3

causation

3

3

4

4

4

4

3

calculation of damages

2

4

4

4

4

4

4

passing-on

3

3

3

4

3

1

4

indirect injury

3

5

4

5

5

4

4

timing

5

5

3

5

4

3

4

costs

5

3

3

5

2

3

3



Matrix II: Advantages for private enforcement
The second matrix indicates which factors may facilitate private enforcement in the various EU Member States and thus may constitute a reason to choose a certain Member State for launching a private enforcement action.

UKSwedenNetherlandsBelgiumFranceGermanyItaly

standing

X

X

X

X

X

X

X

obtaining evidence

X

X

collective action

limitations on forms of evidence

X

X

X

X

X

witness hearing

X

X

expert evidence

X

X

X

X

X

X

recognition of NCA / Commission decisions

X

X

X

X

X

X

burden of proof

causation

calculation of damages

X

passing-on

X

indirect injury

timing

X

costs

X

X

X

X

X