On April 3, 2020, the Italian Supreme Court confirmed a judgment of the Milan Court of Appeal, which had upheld the damages claim of Brennercom S.p.A. (“Brennercom”) against Telecom Italia S.p.A. (“Tim”).
In 2005, the ICA opened proceedings against Tim, Wind Telecomunicazioni S.p.A. (“Wind”) and Vodafone Omnitel N.V. (“Vodafone”) for alleged abuses of dominance in the market for the supply of wholesale termination services in their respective networks. In May 2007, the ICA closed the proceedings with a commitment decision with respect to Vodafone. In contrast, in August 2007, the ICA fined both Tim and Wind.
In particular, regarding Tim, the ICA held that: (i) between 1999 and 2007, Tim had carried out discriminatory conduct in the market for wholesale termination services, by applying more favorable technical and economic conditions for such services to its own commercial divisions than to its competitors; (ii) the prices that Tim applied to its business customers for the downstream supply of fixed-to-mobile services were lower than the termination costs borne by competitors to offer the same services; and (iii) competitors could not replicate Tim’s offers. Accordingly, in the ICA’s view, Tim had abused its dominant position with a view to eliminating or restricting competition in the market for the supply of wholesale termination services and in the downstream market for the supply of fixed-to-mobile services to business customers.
In 2010, Brennercom brought an action against Tim, seeking compensation for the damages caused by the alleged abuse of dominance ascertained by the ICA. In 2013, the Court of Milan upheld Brennercom’s claims. The Court held that Brennercom’s action was follow-on and, thus, it was not required to prove the alleged infringement. However, Brennercom still had the burden of proving the causal link between the abuse and the damage it suffered, as well as the damage and its amount.
In this respect, the Court of Milan found that the damages suffered by Brennercom did not result from a diversion of clientele (which had not been proved by the claimant) nor from excessive prices allegedly charged by Tim for its wholesale services (the prices were based on standard conditions approved by the Italian Communications Authority).
Instead, the damages were caused by a margin squeeze, stemming from the fact that the conditions applied by Tim to Brennercom for the supply of wholesale termination services were less favorable than those applied to the incumbent’s own commercial divisions. As a consequence, Tim forced Brennercom to operate in the downstream market for the supply of fixed-to-mobile services with profit margins lower than those that could have been obtained without the abuse. The Court of Milan concluded that Brennercom had suffered damages equal to €433,000. The damages were quantified by a court-appointed expert on the basis of a counterfactual analysis, as it was not possible to precisely determine the internal prices charged by Tim to its commercial divisions, in order to estimate the difference with the price charged to Brennercom.
The Milan Court of Appeal confirmed the findings of the first instance court, but it increased the awarded damages to around €516,000.
The judgment of the Supreme Court
The Supreme Court fully upheld the judgment of the Milan Court of Appeal.
First, with respect to the causal link between the alleged abusive conduct and the damage, the Supreme Court held that, based on the ICA’s findings, competitors had to pay Tim a higher price for wholesale termination services than the price applied to the incumbent’s own commercial divisions. According to the Supreme Court, the circumstantial evidence provided by Brennercom demonstrated that the contested practice squeezed its margins, as it was forced to sell fixed-to-mobile telephony services at prices lower than those that could have been applied without the alleged abuse. The damage stemming from the alleged discriminatory practice had to be ascertained through an analysis of the counterfactual scenario, i.e., the economic situation in the absence of the contested conduct.
Second, the Supreme Court agreed with the Court of Appeal that the first-instance judgment had not wrongly reversed the burden of proof, but it had correctly taken into account the high evidentiary value of ICA’s decisions in follow-on actions. As the ICA had found that Tim’s alleged anticompetitive offers in the downstream market were addressed to its entire business clientele, Tim had the burden of proving that all its retail offers were directed to customers for which there was no actual or potential competition with Brennercom and, thus, no damage could have arisen as a consequence of the alleged discriminatory treatment in the wholesale market. As Tim had not provided such evidence, it was correct to conclude that there was a causal link between the contested conduct and the alleged damage.
Third, the Supreme Court upheld the quantification of damages by the Court of Appeal. In this respect, the Supreme Court confirmed that the criterion based on the reduction of the claimant’s profit margins was preferable to the criterion based on the alleged overcharge (i.e., the difference between the price paid to Tim for the wholesale termination services and the lower price Brennercom would have paid if Tim had applied the same conditions granted to its commercial divisions). The Supreme Court confirmed this approach, in light of the fact that: (i) the case did not involve an anticompetitive agreement but a discriminatory practice; (ii) the internal prices applied by Tim to its commercial divisions could not be quantified at first instance; and (iii) it was likely that Brennercom had passed part of the overcharge on to its final customers, given the absence of proof to the contrary.
Accordingly, the damages awarded to Brennercom had correctly been quantified on the basis of the lower profit margins it obtained. In particular, due to the higher prices charged by Tim in the upstream wholesale market, Brennercom had been forced to lower its prices in the downstream market, with a view to remaining competitive and protecting its position on the market. In this respect, the Supreme Court rejected Tim’s argument that the damages rewarded Brennercom’s mere interest in achieving higher profits, and held that the Court of Appeal rightly protected Brennercom’s “right to fair profit margins in a competitive market, not distorted by discriminatory exclusionary practices.”
 Italian Supreme Court, Judgment No. 7678 of April 3, 2020; and Milan Court of Appeal, Judgment No. 1 of January 2, 2017.
 ICA, Decision of February 23, 2005, No. 14045, Case A537 – Tele 2/TIM-Vodafone-Wind.
 ICA, Decision of May 24, 2007, No. 16871, Case A537 – Tele 2/TIM-Vodafone-Wind.
 ICA, Decision of August 3, 2007, No. 17131, Case A537 – Tele 2/TIM-Vodafone-Wind.
 Court of Milan, Judgment No. 16319 of December 27, 2013.
 In particular, the expert appointed by the Court assumed a counterfactual scenario in which Tim had to charge to its commercial divisions the same prices charged to Brennercom, with an inevitable increase in the retail prices charged by Tim’s commercial divisions. Then, the expert assumed that, following the increase in Tim’s retail prices, Brennercom could have increased its retail prices by the same amount, thus obtaining higher profit margins.