On June 4, 2020,[1] the Council of State overturned TAR Lazio judgments that had upheld the appeals submitted by three radio taxi companies against an infringement decision issued by the ICA, regarding an alleged parallel network of anticompetitive vertical agreements between radio taxi companies and drivers active in Milan (the “Decision”).[2]
Background
The Decision
On June 27, 2018, the ICA found that the major companies managing radio taxi services in Milan had infringed Article 101 TFEU by imposing on the taxi drivers affiliated to their networks certain exclusivity and non-compete obligations, provided for by the companies’ by-laws or in the contracts entered into with the drivers.
The investigation was opened following a complaint submitted by a competitor, Mytaxi (now Free Now), which operated a mobile app aimed at connecting taxi drivers and consumers. Free Now claimed that the exclusivity and non- compete clauses (which governed the contractual relationship between the radio taxi companies and the affiliated taxi drivers) hindered the development of new innovative tools for the management of taxi demand (such as the Free Now app), thus preventing new competitors from entering the market for taxi demand management services.
The ICA found that the clauses at issue, forcing each taxi driver affiliated to the radio taxi companies to allocate all his or her capacity solely to one radio taxi company, resulted in a parallel network of anticompetitive vertical agreements between each radio taxi company and the affiliated drivers. It found that this had a cumulative foreclosure effect vis-à-vis open platforms (such as the Free Now app), thereby hindering entry by actual and potential competitors on the local markets for taxi demand management services. This harmed both taxi drivers and consumers.
However, the ICA found that the anticompetitive conduct did not amount to a “serious” infringement of competition law, and therefore did not impose any fine on the radio taxi companies.
The TAR Lazio judgments
On appeal, the TAR Lazio held that the Decision was wrong on a number of grounds, including: (i) failure by the ICA to meet the standard of proof required to find an infringement of Article 101 TFEU; (ii) errors in the definition of the relevant product market; (iii) failure to establish the anticompetitive effects of the alleged vertical restraints; and, overall, (iv) internal logical inconsistencies, lack of proper investigation and failure to state reasons. As a consequence, the TAR Lazio upheld the appeals lodged by the radio taxi companies and annulled the Decision.
First, the TAR Lazio upheld the radio taxi companies’ argument that the ICA failed to meet the required standard of proof for establishing the existence of a parallel network of anticompetitive vertical agreements. This was so because the ICA had inferred the existence of such parallel agreements on the mere basis of the presence of non-compete obligations in the radio taxi companies’ by-laws and contracts entered into with the affiliated drivers, without carrying out any analysis regarding the actual existence of a parallel network of agreements, limiting itself to “describing it rather than investigating it”. In this respect, the TAR Lazio noted that the ICA did not prove that the radio taxi companies and the taxi drivers shared a “common interest”, which is, in its view, a key element in any findings of anticompetitive agreements between companies operating at different levels of the production and supply chain.
The TAR Lazio also upheld the companies’ argument that the ICA had erred in defining the relevant product market. According to the TAR Lazio, the ICA alleged that there was substitutability between the services provided by radio taxi companies and those offered by mobile apps without engaging in any empirical analysis, in particular with respect to the (cumulative or alternative) nature of the demand for the respective services. Also, the TAR Lazio held that, in defining the relevant product market, the ICA had not adequately taken into account the fact that the market for taxi management services is characterized by a double source of demand (i.e., passengers and taxi drivers), and that the demand from passengers has an impact on the demand from taxi drivers.
Finally, the TAR Lazio upheld the companies’ claims that the ICA had failed to state reasons regarding the anticompetitive effects of the alleged vertical restraints. While acknowledging that the agreements did not amount to “by object” restrictions of competition, the ICA had not analyzed the actual anticompetitive effects of the relevant clauses. Moreover, according to the TAR Lazio, the ICA based its findings almost exclusively on data put forward by the parties (and, particularly, on the complainant’s allegations), especially regarding the possible anticompetitive harm allegedly caused by the functioning of the “closed” platforms (as opposed to open platforms, such as Free Now) and the causal link between the companies’ behavior and the foreclosure of the relevant market.
The Council of State judgment
The Council of State analyzed the general claim raised by the ICA and Free Now concerning the alleged lack of investigation that, according to the TAR Lazio, affected the whole Decision. After recalling the principles on the allocation of the burden of proof in antitrust investigations, the Council of State found that the Decision could not be considered based on insufficient investigation. It found that the ICA had analyzed all the elements necessary to find the existence of an anticompetitive agreement and had substantiated its findings with a complete body of evidence, coming not only from the parties to the investigation and the complainant involved in the administrative proceedings before the ICA, but also from other reliable sources, such as a legal opinion of the Italian Transport Authority, information from the Municipality of Milan and a report published by consulting company KPMG.
After that, the Council of State addressed the various grounds of appeal concerning specific aspects of the TAR Lazio’s judgment on the alleged parallel network of anticompetitive vertical agreements, which are analyzed below.
The alleged parallel network of anticompetitive vertical agreements
In referring to the grounds of appeal concerning the existence of a parallel network of anticompetitive vertical agreements, the Council of State overturned the TAR Lazio’s finding that the ICA had failed to prove to the requisite legal standard the existence of parallel vertical agreements between the companies managing radio taxi services and taxi drivers.
According to the Council of State, the TAR Lazio had erred in holding that it was not possible to find such an infringement because of the lack of a “common interest” between taxi drivers and the companies managing radio taxi services. The Council of State held that the condition for finding a restriction of competition by effect – such as the one at stake – is not a “common interest” of the parties in foreclosing competitors from the market, but only a joint intention to behave on the market in a certain way. This condition is met even when there is a non-compete clause that has some negative effects on one party (in the case at stake the taxi drivers, because the clause limited the possibility to utilize their full capacity), in so far as the relevant provision is accepted by all parties to the agreement. Indeed the agreement had to be assessed in the broader context of the involvement of taxi drivers in the companies managing radio taxi services, which allowed the former to enjoy also a number of benefits, including the possibility to render their services in favor of an established customer base.
Moreover, the Council of State disagreed with the TAR Lazio’s view that the non-compete clause at stake should have been addressed in the context of an abuse of dominance investigation, because it could have only been imposed by the companies managing radio taxi services on taxi drivers, who were actually harmed by a provision preventing them from buying the service from third parties. According to the Council of State, parties to an anticompetitive agreement can also be harmed by that same agreement, as also confirmed by EU case-law.[3]
The definition of the relevant product market
With reference to the definition of the relevant market, the Council of State overturned the TAR Lazio’s judgment and held that taxi demand management services offered through apps, phone or radio constitute a single local market.
The Council of State first analyzed the supply-side substitutability of taxi demand management services offered through different means. In this respect, the main argument put forward by the Council of State to decide that the different means to book a taxi constitute a single market was their irrelevance for taxi drivers, given that the only relevant aspect from taxi drivers’ perspective is the provision of the service to the end user, regardless of how the taxi is booked and paid.
More importantly, the Council of State held that taxi demand management services offered through apps, phone or radio constitute a single local market also from consumers’ perspective, as they perceive the different devices as substitutes. In particular, the court considered that almost all customers now perceive the more modern means to book taxis as substitutes for the more traditional ones, because the technology needed to use them is available to almost everyone. Moreover, according to the Council of State, while some features of the apps could actually be relevant in the user’s experience, this did not justify a finding that the market for taxi demand management services offered through apps, phone or radio constitute separate markets.
Finally, the Council of State noted that the substitutability between taxi demand management services offered through apps, phone and radio was confirmed by the very same case at stake, because the effects of the non-compete clause were assessed with reference not only to other companies providing taxi demand management services through phone or radio, but also to digital platforms.
The anticompetitive effects of the agreements
As to the anticompetitive effects, the Council of State first assessed whether the ICA had rightly considered the anticompetitive harm allegedly caused by the agreements at stake. In this respect, unlike the TAR Lazio, the Council of State held that the ICA was right in considering that these agreements were capable of preventing entry in the market for taxi demand management services and could have led to a decrease in output and quality of services, with a corresponding increase in prices.
Further, according to the Council of State, the TAR Lazio was wrong to conclude that the ICA had acknowledged that the agreements did not amount to “by object” restrictions of competition law, but had failed to analyze the actual anticompetitive effects of the relevant clauses. Indeed, the Council of State noted that the ICA had carried out a full-blown analysis of the potential anticompetitive effects of the agreements having regard to the economic and legal context, in line with relevant rules and case law. In particular, the ICA had taken into account aspects such as the share of the market covered by the non-compete clause, the duration of the agreement, its binding effects and the fact that the anticompetitive effects could not be offset by the right of withdrawal (which did not represent a feasible alternative from an economic point of view).
Finally, the Council of State assessed whether the non-compete clause could be justified as a mere implementation of Article 2527(2) of the Italian Civil Code, according to which the members of a cooperative enterprise cannot carry out an economic activity in competition with the cooperative enterprise itself. In this respect, the Council of State stated that the content of the non-compete clause at stake did not correspond to Article 2527(2) of the Italian Civil Code, in so far as this article prevents competition between members of the cooperative enterprise (the taxi drivers) and the cooperative enterprise itself (the company offering taxi demand management services), while the non-compete clause prevents the taxi drivers from purchasing taxi demand management services from third party providers of such services.
[1] Council of State, judgment Nos. 3501, 3502 and 3503/2020.
[2] TAR Lazio, judgment Nos. 5359, 5418 and 5419/2019.
[3] Courage v. Crehan, Case C-453/99, EU:C:2001:465, § 36