On April 13, 2021, the Rome Court of Appeal rejected the appeal brought by Telecom Italia S.p.A. (“TIM”) against a judgment of the Court of Rome in a follow-on action for damages.[1] The Court of Rome had ordered TIM to pay COMM 3000 S.p.A. (formerly KPNQwest S.p.A., “COMM 3000”) approximately €8 million in damages for alleged abuse of dominant position in the market for the provision of wholesale access services. The ICA had imposed a fine for the alleged abuse in 2013.[2]
Background
In order to provide electronic communications services to final customers, the other licensed operators (“OLOs”) normally need access to TIM’s fixed network. When the OLOs acquire new customers, they send TIM a request to activate the wholesale access services needed to provide users with retail electronic communications services. This process can either have a positive outcome for the OLOs, leading to the provision of the retail service to final customers, or a negative outcome, when TIM communicates the presence of one of the circumstances provided for by sector-specific regulation, which prevent the activation of wholesale access services.
In a decision dated May 9, 2013, in the A428 case (the “A428 Decision”),[3] the ICA stated that, in the period 2009-2011, TIM had allegedly abused its dominant position by communicating an unjustifiably high number of refusals to activate wholesale access services (“KOs”), in order to hinder the expansion of competitors in the markets for voice telephony services and broadband internet access. In particular, the ICA found that the procedures for the provision of wholesale access services to competitors and to TIM’s commercial divisions did not coincide. In the ICA’s view, the differences between external and internal procedures were not unlawful per se, but they had resulted in higher percentages of KOs for competitors compared to TIM’s commercial divisions, which allegedly amounted to abusive discriminatory treatment.
In the civil proceedings, COMM 3000 claimed that it had been harmed by the above-mentioned conduct. The claimant argued that, in the period 2009-2011, it had been harmed by the conduct contested by the A428 Decision, as it had allegedly received percentages of refusals to activate higher than those received by TIM’s retail divisions, due to a more complex and less efficient delivery process. COMM 3000 also claimed that the effects of the contested conduct lasted from 2009 to 2012 and dragged on from 2013 to 2015. COMM 3000 therefore asked the Court of Rome to award approximately €37 million in damages. The Court of Rome appointed an expert to (i) assess whether COMM 3000 had actually suffered a discriminatory treatment, (ii) verify whether there was a causal link between the contested conduct and the alleged damage and, if that was the case, (iii) quantify the damage. Following the submission of the expert opinion, the Court of Rome found that TIM had abused its dominant position, and ordered TIM to: (i) refrain from reiterating the contested conduct; and (ii) pay COMM 3000 approximately €8 million in damages.
TIM challenged the judgment before the Rome Court of Appeal, on the grounds that, inter alia,the court of first instance had wrongly assessed the discriminatory treatment alleged by COMM 3000, and there was no sufficient evidence of: the damage supposedly suffered; the causal link between such damage and the alleged conduct; and the fault requirement. Moreover, TIM contested the quantification of damages.
The Judgment
In judgment No. 9115 of April 13, 2021, the Rome Court of Appeal partially dismissed TIM’s appeal. However, the Court reduced the awarded damages to approximately €5 million.
The Rome Court of Appeal first considered the evidentiary value of the A428 Decision (upheld by the Lazio Regional Administrative Court in judgment No. 4801/2014 and by the Council of State in judgment No. 2479/2015). The Court stated that, according to settled case law, the final decision of a competition authority amounts to “privileged evidence” of the existence, nature and scope of the infringement. However, the claimant bears the burden of proving, inter alia, that: (i) it was actually affected by the contested conduct; (ii) it suffered damage; and (iii) there was a causal link between the conduct and the alleged damage, on the basis of ordinary rules on burden of proof.
The Court remarked that the “privileged evidence” value of the final antitrust decision can also be invoked by undertakings that did not take part in the proceedings (before the ICA or the European Commission), provided that: (i) their position is identical or at least comparable to that of the undertakings that actually took part in the proceedings; and (ii) the undertakings concerned had actually been harmed by the unlawful conduct.
The Court then assessed whether the facts alleged and the evidence submitted by COMM 3000 satisfied the legal standard. The Court seemed to consider that, as COMM 3000 was active in the market affected by TIM’s alleged anticompetitive conduct, it was as such harmed by the conduct. In the Court’s view, since the activation of wholesale access services was a standardized process affecting all players in the relevant market, COMM 3000 would have been negatively impacted by it.
The Court came to this conclusion notwithstanding the fact that, based on available evidence, COMM 3000 had actually activated, in percentage terms, a higher number of lines than TIM’s commercial divisions. In this respect, the Court seemed to acknowledge that the Tribunal of Rome had erroneously estimated the percentage of lines activated by COMM 3000 in comparison with those activated by TIM’s commercial divisions. However, this error of assessment did not change the conclusions of the Court of Appeals on the alleged discrimination suffered by COMM 3000.
With regard to the causal link between TIM’s conduct and the alleged damage, the Court found that it could be inferred from the following elements: (i) the ICA’s finding that TIM’s behavior was discriminatory; (ii) the fact that COMM3000 purchased wholesale access services from TIM and competed with it in the retail market; and (iii) the higher number of KOs allegedly received by COMM 3000 compared to those received by TIM’s internal division.
As to the fault requirement, the Court asserted that TIM’s subjective element could be inferred from the findings in the ICA’s decision. In this regard, the Court held that the burden of proof shifted onto TIM, which would have had to prove the absence of the fault requirement. In the Court’s view, TIM had not been able to provide such evidence. In particular, the Court held that TIM had failed to demonstrate that the anticompetitive conduct was the outcome of an excusable error (i.e., that it could not realize that the differences between the external and internal supply processes adopted could have anticompetitive effects). According to the Court, TIM had failed to demonstrate that, despite adopting an adequate standard of control, it could not have been aware that the differences between the external and internal supply processes could have an anticompetitive effect, at least by increasing competitors’ costs in the downstream market and delaying the erosion of the incumbent’s market position.
The Court also dismissed TIM’s argument that the adoption of different external and internal supply processes was in compliance with the “equivalence of output” principle adopted by the applicable regulatory framework (according to which the services offered by the incumbent to alternative operators and to its own retail divisions must be comparable in terms of functionality and price, but can be provided through different systems and processes). The Court held that the need to comply with this regulatory principle did not justify the contested conduct.
As to the quantification of damages, the Court confirmed the approach adopted by the expert, based on the comparison between the market shares of competitors in Italy in the 2009-2011 period and the market shares of alternative operators in the United Kingdom in another period (2003-2006). However, the Court reduced the damages allegedly suffered by COMM 3000. The latter claimed that the alleged abuse had caused it damages even in the years following the termination of the contested conduct. However, the Court noted that, in the A428C case, the ICA had ascertained a clear discontinuity between TIM’s conduct in the 2009-2011 period and its conduct following the A428 Decision (adopted in 2013), as TIM had implemented a number of initiatives aimed at improving the provision of wholesale access services and the guarantees of equal treatment. Accordingly, the Court considered it appropriate to at least reduce the amount of damages for the loss of profits allegedly suffered by COMM 3000 in the period 2013-2015. The final damages were therefore reduced to approximately €5 million. The proceedings before the Rome Court of Appeal are part of a series of follow-on actions based on the A428 Decision.
It is noteworthy that the findings of the Court in this case openly conflict with the approach adopted by the Court of Milan in a judgment delivered in another case concerning the conduct contested by the ICA in the A428 Decision. In that case, the Court of Milan entirely dismissed the claimant’s action, on the ground that it was merely based on a statistical analysis of the number of KOs. The Court noted that plaintiff had not alleged, nor demonstrated, any KOs or groups of KOs communicated by TIM in the absence of the circumstances provided for by sector regulation (which impose to communicate a KO). According to the Milan Court, in civil proceedings, a mere statistical analysis of the percentage of KOs communicated to the claimant is not sufficient to demonstrate the causal link and the damage actually suffered by individual operators, as it could only constitute circumstantial evidence or reinforce and confirm further evidence.[4]
Other developments
Council of State definitely quashes ICA’s decision imposing a fine on two maritime carriers
On April 1, 2021,[5] the Council of State confirmed a judgment issued by the Regional Administrative Court of Lazio (the “TAR Lazio”) in 2019,[6] which had partially annulled an ICA decision fining two maritime carriers for an alleged abuse of dominant position.[7]
In 2018, the ICA found that Moby S.p.A. (“Moby”) and its wholly-owned subsidiary Compagnia Italiana di Navigazione (“CIN” and, together with Moby, the “Parties”) had abused their dominant position on certain maritime freight transport routes connecting Sardinia and North- Central Italy, by engaging in an exclusionary strategy targeting some of their competitors. In particular, according to the ICA, Moby and CIN allegedly boycotted logistics operators that had entered into business relations with rival ferry operators, through the simultaneous application of: (i) retaliatory measures and unfavorable economic and commercial conditions to disloyal logistics operators (direct boycott); and (ii) more favorable economic and commercial conditions to other logistics operators (indirect boycott). As a consequence, the ICA imposed on Moby and CIN, jointly and severally, a fine of approximately €29 million.
In confirming in full the TAR Lazio’s judgment, the Council of State concurred that the parts of the ICA decision relating to the alleged indirect boycott deserved to be annulled. In particular, the administrative courts held that the practice found by the ICA amounted to the grant of fidelity rebates. For this reason, in line with the principles established by the EU Court of Justice in the Intel judgment,[8] both the TAR Lazio and the Council of State stated that the ICA was required to analyze the conditions, duration and amount of the rebates, and to assess the possible existence of a strategy aimed at excluding as efficient competitors from the market. According to the administrative courts, the ICA failed to assess whether the rebates were defensive in nature and could be replicated by rivals, as it merely relied on its own interpretation of certain documents to substantiate its allegations on the indirect boycott.
[1] Court of Rome, Judgment No. 9115 of April 30, 2019.
[2] Rome Court of Appeal, Judgment No. 2650 of April 13, 2021.
[3] ICA Decision of December 21, 2016, No. 26310, Case A428C, Wind-Fastweb/Condotte Telecom Italia.
[4] Court of Milan, Judgment No. 11772 of December 18, 2019. The available evidence showed that the claimant regularly checked whether the refusals to activate communicated by TIM were actually justified by the circumstances provided for by sector-specific regulation. As the claimant had not specified which refusals to activate were in its view unlawful or unjustified, the Court held that it was not necessary to appoint an expert to carry out further investigations in that regard. For an in-depth analysis of the case see the December 2019 issue of the Italian Competition Law Newsletter, available here: https://www.clearygottlieb.com/-/ media/files/italian-comp-reports/italiancompetitionlawnewsletterdecember2019pd-pdf.pdf.
[5] Council of State Judgment No. 2727 of April 1, 2021.
[6] TAR Lazio Judgment No. 7175 of June 4, 2019.
[7] ICA Decision of February 28, 2018, No. 27053, Case A487, Compagnia Italiana di Navigazione – Trasporto Marittimo delle Merci da/per la Sardegna. For a detailed analysis of the ICA Decision and TAR Judgment, see our previous Newsletter dated May 2019, available here: https://www.clearygottlieb.com/-/media/files/ italian-comp-reports/cleary-gottlieb-italian-competition-law-newsletter–may-2019-pdf.pdf.
[8] European Court of Justice Judgment of September 6, 2017, C-413/14, Intel.