On June 15, 2021, the Italian Competition Authority (the “ICA”) adopted a decision that made legally binding the commitments offered by certain companies active in the scrap lead-acid batteries sector, in the context of an investigation regarding the alleged coordination of their pricing behavior.[1] These commitments were found to adequately address the ICA’s concern that the companies and the collecting organizations they belonged to may have coordinated their behavior in violation of Article 101 TFEU.

Background

The ICA procedure concerned the purchase of used automotive and industrial lead-acid batteries, which, once they have reached their end of life, are collected and recovered to extract the lead in them and convert it into a new resource (recycled or “secondary” lead, as opposed to “primary” lead, which is obtained from mining). Secondary lead currently represents the main production input for the manufacture of new lead batteries.

Players in this industry are active at the following stages of the production chain:

  • scrap collectors collect lead waste. Collectors buy spent lead-acid batteries from waste holders (primarily mechanical workshops and car parts shops) on the market;
  • smelters and integrated manufacturers perform treatment and recycling activities. They convert the waste stockpiled by collectors into secondary lead so that manufacturers can reuse it to produce new batteries; and
  • intermediaries between collection and This activity is performed by collection and treatment systems, to which, by law, producers and importers selling batteries on the Italian market must belong.

Under the current regulatory framework, producers and importers of batteries (or third parties acting on their behalf) are responsible for managing the collection, treatment and recycling of waste batteries, and must bear the cost of waste treatment and collection.[2] Collection systems purchase waste from collectors and sell it to integrated manufacturers and smelters, or deliver it to smelters under processing contracts and sell it after the conversion process is complete.

The ICA investigation

In July 2019, Ecodom, a consortium grouping the main producers of major domestic appliances active in Italy, filed a complaint with the ICA, which four months later initiated proceedings. The investigated entities were: (i) several players in the scrap batteries recycling sector, namely, Fiamm Energy Technology S.p.A. (“Fiamm”), Clarios Italia S.r.l. (“Clarios”), Eco-bat S.r.l. (“Eco-bat”), Piomboleghe S.r.l. (“Piomboleghe”), Piombifera Italiana S.p.A. (“Piombifera”), E.S.I. Ecological Scrap Industry S.p.A. (“ESI”), and S.I.A.P.R.A. S.p.A. (“SIAPRA”; collectively, the “Parties”); and (ii) consortia COBAT RIPA (“COBAT RIPA”) and COBAT SERVIZI (“COBAT” and, together with COBAT RIPA, the “COBAT system”).[3] The COBAT system is a collecting organization which sells part of the waste it collects to its own smelters in tender proceedings that are reserved for them. It initially operated as the sole consortium in Italy; however, as a result of the liberalization that took place under Italian Legislative Decree No. 188/2008, it started competing with other collection systems. Today COBAT is still the main system for the collection of spent lead batteries for automotive and industrial uses.

The Decision

The relevant markets

The ICA defined the relevant market as the national market for scrap lead-acid batteries for automotive and industrial uses, with COBAT and the other collection systems on the supply side and smelters and integrated manufacturers on the demand side.

Other markets that may have been potentially affected by the conduct under investigation were those for the provision of intermediation services in the scrap batteries sector, where the collection systems compete, and for the collection of scrap batteries.

The ICA ultimately left the exact definition of the relevant market(s) open since it accepted the commitments proposed by the Parties (see below).

The theory of harm

In the decision to initiate proceedings, the ICA alleged that smelters and integrated manufacturers coordinated their behavior within the COBAT system, in violation of Article 101 of the TFEU, with a view to: (i) setting and maintaining artificially low purchase prices for the scrap batteries offered to COBAT members; and (ii) preventing effective competition between consortia for the sale of their batteries, thus foreclosing competing collection systems from the market.

According to the ICA, this exclusionary strategy concerned, first, negotiations between COBAT and the collectors and included the use of confidential information on the supply points of the collectors. The alleged collusive conduct of these undertakings involved setting the purchase prices for scrap lead batteries, differentiated according to the origin of the waste; and increasing the flow of waste that was guaranteed to the members of COBAT.

Moreover, in the ICA’s view, smelters, within the consortium bodies of COBAT RIPA/COBAT, influenced the process of setting the base price of the periodic auctions conducted by the COBAT system. In particular, the ICA alleged that COBAT’s executive committee and board actively participated in setting the general policy with a view to lowering the purchase and sale prices for scrap batteries. Moreover, the Parties allegedly allocated the various tender lots among themselves so that each smelter would submit bids only for lots for which the other undertakings did not bid, based on a geographic allocation criterion, so as to prevent auction base prices from increasing as a result of competitive bids. This was possible because only national recyclers that were members of COBAT could participate in the tender proceedings, thus excluding Italian smelters that were not COBAT members as well as foreign smelters.

Finally, the ICA took the preliminary view that, within the COBAT system, the Parties may have shared commercially sensitive information and agreed not to purchase used lead batteries from competing collection systems, as well as jointly set differentiated environmental contributions for the various categories of producers/importers and smelters belonging to the COBAT system.

The commitments proposed by the Parties

On February 8, 2021, COBAT RIPA, COBAT, Fiamm, Siapra, Clarios, Eco-bat, Piomboleghe, and Piombifera submitted to the ICA a set of joint commitments pursuant to Article 14-ter of Law No. 287/1990.

  1. First, COBAT will be transformed into a joint- stock company and each of the smelters will divest the shares it will hold in the new entity. The purpose of the new corporate form is to ensure a more significant opening of COBAT’s activities to third parties since COBAT will have to pursue the objective of maximizing its profits in managing the collection of scrap batteries and their sale to smelters, producers and importers. As a result of the share divestment process, COBAT will operate as a system of producers only, as is the case for other collecting organizations active in the used lead batteries sector. In the ICA’s view, this structural remedy will effectively eliminate the conflict of interest within COBAT in the allocation of scrap batteries, arising from the presence of all the main smelters operating in Italy, that is, the main purchasers of the scrap batteries collected and allocated by the COBAT system itself on that market. As such, the commitment in question was found adequate to ensure competition between producers and smelters.
  • Secondly, COBAT committed to carry out the tenders according to criteria of competition and efficiency. 100% of the scrap batteries collected directly by COBAT will therefore be allocated exclusively through periodic electronic auctions open not only to smelters, but to all undertakings having the necessary authorizations. Moreover, the auction-based prices in electronic auctions and the prices that collectors are charged will be set exclusively by COBAT’s commercial and administrative staff, whereas COBAT’s and COBAT RIPA’s executive bodies (Board of Directors and Executive Committee) will cease being involved in setting prices and other economic conditions relating to the purchase and sale of scrap batteries.
  • Thirdly, COBAT, Fiamm, Clarios, Eco-bat, Piombifera and Piomboleghe committed to insert in the by-laws of the newly-established company a provision aimed at limiting access to sensitive information by members of the Board of Directors. Pursuant to such provision, the said undertakings and their representatives on the Board of Directors may not, under any circumstances, access documents or information concerning the bids submitted, the prices charged by competitors, the quantities of spent batteries assigned, the treatment capacity of the recyclers, or the quantities of spent batteries collected by the COBAT system. This commitment aims at preventing COBAT from being the forum in which agreements between competitors are reached, thereby remedying the concern regarding the possible sharing of sensitive information between consortium members within COBAT.
  • Fourthly, the provision in COBAT’s bylaws pursuant to which COBAT members must purchase scrap batteries only from COBAT will be repealed vis-à-vis not only smelters, but also producers and As a result, producers and importers will no longer be obliged to operate exclusively through the collecting system to which they belong.
  • Finally, COBAT committed to ensure that the information it receives from collectors is limited to information that is essential to track scrap batteries and to comply with environmental law

Based on the comments expressed in the course of the market test by another consortium, EcoPower, the Parties offered a further commitment, i.e., to adopt an antitrust compliance program and hire an antitrust compliance officer who would periodically report to the ICA until 2025.

In the Decision the ICA found the above commitments to be sufficient to overcome its competitive concerns at the outset of the investigation, and made them binding on the Parties, closing the procedure without a finding of infringement of Article 101 TFEU.

[1]              See ICA Decision of June 15, 2021, No. 29718, Case I838, Restrizioni nell’acquisto degli accumulatori al piombo esausti (the “Decision”). Lead-acid batteries include automotive batteries and industrial batteries.

[2]              Under Article 7 of Legislative Decree No. 188/2008, producers and importers of batteries must organize and finance waste collection and treatment either individually or by joining a so-called “collective system” operating through its own logistics and processing network. Each collective system is financed by at least two producers or importers and must be able to operate throughout the country.

[3]              ICA Decision of December 3, 2019, No. 28015, Case I838, Restrizioni nell’acquisto degli accumulatori al piombo esausti. The scope of the ICA investigation was later extended by Decision of May 20, 2020, No. 28245.