On April 26, 2022, the Italian Supreme Court confirmed a judgment of the Milan Court of Appeal, which had upheld the damages claim brought by Teleunit S.p.A. (“Teleunit”) against Telecom Italia S.p.A. (“Tim”)[1].

Background

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 on their respective networks.[2] In May 2007, the ICA closed the proceedings in relation to Vodafone with a commitments decision.[3] Conversely, in August 2007, the ICA fined Tim and Wind for alleged abuse of dominance.[4]

In particular, regarding Tim, the ICA held that, between 1999 and 2007, Tim had engaged in 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. 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 2008, Teleunit brought an action against Tim, seeking compensation for the damage allegedly caused by conduct contested by the ICA. In 2016, the Court of Milan upheld Teleunit’s claims.[5] The ICA’s infringement decision constituted “privileged evidence” of the contested conduct. However, Teleunit still had the burden of proving the causal link between such conduct and the damage it allegedly suffered, as well as the damage and its amount.

The Court of Milan found that the damage suffered by Teleunit did not result from a diversion of clientele caused by non-replicable retail offers, nor from excessive prices allegedly charged by Tim for its wholesale services. In this respect, the Court noted that the prices were based on standard conditions approved by the Italian Communications Authority. Instead, the Court considered that the damage was caused by an alleged decrease in the margins obtained by the plaintiff in the downstream market for the supply of fixed-to-mobile services. Indeed, according to the Court, the conditions applied by Tim to Teleunit 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 Teleunit to operate in the downstream market with profit margins lower than those that could have otherwise been obtained, had Tim applied to Teleunit the same conditions allegedly reserved to the dominant firm’s commercial divisions.

The Court of Milan concluded that Teleunit had suffered damages equal to €1,531,894. This amount was determined 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 directly estimate the difference between the prices charged to Teleunit and those applied to Tim’s commercial divisions.[6]

The Milan Court of Appeal rejected the appeals filed by both parties and entirely confirmed the findings of the first instance court.

The judgment of the Supreme Court

The Supreme Court fully upheld the judgment of the Milan Court of Appeal.

In relation 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, this alleged discriminatory practice reduced Teleunit’s profit margins.

The Supreme Court confirmed that the damage arising 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. In the Court’s view, without the contested conduct, Teleunit would have paid lower wholesale prices or, if Tim’s internal divisions were to bear the same costs as those charged to Teleunit, Tim’s offers would have been higher, and Teleunit consequently could have been able to increase its retail prices, thus avoiding the decrease in its profits. The Supreme Court noted that a loss of profit for competitors can be caused not only by reduced revenues, but also by increased costs, as in the case at issue. The profits that would have been obtained in a non-infringement scenario (counterfactual profits) can be determined by deducting the estimated costs in such scenario (counterfactual costs) from the revenues expected in the absence of the infringement (counterfactual revenues). The lost profit is the difference between counterfactual and actual profits.

In the case at hand, according to the Supreme Court, the lower Courts had correctly calculated the profit that Teleunit would have achieved if the termination costs were not discriminatory, by assuming that, in the counterfactual scenario, Teleunit would have sustained lower costs for the purchase of wholesale services, without changing its retail prices.

Secondly, the Supreme Court rejected Tim’s argument that Teleunit had passed on the higher costs to its customers and, therefore, it had

not incurred any damages. In this respect, the Supreme Court confirmed the Court of Appeal’s view that the higher costs allegedly sustained by Teleunit had not been passed on to its customers, because: (i) the demand elasticity in the market concerned was particularly low; and (ii) Teleunit’s marginal market position did not allow it to appreciably influence price levels.

Thirdly, the Supreme Court agreed with the Court of Appeal that the first-instance judgment had not wrongly reversed the burden of proof, but had correctly taken into account the high evidentiary value of ICA decisions in follow-on actions.

Finally, the Supreme Court held that the lower courts had correctly determined the amount of the damages awarded to the plaintiff on the basis of the lower profit margins allegedly obtained by Teleunit.

[1] Italian Supreme Court, Judgment of April 26, 2022, No. 13073; and Milan Court of Appeal, Judgment of March 8, 2018, No. 1200.

[2] ICA, Decision of February 23, 2005, No. 14045, Case A357 – Tele 2/TIM-Vodafone-Wind.

[3] ICA, Decision of May 24, 2007, No. 16871, Case A357 – Tele 2/TIM-Vodafone-Wind.

[4] ICA, Decision of August 3, 2007, No. 17131, Case A357 – Tele 2/TIM-Vodafone-Wind.

[5] Court of Milan, Judgment of June 27, 2016, No. 8008.

[6] 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 Teleunit, 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, Teleunit could have increased its retail prices by the same amount, thus obtaining higher profit margins.