Antitrust law
ANTITRUST: PRACTICE EXPERTISE
Lawyer Luca Membretti’s expertise in national and European antitrust law includes assisting companies in their commercial activities, notifying merger transactions to the Commission and the competent national authorities and assisting in proceedings concerning abuses of dominant position and restrictive agreements before the Commission and the AGCM.
Mr. Membretti’s law firm has extensive experience in civil litigation for damages and interim relief in relation to infringements of competition rules and in challenging Commission and Authority decisions before the European Union Courts and domestic administrative courts.
The firm is often involved for Italian, French and international clients in comprehensive and structured antitrust audit and compliance programmes.
ANTITRUST: ORIGINS
The trust is a legal institution of English common law, which allows the exercise of one’s rights to be entrusted to others on a fiduciary basis. It was used in the United States in the late 19th century by large corporations that had emerged victorious from the competition disputes of the preceding years. Their directors gave themselves the right to vote in their respective boards of directors, thus ensuring uniform decisions. The emergence of large agglomerations of economic power frightened small producers and their political representatives. In 1890, Congress passed the Sherman Act, soon to be called the antitrust law, according to which free bargaining between sellers and buyers was not to be altered by agreements between firms (such as those between sellers on quantities to be offered or prices to be charged, or markets to be sold in), nor by unilateral conduct designed to control the market (such as the refusal to supply this or that shop by a large supplier). US antitrust was born with the dual objective of guaranteeing the efficiency of the economic system and the democratic nature of society, in the then deep-rooted conviction that the ideal model was the one T. Jefferson had envisioned in his time: a democratic society characterised by the balanced interaction of millions of small producers.
ANTITRUST: PRINCIPLES
Antitrust law and its application have generated disputes in theory and in the courts, relating to the concentration ratio (percentage of total market turnover produced or marketed by the largest firms), above which competition is deemed to have ceased, because the market is dominated by one or a few large firms. Disputes have touched upon the definition of the market, which is relevant for assessing the concentration and, thus, the power achieved by large firms, e.g. as a result of mergers or collusive price agreements.
Product differentiation and the variety of substitutable goods make it difficult in many cases to define which range of differentiated products actually constitutes a single market. In addition, increasing firm size leads to efficiency gains through economies of scale or scope that may translate into improved consumer welfare through increased availability of new or lower unit cost goods. Investment in innovation requires the concentration of financial resources, which are only available to large companies with significant market shares. International competition demands large scale from its players. Even innovation in industrial or commercial organisation alters competition; the vertical exclusive dealing arrangement between a manufacturer and a group of retailers, if it binds the latter to source from only one manufacturer and to follow its instructions for resale, may enable them to offer better services to customers (e.g. after-sales service). Horizontal collusion between manufacturers (traditionally the most disliked) could have positive effects for the consumer, if it is aimed at concentrating investment in research, in order to launch new products that the smaller, single company could not realise. It is, therefore, not always true that efficiency coincides with the fragmentation of the market among many smaller firms. The economic efficiency that contemporary antitrust defends is that which is beneficial to the consumer, regardless of the space it leaves for small producers in the market. Contemporary antitrust triggers its prohibitions in front of higher thresholds of economic power and concentration, as long as the market remains contestable due to freedom of access and possibilities for technological innovation.
ANTITRUST IN EUROPE
The European tradition (with the exception of Great Britain) was different from that of the United States. Against the backdrop of centuries-old principles, according to which the state could be an economic agent on an equal footing with private individuals for activities related to public interests, European economies were marked by deep-rooted dirigisme (in France) and by the imprint of direct state aid and presence in countries that had arrived late in industrial development (Germany and Italy). At the end of the 19th century, the spread of public utilities in Europe led to public monopolies, national and local, for their management. Private cartels and concentrations, if they collided with national policies, were not pursued, but protected, regardless of the effects on competition. Antitrust was transplanted in Europe in 1957, with the Treaty of Rome establishing the European Economic Community, to protect competition between states, and was extended to internal competition within each state with successive national laws: the first in Germany, again in 1957; the last, including the Italian one, in 1990. The European framework covers restrictive agreements (Article 81), abuses of a dominant position (Article 82) and concentrations between undertakings that eliminate or make impossible competition in the relevant market (the latter case not provided for in the 1957 treaty and added by Community regulation 4064/89/21 December 1989).
It has long attributed to the protection of competition a value that is not autonomous, but instrumental to market integration and destined to flexible compromises with other policies (industrial, regional, social) of the Community. With the Treaty amendments introduced in Maastricht in 1992, competition remained a fundamental principle, but alongside the principle of cohesion. The European Commission’s merger control applies above certain turnover thresholds of the companies involved.
The first difference between European and US antitrust concerns abuses of a dominant position, a position in which a company has competitors (as opposed to a monopoly) who are much weaker and unable to influence its behaviour. Being in a dominant position is not unlawful; it entails, however, a special liability that makes otherwise lawful behaviour abusive: refusing to serve one buyer, charging different prices to different buyers, tying the sale of one product to that of another. Under current US antitrust law, a company that reaches monopoly can be dismantled; it happens more and more rarely, but it happened to AT&T, the US telephone company, in 1984. Before it gets there, only intentional attempts to do so that harm consumers can be prohibited, not aggressive competitive behaviour, which only harms weaker competitors.
Europe does not envisage dismantling as the ultimate sanction but, thanks to a never-ending regulatory propensity, has recovered a protection that was part of the original US competition culture. Significant differences come from the interaction between competition and other EU purposes. The link with market integration made European antitrust stricter than that of the United States, particularly in the face of vertical agreements between manufacturers and retailers, which left room for inter-brand competition, but did not allow retailers the freedom to purchase the product from one country to another, contrary to the principles of integration. Article 86 of the Treaty prohibits Member States from taking measures to protect national companies (such as ad hoc aid) that have restrictive effects on competition at the European level.
Conversely, agreements that, in pursuit of European regional or industrial policy objectives, created joint ventures in depressed areas with public aid or reduced excess production capacity in a concerted manner were exempted from the prohibitions. The difference in institutional arrangements should not be forgotten. In the United States, the deciding body is the judge, who does so upon action by private individuals, which is frequent, or by the ad hoc apparatus (the antitrust division of the Ministry of Justice), which only has investigative tasks and has to fight in court.
In Europe, direct legal action by private individuals is rare, because public investigation bodies a. also have decision-making powers; it is against their decisions, which are always subject to appeal, that private individuals generally turn to the courts.
At the European level, it is the Commission in Brussels that decides and the appeal goes to the Court of First Instance and then to the Court of Justice. At the national level there are authorities, against which one appeals in some countries (such as Italy) to the administrative judge, in others to the ordinary courts. Antitrust has brought about many changes in Europe. If deep-rooted monopolies (telephones, electricity, or exclusive public services, such as ports, airports, airlines, etc.) are today at an advanced stage of liberalisation, or fully liberalised to the benefit of users, it is due to the Community bodies: both to their general directives and to their decisions on individual antitrust cases, in which they have even configured the existence of public monopolies as an abuse of a dominant position, when these were not able to serve demand.
ANTITRUST IN ITALY
The Italian antitrust authority, whose official name is Autorità garante della concorrenza e del mercato (Competition and Market Authority), was established by Law 287/10 of October 1990. It is a collegial authority of five members, appointed by the Presidents of the Chamber of Deputies and the Senate and assisted by offices, which it organises autonomously. The president is chosen from among persons who have held institutional positions and are known to be independent. The four members are chosen from personalities in the judiciary (Council of State, Court of Auditors, Court of Cassation) and in university teaching (ordinary professors of economic or legal subjects) or from other prominent and recognised professional figures with experience in the field of economics. Article 10 of the founding law stipulates that the Italian Antitrust Authority operates autonomously and with independence of judgement and assessment. It is independent of the executive and does not answer to Parliament; it is subject to judicial review. The protection of competition requires complex regulation and the Italian experience has also been innovative in terms of the powers entrusted to the Authority. The 1990 law defines three protection functions assigned to the Authority: to strike at restrictive agreements between colluding companies; to prevent abuses of a dominant position within the national market, with negative effects on consumers or limiting the freedom of other companies to enter the market (with penalties of up to 10% of turnover, but never of a criminal nature); and to monitor merger operations between companies, such as mergers, to assess whether they restrict competition or excessively strengthen a dominant position in the market. Agreements that restrict competition are not sanctioned if they are temporary and if they produce effects that benefit consumers by improving the supply available on the market or by strengthening the competitive position of companies on the international market. Similarly, the high market share achieved by an undertaking does not in itself constitute abuse of a dominant position. The abuse is sanctioned when undertakings, whose turnover covers high market shares, exploit the dominant position to charge unfavourable prices to purchasers, or prevent the entry of new competitors, or block technological progress. In summary, Italian a. legislation recognises the efficiency gains resulting from economies of scale and scope when they are exploited for the benefit of the consumer.
Finally, the Authority reports laws, regulations, legislative initiatives, which distort competition, to the government and Parliament (with acts that have no binding effect). The Authority has worked to change legal principles, collective, ethical and professional beliefs that are hostile to competition and insensitive to its benefits. The tasks of the Authority in its supervisory functions now extend to the banking sector, whereas until 2005 competition supervision was the responsibility of the Bank of Italy. Supervision still provides for an important exception: undertakings that by law operate services of major public interest, even under monopoly conditions. Thus, so-called public utilities are excluded.
After 1990, the Authority’s functions were expanded to include, with Legislative Decree 74/25 January 1992, the supervision and sanctioning of misleading advertising, which could harm consumers and have distorting effects on competition. Moreover, with Law 215/20 July 2004, on the subject of conflict of interest, the Authority performs the additional task of ascertaining incompatibility situations, which prevent people from holding offices as a result of conflict of interest; it must supervise the consequent prohibitions and promote, in the event of non-compliance, the relevant suspension from offices or roles held in conflict with the legislation in force on the subject.
