Cartel Prosecution in Italy: Recent Cases and Developments

Davide Balboni and Laura Matilde Cerri

SJ Berwin

As declared by the chairman of the Italian Competition Authority (the ICA) while presenting the Annual Report April 2007–March 2008 of the ICA (the Report), ‘cartels are not minor sins; they are serious misdeeds which harm our society by obstructing the free play of competition’.
In line with EC Regulation 1/2003 (the Regulation) and the 2006 Commission’s Guidelines on the methods of setting fines (the Guidelines), the imposition of severe fines remains the ICA’s preferred enforcement tool against secret horizontal cartels. High fines are, in fact, crucial to achieving a deterrent effect on the undertakings fined and, indirectly, to discourage other players from engaging in serious anti-competitive conduct. High fines also preserve the effectiveness of leniency programs, which can increase the level of cartel prosecution only if able to encourage undertakings to come forward with evidence enabling the ICA to uncover secret cartels in return for immunity or reduction of severe fines otherwise applicable.
However, the ICA’s chairman also stressed that ‘in order to achieve [...] effective enforcement, cartel prosecution shall be improved with newly introduced enforcement tools of leniency, interim measures and commitments’ decisions, [which] in a context of economic steadiness can be a more effective enforcement tool than the application of administrative fines’.

Update on cartels prosecution in Italy

In the past year, cartel prosecution in Italy significantly increased: the ICA analysed 26 cases of violations of article 81 of EC Treaty or of the equivalent provision of Law No. 287 of 1990 (the Italian Competition Law)¹ and, in the 13 cases where it ascertained violations, it imposed fines totalling €62 million, thus positioning itself – according to the ICA Report – as the top European national competition authority for fining cartels.
In particular, eight of these proceedings have been closed with the imposition of fines (six infringed article 81 of the EC Treaty² and two the equivalent national provision),³ three with the acceptance of the commitments offered by the parties,⁴ and one with partial imposition of fines and partial acceptance of the commitments offered by certain parties.⁵
Despite that the ICA issued the guidelines of the Italian Leniency Programme only on February 2007,⁶ and although undertakings were initially reluctant to use this new instrument, leniency is now becoming an important tool in cartel prosecution in Italy. The ICA, as said by its chairman in the Report, ‘is currently analysing 12 cases involving leniency applications’ and already decided one case granting immunity from fines to the leniency applicant.⁷
It is worth finally mentioning that the Italian parliament approved the 2008 Budget Law, which contains the legal basis for the introduction in Italy of class actions, which can be also used to recover damages arising from cartels. Even though such provision should have become enforceable in July 2008, its entry into force has been postponed until January 2009, in order to improve its legal basis.

Cartels prosecution: new trends

The most significant trend arising from cartel prosecution and subsequent jurisdictional review is a framework in which the ICA tends to fine severely any serious violation of competition law, but the administrative courts often reduce the fines applied. In addition, judges have been shown to be very strict in scrutinising the ICA’ compliance with the burden of proof criteria for the demonstration of a cartel.

Imposition of severe fines often reduced by administrative courts
Appeals against the ICA’s decisions fall within the exclusive jurisdiction of the administrative court of Lazio (TAR Lazio) and may be further appealed before the second degree administrative court (Consiglio di Stato or CdS). The administrative judges, among their powers of review, with the exclusion of the possibility of substituting their discretionary evaluation for the ICA’s one, are competent to verify the reasoning, the completeness of the motivations, and even the truth of the facts upon which the ICA based its decision (and applied relevant fines).⁸
The outcome of such judicial review can be a confirmation or a total or partial annulment of the ICA’s decision (for instance, with the possible confirmation of the merits of the ICA’s decision and the total or partial annulment of the fines imposed), save for a possible recalculation, by the same judges, of the fines.
The ICA’s policy of pursuing deterrence through the imposition of high fines is in principle supported by administrative courts, for instance in the judgments on the particleboards cartel⁹ and the marine paints cartel,¹⁰ where judges endorsed the ICA’s application of the Guidelines; or in the judgments on the technical gases cartel¹¹ and the diagnostic tests for diabetes cartel,¹² where judges stressed the importance of the imposition of severe fines for hard-core violations; or in the judgment on the ostomy devices cartel,¹³ where TAR Lazio confirmed that the ICA correctly refused the commitments proposed because the nature of the violations prima facie ascertained were serious and the ICA correctly deemed it opportune to impose severe fines in order to pursue deterrence.
However, in practice, the outcome of some of these judgments is a material reduction of the fines applied.
This was the case, for instance, in the judgment on the marine paints cartel, where TAR Lazio reduced by 50 per cent the basic amount of the fines to be applied for a lack of satisfactory evidence provided to support the alleged effects produced on the market, and of the judgment on the particleboards cartel, where TAR Lazio confirmed the merits of the ICA’s decision but annulled or reduced the amount of the fines applied to some parties for a disproportionate or discriminatory calculation.
The judgment on the technical gases cartel is also particularly important because the CdS, in annulling the ICA’s decision, deeply criticised the ICA’s approach to the calculation of fines. In substance, according to the CdS, if it is in principle correct to divide under-takings to be fined into groups on the basis of the relevant turnover achieved, the ICA is then bound to also take into account the effective role played by each party in the cartel’s implementation and to calculate the amount of the fines applied to each member of the cartel on the basis of these factors, and include the reasons for the levels of fines imposed.
Also in its judgment on the collection of games and bets cartel,¹⁴ the CdS criticised the ICA’s discrepancy in applying the relevant criteria for the calculation of fines and censured its practice of not justifying or explaining the motivation for the percentages applied to the parties’ turnovers to determine the relevant fines. The CdS therefore asked the ICA to produce a table summarising the fines applied to violations ascertained during the period 2004 to 2006, indicating, for each company: the fine applied, the gravity of the infringement, the duration of the infringement, the mitigating or aggravating circumstances considered, the fines applied based on a percentage of relevant turnover, and the other criteria used. The judge moreover stressed that the frequent discrepancies or lack of motivation ascertained in the ICA’s decisions with regards to fines renders opportune the introduction of national guidelines on the methods of setting fines.
Finally, based on several recent judgments,¹⁵ the trend for reducing fines seems to be confirmed also in cases of serious violations, where fines tend to be set at 1 per cent of the infringer’s turnover.
Such tendency is negatively viewed by ICA because it risks not being a proper deterrent for undertakings, especially if considering that the Guidelines provide for a maximum fine of 10 per cent of the infringers’ turnover, and further risks undermining the effectiveness of the newly introduced leniency programme.

Burden of proof for the demonstration of the existence of a cartel

The abovementioned judicial trend of systematically reducing fines applied by the ICA is coupled with severe control over the ICA’s compliance with the burden of proof criteria for the very existence of a cartel.
The CdS, conscious of the rarity of cases where the ICA disposes of ‘smoking guns’, in the judgment on prices of baby milks cartel¹⁶ declared that it is necessary or sufficient to delineate an adversary framework, based on precise, convergent and serious clues, which very likely exclude the possibility of explaining the undertaking’s behaviour in any other rational way. Also in the judgment on the jet fuel surcharge cartel,¹⁷ the CdS, in order not to undermine deterrence, acknowledged the importance of evidence based on several serious, convergent and precise clues, even if they result from actions that, if considered severally, would not be deemed as infringements.
In line with this, in the judgment on ostomy devices cartel, TAR Lazio¹⁸ stated that, contacts and exchanges of information among the parties having been proved, it would have been for same parties (of the alleged cartel) to demonstrate that their behaviour was for economic reasons, thus implicitly reversing the burden of proof. Similarly, in the judgment on the disinfectant products cartel,¹⁹ the CdS acknowledged that, in a case where the evidence collected by the ICA clearly appeared to prove the existence of an anti-competitive agreement, decisive elements in order to demonstrate the non-existence of a cartel were accessible to and could have been produced only by the parties.
Notwithstanding the above, in the judgment on the technical gases cartel,²⁰ CdS annulled the ICA’s decision after having analysed its reasoning and deemed the factual delineation given in support of the fines applied insufficient to demonstrate the existence of a cartel. The court stated that the steadiness of market shares and a high level of customer loyalty are not, per se, evidence of a cartel; in addition, occasional contact between competitors’ employees (mainly occurring at local level and regarding a few supplies) is not sufficiently indicative of a coordination at the level of competitors’ managers, which is required to prove the existence of a cartel.
This judgment has been highly criticised by the ICA in its Report and was appealed by the ICA before the Corte di Cassazione.

Most relevant cartel cases recently decided by ICA

Manufacturers of particleboards

In May 2007 the ICA levied a total fine of €31 million²¹ against eight major manufacturers and suppliers of particleboards in Italy, responsible for having implemented, from January 2004 until November 2005, a hard-core cartel (consisting, inter alia, of price fixing, market sharing and production allocation), which seriously affected the relevant market. This is also the first case²² where the ICA applied the Italian Leniency Programme, granting immunity from fines to the leniency applicant.

Fuel distribution industry

On December 2007 the ICA closed, with a commitment decision, the investigation opened against all major fuel refiners and distributors active in Italy, who were accused of exchanging sensitive information through the specialised press, fixing the level of recommended prices to be applied to end-users and preventing newcomers from accessing the distribution network.
The commitments accepted include stopping publication of recommended prices in the specialised press, increasing self-service points of sale, which apply lower end-user prices than full-service stations, introducing measures suitable to allow the entry of supermarket chains into the distribution network, granting to third parties, not vertically integrated, access to existing logistical and warehousing infrastructures, and making available to third parties a proportion of the fuel refined by vertically integrated players.
This case is a clear indication of a new ‘regulatory’ trend which the ICA seems willing to follow in cartel prosecution. The nature and scope of the commitments accepted go, indeed, far beyond the scope of the antitrust violations initially challenged by the ICA, which seems to wish to pursue the ‘regulation’ of a market characterised by certain competition inefficiencies, rather than strict prosecution of contested practices.
The ICA’s ‘non-orthodox’ regulatory approach has already raised some criticism among practitioners and some of the undertakings concerned. First of all, commitments would not be admissible given that the initially ascertained violations would qualify as hard-core ones. Second, commitments were ‘accepted’ (imposed) by the ICA to achieve regulatory effects wider in scope than a prohibition order might have achieved, implementing a measure disproportionate to the challenged allegations.

Several cases in the pharmaceutical industry

The pharmaceutical industry has been one of the main focuses of the ICA’s activity in last years, as stressed in the Report, given the recent liberalisation brought in by the Bersani Law in the distribution of pharmaceuticals without medical prescription (SOP) and over-the-counter pharmaceuticals (OTC).
In a decision in September 2007, the ICA imposed limited fines up to €10,000 on four wholesalers of SOP, who had coordinated their conduct and refused to supply alternative retail chains in some Italian regions. Although the conduct at issue constitutes serious restriction of competition, the ICA levied limited fines because, at the beginning of the investigation, it imposed interim measures on the investigated distributors in order to remove rapidly the effects of their conduct, which was intended to delay the liberalisation of the sector, and the distributors promptly complied with said interim measures.
In August 2007, the ICA closed the investigation opened against four major producers and suppliers of ostomy devices for bid-rigging conducts aimed at obstructing the introduction of innovative and cost-saving single-supplier tender procedures envisaged by certain local sanitary authorities. Given the seriousness of the infringements, the ICA rejected the commitments offered and imposed overall fines of €4 million.²³
Finally, in June 2008, the ICA applied a limited fine of €11,200 on the trade association of pharmacists of the province of Teramo for having sent a circular to its associates with a list of maximum discounts to be applied to 250 kinds of SOP. Although the infringement was considered very serious by nature, as it was intended to produce price uniformity among the associated pharmacists, the fine applied was limited because, in the case of trade associations, it is calculated based only on the association’s fund, which is usually very small. In this regard, the ICA’s chairman, in the Report, asked parliament to remove such obstacles and allow the ICA to effectively achieve deterrence by sanctioning, in case of similar violations, not only the associations but also their members.

Water industry

In November 2007, the ICA imposed an overall fine of €11 million on the main providers of water services, responsible for having coordinated their strategies by systematically jointly participating – when they could have bid individually – in public bids called for the supply of the service, or jointly participating in the procedures for acquiring a controlling interest in licensed operators in several water districts.

Marine paints

In January 2007, the ICA imposed an overall fine of €4.3 million on five producers of marine paints for the implementation of bid-rigging agreements aimed at (i) fixing prices, (ii) sharing out customers, (iii) keeping steady their traditional market shares and (iv) foreseeing mechanisms of compensation for tenders won in violation of the market-sharing criterion. The undertakings concerned offered commitments, which the ICA, given the serious nature of the violations ascertained, refused.²⁴
Other cartel cases under investigation by the ICA include (see next page):

Case Infringements under investigation

I686, INAIL’s general treasury service Bid-rigging
I694, Price list of pasta Price increase coordination
I697, Recycling of lead batteries Restrictive conduct against potential newcomers
I700, LPG (liquefied petroleum gas) for domestic use in Sardinia Price coordination in an oligopolistic market
Cosmetics producers Exchange of information and coordination of commercial strategies
A391, Motorway assistance on highways Price fixing – the ICA is currently reviewing the behavioural commitments offered.

Notes

1 As from May 2004, ICA predominantly applies article 81 of the EC Treaty – in total, to 22 cases – rather than the equivalent national provision – applied to only six cases.
2 I646, Marine Paint producers; I649, Particleboards producers; I657, Alliances for the tenders called for local public transport services; I670, Acea-Suez Environment/Publiacqua; I675, ABI–unilateral amendments to terms and conditions; A372, Concrete market.
3 I666, Public tenders called for the supply of ostomy devices and I678, Distribution of SOP to alternative retail chains.
4 I661, Banking agreements Abi/Cogeban; I668, Turin Veterinarians’ professional order; I681, Prices of fuel distributed on the network.
5 I651, ADS – Audipress.
6 The Leniency Programme was introduced into Italian Competition Law by Law 248 of 2006 (the Bersani Law).
7 I649, Particleboards cartel.
8 As recently stated by Judgment No. 7063 of 2008 of United Sections of the Italian High Court, among others, where a participant of the cartel of diagnostic tests for diabetes, fined by the ICA in 2003, appealed against the decision of the CdS.
9 TAR Lazio Judgment No. 2312 of 2008.
10 TAR Lazio Judgment No. 14157 of 2007.
11 CdS Judgment No. 1006 of 2008.
12 CdS Judgment No. 1397 of 2006.
13 TAR Lazio Judgment No. 5578 of 2008.
14 CdS Judgment No. 6469 of 2007 Lottomatica/Sisal.
15 CdS Judgments No. 6469 of 2007, Lottomatica/Sisal and No. 695-697 of 2008, National Association of movie theatre operators in Lombardy (referred to also in the CdS Judgment No. 424 of 2008, Jet fuel surcharge).
16 CdS Judgment No. 102 of 2008.
17 CdS Judgment No. 423/4 of 2008.
18 TAR Lazio Judgment No. 5578 of 2008.
19 CdS Judgment No. 1009 of 2008.
20 Council of State’s Judgment No. 1006 of 2008.
21 See the relevant TAR Lazio judgment cited above that confirmed the merits of the ICA’s decision but partially annulled and reduced fines levied.
22 Before the implementation of the Italian Leniency Programme, the ICA resolved in 1997 not to impose the fine otherwise applicable to a member of the operators in the sector of explosive devices cartel (Case No. I293) on the basis of the valuable cooperation offered by the undertaking, which decided to cease its involvement in the cartel even before the opening of the investigation. TAR Lazio then confirmed ICA’s decision.
23 See TAR Lazio’s Judgment No. 5578 of 2008, cited above, that confirmed the ICA’s decision but reduced by two-thirds the fines levied for a lack of evidence of the seriousness of the violations challenged and a lack of demonstration of negative impacts on the market.
24 See the relevant TAR Lazio judgment cited above that confirmed rejection of commitments but reduced fines.

An extract from The European Antitrust Review 2009