Italian Competition Authority's proposals for market and procedural reforms to promote competition in Italy

On 23 March 2021, the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato, “ICA” or the “Authority”), in its consulting role for the Government in the context of the enactment of the annual competition law, issued a series of proposals for reforms.

The result is a substantial and ambitious document which addresses a variety of structural distortions and procedural aspects.

The proposals can be grouped into two categories: (i) those suggesting market reforms (“Proposals for Market Reforms”) and (ii) those covering procedural aspects of the Italian competition law (“Proposals for Procedural Reforms”).

Among the several Proposals for Market Reforms, the ICA has paid particular attention to the energy, pharma and digital sectors.

But the proposals are not only relevant for players active on those markets. Indeed, certain Proposals for Procedural Reforms may have a significant impact on the structuring of concentrations that do not meet the thresholds set out by the Italian merger control rules and which, in future, could fall under the Authority's scrutiny.

1. PROPOSALS FOR  MARKET REFORMS

Energy

With respect to the energy sector, the ICA focused on the following areas.

1. grid infrastructure: according to the Authority, the increase in non-programmable renewables plants has triggered a growth in the demand of ancillary services and, at the same time, a lower availability of power plants able to provide them. As a result, few operators may acquire a significant market power, particularly in the Central and Southern Italy¹. In order to prevent abuses of a dominant position in the ancillary services market, the ICA has, therefore, urged to implement structural changes on the grid infrastructure and, in particular, to promptly (i) implement the Directive EU 2019/944 and (ii) approve and implement the plan of development of the grid² prepared by the Terna S.p.A.³ in a shorter timeframe;
2. electricity retail market: as of 31 December 2022, the enhanced protection (Maggior Tutela) regime for end customers will end. However, according to the ICA, the retail electricity market is still not competitive and one of the obstacle is the legislative provision entrusting the enhanced protection service (servizio di maggior tutela) to vertically integrated undertakings, causing high concentrations in local markets, compartmentalisation of supply and market foreclosure. Therefore, the Authority has suggested to select suppliers of the enhanced protection service on a national basis. In addition, the ICA has highlighted that smart metering systems should be implemented as soon as possible;
3. public concessions: according to the ICA both water derivation and gas distribution concessions must be awarded through competitive process. In particular, the Authority’s proposal consists in amending the legislative framework concerning hydropower concession regime in order to provide that the tender procedures shall be carried out on national basis⁴ and according to principles of equity, non-discrimination and transparency, avoiding measures that could benefit the outgoing concessionaire. At the same time, the ICA proposed a set of amendments aimed at encouraging the municipalities to speed up the tendering processes on concessions for the distribution of natural gas;
4. e-mobility: the Authority has pointed out that the development of electric infrastructure for recharging vehicles is an important step towards sustainable mobility, which, however, must be based on principles of competition, technological neutrality and interoperability of installations. Therefore, the ICA has suggested to (i) enact transparent and non-discriminatory procedures for the allocation of public spaces and the selection of operators for the installation of recharging stations, identifying as one of the evaluation criteria the price of the recharging services and ensuring the technological neutrality and interoperability of the systems, and (ii) repeal any kind of tariff regulation in relation to the supply of electricity for both private and public recharging;
5. general charges: the Authority has proposed to apply these charges, currently mainly aimed at covering incentives to renewables, to the use of fossil fuels in heating and transport instead of imposing them on all electricity end customers.

Pharma

With respect to the pharma sector, the ICA's proposals for reform are specifically aimed at:

1. removing the constraints on registration proceedings for equivalent medicines before patent expiry (patent linkage). To this end, the Authority has proposed to repeal the provision under which the reimbursement of equivalent medicines is subject to the expiry of the patent or supplementary protection certificate of the reference medicinal products;
2. increasing the competitiveness of public tenders for the purchase of medicines. To this end, the ICA has proposed to allow, in the context of public procurement procedures for biosimilar drugs, the participation of different active substances having the same therapeutic indications, provided that the Italian Agency for Pharmaceuticals (“AIFA”) has confirmed that they are therapeutically equivalent;
3. containing the price of drugs and increasing the bargaining power of public entities in the drug contracting process. To this end, the Authority has suggested to correct the anti-competitive distortions affecting the negotiation of the price of reimbursement of medicines by the national health service by introducing a rule to strengthen AIFA's negotiating position;
4. easing wholesalers' obligations to assort medicine products by remodelling them on flexible quantitative thresholds set out on the basis of the territory demand, so as to allow more efficient and flexible forms of business organisation that continue to guarantee the drugs availability in the territory;
5. repealing the obligation for manufacturers of galenic preparations to produce the active substance required for the preparation autonomously, when the medicine which is industrially produced is covered by a patent.

Other sectors

Other proposals relate to the following sectors:

• digitisation networks;
• infrastructure and port activity;
• public procurements;
• efficiency and quality of local public services;
• retail sector;
• portability of pension funds;
• regulation of voting rights in joint stock companies;
• promotion of circular economy in the waste sector.

2. PROPOSAL FOR PROCEDURAL AMENDMENTS

The Authority has submitted a number of proposals of reform of the Italian competition laws, in order to ensure consistency with the approach of the European Commission and other EU Member States.

Some of them, although of procedural nature, may have a significant impact on operators.

Below-threshold transactions

Similarly to the new approach of the EU Commission on Article 22 EUMR (see https://hsfnotes.com/crt/2021/04/01/commission-publishes-guidance-on-article-22-referrals-for-transactions-falling-below-national-thresholds-new-approach-can-impact-pharma-tech-and-other-deals-involving-start-ups-or-innovator/), the ICA’s proposal is aimed at empowering the Authority to scrutinise "killer acquisitions", frequent in the digital economy, and creation of local monopolies⁵.

In particular, the ICA has suggested to be granted with an intervention power also in respect to below threshold transactions, provided that:

• there is a risk for competition in the national market (or in a substantial part of it);
• the transaction has been completed in the last six months;
• one of the two thresholds set out by article 16, paragraph 1 of Law No. 287/1990⁶ is met or the overall aggregate worldwide turnover of all the undertakings involved in the transaction is higher than EUR 5 billion.

If these requirements are met, the Authority could request the companies to notify the transaction within 30 days.

Abuse of economic dependency and digital platforms

The proposed amendment concerns the introduction of a rebuttable presumption of economic dependence in commercial relations with an undertaking offering intermediation services on a digital platform, where the latter plays a decisive role in reaching end users and/or suppliers, including in terms of network effects and/or data availability.

Since this would be a rebuttable presumption, it would be always possible for the digital platform to prove that there is no economic dependence for third party companies.

The Authority has also provided a non-exhaustive list of certain practices which may constitute a case of abuse of economic dependence by the digital platforms, so that these can adapt their own behaviours in commercial relations with third parties asking for their services.

Primary importance undertaking - gatekeepers

In order to effectively counter anti-competitive distortions in those markets where a gatekeeper operates or there are companies that need such a gatekeeper to access end users or suppliers, the Authority has suggested to introduce a specific provision setting out the possibility of granting certain companies with the status of "undertakings of primary importance for competition in several markets". These undertakings should then be banned from practicing highly distortive conducts, unless they are able to demonstrate that their conduct is objectively justified.

Other proposal for procedural amendments

Other procedural amendments have been submitted by the Authority to the Italian Government. These relate to:

• the substantive evaluation test and the treatment of efficiency advantages in merger cases;
• the treatment of joint ventures;
• calculation of relevant turnover for banks and financial institutions;
• the extension of the Phase II term for the conclusion of the investigation phase in merger cases to 90 days (instead of 45 days)⁷;
• the introduction of a settlement procedure;
• sanctioning powers other than those connected with the investigation proceedings;
• the Authority’s competences in agri-food supply chain.

3. COMMENTS

The Authority’s proposals are thought-provoking and potentially impacting several sectors and markets.

Many of these arise as a response to various critical issues identified over the last years by the same Authority and by operators in emerging sectors of the economy and, hence, they will be certainly well accepted if implemented.

However, at least one of those proposals rises some concerns as – if enacted by the Government – it will bring uncertainty for operators. The theoretical possibility for the Authority to scrutinise transactions already completed could hardly be addressed in the contractual documents. In addition, this procedure would overlap with a possible referral under Article 22 EUMR to the Commission. Therefore, this proposal should be at least better coordinated with the new approach on Article 22 EUMR to give operators a clear view of the different possible scenarios and the impact on their transactions.

This proposal would not only have an impact on big players in their attempt of carrying out "killer acquisitions" in the digital and pharma economy but also whenever the markets are regional-wide, where the possibility of creating a dominant position by merging with below-thresholds companies is high.

1. In 2016, the Authority started two proceedings aimed at verifying possible abuses of a dominant position. One has been closed with commitments (A498A, Enel – decision No. 26562 of 4 May 2017) and the other one closed ascertaining that the player was not dominant (A498B, Sorgenia - decision No. 26563 of 4 May 2017).
2. This is aimed at planning, on a ten-year basis, investments for the development of the energy grid. This plan is prepared by Terna S.p.A. every two years and it must be approved by the Ministry of Economic Development, subject to prior opinion of the Authority for Energy, Networks and Environment (“ARERA”).
3. Terna S.p.A. is the national transmission system operator.
4. The current legislation provides that public tender procedures must be carried out in order to grant the market players with concessions to derivate water.
5. A kind of scrutiny for below-threshold transactions is also envisaged in Germany, Norway, Sweden and Lithuania.
6. Currently, the two thresholds are: (i) the overall aggregate turnover achieved at national level by all the undertakings involved in the transaction is higher than EUR 511 million; and (ii) the overall turnover achieved individually at national level by at least two of the undertakings involved in the transaction is higher than EUR 31 million.
7. A similar term is already set out by Article 19 A of the German Competition Law (Gesetz gegen Wettbewerbsbeschhränkungen, GWB).

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