The Italian Court awards to a local telecom operator damages in a follow-on case of a margin squeeze decision against the incumbent operatordi Giovanni Scoccini, pubblicato in Concurrences
On the December 27 2013, the Enterprises Court of Milan awarded damages to Brennercom, a fixed-line telecom operator active in the north-east of Italy, in respect of a claim brought against Telecom Italia.
This case arose as a follow-on action from a decision of the Italian Competition Authority (hereinafter “ICA”) establishing that Telecom Italia abused its dominant position by discriminatory practices on the market of the supply of wholesale termination services. The telecom sector has proved to be one of the most interested in the antitrust private enforcement. Most of the recent antitrust claims have been brought by telecom operators against their competitors.
•The ICA decision
In August 2007 the ICA found that the mobile network operators Telecom Italia and Wind abused their dominant positions by applying to their final consumers conditions for the integrated fixed-mobile service which were on more favourable terms than those offered to their competitors for the call terminations on their respective mobile networks. The mobile network of each operator was considered a separate relevant product market. Therefore, Telecom Italia and Wind, which were both integrated fixed-mobile operators, were each considered dominant in the respective markets of their mobile networks.
This was a typical case of margin squeeze. The integrated fixed-mobile operators, Telecom Italia and Wind, that were dominant in the upstream markets supplied a key input (the service of call terminations on their mobile networks) to fixed-line operators, such as Brennercom, that were competing with them in the downstream market of the fixed-line services. Telecom Italia and Wind were found to charge to the fixed-line operators a price for the input which was higher than the price that their commercial divisions were offering to the final consumers for the calls from fixed-line to mobile phones. It is obvious that the commercial divisions of the infringers could offer lower prices to final consumers because they did not have to pay the same price for the input charged to non-integrated fixed-line operators.
According to the ICA this discriminatory price squeezing behaviour was capable of excluding non-integrated fixed-line operators, such as Brennercom, from the market.
The proceeding was opened following a complaint of a fixed-line operator and many others intervened in the proceeding. However Brennercom did not.
For the sake of completeness, Vodafone was investigated by the ICA as well. However, the ICA did not ascertain the infringement of Vodafone because this latter offered some specific commitments in order to restore competition in the relevant markets.
•The Brennercom’s claim before the Enterprises Court of Milan
Brennercom brought a follow-on claim for damages alleging that it had suffered loss and damages for a total amount of € 2,296,908. The heads of the claim were:
1.Loss of clients that switched from Brennercom to Telecom Italia because Brennercom could not match the prices of the Telecom Italia’s offers to final consumers.
2.Loss of volume of calls. Many Brennercom’s clients used the services of other telecom operators for their calls to mobile networks.
3.Margin squeeze. Brennercom did not pass on the higher costs of the call terminations on the mobile networks to its clients. It fully absorbed the damaged reducing its profit margin.
•The judgment of the Court
The Enterprise Court of Milan held that the action brought by Brennercom could be deemed as a follow-on action even if Brennercom was not a party of the proceeding before the ICA.
The judge stated that in order to deem an action as a follow-on action of an abuse of dominance it is necessary to look at the infringer and the unlawful conduct instead of the victims. Anyone who acts against the infringer for the same conducts that were outlawed by the decision qualifies for a follow-on action.
Because Brennercom’s actions was considered as a follow-on action it did not have to prove the infringement committed by Telecom Italia. In this respect it could rely on the decision of the ICA.
However, the judge clarified that the claimant still had to prove the damage it suffered, its quantification and the casual link between the damage and the antitrust infringement. Consequently, the Enterprise Court of Milan stroke out the first two heads of the claim because Brennercom did not submit any evidences about the fact that Brennercom’s clients switched to Telecom Italia or bought from Telecom Italia services for their calls to mobile networks.
As to the third head of the claim, the judge requested witness experts to assess the damage consisting of the margin squeeze. The judge asked the witness experts to apply a two-step test. The first step was to establish whether Brennercom had to apply lower prices to its clients in respect of the prices it would have applied if Telecom had not applied to its internal commercial divisions prices for call terminations on the mobile network which were lower than whole sale price that Telecom applied to Brennercom.
If the answer was positive, the second step of the test was to quantify the reduction of the profit of Brennercom because it had to decrease its prices in order to match the offers of Telecom for business consumers taking into account the competitive pressure of the other players in the market.
Based on the counterfactual scenario built by the witness experts the judge quantified the damage suffered by Brennercom in the amount of € 433,000.
One of the most interesting issues arising out this case regards the burden of the proof in follow-on actions of decisions ascertaining an abuse of dominance. The judge has made some important developments on the difference between follow-on actions of cartel cases and follow-on actions of abuse of dominance.
Under the Italian law the decisions of the national competition authorities do not bind the courts, while the decisions of the EU Commission do pursuant to Article 16 Regulation no. 1/2003.
However, even if not binding, the decision of the Italian Competition Authority are considered by the case law as a “privileged evidence”. The Supreme Court in a number of judgments (no. 3640/2009 and more recently no 5941/2011, no 5942/2012) has stated that the decisions adopted by the Italian Competition Authority ascertaining the liability of an undertaking for antitrust infringements could be regarded as “privileged evidence” sufficient as such for an inversion of the burden of proof between the parties in civil court trials, save in any case the successful rebuttal of proof by the defendant. Therefore, in follow-on actions arising out from both cartel decisions and abuse of dominance decisions the claimant does not have to prove the unlawful conduct of the defendant.
The difference between follow-on actions of cartel cases and follow-on actions of abuses of dominance lies in the proof of the casual link and the existence of the damage.
With regards to follow-on actions of cartel cases the Italian Supreme Court in the judgement no. 11610/2011 has stated that there is a rebuttable presumption that the damage suffered by the claimant has been caused by the cartel. The position of the Italian Supreme Court seems to have been adopted by the EU legislator. The agreed text of the Directive on Antitrust Damages Actions, which should be adopted in the next months, establishes a rebuttable presumption that cartels cause harm.
According to the Enterprise Court of Milan this rebuttable presumption established both by the Supreme Court and in the future Directive does not apply in follow-on actions of an abuse of dominance. The burden of the proof lies with the claimant with regard to the existence of the damage that he alleges he has suffered, its quantification and the casual relationship between the damage and the abuse of dominance.
However, the practical differences between follow-on actions of cartel cases and follow-on actions of abuses of dominance regarding the burden of the proof seems to be limited.
On the one hand the Enterprise Court of Milan stated that the casual relationship can be inferred also through logical reasoning. According the Enterprise Court of Milan the burden of the proof is met if the proposition is more likely to be true than not true. Given that (i) Brennercom and Telecom Italia were competitors in the market of fixed-line phone services, (ii) the ICA held that the unlawful conduct had exclusionary effects and (iii) Brennercom supported higher costs for the call terminations on the mobile networks of Telecom, the judge held that the conduct of Telecom Italian was more likely to have damaged Brennercom than not.
On the other hand, in both follow-on actions of cartel cases and follow-on actions of abuses of dominance the quantification of the harm requires an assessment of the effects of the unlawful conduct. Therefore, at the end of the day, even if the claimant has the benefit of the rebuttable presumption that he suffered a damage because of the anti-competitive behaviour, the judge will have to establish the damages in reality suffered by the claimant.