Italian Competition Authority investigates alleged abuse in the market for professional legal software
By Gabriele Accardo
On 20 May 2016, the Italian Competition Authority (ICA) launched an investigation (text only in Italian) against Net Service, holding that the company may have carried out allegedly abusive practices in the market for software applications used to create and manage online legal documents and files on the online civil proceedings platform, in breach of Article 102 of the Treaty on the Functioning of the European Union.
The ICA found that Net Service had been granted the contract (extended in various instances until today) to build, manage and service the infrastructure used to manage online civil proceedings, and as a result, the company gained a dominant position (a monopoly) in such (upstream) market.
Besides being the exclusive service provider of that online platform, Net Service also develops software applications that are used to create and manage online legal documents and files on the platform for online civil proceedings. In such (downstream) market, Net Service holds a 30-35% market share.
According to the ICA, Net Service has put in place certain allegedly abusive practices on the downstream market against competing developers of software applications, leveraging its dominant position held in the upstream market for the management of the platform, ultimately seeking to foreclose competing software applications providers.
In particular, Net Service did not provide its competitors all the technical information required in a timely and complete fashion to ensure full interoperability between the online platform and the software applications that can run on such platform.
In addition, Net Service had made available a model office (that is a working prototype of the product that shall be used for testing) to competitors different from the one Net Service uses to develop its own software applications.
Finally, Net Service either installed patches without informing competitors about the problems the patches would fix, or did not even inform about the existence of the patches altogether.
As a result of such practices, competing software application developers would only be able to develop a final functioning version of their own applications after Net Service has released its own products. This entails an advantage in terms of marketing of about one year since Net Services releases its products, whereas in practice, professional users of legal software applications appear to consider Net Services as the most reliable provider of such software applications.
The ICA considers that Net Service has an obligation to share the same technical information on which it relies on to develop its own software applications, so that competitors are able to offer new and reliable products, thus allowing consumers a wider and better choice of products.
National Competition Authorities take position on regulatory measures for online transport platforms
By Gabriele Accardo
In May 2015, the European Commission committed to assess the role of online transportation platforms, such as Uber, as it launched a public consultation to better understand the social and economic role of platforms, market trends, the dynamics of platform development and the various business models underpinning the platforms. According to the Commission, knowledge gained through this exercise will also contribute to various legislative initiatives—including online platforms regulation—which the Commission plans to launch to boost the Digital Single Market.
Currently there is a heated discussion as to whether online platforms should be subject to regulation at all.
While the European Commission may still take some time to elaborate on the contributions to the public consultation and eventually to state whether and to what extent some form of regulation may be warranted, recently, two national competition authorities, namely the UK Competition and Market Authority (CMA) and the Italian Competition Authority (ICA), made their view public.
The Position of the ICA
On September 29, 2015, the ICA issued an opinion on the legality of activities carried out by companies like Uber, which are carried out by either professional (e.g. Uber Black) or non-professional (e.g. Uber Pop) drivers through digital platforms accessible by tablets and smartphones.
The ICA first noted that it is not clear yet whether acting as an intermediary between the owner of a vehicle and a person who needs to make a trip by managing IT resources, is merely a transport service or, must be considered to be an electronic intermediary service or an information society service, as defined by Article 1(2) of Directive 98/34/EC.
The ICA noted that the Court of Justice of the European Union shall rule on this specific issue, and that until then it cannot be ruled out that the activity falls within the second category (i.e. an electronic intermediary service), which is not regulated, and therefore totally legitimate.
That said the ICA made the following findings, taking into account the characteristics of the activities carried out by Uber.
First, the ICA recognized that even traditional taxi services are more and more adopting technologies similar to those embraced by Uber. Yet, the ICA stressed that services such as Uber ensure a greater ease of use of the mobility service, a better response to a public need for which there is no current offering, and the ensuing reduction of the costs for users of such services. Last but not least, to the extent that it discourages the use of private means of transportation, Uber-like services also contribute to the decongestion of urban traffic.
Second, with regards to the activity of UberBlack or UberVan, i.e. transport services carried out by professional drivers, the ICA considers the current regulation (Italian Law No. 21 of 1992 concerning the non-linear public transport of people) as restrictive of competition insofar as its provisions restrict the geographic scope of the activity of vehicles to the municipality that has granted them a license, and further require that after each trip, each car must return to the base.
Third, with regards to the services such as those provided by UberPop, consisting of acting as an intermediary between the owner (non-professional driver) of a vehicle and a person who needs to make a journey within a city, the ICA observed that the Court of Milan ordered the blocking of UberPop throughout the national territory allegedly because this services would breach the rules regulating the taxi industry and may be characterized as an act of unfair competition. In that respect, the Court held that UberPop’s activity cannot be carried out to the detriment of people’s safety, in terms of cars used for the service, the suitability of drivers, as well as insurance coverage.
Yet, the ICA held that, even so, any form of regulation of such new services, if at all necessary, should be the least invasive as possible. In that respect, the ICA eventually singled out measures such as a registry for online platform providing such services and the provision of certain requirements for drivers.
The Position of the CMA
The position held by the UK Competition and Market Authority is even firmer than that of its Italian counterpart.
Preliminarily, while it recognized that “private hire vehicles” need the protection of appropriate regulation, the CMA considered that consumers also benefit from effective competition exerting downward pressure on prices and upward pressure on service quality and standards.
The CMA takes the view that innovative services (which include app-based booking systems) may drive efficiencies through which it is possible to offer benefits such as lower prices and greater responsiveness to demand. The introduction of new services also has an inherent benefit in the form of greater choice for consumers.
From a general stand point, the CMA thus considers that competition should only be compromised or restricted by regulatory rules to the extent that doing so is absolutely necessary for consumer protection. Above all, regulation should not favor certain groups or business models over others and any measures that restrict the choices available to consumers should be minimized.
The CMA focused on a number of regulatory proposals (made by the Authority Transport for London or “TfL”) that might have the greatest impact on competition.
5-minute wait requirement. TfL proposes that operators must provide booking confirmation details to the passenger at least 5 minutes prior to the journey commencing.
According to CMA, this proposal reduces the competitiveness of alternative services than black cabs by artificially hampering the level of service that new services can provide.
Approval for changes to operating models. TfL proposes that operators will be required to seek TfL approval before changing their operating model. The CMA considers that ex ante regulation of business models is liable to reduce incentives for innovation (a key competitive parameter) and by extension to restrict competition.
Mandatory pre-booking facilities. In the CMA’s view, mandating ancillary functions (such as a facility to pre-book up to seven days in advance) can place undue burdens on some providers, leading to increased costs for private hire vehicles and thus distorting competition, as those unable or unwilling to provide these functions will be excluded from the market. The CMA notes that in instances where consumers find ancillary facilities useful, they are likely to be provided by a competitive market where different offerings proliferate.
Fixed landline telephone requirement. Similarly, the CMA believes that TfL’s proposal whereby operators must have a fixed landline telephone number which must be available for passenger use at all times, could raise barriers to entry (entrants would have to provide both a number and staff to handle calls) as well as restricting innovation (including platform-based business models) and could therefore lead to reduced competition between private vehicle operators. Moreover, it is not clear that it is necessary to make this functionality mandatory, as consumers may not value having a landline number to contact to choose private hire vehicle operators that provide one.
Requirement to specify the fare in advance. Another proposal that the CMA rejects is mandating operators to specify the fare for each journey prior to the commencement of that journey. According to the CMA, the supply of a precise and fixed fare at the time of booking would effectively prohibit innovative pricing models that could be more efficient than pre-calculated fares (e.g. by varying according to supply and demand). This would remove another parameter of competition among private hire vehicle operators.
Drivers to only work for one operator at a time. TfL further proposed a requirement that licensed private hire vehicle drivers can only work for one operator at a time, claiming that this is necessary to reduce the risk of drivers working excessive hours for a number of different operators.
The CMA notes that this proposal may not be suitable or necessary to meet the stated objective. First, TfL’s proposal seems to address only excessive hours among drivers working for multiple operators, and not the risk of excessive hours among drivers working for a single operator, or the danger of black cab drivers working excessive hours.
More interestingly, the CMA believes that ‘multi-homing’ (i.e. the ability of drivers to work for multiple platforms) can allow drivers to switch their supply to where it is needed in the market. Mandatory single-homing can create a strong network effect, as it gives drivers the incentive to only work for the platform with the most customers. The consequence could be fewer private hire vehicle operator platforms, or even a single dominant platform, with the potential for all the consumer harm that platform dominance might bring.
By Gabriele Accardo
On April 21, 2015 the French, Swedish and Italian competition authorities jointly announced they have accepted—and made legally binding—the commitments (see FRA, ITA, SWE) offered by Booking.com, thus closing their respective investigations into the online hotel booking platform. The three authorities had also opened proceedings against Expedia. These proceedings are still pending.
The investigations concerned the clauses in the contracts between Booking.com and hotels that obliged hotels to offer Booking.com the same or better room prices and conditions as the hotels made available on all online and offline distribution channels (so-called “Most Favored Nation” or “MFN” clauses), including, for instance other Online Travel Agencies (“OTAs”) as well as hotels’ direct sales channels (see, Newsletter 1/2015, p. 17 Newsletter 3/2014, p.12 Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).
Such MFN clauses were deemed in breach of both national and EU competition rules, by restricting competition between Booking.com and other OTAs and hindering new booking platforms from entering the market.
The commitments offered by Booking.com consist of reductions in the scope of the MFN clauses.
Price parity vis-à-vis other OTAs. First, Booking.com committed to abandon the parity requirement in respect of prices which hotel make available to other OTAs. This would enable hotels to offer different room prices and/or better commercial conditions to different OTAs, and allocate them larger quotas of rooms.
Price parity vis-à-vis hotels direct sales. Secondly, hotels may also offer prices at a lower rate than those displayed on the Booking.com website via their offline sales channels (on-site bookings, by telephone, fax, email, instant messaging, physical sales outlets of travel agencies, etc.) as long as these prices are not published on the hotel’s website. They may also offer prices at a lower rate than those displayed on the Booking.com website to customers who are members of loyalty programs.
However, hotels would still have to offer the same or better room prices to Booking.com as are offered to the general public on the hotel’s own online booking channels. Nonetheless, hotels’ websites accessible by the general public may display qualitative information regarding the prices offered via their offline channels, such as “attractive prices”, “good prices”, etc. Furthermore, hotels will be allowed to send emails and SMS messages to consumers informing them of the prices offered via their offline channels, as well as to reach out to previous customers and offer them special discounts.
Other conditions. In addition, hotels may reserve a greater number of rooms to their direct online or offline sales channels than are allocated to Booking.com. Hotels will also be completely free to offer consumers more favourable conditions than those offered on Booking.com via other platforms and via their own offline channels. This includes breakfast or any other service (e.g. gym, spa, Internet access, etc.) as well as booking conditions (e.g. cancellation).
In essence, the commitments accepted by the competition authorities increase the hotels’ margin for maneuver, while acknowledging that price parity may be important in preventing free-riding on Booking.com’s investments and thus ensuring the continued offering of user-friendly search and comparison services free of charge.
In this respect, the three NCAs appear to have acknowledged that MFN clauses may bring about some efficiency. That is somewhat surprising given that during the market tests, stakeholders pointed to the fact that OTAs—not hotels—are the free-riders, notably on the investments made by hotels (e.g., brand, hotel facilities, quality of services provided to customers etc.), e.g. by purchasing hotels brands as keywords for online search. Also, hotels and other stakeholders actually expressed concerns that even a “narrow MFN” clause would produce the same effects as the fully-fletched MFN clause, since hotels would have basically no incentives to grant other OTAs lower prices than the price displayed on their own online sales channel (due to the risk of cannibalizing their direct sales).
It is not clear whether, in the light of their concerns, the intervening parties will decide the appeal the commitment decision(s).
Investigations in Germany…
While the French, Italian and Swedish competition authorities cheered the outcome of their cooperation and the coordination of the European Commission, the Federal Cartel Authority (“FCA”) in Germany was actually heading in the opposite direction on the very same issues in an ongoing investigation against Booking.com.
In fact, on April 2, 2015, the FCA sent formal charges to Booking.com regarding the use of “best price” clauses in its contracts with hotels in Germany.
In so doing, the FCA followed the same path it had already walked against HRS, another online booking portal once dominant in Germany.
In fact, according to the FCA, the statement of objections against Booking.com was necessary because the hotel booking portal had continued to use its best price clauses despite the fact that the FCA had prohibited similar clauses with a decision in the parallel proceedings against HRS.
The FCA’s decision was recently upheld by the Düsseldorf Higher Regional Court, which confirmed that HRS’s “best price” clauses restricted competition to such a degree that they could not be exempted under the EU Block Exemption Regulation (HRS’s market share was higher than 30%) or with an individual exemption (arguably, because the FCA found that such clauses brought about no efficiencies).
…and in the UK
These recent developments are particularly relevant in the context of the new investigation that the UK Competition and Markets Authority (“CMA”) has to carry out into Booking.com’s MFN clauses (the CMA replaced the Office of Fair Trading or “OFT” on April 1, 2014).
On September 26, 2014 the UK’s Competition Appeal Tribunal (“CAT”) reversed the OFT’s January 20th decision to accept commitments from online travel agents Booking.com B.V. (“Booking.com”, and its ultimate parent company Priceline.com Incorporated) and Expedia Inc. (“Expedia”), together with InterContinental Hotels Group plc. (“IHG”) (see Newsletter 4-5/2014, Newsletter 1/2014, Newsletter 5-6/2013 and Newsletter No. 4-5/2012 for additional background).
In the wake of the CAT’s decision, the case has been sent back to the CMA, which has been ordered to reopen the investigation into hotel online booking practices.
In its ruling the CAT noted that “by pursuing its investigation on the basis that it had identified restrictions ‘by object’ the OFT may have deprived itself of the ability properly to appreciate the significance of the role of operators such as Skyscanner, even though it had initially acknowledged the importance of price transparency as a force for competition and was aware, at least, that meta-search operators existed.”
It is worth recalling that in November 2013, the FCA and the OFT closed their respective investigations into Amazon’s price parity policy on its Marketplace platform following Amazon’s decision in August 2013 to end its Marketplace price parity policy across the European Union (see Newsletter 5-6/2013, p. 12, for additional background). The policy prohibited third party retailers from offering products through other online sales platforms cheaper than on Marketplace.
While it is hard to predict the outcome of the new investigation by the CMA, third parties and complainants may point to the recent developments illustrated above to call for a stricter approach by the CMA. In turn, the businesses under investigation may arguably prefer to settle the case once and for all by offering improved commitments in line with the French, Italian and Swedish cases. If that occurs, the German approach will be “singled out” as the stricter one in the European competition arena.
The issues assessed by several national competition authorities in Europe in the online booking sector were the perfect candidate for an EC investigation, which would have provided greater legal certainty at a faster speed. The reasons why this did not happen are unclear to most, and certainly the coordination efforts recently undertaken are no substitute for clear-cut enforcement. Historians of EU competition law may find the issue interesting to investigate
By Gabriele Accardo
On 14 April 2015, the Italian Competition Authority (“ICA”) launched an investigation (only available in Italian) against London Stock Exchange Holdings Italia (“LSEHI”) and its subsidiaries Borsa Italiana (“BI”, which manages stock trading platforms and infrastructure) and BIt Market Services (“BIMS”, which provides financial news services to traders in the downstream market) for an alleged abuse of dominant position in the financial information services market, in breach of Article 102 of the Treaty on the Functioning of the European Union.
BI manages stock trading platforms and infrastructure, and sells financial data regarding the transactions executed through its trading platforms to financial intermediaries or information providers, such as BIMS and eClass. In turn, BI and eClass are “vendors” of such data, which they use to carry on their own activities in the downstream markets for the provision of financial information.
The investigation was launched following the complaint by eClass in respect to:
- BI’s contractual terms which required each vendor to provide BI with a detailed list of their customers and the type of data purchased by each customer, on a monthly basis; and
- BI’s charging BlMS less than its competitors for the supply of market data, thereby allowing its sister company to submit better offers to the clients of its competitors.
According to the ICA, LSEHI and its subsidiaries may have engaged in an exclusionary strategy whereby BIMS used the information obtained by BI to win clients from the competition by designing packages that competitors could not match, especially in terms of price. This exclusionary conduct may have been facilitated by the frequent audits that BI carried out at the premises of the vendors’ customers, allegedly in order to determine the quantity and type of data accessed, and ultimately the fees to be paid.
Interestingly, the ICA considers the financial information supplied by BI an essential input for information providers, so that BI’s conduct may be subject to the essential facilities doctrine. In short, dominant companies should grant access to such “facility” on fair and non-discriminatory conditions in order not to hamper the development of the downstream market for the provision of financial information. The ICA argues that this is a specific requirement of the MiFID directive, which requires the manager of trading platforms to grant access to the data generated by the platforms on reasonable commercial terms.
The issue of the provision of critical data used in financial markets has been recently addressed by the European Commission, albeit in quite different cases, against Thomson Reuters and Standard & Poor’s (see, Newsletter 6/2012 Newsletter 4-5/2012, Newsletter 1/2012, Newsletter 3/2011, and Newsletter 6/2009 for additional background). In both instances, the two companies decided to offer commitments (see Standard & Poor’s and Thomson Reuters) to the Commission in order to close the investigations.
By Gabriele Accardo
On 2 December 2014, Italy’s Tribunale Amministrativo Regionale del Lazio (“TAR Lazio”) handed down its ruling (only available in Italian) concerning the alleged anticompetitive agreement between Roche and Novartis in the market for ophthalmic drugs used to treat some serious vascular eyesight conditions, which, in its decision of 27 February 2014, the Italian Competition Authority (“ICA”) found to be in breach of article 101 of the Treaty on the Functioning of the European Union (“TFEU”), and imposed fines totaling Euro 92 million and Euro 90,5 million on Novartis and Roche respectively (see Newsletter 2/2014 p. 18 and Newsletter 1/2013, p. 11, for additional background).
It is recalled that, according to the ICA, Roche and Novartis aimed at excluding the ophthalmic use of Roche’s Avastin in order to advantage the sales in Italy of Lucentis, which is distributed by Novartis. In particular, the decision found that since 2011 the two companies colluded to create an artificial product differentiation by claiming the use of Avastin for ophthalmic purposes to be more dangerous than in reality, in order to influence the prescriptions of doctors and health services in favor of the more expensive Lucentis. The ICA had found that Roche and Novartis had put into effect a “pervasive and continuous” concerted practice via meetings and exchange of emails.
The TAR Lazio essentially upheld the ICA’s findings, notably as to the anticompetitive object of the contacts between the two competitors, based on documentary evidence, such as exchange of written communications as well as companies’ internal documents. However, interestingly the court made an important point as to the scope of the assessment in similar matters, ultimately discarding a significant share of arguments put forward by the parties.
In particular, the TAR Lazio held that the scope of the ICA’s investigation and therefore of the TAR Lazio’s jurisdiction exclusively focuses on the assessment of the allegedly anticompetitive agreement between competing companies concerning the marketing of Avastin and Lucentis. As a result, for the purposes of the decision, all the arguments put forward by the parties in relation to such medical and scientific aspects relating to the products (scientific analysis and safety) go beyond the scope of the ICA’s powers, i.e. safeguarding competition, and therefore the protection of patients as consumers of the products at issue.
Likewise, the TAR Lazio further held that pharmacovigilance requirements or even the legitimate contacts between Roche and Novartis, such those relating to the vertical relationship between the two groups owing to their licensing agreement, were also outside the scope of the assessment.
Based on such premise, which resulted in the TAR Lazio discarding the “scientific” arguments put forward by the parties in order to rule out the substitutability between Avastin and Lucentis, the TAR Lazio concluded that Avastin and Lucentis were indeed substitutable and therefore belonged to the same product market based on the wide-spread off-label use of Avastin to treat some serious vascular eyesight conditions (as an anti-VEGF, or anti vascular endothelial growth factor), the fact that even in Italy the NHS reimbursed certain drugs used off-label and that, with regards to safety, Avastin had been recognized internationally as the only anti-VEGF drug for ophthalmic use.
Clearly, the TAR Lazio’s approach, which is subject to appeal before the Council of State, questions one of the fundamental aspects of competition law assessment, in particular with regards to allegedly anticompetitive agreements, which is that the assessment has to be performed within the legal and economic context in which such agreements may occur. Arguably, the Council of State will tell whether, by discarding as not relevant all the considerations relating to the regulatory framework which is pervasive in the pharmaceutical sector, the ICA and the TAR Lazio may have ultimately gone too far in defining the scope of the relevant factors that have to be assessed in similar cases.
By Gabriele Accardo and Aurelia Magdalena Goerner
On 7 May 2014, the Italian Competition Authority (“Agcm”) initiated proceedings (decision only available in Italian) against Booking.com and Expedia in the online hotel reservations space. This is yet another case in the wake of similar investigations undertaken by other national competition authorities in Europe (see Newsletter 1/2014, p.15, Newsletter 5-6/2013, p.9 and 11, Newsletter No. 4-5/2012, p. 15, for additional background).
The Agcm is assessing, among other things, the compatibility with the antitrust rules on anticompetitive agreements and abuse of dominance by the use of the so-called most favored nation clauses (“MFNs”) included in the terms and conditions of Booking.com and Expedia. MFN clauses would require hotels that want to appear on the respective platforms of Booking.com and Expedia to not offer their services at prices lower than or terms better than those made available to other booking agencies, and in general via all booking channels available (both brick-and-mortar and online) including the websites of the hotels themselves.
The Agcm is also investigating the application of the so-called Best Price Guarantee, which assures consumers about the convenience of the offer compared with similar ones offered, e.g., online. On the other hand, the clause requires hotels to apply the lower rate that may be found online, and eventually to provide a refund of the difference paid by the consumer, in case the reservation price was not the lower available.
According to the Agcm, these terms may result in substantial alignment of prices by reducing the incentives for hotel operators to compete, taking into account the fact that the failure to observe them would negatively affect the visibility of the hotels’ own
By Gabriele Accardo
On 27 February 2014, the Italian Competition Authority (“ICA”) issued a decision (in Italian only) finding that Roche and Novartis entered into an anticompetitive agreement in the market for ophthalmic drugs used to treat some serious vascular eyesight conditions, including age-related macular degeneration (“AMD”, which is the main cause of blindness in developed countries) in breach of article 101 of the Treaty on the Functioning of the European Union (“TFEU”) (see Newsletter 1/2013, p. 11, for additional background). The ICA imposed fines totaling Euro 92 million and Euro 90,5 million on Novartis and Roche respectively.
The ICA started the investigation in February 2013 following complaints by an association of private hospitals and the Italian Ophthalmologic Association. The products concerned, Lucentis and Avastin, are both licensed by Genentech (Genentech and Novartis have jointly developed Lucentis for ophthalmic use), a wholly-owned subsidiary of Roche. However, Genentech was not considered liable for the infringement.
According to the ICA, Roche and Novartis aimed at excluding the ophthalmic use of Roche’s Avastin in order to advantage the sales in Italy of Lucentis, which is distributed by Novartis. In particular, the decision found that since 2011 the two companies colluded to create an artificial product differentiation by claiming Avastin to be more dangerous than Lucentis, in order to influence the prescriptions of doctors and health services.
Such efforts appear to have intensified when a growing number of international scientific studies supported the equivalence of the two drugs in ophthalmic uses, the ICA held. In fact, Lucentis contains an active substance similar to Avastin’s, but it has been submitted for regulatory approval specifically for the eyesight conditions previously treated through Avastin. Yet since Avastin is only approved for anti-cancer treatments (which are reimbursed by the National Healthcare System) only a few doctors prescribe Avastin as an ophthalmologic drug for “off-label” use. The use off-label essentially requires that the product is pulled out from the original vial and then being injected into mono-use syringes, a process which must be carried out under strict safety measures.
According to the ICA, the economic interests of the two groups were aligned insofar as Roche collects significant royalties from the sales of Lucentis, which has been developed by its subsidiary Genentech, while Novartis benefits directly from Lucentis’ sales and holds some 33% of Roche. In essence, Roche’s decision not to market Avastin for ophthalmic use is due to the fact that Roche would gain higher royalties from the distribution of Lucentis, instead of selling its own Avastin.
In the aftermath of the ICA’s decision, the Italian Health Minister stated that the Parliament may pass a law to allow off-label use of medicines “for economic reasons.” Moreover, recent news indicates that the French Competition Authority is investigating the same practices by Roche and Novartis whereas the European Commission is also gathering information but no formal investigation has been started.