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Italian Supreme Administrative Court ruling on an essential facility case

  • Italy
  • Competition, EU and Trade - Competition e-briefings

14-02-2013

Italian Supreme Administrative Court confirms Italian Antitrust Authority approach in finding an abuse of dominance for refusal to grant access to scientific tests and studies

By a significant ruling published on 29 January 2013, the Italian Supreme Administrative Court rejected the appeal brought by Bayer Cropscience (“BCS”), the Italian subsidiary of the Bayer group active in the marketing of plant protection products, against the June 2011 decision of the Italian Antitrust Authority (“IAA”) to impose a fine on BCS for an infringement of Article 102 TFUE through refusal to grant competitors access to an alleged essential facility consisting of two toxicological studies. The IAA’s decision had previously been annulled by the first instance Administrative Court.

The IAA’s decision
 
Following a complaint lodged by a competitor, a Portuguese company, the IAA had started an Article 102 TFEU investigation against BCS, the outcome of which was a final resolution dated 28 June 2011 finding an infringement of Article 102 TFUE and imposing a fine on BCS. In its decision the IAA stated that BCS was in a dominant position in the narrowly identified relevant market of fungicides for protection against grape mildew, which are made of a specific active substance, namely fosetyl.

The IAA stressed that based on the EU legal framework the possibility of placing these fosetyl fungicide products on the market is subject to authorisation granted by Member State authorities. In particular, according to Council Directive 91/414/EEC concerning the placing of plant protection products on the market, as amended by Commission Directive 2006/64/CE, applicants for authorisation are required to submit for each active substance a dossier showing detailed studies in the light of current scientific and technological knowledge. In this respect, the IAA stated that the Directives and the national laws require holders of previous authorisations to find an agreement with the applicant on sharing of data where data is requested in relation to an active substance already on the market, with a view to avoiding duplicative testing on vertebrate animals.

As BCS was the first notifier holding the authorisation to market fungicide products
based on fosetyl, the IAA considered the data on fosetyl held by BCS as an essential facility to access the market for fosetyl fungicides in Italy. The unjustified refusal to grant access to the fosetyl data was, therefore, considered as a breach of Article 102 TFUE. In this respect, the IAA issued an infringement decision and imposed a fine amounting to around Euro 5 million on BCS.

The Administrative Court judgments

In its judgement the first instance Administrative Court ruled that the complainant’s failure to obtain the due authorisation could be attributed to their inactivity in preparing the required studies. In fact, according to the Court, none of the European and national provisions concerning fosetyl fungicides established a prohibition on carrying out the required studies.In this respect, the data held by BCS could not be deemed as an essential facility, with the consequence that no abusive conduct could be found in case of not successful negotiations on the sharing of data.

In addition, in its judgement the first instance Court hinted that the IAA may have made a wrongful assessment when defining the relevant market, in particular as regards the substitutability of the product. In its view the relevant market in which BCS’s position was to be assessed was the broader one of fungicide products, without any distinction as to the active substances from which the products are made. In this respect, the IAA would not have provided any evidence as to the non-substitutability of fosetyl products with other grape protection fungicides.

Following appeals brought by BCS and the IAA, the Italian Supreme Administrative Court set aside the first instance Court’s ruling, along the following lines of reasoning:

· Firstly, the first instance Court would have encroached on the IAA’s discretion when assessing the definition of the relevant market. The Court has no power to substitute its own evaluation of complex economic circumstances for that of the IAA. Therefore, as to the definition of the relevant market, in assessing factual elements the Court only holds the power to review the IAA decision in terms of its reasonableness and correctness. Therefore, the IAA’s decision to define the fosetyl fungicide market as a market distinct from fungicides made of a different active substance was lawful. As a consequence, BCS is to be considered in a dominant position in the market in question.

· Secondly, in line with the settled case-laws (Court of Justice of the European Union Case C-242/91 Magill of April, 6, 1995 and Case C-7/97 Oscar Bronner of November, 28, 1998), the Supreme Court confirmed the validity of the IAA’s approach in finding that in this case all five requirements of the “essential facility doctrine” were met. In particular, the refusal to grant access to the fosetyl data concerned a facility (i.e. the studies carried out and submitted to the Italian authorities by BCS) which was objectively difficult or impossible to duplicate. The Supreme Court interpreted the provisions laid down in Article 13 of the Council Directive 91/414/EEC as binding the applicants to refraining from carrying out new studies with a view to avoiding duplicative testing on vertebrate animals. This was considered an insuperable legal obstacle. This prohibition directly implied the absence of alternative options on the market, being the studies absolutely necessary for anyone wanting to obtain the required authorisation in order to enter the relevant market. Moreover, the authorisation concerned a new product, the refusal was not justified and the withdrawal of the previous authorisation held by BCS’s competitors had brought about the elimination of competition in the downstream market of fosetyl fungicide sales.

Contrary to the first instance Court, the Supreme Court did not consider relevant the complainant’s inactivity in preparing the required studies. It therefore ruled that the IAA’s decision, that had previously been annulled by the first instance Court, was lawful in its finding of an infringement of Article 102 TFUE.

Impact beyond the Bayer case

Antitrust Authorities are generally entrusted with a broad discretion as regards their complex economic assessment. The ruling re-established the scope of this discretion in defining the relevant market. This is crucial when a company is considered in a dominant position in the relevant market especially as a result of the power conferred on it by an intellectual property right. Therefore, the Court’s powers to review IAA’s in this area should be limited to ensuring the correct application of the essential facilities doctrine at national level. In this respect, the Court focused on the relevance of the prohibition on carrying out new studies with the aim to avoid duplicative testing on vertebrate animals.

Whether the fosetyl studies are to be considered essential to enter the market is mostly due to the legal obstacle deriving from the prohibition impliedly provided at European and national level. Thus, interpreting the existing regulatory framework is a critical issue for companies which hold strategic intellectual property rights in markets where access is subject to public authority decisions.