At a glance: automotive industry disputes in Italy

Disputes

What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?

In recent years, the automotive industry has been subject to market monitoring, competition advocacy as well as antitrust enforce­ment activities carried out by both the European Commission and by the national competition authorities of the various member states. Noteworthy is the currently pending review of the Motor Vehicle Block Exemption Regulation (Regulation (EU) No. 461/2010) by the European Commission.

Regulation (EU) No. 461/2010, together with the general Regulation 330/2010 on vertical agreements, is one of the key pieces of EU legis­lation when it comes to the development, manufacture and supply of vehicles as it sets the general framework of the antitrust analysis of agreements for the manufacturing, supply and distribution entered into by the various market players throughout the automotive market chain. Regulation 461/2010 creates a ‘safe harbour’ (under the block-exemption mechanism) for particular categories of agreements that are key to the automotive industry and sets, therefore, a handful of clear-cut rules as regards the requirements to obtain access to such safe harbour. Therefore, it lists the hardcore clauses, which may possibly prevent such a benefit from the onset if included in the arrangement under scrutiny and also provides for a list of specific non-exempted clauses. On the other hand, the Regulation does not lay down any ‘white clauses’, that is to say, rules that the parties to the arrangement must obey or must comply with.

The review of Regulation 461/2010 will take place through a two-phase process. The first phase, which takes place in the period 2019–2021, consists of a retrospective exercise aimed at evaluating the current regime. The outcome of this evaluation process will be conveyed in a report that will measure the Regulation ‘success’ against its original objectives, thus focusing on: (1) foreclosure of competing cars manufac­turers; (2) protection of dealers’ intra-brand competition; (3) vehicles parallel trade; (4) protection of competition of independent repairers as regards authorised repairers and within authorised repairers’ networks; and (5) protection of independent spare parts manufacturers.

To gather stakeholders’ views and evidence to assess whether and to what extent the objectives of the Motor Vehicle Block Exemption rules have been achieved, as well as to identify competition issues arising in vertical relationships in the motor-vehicles sector, on 12 October 2020, the European Commission launched a public consultation that closed on 25 January 2021, followed by the publication, on 16 March 2021, of a summary report. According to the stakeholders interviewed, the objectives that the Commission should pursue with respect to vertical agreements concern, among others, the impact of digitalisation on the automotive sector and namely:

• ensuring a level playing field with regard to access to in-vehicle data, including technical information and data linked to connected vehicles, for all stakeholders (while taking into account consumers' choice to share such data);
• guaranteeing cybersecurity of vehicles while enabling fair competition to protect the interests of the consumer; and
• considering the impact of over the air diagnosis, which allows vehicle manufacturers and authorised dealers to contact customers directly and to offer innovative services.

In the second stage, taking place in the period 2021–2023, possible changes will be considered and adequately assessed. Fresh issues that will be subject to attention and scrutiny is likely to include:

• the rise of the notion of ‘mobility provider’ where the traditional car ownership paradigm is gradually replaced by the idea of mobility provided as a service;
• the role of e-commerce and in particular the use of online platforms by car dealers; 
• the aftermarket dynamics in the digital era with the increasing complexity of repair and maintenance information, the greater use of information technology in the spare parts distribution chain and the introduction of electric vehicles with special maintenance requirements.

Indeed, even more in general, one of the key antitrust issues will be the evolution of car maintenance services throughout the digital era. In the analogic sphere, car maintenance activity essentially starts when the consumer’s vehicle enters the repairer’s workshop, as repairers physically inspect vehicles in their workshop using advanced diag­nostic and repair tools to identify and fix cars' malfunctions. Against this background, competition law rules are primarily aimed at safeguarding competitiveness in terms of an equal level playing field between inde­pendent service providers and authorised repairers, in terms first of all equal access to spare part supplies as well as diagnostic and repair tools. Digitalisation changes this paradigm.

Car maintenance in the digital era starts within the vehicle thanks to remote communications achieved via diagnostic software embedded in cars. Competitiveness will thus be increasingly measured against the possibility of carrying out preventive maintenance while having remote access to predictive information about the vehicle, before any problem with the latter occurs, hence, even before the need to bring the vehicle to the repair shop arises. Such a paradigm shift may have an impact on the conditions required to enable a fair and competitive vehicle service industry. In particular, competition agencies are likely to monitor car manufacturers’ ability to act as gatekeeper for access to ‘in vehicle data’ and to the incentives and ability to design vehicles telematics systems in a manner that provide only themselves timely access to such data along with the possibility of being in direct contact with the driver.

Also, it is noteworthy how competition rules in this area will increasingly cross paths with another key body of EU and national provi­sions (ie data protection rules) if and to the extent that the exchange and circulation of in-vehicle information underlies the exchange and circula­tion of personal information on vehicle drivers (ie, personal customers data, such as drivers’ habits or movements). Although the European Commission and the European Court of Justice stressed on a number of occasions that issues concerning the processing of personal data are not as such a matter for competition law, nowadays it seems that these issues cannot be overlooked in the enforcement of antitrust rules. Notably, the European Court of Justice remarked in see ECLI:EU:C:2006:734, paragraph 63, that ‘any possible issues relating to the sensitivity of personal data are not, as such, a matter for competition law, they may be resolved on the basis of the relevant provisions governing data protection.’ Personal data is becoming more and more of a real asset and, as a result, privacy protection has become a central point of concern on the agenda of EU and national competition agencies.

At a national level, in the vast majority of merger decisions, the Italian Competition Authority (ICA) decided (without applying any EU or national rules, such as Regulation (EU) No. 461/2010, specific to the motor vehicle industry) not to open an inquiry because there was a lack of detrimental effects on competition. These decisions, which are apparently not likely to have relevance at an enforcement level, are instead highly important in defining the relevant markets in the spare parts industry.

According to the ICA, each spare part is, in principle, intended as a separate product market, and each individual market identified as such can be divided between the spare parts that have been produced by car manufacturers (the original equipment suppliers) and those that are distributed in the market with brands different from those of the car manufacturers (whose producers constitute the independent after­market). With regard to the geographical extent of these markets, the ICA has recognised that they have a local dimension.

As regards antitrust cases, instead, the ICA’s concerns mainly focus on the exchange of sensitive information, especially through trade associations. In 2015, the ICA closed an investigation concerning restric­tive practices implemented in the market of car seat foam by the main market players. In this case, it was ascertained that the parties had significantly exchanged information concerning their productive and commercial activities, therefore violating article 101 of the Treaty on the Functioning of the European Union (TFEU) (case I776 of 10 June 2015). By contrast, in case I791 of 30 March 2017, the ICA stated that an exchange of sensitive informa­tion between automotive companies also active in the long-term vehicle rental sector and the related industry associations  Services did not infringe article 101 of the TFEU, as it was not able to restrict or delete uncertainty about the parties’ conduct in the market. Even though the relevant market was highly concentrated, with significant barriers to entry, and the information was detailed, not public, individualised, referred to the past but frequently provided and related to multi-annual contracts, there was no connection (direct or indirect) between the information exchanged and their commercial policy. Last but not least, on 20 December 2018, the ICA sanctioned nine captive banks and their parent companies as well as industry asso­ciations for having engaged in an exchange of commercially sensitive information, concerning economic and other contractual terms applied to dealers and financing agreements and thus violated article 101 of the TFEU (case I811).

The decision has been appealed by the parties before the Administrative Court of First Instance (TAR Lazio), which, after having issued an interim order suspending the effects of the ICA’s decision, has ultimately quashed it, on 24 November 2020, on grounds of an erroneous identification of the relevant market, inconsistency of the investigation and absence of sufficient objective elements to establish the existence of a single and complex cartel. Against this judgment, an appeal has been lodged and is now pending before the Administrative Supreme Court.

The fining decision has been followed also by a collective damages action brought by an Italian consumer association before the Court of Milan. The Court has issued an order suspending the trial until the completion of the administrative proceedings.

More generally, as regard follow-on litigation, Italy has approved Legislative Decree 3/2017  that implements Directive 2014/104/EU on certain rules governing actions for damages under national law for infringements of the competition law provisions of the member states and of the European Union. The scheme of the Legislative Decree, proposed by the former Prime Minister and by the Justice and Economic Development Ministers and approved by the Council of Ministers on 27 October 2016, was approved in its defini­tive version during the meeting of the Council of Ministers held on 14 January 2017. This Legislative Decree, adopted on the basis of the aforementioned Directive to introduce a common regulation for claims for damages caused by infringements of competition law throughout the EU, will probably encourage the implementation of private enforcement litiga­tion in Italy.

As regards the automotive industry ‘digital dimension’, which is rapidly increasing its momentum in Italy as elsewhere in the world, the ICA, on 8 May 2019 initiated an investigation for potential abuse of dominance in relation to an alleged refusal to deal affecting the android auto environment with regard in particular to an app developed to provide end users with information and services for charging elec­tric cars' batteries (case A529).

Moreover, in the context of its advocacy activity, in December 2018 the ICA issued a report pursuant to article 21 of Law No. 287/1990 (AS1556), concerning the regulatory provisions governing road testing of autonomous driving in Italy and, in particular, article 14 of the Decree of the Ministry of Infrastructure and Transport of 28 February 2018 – the Smart Road. The ICA considered that the need to apply for a vehicle manufacturer’s authorisation to be allowed to experiment in the devel­opment of autonomous driving programmes is restrictive of competition since it reduces the possibility for independent developers to compete, to the advantage of car manufacturers already strongly active in a rapidly developing sector. This causes a slowdown in scientific progress in this area and limits interoperability among proprietary autonomous driving systems.

Last, for the sake of completeness, it is noted that the Italian parlia­ment adopted, in August 2017, the Annual Market and Competition Law, although it did not intervene in this specific sector. On 23 March 2021, the ICA followed up on that by formally submitting new pro-competitive legislative changes to the Italian government, which is the institution in charge of the drafting of the Annual Market and Competition laws. It is noted that, even though the yearly adoption of the Annual Competition law is mandatory under Italian law, to date, only the one of August 2017 has been ever adopted, so at this stage it is not foreseeable when the next Annual Competition law will come into force. With specific reference to the automotive sector, the ICA’s last proposals focus on the need to ensure that no distortions of competition are created in the development of infrastructures for charging electric cars. In particular, attention is devoted to technological neutrality and equipment interoperability, so as to avoid possible restrictions of competition between operators. Moreover, the ICA has recommended that public administrations should follow transparent and non-discriminatory procedures for the allocation of public spaces for the installation of charging stations; similarly, adequate competitive procedures should be adopted by all public concessionaires. Finally, the ICA has proposed that prices for the new services should not be based on regulated tariffs.

What kind of disputes have been experienced in the automotive industry, and how are they usually resolved? Are there any quick solutions along the supply chain available?

Most of the disputes involving the automotive industry in Italy relate to bodily harm, supply chain issues, disputes with dealers’ networks (and connected after-sales repair and maintenance services), disputes with consumers over unfair advertising, violation of competition law, IP disputes and disputes over defective components.

Damage claims by consumers can be brought against:

• the manufacturer for product liability pursuant to article 114 of the Consumer Code  or under the general provision on tortious liability (article 2043 of theItalian Civil Code); and
• the seller for hidden defects pursuant to article 1494, paragraph 2 of the Italian Civil Code.

Supply chain disputes are also common in Italy, but tend to be resolved via settlements (except when the dispute involves a bankrupt supplier). However, there are no specific interim injunctions under Italian law, and these are available only in summary or urgent proceedings and only in the case of urgency and prima facie strong grounds for the claim.

In relation to disputes on compensation claims arising from unfair practices, publicly available information reveals that very few class actions have been filed against motor vehicle manufacturers. For example, Altroconsumo – one of the most prominent and active Italian consumer associations – started three class actions claiming damages ensuing unfair practices. Specifically, summoned companies were sued either for having installed the ‘defeat device’ or for their declarations on fuel consumption in relation to a particular version of one of their passenger cars.

These procedures tend to be initiated with the main aim to raise an issue and to allow parties to develop a constructive dialogue in the interest of both consumers and enterprises. Indeed, in early 2021, two of the three class actions initiated by Altroconsumo have been terminated with a settlement between the latter and the defendants.

Covid-19 doesn’t appear to have impacted the disputes arena in the automotive sector, except for the general slowing down of all procedures already in progress.

What is the process for dealing with distressed suppliers in the automotive industry?

First, the general rules of Italian insolvency law also apply to the automotive sector, and no specific provisions exist that allow a different treatment for distressed suppliers in this industry.

The new Italian Insolvency Code was published in the Official Journal on 14 February 2019 and will enter into force in September 2021 as a result of Legislative Decree No. 23 of 8 April 2020, which adopted urgent measures to mitigate the effects of the covid-19 emergency. The new rules provide for measures aimed at preventing insolvency of enti­ties, such as suppliers, through certain early-warning tools (ie, internal reporting obligations by the statutory auditors of the company and external reporting obligations by qualified public entities such as social security agencies, tax agencies and tax collectors), in the presence of certain indicators of a situation of distress. Should the debtor fail to react promptly by taking the necessary measures, the auditors and the above entities must inform a newly created non-jurisdictional distress compo­sition body named OCRI established within the Chambers of Commerce. Such reporting is aimed at triggering a ‘composition procedure’ to enable the distressed company to return to solvency through agreements with the creditors. Failing this (and recurring a state of insolvency), the Chambers of Commerce inform the Public Prosecutor, who can file before the court a motion seeking the opening of bankruptcy proceedings defined as ‘judicial liquidation’. Appropriate incentives are provided to companies that voluntarily and timely resort to the composition proce­dure (including tax reductions, extra time for filing restructuring plans or debt restructuring agreements, some criminal exemptions or reduc­tion of sanctions). Some entities (such as listed companies, banks and large-sized groups) are not obliged to apply the above-mentioned early-warning rules, but will benefit from the rewarding measures if they do.

In any event, caution should be adopted when dealing with a supplier showing clear signs of distress. Following the last reforms on creditor arrangements, an irreversibly distressed supplier will inevitably be declared bankrupt; however, if the degree of economic distress is not as serious, typically a troubled supplier will try to avoid bankruptcy liqui­dation through the new composition procedure described above or by seeking to be admitted to a creditor arrangement scheme by either filing a motion for a composition with creditors or presenting a debt restruc­turing agreement, both of which set aside any motion for bankruptcy liquidation filed by third-party creditors in the meantime, and entail a claw-back exemption.

These creditor arrangement procedures lead to drafting plans or restructuring agreements between the distressed supplier and its credi­tors to agree on a way to repay the debt – by liquidating the company’s assets and assuring a higher satisfaction for creditors than in a bank­ruptcy liquidation scenario – and possibly continue the business including all pending contractual relations with creditors and third parties (which shall be allowed to terminate them only for cause), thus avoiding a bank­ruptcy liquidation scenario where instead pending contractual relations are suspended and resumed only on the bankruptcy receiver’s election.

As opposed to bankruptcy liquidation, these procedures can be activated only on the initiative of the distressed supplier, and solely at a later stage will creditors be entitled to intervene and even propose concurrent plans. If the legal requirements for the arrangement schemes are not met, the supplier may ultimately be declared bankrupt.

Aside from creditor arrangements, bankruptcy liquidation is the ultimate procedure to ensure debt recovery for creditors. A bankruptcy declaration is issued by the competent bankruptcy court on a motion that can be submitted by the distressed supplier, or by any creditor thereof or any interested third party. The former management is divested of its powers and a court-appointed receiver will take control over the bankrupt entity with the aim of liquidating any assets thereof and maximising the outcome of the liquidation to assure the highest satis­faction for creditors, whose claims shall be repaid proportionally based on their ranking.

Bankruptcy liquidation rarely assures adequate percentages of satisfaction, especially for unsecured creditors. Moreover, as said, whenever a supplier is declared bankrupt any pending contractual relations with creditors and third parties are automatically suspended, and will be resumed only if the receiver decides for their continuation – and obtains specific court leave – because they may prove useful for the recovery and liquidation process.

Another important aspect characterising bankruptcy liquidation is that receivers will typically try to maximise incomes for the bankrupt estate, and they will often do so also by attempting claw-back actions to reverse the effects of payments (or other asset disposals) performed by the distressed supplier in the look-back period prior to the bank­ruptcy declaration (or prior to the creditor arrangement, if this was unsuccessful and led to bankruptcy). These actions are more likely to succeed if there is evidence of the payee’s awareness of the debt­or’s distress when the payment was made. Another option sought by receivers to maximise incomes for the bankruptcy estate is to sue the distressed company’s former managers for company mismanagement.

The way the automotive industry should deal with suppliers that face distress indicia must be determined on a case-by-case basis, depending on the factual circumstances at hand. In any event, a cautious approach should always be adopted, especially in relation to changing the existing contractual terms and conditions, by seeking authoritative approval thereof in a creditor arrangement context, and by avoiding changes in a bankruptcy liquidation scenario to avoid a significant risk of claw-back.

Are intellectual property disputes significant in the automotive industry? If so, how effectively is industrial intellectual property protected? Are intellectual property disputes easily resolved?

A significant portion of intellectual property disputes in Italy involve business operators in the automotive industry, particularly in relation to spare parts covered by trademark or design rights. Italian courts have recently addressed in a number of cases the issue whether the overall shape of automotive products (eg, motorcycles or even engines) may be protected both as a registered or unregistered trademark and as a copy­right work, under specific circumstances where the products in question may be regarded as design icons having both creative character and artistic value (such as the Piaggio Vespa or the Ferrari 250 GTO).

In this vein, the Court of Milan recently found that the unauthorised display of Ferrari cars in the advertising campaign of a clothing collection entailed a misuse of the well-known Ferrari trademarks, giving rise to an illicit association with the Italian sports cars brand and an undue advantage for the fashion house producing the advertisement (Court of Milan, 3 June 2020, No. 3109, DeJure).

Still, trademarks protecting the shape of iconic cars are subject to the general rules on trademark cancellation for non-use. And the same Ferrari recently saw the revocation for non-use by the European Union Intellectual Property Office of the Ferrari GTO 250 EU shape mark (EUIPO, 29 May 2020, No. C 30 743).

Patents and utility models are also at stake in many automotive disputes, concerning for instance braking systems, engine features or electronic functionalities of vehicles.

The number of patent disputes in this field is expected to esca­late in the near future, as a consequence of the upcoming innovations relating to self-driving cars and connected cars technologies. In fact, an increasing number of patent applications concerning said technologies are being filed with the European Patent Office and further complexity may derive from the circumstance that some of the resulting patents are standard essential patents.

Most provisions covering intellectual property rights in Italy are embodied in the Italian Intellectual Property Code and in the Copyright Act, as amended from time to time to implement international agree­ments and, most importantly, EU directives. EU regulations, such as those on the European Union trademark and on Community designs, are directly enforceable in Italy.

Specialist courts dealing with intellectual and industrial property matters were established in Italy in 2003 and reformed in 2012, when they became subsections of the newly introduced commercial courts. The commercial courts are also European Union trademarks and Community designs courts.

Generally, proceedings before the commercial courts follow the procedural rules of ordinary civil proceedings, including the possibility to institute preliminary proceedings before initiating a full-blown case on the merits, or in the context of a pending case on the merits. The Intellectual Property Code, however, provides for some specific evidentiary, precautionary and enforcement measures, also according to Directive 2004/48/EC on the enforcement of intellectual property rights and to Directive (EU) 2016/943 on the protection of trade secrets, as implemented in Italy by Legislative Decree No. 63 of 11 May 2018, which came into force on 22 June 2018.

Preliminary proceedings are a cost- and time-effective solution for IP rightholders to tackle infringements. Indeed, a preliminary injunction may be obtained in around six months, whereas it takes no less than two to three years to obtain a first-instance decision on the merits.

Italian courts would grant a preliminary injunction when the petitioner’s claims appear prima facie grounded (fumus boni iuris) as regards both validity of the relevant IP rights and infringement thereof, and the claimant substantiates that he or she would suffer irreparable harm until the outcome of ordinary proceedings on the merits (urgency requirement or periculum in mora). In this regard, Italian courts usually find the urgency requirement to be met even if a few months (up to 10 months) have passed from the moment when the right holder discov­ered the allegedly infringing activity. Other forms of preliminary relief available to IP rightholders in Italy are seizure (to prevent disposal of the infringing goods) and, most importantly, preliminary search orders to secure evidence of the infringement, which is usually requested in the first place and granted with an ex parte order. A preliminary injunc­tion is then granted at a second stage, following a discussion hearing, subject to the relevant requirements (prima facie case and urgency) and based on the evidence collected during the search. If the prelimi­nary injunction is granted, additional measures such as penalties and publication of the decision are available and commonly ordered by Italian courts.

Most intellectual property disputes are resolved based on the outcome of preliminary proceedings, often by means of settlement agreements. If this is not the case, and some material damages are claimed by the rightholder, ordinary proceedings on the merits follow their regular path up to a first-instance decision, which may then be appealed before the Court of Appeals and ultimately challenged before the Supreme Court on purely legal issues.

Over the past few years, the Italian Supreme Court has affirmed the principle that patent infringement proceedings must be stayed, under certain circumstances, when invalidity proceedings concerning the same patent are pending and until a final judgment on validity is issued (Italian Supreme Court, 4 April 2019, No. 9500, Sprint). This principle was followed by a recent decision of the Court of Genoa, still subject to Supreme Court review, in a case between two major players of the automotive sector concerning road milling machines, even though the patent invalidity proceedings were initiated by the alleged infringer after the institution of the infringement proceedings.

According to the Italian Intellectual Property Code, damages are based primarily on the rightholder’s lost profits, taking into account all the relevant circumstances. Lost profits cannot be lower than the reasonable royalty corresponding either to the amount the rightholder would have received if a normal licence agreement had been entered into or to a typical licence fee in the industry. In any event, the right holder may claim the disgorgement of the infringer’s profits, when the amount is higher than the compensatory damages that would be awarded or as an alternative to the rightholder’s lost profits.

The court may appoint a technical expert to assess damages. Where an analysis of the defendant’s business is necessary the court may issue a search order or may order the disclosure of the defendant’s accounting records.

Alternative dispute resolution methods such as mediation and assisted negotiations are available and increasingly used in Italy, although they are not mandatory in intellectual property disputes.