ICA launches survey on price algorithms in the passenger air transport sector
With a decision of 14 November 2023, the ICA started a survey concerning the algorithms used in the aviation sector. The algorithms are used to determine prices of passengers’ transport services relating to the routes connecting the Italian peninsula with Sicily and Sardinia.
The survey will focus on the price algorithms used by air carriers. Such algorithms are complex data processing software that the air carriers use to implement systems for the dynamic definition of price (revenue management systems) that make it possible to determine and adapt the fares for the flights based on certain parameters. These parameters include the degree of filling of the flight, the trend of real demand compared to expected demand or the time between the booking or purchase and the time of the flight.
The survey was launched less than two months after the conversion into law (Italian Law No 136/2023) of the “asset decree” (Italian Law Decree No 104/2023). The asset decree introduced inter alia news concerning the air transport sector and new powers that the ICA can exercise after surveys.
By virtue of the asset decree, following the outcome of the surveys, the ICA can impose structural or behavioural measures on concerned undertakings, in compliance with EU rules and after a market consultation. These measures will deal with competitive problems that hinder or distort the functioning of the market and consequently harm consumers.
Making use of the new powers introduced by the asset decree, the ICA started the survey to analyse whether (and under what conditions) the algorithms used by airlines in revenue management systems can have (or already have) anti-competitive effects. The survey will analyse whether the algorithms affect (or are capable of affecting) negatively “the conditions regarding the offer of the air transport service to consumers, also with regard to the policies of differentiation and customization of prices and to the socially undesirable effects of an incorrect functioning of the market.”
The ICA identified the scope of the survey based on the finding that the routes connecting the Italian peninsula to Sicily and Sardinia are “relevant in terms of volumes of passengers transported” and “may be affected by a dynamic of intertemporal differentiation of prices particularly accentuated due to the presence of period of peak in demand, typically coinciding with the summer holidays and the Christmas holidays.”
The survey will also delve into how the prices of airline tickets and their various components are made known and accessible to the public. These methods, by affecting the transparency and the comparability of prices, could affect consumers’ purchasing decisions and the mobility of the demand. So, they could have repercussions on the competitive dynamics of the sector.
With the introduction of the asset decree, the ICA can exercise its investigative powers (provide for inspections, submit requests for information, summon to hearings any subjects in possession of relevant information, arrange technical reports, economic and statistical analyses, consult experts). And interested companies can present commitments that the ICA can make binding after having assessed their suitability for removing competitive problems and having consulted the market. Following the outcome of the survey, the ICA can also recommend legislative or regulatory initiatives that it deems appropriate to improve the functioning of the markets concerned.
The final deadline set for the survey is 31 December 2024.
Merger control and gun jumping: Recent decision of the EU Court of Justice
With a decision of 9 November 2023, the EU Court of Justice ruled on the decision in which the European Commission had found two separate infringements of Regulation No 139/2004 against a company that was the buyer in a transaction. The infringements were: failure to comply with the prior notification obligation, and failure to comply with the standstill obligation that prohibits the implementation of a concentration before its notification or its authorization by the European Commission. The Commission applied a fine of EUR62.25 million for each infringement.
The Commission had considered that the transaction had already been completed at the signing of the SPA. This was because the buyer company could exercise veto rights to allow it to exercise a decisive influence on the target in the period between signing and closing of the transaction. And, in the same period, the buyer would have been involved in the day-to-day running of the target company. All this, in the Commission’s view, was corroborated by the fact that in the same period the parties exchanged commercially sensitive information.
The Court agreed with this approach. It noted that the articles of the SPA provided for the obligation for the target to obtain the buyer’s written consent on numerous decisions regarding the activities, commercial strategies, and management structure of the target (under penalty of compensation in favour of the buyer in the event of their violation). The Court found that these articles went “beyond what is necessary to preserve the value” of the target and gave the buyer a veto right on strategic decisions, thus allowing the buyer to exercise control over the target even before the operation was authorized by the Commission.
The Court also confirmed that the buyer, by intervening in the daily functioning of the target, would in fact have exercised a decisive influence on the target. This was not only before the authorization by the Commission took place but even before the notification was made.
That being said, the Court of Justice, rejecting the allegations of the appellant company, agreed with the Commission issuing two separate fines for a single behaviour. This is because – although with a single behaviour – the company violated the two autonomous and distinct obligations of prior notification (Art. 4 Reg. 139/2004) and standstill (Art. 7 Reg. 139/2004).
The Court specified that the prior notification and standstill obligations, “notwithstanding some overlap,” pursue autonomous objectives, lay down separate obligations and involve infringements of a different nature. It can be considered that the obligation of prior notification is an obligation to “do,” unlike that of standstill which is an obligation to “not do” and that the violation of the first constitutes an instantaneous infringement, while in the second case there is a continuing infringement.
However, the Court of Justice deemed it necessary to reduce the sanction applied for the violation of the obligation of prior notification. This was because the Commission did not adequately justify the reasons behind the application of two sanctions of the same amount despite the “significant” difference between the nature of the offenses (one of which is instantaneous and the other continuing). The (only) sanction applied for the violation of (of the prior notification obligation) was reduced from EUR62.25 million to approximately EUR52.9 million.
EU General Court rejects appeal by Teva and Cephalon against the European Commission’s decision finding an unlawful pay for delay agreement
With decision of 18 October 2023 delivered in case T-74/21, the EU General Court rejected the appeal brought by pharmaceutical companies Teva Pharmaceutical Industries Ltd and Cephalon Inc. The appeal concerned the annulment of the European Commission’s decision sanctioning the companies for having entered into a restrictive agreement by object contrary to Art. 101 TFEU in the form of the so-called pay for delay.
The decision follows a patent dispute that arose in 2005 between Cephalon and Teva. Cephalon is the owner of patents on modafinil (the active ingredient underlying the drug Provigil). Teva is the manufacturer of the corresponding generic medicine based on modafinil, which had already started marketing in the UK. The two companies had settled the dispute by reaching a settlement agreement, according to which Teva agreed to stop marketing products containing modafinil until 2012, in exchange for some licenses and a monetary consideration granted by Cephalon.
The Commission considered that the settlement agreement constituted an anticompetitive agreement by object aimed at excluding or delaying Teva’s entry into the market, extending Cephalon’s monopoly over the modafinil markets beyond the duration of the related patents.
The General Court found this conclusion to be correct. It found that the only explanation for the mutual concessions provided by the agreement were “the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits.” The General Court concluded that the conditions under which, according to EU case law, a settlement agreement on patent disputes integrates a restrictive agreement by object were met. In particular, the General Court clarified that such qualification requires an assessment of the specific characteristics of the settlement agreement. From such evaluation it should be deduced potential harm to competition, if necessary after a detailed analysis of the agreement itself, its objectives, and the relevant economic and legal context, showing that the amount of the value transfer has a significant importance.
According to the General Court, each of the commercial agreements would have resulted in economic concessions in favour of Teva of such importance that the appellants’ explanations for the lawfulness of the agreements from a competition standpoint would be implausible. Therefore, these agreements would have had the sole purpose of serving as a transfer of value from Cephalon to Teva in return for the latter’s commitment not to enter the modafinil market independently until 2012.
Rejecting the parties’ arguments, the EU General Court also ruled out that the settlement agreement could produce pro-competitive effects by contributing to improving the production or distribution of generic medicines. The EU General Court stated that the agreement and the licences granted therein to Teva wouldn’t have anticipated (as the appellants claimed) but rather delayed its entry into the modafinil markets, and, consequently, competition on such markets among generic drug manufacturers.
Default interests following a fine reduction: Does the Commission owe them to the company?
With its Opinion of 23 November 2023, delivered in the case C-221/22, Advocate General Collins outlined his conclusions regarding the Commission’s obligation to pay default interest on sums refunded to a company after the reassessment of a penalty for a violation of article 102 TFEU, which the company had previously paid.
The case at issue concerns the appeal brought by the Commission’s against the decision through which the EU General Court ordered the Commission to pay late payment interest on the recalculated amounts to be refunded to the company. Such late payment interest was calculated from the date the company paid the fine until it was reimbursed. According to the General Court, this obligation derived directly from the duty to enforce the judgment that reduced the fine imposed on the company pursuant to Article 266, paragraph 1, TFEU, which requires an EU institution whose act has been declared void, to take all necessary measures to comply with that judgment.
AG Collins examined whether the obligation for the Commission to pay late payment interest on an undue amount, following a judgment, could be derived from Article 266, paragraph 1, TFEU for the period from payment to judgment. The AG considered that the Commission was not required to pay, in addition to the nominal value, late payment interest to the company. This is because a literal interpretation of the term «default interest» implies that the interest is due when a debtor defaults on an obligation to pay a sum by a specific deadline. Given that the Commission did not default on an obligation to refund the unduly paid sum to the company, the payment of interest does not appear to be a necessary measure to comply with the EU Court’s judgment.
Now all that remains is to wait for the judgment of the Court of Justice on this matter.