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Describe the significance of, and developments in, the automotive industry in the market.
The Italian car market is the fifth-largest market in the EU after Germany, the UK, Spain and France.
After years of struggle owing to continuous postponement of car replacement, the market has been growing steadily since 2014. New vehicle registrations in 2017 were up 8 per cent compared with the previous year. This figure represents 1,971,475 vehicles registered in Italy in 2017.
The national production of vehicles in Italy started to decrease steadily from 2008 onwards, reaching its lowest figure in 2013. Since 2014, production has grown gradually up to 1,142,210 vehicles manufactured in Italy in 2017 (a 3.5 per cent increase on 2016).
Based on 2016 statistics by the National Automotive Supply Chain Association (ANFIA), the automotive industry in Italy involves 3,200 companies, generates a total of €82 billion revenue and employs 1.2 million people (260,000 in the manufacturing process alone). This industry sector alone generates 16.8 per cent of internal revenue (equal to approximately 4.5 per cent of Italy’s GDP). Moreover, it is also the most prominent private investor in research and development, investing 3 per cent of turnover of direct manufacturing per year. In 2017, the trend has remained positive, according to ANFIA and the Ministry of the Infrastructure and Transport saw an increase of nearly 7 per cent in new car manufacturing in Italy.
What is the regulatory framework for manufacture and distribution of automobiles and automobile parts, such as vehicle-type approval process as well as vehicle registration and insurance requirements?
In Italy, the applicable rules arise from European legislation.
Directive 2007/46/EC of 5 September 2007, transposed in Italy by Minister for Infrastructure and Transport Decree of 28 April 2008, regulates the approval of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles. The Decree contains administrative provisions and general technical requirements for approval of all new vehicles within its scope and of the systems, components and separate technical units intended for those vehicles, with a view to facilitating their registration, sale and entry into service within the European Union.
According to article 5 of the Decree, the car manufacturer is responsible to the approval authority for all aspects of the approval process (such as the type-approval process) and for the conformity of production of the vehicle. That said, whether the manufacturer is responsible depends on whether the manufacturer is involved in the production of all the technical components of the vehicle.
Regulation (EC) 715/2007 on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6) provides emissions requirements related to the type-approval process. In addition, some rules for in-service conformity, durability of pollution control devices, onboard diagnostic systems, measurement of fuel consumption and accessibility of vehicle repair and maintenance information are provided.
The manufacturer has an obligation to demonstrate that all vehicles sold, registered or put into service in the European Union are type-approved in compliance with this Regulation. In addition, manufacturers’ obligations include meeting the emission limits set out in Annex I of the Regulation.
Regulation (EC) 661/2009 on type-approval requirements for the general safety of motor vehicles, their trailers and systems, components and separate technical units intended therefor sets out the technical requirements and the procedures to ensure that new motor vehicles (motor vehicles with at least four wheels used to transport passengers, motor vehicles with at least four wheels intended for goods transport and trailers) meet EU safety and energy efficiency standards. In particular, this regulation establishes requirements for the type approval of the safety of motor vehicles and their trailers, the energy efficiency of motor vehicles (the installation of tyre pressure monitoring systems and gear shift indicators is mandatory) and the safety and energy efficiency of tyres and their levels of noise emissions.
According to article 5 of the Regulation, car manufacturers have to ensure that their vehicles are designed, constructed and assembled in order ‘to minimise the risk of injury to vehicle occupants and other road users’.
EC-type approval is granted by the Italian authorities once the concerned vehicles comply with the applicable regulations.
In Italy, the Directorate-General for Motor Vehicles of the Department of Land Transport and Intermodal Transport of the Ministry of Infrastructure and Transport, pursuant to article 75 of the Italian Highway Code, grants type approvals to vehicles that are in compliance with the European regulations mentioned above.
Owners of motor vehicles have an obligation to register their vehicle pursuant to articles 75 et seq of the Italian Highway Code.
However, the registration of the vehicle can only succeed if the vehicle has been type-approved by the authorities.
Directive 2009/103/EC of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability is essentially transposed in the Italian Private Insurance Code. Pursuant to article 122 of the Code, car owners have an obligation to insure their vehicles.
Development, manufacture and supply
How do automotive companies operating in your country generally structure their development, manufacture and supply issues? What are the usual contractual arrangements?
With an increase of nearly 8 per cent in the number of motor vehicles registered in Italy during 2017, the Italian automotive market has become the fifth-largest market in the European Union, after Germany, the UK, France and Spain, thus confirming its attractiveness to global motor manufacturers. Notwithstanding the positive trend, the Italian automotive market is still largely dominated by Italian brands and, with the exception of rare cases, such as those of joint ventures with French automotive companies, the manufacturing market accounts mainly for Italian producers.
According to recent European trends, the development of mechanics and technological components for city and family cars is a result of collaboration agreements with other leading European or US companies. Designs, however, tend to be developed internally as they constitute one of the core commercial assets of car companies.
Differences arise with respect to luxury brands, as they represent one of the leading manufacturing sectors in Italy. In the case of luxury brands, nearly all phases of the development, design, assembly and sale of vehicles are protectively taken care of internally by Italian automotive companies.
As for components and spare parts, there is a tendency in Italy both to outsource, on the one hand, and to directly (or indirectly) manage such secondary business, on the other hand. Leading Italian companies tend to own or indirectly invest in the companies that are in charge of manufacturing and supplying their main mechanical components, body components and spare parts.
Both the transportation of vehicles, by means of car carriers, and that of spare parts is outsourced to professional transporters, which will also take care of customs duties.
The selection of external companies is usually on a non-exclusive basis and takes place by means of invitations to bid, addressed to pre-selected competitors on the market. Often the latter companies tend to enter into subcontracting agreements with authorised local and family-owned entities.
How are vehicles usually distributed? Are there any special rules for importers, distributors, dealers (including dealer networks) or other distribution partners? How do automotive companies normally resolve restructuring or termination issues with their distribution partners?
Generally, in Italy vehicles are distributed through selective distribution agreements entered into by local manufacturing companies, or the local representatives of foreign manufacturers, and autonomous Italian entities. The business dimensions of dealers vary mostly depending on the geographical regions they are located in. In the central-northern regions and within the main Italian cities, dealers are usually representative of rather structured and economically sound companies owning more than one dealership. In the south of Italy and in smaller towns, where there might be a more evident economic depression, dealers tend to be small, family-owned companies.
With respect to contractual relationships with personnel, often sales agents are linked to dealers by means of agency agreements.
Notwithstanding the aforesaid general distribution mechanism, leading Italian automotive brands have recently developed new forms of sale chains by which they set up fully owned large dealerships where manufacturers promote and sell multiple vehicle brands. Clients are therefore offered the chance to see different car types and receive different services (sale, maintenance, repairs, post-sale assistance, etc) within the same vast premises. Following the Italian lead, other German and French-based manufacturers have adopted the same business model in Italy and have recently opened fully owned car dealerships in the main Italian cities, such as Rome and Milan.
With reference to distribution agreements, due to the automotive market crisis experienced in the past decade, the number of mono-brand dealers has largely diminished over the years leaving space to multi-brand dealers, which are increasingly specialising in post-sale assistance services (eg, car registrations, services for disabled people accessing state benefits, maintenance, repairs, contractual warranties, etc) and captive services (such as loans, insurance contracts, leasing and car rentals, etc). To give an idea of dealers’ core business in Italy, only a small percentage (less than 15 per cent) is linked to the sale of used vehicles. The remaining percentage is connected to the sale of new vehicles and to post-sale services.
The recent economic developments in the automotive sector have also prompted the expansion of new mobility models in Italy, where the market is proving to be focused on increasing rentals and car-sharing relationships rather than traditional sale schemes. Indeed, rentals increased in 2017 by 20 per cent and car-sharing (especially in the north) has increased by a considerable 35 per cent. The increasing trend is therefore moving towards more efficient, luxurious and high-performing cars (with fewer burdens from an insurance, tax and maintenance perspective) available to a wider share of users than before.
Moreover, interestingly, recently the Italian Supreme Administrative Court, by totally reforming the precedent Italian government’s position on the matter, ruled in favour of sales of vehicles online through e-commerce channels. Despite this new overture, the practice of selling cars online has still not caught on in Italy, probably owing to practical difficulties and a cultural approach to the purchase of cars, which is still linked to traditional schemes. However, things may evolve in the future.
From a contractual point of view, there is no specific national legislation in Italy on distribution agreements; hence the same are governed by general contract law rules with reference also to sale, supply and franchising agreements.
Under EU legislation (Regulations No. 330/2010 and 461/2010 and the Supplementary Commission Guidelines No. 2010/C 138/05), however, with specific reference to automotive distribution, there are given limitations applicable to these kinds of vertical distribution agreements (ie, those contracts entered into by two or more companies at a different level of the production or distribution chain, and relating to the conditions under which the contracting parties may purchase, sell or resell certain goods or services).
Selective distribution may be based on qualitative or quantitative grounds.
In purely qualitative selective distribution schemes, dealers and repairers are selected on the basis of objective criteria required by the nature of the product or service (eg, technical skills of sales personnel, layout of sales facilities, sales techniques and the type of sales service to be provided). These types of distribution agreements are usually deemed as not having anticompetitive effects, provided that they set legitimate, uniform, non-discriminatory and reasonable objective criteria.
On the other hand, distribution agreements based on quantitative grounds are seen as more restrictive as they set numerical limitations such as a maximum given number of permitted dealers or repairers, or a minimum level of sales.
Under the aforesaid EU legislation, there is a presumption that both qualitative and quantitative selective distribution agreements in the automotive sector do not limit competition if the parties’ share of the market does not exceed 30 per cent, provided they do not:
- impose fixed sale prices on dealers;
- impose geographical restrictions (albeit with some exceptions);
- restrict active or passive sales to end users;
- restrict cross-supplies between distributors within the same selective distribution system; or
- restrict the manufacturer’s ability to sell components as spare parts to end users or repairers or to others who have not been entrusted by a specific dealer.
With reference to time limits applying to the duration of vehicle selective distribution agreements, prior to the implementation, on 1 June 2013, of Regulation No. 330/2010 (which substituted the previous Regulation No. 1400/2002), such agreements were considered as not restrictive of competition provided they lasted for at least five years (in this case a non-renewal six-month notice period was necessary). On the other hand, in the case of unlimited duration of the distribution agreement, any withdrawal notice had to be of at least two years, unless the manufacturer indemnified the dealer or put in place a major distribution net reorganisation (in the latter two cases, the notice could be reduced to one year).
As soon as the market proved that the aforesaid legislation and time limits were in fact restricting competition rather than incentivising it, EU legislators amended the applicable provisions, by eliminating all references to limits on duration of such agreements.
As a consequence, the current legislation only permits an exclusivity regime for a maximum period of five years from the date the distribution contract is entered into. No automatic renewal provision, which is deemed to extend the duration to over five years, is valid.
With reference to termination provisions, there is no specific time requirement under Italian law for a valid notice to be given, provided it is adequate and reasonable. The adequacy of the term provided within the termination notice very much depends on:
- the reason for termination (eg, breach of obligations by the dealer, justified or unjustified withdrawal by manufacturer, etc);
- the contractual relations between the parties (eg, duration of the contract, exclusivity regime, number of dealerships, participation in the dealer’s capital share by the manufacturer, existence of an economic dependency, etc); and
- the reliance by the dealer upon the manufacturer’s business strategies or the manufacturer’s assurances or guarantees, which proved to be wrong or which induced the dealer to, as an example, get mortgages or loans, make infrastructural and technological investments, buy new premises, hire new personnel, etc.
In respect to restructuring of dealers, some criticisms arise. Recent trends have proved that most automotive manufacturing companies establish their own banks. On top of rendering financial services to private consumers, automotive banks also financially sustain dealers. This causes problems in Italy with reference to insolvency matters.
Indeed, considering that products, pre-sale and post-sale services, technological infrastructure, platforms, business and sale conditions and strategies are supplied, developed and often imposed by manufacturing companies, it frequently is the case that dealers are subject to economic dependency upon manufacturers. Understandably, distributers also tend to resolve their financial issues by seeking more available financial allowances, and at better interest rates, from the manufacturers’ banks. On the other hand, automotive companies have a high interest in ensuring that dealers do not become insolvent. However, they also need to make sure not to contribute to the further indebtedness of the distributor by financing it when it becomes apparent that such distributor will not be able to repay its debt, as this conduct is prosecutable under the Italian legislation.
In order to mitigate the risk of not recovering the purchase price of vehicles and spare parts to be paid by distributors in case of insolvency, manufacturers usually subject the sale of vehicles to a right of retention of title. According to this provision, title of ownership on vehicles will be transferred to dealers only upon full payment of price. This measure, albeit valid from a legal standpoint, often does not prove to be as effective considering that, in the case of receivership proceedings against dealers, the receiver often happens to disregard the retention title, leaving the manufacturer with the burden of starting long and costly legal proceedings to enforce its rights and recover its vehicles.
Mergers, acquisitions and joint ventures
Are there any particularities for M&A or JV transactions that companies should consider when preparing, negotiating or entering into a deal in the automotive industry?
There are no particularities for M&A or JV transactions for the automotive industry as such. As for other large industrial assets, the main areas to be carefully considered in the due diligence phase and in the preparation and negotiation of the transaction documentation (representations and warranties, special indemnities, price and price adjustment) are as follows:
- Production phase - the business is capital- and labour-intensive and it may have an environmental impact. So, real estate properties and other assets, employment, environment and waste management are areas to cover. Likewise, slow-moving inventory may be an issue. Single sourcing may be another issue to tackle.
- Distribution chain - the dealers’ network is part of the value and dealership agreements may require careful analysis (eg, prices, competition restrictions, duration, change of control clauses).
- Finance - given the size of capital expenditure and operating expenses, financing agreements are key to business sustainability. Again, change of control clauses are the common practice.
Incentives and barriers to entry
Are there any incentives for investment in the automotive market? Are there barriers to entry into the market? What impact may new entrants into the market have on incumbents?
There are no specific tax incentives for investment in the automotive market. However, the following general tax incentives can apply:
- The Patent Box regime, applicable to Italian resident companies and to Italian permanent establishments (PEs) of foreign companies, allows for the non-taxability of a portion of the income resulting from the direct use of certain IP rights or from the grant of those rights to third parties, provided that Italian companies or Italian PEs carry out R&D activities aimed at developing, maintaining and increasing the IP rights’ value. The tax benefit consists in the exclusion from the entity’s taxable basis of an amount equal to 50 per cent of the income generated from (i) the direct or the indirect use of, or (ii) the transfer of certain IP rights: software protected by copyright, industrial patents, designs, models and know-how. The calculation of the portion of the income that benefits from the favourable tax regime depends on whether the taxpayer exploits the IP rights directly or indirectly.
- Italian subsidiaries and Italian PEs of foreign companies, which incur at least €30,000 of qualifying R&D expenses, will benefit from a tax credit equal to 50 per cent of the same R&D expenses exceeding the average R&D expenditures that the subsidiary or the PE incurred in the previous three financial years, up to €20 million.
- The limits to the deduction of costs for income tax purposes related to cars used by companies in carrying on their business activities do not apply where the vehicles are an essential element for the company’s business (eg, vehicles owned by a car rental company).
Pursuant to the Italy 2018 Budget Law, it is no longer possible to benefit from the increase of depreciation base of certain means of transportation referred to in article 164, paragraph 1, of the Consolidated Income Tax Legislation (including those used in carrying on a business activity), introduced in Italy by Law No. 208/2015.
The aforementioned benefit (increase of 140 per cent of the depreciable base) applies, however, to assets purchased by 30 June 2018, provided that by 31 December 2017 (i) the purchase order has been accepted by the seller and (ii) 20 per cent of the purchase price has been paid. These assets include certain means of transportation used in carrying on a business activity, such as vehicles (i) that are an essential element for the company’s business (eg, vehicles owned by a car rental company) and (ii) for public use (such as taxis).
Certain tax advantages are provided by regional laws to investments in vehicles with low CO2 emissions, such as electric vehicles, hybrid cars, methane powered vehicles and liquefied petroleum gas vehicles (eg, exemption from car tax).
Product safety and liability
Safety and environmental
What are the most relevant automotive-related product compliance safety and environmental regulations, and how are they enforced? Are there specific rules for product recalls?
At European level, the most relevant automotive-related environmental regulations are: Directive 2007/46/EC (establishing a framework for the approval of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles), as subsequently amended and supplemented by Commission Regulations (EU) 2017/2400, (EU) 2017/1347, (EU) 2017/1151 and (EU) 2017/1154); Regulation (EC) 715/2007 (on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles - Euro 5 and Euro 6 - and on access to vehicle repair and maintenance information), as subsequently amended and supplemented by Commission Regulations (EU) 2017/1151 and (EU) 2017/1154); Regulation (EC) No. 443/2009 (setting emission performance standards for new passenger cars as part of the Community’s integrated approach to reduce carbon dioxide emissions from light-duty vehicles); and Regulation (EU) No. 510/2011 (setting emission performance standards for new light commercial vehicles as part of the integrated approach to reduce carbon dioxide emissions from light-duty vehicles).
Against the above background, in Italy, Legislative Decree No. 285/1992 (the Italian Highway Code) and Presidential Decree No. 495/1992 (the Regulations implementing the Italian Highway Code), in turn implemented by a number of ministerial decrees, set forth the technical specifications that must be fulfilled by motor vehicles in order to obtain the type approval by the competent department of the Italian Ministry of Infrastructure and Transport.
Under Ministerial Decree of 28 April 2008 (specifically issued to implement Directive 2007/46/EC):
- the Ministry may refuse to grant the EC type approval if it finds that a vehicle, system, component or separate technical unit, although in compliance with the required prescriptions, presents a serious risk to road safety or seriously harms the environment or public health (article 8.3);
- the Ministry that has granted an EC type approval shall take the necessary measures (including, where needed, revocation of the EC type approval) in order to ensure compliance with the type it has approved if it finds that new vehicles, systems, components or separate technical units provided with a certificate of conformity or bearing an approval mark do not actually comply with the approved EC type (article 30.1); and
- a manufacturer that has obtained an EC type approval is required to recall vehicles already sold, registered or put into service if one or more systems, components or separate technical units fitted to the vehicle, whether or not duly approved in accordance with Directive 2007/46/EC, present a serious risk to road safety, public health or environmental protection, and to immediately inform the competent authority that issued the relevant EC type approval. (article 32.1).
In principle, non-compliance with applicable law requirements is per se punished with administrative sanctions, unless the event constitutes a crime, which is to be assessed on a case-by-case basis depending on the specific factual circumstances.
Product liability and recall
Describe the significance of product liability law, and any key issues specifically relevant to the automotive industry. How relevant are class actions or other consumer litigation in product liability, product recall cases, or other contexts relating to the automotive industry?
Italy has a fairly strong tradition in product liability litigation, particularly since the adoption, in 2005, of Decree No. 206/2005 (the Consumer Code, which incorporates previous Italian laws implementing Directive 85/374/EEC and Directive 2001/95/EC). Product liability law is particularly significant to the automotive industry, given the large number of components (eg, braking systems, airbags, seat belts, etc) that might in theory be subject to manufacturing or design defects and because of the gravity of the risks in the case of defective parts.
Product liability litigation in the automotive sector can also be particularly complex, in light of the fact that consumers or users generally tend to direct their claims to the manufacturer, which, in turn, might need to involve in the litigation suppliers or manufacturers of the allegedly defective components.
As regards recalls - regulated by articles 104 to 107 of the Consumer Code (implementing the General Product Safety Directive 2001/95/EC) - the automotive industry has long been one of the most affected generally. However, according to the European Rapid Alert System (RAPEX), in 2017 and early 2018 so far, Italy submitted only 2 RAPEX alerts for ‘motor vehicles’. In both cases measures were taken by the respective manufacturers by recalling the products from end users.
Class actions have been allowed in Italy since 2010 but they do not represent a major risk for automotive manufacturers in Italy. Indeed, there are strict prerequisites for a class action to be considered admissible (and, thus, be decided on the merits) and this has discouraged consumers and consumer associations from relying on the class action system. Indeed, to date, based on publicly available information, only three class actions have been filed against motor vehicle manufacturers. A reform of the Italian class action law (aimed at removing some of the current obstacles) has long been envisaged and discussed, but it has not yet been passed.
Another form of collective action is the so-called ‘representative action’ for injunctive relief (article 140 of the Consumer Code). This action can be brought only by consumer associations and is aimed at obtaining a court ruling:
- inhibiting conduct detrimental to consumers’ and users’ interests;
- ordering appropriate measures to correct or eliminate the harmful effects of the assessed violations; and
- possibly ordering the publication in the media of the injunctive relief.
The court sets a time limit to fulfil the obligations and orders, in case of non-compliance, fines to be paid for the breach or for each day of delay, depending on the seriousness of the damaging conduct.
What competition and antitrust issues are specific to, or particularly relevant for, the automotive industry? Is follow-on litigation significant in competition cases?
In the past five years the automotive industry has been subject to inquiries implemented both by the European Commission and by the national competition authorities of the various member states. In particular, the Italian Competition Authority (ICA) has shown an interest in motor vehicle spare parts. The vast majority of the decisions issued by the ICA in this period concerned mergers in which it was decided (without applying any EU or national rule, such as Regulation (EU) No. 461/2010, specific to the motor vehicle industry) not to open an inquiry because of the lack of detrimental effects on competition. These decisions, which could apparently have no relevance at an enforcement level, are instead of high importance with regard to the definition of 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 (OESs)) and those that are distributed in the market with brands different from those of the car manufacturers (whose producers constitute the independent after market (IAM)). With regard to the geographical extent of these markets, the ICA has recognised that the OESs’ markets are at least as wide as the European Economic Area, while the IAM markets are nationwide.
Furthermore, in case I776 of 10 June 2015 - Mercato della produzione di poliuretano espanso flessibile, 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).By contrast, most recently, in case I791 of 30 March 2017 - Mercato del noleggio autoveicoli a lungo termine, the ICA stated that an exchange of sensitive information between automotive companies, active also in the long-term vehicle rental sector and the National Association of Industry and Car Rental Automotive 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. Another alleged exchange of sensitive information (violation of article 101 of the TFEU) is currently under the ICA’s scrutiny. Indeed, the ICA has opened an investigation into nine automotive manufacturers’ captive banks as well as industry associations Associazione Italiana Leasing and Associazione Italiana del Credito al Consumo e Immobiliare, on the suspicion they engaged in anticompetitive practices, in particular in an exchange of commercially sensitive information concerning economic and other contractual terms applied to dealers and consumers who buy cars, through financing provided by the captive banks, from a parent company (I811 - Finanziamenti auto). It is worth noting that on 27 September 2017 the proceedings were also extended to the parent companies of the captive banks (eg, car manufacturers).
The described framework suggests that, in recent years, there have not been significant issues with regard to follow-on litigation in the automotive industry. Italy is still waiting to see the effects of the newly approved Legislative Decree that implements Directive 2014/104/EU. The Scheme of the Legislative Decree, which 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 (No. 350), proposed by the former Prime Minister and by the Justice and Economic Development Ministers and approved by the Council of Minister 27 October 2016, was approved in its definitive version during the meeting of the Council of Ministers held on 14 January 2017, as proven by the press release available on the website of the Presidency of the Council of Ministers (https://goo.gl/PQOuB4). This Legislative Decree, adopted on the basis of the mentioned 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.
Lastly, for the sake of completeness, it is noted that the Italian parliament has approved, in August 2017, the Annual Market and Competition Law, which, nevertheless, does not intervene in this specific sector.
Dispute resolution mechanisms
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 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 the Italian 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 - see question 11). There are, however, no specific interim injunctions under Italian law, and these are available only in summary or urgent proceedings and only in case of urgency and prima facie strong grounds of the claim.
As regards disputes arising from a breach of competition and IP laws, see questions 9 and 12.
What is the process for dealing with distressed suppliers in the automotive industry?
First of all, it is worth noting that 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 such industry.
As a preliminary remark, under Italian law there is no legal duty for a distressed entity such as a supplier to file for bankruptcy liquidation if it is in an insolvent status (this being a cash-flow concept connected to inability to meet debts when due). However, failing to file for bankruptcy liquidation may entail that the former management of the company be held personally liable for mismanagement.
As a general remark, caution should be adopted when dealing with a supplier showing clear signs of distress. Following the recent reforms characterising Italian legislation 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 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 in order 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 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.
It is worth noting that 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 bankruptcy 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.
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 contractual terms and conditions, by seeking authoritative approval thereof in a creditor arrangement context, and by avoiding changes in a bankruptcy liquidation scenario in order to avoid a significant risk of claw-back.
Intellectual property disputes
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. Patents and utility models are also at stake in many automotive disputes, concerning for instance braking systems, engine features or electronic functionalities of vehicles.
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.
Specialised 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 (tribunali delle imprese). The commercial courts are also European Union trademarks and Community designs courts.
Generally speaking, 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.
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 right holder, 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.
According to the Italian Intellectual Property Code, damages are based primarily on the right holder’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 right holder 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 right holder’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.
Trade unions and work councils
Are there specific employment issues that automotive companies should be aware of, such as with trade unions and works councils?
During 2016, the automotive sector registered a small recovery in terms of production and profitability compared with previous years; however, this recovery has not been sufficient to compensate for bad results achieved in past years. As a consequence, also during 2016, companies operating in the sector continued to use welfare measures and reduce their workforces. In parallel, also considering the peculiar market situation, the Automotive Employers’ Association and the unions are discussing a renewal of the National Collective Labour Agreement for the next four years. The main items under discussion are training, variable salaries linked to production and performance, reinforcement of the complementary pension, and health coverage.
What are the most important legal developments relating to automotive technological and mobility advances?
From a mobility standpoint, one of the main concerns in Italy at the moment is constituted by the necessity to implement all relevant measures to achieve ‘technological neutrality’ aimed at reducing emissions. In terms of new vehicle registrations, in Italy, hybrid and plug-in electric vehicles increased their combined market share in 2017 from 2.8 to 4.1 per cent.
EU Directive No. 2014/94/EU on the deployment of alternative fuels infrastructure, implemented in Italy by means of Legislative Decree No. 257 of 16 December 2016, sets out, for the first time, a common framework of measures aimed at establishing alternative fuel infrastructure, including the minimum requirements for the construction of charging points for, among others, electric and hydrogen vehicles, with the purpose of mitigating the environmental impact in transportation all around Europe. The cooperation at a European level should hopefully lead to satisfactory results in the short term. Indeed, with respect to technological advances, all European countries have recently been focusing their energies and investments on autonomous cars, also known as self-driving cars or driverless cars. Such new systems are aimed at enabling cars to drive around with no human contribution needed. By means of sensors, radars, navigators and highly technological computers, autonomous cars are able to identify surroundings and assess whether there are any obstacles or external phenomena that may impact on the driving. Such innovation is deemed as extremely useful to lower the risks of collisions and injuries, reduce insurance costs, lower fuel consumption, ease traffic, facilitate the elderly and disabled people, help avoid intoxicated driving, etc.
Having achieved great technological results, the main concern appears now to be of a legal and social nature. Mainly there is a general concern and resistance among the public with reference to safety issues (relating both to system defaults and to possible hacker attacks).
From a legal standpoint, great concerns have arisen over potential liability for defects, especially since cars will remain under the control of owners who may not diligently carry out all the relevant checks and maintenance.
Moreover, it appears obvious that corrective measures will have to be set forth in Italy, from a legislative point of view, in order to enable the driving of autonomous cars. By means of an example, article 46 of the Italian Highway Code, implemented through Legislative Decree No. 285 of 30 April 1992, defines as ‘vehicles’ all cars of any type that circulate on roads and are driven by a human being.
The first steps towards legal innovation have already been introduced by Directive No. 2010/40/EU for the establishment of a framework for the deployment of intelligent transport systems (ITS) in the field of road transport and for interfaces with other modes of transport, implemented in Italy by means of Law Decree No. 179 of 18 October 2012, transposed by Law No. 221 of 17 December 2012. Such legislation, as subsequently integrated by the Decree issued on 1 February 2013 by the Ministry of Infrastructure and Transport, finally resolves one of the main juridical uncertainties: with reference to liability relating to systems and ITS services, it is stated that the applicable regulation will be the same for product liability under the Italian 2006 Consumer Code.
In addition, the Ministry of Infrastructure and Transport is currently scrutinising the Smart Road Decree, with the aim of closing the gap between Italy and other EU countries, as well as the US, where driverless car field testing programmes have been under way since 2010. Such tests should be possible on both highways and city streets, and should be open to various entities, including university research institutes, car manufacturers, etc, provided that a prior authorisation is requested from the Ministry of Infrastructure and Transport, along with a green light from the entities managing the pertinent roads.
Furthermore, a bill of law has been presented before the Italian parliament, with the aim of drafting a statute providing the ground rules on car sharing. However, such bill has not gained much attention so far, as no parliamentary discussions have ever begun on the draft statute contained therein.
Another major concern, from a legal standpoint, relates to data protection. The processing of personal data, as prescribed by the aforementioned laws, should:
- be limited to where it is necessary;
- safeguard and protect private life; and
- encourage the use of anonymous data.
Privacy issues may be of essential relevance considering that autonomous cars are provided with black boxes that register all information relating to such vehicle (location, speed, driving habits, etc).
Currently the Italian Data Protection Authority is co-drafting, together with the Institute for the Supervision of Insurance, a proposed of regulation on sharing of car information (available from black boxes) with insurance companies. The proposal has not yet been finalised but Italy will most certainly need to take huge steps forward before it will be able to regulate specifically on all of these sensitive matters correlated to the topic.