On 25 May 2009, the Italian Competition Authority published its decision to extend to eight other companies the investigation started in June 2008 to assess the existence of alleged anticompetitive arrangements (in breach of Article 81 of the EC Treaty) relating to the retail cosmetics market in Italy. The Authority had already extended the investigation in February 2009 to three companies other than those originally involved and the trade association Centromarca— the Italian Association of Branded Products Industries.

The Leniency Application

The Authority started the investigation following an application for leniency, which may give up to 100 per cent immunity from fines under EC and Italian antitrust rules. It had been alleged that, during meetings held by Centromarca between January 2005 and 2007, the main companies active in the manufacture and sale of cosmetic products distributed via retail outlets exchanged sensitive market information concerning their business strategies, such as planned price increases, or discounts and bonuses offered to distributors. In addition, the companies involved allegedly put pressure jointly on the distributors to obtain a generalised increase of the retail prices.

Market Definition

In its decision to open the investigation, the Authority found that the sale of cosmetic products in retail outlets, such as supermarkets and department stores, constitutes a separate product market. Cosmetics sold via this distribution channel are those used for daily personal care (e.g., hair, body and oral hygiene products). Medium- to high-profile products (e.g., perfumes) are generally sold in specialised shops, such as pharmacies and perfumeries, which constitute a different product market, according to the Authority. The alleged anticompetitive arrangements under scrutiny relate only to products sold in retail outlets.

Price Fixing Versus Exchange of Information

Article 81 of the EC Treaty prohibits agreements, such us price fixing, market sharing or limitation of output, that have as their object or effect the prevention, restriction or distortion of competition.

In the case at issue, the Authority must gather suf f icient evidence to prove that the information exchanged at the Centromarca meetings were a means whereby the companies attending pursued a price fixing agreement, or an agreement having as its object a coordinated increase in the resale prices. If such an agreement existed, the Authority will not need to prove that it had the effect of restricting competition on the market.

If the Authority does not find sufficient evidence that the information exchanged at the Centromarca meetings was ancillary to an agreement having as its object the coordination of resale prices, it must ascertain whether such an exchange of information on its own may be considered in breach of Article 81 EC. In order to do so, it must prove that the exchange has provided a platform for competitors to coordinate their commercial conducts and act in a parallel manner without entering into an agreement to do so.

In both EU and national case law, however, this has proved to be a challenging exercise, as, under Article 81 EC, the exchange of information between competitors is not prohibited as such. This is because, in certain circumstances, it can create efficiencies and bring benefits to consumers and the system as a whole. For example, having access to information about market conditions, volume of demand, supply, technologies, organisation and investments of competitors allows a greater number of competitors to operate in the market, giving a wider choice to consumers. In addition, in the absence of evidence of anticompetitive arrangements, the Authority wi l l have to consider the legitimate expectations of the companies attending the meetings, which rely on the quasi-official role of trade associations as an arena to discuss industry-specific matters.

In the case at issue, the Authority therefore needs to assess whether the exchange of information that took place at the Centromarca meetings had the effect of restricting competition on the market. In order to do so, the Authority will have to under t a ke a ful l ana lys i s of the context in which the exchange of information took place in order to verify whether it reduced or removed uncertainty between competitors, and if it had an inf luence on their pricing conduct. Elements to be considered include the degree of concentration of the market, the type of information exchanged and whether information was exchanged on a regular basis.

Next Steps and Future Implications

When the Authority initiated the investigation, it set a deadline to adopt its final decision by 12 June 2009. This deadline has been postponed to 31 December 2009, following the recent extension of the investigation to the other companies allegedly involved.

If it were to find an infringement of antitrust rules, the Authority would set the fines according to the criteria indicated in the European Commission’s 2006 Guidelines, as a percentage of the companies’ last year turnover. Individual fines imposed by the Authority in recent cartel cases have been between EUR11,000 and EUR8 million. It is therefore difficult to predict the value of the fine that might be imposed in this case, but it would presumably be very high, given the size of the many international groups currently involved in the investigation.

Further potential negative consequences for the companies involved in the alleged infringement relate to possible collective actions for damages. Italy has enacted recently a collective remedy—similar to but not fully comparable with U.S. class actions—that is due to enter into force in July 2009. Under this new law, consumers’ associations and individuals will be able to file lawsuits to protect collective interests of consumers, inter alia, in case of breach of antitrust rules.

International Implications

European antitrust enforcement agencies cooperate within the European Network of Competition Authorities (ECN). Similar cooperation agreements also exist with the authorities in charge of the enforcement of antitrust rules in other non-European countries. The competition authorities, therefore, share information and cooperate, especially vis à vis multinational companies selling their products worldwide. For example, the Authority’s investigation comes after the German Competition Authority last year f ined the main companies operating in the cosmetics sector for two separate antitrust infringements. Companies active in this sector are well advised that European compet it ion authorities are exploring this market.

Suggested Actions

Companies active in the cosmetics industry should consider taking the following actions, in order to minimise the risks of investigation:

  • Maintain antitrust compliance programs. With increased antitrust enforcement, it will be important for companies to implement or update programs as necessary, in particular in their local subsidiaries. Being in control of such programs may be considered a mitigating circumstance in case of investigation.
  • Examine pricing, marketing and distribution policies. Both the national authorities and the European Commission are likely to challenge certain conducts.
  • Contact local lawyers as soon as possible. They will be able to verify compliance with antitrust rules.