Italy: Liberalisation Of The Italian Electricity Market: Italian Supreme Court Judges Rule That Enel Conduct Was Not Abusive And Annul Fine Of EUR 93 Million

On 1st December, the Italian Supreme administrative Court ("Council of State" or "CdS"), following the guidelines given by the European Court of Justice ("ECJ") in preliminary rulings, issued its final judgment in the case related to the alleged abuse of dominance of Enel - Servizio Elettrico Nazionale S.p.A. ("SEN").

In particular, the CdS annulled the decision of the Italian Competition Authority ("AGCM"), which fined SEN 93 million euro for having abused its dominant position in the Italian electricity market.

Background

The case originates from the liberalisation of the Italian electricity market in 2007. Until then, Enel had been the historical incumbent vertically integrated in the relevant market. Starting from 1^st July 2007, all users of the Italian electricity network were allowed to choose their own supplier, with the only exception made for a specific category (mainly made up of private individuals and small businesses) which fell into the so-called "enhanced protection service" still subject to regulatory control.

In order to enable the liberalisation of the market, Enel underwent an unbundling procedure of its distribution and sales activities and its trade marks. As a result of such unbundling, the activities relating to the various stages of the distribution process were attributed to separate subsidiaries.

According to the AGCM, Enel abused its dominant position by putting in place an exclusionary strategy with the aim of transferring its customer base in the part of the market still subject to enhanced protection to its subsidiary operating on the free market. The customers in the protected market were in fact asked to give "differentiated consents" to receive commercial offers relating to the free market. The differentiated consent was regarded by the AGCM as being discriminatory with respect to the offers of Enel's competitors in the free market and thus considered as an abusive conduct taken by Enel in order to mitigate the risk of a large-scale departure of its historical customers to new suppliers, following the opening to competition of the Italian electricity market.

The lists of clients that had given their consent to receive commercial offers from Enel subsidiaries were then transferred by the incumbent to the subsidiaries themselves. The AGCM considered such lists as a strategic asset containing information unavailable to competitors (i.e.: the data of users belonging to the "enhanced protection service" category), which allowed Enel to launch tailored commercial offers.

The CdS judgment

The CdS upheld Enel's appeal against the AGCM decision based on the following arguments:

• Enel provided the lists of customers not only to its subsidiary, but also to its competitors, based on the consents given by the customers themselves;
• Similar lists to those created by Enel were already available in the relevant market;
• By means of the alleged abusive conduct, Enel had only acquired a small number of clients in the relevant market (i.e.: 478 clients, equal to 0.001% of the electricity users). The CdS, in upholding said arguments, followed the general principles established by the ECJ under preliminary rulings (Case C-377/20). In particular, the ECJ stressed that the burden of proof of the potential for Enel's conduct to produce actual or potential exclusionary effects lies with the AGCM. Based on this clarification, the CdS concluded that the AGCM failed to prove, on the basis of clear evidence such as behavioural studies, the reasons why the procedure used by Enel to collect the consent of its historical clients (i.e., by way of requests of differentiated privacy consent) for the purpose of future marketing proposals by Enel's subsidiary was discriminatory towards its competitors on the open market. Therefore, the CdS ruled that the collection of the double privacy consent cannot constitute, in itself, proof that the process used by Enel to collect the consents of its customers to the transfer of their data in fact enabled the lists to be transferred to its subsidiary and thus constituted an unjustified advantage to the Enel group as a whole. Key takeaways The Enel judicial saga provides several takeaways for companies subject to Article 102 TFEU investigations. It clarifies, in particular, the criteria to take into account in defining exclusionary practices adopted by dominant companies under EU antitrust law:
• practices that could not be adopted by a hypothetical as-efficient competitor because they rely on the use of resources or means inherent to the holding of a dominant position cannot be regarded as competition on the merits;
• dominant undertakings under scrutiny can nevertheless escape the prohibition laid down in Article 102 TFEU by showing that the exclusionary effect that could result from the contested practice is counterbalanced or even outweighed by positive effects on consumers;
• even if the evidence produced by an undertaking in a dominant position demonstrating that there are no actual exclusionary effects cannot be regarded as sufficient in itself to preclude the application of Article 102 TFEU, it can nevertheless constitute evidence that the contested conduct is incapable of producing the alleged exclusionary effects, provided that it is supported by other evidence seeking to demonstrate such incapability;
• NCAs are not obliged to prove the dominant companies' intentions. The latter representing only one of the factors that may be taken into account in establishing the abusive conduct.

Finally, the judgment also shows the increasingly widespread interlinks between antitrust and privacy law. Not only with reference to the relevance of strategic data owned by dominant companies, but also with regards to the methods by which data are collected from users. The border line between discriminatory conduct and the purpose of allowing users to express their preferences as widely as possible under privacy law appears to be even more nuanced in the practice.

The judgment (in Italian) is available here.