On January 31st, 2023 the Italian Antitrust Authority (“Autorità Garante della Concorrenza e del Mercato” – “AGCM”) formally closed a proceeding against Benetton on abuse of economic dependence.
The proceedings arose from a complaint by a former franchisee who operated two Benetton shops, which complained of having suffered an abuse of economic dependence, which allegedly led it to cease trading. On the basis of such complaint, the AGCM on November 17, 2020 opened an antitrust investigation, arguing that Benetton’s conduct could constitute an abuse of economic dependence, relevant for the protection of competition, given its position on the market and the possible impact on all the entrepreneurs in its network.
Pursuant to Article 9 of Law 192 of 1998, which regulates the abuse of economic dependence, in order to determine whether such an abuse exists, it must first be established that there is “economic dependence” between two undertakings, i.e. (1) that one of them is in a situation which leads to an excessive imbalance of rights and obligations in its commercial relations with the other; and (2) that the other undertaking has no real possibility to find satisfactory alternatives on the market. Once the existence of a situation of economic dependence has been established, it must then be ascertained whether the “strong” undertaking has committed an “abuse”, with particular reference – in the present case – to the imposition of unjustifiably onerous or discriminatory contractual conditions.
During the course of the proceeding against Benetton, the AGCM basically supported the position of the former franchisee, challenging the validity of some contractual clauses of Benetton’s franchise model contract applicable in Italy, which were considered too unbalanced in favor of the franchisor, as well as the lack of clauses providing certain rights in favor of the franchisee.
The disputed contractual clauses are actually typical clauses included in almost any franchise agreement (e.g. clauses on seasonal budgets, automatic replenishment, termination for cause, delivery of products, furniture etc.). From the documents of the case, it appears that Benetton after having tried to justify and explain the purpose and reason of the contractual provisions, ultimately accepted to modify certain clauses (through the “assumption of commitments”), in order to have the investigation closed without sanctions.
Namely, Benetton accepted to amend its franchise agreement, by limiting its right to terminate the contract for cause in certain circumstances (e.g. excluding such right in case of lack of payment by franchisee of sums not directly related to the franchise agreement; and, with respect to the case of non fulfilment of payments’ obligations provided for in the franchise agreement, having the termination preceded by a specific procedure). Moreover, Benetton accepted to cancel from the agreement provisions which may (even indirectly) be interpreted as a franchisee’s minimum purchase obligation (e.g. seasonal budgets, automatic replenishment). Finally, the franchisor accepted to include in the agreement some additional provisions in favor of the franchisee’s: the franchisee’s right to sell back the furniture to the franchisor after termination, at pre-established price conditions; or the franchisee’s right to terminate the agreement by notice, after the end of the first year.
Benetton is not the first franchisor who accepted to amend its franchise model contract, in order to close an antitrust investigation without sanctions, in Italy.
In recent years, for example, proceedings have been opened against McDonald’s and Original Marines (see the AGCM decisions of 14 June 2022 and 5 July 2022, respectively), which were closed upon the franchisors’ commitment to amend their contractual models in accordance with the objections raised in the relevant proceedings: this resulted, for example, in the elimination from the contracts of clauses providing for minimum purchase or post-contractual non-competition covenants, even though these provisions did not violate any legal provisions.
Such choice is clearly understandable from the franchisor’s perspective, considering its interest to avoid a possible decision of the AGCM which could affect the balance of its franchise agreements as well as possible sanctions. Although the position of the Antitrust Authority is disputable (regarding the presence of the requirements of Article 9 Law 192/1998: in particular, the proof of the economic dependence, the alleged abuse and the impact on competition on the relevant market), it appears reasonable for the franchisor to accept a settlement implying the cancellation of a number of clauses considered critical.
However, through this kind of approach the AGCM de facto grants itself the power to “re-balance” franchise agreements, authority it doesn’t have under Italian law.
This topic is currently a “hot issue” not only in Italy by also in other jurisdictions and the balancing of contracts is also increasingly being assessed by national courts.
The 2023 IDI Annual Conference, that will be held in Bologna on June 9-10, 2023, will deal with this topic in its plenary session.
Silvia Bortolotti, Secretary General IDI, IDI Country Expert for Italy
