The CJEU rules that certain anti-concentration limits set forth by Italian legislation for the protection of media pluralism are incompatible with EU law

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Summary: The CJEU has established that the market concentration thresholds set forth by Article 43(11) of Legislative Decree No. 177/05, and based on the overall revenues of the so called “Integrated System of Communications,” are inadequate to detect or prevent the risk for pluralism and thus unreasonably restrict – contrary to Article 49 TFEU – the ability of an undertaking established in another Member State (Vivendi) to simultaneously hold a “material influence” over (i) Italian undertakings exceeding 10% of the total revenues of the “Integrated System of Communications” (Mediaset) and (ii) undertakings exceeding 40% of the total revenues of the electronic services sector (Telecom Italia).

 

On September 3, 2020, the Court of Justice of the European Union (“CJEU”) issued a landmark judgement[1] in the context of a preliminary referral by an Italian administrative court (the “TAR Lazio”) questioning whether the anti-concentration limits set forth in Article 43, paragraph 11 of Legislative Decree No. 177/05 (i.e.,the Italian Code on Audiovisual Media Services, hereinafter the “AVMS Code,” which is the law on media regulation and pluralism) are compatible with the fundamental freedoms of the EU. This provision, which was introduced in 2004, prevents an undertaking (including through “affiliated” companies) from achieving turnover exceeding 40% of the overall combined revenues of the electronic communications sector in Italy while simultaneously achieving turnover exceeding 10% of the overall combined revenues of the “Integrated System of Communications” (or “SIC”). The SIC is a basket of media, advertising, and publishing markets specifically introduced by the AVMS Code.

In essence, the challenged provision is aimed at precluding a single undertaking from acquiring, by itself or through “affiliated” undertakings pursuant to Article 2359 of the Civil Code (i.e., undertakings in which the principal undertaking holds an interest conferring either control, defined as “dominant influence,” or “collegamento,” defined as “material influence”), a large part of the media sector when it already has significant market power in the electronic communications sector in Italy (or vice-versa, see § 62 of the judgment).

The proceedings before the TAR Lazio stem from an appeal filed by Vivendi SA against a decision of April 18, 2017[2] whereby – for the first time ever – the Italian Authority for Communications (“AGCOM”) applied the ban in Article 43(11) of the AVMS Code. The ban was applied to the acquisition by Vivendi, which already held a 24.68% stake in Telecom Italia SpA, of a 29.9% stake in Mediaset SpA through a hostile takeover. Telecom and Mediaset, which are both publicly listed on the Italian Stock Exchange (Borsa Italiana), fall into the two categories of undertakings contemplated in the challenged provision.

Notably, in its decision the AGCOM affirmed that Vivendi’s stakes conferred a mere “material influence,” pursuant to Article 2359 of the Civil Code, over both Telecom and Mediaset, as there was insufficient evidence to substantiate Vivendi’s control taking the form of “decisive” or “dominant influence” pursuant to the same Article 2359. This provision indeed establishes that a stake of at least 10% in a listed company creates a rebuttable presumption that its holder can exert a “material influence” over the undertaking in which the investment is held. Further, the AGCOM held that Article 2359 of the Civil Code is the only provision applicable to the notions of control and “material influence” in matters pertaining to Article 43(11) of the AVMS Code. That said, the AGCOM held that the ban set forth therein also applies to a company simultaneously holding a mere “material influence” (thus falling short of control) over both Telecom and Mediaset as companies generating, respectively, more than 40% of the total revenues of the electronic communications sector and more than 10% of those of the SIC.

As a result, the AGCOM ordered Vivendi to comply with the ban set forth in Article 43(11) within 12 months and to submit to the AGCOM a detailed action plan for that purpose within 60 days. Vivendi appealed the decision before the TAR Lazio but in the interim complied with the ruling by transferring its stake in Mediaset to an independent trustee (except for retaining a stake just below 10%).

During the course of the appeal, the TAR Lazio asked the CJEU, in essence, whether Article 49 of the Treaty on the Functioning of the European Union (TFEU) is compatible with legislation of a Member State that has the effect of preventing a company registered in another Member State to achieve simultaneously, possibly through controlled or affiliated undertakings, revenues exceeding 40% of the total revenues in the electronic communications sector and revenues exceeding 10% of the total revenues generated in the SIC.

The referring court asked the same questions with respect to the freedom of circulation of capital (Article 63 TFEU) and the freedom of services (Article 56 TFEU), though the CJEU deemed Article 49 more directly affected by the challenged legislative provision in the case at hand. Indeed, the consolidated case-law of the CJEU establishes that “Article 49 TFEU precludes any national measure which, even if applicable without discrimination on grounds of nationality, is liable to hinder or render less attractive the exercise by EU nationals of the freedom of establishment guaranteed by the FEU Treaty, and that such restrictive effects may arise, inter alia, where, on account of national legislation, a company may be deterred from setting up subsidiary bodies, such as permanent establishments, in other Member States and from carrying on its activities through such bodies” (see, e.g., judgment of May 10, 2012, Duomo Gpa and Others, C‑357/10 to C‑359/10, paragraph 35 and the case-law cited).

The CJEU answered that Article 49 TFEU is incompatible with the challenged provision, based on the following reasoning:

  • when a legislative ban amounts to a derogation from the principle of the freedom of establishment, it is for the national authorities to demonstrate that that provision is consistent with the principle of proportionality, that is to say, that it is appropriate and does not go beyond what is necessary to achieve the stated objective, and therefore that that objective could not be achieved by measures with a less restrictive effect with respect to the exercise of that freedom (§ 63 of the judgement);
  • to determine whether the contested provision is appropriate to attaining that specific objective (i.e., to prevent the negative aspects of convergence between the electronic communications sector and the SIC), one must assess the link between the thresholds referenced in that provision and the threat to media pluralism (§ 70 of the judgement);
  • with regard to the 40% threshold (referring to revenues in the electronic communications sector), the AGCOM’s interpretation that it should be calculated by considering only the relevant markets listed in a specific “recommendation” of the European Commission pursuant to the Framework Directive is inconsistent with the objective of safeguarding pluralism in the media sector, because such markets are only those subject to ex anteregulatory obligation according to that Directive, the purpose of which is different from protecting media pluralism and does not help identifying undertakings that might achieve a “significant economic dimension” in the SIC;
  • therefore, there is no justification for excluding other markets in the electronic communications sector when calculating the threshold, especially markets that are of increasing importance for the transmission of information, namely mobile telephone retail services and other electronic communications services linked to the internet and satellite broadcasting services; (see §§ 71–74 of the judgement);
  • with regard to the 10% threshold (referring to the value of the SIC), the CJEU affirms in plain language that “the issue of whether or not an undertaking earns revenue equivalent to 10% of the total revenues generated in the SIC is not, in itself, an indication of the risk of influencing media pluralism” (§ 75 of the judgement);
  • indeed, the SIC includes a wide range of different and sometimes unconnected markets, and therefore it may happen that the total revenues earned by an undertaking in the SIC are concentratedin just one of the markets making up that system, with the result being that said company may even be dominant in that single market while remaining below 10% of the entire SIC; consequently, whether the 10% threshold of the SIC is or is not achieved cannot exclude or, conversely, necessarily point to a threat to media pluralism (§ 75 of the judgement);
  • with regard to the AGCOM’s stance of taking into consideration not only revenues obtained through “controlled” companies, but also those obtained through “affiliated” undertakings pursuant to Article 2359 of the Civil Code, the CJEU observes that such a practice is likely to lead to duplication of the revenue generated in the SIC because “[t]he same revenue of a company active in the SIC might therefore be taken into account both for the calculation of the income of an undertaking which is its minority shareholder and in calculating the revenue of an undertaking which is its majority shareholder and actually controls it”(see § 76 of the judgement);
  • in addition, the fact that Vivendi’s “material influence” over Telecom and Mediaset is presumed pursuant to Article 2359 of the Civil Code just because Vivendi holds at least 10% of the voting rights over the two is insufficient, according to the CJEU, to justify treating a “controlled” entity in the same way as an “affiliated” (but non-controlled) company when calculating the revenues achieved in the electronic communications sector or in the SIC; in particular, it does not appear reconcilable with the objective pursued by the challenged provision at issue (see § 77-78 of the judgment);
  • Consequently, the CJEU concluded that the provision at issue cannot be considered appropriate to attaining the objective it purportedly pursues, insofar as it sets thresholds that bear no relation to the threat to media pluralism, since those thresholds do not make it possible to determine whether and to what extent an undertaking is actually in a position to influence the content of the media (see § 79 of the judgment).

The answer of the CJEU in judgements for preliminary rulings binds the referring court (in this case, the TAR Lazio) to apply the resulting principles to the case at hand. In this case, there seem to be little discretion left to the TAR Lazio, which should thus disapply the challenged provision and consequently annul the AGCOM’s decision which was based on that provision. As a result, and absent new legislative interventions, it is quite straightforward that Vivendi would be left free to exert all the voting rights corresponding to its overall 29.9% participation in Mediaset without limitations (and even to increase its participation through further acquisitions of shares).

This said, looking at the above reasoning one may have the impression that (i) the incompatibility of the provision in question with Article 49 TFEU is based on several factors, each of which may be decisive to lead to that conclusion in the specific case at hand; and that, therefore, (ii) the reasoning of incompatibility could not in any case be extended beyond the scope of application of Article 43(11) of the AVMS Code. However, those who are familiar with architecture and genesis of the anti-concentration limits set out therein (which were first designed and introduced in 2004) have been probably stricken by one passage of the reasoning: para. 75 of the judgement establishes, in essence, that the mechanism of calculating the thresholds based on the overall value of the SIC – which is not a single relevant market but a basket of many distinct markets that may even lack any contiguity with one-another – is inadequate to indicate any risk for pluralism.

Now, since some of the main concentration limits set forth in the AVMS Code are based on certain thresholds of the SIC – including but not limiting to the ban concerned in Article 43(11) of the AVMS Code – it can be argued with sufficient certainty that the passage of the judgment on the inadequacy of the SIC would be autonomously sufficient – thus even absent the other inconsistencies identified by the CJEU – to substantiate the contrariety with EU law of, in essence, the overall AVMS Code’s architecture of anti-concentration thresholds in the media sector (and not just of Article 43, para. 11).

As a result, this CJEU judgment seems to mandate the Italian legislator to completely reform the AVMS Code with respect to the overall thresholds system designed to ensure protection of media pluralism, as it is inadequate to that objective and, thus, it unreasonably or disproportionately restricts the fundamental freedoms enshrined in the TFEU.

 

 

[1]Judgment of the Court (Fifth Chamber) of 3 September 2020 in Case C‑719/18.

[2]Italian Authority for Communications,Resolution N. 178/17/CONS of 18 April 2017, ASSESSING INFRINGEMENT OF ARTICLE 43, PARA. 11, OF LEGISLATIVE DECREE 31 JULY 2007, N. 177.

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