Italian Competition Authority v. Volkswagen Aktiengesellschaft and Volkswagen Group Italia S.p.A

In 2015, the Italian Competition Authority (“ICA”) started an investigation against Volkswagen Group Italia S.p.A. and Volkswagen Aktiengesellschaft (“VWGI” and “VWAG,” and together, “Volkswagen”) for alleged unfair commercial practices and breach of the Italian Consumers Code. The investigation on Volkswagen was triggered by consumer associations’ allegations of false declarations made by Volkswagen when marketing its EA 189 diesel vehicles in relation to (i) the level of polluting emissions of such vehicles (Volkswagen was accused of having installed the so-called defeat device to falsify the result of the emission tests) and (ii) their specific green features. In 2016, the ICA’s investigation concluded: the ICA found Volkswagen liable for unfair commercial practices and for breach of Articles 20, 21 and 23 of the Italian Consumers Code, as Volkswagen failed to describe the positive environmental impacts of its EA 189 diesel vehicles in a clear, truthful, accurate, and unambiguous way. As a result, the ICA imposed a fine of €5 million. In 2016, Volkswagen appealed the ICA’s decision before the Regional Administrative Court of Lazio, seeking the annulment of the €5 million fine. With a decision issued in May 2019, the Regional Administrative Court of Lazio rejected Volkswagen’s appeal, confirming the ICA’s decision and the fine of €5 million. The Court held that Volkswagen’s green claims were misleading given that, on the one hand, Volkswagen emphasized its care for the environment, while, on the other hand, it had installed in its marketed diesel vehicles a defeat device to falsify the results of the emission tests. In 2019, Volkswagen appealed the Regional Administrative Court of Lazio’s decision before the Supreme Administrative Court (Consiglio di Stato). Besides challenging the decision on the merits, Volkswagen raised a procedural objection. In June 2018, before the Regional Administrative Court of Lazio had delivered its judgment, the Public Prosecutor’s Office of Braunschweig, Germany, had imposed a fine of €1 billion on Volkswagen pursuant to the Act on Regulatory Offences (Ordnungswidrigkeitengesetz). That fine penalized negligent breach of the duty of supervision in the undertaking’s activities, in particular as regards the development of the software for the illegal defeat device and its installation in 10.7 million diesel vehicles marketed worldwide (700,000 of which were sold in Italy). The decision of the German Public Prosecutor’s Office became final on 13 June 2018, since Volkswagen waived its right to challenge it and paid the prescribed fine. Accordingly, Volkswagen (both the German and the Italian entities) argued before the Italian court that they were no longer required to pay the fine imposed by the Italian Competition Authority, as the principle of ne bis in idem under Article 50 of the Charter of Fundamental Rights of the European Union applied. The Supreme Administrative Court referred the issue to the European Court of Justice (“ECJ”), which on 14 September 2023 rendered its judgment. The ECJ found that, although Article 50 of the Charter of Fundamental Rights of the European Union applies to sanctions of an administrative nature (such as those imposed by the Italian Competition Authority), the national court must verify whether the facts examined in both cases are “identical.” In that respect, the ECJ stated that the relaxation of supervision of the activities of an organization established in Germany, to which the German decision relates, constitutes conduct distinct from the marketing in Italy of vehicles fitted with an illegal defeat device for the purposes of Regulation No. 715/2007 and from the dissemination of misleading advertising in that Member State, to which the decision at issue relates. In addition, the mere fact that an authority of a Member State refers—in a decision finding an infringement of EU law and of the corresponding provisions of the law of that Member State—to a factual element relating to the territory of another Member State is insufficient to support the inference that that factual element gave rise to the proceedings or was found by that authority to be one of the constituent elements of that infringement. On 22 March 2024, by means of a 92-page judgment, the Supreme Administrative Court upheld the €5 million fine imposed on Volkswagen for unfair commercial practices, originally ordered by the Italian Competition Authority in 2016. In its decision, the Supreme Administrative Court also examined in detail this issue and the other matters raised by the European Court of Justice, ultimately confirming the 2016 sanction primarily on the grounds that “there can be no assertion of a material identity between the facts established by the German Public Prosecutor’s Office and those established by the ICA.” Furthermore, according to the Supreme Administrative Court, “the prohibition of ne bis in idem cannot apply to a party that was not involved in the prior proceedings,” since the ICA’s sanction was imposed on Volkswagen Italia, whereas the group was sanctioned only in Braunschweig. Accordingly, there is no correspondence between the entities that were penalized.