THE ABUSE OF ECONOMIC DEPENDENCE: THE CHANGES THAT HAVE BEEN AFFECTING THIS INSTITUTION FOR THE PAST YEAR.
Law No. 118 of August 5, 2022, introduced important changes to the regulations governing subcontracting in productive activities and the abuse of economic dependence (Art. 9 Law 192/1998), with undoubted implications in relations between the parties, including in the case of litigation.
In October 2023, the guidelines on subcontracting will turn 25 years old; over time Law 192/1998 has undergone several amendments, the most recent being that of August 2022 (Law 05.08.2022, No. 118), effective as of October 31, 2022, amendments that significantly affect the scope of the well-known Article 9 on abuse of economic dependence. Before pointing out the new changes, it is useful to briefly summarize the features of the regulations under review. First of all, according to the definition given in Article 1 of Law 192/1998, under the subcontracting agreement an entrepreneur undertakes to carry out work on behalf of a client enterprise on semi-finished products or raw materials supplied by the client, or undertakes to supply the client with products or services intended to be incorporated or otherwise used in the production of a complex asset in the context of the client’s economic activity, according to instructions provided by the latter.
Such a contract must be in writing under penalty of nullity and must accurately indicate the goods or services that are the object of the order, as well as the agreed price and the terms of delivery/testing of supplies. The parties must also fix the terms of payment for subcontracting, and interposition between subcontractors is prohibited: in a nutshell, the subcontractor cannot entrust third parties with the performance of its services that exceed 50 percent of the value of the supply, unless authorized by the client. There are also rules on the liability of the subcontractor, on the intellectual property of projects supplied by the client, on the VAT arrangements for orders and, most importantly, on the possible abuse of economic dependence by the client to the detriment of the subcontractor. By introducing a specific rule on this abuse, the legislator wanted to protect that condition of weakness and subordination of those small and medium-sized (but also large) companies, often “single-agent”, whose survival depends to a large extent, if not completely, on the supplies requested by the client. The excessive imbalance of rights and obligations to the detriment of the subcontractor results in so-called economic dependence. What Article 9 of Law 192/98 prohibits is the abuse of such dependence, abuse that may manifest itself in the client’s refusal to sell or buy, in the imposition of unjustifiably burdensome or discriminatory conditions, or in the arbitrary interruption of existing business relations. In such a context, the subcontractor must also find it impossible to find concrete and satisfactory business alternatives in the market. All clauses that contribute to an abuse of economic dependence are void. In August 2022, Article 9 of Law 192/98 was supplemented, expanding the possible hypotheses of abusive conduct; thus, looking at the digital world and the Internet, a presumption of economic dependence has been introduced when a company uses intermediation services provided by a digital platform that has a decisive role in reaching end-users or suppliers, including in terms of network effects or data availability (new paragraph 1 Art. 9); such abusive practices may also consist: (a) in providing insufficient information or data regarding the purpose or quality of the service provided; (b) in demanding undue unilateral benefits not justified by the nature or content of the activity performed; (c) in adopting practices that inhibit or hinder the use of different providers for the same service, including the application of unilateral conditions or additional costs not provided under existing contractual agreements or licenses.
As legal safeguards, the possibility for the subcontractor to report the abusive conduct to the Italian Antitrust Authority was contemplated from the onset in order to activate the investigation, with consequent warnings and, if appropriate, severe sanctions; alternatively, those who suffer the abuse can always take the case to the ordinary courts, not only to obtain possible injunctions but also to obtain the client’s condemnation to pay damages. As from October 31, 2022, such actions can be brought before the Section specialized in business matters.
HOW TO GET AWAY WITH MORTGAGES.
The Court of Cassation, in its ruling no. 19123/2020, affirmed that the erroneous indication of cadastral data of a foreclosed property does not imply nullity of the deed as long as such error does not lead to absolute uncertainty as to the identification of the subject of the forced sale. Today, thanks to the recent statements of the Court of Verona in the first stage (ruling no. 695/2022), as later confirmed by the Court of Appeal of Venice (ruling no. 1156/2023), it is possible to finally draw the line on such “absolute uncertainty”.
The mortgage, a fundamental guarantee instrument, has always enabled mortgage creditors, in the event of insolvency, to satisfy their claim with the profits arising from the sale of the mortgaged property, in preference to the debtor’s other creditors. Having been created because of the need to protect the active party to the legal relationship from the possible inability of the debtor to fulfil its obligations, such institution is able to profoundly affect the debtor’s legal sphere , since the power of disposal of the latter over the property is strongly limited, and the property will continue to be encumbered by the collateral even if it is transferred to another subject. But, above all, the property may be forcibly taken from the debtor and sold at auction, and the related profits will then be allocated to the creditors.
For these reasons, the legislator has created a complex regulatory framework that aims to balance the two opposing needs, that of the creditor and that of the debtor, by attempting, on the one hand, to ensure the satisfaction of an unpaid claim, and, on the other hand, to avoid overburdening the debtor’s legal sphere, protecting his interests.
Let us start with a fact. In identifying the elements that must necessarily be indicated in the deed of constitution of the mortgage over a property, article 2826 of the civil code reveals a fundamental principle: the debtor’s need to avoid having an indefinite number of his assets being subjected to mortgage. In other words, the legislator wished to limit the burden borne by the debtor to what is strictly necessary, in light of the above-mentioned balancing of interests. Besides, article 2841 of the civil code orders the nullity of the mortgage and the relevant registration in case of “uncertainty (…) on the identity of each asset encumbered” by the mortgage (which derives precisely from the lack of indication of the elements required by article 2826). However, if improvements of accessions are made to the property encumbered by the mortgage, the latter is automatically extended to such improvements and accessions, pursuant to article 2811 of the civil code, except in the cases provided for by law (in particular, in articles 2816 in the event of a mortgage on surface rights and 2873 in the event of reduction of a mortgage).
In this regulatory context, for the purpose of identifying the goods encumbered by the mortgage, cadastral data are given very broad prominence, given that they are the real focal point of article 2826 of the civil code. The Court of Verona focused precisely on such prominence and inferred the nullity of a mortgage and its relevant registration due to the uncertainty on the cadastral data referred to in the mortgage constitution deed.
In fact, whereas, on the one hand, it is true that the mere reference to cadastral data that are no longer current cannot automatically imply nullity, since the property’s cadastral history can be easily traced by referring to the previous cadastral data in the transcription note, it is also true that in the case of buildings or other accessions prior to the constitution of the mortgage to which an autonomous cadastral identification has already been attributed, the manifestation of the property’s autonomy is evident, so that it cannot be included in the subject matter of a mortgage that does not precisely indicate its cadastral data of reference. Moreover, in such a scenario it is not possible to apply the aforementioned rule of article 2811 of the civil code, since it applies only to improvements or accessions that were built after the mortgage was constituted and not also to those pre-existing at the time of the mortgage being set up.
In the present case, on the basis of the arguments set forth, the Court of Verona declared the partial nullity of the mortgage, limited to the parcels and sub-parcels not included in the specific cadastral data indicated in the deed of constitution of such mortgage. Such statement is correct because the attribution of an unambiguous cadastral datum to some of the constructions realised partially on the sub-parcel indicated in the deed, and partially outside it, would suggest their autonomy with respect to the property encumbered by the mortgage and, therefore, determines its exclusion from the group of properties subject to the lien.
CRYPTOASSETS: FCA INTRODUCES NEW FINANCIAL PROMOTIONS RULES IN THE UK.
The UK Financial Conduct Authority (FCA) published the new rules applicable to all firms marketing cryptoassets to UK consumers. In particular, these rules are set to bring cryptoassets into the financial solicitation/promotion regime as of 8 October 2023.
The Financial Conduct Authority (FCA) reported a growing and worrying mismatch between consumers’ investment decisions and their level of risk tolerance and therefore decided to categorise cryptoassets under “Restricted Mass Market Investments”, in order to ensure an adequate level of protection for consumers, without, however, stifling a market that is still developing.
The new rules are expected to take effect on 8 October 2023 and will bring cryptoassets within the scope of the financial solicitation/promotion regime. The definition of financial promotion needs to be interpreted extensively, as it covers several different types of communications made by a company, including those published on websites, apps or made via social media and online advertising. Furthermore, any promotional activity originating outside of the United Kingdom will also be covered by the promotional rules if it has an effect on the UK consumers, even when such activity is not exclusively addressed to them.
There will be four routes to promote cryptoassets to UK consumers:
(i) Financial promotions made by a FCA-authorised person
(ii) Financial promotions made by an unauthorised person, but approved by an authorised person
(iii) Financial promotions made by those having business relations concerning cryptoassets registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
(iv) Financial promotions falling under an applicable exemption under the Financial Promotion Order
Any violation of these rules shall be considered as a criminal offence punishable by up to 2 years of imprisonment, the imposition of a fine, or both.
The FCA noted, however, that a cryptoassets’ investment offer may comply with applicable rules without necessarily making the consumer aware of the risks related to the investment. For this reason, these new rules have a 24-hour cooling-off period, which necessarily takes into account the peculiarities of the crypto market, characterized by rapid price fluctuations.
The UK Financial Conduct Authority’s resolution is part of the broader European and probably global trend that is moving toward increasing recognition of cryptoassets as alternative investment strategies to traditional assets.
EMOJI AND TRADEMARKS: THE RELEVANCE OF DISTINCTIVE CHARACTER IN VISUAL COMMUNICATION.
The Board of Appeal of EUIPO, in its decision of 1st June 2023 in the case R 2305/2022-2, confirmed the decision of the European Office, excluding the possibility of registering an emoji depicting the gesture of a hand as a European trademark.
The application for registration of that sign by a German undertaking concerned services in Classes 36 (property and financial services) and 37 (services in the cleaning and construction sector). However, this request was rejected on the basis of Article 7(1)(b) of the European Union Trade Mark Regulation (EUTMR), which excludes non-distinctive trade marks from registration.
The examiner pointed out that the emoji in question realistically represented a well-known sign that comes from the US sign language and is now internationally known as an ‘I love you’ hand sign. The EUIPO said that this gesture is universally associated with a symbolic message of affection and love that goes beyond language barriers.
With the decision in question, it was established that emojis, although realistic and universally recognized, do not possess the degree of distinctiveness necessary to obtain approval for registration as a trademark.
According to EUIPO, it was unlikely that a simple pictogram would remain etched in consumers’ minds. In fact, as is known, emojis act as a parallel language, providing emotional indications and facilitating the expression of feelings in digital conversations.
In the context of the services in question, the sign is therefore perceived as merely a representation of a positive gesture, an advertising message intended to indicate customer satisfaction with those services.
This finding is in line with established case law on the subject, according to which pictograms such as emblems or smileys are generally used both in advertising and in private communication to express positive feelings, such as joy, consent, enthusiasm or happiness.
Returning to regulatory aspects, it should not be forgotten that the objective of Article 7(1)(b) EUTMR is to ensure that consumers can easily distinguish a product or service from others without risk of confusion.
In the present case, EUIPO considered that the sign proposed for registration was too general and was used in many different contexts, making it primarily a decorative element or a general advertising message that was not perceived by consumers as an indication of the origin of the service. Consequently, the examiner rejected the German company’s application for registration.
The examiner’s decision was therefore the subject of a recent appeal before the EUIPO Commission, where the applicant argued, among other arguments, that the distinctive character of a sign should also be assessed in relation to the services for which registration is sought, an aspect which the Office had neglected to consider.
However, this argument was not sufficient to change the decision, in fact, the Board of Appeal of the EUIPO, following the arguments already put forward at first instance, pointed out that the target public is familiar with various pictograms, including emoticons and emojis, which is why they will not be perceived as an indication of origin, but rather as generic advertising messages or decorative elements devoid of distinctive character.
The Commission therefore agreed with the examiner’s arguments and confirmed its decision.
In particular, the Commission reiterated that the sign in question was mainly used in contexts of positive communication and therefore could not be interpreted as an indication of origin. The Commission also pointed out that the pictograms are devoid of distinctive character, as they are “simple geometric shapes, design elements customary in advertising, stylised instructions on the use of the product or the reproduction of the product itself “.
Thus, even on appeal, the sign in question did not obtain recognition as distinctive and its registration was rejected.
All that remains, however, is to ask ourselves about the future: can this precedent be considered a launching pad for a subsequent registrability of an emoji as a trademark, this time also evaluated in relation to the services offered by the applicant? We’ll see…
THE ITALIAN LEGISLATIVE DECREE IMPLEMENTING THE GLOBAL MINIMUM TAX IS AVAILABLE FOR CONSULTATION UNTIL 1 OCTOBER.
It is under consultation until 1 October 2023, the Italian draft legislative decree that will implement Directive 2022/2523/EU for the introduction of the so-called “global minimum tax” (in line with the OECD’s Pillar 2 provisions) applicable to group companies belonging to MNEs or domestic. The rules contained in the document should be implemented by 31 December 2023 and will enter into force as of 1 January 2024.
The reform process of international tax rules was initiated in 2013 by the OECD and the G20 countries under the BEPS Project (Base Erosion and Profit Shifting). The objective of those initiatives was to fill key gaps in domestic and international regulations and eliminate asymmetries generated by the interaction of individual tax systems.
After many years of discussions and negotiations, during the 2021 Italian G20 Summit 137 jurisdictions signed and approved the political agreement on the core elements of the two Pillars of the reform:
(i) Pillar 1: Revision of the profit allocation rules of the largest and most profitable MNEs;
(ii) Pillar 2: Rules to introduce an effective minimum taxation of large MNEs at a global level (“Global Minimum Tax”) equal to at least 15% thereof revenues generated in each country in which these companies operate.
Directive 2022/2523/EU implemented in the EU the rules developed under Pillar 2; it essentially follows the contents published by the OECD, although introducing some provisions necessary to ensure the conformity of the new rules with the EU Treaties and the case law of the Court of Justice.
The Directive entered into force on 23 December 2022 and that, as mentioned, has the deadline for implementation in each Member State on 31 December 2023. Accordingly, Italy has prepared a draft legislative decree, now in public consultation, with the aim of implementing legislation strictly adhering to the Directive (forwarding to secondary legislation for application aspects).
The draft legislative decree, which can be found on the website of the Italian Department of Finance, consists of 52 articles divided into nine chapters. It provides for the introduction of three taxes to ensure the effective tax rate indicated by the OECD (15%) as the minimum levy:
(i) a minimum supplementary tax, payable by the Italian parent company if the subsidiary established in a foreign country is subject to lower taxation;
(ii) a supplementary minimum tax, payable by the Italian subsidiary if the parent company is resident in a country that is not a party to Pillar 2;
(iii) a national minimum tax, payable in relation to companies of a group (multinational or domestic) subject to low taxation located in Italy.
The companies affected by the Global Minimum Tax will be those belonging to MNE groups with a consolidated turnover of no less than EUR 750 million in at least two of the previous four financial years, as well as those belonging to wholly domestic groups with a turnover of no less than 750€ million. Excluded taxpayers are investment funds, real estate investment vehicles, not-for-profit entities and state agencies, international shipping and international organisations.
DISCLAIMER: This newsletter merely provides general information and does not constitute legal advice of any kind from Macchi di Cellere Gangemi. The newsletter does not replace individual legal consultation. Macchi di Cellere Gangemi assumes no liability whatsoever for the content and correctness of the newsletter.
TO READ OUR PREVIOUS NEWSLETTER OF 15 SEPTEMBER 2023: