Towards the transposition of the UTP Directive in Italy: the impact of the new provisions on franchise businesses

The new Italian provisions implementing the UTP Directive will mainly affect the existent Article 62 of Italian Decree-Law no. 1/2012 ("Article 62"), regulating trading relationships between operators in the agricultural and food supply chain, which also applies to franchise agreements implying the supply or agricultural or food products.

1. The current Italian framework

Article 62 currently requires that supply agreements concerning agricultural and food products are in writing, providing for the minimum content they must include.

It also prohibits the following practices:

a) directly or indirectly imposing unjustifiably onerous purchase, sales or other contractual conditions, as well as non-contractual and retroactive terms;

b) applying objectively different terms for the performance of equivalent obligations;

c) making the conclusion and performance of the agreements and the continuity and regularity of trading relations subject to the performance of obligations which, by their nature and according to commercial uses, have no connection with the subject matter of the agreements or the trading relations;

d) obtaining the performance of undue unilateral obligations not justified by the nature or content of the trading relationship;

e) adopting any further commercial conduct which appears unfair also taking into account the overall commercial relations characterising the supply terms.

Mandatory payment terms are also set out, i.e. within 30 days for perishable products and within 60 days for other products, starting from the last day of the month in which the invoice is received, and the application of increased interest in the event of delay.

The current Italian rules may apply to the benefit of both the supplier and the buyer.

2. The 'minimum' protection provided by the UTP Directive

The purpose of the UTP Directive is to harmonise at the EU level the protection of suppliers of agricultural and food products in their relations with buyers through the provision of a minimum list of trading practices to be considered always prohibited (the so-called "black list") and a list of trading practices permitted only if agreed in clear and unambiguous terms in the supply agreement (the so-called "grey list").

2.1. Scope of the UTP Directive

The rules laid down by the UTP Directive apply to sales of agricultural and food products between suppliers and buyers of certain economic sizes as identified on the basis of the turnover thresholds laid down in Article 1(2) of the UTP Directive.

The agricultural and food products covered by the UTP Directive are all those listed in Annex I of the TFEU and other products processed for use as food using such products.

The provisions of the UTP Directive only concern B2B relations and are intended to protect suppliers only. Therefore, contracts with consumers are excluded.
The new rules apply to sales where at least one of the contracting parties is established in the European Union.

2.2. The black list

The UTP Directive provides that trading practices resulting in the following are always prohibited:

• payment terms of more than 30 days for perishable products and more than 60 days for other agricultural and food products, in accordance with periods identified according to different criteria;
• the cancellation of orders for perishable products at such short notice that the supplier cannot reasonably be expected to find an alternative way to commercialize or use them;
• unilateral changes by the buyer of the terms relating to frequency, method, place, timing or volume of supply or delivery of the products, quality standards, terms of payment or prices or, in certain cases, of the terms relating to the provision of services;
• request of payments from the supplier that are not related to the sale of the supplier's agricultural and food products;
• request of payments from the supplier for deterioration and/or loss of products occurring on the buyer's premises or after ownership has been transferred to the buyer, where such deterioration or loss is not caused by the supplier's negligence or fault;
• the refusal to confirm in writing the terms of a supply agreement at the supplier's request, except in certain cases;
• the unlawful acquisition, use or disclosure by the buyer of the supplier's trade secrets;
• threating or carrying out acts of commercial retaliation against the supplier if it exercises its contractual or legal rights;
• request of compensation from the supplier for the cost of examining customer complaints relating to the sale of the supplier's products, despite the absence of negligence or fault on the part of the supplier.

Each Member State may introduce additional unfair trading practices that are always prohibited.

2.3. The grey list

The UTP Directive also provides that the following trading practices are prohibited, unless previously agreed in clear and unambiguous terms in the supply agreement or in a subsequent agreement between the supplier and the buyer:

• the buyer returns unsold agricultural and food products to the supplier without payment for such unsold products and/or their disposal;
• the supplier is charged a payment as a condition for stocking, displaying, listing or making its products available on the market;
• the buyer requires the supplier to bear the cost of discounts on agricultural and food products sold by the buyer as part of a promotion;
• the buyer requires the supplier to pay the costs of the purchaser's advertising of the products;
• the buyer requires the supplier to pay for the marketing by the buyer;
• the buyer charges the supplier for staff for fitting-out premises used for the sale of the supplier's products.

3. The transposition of UTP Directive in Italy

The transposition of the UTP Directive in Italy will mainly result in the amendment of Article 62, maintaining its broader scope, and the introduction of new provisions to strengthening the protection of traders in the agricultural and food supply chain.

3.1. Protection irrespective of the economic size of the operators

The Italian legislator, considering the dynamics of the supply relationships in the agricultural and food supply chains in Italy, has established that the provisions on unfair trading practices must apply irrespective of the economic size of suppliers and buyers. The new transposition provisions will therefore apply to all suppliers of agricultural and food products operating in Italy, regardless of the turnover thresholds laid down in the UTP Directive.

3.2. Written form

The new Italian provisions will maintain the requirement to conclude supply agreements concerning agricultural and food products in writing and prior to delivery of the products. In this respect, the Italian law will be therefore stricter than the provisions of the UTP Directive, which does not provide for a general requirement to conclude written contracts.

3.3. Further prohibited unfair practices

By virtue of the possibility for the Member States to introduce stricter national rules to combat unfair trading practices, under the new Italian framework, in addition to the list provided for in the UTP Directive, the following practices shall be considered unfair:

• the sale of agricultural and food products through the use of electronic tenders and auctions with double discounts;
• the sale of agricultural and food products under excessively onerous contractual terms, including that of selling at prices manifestly below production costs;
• the absence of at least one of the requirements set forth by Article 168(4) of Regulation (EU) no. 1308/2013 on the common organisation of the markets in agricultural products.

In addition, the regulation of sales below cost, as set out in Presidential Decree no. 218/2001, shall be revised in relation to the sale below cost of fresh and perishable food products.

3.4. Complaints and mediation or alternative dispute resolution mechanisms

In accordance with the provisions of the UTP Directive, the new Italian provisions shall ensure that the principle of confidentiality of complaints to the authority is strictly implemented and the protection of anonymity of complaints concerning unfair trading practices is guaranteed.

It will be also guaranteed the possibility of using mediation or alternative dispute resolution mechanisms.

3.5. Penalties

The Italian provisions implementing the UTP Directive will establish effective, proportionate and dissuasive penalties, taking into account the nature, duration, recurrence and gravity of the infringement, which will be up to the 10% of the turnover achieved by the infringer in the last financial year.
Such provision will result in a possible increase in the penalties provided for by Article 62, which are currently up to EUR 500,000 for certain infringements and take into account different parameters.

3.6. Enforcement authority

An important innovation concerns the designation of the Central Inspectorate for the protection of quality and fraud repression of agri-food products (ICQRF) as the enforcement authority responsible for supervising the application of the provisions governing trading relations in the sale of agricultural and food products, as well as the application of the prohibitions provided for by the UTP Directive and the relevant penalties.

The authority currently competent for the application of Article 62 in Italy is, in fact, the Antitrust Authority (AGCM), which since 2012 has applied such provision in a number of cases, both in terms of enforcement and through moral suasions.

4. How franchise businesses can get ready to comply with the new provisions?

Although the transposition measures have not yet been adopted, the European delegation law provides useful elements to allow franchisors operating in the agricultural and food chain to plan some measures to comply with the new foreseen Italian provisions implementing the UTP Directive.

Based on the principles and criteria set forth by the European delegation law, it is recommended to:

• carrying out an analysis of existing relationships involving to the supply of agricultural and food products in order to verify the applicability of the UTP Directive;
• identifying any terms that will need to be amended;
• ensuring that new agreements involving the supply of agricultural or food products already comply with the provisions of the UTP Directive and the additional provisions that are being adopted in accordance with the European delegation law.

According to the UTP Directive, the new national measures shall apply from 1 November 2021. New agreements concluded after the date of application of the transposition provisions shall immediately comply with the new framework, whereas agreements concluded before the date of publication of such national provisions will have to be brought into compliance within 12 months after such date of publication.