On 12 December 2024, the Italian antitrust authority has launched an investigation into suspected cartel activity among low-voltage copper cable manufactures. According to the authority, the manufacturers allegedly agreed to standardize surcharges for metal procurement, evading competitive pricing practices as far back as 2005. Furthermore, since 2008, the manufacturers allegedly implemented a unified system, referred to as the “Sales System”, to adjust prices in response to copper cost fluctuations.
The recent raids in Italy add to a growing list of similar investigations involving standardized surcharges. Surcharges are used across many industries. They are often linked to fluctuating prices on global exchanges, allowing manufacturers to automatically adjust prices in response to cost changes. While surcharges are permitted tools for managing input costs, antitrust laws prohibit companies from collectively fixing or aligning surcharge formulas.
For example, in the Airfreight cartel case, that started in 2006, airlines were accused of coordinating fuel and security surcharges to offset external cost increases. In 2017, the German antitrust authority fined industrial battery manufacturers for coordinating lead surcharges, dating back to 2004. More recently, in 2022, Germany’s competition authority raided cable manufacturers over allegations of coordinated metal surcharge calculations. See our blog. In November 2023, the European Commission sent a statement of objections to manufacturers of automotive starter batteries regarding concerns that between 2004 until 2017 starter batteries manufacturers created, published and agreed to use new indices in their price negotiations with car producers.
A surcharge is in principle a permissible instrument to automatically calculate changes in the commodity price into the selling price of products without any new price negotiations. In this way the supplier can pass on its commodity price risk to its customers. In the 2017 case the German authority pointed out publicly that suppliers and customers are naturally free to agree on this kind of automatic price adjustment. However, it is clearly not admissible for suppliers to agree among themselves to introduce or maintain such a surcharge as a sector-wide standard, and thus to eliminate competition for other pricing models.
The dividing line between the permissible use of surcharges and the illegal coordination are not always clear if industry players unilaterally determine a surcharge system. Moreover, surcharges have been in many cases a longstanding feature in each industry, where its origins may be far back in time, involving individuals not anymore with the company.
In short, the recent raids on low-voltage cable manufacturers serve as a reminder that any practice past or present could be interpreted as an agreement or coordinated practice to implement or maintain such surcharges. Therefore, it is important that companies employing similar pricing mechanisms to carefully examine any surcharge formula to avoid scrutiny.
Squire Patton Boggs has been directly involved in many of the surcharge cases above.