By Giulia Segreti
MILAN (Reuters) - A legal dispute between Italian broadcaster Mediaset <MS.MI> and French media group Vivendi <VIV.PA> over a soured pay-TV deal escalated on Tuesday as the two groups sued each other for defamation on the opening day of a trial in Milan.
The dispute stems from the French group's decision to pull out of an April 2016 contract to buy Mediaset's Premium pay-TV unit.
Mediaset, controlled by the family of former Italian prime minister Silvio Berlusconi, brought the case to the Milan court, seeking to enforce the sale contract.
The purchase of Premium was seen as a major step in French tycoon Vincent Bollore's plan to build Vivendi into a southern European content and video powerhouse as European media groups face rising competition from online providers such as Netflix <NFLX.O> and Amazon <AMZN.O>.
Vivendi, however, pulled out of the 800 million euro ($864 mln) contract last July, arguing that Premium's business plan was unrealistic.
A further strain has developed between the two groups as Vivendi has built a significant stake in Mediaset, leading the Italian broadcaster to suggest the French group was planning a hostile takeover, something Vivendi has denied.
A legal source said that during the first day of the trial on Tuesday Vivendi said it had filed a suit against Mediaset for alleged defamation, without quantifying the damages sought.
In turn Mediaset was also now seeking damages for comments made in the media in recent months by Vivendi's Chief Executive Arnaud de Puyfontaine, the source said.
Representatives for Vivendi and Mediaset declined to comment on the matter.
Since walking away from the Premium deal, Vivendi angered the Berlusconi family, as well as the Italian government, by swiftly building a 28.8 percent stake in Mediaset, becoming its second biggest shareholder.
Vivendi's CEO has denied it was planning a hostile takeover of Mediaset and has said that its final aim is to build a European company with global reach.
If the contract to buy Premium is not upheld, Mediaset has said it will suffer damages of at least 1.5 billion euros.
Vivendi, which also has a 24 percent stake in Telecom Italia <TLIT.MI>, has also come under scrutiny by the Italian communications authority over its stake building.
The watchdog will determine whether Vivendi has breached Italian regulations that prevent companies from having an excessive share in both the domestic telecommunications and media sectors.
The French group will attend a hearing by the watchdog in Rome on Thursday.
(Reporting by Giulia Segreti and Giancarlo Navach; Editing by Paola Arosio, Greg Mahlich and Susan Fenton)