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The article outlines the new proposed decision-making powers for the Swedish Competition Authority and the possible implications of Swedish competition law enforcement in light of recent key cases.
- Background to the change of approach
- Extended decision-making powers
- The Swedish Competition Authority’s enforcement history
- Criticism from the legal community
Referenced in this article
- Swedish Competition Authority
- Swedish Match
In February 2020, the Swedish Ministry of Enterprise and Innovation published a memorandum in the Ministry publication series containing a legislative proposal to implement the ECN+ Directive (Directive (EU) 2019/1).1 In the legislative proposal, the Ministry, besides proposing the legislative changes as required by the Directive, also proposed to give the Swedish Competition Authority (SCA) decision-making power in relation to imposing sanctions for infringements of the prohibitions against anticompetitive agreements and abuse of dominance.
Currently, the SCA investigates matters but lacks decision-making powers to issue sanctions against infringements of the prohibitions against anticompetitive agreements and the abuse of dominance. Since 2018, the SCA has been vested with decision-making powers for merger control matters. To impose sanctions for infringement actions, however, the SCA must file an application with the Patent and Market Court, requesting the court to issue the fines. In essence, the first instance decision will thereby include a proper examination of the legal merits of the SCA’s case.
An official report, published in 2016, assessed and reviewed the SCA’s decision-making powers.2 The report put forward a proposal for new legislation to grant the SCA decision-making powers at first instance. However, objections were raised by the legal community regarding requirements of legal certainty in connection with administrative sanctions, and the fact that these types of sanctions should be issued by a court after an adversarial procedure. Consequently, the government chose to not move forward with the proposal in relation to sanctions for infringements of anticompetitive agreements and abuse of dominance.
A change in decision-making powers would further require a reorganisation of the SCA to ensure separation between the investigative and the decision-making sections to safeguard objectivity and a fair legal process. The SCA has been tasked by the Ministry to investigate the necessary changes to the organisation if it were to be granted decision-making powers.
The arguments put forward by the Ministry in the memorandum in support of expanding the SCA’s decision-making powers are mainly focused on harmonisation and efficiency. The EU Industrial Policy emphasises the importance of efficient competition enforcement and is presented as one reason for the proposed changes. Consequently, by expanding the SCA’s decision-making powers to include all three types of competition law matters, the Swedish legal system would be in line with that of most other EU member states and that of the European Commission. Moreover, it is considered that the new powers will improve the efficiency of the SCA by cutting case-handling times. A first decision will then be issued within two years, on average, instead of three and a half years, which, in the view of the Ministry and the SCA, will increase legal certainty for market players. This is discussed further below with regard to the SCA’s enforcement history.
The expansion of the decision-making powers will furthermore allow the SCA to better cooperate with other national competition authorities and improve case-handling efficiencies in cross-border cases. According to the memorandum, this is an important factor to consider as the digital economy is growing rapidly and as most companies are active within an increasingly international environment. Owing to the rapid changes in digital markets, decision-making powers are considered to give the SCA the tools needed to achieve a visible and efficient competition enforcement to safeguard healthy competition on the different markets for small and medium-sized enterprises.
The SCA’s enforcement history
To better frame the criticism voiced by the legal community with regard to the proposal to extend the SCA’s decision-making powers, we should describe some of the SCA’s enforcement history.
The SCA has not been successful in any of its recent enforcement actions with regard to infringements of the prohibitions of anticompetitive agreements and abuse of dominance. Moreover, the SCA has also not followed the correct legal framework when transferring documents from a dawn raid to the investigative file, leading to the Supreme Court stating that a company’s right to due process had been violated.
Looking first at cases regarding abuse of dominance, three recent high-profile cases involved Nasdaq Stockholm (Stockholm Stock Exchange), Swedish Match (tobacco products) and FTI (a company active in the market for collection and recycling of packaging waste).
In Nasdaq,3 the SCA considered that Nasdaq had prevented a competing trading platform from placing its matching computer in a computer facility operated by a third party, thereby hindering the competitor from offering attractive services. The competing trading platform service provider was not considered to be as efficient a competitor. Therefore, proximity to the matching computer did not have any significance in respect of the competing trading platform service provider’s ability to compete. The Patent and Market Court of Appeal consequently found that the SCA had not proved that the behaviour in question amounted to an abuse, as the behaviour had not had an impact on competition. In Swedish Match,4 the SCA argued that Swedish Match’s requirement for generic labels in its snus coolers (in which Swedish Match, owing to its strong market position, allowed competing products to be displayed) preventing competitors from designing their own labels was abusive. Even though the Patent and Market Court judged in favour of the SCA, but reduced the fines, the Patent and Market Court of Appeal dismissed the case. The Court found that even though the action did constitute an abuse of dominance it was also objectively justified (and proportionate) for Swedish Match to take such actions owing to the regulatory framework applicable to the marketing of tobacco products. In FTI,5 a dominant undertaking with a nationwide public infrastructure for waste collection, the SCA had ordered FTI not to terminate an agreement with a competitor regarding access to its waste collection infrastructure. The SCA claimed that the infrastructure was an essential facility to which FTI should give access so as not to exclude all competition on the market. Although the Patent and Market Court sided with the SCA, the Patent and Market Court of Appeal annulled the SCA’s order by finding, contrary to the SCA, that the waste and recycling system for packaging waste did not constitute an essential facility, which meant that FTI’s action was legitimate and not abusive. In sum, the SCA did not meet the standard of proof to prove that the company’s actions amounted to an abuse of a dominant position.
Three recent high-profile anticompetitive agreement cases relate to (1) bidding cartels (Telia and Aleris/Capio/Hjärtkärlgruppen) and (2) the scope of a non-compete clause in a share purchase agreement (Alfa Quality Moving).
In both Telia6 and Aleris/Capio/Hjärtkärlgruppen,7 the SCA was successful at first instance with the Patent and Market Court but the judgments were reversed on appeal before the Patent and Market Court of Appeal. In both cases, the Court considered that the competition between the parties had already been limited by the conduct of the procurement process by the responsible public authorities; it made the parties cooperate and as the SCA had mainly put forward arguments trying to demonstrate that the infringement at hand was a ‘by object’ infringement, the claims could not be supported. The Patent and Market Court of Appeal noted, however, that some of the arguments put forward by the SCA were in respect of an assessment that focused on whether the infringement had anticompetitive effects. However, as the SCA had not properly phrased its claims, no anticompetitive results could be assessed by the Court.
In Alfa Quality Moving,8 the SCA argued that a non-compete clause of five years in a share purchase agreement became a restriction by object when two years had passed. On appeal, the SCA did not put forward the argument that the non-compete clause could be considered restrictive by effect. The Patent and Market Court of Appeal stated that non-compete clauses with a longer duration than those in the EU Commission’s Notice on Ancillary Restraints could not be considered as restrictions by object as the restriction, in and of itself, could not be considered as sufficiently serious or obvious. However, the Court noted that longer non-compete clauses could be considered restrictive by effect, but as the SCA had not put forward such a claim, the Patent and Market Court did not assess any restrictions by effect. The Patent and Market Court of Appeal clearly sent the SCA a message that it had not handled the case properly before the courts.
In a competition law matter regarding the transferring of documents from a dawn raid document review to the SCA’s investigative file, the Supreme Court issued its final ruling in 2018. In 2017, the SCA conducted dawn raids within the insurance sector while investigating suspected anticompetitive agreements. To conclude the dawn raid, the SCA informed the company (Söderberg & Partner) of the documents it intended to transfer to the investigative file. After reviewing the documents, the company objected to the transfer, as many of the documents the SCA wished to transfer were considered to fall outside the scope of the dawn raid decision. Despite the company’s objections, the SCA transferred the documents to its investigative file without ensuring that the action could be appealed by the company. Söderberg & Partner sent an application to the Patent and Market Court asking it to rule on the matter despite the lack of legal grounds for such an action. The case was finally resolved in 2018 by the Supreme Court.9 The Supreme Court held that there was a legal framework laid down to ensure that the company’s rights under the European Convention of Human Rights and the EU Charter of Fundamental Rights in these kinds of cases were respected and allowed them the right to have the action assessed by a court. However, the SCA had not followed the correct legal framework, as the applicable legal framework provides that the SCA should request the assistance of the Swedish Enforcement Agency, which will then issue a decision granting the company in question a possibility to appeal that decision. However, the Supreme Court did not remedy the SCA’s errors by conducting an assessment of the measures but instead stated that the company would have to seek compensation through damages for the infringement of its rights caused by the SCA’s action. Despite the unsatisfactory outcome for the targeted company as a result of this judgment, the new Chief Legal Officer at the SCA has stated that the SCA will follow the proper procedure in the future.
Criticism from the legal community
Against this background, it is not difficult to understand the apprehensions of the legal community. The SCA’s recent enforcement history, as briefly described above, clearly raises doubts about whether it is ready to take on the greater responsibility of having decision-making powers. In addition, the SCA has also received criticism from the Swedish National Audit Office for deficiencies regarding its prioritisation of matters, and the supervision and control of its enforcement actions. The key question therefore remains whether the SCA has the ability to step up to the requirements that broader decision-making powers entail.
As described above, the SCA has been anything but successful in its enforcement actions during the past few years and it has not won any of its court cases. If one assumes that initiating a proceeding in court requires a somewhat more robust prior case analysis, pointing to a successful proceeding, than a proprietary decision, the SCA’s recent case history suggests that giving the SCA further decision-making powers would lead to even more undertakings being subjected to ill-founded decisions and proceedings. Thus, it may be inferred that if the SCA were to be given its own decision-making powers, several companies would be issued with fines for alleged competition law infringements even though the SCA would not have properly met the applicable standard of proof. The potential errors can then only be remedied following years of court proceedings. During those proceedings, the defending companies would have the burden of being considered a convicted undertaking with ensuing negative publicity and potential problems with taking part in public procurement processes.
Therefore, it is difficult to accept the notion that giving the SCA further decision-making powers would make competition enforcement more efficient and reduce the time taken to deal with cases. From our point of view, the result will only be that the companies subject to an infringement investigation will be more likely to have to defend their actions at three instances: before (1) the SCA, (2) the Patent and Market Court and (3) the Patent and Market Court of Appeal. In exceptional cases, a fourth instance, the Supreme Court, could also be possible if the Patent and Market Court of Appeal allows for an appeal. The first decision might be issued earlier but the total time to reach a final decision will not change as an affected company will have to spend an equal amount of time, money and effort on defending itself against the SCA’s accusations although with a higher risk of a negative proceeding, as set out before. Considering the SCA’s track record, it would be beneficial for a company to appeal a decision from the SCA, which further demonstrates that the time taken to reach a final decision will not be altered.
The SCA itself has even commented on its lack of success before the courts in its own enforcement report for 2019. Nevertheless, it does not view this as a failure or consider that its decisions to bring cases to court would have been wrong. Instead, the SCA considers that one of its tasks is to promote the development of competition law and gain insight, through case law, of how new legal questions should be interpreted. It also notes that the standard of proof is typically high in competition law cases, but it does not mention anything in relation to how it should improve, change or develop its working methods or procedures to ensure that it meets the standard of proof when taking a case to court. As the SCA evidently has not met the standard of proof required in competition law cases before the courts, it is doubtful that it will meet the required legal standard just by being granted decision-making powers. Consequently, there is an imminent risk that the SCA could be issuing fines for infringements to companies that do not have the financial muscle to fight a case in court, and therefore will not appeal, and the proposed legal changes are largely to the detriment of companies. Market players risk being fined for actions that are permitted. In the few successful cases that the SCA has had over the years, the courts have never accepted the amounts of fines proposed by the SCA. This also demonstrates that the SCA lacks the ability to, first, accurately assess whether or not an action constitutes an infringement of competition law and, second, calculate the appropriate fine when an infringement has occurred and been successfully proven.
Instead, the SCA and the memorandum focus on the efficiency that decision-making powers would bring about. The SCA believes the legislative change will allow it to close cases more quickly, on the basis that it would increase legal certainty for companies and allow the SCA to be more agile in relation to fast-moving markets. However, looking at the enforcement history and the SCA’s success rate, one can but wonder if that is accurate and question whether the requirements of legal certainty would be maintained. Consequently, the proposed procedural change will only lead to efficiency gains if the SCA increases its investigative capabilities and its expertise, and starts winning cases in court. And that is applicable irrespective of whether or not the authority is given own decision-making rights.
We do not believe that the asserted efficiencies will be realised, and in any event, they would be to the detriment of legal certainty and the rights of companies. The granting of expanded decision-making powers would require an extensive reorganisation of the SCA. Such reorganisations are not done quickly, and with the proposal that the new legislation would enter into force in February 2021, we do not believe that the SCA would be able to have the necessary organisation in place by then.
The principle of objectivity is at the heart of all public authority actions and case handling in Sweden. With the proposed decision-making powers, the SCA would have the role of both police and judge, which puts objectivity at risk. Even though it could be argued that it is possible, in theory, to ensure objectivity, it is much more difficult to achieve in practice. Considering the SCA’s enforcement history, it can be expected that (almost) all of its decisions will be appealed, at least during the first years after such a big reform. The decision-making part of the authority must have staff with extensive knowledge and experience of competition law matters to ensure that the SCA only pursues those cases in which it can meet the burden of proof.
Legal certainty must always be ensured. The proposed legislation does not contain any impact assessment nor does it, in any other way, take into consideration the criticism that was raised before the SCA was given decision-making powers in relation to mergers. It is difficult to understand how the proposed legislation will ensure the right to a fair trial and other connected rights. The right to a fair trial requires, inter alia, that it should be possible for each party to present its case at trial and that one party should not have any advantage over the other. As the SCA has access to a lot of information during an investigation that is covered by investigative secrecy, especially in cartel cases, , it is almost impossible for a company to defend itself with regard to interim measures. If the SCA then also does not follow the proper procedures, as in Söderberg & Partners, the company’s rights are violated. There must be some level of equality between the parties to ensure the right to a fair trial.
Consequently, it is a balancing act between the SCA’s enforcement actions being more efficient and protecting companies’ right to a fair trial, defence, among other things. We can understand the benefits of the SCA having decision-making powers when collaborating with other competition authorities, which would allow it to issue decisions in parallel. However, we do not consider that this benefit can be considered to compensate for the lack of legal certainty and the extra burden put on affected companies. Furthermore, parallel proceedings are not at the heart of the SCA’s mandate and collaboration with other competition authorities is not excluded in today’s order.
1 Ds 2020:3 Konkurrensverkets befogenheter.
2 SOU 2016:49 En utökad beslutanderätt för Konkurrensverket.
3 Case PMT 1443-18, Konkurrensverket v. Nasdaq, Patent and Market Court of Appeal.
4 Case PMT 1988-17, Swedish Match v. Konkurrensverket, Patent and Market Court of Appeal.
5 Case PMÖÄ 15-19, FTI v. Konkurrensverket, Patent and Market Court of Appeal.
6 Case PMT 761-17, Telia v. Konkurrensverket, Patent and Market Court of Appeal.
7 Case PMT 7497-16, Aleris, Capio, Hjärtkärlgruppen v. Konkurrensverket, Patent and Market Court of Appeal.
8 Case PMT 7498-16, Konkurrensverket v. Alfa Quality Moving, Patent and Market Court of Appeal.
9 Case Ö 5652.17, Söderberg & Partner v. Konkurrensverket, Supreme Court.