Sweden: New Decision-Making Powers for the SCA – the Future is Here?

In summary

The article will outline 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.

Discussion points

• Background to the change of approach
• Extended decision-making powers
• Swedish Competition Authority's enforcement history
• Criticism from the legal community

Referenced in this article

• Swedish Competition Authority
• Extended decision-making powers
• Legal certainty

On 1 March 2021, the Swedish Competition Authority (SCA) was given decision-making powers in relation to imposing sanctions for infringements of the prohibitions against anti-competitive agreements and abuse of dominance together with Sweden's implementation of Directive (EU) 2019/1 (the ECN+ Directive). The proposal to give the SCA decision-making powers was met with criticism from the legal community, as well as from the Council on Legislation, mainly in respect of the upholding of legal certainty and the lack of efficiency in investigations.

Background

The SCA was given decision-making power for merger control matters in 2018. Before 2018, the SCA did not have decision-making powers in relation to merger control and antitrust; instead, it had to file an application with the Patent and Market Court, requesting the Court to prohibit a merger or issue fines. In essence, the first-instance decision included a proper examination of the legal merits of the SCA’s case.

In 2016, an official report was published that assessed and reviewed the SCA’s decision-making powers.^[1] The report put forward a proposal for new legislation to grant the SCA decision-making powers at first instance. Objections were raised by the legal community regarding the requirements of legal certainty in connection to administrative sanctions, as well as the fact that those 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 anti-competitive agreements and abuse of dominance. However, it changed its mind in relation to the implementation of the ECN+ Directive. The SCA also considered that it had to be given decision-making powers as a result of the ECN+ Directive.

The Swedish legal system is now in line with that of most other EU member states, as well as that of the European Commission. According to the SCA and the Ministry of Enterprise, decision-making powers will improve the efficiency of the SCA by cutting case handling times by approximately one-and-a-half years – from three-and-a-half years for the first decision from a court to two years from the SCA – which will increase legal certainty for market players. However, both the legal community and the Council on Legislation have expressed serious doubts on how increased decision-making powers can make an authority more efficient in relation to its case-handling times.

The expansion of decision-making powers is considered to allow the SCA to better cooperate with other national competition authorities and improve case handling efficiency in cross-border cases. Owing to the rapid changes in digital markets, decision-making powers are considered to give the SCA the tools needed to achieve visible and efficient competition enforcement to safeguard healthy competition in the different markets for small and medium-sized enterprises.

As a result of the new decision-making powers, the SCA is required to reorganise itself to ensure separation between the investigative and decision-making sections. This is to safeguard objectivity and fair legal process. In this regard, the SCA presented a memorandum to the Ministry of Enterprise setting out the intended organisation.

Criticism relating to the extension of the SCA’s decision-making powers

To better frame the criticism voiced by the legal community with regard to the proposal to extend the SCA’s decision-making powers, the SCA’s recent enforcement history will first be described.

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 anti-competitive agreements and abuse of dominance. It has also not followed the correct legal framework when transferring documents from a dawn raid to the investigative file, making the Supreme Court state that the company’s right to a due process had been violated.

Looking first at cases regarding abuse of dominance, three recent high-profile cases involved Nasdaq Stockholm (the Stockholm stock exchange), Swedish Match (tobacco products) and FTI (a company active in the market for the collection and recycling of packaging waste).

In Nasdaq,^[2] 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,^[3] the SCA argued that Swedish Match’s requirements for generic labels in its snus coolers (in which Swedish Match, because of its strong market position, allowed competing products to be displayed) prevented competitors from designing their own labels and, therefore, was abusive. Although the Patent and Market Court judged in favour of the SCA, albeit reducing the fines, the Patent and Market Court of Appeal dismissed the case. The Patent and Market Court of Appeal found that although the action constituted an abuse of dominance, it was also objectively justified (and proportionate) for Swedish Match to take those actions because of the regulatory framework applicable to the marketing of tobacco products.

FTI is a dominant undertaking with a nationwide public infrastructure for waste collection. In the FTI decision,^[4] the SCA had ordered FTI to revoke its termination of an agreement with a competitor regarding access to FTI’s waste collection infrastructure. The SCA claimed that the infrastructure was an essential facility that FTI should give access to in order not to exclude all competition on the market. 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 concerned bidding cartels (Telia and Aleris/Capio/Hjärtkärlgruppen) and the scope of a non-compete clause in a share purchase agreement (Alfa Quality Moving).

In both Telia^[5] and Aleris/Capio/Hjärtkärlgruppen, the SCA was successful at first instance with the Patent and Market Court; however, the judgments were reversed on appeal before the Patent and Market Court of Appeal. In both cases, the Patent and Market Court considered that the competition between the parties had already been limited by the responsible public authorities’ conduct of the procurement process; 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 that some of the arguments put forward by the SCA regarded 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,^[6] the SCA argued that a non-compete clause of five years in a share purchase agreement became a by object restriction when two years had passed. The SCA did not, on appeal, put forward the argument that the non-compete clause could be considered a by-effect restriction. 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 by-object restrictions as the restriction, in and by itself, could not be considered as sufficiently serious or obvious. It noted that longer non-compete clauses could be considered as 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 transfer 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 investigating suspected anticompetitive agreements. To conclude the dawn raid, the SCA informed the company (Söderberg & Partners) of which 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 & Partners sent an application to the Patent and Market Court asking them 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.^[7] 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, as well as the EU Charter of Fundamental Rights, in those kinds of cases were respected and allowed them the right to have the action assessed by a court. 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; instead, it stated that the company will 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, following the judgement, 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 clearly raises doubts about the SCA’s readiness to take on the larger responsibility that results from having decision-making powers.

The SCA has also received criticism from the National Audit Office for deficiencies regarding its prioritisation of matters and the supervision and control of its enforcement actions. Although, the SCA claims that it has addressed the criticism with with new routines and an updated prioritisation policy, the key question still remains of whether the SCA has the ability to step up to the requirements that broader decision-making powers entail.

The SCA has been anything but successful in its enforcement actions in past years, and it has not won any of its court cases, except one relating to interim measures. Assuming that initiating proceedings in court requires a somewhat more robust prior case analysis, pointing to successful proceedings rather than a proprietary decision, the SCA's recent case history suggests that giving it further decision-making powers would lead to even more undertakings being subjected to ill-founded decisions and proceedings.

It may be inferred that several companies could face fines for alleged competition law infringements, even though the SCA would not have properly met the applicable standard of proof; thus, several companies could be ordered to pay large fines for actions that did not properly constitute competition law infringements. The potential errors may then only be remedied following years of court proceedings. During those proceedings, the defending companies would be under the burden of being considered convicted undertakings, with ensuing negative publicity and potential problems to partake in public procurement processes.

Consequently, it is difficult to accept the notion that the SCA’s further decision-making powers will make competition enforcement more efficient and shorten case handling times. It seems the result will only be that the companies subject to infringement investigations will be more likely to have to defend their actions at three instances: before the SCA, before the Patent and Market Court and before the Patent and Market Court of Appeal. In exceptional cases, a fourth instance, the Supreme Court, may also be relevant if the Patent and Market Court of Appeal allows for an appeal.

The first decision may 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 negative proceedings risk. Considering the SCA’s track record, it would be beneficial for a company to appeal a decision from the SCA, which further demonstrates that case handling times to reach a final decision will not be altered.

In 2020, the SCA tasked two researchers with evaluating its internal processes to uncover the reasons for its court losses before the Patent and Market Court of Appeal. The report will be finished at the end of 2021 and will have an impact on the SCA’s investigations and court proceedings. This has been initiated despite the SCA’s prior comments on their losses, in which it did not consider them as failures or its decisions to bring cases to court as wrong.

Instead, the SCA has stated that one of its tasks is to promote the development of competition law and gain insight, through case law, on how new legal questions should be interpreted. At the same time, the SCA also noted that the standard of proof is high in competition law cases, without mentioning anything in relation to how it should work on improving, changing or developing its working methods or procedures to ensure that it meets the standard of proof when taking a case to court. As such, it is interesting that the SCA has now changed this perspective and is looking for objective insights on how to improve the quality of their enforcement.

As the SCA has evidently 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 end up issuing fines for infringements that companies without the financial muscle to fight a case in court will not appeal and that the proposed legal changes are mostly to the detriment of companies. Market players risk being fined for actions that are actually permitted.

Further, in the few successful cases that the SCA has had over the years, the courts have never accepted the fine levels proposed by the SCA. This also demonstrates that the SCA lacks in its ability to, first, accurately assess whether an action constitutes an infringement of competition law and, second, calculate the appropriate fine levels when an infringement has occurred and been successfully proven.

The SCA’s actions since it gained decision-making powers

Whereas most authorities did not carry out any dawn-raids in 2020 and early 2021 owing to the covid-19 pandemic, the SCA has carried out some dawn raids and initiated a number of investigations. However, because of the social restrictions owing to the pandemic, the SCA has essentially conducted ‘desktop dawn raids’, a phenomenon that is not new to the SCA but has been more frequently used the in the past year.

A desktop dawn raid can be described as an extensive request for information in which the SCA requests, for example, all emails and documents stored on a particular person’s computer and email account that contain a number of keywords. In other words, the SCA places a large part of the investigative burden and process, as well as associated costs, on the companies under investigation.

The SCA has also gained some confidence as it has taken more initiative to update and revise old policies and guidelines, such as its leniency guidelines. Its guidelines in respect of decisions on timelines in its enforcement practice have been adopted, and an updated guide on how the SCA carries out dawn raids and the procedure it follows has also been published. Further, new guidelines on the calculation of fines are set to be published during the first half of 2021, according to the chief legal officer at the SCA. The SCA has also taken many initiatives to learn more about different markets, such as its sector inquiry relating to digital platforms.

Comments on the SCA’s decision-making powers

The principle of objectivity is at the heart of all public authority actions and case handling in Sweden. By giving the SCA decision-making powers, the SCA now has the role of both police and judge, which puts the objectivity at risk. Even though it could be argued that it is possible to ensure objectivity, it is much more difficult to achieve in practice.

Considering the SCA’s enforcement history, it may be expected that almost all decisions from the SCA 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 only cases where the SCA can meet the burden of proof are pursued.

Legal certainty must always be ensured. The proposed legislation did not contain any impact assessment, nor did 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 does seem, however, that the SCA, in hindsight, after having been granted decision-making powers, has taken the criticism seriously as it has tasked researchers to review its actions, allowing the SCA to learn from its mistakes.

It is difficult to understand how the right to a fair trial and other connected rights will be maintained. The right to a fair trial requires, inter alia, that each party shall have the possibility to present its case at trial, and one party should not have an advantage to the detriment of the other. As the SCA, during its investigation, especially in cartel cases, has access to a lot of information that is covered by investigative secrecy, it almost impossible for a company to defend itself in respect of interim measures. Further, if the SCA does not follow the proper procedures, as in Söderberg & Partners, the companies’ rights will be violated. There must be some level of equality of arms between the parties to ensure the right to a fair trial.

Consequently, there must be a balancing act between achieving better efficiency in the SCA's enforcement actions and protecting a company’s right to a fair trial, defence, etc. There are benefits for the SCA in having decision-making powers when collaborating with other competition authorities as they allow it to issue decisions in parallel; however, this benefit cannot be considered to compensate for the lack of legal certainty and the extra burden put on companies. In addition, such 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.

It remains to be seen how and if the SCA rises to the level of other European competition authorities in respect of high legal standards in its enforcement; becomes more efficient to cut case handling times; and safeguards the principles of objectivity and companies’ rights.

Notes