Switzerland: an era of potential modernisation

In summary

The Parliament’s counterproposal to the Fair Price Initiative entered into force on 1 January 2022. Furthermore, the Federal Council presented its project of partial revision of the Swiss Cartel Act, which introduces the SIEC test as part of the modernisation of the merger control procedure and aims at strengthening civil antitrust law. Finally, this article gives insight into judicial practice through the discussion of recent cases. Cases such as off-list medicines and the Dargaud and Flammarion decisions contribute to further development of the law.

Discussion points

• Entry into force of the indirect counterproposal to the Fair Price Initiative
• Project of partial revision of the Cartel Act
• Necessity of an institutional revision
• Bernese asphalt mixing plant violates the Cartel Act
• Competition on the optical fibre network and WAN
• Update on the Tamedia and Adextra merger
• FSC rulings in the French-language books case
• Further FSC jurisprudence on price recommendation (off-list medicines)

Referenced in this article

• Indirect counterproposal to the Fair Price Initiative
• Report and project of partial revision of the Cartel Act
• COMCO: a Bernese asphalt mixing plant; Pöschl Tobacco products; electricians in Geneva; bidding cartels in French-speaking Switzerland; competition on optical fibre network
• FAC decision in Swisscom/COMCO
• FSC decisions in Swisscom-COMCO, Tamedia/Adextra, Dargaud (Suisse), Les Editions Flammarion and off-list medicines

Legal developments

The past year has brought up some fascinating and crucial discussions with regard to present and future legal developments, digitalisation and jurisprudence. Swiss competition law is evolving and the challenges discussed this past year will without doubt be of relevance for the years to come.

Competition law is governed by the Federal Act on Cartels and other Restraints of Competition of 6 October 1995 (the Cartel Act). The regulatory framework is complemented by numerous federal ordinances and general notices, as well as communications by the Federal Competition Commission (COMCO). Both the Cartel Act and COMCO celebrated their 25th anniversary in June 2021.

More general recent developments in Swiss competition law are set out below.

Entry into force of the indirect counterproposal to the Fair Price Initiative

The indirect counterproposal to the Fair Price Initiative was approved by Parliament in 2021. The referendum deadline expired unused and the amendments to the Cartel Act entered into force on 1 January 2022. The new rules on relative market power have, inter alia, the aim of preventing the discrimination of Swiss undertakings when purchasing goods and services abroad. COMCO accompanied the implementation by drawing up an implementation plan, a fact sheet and a notification form, which were published on 14 December 2021. This change of law integrally extends the rules of dominant undertakings to companies with relative market power, which is very strict from an international perspective.

Project of partial revision of the Cartel Act

The Federal Council submitted its bill on the partial revision of the Cartel Act for consultation on 24 November 2021. The project entails several objects, such as modernisation of the merger control procedure, strengthening of civil antitrust law, improvements to the opposition procedure and the introduction of deadlines and indemnities.

The first step towards the modernisation of the merger control procedure is the introduction of the Significant Impediment to Effective Competition (SIEC) test. According to the Federal Council, the purpose of this modification is on the one hand to more easily prevent concentrations that impede competition and whose negative effects on competition are not offset by efficiency gains, and on the other hand to facilitate international cooperation. Another aspect of the modernisation process would be the simplification of the notification requirement of cross-border mergers in markets, including Switzerland and the EEA. In addition, to further foster cooperation, the Federal Council wishes to harmonise deadlines’ prolongation with the EU to facilitate international proceedings. Lastly, the Federal Council proposes to apply a hybrid form of dynamic consumer welfare standard within the examination of efficiency benefits of a merger, which considers the long-term maximisation of consumer welfare.

The second aspect of this partial revision is the strengthening of civil antitrust law to make the civil procedure more attractive to market players. It is intended to relieve COMCO and allow it to focus on cases with an overriding public interest. As such, legal standing shall be extended to all parties affected by unlawful restrictions of competition (therefore, also consumers and public authorities); and the statute of limitations for civil actions arising from an unlawful restriction of competition shall be suspended between the opening of an investigation by COMCO and the date on which the decision becomes enforceable, thus giving more time to the parties to assert civil claims. The three actions set out in the law in relation to unlawful restrictions on competition, namely the elimination of or suspension from the hindrance; the damages and satisfaction; and the surrender of unlawfully earned profits, shall be supplemented by a right to have the unlawfulness of a restriction on competition established. Lastly, damages paid after an enforceable decision of COMCO shall also be taken into account to reduce administrative sanctions.

The third aspect of the revision concerns the individual exemption procedure (known as the opposition procedure), which has fallen into disuse in the past decade. The Federal Council thus proposed the following two improvements to make it more attractive. First, the decision time frame shall be shortened to two months. Second, the risk of sanction for the companies shall only be reactivated if a formal investigation is opened, thus giving them time to implement the behaviour announced in the preliminary investigation.

As part of the implementation of the motion 16.4094 Fournier, the Federal Council proposed to limit the length of competition procedures to five years from the opening of the formal investigation, based on the ‘comply or explain’ principle. The following time frames shall be enforced: 30 months for COMCO, 18 months for the Federal Administrative Court and 12 months for the Federal Supreme Court. In the case of remand to the previous instance, a new deadline of 12 months shall start. The purpose of these deadlines would be to strengthen legal certainty and reduce financial and reputation costs for the undertakings.

In addition, the Federal Council suggested further implementing the motion 16.4094 Fournier by introducing legal costs in administrative proceedings depending on their conclusion. Compensation shall be paid to the affected companies, should all or part of the investigation opened by COMCO be dismissed. This would be an exception to the ‘no legal fee in first instance’ rule.

Lastly, following the adoption of motion 18.4282 Français by the Parliament, the Federal Council proposes a modification of article 5 of the Cartel Act, including qualitative and quantitative criteria to judge the impact of vertical or horizontal hardcore agreements on competition. The Federal Council decided to propose an open formulation without fixed limits such as market shares, as in its view they would not suit the complexity and diversity of potential situations. This revision would clarify that the significance of the restriction of competition always has to be examined, which means that the significance is not presumed in the case of hardcore agreements, as it currently is by the competition authorities following the Federal Supreme Court’s Gaba/Gebro case.

Both COMCO and the Swiss Bar Association (SBA) published a statement regarding this partial revision. COMCO favours the introduction of the SIEC test, the improvements to the opposition procedure and the strengthening of civil antitrust law. However, it rejected the introduction of deadlines in competition law proceedings, as well as the introduction of legal costs in administrative proceedings. COMCO also rejected the implementation of motion 18.4282 Français and thus the modification of article 5 of the Cartel Act, and suggested instead introducing into the Cartel Act the principle, already in use nowadays, whereby competition authorities can decide not to open an investigation or to close an open investigation in the case of a minor infraction.

The SBA is open to the modification of article 5 of the Cartel Act, as well as to the introduction of deadlines in competition law proceedings and to the introduction of legal costs in administrative proceedings. It also welcomes improvements to the opposition procedure, although it suggested additional steps to be taken, such as an exemption from sanctions in the case of a notification. The SBA also welcomed the strengthening of civil antitrust law but expressed doubts about the suitability of the measures to reach their goals. It suggested the addition of the principle of passing-on defence as applied by the EU, and of a better access to proof.

The consultation period ended on 11 March 2022. The Federal Council has yet to release a statement regarding the result of the consultation period and the next legislative steps.

Challenges of digitalisation

In a 2017 report, the Federal Council concluded that although the fundamental Swiss competition law principles still find application in an increasingly digitalised world, the question of merger control shall be examined, particularly regarding the criteria of intervention (turnover-based thresholds) and acquisitions of ‘young’ companies and the modernisation of the test applied to determine market power.

The latter has been addressed in the new project of partial revision of the Cartel Act with the introduction of the SIEC test. The Federal Council is of the opinion that it will take the particularities of the digital market into account more successfully thanks to its ex ante approach.

Regarding the former, the Federal Council considered that it is indeed possible that (future) large companies (for the time being) have a relatively small turnover in digital markets and therefore do not have to notify a potentially large merger, creating a ‘control gap’ that could be closed by means of the subsidiary intervention criterion of ‘transaction value’, thus reflecting the potential of a company at the time of its takeover. It did not, however, deem it necessary to adapt legal dispositions relating to platforms and online companies in the project of partial revision of the Cartel Act dated 24 November 2021, due to the lack of empirical evidence supporting this control gap. According to the Federal Council, the introduction of specific measures would be tantamount to ‘anticipatory regulation’, which would only generate unnecessary merger notifications and thus additional burdens for companies and competition authorities.

Digital markets were also a focus of COMCO’s annual press conference in April 2022. In its 2021 annual report, it highlighted the important decisions and steps it took over the years with regard to digital markets. Some of the cases against Swisscom are summarised in ‘Recent cases’, below. COMCO stressed the importance of finding the balance between addressing the risks arising from digital markets and not intervening too quickly to keep fostering competition, new opportunities and, thus, economic development.

Lastly, the motion 21.3240 Schlatter ‘Tech Giants’ influence on Swiss Economy: are new legal rules necessary?’, filed on 17 March 2021, would task the Federal Council to present a report on the effects of the increasing concentration in the global digital economy on the labour market, competition, consumer rights and taxation in Switzerland. The National Council and the State Council still have to address the motion. This motion could be the occasion to further discuss the topic of digitalisation.

Necessity of an institutional revision

In 2012, the Federal Council proposed a revision of the Swiss Cartel Act, which included an institutional reform of the competition authorities. The reform was rejected by the Council of States even before the entire revision failed in 2014 due to the National Council’s failure to act twice. While not the sole culprit for this setback, the institutional reform was among the most controversial issues. The Federal Council has thus refrained from incorporating the revision in the bill submitted for consultation dated 24 November 2021.

The SBA took advantage of its statement on the partial revision to highlight the current institutional deficiencies and their negative impact on the proceedings. The SBA explained that, in the current structure of the competition authorities, the members of COMCO do not have enough time resources to deal with the individual cases in-depth, the relevant files, the pleadings of the lawyers and ultimately the counterarguments of the accused companies and are thus dependent on the COMCO Secretariat staff. The staff will provide answers to companies, but their answers are naturally given from the prosecution’s perspective and are aimed at supporting the motion or the decision proposal of the Secretariat. Accordingly, the staff entrusted with the prosecution function have much more direct access and greater influence on the decision-making authority than the parties to the proceedings. As a result, the necessary separation between the investigating or prosecuting authority and the deciding authority is lacking. In addition, the SBA highlights that the Federal Administrative Court (FAC) cannot remedy this deficiency in a satisfactory manner despite its full cognition as an appellate court, as it is not in position to conduct its own fact-finding due to its limited resources and grants a wide margin of appreciation to lower courts (technical discretion).

The SBA suggests a three-step reform in its statement, which could, in its opinion, be integrated in the current project of revision. First, COMCO should increase its numbers of part-time positions so that the time available is sufficient for an adequate examination of the cases. Second, COMCO should be assigned its own court or clerks, who would support its members in conducting the proceedings, reaching decisions and drafting decisions from the time the application is filed. These clerks would have to be separated from the Secretariat in terms of personnel and space. Third, the law should provide that members of the Secretariat are only present at the COMCO decision deliberations if the companies or their representatives are present as well. Such reform would, on the one hand, strengthen the COMCO without completely reforming its organisation and on the other hand would enable its members to make decisions independent of the prosecuting authority.

In our view, the introduction of court clerks for COMCO would be a healthy solution capable of gaining majority support, and we welcome the SBA’s submission in this regard.

Recent cases

Bernese asphalt mixing plant violates the Cartel Act

BERAG AG is the largest asphalt mixing plant in the Berne Region and its shareholders are all road construction companies. The undertaking sold asphalt mixes to its shareholders at preferential conditions and granted a loyalty bonus to its customers. Furthermore, according to COMCO, some of the undertaking’s shareholders agreed not to compete around BERAG with their own asphalt-mixing plant or with shares in other asphalt-mixing plants until 2016. Although no impact on competition has been demonstrated, COMCO fined the undertaking more than 1.5 million Swiss francs and 11 shareholders for a combined sum of more than 400,000 Swiss francs. Some of the parties concluded an amicable settlement with COMCO; the other proceedings are currently pending before the FAC.

Parallel imports of tobacco products

In June 2021, COMCO concluded an amicable settlement with German tobacco producer Pöschl Tabak GmbH (Pöschl). In its findings, COMCO concluded that, from May 1981 to July 2019, agreements constituting an absolute territorial protection existed between Pöschl and several of its European distributors. As a result, the European distributors were not allowed to supply tobacco products in Switzerland, which amounted to an export ban. Those agreements thus constituted a significant restriction on competition without grounds for justification. Pöschl cooperated with COMCO, which led to a reduced fine amount of 270,000 Swiss francs.

Investigation of the payment card market

In February 2021, COMCO opened an investigation against Mastercard on the ground of a potential obstruction to the National Cash System (NCS). The investigation was triggered by a report from SIX, the developer of the NCS system. SIX argued that, by refusing the ‘co-badging’ of its new debit card with the NCS system, Mastercard was preventing the NCS from establishing a presence on the market. The ‘co-badging’ system combines multiple applications of payments on the same debit card; without this system, the NCS system cannot be used by Mastercard debit card holders. COMCO took provisional measures and Mastercard appealed those measures to the FAC.

Sanction of a bid rigging cartel in electrical services

In May 2021, COMCO imposed fines on a bid-rigging cartel in the French-speaking part of Switzerland. Ten companies involved in electrical installation and servicing were under investigation. In private and public invitations, the undertakings set agreements to coordinate the prices in their bids to then share the work among themselves. COMCO found that effective competition was hindered in 86 out of 111 investigated projects. Two undertakings under investigation were not sanctioned, as no competition-hindering behaviour was found. All undertakings under investigation agreed to an amicable settlement. Their cooperation and voluntary reports reduced the fine to a total of 1.27 million Swiss francs.

On the same topic, in January 2022, COMCO published a press release stating that it had opened an investigation against four road maintenance undertakings. They are suspected of having coordinated their bids and prices for public bids over several years. The investigation will last about two years.

Competition on the optical fibre network and WAN

COMCO opened an investigation against Swisscom in relation to the construction of its optical fibre network in areas where Swisscom planned to build it alone. COMCO considered that the structure of the fibre network contemplated by Swisscom prevents direct access to the network by its competitors. COMCO thus imposed provisional measures, effectively prohibiting Swisscom from expanding its network in a way that would prevent access to third parties. Swisscom appealed those measures to the FAC, which upheld COMCO’s decision. The FAC considered that Swisscom’s behaviour presumably qualified as abusive conduct by a dominant company, thus justifying the urgency of the measure. Swisscom subsequently appealed to the Federal Supreme Court (FSC) to request the restoration of suspensive effect. The FSC dismissed the claim.

Swisscom was also involved in another proceeding relating to the public procurement procedure launched by the Swiss Post in relation to the setting up of a wide area network (WAN). The FAC largely upheld the fine imposed by COMCO because of the margin squeeze strategy implemented by Swisscom. According to the FAC, Swisscom had imposed unreasonably high prices on Sunrise for preliminary services, while Sunrise was dependent on Swisscom’s services to provide its own services to certain post office locations. Consequently, Sunrise was unable to generate any profit margin and to submit a competitive offer to the Swiss Post. Swisscom has appealed the decision to the FSC.

Update on the Tamedia and Adextra merger

As stated in last year’s article, Switzerland not only has a notification obligation based on exceeding turnover thresholds, but also a notification obligation based on a finding of market dominance. Tamedia sought to acquire sole control of Adextra AG. After a complete notification was filed, the Secretariat cleared the concentration and demanded the flat fee of 5,000 Swiss francs for its examination. Tamedia disputed having to pay this fee and argued that the proposed concentration had been wrongly qualified as notifiable as the notification requirements had not been met. The FAC upheld COMCO’s decision in 2020 and Tamedia appealed to the FSC.

In its related judgment, the FSC forewent the question of whether there was a duty to file and simply stated that a preliminary examination is automatically opened with the filing of a report and, thus, the fixed notification fee of 5,000 Swiss francs is due irrespective of whether Tamedia was under a duty to notify. As such, the FSC upheld COMCO’s decision.

FSC rulings in the French-language books case

In 2013, COMCO fined 10 diffuser-distributors of French-language books operating in Switzerland for impeding parallel imports, by preventing Swiss retailers from sourcing books at lower prices from abroad and particularly from France between 2005 and 2011.

Among the incriminated undertaking, COMCO fined Dargaud, a Swiss company held by Media Participation Paris (MP), 1.65 million Swiss francs as it concluded that Dargaud participated in distribution agreements allocating exclusive sales territories and in price-fixing agreements within the Swiss Association for Diffusers, Editors and Book stores (ASDEL). In 2019, the FAC partially upheld COMCO’s decision by concluding that the agreements concluded between Dargaud and other editors of the MP group did not constitute anticompetitive agreements as they benefited from a group privilege. It reduced the sanction accordingly. Consequently, Dargaud appealed to the FSC.

The FSC issued a decision in December 2021. It concluded that the contracts between Dargaud and the external distributors and editors were vertical agreements allocating exclusive territories. The FSC came to the somewhat surprising conclusion that despite online sales there was territorial foreclosure.

However, the FSC departed from the FAC decision by considering that around 20 agreements concluded with external editors and distributors were not anticompetitive as the FAC had not examined their content. The FSC referred the case back to the FAC to reduce the fine accordingly. In our view, it is to be welcomed and in line with the applicable law that the FSC did not assume a violation of the Cartel Act in the aforementioned cases in the absence of proof of unlawful conduct.

The FSC issued a second ruling regarding the decision of COMCO on the French-language book selling market in Les Editions Flammarion SA – COMCO in March 2022. The FSC concluded that the ‘privilege of the agent’ did not apply to the Swiss distributor contracted by Les Editions Flammarions SA and thus clauses conferring an absolute territorial protection could not be justified. The FSC also confirmed the possibility of sanctioning the Swiss subsidiary of a foreign group after attributing to it the conduct of the parent company. The FSC therefore upheld the FAC decision.

FSC ruling confirms intra-group privilege

The FSC issued a ruling regarding the group privilege in January 2022 in a decision involving a car manufacturer and a multi-brand wholesaler, both selling spare car parts. In 2017, the wholesaler was unable to buy parts from the manufacturer’s subsidiaries, allegedly because of the contractual clauses in force between said distributors and the manufacturer. The wholesaler thus opened an action at the Cantonal Court of Fribourg. The Court partially admitted the claims and, consequently, the car manufacturer appealed to the FSC. The FSC concluded that the manufacturer owns 100 per cent of its subsidiaries, thus forming a group and making it impossible to conclude an agreement in the sense of article 4 of the Cartel Act. As for the relationship between the manufacturer and its suppliers, the FSC concluded that there was an agreement but that it did not prevent the manufacturer or its subsidiaries from selling products to the wholesaler. Hence, the FSC admitted the appeal and concluded that there was no violation of the Cartel Act.

Further FSC jurisprudence on price recommendations (off-list medicines)

In October 2021, the FSC allowed three appeals filed by the Federal Department of Economic Affairs, Education and Research (EAER) against the FAC decisions on off-list medicines. However, it rejected one appeal in December 2021.

This case concerned non-binding price recommendations of the manufacturers Bayer, Pfizer and Eli Lilly regarding erectile dysfunction drugs vis-à-vis wholesalers and sales outlets (pharmacies, physicians). These recommendations were transmitted to the points of sale by a database operator via the POS system. In its decisions, the FSC confirmed its ruling of February 2021, which deemed the retail prices recommended by the manufacturers of impotence drugs unlawful, even though they were expressly described as non-binding and there was no pressure or incentive for the pharmacies or physicians to comply with the recommended prices. The FSC referred these cases back to the FAC, to determine the sanction for two of them and to determine the costs and consequential damages for the third one. With regard to the last decision, the FSC rejected the appeal of the EAER in absence of sufficient clarification of the facts regarding the issue of the complicity of wholesalers and IT companies in relation to the agreement under scrutiny.

With this decision, the FSC establishes a stricter practice than that of the European competition authorities in dealing with price recommendations. In addition to the restrictive approach to recommended retail prices, this new practice could also generally entail a stricter approach by the authority in connection with the exchange of information.