In Switzerland, 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 of the Federal Competition Commission (COMCO).
Motion of Council of States member Olivier Français (revision of the Swiss antitrust law)
According to the parliamentary motion of Council of States member Français, which was submitted on 13 December 2018, the Federal Council would be requested to clarify article 5 of the Cartel Act in order to make competition legislation more effective and to reduce uncertainties related to its application. This amendment should make it possible to determine unlawful restraints of competition, taking into account both qualitative and quantitative criteria.
The motion has its origin in the change in practice of COMCO following the Gaba/Elmex decision of the Federal Supreme Court (FSC). The FSC decided that vertical and horizontal agreements on price, territory and quantity according to article 5, paragraphs 3 and 4 of the Cartel Act, in principle, significantly restrict competition. According to Français, this change in practice creates uncertainty since quantitative effects are no longer taken into account. Therefore, in his opinion, the law should be amended in such a way that both qualitative and quantitative criteria determine whether a restraint of competition is significant. The Federal Council issued its opinion on 27 February 2019. It takes the view that the Gaba/Elmex decision has clarified that the five types of hardcore agreements listed in article 5, paragraphs 3 and 4 of the Cartel Act generally significantly restrict competition. The Federal Council further states that these five types were described by the legislator itself as particularly harmful. In order to reflect the Gaba/Elmex decision, COMCO has amended the Vertical Notice. According to the Federal Council, this has improved legal certainty significantly. Furthermore, it stated that the Gaba/Elmex decision is in line with EU law. Meanwhile, companies know that the five types of agreements must be avoided unless they lead to greater economic efficiency. According to the Federal Council, an amendment to article 5 of the Cartel Act would weaken the preventive effect of the Cartel Act as well as the instruments available to COMCO to combat the high-price island. The Federal Council therefore recommends to reject the motion.
The authors of this article would welcome the introduction of an impact-based approach, as proposed by Francais, because it would limit competition policy to economically harmful effects of cartels. This would save resources and small companies that cannot afford effective antitrust compliance would no longer be threatened by sanctions.
Prohibition of price differentiation (the Fair Prices popular initiative)
The Federal Council has drafted an indirect counter-proposal to the Fair Prices Initiative. The Fair Prices Initiative aims to put an end to Switzerland as an island of high prices. The initiative was launched in September 2016 and submitted in December 2017. The initiative proposes to introduce an obligation for entities based outside of Switzerland to sell products and services to Switzerland-based customers at the same prices as they sell such products and services to local customers. It also proposes to introduce the concept of relative market power into Swiss law. Furthermore, it aims to protect non-discriminatory online sales. The counter-proposal, on the other hand, provides the introduction of a provision in the Cartel Act on relative market power, but limited to preventing misconduct by companies in cross-border competition. Currently, the Federal Department of Economic Affairs, Education and Research (EAER) is preparing a report on the consultation procedure that was concluded at the end of November 2018 as well as the dispatch on the Fair Prices Initiative and the Federal Council’s indirect counter-proposal. The topic of high prices in Switzerland is often discussed in the media. Following such discussions, suggestions arise that this problem should be solved by revising the Cartel Act. It is very doubtful whether the suggested revision of the Cartel Act or the implementation of the Fair Prices Initiative would really protect Swiss consumers or help Swiss companies to compete on an international level. It is especially unclear whether potential COMCO decisions could be enforced outside Switzerland. However, what is clear is that both the popular initiative and the counter-proposal would initially give rise to considerable legal uncertainty. The popular initiative (but not the counter-proposal) would increase antitrust compliance costs for medium-sized and even small companies.
Explanatory note of the Secretariat of COMCO
On 28 February 2018, the Secretariat of COMCO published an explanatory note on amicable settlements based on the existing practice of COMCO and describes the basic principles of an amicable settlement and its procedure. The basic requirement for the conclusion of an amicable settlement under article 29 of the Cartel Act is that the competition authorities have opened an investigation under article 27 of the Cartel Act due to indications of an unlawful restraint of competition. In addition, based on a preliminary legal assessment of the facts, the Secretariat must have come to the conclusion that the restraint of competition is unlawful in terms of article 5 or 7 of the Cartel Act. The companies that want to conclude an amicable settlement will be expected to do the following:
- implement voluntary measures to eliminate the restraint of competition that the Secretariat regards as unlawful;
- cooperate with the Secretariat and refrain from making excessively long submissions in order to facilitate a swift conclusion to the proceedings; and
- waive the right to appeal as long as the level of the sanction approximates to that proposed by the Secretariat.
If the case appears suitable for an amicable settlement and the undertaking is interested in an amicable settlement, the Secretariat first sends the general conditions for negotiating an amicable settlement to the undertaking. The Secretariat presents its perspective and the parties may comment. Measures to prevent future restraints of competition are discussed. The undertaking’s willingness to reach an amicable settlement will be regarded as cooperative conduct by the Secretariat and will be taken into account as a mitigating circumstance in the draft decision. As soon as the Secretariat and the undertaking have reached an agreement on the terms of the amicable settlement, the undertaking and the Secretariat sign the settlement. If COMCO agrees to the amicable settlement, it approves it and includes the terms of the settlement in its decision. Along with the approval of the amicable settlement, COMCO decides whether any direct sanctions under article 49(a), paragraph 1 of the Cartel Act are imposed. Normally, COMCO accepts the amicable settlement. Only once has COMCO sent the draft decision back to the Secretariat with proposals for its revision.
From the point of view of companies, there are many good reasons for reaching an amicable settlement, among them: reducing the sanction, shorter procedures and rulings (which might prevent follow-on damage claims), normally no appeals and a more positive public effect. However, the procedure is not clearly defined and the authorities have great discretion. Furthermore, concluding amicable settlements hinders the further development of the law and consequently impacts legal certainty negatively.
Husqvarna Switzerland AG and Bucher AG Langenthal
On 29 January 2018, COMCO concluded its investigation into Husqvarna and Bucher, which it had opened on 31 May 2016 in response to a voluntary report from Husqvarna. The investigation showed that, from 1998 until the beginning of 2016, there was an unlawful horizontal agreement between Husqvarna and Bucher relating to price fixing and customer sharing in connection with the sale of engine fuel of the Aspen brand. In amicable settlements with the competition authorities, both companies undertook to refrain from entering into such agreements in the future. Husqvarna was exempted from a sanction because it had notified the competition authorities of the agreement and thus facilitated the opening of the investigation. Bucher’s cooperation led to a substantial reduction in the fine to around 610,000 Swiss francs. The decision is final and binding. The procedural costs of 209,000 Swiss francs charged by COMCO were allocated equally among Husqvarna and Bucher. The starting point for these proceedings was an investigation against Husqvarna for illegal vertical price agreements. Husqvarna had filed a voluntary complaint regarding these vertical price agreements as well as the horizontal agreement with Bucher. The decision shows that it can be very worthwhile for a company to voluntarily report unlawful restraints of competition, even if procedural costs can be considerable.
Construction services in the canton of Graubünden
On 26 March 2018, COMCO imposed sanctions on several construction companies for numerous bid-rigging agreements in the canton of Graubünden; the fines amounting to around 7.5 million Swiss francs. In its decision, COMCO held that construction companies in various cartels reached agreements on what is conservatively estimated at over 400 contract bids for structural and civil engineering projects. The value of the procurements affected by these agreements is well over 100 million Swiss francs. The construction companies agreed, over a period of many years, which of them should be awarded the contract. In most cases, agreement was also reached on the tendered price at which the designated ‘winner’ should carry out the construction project for the procurement office. The Graubünden construction companies ran some of the cartels systematically over a number of years. These agreements were in some cases reached at preliminary meetings organised by the Graubünden Builders’ Federation (GBV). As GBV organised some of the cartels, COMCO imposed part of the procedural fees on it. Three companies have appealed the decision to the Federal Administrative Court (FAC).
The economic damage caused by bid-rigging is severe. Therefore, COMCO has made a priority of combating bid-rigging in the past ten years. With these decisions, COMCO has consolidated its practice on bid-rigging agreements and clarified fundamental issues. For example, a company will usually be sanctioned for its participation in a bid-rigging agreement even if it does not generate any turnover from the tendering procedure concerned (‘a violation without turnover’). The fact that violations without turnover also give rise to sanctions was confirmed by the FAC in its judgments in the case relating to road construction and civil engineering in the canton of Aargau (see below).
On 9 April 2018, COMCO concluded the investigation against the German company Rimowa GmbH with an amicable settlement and a fine. COMCO concluded that, in its dealership contract with its German sales partners for the period from 25 January 2012 to 13 November 2013, Rimowa had unlawfully prohibited the export of its products to Switzerland. COMCO based its reasoning on the GABA decision and confirmed that there is no need to prove effective competition effects. In the Rimowa case, an important online dealer delivered Rimowa products to Swiss consumers despite the contractual ban. Rimowa was fined 134,943 Swiss francs. In an amicable settlement with the competition authorities, Rimowa undertook to refrain from similar agreements in the future. The company’s cooperative conduct led to a reduced sanction. Both the amicable settlement and the fine are legally binding. Market foreclosure by obstruction of parallel imports is a focus of COMCO’s work.
In a decision dated 10 December 2018, COMCO concluded the KTB Werke investigation. This originated from the investigation opened on 12 January 2015 into companies in the building materials and landfill industry in the canton of Bern. According to COMCO, the Kästli and Alluvia groups had fixed prices and price elements in the concrete and gravel industry and shared business in and around the city of Bern for several years. Between them they restricted competition to a considerable extent and abused their jointly held dominant position in the area in and around the city of Bern in order to prevent competitors from entering the market. The companies have appealed to FAC against the decision. The COMCO investigations took over four years. According to COMCO, the investigations proved to be very complex and the facts of the case increased over the course of the investigations. Therefore, COMCO decided to divide the investigations into two proceedings for reasons of procedural economy: the investigation KTB-Werke and the investigation Bern building materials and landfills (Kaga). The Kaga case deals mainly with competition violations in connection with gravel and landfills. A decision is expected towards the end of 2019.
COMCO launched investigation into several Swiss financial institutions and searched their premises
On 13 November 2018, COMCO has launched an investigation into several Swiss financial institutions. The investigation is aimed at clarifying whether several Swiss financial institutions have reached an agreement to boycott mobile payment solutions from international providers such as Apple Pay and Samsung Pay. Several Swiss financial institutions are suspected of having jointly agreed not to enable their credit cards for use with Apple Pay and Samsung Pay, in order to protect TWINT, their own Swiss payment solution. The investigation has been launched against Aduno Holding AG, Credit Suisse (Switzerland) AG, PostFinance AG, Swisscard AECS GmbH and UBS Switzerland AG. COMCO searched the premises of the target companies. In connection with searches, witnesses and other parties are questioned on site and in the subsequent days. These ‘first hour’ interviews are conducted by COMCO in order to quickly establish the facts of the case and to prevent any collusion between persons suspected of involvement in unlawful activities. In one of COMCO’s investigations in 2018, a company involved filed a legal objection against the interviews, applying to the FAC for an interim injunction. The FAC ultimately decided in favour of COMCO.
COMCO Secretariat agreed with Apple on a TWINT-friendly solution
Apple offers with Apple Pay a mobile payment solution for its devices, in particular the iPhone and Apple Watch. Apple devices and their apps are set to launch Apple Pay automatically when held close to a point of sale terminal to allow a contactless payment. Payments with the TWINT application are effectuated by scanning a QR-code that appears on the screen of the point of sale terminal. Until now, Apple Pay was likely to launch automatically and disrupt a current payment transaction made with the TWINT app. As a result, TWINT had filed a complaint against Apple. On 18 December 2018, the Secretariat of COMCO agreed with Apple on a TWINT-friendly solution. Apple has committed to immediately provide a technical solution enabling TWINT to suppress Apple Pay during the payment transaction effectuated with TWINT. Due to these commitments, the Secretariat decided to close the preliminary investigation against Apple.
Approval of mergers in the media industry
In the field of media industry, COMCO was called upon to make an in-depth assessment of three mergers: AZ Medien/NZZ, Tamedia/Goldbach and Tamedia/Basler Zeitung. During a detailed examination of the AZ Medien/NZZ merger, there were indications that the establishment of the joint venture by AZ media and NZZ could create or strengthen a dominant position in the markets for readers in two cantons and in the magazine advertising market for building technology. In addition, there were indications of the creation or strengthening of a joint dominant position with the Basler Zeitung in the reader market for daily newspapers in the Basel area, and with the Tamedia Group and the Ringier Group in the market for readers of Sunday newspapers. COMCO concluded that it is not to be expected that establishing the joint venture will allow the companies involved to eliminate effective competition in the markets concerned, as other strong competitors remain and the merger will not lead to any relevant change in the competitive situation in the market for Sunday newspapers. COMCO also concluded that the proposed merger between Goldbach and Tamedia would not lead to significant changes in market conditions. In the detailed examination of the Tamedia/Basler Zeitung merger, COMCO concluded that market conditions will hardly change as a result of the change in ownership of the Basler Zeitung and the takeover does not lead to an elimination of effective competition. COMCO gave the go ahead to all three mergers in August and October 2018. In this context, COMCO stressed that it did not pursue any form of media policy. According to COMCO, it is not permitted to take media policy issues, such as diversity in the media, into account in its assessment of merger plans.
Road construction and civil engineering in the canton of Aargau
In its decision of 16 December 2011, COMCO took action against bid-rigging in road construction and civil engineering in the canton of Aargau. Seventeen building companies operating in the canton of Aargau were fined around 4 million Swiss francs for entering into unlawful bid-rigging arrangements between 2006 and 2009 on prices and the allocation of markets. Around 100 public and private construction projects were affected. The majority of the accused companies accepted the COMCO decision and paid fines amounting to 1.1 million Swiss francs. Four companies challenged COMCO’s decision. On 25 May 2018, the FAC partially confirmed the decision of COMCO. In its judgments, the FAC clarified some important issues. These include the minimum legal requirements for the presentation and assessment of evidence in antitrust investigations. The court also discussed the handling of information from companies that report their own unlawful conduct and cooperate with the competition authorities. The FAC stated that, even if accusations from leniency applicants against other companies have been submitted, a thorough assessment of the evidence is required. COMCO must demonstrate the antitrust infringement for each party with regard to its participation in a bid-rigging agreement. Furthermore, the FAC stated that accusations made in a voluntary report against other competitors are not sufficient evidence if the non-cooperating companies deny these accusations. Instead, the competition authorities must take into account all the specific circumstances of a case, for example, the statements of the companies who filed a voluntary report and the statements of the non-cooperating companies. If the facts remain unclear, further investigations and taking of evidence is needed. In practice, these principles mean that there has to be an additional piece of evidence that corroborates the accusation of another company.
In addition, the FAC clarified issues in connection with alleged violations of procedural rights by the competition authorities and confirmed that violations of antitrust law can lead to sanctions even if no turnover was generated with them. At six and a half years, the duration of proceedings before the FAC is comparatively long. The FAC justified the long duration of the proceedings, among other things, by the fact that the 137 contested agreements had to be examined individually. One construction company has appealed the decision of the FAC to the FSC.
Hearing of witnesses
In antitrust proceedings that could lead to direct sanctions of the company according to article 49(a) of the Cartel Act, the criminal procedural minimum guarantees of article 6 of the European Convention on Human Right (ECHR) must also be respected. In its decision of 17 September 2018 (B-3099/2016, B-3702/2016), the FAC has clarified whether former employees and organs of a company could be heard as witnesses in antitrust proceedings against this company with regard to the right to silence and not to incriminate themselves. Witnesses are obliged to testify. Representatives of a company, on the other hand, are questioned as parties and have a comprehensive right to refuse to testify.
In the case on which the judgment is based, a former organ of a company should be questioned. At the time of COMCO’s investigation against this company, he no longer worked for the company, which is why COMCO wanted to question him as a witness. The company challenged this, arguing that the interrogation related to the period when the employee had been an organ of the company. Accordingly, the employee could invoke the company’s right to refuse to testify.
The FAC came to the conclusion that the former employee could, in principle, be questioned as a witness. However, it had to be taken into account that the former employee was questioned about his conduct as an organ at that time and that this conduct was attributed to the company, which is why article 6 of the ECHR had to be taken into account. According to the FAC, questions of a purely factual nature are generally possible. On the other hand, questions which could ultimately lead to an implicit acknowledgement of guilt are inadmissible. The FAC states that the differentiation between these questions can only be made on the basis of concrete questions. With this approach, the FAC sought to find an appropriate balance between the various interests. However, by allowing a former employee to be questioned as a witness, the FAC creates uncertainty. According to this decision, the rights of a person and the company in an interrogation may depend on the time of the interrogation and whether the person is still employed at that time. This is delicate situation, as they are questioned about their conduct as an organ of the company and as a witness they are obliged to answer. It is difficult to accurately assess the meaning of a question and whether it can lead to an implicit admission of guilt. Therefore, it may be disadvantageous for him and the company if he is not allowed to refuse his testimony in principle. However, the question has not yet been finally decided and will continue to occupy the courts.
Altimum SA/Mountaineering Equipment
In 2012, COMCO concluded that the general importer Altimum SA had dictated minimum sale prices for mountain sports equipment (headlamps, harnesses, helmets, ice picks, among others) to its retailers at least from 2006 to 2010, which prevented the retailers from competing for prices in the Swiss market. COMCO imposed a fine of 470,000 Swiss francs. In 2015, the FAC approved Altimum SA’s appeal and annulled the decision of COMCO. With its judgement of 18 May 2018, the FSC partially upheld the appeal filed against the ruling of the FAC. The FSC concluded that the fixing of minimum sales prices was the result of a price agreement, which in principle applied to all retailers. Since the retailers were able to grant discounts of up to 10 per cent and thus a certain margin squeeze existed, effective competition was not eliminated. The FSC confirmed the relevance of its GABA/Elmex decision. The vertical agreement as such constitutes a restraint of competition. Such agreements are inadmissible under the Cartel Act unless they can be justified on grounds of economic efficiency. Regarding the grounds of economic efficiency, the FSC stated that the enumeration in the Cartel Act is exhaustive. The justification based on grounds of economic efficiency is only successful if the competition restraint was necessary. This criterion of necessity is a major hurdle because in most cases there are less restrictive means available to achieve the efficiency rationale. According to the FSC, one possible justification for fixing minimum prices would be to enable retailers to compete through the quality of the advice they give to customers and thus to counteract the ‘freeloader problem’ (getting advice in a specialist shop, then buying the product from a cheaper supplier). However, this justification had not been argued here. The Altimum decision confirms the ‘per se ban’ for competition restraints, which fall under article 5, paragraphs 3 and 4 of the Cartel Act. For procedural reasons the FSC did not impose any sanction on Altimum.
In conclusion it is important to interpret paragraphs 3 and 4 of article 5 narrowly, since the legislator only wanted to impose heavy fines on serious antitrust violations.