Current Developments in Swiss Competition Law

This article was taken from the recent IR Global – Meet the Members publication 

The application of the Swiss Cartel Act to international distribution systems is already part of the day-to-day business of the Swiss competition authorities. The recent practice of the Swiss Federal Supreme Court regarding hard core restraints further exacerbates this far-reaching practice.
Switzerland is an interesting sales market for brand manufacturers, since the standard of living and levels of purchasing power are high, the infrastructure is well developed, the political system stable and the courts efficient.

However, Switzerland is neither a member of the EU or the EEA. In connection with EEA standard agreements in international distribution, it must therefore be noted that Swiss competition law deviates from European competition law in certain aspects, despite a large degree of congruence.

The recent case law of the Swiss Federal Supreme Court (FSC) in two cases concerning international distribution, has led to a more restrictive approach to the hardcore restraints of competition.

MORE RESTRICTIVE APPROACH TO HARDCORE RESTRAINTS

In its ruling in the GABA case of 28 June 2016 (BGE 143 II 297; export bans on the sale of toothpaste), the FSC established new rules for competition agreements that differ substantially from the previous assessment grid.
• First, the FSC ruled that, in the case of hardcore restraints, the ‘significance’ of the agreement required for inadmissibility must be assessed without reference to a market. Market shares or sales figures are therefore no longer a factor in the assessment. Hardcore restraints are per se ‘significant’.
• Second, according to the court, it suffices that such agreement affects competition only potentially. It is therefore not necessary for an agreement to have any effect on a market. A contractual restraint does not even have to be actually implemented.

As a result, vertical agreements regarding resale prices or territory are now to be regarded as significant restraints on competition, solely on account of their content. For example, it doesn’t matter whether the export ban contained in an EEA distribution agreement actually had an affect on Swiss markets. Subject to a justification on grounds of economic efficiency, such agreements are therefore always inadmissible.

The decision not to examine the effects of an agreement is controversial and raises the question of the scope of application of Swiss competition law. It should be noted that the FSC has set forth rules that are stricter than European competition law. Whereas no market reference is required under Swiss competition law and the mere possibility of the effects of an agreement is sufficient for its inadmissibility, the effects of an agreement in European antitrust law must be direct, substantial and reasonably foreseeable.
In its decision in the BMW case of 24 October 2017 (export ban on new vehicles to countries outside the EEA; BGer 2C_63/2016), the FSC specified the extraterritorial extension of the Swiss Cartel Act.

The court made it clear that vertical agreements without reference to Switzerland would not fall within the scope of Swiss competition law. The court specifically argued that, for example, an agreement between two American companies not to supply products to Canada was not covered by Swiss competition law. However, restrictions imposed abroad with potential effects on Swiss markets would be covered, with no requirement for a minimum intensity of these potential effects.

The example of the FSC therefore does not change the far-reaching interpretation of the scope of application. The waiver of the requirement for a minimum intensity means, in essence, that a general export ban in an American distribution network is covered by the Swiss Cartel Act, since this potentially affects Swiss customers – irrespective of whether Swiss customers order products from these US companies at all.
Excessive as it may be, this practice of the Swiss Federal Supreme Court, especially as regards the application of the Swiss Cartel Act in an international context, will not change for the foreseeable future. In its recent ruling in the Altimum case of 18 May 2018 (resale price maintenance for mountaineering equipment), the FSC just expressly confirmed the above case law, albeit in a purely Swiss context.

PRACTICAL EFFECTS

In any case, the Swiss Competition Commission (Comco) is willing to take action against manufacturers abroad – for example, in addition to BMW, recently against Eflare (Australian signal flares) or back in 2013 against US motorcycle manufacturer Harley-Davidson. The Harley-Davidson case in particular is remarkable, since Comco was of the opinion at the time that there was no illegal restraint on competition – for the marginal effects of the American export ban on Swiss markets. Since such export bans are hardcore restraints, this would have to be assessed differently under the new rules.

Hence, it is of interest how the new rules of the FSC will affect the practice of Comco regarding various clauses in distribution contracts.
In case of recommended resale prices, for example, Comco maintains that these may be regarded as vertical price agreements, specifically in the case of incentives to comply with, or exerted pressure on dealers. Under these circumstances, and under the new rules, it no longer matters whether the recommended prices are actually implemented.

In case of online trading, Comco interprets automatic redirections, or the request for a credit card address within the contract area, as a possible restriction of passive sales. Such contractual requirements are therefore also covered in principle by the new assessment grid of the FSC.
Like the European Commission, Comco intends to focus its future practice on cross-border online trade. Manufacturers and distributors abroad, with reference to Switzerland, are therefore well advised to take the stricter rules of Swiss competition law into account when setting up their distribution systems.