The Federal Act on Cartels and other Restraints of Competition (CartA) aims at preventing the harmful economic or social effects of cartels and other restraints of competition. It applies to unlawful agreements (vertical and horizontal), to abuses of dominant position and to control of mergers.
With respect to intellectual property, the following acts are the most relevant in Switzerland: the Federal Act on Patents for Inventions (PatA), the Federal Act on the Protection of Trade Marks and Indications of Source, the Federal Act on Copyright and Related Rights (CopA), and the Federal Act on the Protection of Designs.
None of the above-mentioned intellectual property acts deals with the relation between intellectual property rights and competition law. Article 3(2) CartA provides: ‘This Act does not apply to effects on competition that result exclusively from the legislation governing intellectual property. However, import restrictions based on intellectual property rights shall be assessed under this Act.' The first sentence of this Article should, however, not be construed as providing an exemption to the application of the substantive provisions of the CartA. It is generally viewed as meaning that authorities applying the CartA in cases where intellectual property rights are at issue should take into account the relevant intellectual property acts.2
Article 6(1) and (2) CartA provide that the Federal Council or the Competition Commission (Comco) may adopt, respectively, ordinances or general guidelines to set out the conditions under which certain agreements shall, in principle, be deemed justified on grounds of economic efficiency. Article 6(1)(d) refers specifically to ‘agreements granting exclusive licences for intellectual property rights'. At present, no such ordinance or general guidelines have been adopted specifically in respect of intellectual property rights.3 However, in deciding cases involving intellectual property rights, Swiss authorities usually consult the relevant EU guidelines.4
It is important to point out that although they are not limitations per se imposed by competition law over intellectual property rights, the acts governing the latter provide for mandatory exceptions (i.e., exceptions that cannot be waived by contract), which have been enacted particularly to protect research and development activities.5 By way of example, Article 9(1) PatA states that the effects of a patent do not extend to acts undertaken for research or experimental purposes to obtain knowledge about the subject matter of the invention, including its uses, acts necessary for obtaining marketing authorisation for a medicinal product6 or the use of biological material for the purpose of the production or the discovery and development of a plant variety. With respect to software, Article 21 CopA provides a mandatory reverse-engineering exception for the purposes of obtaining interface operation for the development, maintenance and use of interoperable software (insofar as neither the normal exploitation of the program nor the legitimate interests of the owner of the rights are unreasonably prejudiced).
II YEAR IN REVIEW
The past year was marked by two important cases involving competition law and intellectual property rights.
First, on 21 April 2017, the Federal Supreme Court (FSC) published its reasoning for its landmark Gaba/Gebro decision of 28 June 2016 regarding the manufacturing and distribution of Elmex products.7 It is considered a landmark decision with respect to unlawful agreements, with the effect of strengthening the application of the CartA in the area of parallel imports. The facts underlying this case are the following: a Swiss licensor, Gaba, granted a licence to an Austrian company, Gebro, to manufacture and distribute Elmex products exclusively for and within Austria. Gebro was contractually prevented from exporting these products, directly or indirectly, to any other country.
In light of the effects doctrine set forth in Article 2(2) CartA, the FSC considered the CartA applicable to all situations, provided that they may have effects in Switzerland. It is neither necessary nor permissible to examine the significance of the effects. This means that agreements or unilateral behaviour of market-dominant companies, even outside Switzerland, can be covered by the CartA, regardless of how plausible any effects in Switzerland are.
Furthermore, the FSC decided that agreements pursuant to Article 5(3) and (4) CartA - including in particular those that allocate markets geographically - have, in principle, by virtue of their object, the effect of significantly restricting competition according to Article 5(1) CartA. They therefore constitute unlawful restrictive agreements if they cannot be justified on grounds of economic efficiency. There is no need for an actual impact on competition; a potential impairment is already sufficient. ‘Bagatelle' cases are exempted. However, the FSC does not provide further explanation as to the applicable threshold. In particular, since the FSC is content with potential adverse effects on competition, it is unclear to what extent quantitative criteria can be taken into account at all.
The FSC also confirmed in this case that agreements pursuant to Article 5(3) and (4) CartA can be sanctioned regardless of whether the statutory presumption of the elimination of effective competition has been rebutted. If an infringement has been established, the FSC assumes as a rule an objective breach of the duty of care and, therefore, fault. In the case at hand, the FSC confirmed the fines of 4.8 million Swiss francs and 10,000 Swiss francs that the Comco imposed on Gaba and Gebro respectively.
Second, the Comco imposed on Swisscom a fine of approximately 71 million Swiss francs for an abuse of dominant position in the context of live broadcasting.8 The Comco found that Swisscom and its subsidiaries benefited from a dominant position in the market of live broadcasting (using pay-TV) of Swiss football championship matches, the Swiss hockey championship and some foreign football championships. This dominant position resulted from the fact that Cinetrade (a subsidiary of Swisscom) enjoyed long-term exclusive rights for sports broadcasting in Switzerland. The abuse was found because (1) Swisscom refused to offer some of its competitors the right to broadcast these sports live on their platforms, or (2) Swisscom granted certain other competitors the right to broadcast a limited number of sporting events and these competitors had to offer the broadcast within a bundled offer. The Comco found that this behaviour procured for Swisscom a competitive advantage over its competitors. This decision is the subject of an appeal before the FAT.
With respect to broadcasting rights, the Comco published an advice related to ‘right-of-first-negotiation' and ‘matching-offer-right' provisions. Within an exclusive broadcasting agreement, a sports association had granted a broadcaster a right of first negotiation (at the end of the term of the agreement). Failing an agreement between the parties at the end of the right-of-first-negotiation period, the broadcaster had a matching-offer right, whereby it could match any offer that was made by a third party to the sports organisation and, therefore, extend the benefit of the exclusivity of the broadcasting rights. The Comco advised that such provisions shall be considered unlawful if they cannot be justified on grounds of economic efficiency.
III LICENSING AND ANTITRUST
There are no specific rules or general guidelines governing licensing agreements under Swiss competition law. In this respect, the general rules of the CartA would be assessed in each particular case: under Article 5 CartA (unlawful agreements affecting competition) and Article 7 CartA (unlawful practices of dominant undertakings).9
This chapter will not discuss the different rules on intellectual property rights exhaustion, to the extent that, pursuant to Article 3(2) CartA, the CartA is fully applicable to parallel import restrictions; however, as a matter of principle, international exhaustion applies to copyrights and trademarks; regional (i.e., countries of the EEA and Switzerland) exhaustion applies to most patent rights; and national exhaustion applies with respect to patent-protected goods whose price is fixed by the state in Switzerland (e.g., most pharmaceuticals) or in the country in which they are placed on the market.
Article 5 CartA regulates binding and non-binding agreements and concerted practices that have the effect of restricting competition in Switzerland. Such agreements are prohibited if they (1) eliminate competition or (2) significantly restrict competition on a market without being justified on grounds of economic efficiency:
Elimination of competition
According to Article 5(4) CartA, agreements regarding fixed or minimum prices10 and the allocation of territories to the extent that sales by other distributors into these territories are not permitted (in particular forbidding passive sales to distributors or final customers in a given territory) are presumed to eliminate effective competition. Passive sales include sales made over the internet, except in cases where efforts have been made to specifically target customers in a particular territory (in which case these would be deemed active sales).11 Imposing constraints that would have the same effect as preventing internet sales (e.g., technical blocking measures, rerouting or currency restrictions) is also unlawful.
Significant restriction of competition
The significance of the competition restraint is assumed for hardcore agreements, because of their nature, without the need to examine quantitative effects, such as market share. Pursuant to the Vertical Agreements Guidelines,12 the following shall in particular be considered as hardcore restrictions: (1) restrictions on the buyer freely setting its prices; (2) territory and customer restrictions (except in cases explicitly allowed under the Vertical Agreements Guidelines); (3) restrictions on sales to the final customer in a selective distribution system; (4) restrictions on cross-sales among members of the same selective distribution system; and (5) restrictions preventing suppliers from selling components or spare parts to customers other than the distributors designated in the agreement.13 For other restrictions, vertical agreements are assumed not to have a significant effect on the market if none of the parties thereto has a market share of over 15 per cent.
The restriction of parallel imports (as a hardcore vertical restriction) was the topic of the Gaba/Gebro case discussed above.14 Another recent decision related to parallel imports was rendered by the FAT in a case involving Nikon.15 Even more so than the Gaba/Gebro case, the Nikon case demonstrates the broad territorial reach of the CartA, which was applied in this case to various international distribution agreements (including one for the United States) because they contained provisions capable of affecting parallel imports in Switzerland. Materially, the FAT considered in particular that two contractual provisions had the effect of preventing passive sales and, therefore, were unlawful: (1) the restriction of sales to the United States or to the EEA in agreements with US and EU retailers respectively, and (2) the exclusive purchasing from a Nikon company imposed on Swiss Nikon retailers. The FAT did not recognise Nikon's argument (i.e., that Nikon benefited from patent rights in Switzerland) and imposed a fine of approximately 12 million Swiss francs.
With respect to non-compete provisions, there are no specific rules set out for licence agreements. The Vertical Agreements Guidelines, however, provide some guidance:16 non-compete provisions are generally acceptable, provided that they are limited to a maximum of five years or one year after the end of the relevant agreement.17 Moreover, restrictions on the use or disclosure of know-how can be imposed for an unlimited period (after the end of the agreement), provided that the know-how is not in the public domain.18
Among other provisions that may be problematic under Swiss law (identified as such mainly by legal scholars), the following are worthy of mention: (1) restrictions preventing a licensee from exploiting its own technologies or from undertaking research and development, (2) grant-back (by way of an exclusive licence or assignment to the licensor) of improvements made by the licensee, (3) no challenge to the licensed intellectual property, and (4) payment of royalties after expiration of the licensed intellectual property right (provided that royalties may still be justified with respect to know-how).
Article 7(1) CartA provides that dominant undertakings behave unlawfully if, by abusing their position in the market, they hinder other undertakings from starting or continuing to compete, or disadvantage trading partners. Article 7(2) CartA goes on to list certain practices that are deemed unlawful, in particular: (1) any refusal to deal, (2) any discrimination between trading partners in relation to prices or other conditions of trade, and (3) any imposition of unfair prices or other unfair conditions of trade.
In the aforementioned Swisscom case,19 the Comco held that Swisscom and its affiliates had adopted the three above-mentioned practices either by refusing to grant the relevant broadcasting rights to some competitors or by imposing unfair terms on some competitors (i.e., the offer of the broadcasts was bundled with another offer).
In another case, the Comco imposed a fine of 7 million Swiss francs on SIX Multipay AG for an abuse of dominant position characterised by SIX's refusal to provide competitors with interface information related to a new functionality (dynamic currency conversion or DCC) for credit card terminals, which allows customers to choose the currency they wish to pay in when at the terminal.20 The information was necessary for competitors to ensure the interoperability of their credit card terminals. Interestingly, SIX argued that Article 21(2) CopA does not oblige the copyright owner to provide interface information to competitors. The Comco considered that, by virtue of Article 3(2) CartA, intellectual property rights (such as copyrights) shall be taken into account in the assessment under the CartA, but that intellectual property rights do not override the CartA and in the case at hand the dominant position of SIX substantiated the obligation to provide interface information.21
With respect to the imposition of excessively high prices (e.g., milestone or royalty payments under a licence agreement) by a dominant undertaking, the Federal Price Supervisory Body has the authority to order a price reduction pursuant to Articles 4 and 10 of the Federal Price Supervision Act (FPSA). Before taking any decision, the Federal Price Supervisory Body shall first try to reach an amicable solution with the concerned undertaking (Article 9 FPSA).
Finally, patent pools have not been the subject of any decisions in Switzerland so far. However, antitrust concerns (price-fixing in particular) may arise in this context; for example, where the patents in the pool consist in substitute technologies.
IV STANDARD-ESSENTIAL PATENTS
No consideration has been given under Swiss competition law (whether in statutes, case law or guidelines) to standard-essential patents.
Nonetheless, the PatA sets forth restrictions on the rights of a patent owner that may apply to standard-essential patents, in particular Article 36 PatA (dependent inventions), and Articles 40 ff. PatA (licensing in the public interest).
Article 36 PatA provides that if a patented invention cannot be used without infringing a prior patent, the owner of the newer patent has the right to a non-exclusive licence to the extent required to use the new patented invention, provided that the invention represents an important technical advance of considerable economic significance in relation to the invention that is the subject matter of the prior patent. The Bern Commercial Court has ruled that an important technical advance occurs, for example, when the new invention leads to a simplification of processes or increases their speed.22 The Court held that applying the CartA (the owner of the previous patent allegedly had a dominant position on the market) would in principle lead to the same result as Article 36 PatA (i.e., the grant of a licence to the owner of the new patent) in cases where it would be justified under Article 36 PatA. In this case, it judged that the requirements of Article 36 PatA were not met.
Article 40 PatA provides that where public interest so dictates, the person to whom the owner of the patent has, without sufficient reason, refused to grant the licence requested, may apply to the court for the grant of a licence to use the invention. It is generally recognised by legal scholars that a public interest exists when the relevant patent is a technical standard (or used therein). Although not specified in Article 40 PatA, such a licence would be non-exclusive. Articles 40a to 40d PatA further provide for compulsory licences in specific cases and under specific conditions: in the field of semiconductor technology (40a), for research tools (40b), for diagnostic tools (40c), and for the export of pharmaceutical products (40d).
The scope and term of the licences that would be granted pursuant to the above-mentioned provisions are limited to the purpose for which they have been granted and may only be transferred with that part of the enterprise that uses the licence.
V INTELLECTUAL PROPERTY AND MERGERS
i Transfer of IP rights constituting a merger
There are no specific provisions or guidelines under Swiss law with respect to the transfer of intellectual property rights in the context of merger control. The transfer of intellectual property rights may, however, be deemed a concentration under Article 4(3) CartA where the intellectual property rights constitute part of a business whose control is acquired by an independent undertaking.23 The means of acquiring control may involve, in particular, the acquisition of ownership rights or rights to use all or parts of the assets of an undertaking (Article 1(a) of the Federal Ordinance on the Control of Concentrations of Undertakings).
In practice, intellectual property rights are often part of a merger, share deal or asset deal.24 The sole transfer of intellectual property rights might also be construed as a concentration of undertakings within the meaning of Article 4(3) CartA. The Comco has already ruled that the mere transfer of immaterial assets (i.e., trademarks, know-how, clientele and goodwill in the case at hand) amounted to a concentration of undertakings.25
ii Remedies involving divestitures of intellectual property
The Comco may authorise a concentration of undertakings subject to conditions and obligations if it considers that the concentration (1) creates or strengthens a dominant position liable to eliminate effective competition; and (2) does not improve the conditions of competition in another market such that the harmful effects of the dominant position can be outweighed (Article 10(2) CartA). The CartA does not specify the types of obligations or conditions that can be imposed. In practice, the concerned undertakings will generally discuss the same with the Comco. The remedies usually involve divestments or behavioural undertakings.
In the Glaxo Wellcome/SmithKline Beecham case, the merger was authorised by the Comco subject to the out-licensing by the parties of either Vectavir or Zovirax for use in the topical treatment of herpes simplex in the market of topical anti-virals (D6D) in Switzerland.26 This remedy was inspired by the solution that was reached in the context of the same merger by the European Commission.27 As the European Commission explains in its decision: ‘[t]he market test has confirmed that a divestment [by way of out-licensing] of either of the products would remove the overlap between the parties activities and would, therefore, remove the serious doubts on this market.'28
VI OTHER ABUSES
i Sham or vexatious IP litigation
The concept of abuse under Article 7 CartA (unlawful practices by dominant undertakings) covers both exploitative and exclusionary practices. Sham or vexatious litigation is not included in the example list of practices considered unlawful under Article 7 CartA. Consequently, the general rules on the abuse of dominant position would apply to such practices, which may be considered as exclusionary practices.
ii Misuse of the patent process
There are no specific rules in Swiss competition law regarding the misuse or manipulation of the patent process (e.g., for the purpose of artificially extending the term or geographical scope of patent protection, or enforcing patents obtained through fraud). Such practices would therefore be assessed under Article 7(1) CartA.
iii Anticompetitive settlements of IP disputes
There is no relevant case law on this topic in Switzerland. To the extent that a settlement agreement does not amount to a market-sharing or market-foreclosure agreement, the settlement should, in principle, comply with Swiss competition law. Exclusion payments made by a pharmaceutical or biotech company to potential generic or biosimilar entrants on the relevant market may be construed as a market-foreclosure agreement and thus unlawful.
VII OUTLOOK AND CONCLUSIONS
As mentioned by the president of the Comco in its 2016 annual report,29 the Swiss competition authorities have been active in the past year mainly in pursuing (in various markets) hardcore horizontal restraints, market foreclosure and abuses of dominant position. In the context of this contribution, this was exemplified by the Gaba/Gebro and the Swisscom pay-TV cases. In the coming year, it is foreseeable that these activities will intensify, in particular with respect to the digital economy and the pharmaceutical industry.
Attention should also be focused on a popular initiative (i.e., the initiative against the ‘Swiss island of high prices') that was launched on 20 September 2016 and aims at combating the practice of setting higher prices in Switzerland as compared with prices in neighbouring countries.30 Practically, this initiative, if successful, would lead to the introduction of the relative market power concept into the CartA. The scope of Article 7 CartA (unlawful practices of dominant undertakings) would thus be extended because of this new concept, whereby an undertaking would be deemed to have a relative dominant position on the market (e.g., if companies depend on it for the supply of goods or services necessary for their activities and where no reasonable and sufficient alternatives are available).
1 Sevan Antreasyan is an associate, and Benoît Merkt and Jürg Simon are partners at Lenz & Staehelin.
2 This restrictive approach has been confirmed by the Comco; see DPC/RPW 2011/1, p. 113.
3 The Comco's general Guidelines on Vertical Agreements (the Vertical Agreements Guidelines) (updated on 22 May 2017) may nonetheless be relevant for certain topics related to intellectual property rights agreements (e.g., distribution and franchising). The Vertical Agreements Guidelines were recently updated following the Gaba/Gebro case and the Comco also published an updated version of the explanatory notes; see https://www.weko.admin.ch/dam/weko/fr/dokumente/2017/Erl%C3%A4uterungen%20zur%20Vertikalbekanntmachung%20vom%2012.%20Juni%202017.pdf.download.pdf/Erl%C3%A4uterungen%20zur%20Vertikalbekanntmachung%20vom%2012.%20Juni%202017_fr.pdf.
4 See, e.g., the decisions B-463/2010 and B-506/2010 of the Federal Administrative Tribunal (FAT).
5 With respect to patents, see the Message of the Federal Council, FF 2006 1, p. 3.
6 By way of example, this limitation has the effect of allowing the producer of a generic to manufacture, import and store samples containing a patented API (prior to the expiry of the patent) with a view to obtaining a marketing authorisation. This would allow the generic to enter the market faster after the expiry of the relevant patent. However, stockpiling the generic prior to the expiry of the relevant patent is unlawful.
7 FSC, 2C_180/2014 dated 28 June 2016.
8 DPC/RPW 2016/4, 920 ff.
9 Although not binding or directly applicable under Swiss law, Commission Regulation (EU) No. 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements (TTBER) may be consulted by Swiss authorities and it would be advisable to take it into account when drafting agreements that may have an impact in Switzerland.
10 Where an agreement provides price recommendations (which are, in principle, allowed under Swiss competition law), if, in practice, it is shown that the recommendations are followed or enforced (or a combination of these) by the licensor, this behaviour would fall within the scope of the price-fixing hardcore restriction.
11 See Paragraph 3 of the Vertical Agreements Guidelines.
12 Note that the Vertical Agreements Guidelines do apply to agreements that include provisions related to intellectual property rights only to the extent that such agreements (1) are directly related to the use, sale or resale of goods or services and (2) do not have as their main object the assignment or grant of the right to use intellectual property rights (Article 8(4) of the Vertical Agreements Guidelines). They would thus typically apply to distribution and franchise agreements, as well as to certain licence agreements, but not, for example, to research and development agreements. For those agreements outside the scope of the Vertical Agreements Guidelines, the general provisions of the CartA apply.
13 See Paragraphs 12 and 13 of the Vertical Agreements Guidelines.
14 See Section II, supra.
15 See FAT, B-581/2012 of 16 September 2016.
16 See, footnote 9, supra, regarding the limited scope of application of the Vertical Agreements Guidelines.
17 Article 12(2)(f) and (g) of the Vertical Agreements Guidelines.
18 Article 12(2)(g) in fine of the Vertical Agreements Guidelines.
19 DPC/RPW 2016/4, 920 ff.
20 DPC/RPW 2011/1, 96 ff.
21 See DPC/RPW 2011/1, 96 ff, p. 115.
22 Bern Commercial Court, HG 03 9024 (BE), published in sic! 2006 p. 348.
23 Article 4(3) CartA defines a ‘concentration of undertakings' as (1) the merger of two or more previously independent undertakings; or (2) any transaction, in particular the acquisition of an equity interest or the conclusion of an agreement by which one or more undertakings acquire direct or indirect control of one or more previously independent undertakings or parts thereof.
24 See, e.g., DPC/RPW 2003/4, p. 786 (Emmi/Swiss Dairy Food ), where the Comco held that the transfer of an operating site and related trademarks constituted part of a business that had been acquired.
25 See DPC/RWP 2011/3, p. 413.
26 DPC/RPW 2001/2, p. 338 (Glaxo Wellcome/SmithKline Beecham).
27 EC, Case COMP/M.1846.
28 EC, Case COMP/M.1846, paragraph 219.
29 DPC/RPW 2017/1, p. 21.