i General legal framework
In Switzerland, unilateral practices of dominant undertakings are regulated by the Federal Act on Cartels and other Restraints of Competition of 6 October 1995 (Cartel Act). Similar to Article 102 of the Treaty on the Functioning of the European Union (TFEU), Article 7 of the Cartel Act contains both a general clause (Paragraph 1) and a non-exhaustive list of examples of potentially abusive practices (Paragraph 2).
According to Article 7, Paragraph 1 of the Cartel Act, dominant undertakings behave unlawfully if they, by abusing their position in the market, hinder other undertakings from starting or continuing to compete, or if they disadvantage trading partners. Dominant undertakings are defined as one or more undertakings in a specific market that are able, as suppliers or consumers, to behave to an appreciable extent independently of the other participants (competitors, suppliers or consumers) in the market (Article 4, Paragraph 2 of the Cartel Act).
Article 7, Paragraph 2 of the Cartel Act further enumerates a (non-exhaustive) list of practices that can in particular be considered as unlawful, as follows:
- any refusal to deal (e.g., refusal to supply or to purchase goods);
- any discrimination between trading partners in relation to prices or other conditions of trade;
- any imposition of unfair prices or other unfair conditions of trade;
- any undercutting of prices or other conditions directed against a specific competitor (predatory pricing);
- any limitation of production, supply or technical development; or
- any conclusion of contracts on the condition that the other contracting party agrees to accept or deliver additional goods or services.
Article 7 of the Cartel Act has been conceived on the basis of Article 102 of the TFEU. As a result, although Article 7 of the Cartel Act constitutes independent Swiss law, the case law developed in the European Union in regard to Article 102 of the TFEU may serve as an interpretative source for the assessment of certain abusive practices. Nevertheless, there are several differences between EU and Swiss law in the context of abuse of dominance, mainly with regard to the sanctioning regime for abusive practices.
In addition to the Cartel Act, the Federal Price Surveillance Act of 20 December 1985, which aims at the avoidance of abusive pricing, may be relevant for dominant undertakings.
Finally, in the context of abusive pricing, the Federal Act against Unfair Competition of 19 December 1986 should be taken into consideration, in particular as regards dumping prices (Article 3, Paragraph 1, Letter f of the Unfair Competition Act).
ii Interplay between the Cartel Act and other statutory provisions
The interplay between the Cartel Act and other regulations is governed by Article 3 of the Cartel Act: according to Article 3, Paragraph 1 of the Cartel Act, statutory provisions that do not allow for competition in a certain market take precedence over the provisions of the Cartel Act. This is particularly the case for provisions that establish an official market or price system, as well as provisions that grant special rights to specific undertakings to enable them to fulfil public duties. In practice, such statutory provisions usually do not establish a fully comprehensive market or price system. The extent of the applicability of the Cartel Act thus needs to be assessed on a case-by-case basis.
Regarding intellectual property, the Cartel 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 are covered by the Cartel Act (in Article 3, Paragraph 2).
iii Sector-specific regulations
Special rules apply to certain industry sectors.
In the telecommunications sector, the Federal Telecommunications Act of 30 April 1997 provides for specific ex ante obligations for dominant telecommunication providers. In particular, providers of telecommunications services that have a dominant position in the market must provide access to their facilities and services to other providers in a transparent and non-discriminatory manner at cost-oriented prices. If the question of dominance in the market must be assessed, the Federal Office of Communications shall consult the Competition Commission (ComCo). The latter may publish its position. While bundling of services is as such permissible for dominant telecommunication providers, they must also offer the services included in the bundle individually.
In the radio and television sector, the Federal Radio and Television Act of 24 March 2006 lays down an obligation for dominant undertakings active in the radio and television market to provide the licensing and supervisory authorities, free of charge, with certain information. Moreover, the Act allows for measures to be taken if, as a result of its abuse of a dominant position, an undertaking has jeopardised diversity of opinion and programming.
In the electricity and postal sectors, specific regulations govern historic monopolist providers to ensure access to other suppliers.
Despite the special rules applicable to certain industry sectors, these rules do not preclude the application of the Cartel Act. Rather, sector-specific regulations shall be taken into account in the application of the Cartel Act.2 Exceptionally, sector-specific provisions effectively aiming at excluding competition may lead to the non-applicability of the Cartel Act.3
ii YEAR IN REVIEW
The main case involving abuse of dominance behaviour published in Switzerland in 2018 concerns the area of cable television connections. In December 2017, the ComCo handed down its decision against Geneva-based television and radio network provider Naxoo, holding that the latter had abused its dominant position in the market for cable television connections in the geographic area of the city of Geneva (and certain surrounding communes). The ComCo found that Naxoo had abused its dominant position towards real estate owners, producers and third-party suppliers of television system connections, as well as end customers by, on the one hand, imposing unfair conditions of trade and, on the other hand, by hindering third-party suppliers in their respective downstream markets. Concerning the imposition of unfair trading conditions, the ComCo held that Naxoo, when physically connecting a property to the cable television network, ensured in its contract with the real estate owners that Naxoo could exclusively use the physical cable connection to the properties concerned. By doing so, Naxoo prevented real estate owners from using the physical cable connection to their properties by concluding contracts with third-party providers, in particular with satellite television providers. Correspondingly, third-party providers of other television connections (e.g., satellite television connections) were hindered in competing in their downstream market. In addition, the ComCo found that the third-party providers' technical development was being limited. For the above-mentioned behaviour, the ComCo imposed a fine of approximately 3.6 million Swiss Francs upon Naxoo. However, the decision is not final as at the time of writing, since Naxoo filed an appeal before the Federal Administrative Court where the case is currently pending.
Further (potential) abuse of dominance cases published in 2018 were closed after a preliminary investigation by the Secretariat of the ComCo (Secretariat). No fines were imposed. Nevertheless, these cases are briefly discussed below.
In a preliminary investigation of the Secretariat against watch manufacturers Swatch Group, LVMH, Rolex, Richemont, Audemars Piguet and Breitling, the Secretariat examined the questions of whether the refusal by these watch manufacturers to supply spare parts to independent watch manufacturers could be problematic under Swiss competition law. After having performed a market enquiry on the functioning and the effects of the systems of aftersales services in place, the Secretariat found that these systems could be qualified as selective distribution systems since the aftersales service partners had to fulfil specific (qualitative) criteria to be admitted to the system. The Secretariat considered that such qualitative selective distribution systems did not lead to a significant restriction of competition. However, the Secretariat also noted that the assessment might be different for watch manufacturers having linked the supply of watches to the provision aftersales services. According to the Secretariat, such agreements may lead to a significant restriction of competition and it is unclear whether they could be justified on grounds of economic efficiency. Ultimately, the Secretariat closed the preliminary investigation without further consequences in August 2018. The fact that the EU Commission was investigating a similar case involving the same watch manufacturers presumably played an important role in the assessment by the Secretariat. In fact, the EU Commission found that the agreements concerning aftersales services were lawful and did not constitute an abuse of a dominant position since they were based on qualitative criteria that could be qualified as objective, proportionate and applied uniformly. In a similar context, in March 2018, the Federal Supreme Court handed down a landmark judgment in a case through which Swatch Group sought, as declaratory relief, confirmation from civil courts that it was under no obligation to supply a British company with spare parts for watches.4 By way of background, Swatch Group terminated its supply agreement for spare parts with the British company in 2015, which caused the latter to threaten Swatch Group with court proceedings before the London courts to oblige Swatch Group to continue its supply agreement. In the meantime, Swatch Group had already introduced a court action in Switzerland aimed at having it confirmed that it was under no obligation to supply the British company concerned with spare parts. The proceedings in Switzerland were limited to the procedural question of the existence of a sufficient legal interest in bringing a negative declaratory action before the Swiss civil courts. While the first instance court held that Swatch Group was lacking such interest, the Federal Supreme Court, on appeal, overturned this decision as well as its previous practice and found that, at least in an international context, the interest of a party to seek negative declaratory relief before Swiss courts was given.
Another preliminary investigation of the Secretariat was in the automotive sector, and was directed against the car importer and wholesaler, AMAG. As a result of the preliminary investigation, the Secretariat found that AMAG privileged service partners that were also distribution partners, for aftersales services. In this regard, the Secretariat recommended that, in the future, AMAG should also cooperate with service partners that are not also distributors. Moreover, the Secretariat noted that AMAG had terminated several service and distribution agreements with independent repairers and distributors. However, the termination of these agreements was found to be compliant with Swiss competition law; in particular, with the Notice on vertical agreements in the area of motor vehicles. Since AMAG committed to implement the recommendations issued by the Secretariat, the preliminary investigation was closed without further consequences in October 2018.
Finally, in the mobile payment sector, the Secretariat intervened against Apple regarding the latter's mobile payment app, Apple Pay. The Secretariat found that, on Apple's iPhones and Apple Watches, there was a risk that Apple Pay was automatically activated when users tried to pay via the mobile payment app TWINT. Such activation by default was held to interrupt the payment process via TWINT. Following the Secretariat's intervention, Apple committed to provide a technical solution to TWINT in order to suppress the automatic activation of Apple Pay when a payment process via TWINT is commenced. It may be suspected that the Secretariat's intervention was based on a potential abuse of a dominant position by Apple. Following Apple's commitment, the Secretariat closed its preliminary investigation against Apple without further consequences. In a similar context, in November 2018, the ComCo opened an investigation against several Swiss banks and credit card issuers based on a suspected boycott of Apple Pay and other international mobile payment solutions. The case is currently still ongoing.
i Significant decisions and cases in 2018
|Sector||Investigating authority||Conduct||Fine levied|
|Aftersales services for watches||ComCo||Preliminary investigation on the question of whether the refusal by certain watch manufacturers to supply spare parts to independent watch manufacturers or repairers could be problematic under Swiss competition law (potential illegal agreements or abuse of a dominant position by refusal to deal, or both)||None (preliminary investigation closed without further action)|
|Automotive||ComCo||Preliminary investigation on the question of whether the termination of several agreements with independent service providers and car distributors was lawful (potential abuse of a dominant position by refusal to deal) and on the question of whether a preferential treatment of service partners, which were also distribution partners, was admissible||None (preliminary investigation closed; recommendations issued by Secretariat of ComCo)|
|Mobile payment||ComCo||Preliminary investigation regarding the interference, on iPhones and Apple Watches, of Apple's mobile payment app Apple Pay with the payment process of another mobile payment app (TWINT)||None (voluntary change of conduct by Apple before any investigation was opened)|
|Internet, TV, telecommunication||ComCo||Abuse of a dominant position by Naxoo in the cable network connections market in the city of Geneva through inadequate terms of supply towards property owners, producers and third-party suppliers of network connections, as well as through obstructions of third-party suppliers in their own downstream markets||3.6 million Swiss francs|
ii Current cases
|Sector||Investigating authority||Conduct||Case opened|
|Natural gas supply||ComCo||Suspected abuse of a dominant position by two natural gas network operators (Erdgas Zentralschweiz AG and ewl Energie Wasser Luzern Holding AG) by refusing to grant other (foreign) natural gas suppliers access to their network, thereby disabling them to reach certain end customers||January 2019|
|Online hotel booking platforms||Price Surveillance Authority||Suspected excessive commissions perceived by Booking.com in Switzerland||February 2017|
|Pay TV||ComCo||Investigation concerning the alleged abuse of a dominant position by UPC Schweiz GmbH in the Swiss market for the transmission of ice hockey on pay TV through refusal to grant access to the transmission of ice hockey games to competing TV platform operators||May 2017|
iii MARKET DEFINITION AND MARKET POWER
i Definition of the relevant market
In abuse of dominance cases, the rules applicable in merger control cases are being used by analogy for the purpose of defining the relevant market. According to Article 11 of the Merger Control Ordinance of 17 June 1996, the relevant product market comprises those goods and services that are regarded as interchangeable by consumers on the one hand and by suppliers on the other with regard to their characteristics and intended use. The relevant geographic market is defined as the area in which on the one hand consumers purchase and on the other suppliers sell the goods or services that constitute the relevant product market. This provision also serves as the basis for defining the relevant market in dominance cases.5 From a temporal perspective, it must be examined whether any goods or services that allow for substitution in terms of product and geography are available all year round or just for a certain period of time.
The Swiss authorities generally rely on the test of cross-price elasticity and the small but significant and non-transitory increase in price (SSNIP) test to determine the relevant product market.6 In the context of an abuse of dominance case, it needs to be assessed whether the allegedly disadvantaged opposite side of the market (i.e., the trading partners of the dominant undertaking) could switch to alternative offers from a product, geographic and temporal perspective.7 If there are reasonable alternative offers for the opposite side of the market, it is likely that the undertaking considered is not dominant on a certain market.
The ComCo has previously considered cases in which the market has incorrectly been defined too broadly due to the presence of already monopolistic prices ('cellophane fallacy').8
ii Definition of dominance
According to Article 4, Paragraph 2 of the Cartel Act, an undertaking is dominant if it can to an appreciable extent behave independently of other market participants (competitors, suppliers or buyers). In the course of the amendment of the Cartel Act in 2003, the text in brackets defining other market participants was added. According to the Message of the Federal Council, the aim of this amendment is to ensure that authorities do not rely only upon market structure data to determine whether an undertaking is dominant, but also take into consideration the actual relations of dependence on the market. The ComCo has had the occasion to discuss the amended wording of Article 4, Paragraph 2 of the Cartel Act.9 It has generally confirmed the previous understanding of dominance (i.e., the capacity to behave independently on the market), but has, in addition, specified under which circumstances actual relations of dependence would also fall under Article 4, Paragraph 2 of the Cartel Act (and thus be subject to abuse of dominance rules). Based on the wording of Article 4, Paragraph 2 of the Cartel Act, market dominance may exist both on the supply as well as on the demand side.
There is no statutory threshold above which an undertaking must be considered as dominant under Swiss law. As a rule of thumb, market shares below 20 per cent are not considered to confer a dominant position to an undertaking. Market shares of between 20 and 40 per cent generally do not confer a dominant position to an undertaking, unless special circumstances are present. Market shares of 40 per cent and above are an indicator of dominance,10 unless there are special circumstances that allow denying such dominance.
In any event, market shares constitute mere indicators and are never in themselves sufficient proof of dominance. In practice, the ComCo performs an in-depth analysis of the market characteristics, such as the situation of competitors (current competition), the market entry barriers (potential competition) and the position of the other side of the market (countervailing market power). Such an analysis is made even in cases where the definition of the relevant market reveals market shares of 100 per cent.11 In accordance with the practice of the EU Commission, the ComCo assesses the competitive pressure and market position of the potentially dominant undertaking and its competitors. It also takes into consideration the competitive pressure due to the imminent expansion of already existing competitors or the imminent market entry of new suppliers. Finally, the ComCo assesses the competitive pressure due to the negotiating strength of the other side of the market (i.e., the countervailing buying power). In its more recent practice, the ComCo has analysed the competitive position of the opposite side of the market only in cases of collective dominance. In fact, the ComCo seems to consider that, although the disciplinary effect of countervailing buyer power may prevent abuses in individual cases, it does establish or re-establish the dynamic functions of effective competition.
Market dominance may only be achieved by 'undertakings'. This corresponds to the personal scope of application of the Cartel Act. According to Article 2, Paragraph 1 bis of the Cartel Act, undertakings are all buyers or suppliers of goods and services active in commerce, regardless of their legal or organisational form. The concept of an undertaking follows an economic approach, based on the entrepreneurial activity of an entity. Therefore, it also covers undertakings governed by public law, as well as private commercial companies that are part of a public body (e.g., the federal government, cantons or communes).12 In the case of groups of companies, the entire group is considered as a single economic entity to the purpose of assessing market dominance.
According to the definition of dominance contained in Article 4, Paragraph 2 of the Cartel Act, a dominant position may be held by one or more undertakings. Thus, collective dominance is also covered by the law. In 1998, the ComCo held for the first time that there was a case of collective dominance.13 Collective dominance requires two (duopoly) or several (oligopoly) undertakings deliberately adopting a parallel (i.e., collusive) behaviour. If the collusive element in the parallel behaviour is lacking, such behaviour is generally legal, as it constitutes the normal reaction of competitors to exogenous market developments.
In its decisional practice, the ComCo has developed several indicators taken into account in the assessment of potential collective dominance:14
- high market concentration (the fewer companies are active in a certain market, the more likely it is for collusion to occur);
- similar and stable market shares;
- similar cost structures, as well as a personal and financial intertwining between competitors, and the resulting symmetry of interests;
- high market entry barriers;
- similarity of products offered (price remains the sole competitive factor); and
- most importantly, high market transparency.
Taking these indicators into consideration, it is necessary to perform an overall assessment of the competitive landscape on the relevant market as well as on the upstream and downstream markets thereof to determine whether the relevant market offers sufficient incentives for durable collective dominance.
In the planned merger between France Télécom SA and Sunrise Communications SA, the ComCo applied the aforementioned criteria.15 It found that the envisaged merger between these two companies needed to be prohibited since the newly created entity would, together with Swisscom, have held a collectively dominant position in the mobile communications market and, in the absence of new competitors entering said market, would have had no incentive to compete by reducing its prices.
When assessing the planned merger between Switzerland's two largest ticketing providers, Ticketcorner and Starticket, the ComCo considered potential collective dominance. However, in the case at issue, the ComCo did not find sufficient evidence for the existence of a collectively dominant position.16
More recently, the ComCo investigated a potential collective dominance of Booking.com, Expedia and HRS in the market for hotel booking platforms. While it did not formally conclude that the undertakings concerned hold a single or joint dominant position, the ComCo did not rule out the existence of such dominant position, either.17
The application of Article 7 of the Cartel Act requires three cumulative pre-conditions to be met: an undertaking is dominant on a certain market; through abusing this dominant position, this undertaking hinders other undertakings from starting or continuing to compete, or disadvantages trading partners; and there are no legitimate business reasons for the abusive behaviour of the dominant undertaking.
These pre-conditions need to be met even for the (non-exhaustive) list of examples of conduct that may be considered as abusive. In other words, the examples of Article 7, Paragraph 2 of the Cartel Act need to be applied in conjunction with its Paragraph 1.18 Article 7 of the Cartel Act covers both exclusionary and exploitative practices. The first mainly concern competitors while the second aim at harming commercial partners or consumers.
When assessing a potentially abusive behaviour, it is necessary to consider the specific circumstances of the case at hand. The Cartel Act does not contain any per se prohibitions. An assessment on a case-by-case basis is required, taking into consideration the specific market conditions. In particular, it needs to be analysed whether the conditions of a specific (contractual) relationship significantly diverge from those that could be expected in the context of effective competition. In practice, the authorities examine the competitive and anticompetitive effects of a certain conduct on the market, in particular when a conduct does not fall under one (or several) of the abuses listed in Article 7, Paragraph 2 of the Cartel Act, but is covered by the umbrella clause of Paragraph 1. The intent of an undertaking to abuse its dominant position is not a necessary requirement for an abusive behaviour to be considered as illegal. However, the presence of such intent facilitates the assessment of a certain competitive behaviour.
As mentioned, the enumeration of abuses contained in Article 7, Paragraph 2 of the Cartel Act is not exhaustive. Other types of conduct not covered by one of the examples listed but meeting the pre-conditions enumerated in Article 7, Paragraph 1 of the Cartel Act fall into the scope of application of this umbrella clause. This is, for example, the case for margin squeeze behaviour.19
Abusive behaviour needs to be distinguished from competition on the merits. This distinction is particularly important to bear in mind when assessing the existence of legitimate business reasons for a certain behaviour. Even a dominant undertaking needs to be allowed to protect its own legitimate business interests by competing on the merits in order to maintain its leading market position. As a result, if a certain practice simply aims at improving the quality of a product (e.g., by requiring from suppliers the respect of a specific standard), such practice shall be considered legitimate even if it may eliminate certain suppliers or competitors.
ii Exclusionary abuses
Exclusionary abuses may take various forms, such as exclusionary pricing, exclusive dealing and refusal to deal or to license, as well as tying and bundling practices.
Refusal to deal
Refusal to deal is the first type of abusive conduct mentioned in the list of examples of Article 7, Paragraph 2, Letter a of the Cartel Act. This provision does not imply a general obligation to contract for dominant undertakings. According to the law, refusal to deal (e.g., refusal to supply or to purchase goods) is only unlawful if it has as its effect (or is likely to have as its effect) the anticompetitive foreclosure of the market and if it cannot be justified by legitimate business reasons (e.g., lack of quality of a certain supplier; precarious financial situation of a prospective franchisee). In particular, a refusal to deal is likely to be considered illegal if a dominant undertaking, by refusing to enter into a business relationship, intends to boycott its business partner or aims at forcing its business partner to behave in a certain way. Moreover, refusal to deal may, under certain circumstances, be considered unlawful if a dominant undertaking refuses to grant access to an essential facility. The concept of refusal to deal includes both the refusal to continue existing business relationships as well as the refusal to enter into new such relationships.
One of the first major cases in which the ComCo applied the 'essential facilities doctrine' concerned the refusal of an electricity distribution network company with a local monopoly to transport through its network the electricity from a third-party provider to a customer located in the monopolist's territory.20 In another significant case, the ComCo fined SIX Group 7 million Swiss francs for refusing to supply interface information to other competitors and thus rendering their products incompatible with the SIX card payment terminals.21 In a decision of 2013, the ComCo accepted an amicable settlement between the Secretariat and Swatch Group, according to which the latter may gradually reduce the supply of third-party customers with mechanical watch movements.22 Swatch Group thereby committed to supply certain minimum amounts per year and to treat all customers equally. In 2016, the ComCo fined Swisscom approximately 72 million Swiss francs for having refused to supply certain competitors with broadcasts of live sports for their platforms and for having granted only partial access to a reduced range of sport contents to others.23 An appeal against the ComCo decision is currently pending.
As far as refusal to license is concerned, such refusal would generally not be considered as abusive if no standard essential patents are concerned. In fact, it is inherent to intellectual property (IP) rights that the holders of these rights enjoy some form of exclusivity, which will allow them to act independently on the market to a certain extent. Article 3, Paragraph 2 of the Cartel Act explicitly exempts the effects on competition that result exclusively from the legislation governing IP from its scope of application. It is only the modalities to exercise an IP right that may be considered abusive, namely if they go beyond the scope of protection conferred by the IP legislation (e.g., registration of patents for the sole purpose of blocking the technical development of competitors). However, the line is difficult to draw.
Exclusive dealing practices are not enumerated in the list under Article 7, Paragraph 2 of the Cartel Act. They may fall under the umbrella clause of Article 7, Paragraph 1. In a 2016 decision, the Federal Administrative Court found likely abuses of the dominant positions held by the ticketing provider Ticketcorner and the operator of the event location Hallenstadion in Zurich through exclusive dealing practices.24 In fact, the operator of the event location imposed an obligation upon event organisers to sell at least 50 per cent (de facto resulting in 100 per cent) of all tickets for events in the Hallenstadion via Ticketcorner. The case is currently pending before the Federal Supreme Court.
Discrimination between trading partners in relation to prices or other conditions of trade may be unlawful under the Cartel Act (Article 7, Paragraph 2, Letter b). Rebates can be considered as practices discriminating between trading partners, namely where only bigger customers above a certain turnover threshold may benefit from special (more favourable) agreements.25 In particular, fidelity rebates are illegal if they reward customers for procuring their entire demand from the same dominant undertaking, independently of the actual quantity procured.26 Such rebate systems are considered to impede the market entry of potential competitors since customers are reluctant to switch away from the dominant undertaking granting fidelity rebates.27 Target rebates are also illegal if they are granted under the condition that the customers achieve certain turnover targets set by the dominant undertaking. Their effect is considered to be comparable to the one of fidelity rebates. On the other hand, quantitative rebates based on cost efficiencies (e.g., economies of scale) are generally legitimate.
By a 2014 decision, the ComCo imposed a fine of approximately 1.9 million Swiss francs on the leading Swiss news agency Schweizerische Depeschenagentur (SDA) for offering exclusivity rebates (which were qualified as fidelity rebates) to a certain group of customers.28 The ComCo found that, by granting discounts of 20 per cent to customers who agreed to exclusively subscribe to SDA's news service (without also being subscribed to a competitor news service), SDA had abused its dominant position. In the absence of any legitimate business reasons, the exclusivity rebates were considered illegal.
According to the law, any undercutting of prices or other conditions directed against a specific competitor may be unlawful (Article 7, Paragraph 2, Letter d of the Cartel Act). Such pricing strategies are, however, only illegal if they aim at driving competitors out of the market or preventing new competitors from entering the market (predatory pricing).29 Typically, a dominant undertaking would, in a first step, undercut prices of competitors until they leave a certain market, and then in a second step re-increase its prices once the competitive pressure has been decreased (or eliminated). In general, the ComCo is likely to infer that prices under average variable costs are aimed at driving competitors out of the market or preventing new competitors to enter the market. In contrast, low price strategies pursued by a dominant undertaking in order to access new markets or to sell off outdated products are legitimate business practices that shall not be considered as unlawful.
The ComCo has investigated presumed predatory pricing strategies on different occasions30 without having issued any decisions. In its previous practice, the ComCo has, however, developed some guidance on the conditions under which a pricing practice is likely to be considered abusive:
- the price cutting strategy needs to be systematic and occur over a certain period of time;
- it is aimed at one or several weaker (actual or potential) competitors;
- there is no possibility to increase profits in the short term (as would be the case if outdated remaining stock was sold at low prices); and
- the low prices may be re-increased at a later stage.
Price or margin squeeze
As a special form of price discrimination between trading partners (see Article 7, Paragraph 2, Letter b of the Cartel Act), price or margin squeezes may be considered an abuse of a dominant position. The ComCo defines price squeeze as a situation where a vertically integrated dominant undertaking sets its retail prices at a level that is so low compared to its wholesale prices that equally efficient competitors on the retail market, dependent on procuring a certain good or service from the dominant undertaking on the wholesale market, are not able to compete and make profits in the retail market.31
In 2009, the ComCo fined the telecommunications provider Swisscom approximately 220 million Swiss francs for abuse of its dominant position in the market for broadband internet through margin or price squeeze behaviour.32 The ComCo found that, until the end of 2007, Swisscom, which also offered its asymmetric digital subscriber line (ADSL) broadband internet services to end customers on the retail market, charged its competitors such high prices on the wholesale market that those competitors were not able to profitably offer their services on the retail market. The abusive and anticompetitive behaviour was corroborated by the fact that Swisscom generated large profits on the wholesale market, whereas its subsidiary active on the retail market incurred losses. On appeal by Swisscom, the Federal Administrative Court confirmed the ComCo decision in its substance, but reduced the fine imposed to approximately 186 million Swiss francs.33 The case is currently pending before the Federal Supreme Court. More recently, the ComCo imposed a fine of approximately 7.9 million Swiss francs on Swisscom for a price squeeze (and other abusive practices) in the wide area network (WAN) sector.34 A WAN is a telecommunications or computer network that extends over a large geographical distance. In a public tender process organised by Swiss Post in 2008, Swisscom offered a price for its WAN services that was approximately 30 per cent below its next competitor's price, the latter having to acquire prior facilities from Swisscom on a wholesale level before being able to offer its WAN services to Swiss Post. Swisscom's wholesale price for the prior facilities allegedly was significantly above the price with which Swisscom won the public tender, which did not allow any competitor to compete on the retail market. An appeal against the ComCo decision is currently pending before the Federal Administrative Court.
Tying and bundling
According to the Cartel Act, any conclusion of contracts on the condition that the other contracting party agrees to accept or deliver additional goods or services is unlawful (Article 7, Paragraph 2, Letter f of the Cartel Act). By such tying practices, a dominant undertaking aims at forcing its trading partners to procure unwanted goods or services in order to be able to procure the goods or services actually wanted. Trading partners are thus restricted in their freedom to take business decisions, whereas competitors are pushed out of the market. Tying practices may be legal if the tied good or service is a necessary prerequisite for the main good or service to be procured. There needs to be a factual link between the two items. Such factual link may exist for technical or safety reasons (e.g., if a licensor requires its licensee to procure certain raw materials for the production of the licensed product from the licensor, given the specific quality or characteristics of the raw materials needed). An indicator for the existence of a factual link between the main product or service and the tied one is the fact that they both belong to the same product markets. Conversely, if separate product markets exist, a factual link requiring tying of both products and services is unlikely.
The ComCo has investigated tying practices on several occasions, usually denying the finding of an abusive behaviour. In a 2002 case, for example, the Secretariat found that the Swiss national railway company, SBB, holding a dominant position in the main relevant market (but being non-dominant in the tied market), had abused its position through an illegal tying practice.35 In fact, a company called Lokoop requested an offer from SBB for the use of its railway system on certain routes to transport parcels. In addition, Lokoop requested a separate offer for various extra services at specific train stations (e.g., for the shunting of trains). In response to this request, SBB insisted on offering a bundle of services to Lokoop, which was considered unlawful by the Secretariat. Ultimately, the ComCo closed the investigation without a sanction since SBB agreed to abandon its allegedly abusive tying practice.
Under the Cartel Act, any discrimination between trading partners in relation to prices or other conditions of trade is considered unlawful (Article 7, Paragraph 2, Letter b of the Cartel Act). As mentioned above, discriminatory practices may appear in different forms, such as loyalty or target rebates granted or accessible only to customers achieving a certain turnover threshold, as well as margin or price squeezes. The term 'in relation to other conditions of trade' used by the law is to be interpreted broadly. It covers any contractual provisions entailing an economic advantage or disadvantage (e.g., in regard to discounts or payment terms). However, the prohibition to discriminate between trading partners does not imply a general obligation of equal treatment. Unequal treatment shall be considered unproblematic as long as it can objectively be justified (e.g., quantity rebates, justified by corresponding economies of scale).
iv Exploitative abuses
The imposition of unfair prices or other unfair conditions of trade is considered unlawful (Article 7, Paragraph 2, Letter c of the Cartel Act). To determine if a price is 'unfair', it is necessary to examine the market value of the product or service offered and the ability of the dominant undertaking to behave independently in setting its prices. This ability is likely to be a given if customers lack alternatives. The imposition of unfair prices (implying an element of coercion) by a dominant undertaking is thus facilitated. It is unclear whether, under Swiss law, it is necessary to prove the 'imposition' as a coercive element under Article 7, Paragraph 2, Letter c of the Cartel Act, or whether it is sufficient to prove the existence of a causal link between the dominant position and the unfair prices.36
The prohibition on imposing unfair prices does not imply an obligation to set fair prices. Neither does this prohibition aim at protecting customers from paying unduly high prices. Rather, this provision shall promote effective competition and ensure that prices are the result of an interplay between offer and demand. In this context, the ComCo considers that the Federal Price Surveillance Act of 20 December 1985, which aims at the avoidance of abusive pricing, may be applied in parallel.37
In a decision of 2007, the ComCo imposed a record fine of approximately 333 million Swiss francs on Swisscom as it considered its termination rates in the mobile network sector as unfair.38 However, the decision was annulled by the Federal Administrative Court and the annulment confirmed by the Federal Supreme Court.39 The latter considered that, due to the regulatory framework applicable in the telecommunications sector, Swisscom could not exert any coercion on its trading partners. More recently, the ComCo also fined Swisscom for imposing unfair prices on its competitors when offering its WAN connection services on a wholesale level.40
v REMEDIES AND SANCTIONS
An undertaking abusing its dominant position risks a fine of up to 10 per cent of the turnover that it achieved in Switzerland in the preceding three financial years (Article 49a, Paragraph 1 of the Cartel Act). The amount of the fine is dependent on the duration and severity of the unlawful behaviour, taking into account the likely profit that resulted from it. For the calculation of the turnover, all reductions such as discounts, rebates, VAT and other consumption taxes as well as other taxes directly related to turnover shall be deducted from the amounts derived by the undertakings concerned from the sale of products and the provision of services within the ordinary business activities of the undertakings concerned (Article 4, Paragraph 1 of the Merger Control Ordinance of 17 June 1996, which is applicable by analogy).
The calculation method for fines is regulated in detail by the Cartel Act Sanctions Ordinance of 12 March 2004. The imposition of a fine is mandatory in the case of an established abuse of a dominant position. Contrary to the laws of other jurisdictions, the Swiss Cartel Act does not provide for sanctions that may be imposed on individuals acting on behalf of an undertaking having abused its dominant position (unless the individual itself qualifies as an undertaking in the sense of the Cartel Act).
The largest fine imposed by the ComCo so far, amounting to 333 million Swiss francs, was cancelled by the Federal Administrative Court and subsequently also by the Federal Supreme Court upon appeal by Swisscom.41 Another fine of 220 million Swiss francs imposed on Swisscom for margin-squeeze behaviour in the ADSL market was ultimately reduced by the Federal Administrative Court to approximately 186 million Swiss francs.42 An appeal against this decision is currently pending before the Federal Supreme Court. For further examples of recent fines imposed, see above.
ii Behavioural remedies
Other than imposing a fine, the ComCo has a wide range of decision-making and remedial powers at its disposal. In particular, the ComCo may order injunctions (measures) to cease or desist from an unlawful practice (e.g., order that a contract be entered into in the case of an abusive refusal to deal) (Article 30, Paragraph 1 of the Cartel Act). The ComCo may also, under certain conditions, grant interim relief to terminate a certain abusive conduct or modify specific business practices.43 In a recent case, however, the ComCo refused to grant interim relief requested by Swisscom in the context of an investigation opened against the largest cable network operator in Switzerland, UPC Schweiz GmbH.44 The latter is suspected of having abused of its dominant position by the (alleged) refusal to grant access to its ice hockey coverage, for which UPC held exclusive rights, to other competitors (including Swisscom). The ComCo rejected Swisscom's request for interim measures on the grounds that such measures required, inter alia, that, in their absence, competition would suffer a disadvantage that could not easily be rectified. According to the ComCo, this requirement was not fulfilled in the case at hand since it seemed likely that Swisscom would remain active on the relevant market and be able to win back customers at the end of the investigation proceedings.45
iii Structural remedies
In abuse of dominance cases, the Cartel Act does not explicitly provide for the possibility for the ComCo to order structural remedies.
Under the Cartel Act, the investigation procedure for (suspected) restraints of competition, including abuse of dominance cases, follows two stages: a preliminary investigation and an investigation. The Secretariat may open a preliminary investigation ex officio, at the request of undertakings involved or in response to a complaint from third parties (Article 26, Paragraph 1 of the Cartel Act). During this preliminary stage, the Secretariat usually gathers information by sending out questionnaires to the undertaking or undertakings concerned. It may also propose measures to eliminate or prevent restraints of competition (Article 26, Paragraph 2 of the Cartel Act). If the Secretariat concludes that there are indications of an unlawful restraint of competition, it shall, in consultation with a member of the presiding body of the ComCo, open an investigation (Article 27, Paragraph 1 of the Cartel Act). Such opening of an investigation is published in the Swiss Official Gazette of Commerce (Article 28 of the Cartel Act), as well as (generally) in a press release.
In the context of an investigation, the Secretariat has broad investigative powers. It may hear third parties as witnesses and require the parties to an investigation to give evidence (Article 42, Paragraph 1 of the Cartel Act). It may also perform searches (i.e., dawn raids) and seize evidence (Article 42, Paragraph 2 of the Cartel Act). The parties have an obligation to cooperate and a duty to provide information (Article 40 of the Cartel Act). In particular, they must provide the Secretariat with all the information required for the conduct of an investigation and produce the necessary documents. A limit to the obligation to cooperate is the legal principle nemo tenetur se ipsum accusare (right against self-incrimination).46 Non-compliance with the obligation to provide information or produce documents can entail an administrative fine of up to 100,000 Swiss francs (Article 52 of the Cartel Act). The Secretariat has published its best practices relied upon in investigations, in particular for searches, seizure of evidence and hearings, in an explanatory note of 6 January 2016 on selected instruments of investigation.47
During the investigation procedure, it is possible to reach an amicable settlement with the Secretariat (and approved by the latter) (Article 29 of the Cartel Act). Moreover, a leniency application may be filed if the undertaking concerned assists in the discovery and elimination of an unlawful restraint of competition (Article 49a, Paragraph 2 of the Cartel Act), which may allow for a full or a partial waiver of fines.
Further, recently, the Secretariat increasingly seems to use its preferred tool of market investigations in order to detect abuse of dominance cases.
vii PRIVATE ENFORCEMENT
The Cartel Act contains explicit provisions empowering civil courts to issue measures in the case of unlawful hindrance of competition. A person hindered by an unlawful restraint of competition from entering or competing in a certain market is entitled to request the elimination of or desistance from the hindrance; damages and satisfaction in accordance with the Swiss Code of Obligations; and surrender of unlawfully earned profits (Article 12, Paragraph 1 of the Cartel Act). Hindrances of competition include in particular the refusal to deal and discriminatory measures (Article 12, Paragraph 2 of the Cartel Act). Moreover, a plaintiff may request civil courts to rule that any contracts are null and void in whole or in part, or that the person responsible for the hindrance of competition must conclude contracts with the person so hindered on terms that are in line with the market or the industry standard (Article 13 of the Cartel Act).
To date, private enforcement against unlawful practices of dominant undertakings has not been a very successful tool in Switzerland. This is due to various reasons, namely procedural hurdles and an unfavourable standard of proof to claim damages. Nevertheless, in a few specific circumstances, civil court proceedings may be more favourable than administrative proceedings before the ComCo. For example, in cases of a refusal to deal (Article 7, Paragraph 2, Letter a of the Cartel Act), there may be situations in which only a civil court judgment can order a certain business relationship to be entered into in an enforceable way (e.g., order to grant access to a trade fair).48 Moreover, particularly for cases with a smaller economic significance, civil court proceedings may be preferable since civil courts are obliged to treat each case whereas the ComCo, guided by the discretionary principle, may decide not to consider a case of minor importance. As a result, the ComCo's reluctance to take cases may mean that civil court proceedings are relatively frequent. In the car industry, for example, it may occur that a garage accredited for a certain brand of cars, whose accreditation is withdrawn, sues the general importer or the car manufacturer, or both, before the civil courts, claiming that there is a certain obligation to continue existing business relationships.
By way of example, in a 2013 decision, the Federal Supreme Court confirmed an order of a lower instance civil court that obliged a cooperative managing a cheese-maturing cellar to grant access to its maturing cellar to a cheese producer.49
viii FUTURE DEVELOPMENTS
Following the rejection by the Swiss Parliament of the proposed revision of the Cartel Act, several individual reform proposals were filed. For example, the parliamentary initiative 'Excessive import prices. End the Compulsory Procurement on the Domestic Market' has been filed and admitted by the Commission for Economy. The initiative aims at introducing the concept of 'relative market power' (already known under German competition law) into the Swiss legislation. In a nutshell, this shall prevent foreign undertakings from abusing their relative market power by charging higher prices in Switzerland as compared to their prices abroad, subject to legitimate business reasons.
Moreover, in December 2017, the Fair Price Initiative ('Stop the Swiss Island of High Prices – Pro Fair Import Prices'), which is a federal popular initiative, was filed and admitted. This initiative is also based on the introduction of the concept of 'relative market power' in Swiss law. It aims at ensuring fair prices for consumers in Switzerland, including non-discriminatory purchasing conditions for online sales. In October 2018, the Federal Council issued an indirect counterproposal to the popular initiative, which is currently being deliberated upon. The Federal Council is expected to submit a statement on the counterproposal to the parliament in summer 2019.
1 Marcel Dietrich and Franz Hoffet are partners and Allegra Arnold is an associate at Homburger AG.
2 Federal Supreme Court, RPW/DPC 2011/3, p. 440, Mobilfunkterminierungspreise.
3 Federal Supreme Court, RPW/DPC 2015/1, p. 131, Hors-Liste Medikamente.
4 Federal Supreme Court, decision of 14 March 2018, 144 III 175.
5 RPW/DPC 2012/1, pp. 103 and 105, Vertrieb von Tickets im Hallenstadion.
6 Federal Supreme Court, RPW/DPC 2013/1, p. 114, Publigroupe.
7 Regarding the substitutability of offer and demand, see RPW/DPC 1997/3, p. 364 st, Migros/Globus and RPW/DPC 1998/3, p. 394 ff, Bell/SEG-Poulets.
8 See, for example, RPW/DPC 2015/1, p. 105, Valora Holding/LS Distribution Suisse.
9 See RPW 2005/1, p. 149 ff, CoopForte; RPW 2008/1, p. 129 ff, Migros/Denner.
10 See, for example, RPW/DPC 2003/1, p. 84, Plakatierung in der Stadt Luzern, in which case a market share above 50 per cent was considered as sufficient to confer dominance. In a more recent decision of the Federal Supreme Court, market shares above the 50 per cent threshold were considered as an indicator for market dominance (Federal Supreme Court, RPW/DPC 2013/1, p. 130, Publigroupe).
11 RPW/DPC 2008/2, p. 242, Terminierungsgebühren beim SMS-Versand via Large Account.
12 Federal Supreme Court, BGE 137 II 199, c. 3.1.
13 RPW/DPC 1998/3, p. 400 ff, Bell/SEG-Poulets.
14 See, more recently and instead of many others, RPW/DPC 2008/4, p. 630 ff, Coop/Carrefour.
15 RPW/DPC 2010/3, p. 499, France Télécom/Sunrise Communications.
16 RPW/DPC 2018/3, pp. 672 and 673, Ticketcorner/Starticket.
17 RPW 2016/1, p. 67, Online-Buchungsplattformen für Hotels.
18 Federal Supreme Court, RPW/DPC 2013/1, p. 114, Publigroupe.
19 See, for example, RPW/DPC 2015/3, p. 561, Preispolitik Swisscom ADSL, in which the Federal Administrative Court imposed a heavy fine on Swisscom for its margin squeeze practices in the broadband internet sector (asymmetric digital subscriber line).
20 RPW/DPC 2001/2, p. 255, Watt v. Migros-EEF.
21 RPW/DPC 2011/1, p. 96, SIX v. Terminals mit Dynamic Currency Conversion.
22 RPW/DPC 2014/1, p. 215 ff, Swatch Group Lieferstopp.
23 RPW/DPC 2016/4, p. 920 ff, Sport im Pay-TV.
24 Federal Administrative Court, decision of 24 November 2016, B-3618/2013.
25 RPW/DPC 2008/3, p. 385 ff, Publikation von Arzneimittelinformationen.
26 RPW/DPC 1997/4, p. 506 ff, Telecom PTT-Fachhändlerverträge.
27 RPW/DPC 1998/4, pp. 675 and 676, Beschwerdeentscheid der REKO/WEF.
28 RPW/DPC 2014/4, p. 670 ff, Preispolitik und andere Verhaltensweisen der SDA.
29 RPW/DPC 2004/4, p. 1,002, Cornèr Banca SA v. Telekurs AG.
30 RPW/DPC 2002/3, p. 431, Radio und TV-Markt St Gallen; RPW/DPC 2003/1, p. 62 ff, Espace Media/Berner Zeitung v. Solothurner Zeitung.
31 RPW/DPC 2010/1, p. 146 ff, Preispolitik Swisscom ADSL; RPW/DPC 2015/3, p. 636 ff, Sanktionsverfügung – Preispolitik Swisscom ADSL.
32 RPW/DPC 2010/1, p. 116 ff, Preispolitik Swisscom ADSL.
33 RPW/DPC 2015/3, p. 561 ff, Sanktionsverfügung – Preispolitik Swisscom ADSL.
34 RPW/DPC 2016/1, p. 128, Swisscom WAN-Anbindung.
35 RPW/DPC 2002/1, p. 72 ff, Lokoop v. SBB.
36 In a decision of 2011, the Federal Supreme Court found that, contrary to EU law, the 'imposition' as coercive element was a separate requirement under Swiss law that needed to be established (Federal Supreme Court, decision of 11 April 2011, BGE 137 II 199, c. 4, Terminierung Mobilfunk). However, in a more recent case, the Federal Supreme Court amended its previous statement by holding that the Swiss Cartel Act was strongly geared towards EU competition law and that, therefore, the case law under Article 102 TFEU needed to be taken into account (Federal Supreme Court, decision of 29 June 2012, BGE 139 I 72, c. 8.2.3, Publigroupe).
37 RPW/DPC 2016/1, p. 190, Swisscom WAN-Anbindung.
38 RPW/DPC 2007/2, p. 241 ff, Terminierung Mobilfunk.
39 RPW/DPC 2010/2, p. 242 ff, Urteil des Bundesverwaltungsgerichts vom 24 Februar 2010 iS Kartellrecht: Terminierungspreise im Mobilfunk – Sanktion; RPW/DPC 2011/3, p. 440 ff, Kartellrecht: Terminierungspreise im Mobilfunk – Sanktionen. Beschwerden gegen das Urteil des Bundesverwaltungsgerichts vom 24 Februar 2010.
40 RPW/DPC 2016/1, p. 128, Swisscom WAN-Anbindung.
41 RPW/DPC 2011/3, p. 440, Terminierungspreise im Mobilfunk.
42 RPW/DPC 2015/3, p. 561, Sanktionsverfügung – Preispolitik Swisscom ADSL.
43 There is no explicit provision in the Cartel Act allowing for the possibility to request interim relief. However, based on the general reference of Article 39 of the Cartel Act, the Administrative Procedure Act of 20 December 1968 is applicable, which contains such provision.
44 RPW/DPC 2017/3, p. 410 ff, Vorsorgliche Massnahmen – Eishockey im Pay-TV.
45 id. at p. 419.
46 RPW/DPC 2015/3, p. 590 ff, Sanktionsverfügung – Preispolitik Swisscom ADSL.
47 The explanatory note of 6 January 2016 from the Secretariat on selected instruments of investigation is available (in English) at www.weko.admin.ch/weko/en/home/documentation/communications.html.
48 RPW/DPC 1997/4, p. 626 ff, Teilnahme an einer Fachmesse (Handelsgericht des Kt Aargau).
49 Federal Supreme Court, decision of 23 May 2013, BGE 139 II 316, Etivaz.