Switzerland: Competition Switzerland - Q2 2010

Last Updated: 22 July 2010
Article by Silvio Venturi and Pascal Favre

Investigations

The Secretariat of the Federal Competition Commission calls for fines of up to CHF 25.5 million against companies in the perfume and cosmetics sector for alleged cartel activities.

The Secretariat of the Federal Competition Commission ("FCC") opened an investigation against the Association of Manufacturers, Importers and Suppliers of Cosmetic and Perfumery products (ASCOPA) and its individual members on December 1, 2008. The investigation was launched after a whistle blower had transmitted information to the Secretariat. The following companies, among others, are members of ASCOPA: Chanel Genève SA, Clarins SA, Coty (Schweiz) AG, Estée Lauder GmbH, L'Oréal Produits de Luxe SA, Parfums Christian Dior AG and YSL Beauté.

According to its press release, after an 18-month investigation the Secretariat found evidence that the undertakings concerned aligned their prices and froze their market shares after they had exchanged sensitive information (on prices, sales figures and advertising expenses).

Exchange between competitors of individualised information regarding prices or sales figures is to be considered as aiming at restricting competition. The Secretariat characterises these behaviours as anticompetitive agreements on prices and quantities within the meaning of Article 5(3) of the Competition Act. It therefore asks the FCC to establish the violations to the Swiss Cartel Act and to sanction the parties to the unlawful agreements.

The proposed fines are calculated according to each company's turnover and the gravity of the violation. They vary between CHF 17,000 and CHF 25.5 million.

The undertakings concerned have received the Secretariat's proposed decision and have now the right to respond. The FCC will then make its decision on the basis of these responses (subject to further possible investigation steps).

This procedure marks the first investigation of the FCC in connection with exchange of sensitive information that could result in fines.

The FCC opens an investigation against Roger Guenat SA, a Swiss distributor of mountain sports products, for alleged resale price fixing and parallel import bans

On May 19, 2010, the FCC opened an investigation against Roger Guenat SA for an alleged resale price fixing and ban on parallel imports of mountain sport equipment. A dawn raid was conducted in Roger Guenat SA's premises.

According to the FCC, it has received a complaint with elements of proof establishing that Roger Guenat SA has fixed its distributors' resale prices, notably by setting maximum rebates. The FCC has also evidence that parallel imports of mountain sports products into Switzerland have been impeded or prevented.

The FCC's investigation will have to establish whether Roger Guenat SA has really fixed resale prices and/or impeded or prevented parallel imports of mountain sports products.

Cartels

The FCC fines a manufacturer of components for sanitary, heating and cooling installations for anticompetitive agreements on prices.

On May 27, 2010, the FCC imposed a fine of CHF 169,000 to Flamco AG for anticompetitive agreements on prices. These unlawful agreements between two component manufacturers for sanitary, heating and cooling installations concerned the amount and the moment for price increases. The other company involved, Pneumatex AG, benefited from an immunity of fine, as it had been the whistle blower of the cartel.

These two companies active in Europe colluded in determining the moment for price increases for several products such as expansion vessels, air separators and dirt separators. The FCC found that these behaviours, originating from EU countries, had effects in Switzerland and constituted unlawful agreements on prices.

After the FCC had received Pneumatex's application for leniency, a dawn raid was conducted. Although Pneumatex holds a significant share of the Swiss market, it did not play an important role in the anticompetitive agreements at the European level. Moreover, according to the FCC's press release, Pneumatex's leniency application contributed significantly to the gathering of evidence and to the acceleration of the proceedings. Consequently, the FCC has decided to renounce entirely to the sanction.

An investigation for the same facts is currently under way in the EU. In Switzerland, thanks to the leniency program introduced in 2004 and an amicable agreement between the FCC and Pneumatex, the proceedings have been conducted in less than one year and a half.

Pursuant to the Swiss leniency program, companies that contribute to the uncovering and elimination of an anticompetitive restriction may be partially or entirely liberated from fine. To qualify for full immunity, the undertaking concerned must be the first to provide the FCC with information that enables it to open an investigation or must present evidence which makes it possible to the FCC to prove a hardcore horizontal cartel (price fixing, customer/territorial allocation, capacity restrictions) or hardcore vertical agreements (resale price maintenance, absolute territorial protection). Moreover, a total waiver of the sanction can only be granted if the companies applying for leniency have not been the main actors within the cartel and have cooperated fully with the FCC during the whole investigation procedure.

Merger Control

The FCC prohibits the merger between Orange and Sunrise

On April 22, 2010, the FCC prohibited the proposed concentration between France Telecom SA's and TDC A/S's respective subsidiaries in Switzerland, France Telecom (Orange) SA and Sunrise Communications AG ("Sunrise"), on the grounds that the merged entity would have created a collective dominance situation with Swisscom on the Swiss market for mobile telephony and that the network operator which is currently most active would have disappeared.

According to the planned concentration, Sunrise was to be integrated into France Telecom (Orange). Therefore, after the merger, only two operators with their own network would have existed in Switzerland. According to the FCC, its in-depth analysis showed that these two operators would have held a collective dominant position, likely to impede effective competition. Moreover, it was deemed unlikely that the potential new entrants would have exercised a credible countervailing power. Therefore, the FCC held that it would have been more advantageous for the merged entity and Swisscom to maintain high prices than to compete with one another to gain market shares. No commitments were found to address the FCC's concerns and the merger was therefore prohibited.

France Telecom and TDC expressed their disappointment and surprise after the decision and declared that they strongly believed that the contemplated combination and the substantial commitments that they had proposed to undertake would have benefited the Swiss consumers. According to the parties, the combined entity would have been in the position to significantly invest in its networks and enhance customer experience. Identified synergies would have enabled the combined entity to offer more attractive prices and innovative products and services, as well as an enhanced access to a worldwide network.

The FCC answered that the investigation showed that the synergies put forward by the parties would not have compensated the negative effects on competition. The FCC acknowledged that the merger would have permitted the creation of a stronger competitor against Swisscom, but held that the incentives for competition would have been insufficient. Moreover, the entry on the market of a new operator with its own network was unlikely and therefore only two players would have remained in the market. With three network operators, the FCC believes that a certain dynamism will remain on the Swiss market for mobile telephony, which therefore remains open to innovations.

Initially, France Telecom (Orange) and TDC had filed an appeal to the Federal Administrative Tribunal. After having conducted an analysis of their available options, they announced on June 3, 2010 that they were in the process of withdrawing their appeal and, as a consequence thereof, terminating their agreement.

The FCC's prohibition in this case came as a surprise, as the Swiss substantial test to assess a concentration is very high compared to other jurisdictions, such as for example the EU. Pursuant to Article 10 of the Cartel Act, the FCC may prohibit a concentration or authorise it subject to conditions and obligations if the investigation indicates that the concentration (i) creates or strengthens a dominant position, (ii) liable to eliminate effective competition and (iii) does not improve the conditions of competition in another market such that the harmful effects of the dominant position can be outweighed. According to the Swiss Supreme Court, these three conditions are cumulative (Swissgrid, 2007). Therefore, a concentration should be authorized, even if a dominant position is created or strengthened, if it cannot be proved that the concentration will eliminate effective competition.

In two recent cases in the retail distribution sector, Migros/Denner and Coop/Carrefour, the FCC had the opportunity to develop its position as regards collective dominance. In substance, there is a situation of collective dominance where more than one undertaking dominate the market collectively (e.g. case of an oligopoly) and there is a risk that these undertakings tacitly adapt their behavior to each other. In these cases, the FCC attempted to show that incentives for tacit collusion would increase after the concentration, based on a theoretical reasoning using the following criteria: (i) number of participants involved, market share and market concentration, (ii) symmetries (e.g. customer loyalty programs, distribution channels), (iii) market growth, (iv) market transparency, (v) multi-market relations, (vi) position of competitors and (vii) potential competition. The FCC found that collective dominance was established but ultimately cleared both acquisitions in second-phase procedures, subject to far-reaching behavioral and structural commitments. While the FCC provided extensive considerations to support its decisions, legal scholars consider that it failed to bring strict proof on all of the criteria necessary to establish a collective dominant position. In particular, the way the FCC addressed the retaliation mechanisms between Migros and Coop is often regarded as insufficient to permit conclusions to be drawn as to whether the collusion was stable and long-lasting. The debates before the Federal Administrative Tribunal in the present case (in particular as regards the impact of potential competition on the duopolistic situation that would have resulted from the concentration) could have been of particular interest on the collective dominance test. Unfortunately, such debates will not take place.

Legislative proposals

The Federal Competition Commission reviews its Communication on vertical agreements

On April 30, 2010, the FCC opened a consultation for the review of its 2007 Communication on vertical agreements. Comments on the draft had to be sent before May 28, 2010 and the final text of the Communication was adopted by the FCC on June 28, 2010.

The new Communication will come into force on August 1, 2010 and replaces the 2007 Communication.

This Communication, which is not binding on the judicial bodies, sets the criteria according to which the FCC examines vertical restraints in practice, in light of the Cartel Act. According to the FCC, this new text confirms its intention to fight with determination the isolation of Swiss markets and the maintenance of high prices in Switzerland due to competition restrictions.

The reform has two main aims. First, the Communication takes into account recent important vertical agreement decisions by the FCC: (i) "GABA" of December 2009: an unlawful ban on parallel imports through a vertical agreement, (ii) "Medical drugs" of December 2009: resale price fixing agreements (published recommended prices) between manufacturers and distributors of three medical drugs, (iii) "Cutting tools" of May 2009: a vertical agreement setting resale price. Secondly, the Communication is largely inspired by the new EU texts (block exemption regulation and guidelines on vertical agreements) that came into force in June 2010.

According to the FCC, most changes to the 2007 Communication have been approved by the public consultation. The consultation mainly pointed out that the legal appraisal of price recommendations should be clarified. Therefore, the final text specifies the circumstances leading to an analysis of price recommendations by the FCC and the criteria according to which the legality of the price recommendations will be assessed (new paragraphs XI and 15). The FCC considers that the legal appraisal of price recommendations will be similar to the EU practice.

The other main changes to the 2007 Communication are the following:

  • Passive sales/Internet (paragraph 3): advertising in the media or on the Internet will be considered as a passive sale, unless the aim is to reach clients outside the exclusive territory of the distributor;
  • Agreements legally presumed to eliminate effective competition (paragraph 10): the new wording of this paragraph describes in more detail the two legal presumptions set forth in Article 5(4) of the Cartel Act (i.e. agreements setting fixed or minimum prices or allocation of absolute territory protection);
  • Rebuttal of the legal presumptions (new paragraph 11): with respect to the agreements which are legally presumed to eliminate effective competition, the Communication states that in order to rebut the legal presumption, both inter brand and intra brand competition should be taken into account; under the 2007 Communication, the FCC considered that the sole fact that inter brand competition existed was not sufficient to rebut the presumption;
  • Significant restrictions on competition (paragraph 12): the new wording states that the evaluation of the significant restrictions should be made globally and on a case by case basis, taking into account qualitative as well as quantitative criteria;
  • Justifications (paragraph 16): similarly to the new EU rules, the Communication provides for a safe harbour if both the parties to the agreement have market shares below 30% and if there is no restriction by object.
  • Transition period (paragraph 19): the Communication provides for a transition period of 1 year.

Footnotes

1 See Swiss Supreme Court, February 13, 2007, ATF 133 II 104 = RPW/DPC 2007/2, p. 324 et seq.

2 See RPW/DPC 2008/1, p. 129 et seq. (Migros/Denner) and RPW/DPC DPC 2008/4, p. 593 et seq. (Coop/Carrefour).

3 A version (in German and French) is available at http://www.weko.admin.ch/aktuell/00162/index.html?lang=fr .

4 A German version of the decision is available at http://www.weko.admin.ch/aktuell/00162/index.html?lang=fr .

5 A German version of the decision is available at http://www.weko.admin.ch/aktuell/00162/index.html?lang=fr .

6 See RPW/DPC 2009/2, p. 143 et seq.

Tavernier Tschanz – July 2010

For more information, please contact Silvio Venturi (venturi@taverniertschanz.com) or Pascal G. Favre (favre@taverniertschanz.com), tel. +41 (0) 22 704 37 00

www.taverniertschanz.com

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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