Switzerland: Swiss Competition Law Overview

I. Sources

Main legislation. The main sources of Swiss competition law are the Act of 6th October, 1995 on Cartels and Other Restraints of Competition (the Competition Act) and the Regulation of 17th June, 1996 on the control of concentrations between companies (the Merger Regulation).

The Competition Act applies to restrictive practices whose effects are felt on the Swiss market, irrespective of whether such practices originate in another country or whether the undertakings concerned have no subsidiaries, branches or affiliated companies in Switzerland. Foreign-to-foreign mergers are deemed to have effects on the Swiss market where the thresholds provided by the Competition Act are reached.

The Competition Act does not apply where goods or services are excluded from competition under public law provisions or where restraints of competition result solely from the exercise of intellectual property rights. These exclusions are, however, applied restrictively by the Federal Competition Commission (FCC).

Secondary legislation and guidance. The Federal Council can adopt Regulations establishing terms and conditions under which certain agreements are "as a general rule" justified on grounds of economic efficiency. The FCC can adopt communications relating to such agreements.

While no regulations have been adopted as yet, except a regulation on fees, the FCC has begun issuing communications (see FCC Communication of 4th May, 1998 on the use of tariff structures). While regulations will have legislative authority, communications provide non-compulsory guidance on the application of the law.

EU law. The Competition Act is clearly inspired by EU law. Like EU law, it focuses on anti-competitive agreements and practices, abuses of a dominant position and control of concentrations between undertakings.

Swiss competition rules apply to restrictions on competition and concentrations, which have an effect on the Swiss market, irrespective of where the undertakings concerned are located. As Switzerland is neither an EU nor an EEA member state, Swiss competition rules apply even if a situation has an EU or an EEA dimension and is simultaneously regulated by EU or EEA laws.

Switzerland concluded a Free Trade Agreement with the EC which entered into force in 1973. According to this agreement, each contracting party may submit competition issues to a mixed committee and provide it with all information and assistance needed to examine the alleged infringement. Outside the scope of the Free Trade Agreement, there is (should be) no further cooperation between the EC and the Swiss authorities in competition matters.

Cartels may consist of binding or non-binding arrangements (including gentlemen's agreements) or of concerted practices (e.g., parallel behaviour resulting from information exchanges) where the object or effect is to restrict competition. A known and deliberate common action of the undertakings is needed. Arrangements may be created among companies belonging to the same market level (horizontal agreements) or to different market levels (vertical agreements). The notion of cartel also encompasses agreements between associations of companies, for example, trade associations.

Swiss competition rules address the issue of restrictions on competition only to the extent that such restrictions significantly impede or eliminate competition. Cartels which only slightly impede competition are allowed. The rules depend on whether the disputed agreement merely restricts competition or eliminates it entirely. When determining the effects of cartels on competition, the internal competition (in other words, the competition between the companies concerned) and the external competition (the competition between the companies concerned and other market operators) are taken into account.

The significance of the adverse effect on competition depends on the competitive elements affected in light of the characteristics of the relevant market. The significance of the restraint is to be assessed in qualitative rather than quantitative terms. Consequently, a restraint may be significant even if it occurs in a very limited geographical market (e.g., a restraint affecting prices).

Cartels will be prohibited as being incompatible with competition rules where they appreciably restrict competition, unless they can be justified on grounds of economic efficiency (see below "Exemptions").

Cartels are further prohibited when they eliminate workable competition. Whenever this is the case, a cartel cannot be justified on grounds of economic efficiency. Horizontal agreements between competing companies are deemed to eliminate competition whenever, either:

• They directly or indirectly fix prices (for example, agreements on discounts; tariffs fixed by professional associations, including non binding recommended prices if they are followed by the associations' members).
• They limit the production, the sale or the purchase of goods or services (for example, quotas or a boycott).
• They result in the creation of market sharing (for example, geographical market sharing or allocation of customers).

The above presumptions may, however, be rebutted by demonstrating that internal or external competition still exists despite the cartel. The presumptions are important from a procedural point of view in that they enable the FCC to render decisions without conducting an in-depth analysis of the market. The FCC only needs to prove the facts underlying the presumptions.

Retail price maintenance. A horizontal agreement, where suppliers agree to operate a system of resale price maintenance, in principle infringes the Competition Act. A provision aimed at controlling prices in a distribution agreement is also likely to contravene the Competition Act. However, it is likely that a recommended resale price provision will be upheld, unless there is a concerted practice in place which forces the distributor to observe the "recommended" price.

Exemptions. Cartels which only slightly impede competition are permitted. A cartel which appreciably restricts competition is deemed to be justified on grounds of economic efficiency whenever it:

• Does not allow the companies concerned the possibility of eliminating workable competition.
• Is necessary to reduce manufacturing and distribution costs, to improve the production and distribution of goods, to promote the transfer of technical or professional knowledge, or to exploit resources more rationally.
• The Competition Act provides that the Swiss Federal Council and the FCC specify, through Regulations and Communications, the conditions under which certain agreements may be deemed to be justified on grounds of economic efficiency. Such specific Regulations will in particular cover:
• Cooperation agreements for research and development.
• Specialisation and rationalisation agreements.
• Agreements for the granting of exclusive rights and for the purchase or sale of certain goods and services.
• Exclusive licence agreements for intellectual property rights and specific forms of cooperation unique to certain areas of the economy.

So far this power has not been used.

No notification requirement. There is no need to notify restrictive agreements. The Secretariat of the FCC may begin a preliminary investigation ex officio, at the request of the companies concerned or as a result of a complaint filed by a third party. Should there be signs of an unlawful restriction on competition, the Secretariat will initiate a regular investigation. The procedure is subject to the general rules laid down by the Federal Law on Administrative Procedure. The Secretariat ex officio collects information and organises the evidence process. The parties concerned as well as third parties must provide the FCC with the information and the documents it requests. The parties have the right to access the file and to be heard.

Competitors whose access to a market is impeded because of an infringement of the competition rules may participate in the proceedings. To join, they must apply within 30 days of the date of publication of the start of the investigation.

Powers and penalties. When a cartel is found to be incompatible with competition rules, the Secretariat of the FCC may ask the companies concerned to take measures to restore competition. If the companies do not agree with the recommendations made by the Secretariat, it may submit a proposal to the FCC. The FCC will then formally close proceedings by issuing a formal binding decision assessing the compatibility of the cartel with the competition rules and specifying the appropriate measures that should be taken to restore conditions for workable competition. Third parties who have joined in the proceedings may submit their observations to the FCC on the Secretariat's proposal. The FCC may take all the measures necessary to remove the unlawful effects of the cartel (for example, to dissolve an association).

Parties found to have breached an agreement entered into with the FCC or to have violated a binding decision rendered by the competition authorities are liable to a fine of an amount equivalent to three times the profits obtained as a result of the infringement. Whenever such profits cannot be established or estimated the fine may be up to 10% of the last annual turnover of the companies in Switzerland. For minor violations (such as supplying misleading information), the party at fault may be fined up to SFR100,000.

In contrast to the position under EU law, no administrative fines are imposed on the companies because of the unlawful agreements per se. Fines are imposed only for failure to comply with (prior) administrative decisions or orders issued by the FCC (e.g., violation of previous decision, breach of an amicable settlement approved by the FCC). However, an amendment to the Competition Act is proposed to allow the imposition of direct fines when parties enter into a hard-core cartel or abuse their dominant position. This amendment will probably not be enacted before 2003.

Infringements or violations may also amount to criminal offences. As a consequence, an additional fine may be imposed on the individuals responsible for the infringements or violations, which may reach SFR100,000.

Appeals. All FCC decisions may be subject to appeal to the Appeal Commission for competition matters. The decisions of the Appeal Commission may in turn be appealed to the Federal Supreme Court by way of an administrative law appeal. In relation to restrictive agreements and cartels an appeal may be brought by any person affected by these agreements or cartels.

Regulation. A dominant position is defined as a position of economic strength which enables a company to behave, to an appreciable extent, independently from the other market operators (competitors, suppliers and customers). A dominant position may be held by one or more companies, and by either a seller or a purchaser. Significant factors for determining whether a company enjoys a dominant position in a specific market include:

• Its market share.
• Barriers to entering or leaving the market and costs (sunk costs).
• Number, quality and position of competitors.
• The structure of the market.
• The Competition Act does not prohibit the holding of a dominant position itself but does prohibit the abuse of such a position. An abuse is found whenever a company takes, without objective justification (legitimate business reasons), steps which have the effect of restricting competition or creating disadvantages for trading parties. These measures may, in particular, consist of:
• Refusing to trade (for example, refusing to supply a trading party).
• Discriminating between equivalent trading parties as regards prices and other trading conditions (e.g., granting of yearly premiums, loyalty discounts).
• Imposing unfair purchase or selling prices or other unfair trading conditions.
• Practising predatory pricing or other predatory trading conditions directed against a specific competitor (for example, unjustifiable low prices offered to the competitor's customers).
• Limiting production, markets or technical developments.
• Making the conclusion of contracts subject to the other party's acceptance of additional obligations (tying).

Powers and penalties. The rules governing abuse of a dominant position are the same as those applying to cartels with respect to procedure, rights of third parties, powers of the FCC, fines and penalties, rights of appeal..

Extraordinary authorisation. Whenever a concentration is prohibited by the FCC, the undertakings concerned may still apply to the Swiss Federal Council for an extraordinary authorisation. Such an authorisation is granted only to protect major public interests. On the same grounds, an unlawful cartel and an abuse of a dominant position formally established by the FCC may be authorised by the Swiss Federal Council, following a request by the undertakings concerned.

The regular examination by the FCC and the extraordinary examination by the Swiss Federal Council correspond to a two-tier test:

• The FCC assesses whether there is a restriction on competition on the basis of the effects of the concentration on competition itself.
• The Swiss Federal Council makes a more political assessment of whether there is a restriction on competition on the basis of general economic or social grounds.

Triggering events and thresholds. If a concentration reaches a certain size and is capable of affecting the Swiss market, prior notification to the FCC is mandatory, before the transaction is carried out (irrespective of whether the concentration has already been notified abroad).

Under Swiss law, a transaction may be held to be a concentration if it is an operation which leads to a long-term structural modification of the companies concerned. The law defines a concentration as either:

• The merger of two or more previously independent companies (merger by absorption or by formation of a new entity).
• Any operation which enables one or several companies to take direct or indirect control over one or several previously independent companies or over part of them.

That means, for example, that concentrations between affiliated companies are not subject to notification in so far as these companies are not legally and economically independent entities.

A company will be held to have taken control (exclusive or joint control) over another company when (due to legal or factual circumstances) as the acquiring company, it can exert a determining influence over the strategic business decisions of the target, without this power necessarily being used. The manner in which the takeover is conducted is irrelevant: it can be direct or indirect and can affect part or the whole of the target.

A shareholding which represents more than half of the voting rights will usually ensure exclusive control of the target. A minority shareholding can lead to exclusive control if the remaining capital stock is not held in a way which influences the decision-making process, or to joint control if special rights are granted to the minority shareholder (for example, veto rights over strategic decisions).

A takeover can also result from a contract if it confers substantial influence over the target, particularly over its decision-making bodies. A management contract or an agreement conferring property rights or rights over the assets of another company can also lead to the conferring of "substantial influence".

In the end, whether or not there is a takeover will be judged on a combination of legal considerations and facts. Even economic dependence might lead to de facto control, for example when important agreements allow for substantial influence.

A concentration must be notified if, during the financial year preceding the concentration:

• The aggregate worldwide turnover of the undertakings concerned amounted to at least SFR2 billion or the aggregate turnover of the undertakings within Switzerland amounted to at least SFR500 million.
• The aggregate turnover in Switzerland by each of at least two of the undertakings concerned amounted to at least SFR100 million.

The Competition Act also contains special rules to determine and calculate the relevant thresholds for business in specific areas (such as media, insurance companies and banks) (see below).

A company will be defined as "concerned" if it is one of the merging companies in the case of a merger, or the acquiring company or the target in the case of a takeover. The turnover of a concerned company also includes that of its subsidiaries, its parent and affiliated companies.

If one of the participants to the planned concentration already enjoys a dominant position on the Swiss market then the concentration must be notified even if it does not reach the above thresholds, subject to the following conditions:

• The FCC has already taken a decision which asserts the existence of the dominant position of the company in Switzerland.
• The concentration relates to the market in which the company holds a dominant position or a neighbouring, upstream or downstream market.

In this case, the requirements are aimed at preventing dominant companies from evading notification through the acquisition of small companies which do not reach the required thresholds.

Notification requirements and forms. Notification is mandatory if the proposed concentration meets the above requirements. It must be notified to the FCC before it is carried out (there is no deadline for filing) and the closing deal must be suspended until clearance by the FCC or the end of one-month period following notification. To ensure that the contemplated venture remains secret, the concentration agreement may be negotiated and signed prior to notification but should the FCC not be notified prior to the deal closing, then the concentration will be automatically reviewed by the FCC and fines may be imposed.

Notification is made jointly by the companies concerned in case of a merger and by the acquiring company in case of a takeover. Companies domiciled in a foreign country must elect a domicile of notification in Switzerland.

A non-compulsory notification form, based on the EU form CO, has been issued by the FCC (an English translation is available). The notification must provide, among other things, details on the product and geographical markets affected by the concentration as well as on markets in which the total market share in Switzerland of two or more companies concerned is 20% or more or in which the total market share in Switzerland of one company is 30% or more. The notification can be in German, French or Italian. Supporting documents can be in English.

The companies involved can, before the notification, contact the Secretariat on an informal basis. This may be useful in speeding up the procedure. The Secretariat may agree, for example, to waive some legal requirements with respect to the content of the notification. With respect to concentrations already notified with the European Commission or other foreign authorities, a simplified notification may be filed with the FCC.

Powers and penalties. The FCC has authority to seek from the parties and concerned third parties, any information that it deems necessary or useful. Depending on its findings when applying the substantive test the FCC may either prohibit the concentration, clear it or authorise it subject to a number of conditions or obligations.

The FCC can take any measures it deems appropriate to restore workable competition. In particular, it has the power to veto a concentration. The companies concerned are primarily responsible for taking the necessary steps to adopt measures necessary to restore competition. The FCC may ask the companies involved to propose the measures.

The FCC may review or reverse its decision if it was based on incorrect or misleading information or where the companies concerned breach an obligation imposed on them by the FCC.

As a party to a concentration, a company may be fined up to SFR1 million for serious breaches of the law, including:

• Failure to notify the FCC.
• Failure to comply with a provisional or final prohibition from implementing a given concentration.
• Breach of an obligation imposed by the FCC as a condition of authorisation.
• Failure to implement measures deemed necessary to restore competition.

The amount of the fine will depend mainly on the turnover of the companies concerned in Switzerland and on whether the concentration has created or reinforced a dominant position in Switzerland.

Major violations are also criminal offences and individuals, if found guilty, may have to pay a personal fine of up to SFR100,000.

Procedure and time limits. The FCC’s examination is essentially a two-tier procedure - a preliminary and a regular investigation. The preliminary investigation starts on receipt of the notification.

The Secretariat first examines whether there are indications that the concentration might create or strengthen a dominant position (preliminary investigation). If so, the FCC will begin a regular investigation. If the FCC decides to open regular investigative proceedings it must notify the companies concerned within a month from the date of receipt of the notification and publish the essential elements of the contemplated concentration. During this one-month period, the concentration cannot be put into effect, unless, at the companies’ request, the FCC has given its authorisation.

At the end of this one-month period, if the FCC has cleared the concentration or has failed to take a decision, the concentration can be implemented. Where the FCC decides to open a regular investigation, a final decision must be made within four months of the date of the decision to open the investigation. At the end of the four-month period, the concentration may be freely implemented if the FCC clears the operation or has failed to take a decision, provided that the companies concerned are not responsible for the FCC being unable to make a decision in time.

Competitors may submit their views on the contemplated concentration once the FCC decides, on the basis of its preliminary examination, to investigate the operation. They must do so within the time limit stipulated by the FCC. Note, however, that competitors are not parties to the examination proceedings.

The substantive test. The FCC will examine whether the concentration:

• Creates or strengthens a dominant position to a point where it eliminates (and not only where it significantly restricts) workable competition.
• Does not improve competitiveness in other markets to such an extent that it outweighs the drawbacks of the dominant position.

Where the market share is below 20% for two or more participating undertakings and 30% for one (see above "Notification requirements and forms") the concentration is, as a rule, automatically cleared by the FCC. These thresholds work as a "safe harbour" and allow undertakings to determine quickly that the concentration does not raise any competition concerns.

Appeals. All FCC decisions are subject to judicial review by the Appeal Commission for competition matters. In turn, the decisions of the Appeal Commission may be appealed by way of an administrative appeal to the Federal Court.

Fees. The Federal Council Fee Regulation of 25th February 1998 provides that fees are charged on an hourly basis, with a basic hourly rate of SFR130 per hour, to be adjusted on a case by case basis depending on the financial importance of the transaction. Clearances during the preliminary investigation are free of charge.

Industry specific rules. The Competition Act contains special rules for the determination and calculation of the relevant thresholds for media businesses (media publishing and media distribution), insurance companies and banks.

If the merger involves insurance companies, the value taken into account to assess the threshold is the total value of gross annual premiums. If the merger involves media firms, the threshold assessment must take into account twenty times the companies' turnover, enabling the FCC to control small mergers in this sensitive area. If the merger involves banks, the threshold assessment must take into account 10% of the banks' balance sheet.

An amendment of the Competition Act is proposed to abolish the special thresholds provided for media businesses. Should such amendment be enacted, then the media industry will be subject to the same requirements as any other business.

Joint ventures. Concentrative joint ventures are governed by the same provisions as those applying to concentrations. A concentrative joint venture is to be found:

• In the case of an acquisition of a joint venture, where this joint venture performs all the functions of an autonomous entity on a lasting basis.
• In the case of the formation of a joint venture, where the joint venture performs all the functions of an autonomous entity on a lasting basis and the operations of at least one of the founding companies is transferred to the joint venture.

Other joint ventures are governed by the general rules applying to restrictions on competition.