ANNUAL REPORT
The Competition Commission publishes its 2011 annual report and announces that the optical fibre sector and the failure to pass on exchange rate benefits will be its permanent priorities
On April 18, 2012, the Competition Commission published its 2011 annual report1.
According to the Competition Commission, 2011 has been marked by a high number of complex, preliminary investigations into the optical fibre sector. Various regional energy supply companies and Swisscom had agreed to jointly construct future-oriented optical fibre networks in certain cities of Switzerland. The parties notified certain clauses of their cooperation agreement under Article 49a(3) of the Swiss Cartel Act. Pursuant to such Article, immunity from fine can be granted to undertakings that notify their potentially restrictive agreements before they enter into effect, provided that the Competition Commission does not object by opening a preliminary or regular investigation within five months. In the preliminary investigation, the Secretariat of the Competition Commission defined the relevant market as a "market for access to the physical network infrastructure with optical fibre-based transmission speeds". The Secretariat concluded that there were clauses which might constitute unlawful agreements on quantities and prices as well as on the allocation of markets according to trading partners. It further held that, from an ex-ante perspective, there was at least a risk that such clauses would eliminate effective competition within the meaning of Article 5(3) of the Swiss Cartel Act. The Secretariat did not prohibit the critical clauses given the ex-ante character of the procedure chosen by the parties. It is for the relevant undertakings to assess the risk of sanctions and to structure their cooperation agreements in compliance with competition law.
Among the main topics discussed in the 2011 annual report is the failure by a high number of undertakings active in the Swiss market to pass on foreign exchange benefits. As a result of the exchange rate developments in the summer of 2011 (on August 10, 2011, the Euro/Swiss franc exchange rate fell below 1.03), the Secretariat was confronted with a growing number of complaints. The highest number of complaints was filed in the sector of clothing, newspapers/magazines and automobiles/motorcycles. In most of the cases, the complaints specifically related to the price differences between Switzerland and its neighbour countries.
In 2011, the Competition Commission also rendered two landmark decisions on the issue of market foreclosure. In the first one, the Competition Commission fined Nikon 12.5 million Swiss francs for restricting parallel imports by using unlawful vertical agreements. It concluded that Nikon had illegally foreclosed the Swiss market by inserting clauses into foreign distribution contracts restricting exports to Switzerland and, conversely, by inserting clauses into Swiss distribution contracts restricting purchases from outside Switzerland. This decision reaffirms the Competition Commission's practice followed in Gaba/Elmex2, which is still pending before the Federal Administrative Court. The second case was related to Electrolux Ltd and V-Zug Ltd in connection with restrictions on online retailing of household appliances. The Competition Commission determined that the prohibitions on sales via online stores are in principle unlawful and that Internet sales should only be restricted under some very strict conditions. This procedure also allowed the Competition Commission to establish guidelines on restrictions to online retailing, drawing on the practice of the European Commission3 and certain Member States' national authorities4. The decision also provides guidance on the Competition Commission's practice in relation to selective distribution systems.
As regards merger control, 2011 has been marked by the Swisscom/Groupe E case, which relates to a plan between E Group and Swisscom to create a joint venture in the canton of Fribourg with the aim of building and operating an optical fibre network. The joint venture was supposed to ensure the creation and the widespread operation of the so-called 'last kilometer'. Under Swiss competition law, corporate joint ventures are subject to merger control if the joint venture company exercises all the functions of an independent business entity on a lasting basis; if a joint venture company is newly formed by two or more undertakings, it is subject to merger control if, in addition to the above criteria, the business activities of at least one of the controlling shareholders are concentrated in it. After having conducted an in-depth investigation of the proposed joint venture, the Competition Commission reached the conclusion that the joint venture was not going to engage in autonomous commercial activities vis-à-vis its parent companies in the near future. The incorporation of the joint venture thus did not require the clearance of the Competition Commission under the merger control regime. The cooperation was to be reviewed under the same legal rules as the other optical fibre network building projects in Switzerland.
VERTICAL AGREEMENTS
The Swiss Competition Commission fines BMW Ltd for preventing direct and parallel imports
On May 7, 2012, the Competition Commission fined German BMW Ltd 156 million Swiss francs for preventing direct and parallel imports into Switzerland. BMW Ltd was held to have foreclosed the Swiss market by prohibiting its dealers in the EEA from selling new BMW and MINI cars to Swiss customers. According to the Competition Commission, BMW Ltd is under an obligation to amend its dealers' contracts in the EEA by removing the export ban clause. It is also required to inform its dealers in the EEA about this contractual amendment. BMW has announced that it would appeal the Competition Commission's decision.
According to the Competition Commission's press release5, BMW Ltd has prevented the direct and parallel imports of new BMW and MINI cars into Switzerland, by inserting a clause in its contracts with dealers located in the European Economic Area (EEA) providing, inter alia, that the dealers shall not be permitted, neither directly, nor via any third party, to deliver new BMW cars or original BMW parts to purchasers in countries outside the EEA. The Competition Commission considered that, on the basis of such clauses, the dealers in the EEA were prohibited from selling any new BMW and MINI cars to customers located outside the EEA (including Switzerland). It was noted that, at least since October 2010, this territorial protection has reduced competition in Switzerland to a significant extent.
According to the press release, in the second half of 2010 the Competition Commission received many complaints from Swiss customers who did try, unsuccessfully, to purchase a BMW or MINI car in the EEA. During that period, the Swiss franc strengthened relative to the Euro, which made the purchases in the Euro zone much more attractive. The Competition Commission held that, given the price of the goods concerned by the export ban (i.e. new BMW and MINI cars), Swiss consumers were not able to benefit from the significant foreign exchange gains; in addition, the foreclosure of the Swiss market resulted in a decrease of the competitive pressure on the sale prices of new BMW and MINI cars.
The present decision relates to a type of restriction on competition which is of particular importance to the Competition Commission. The Competition Commission has announced that it will be particularly vigilant in its fight against any contractual provisions or measures aimed at foreclosing the Swiss market and it has, by way of example, published some specific rules concerning the car distribution in order to restore/ensure an effective competition on the relevant markets. The BMW case follows the recent decision in the Nikon case6, where the Competition Commission had, inter alia, to examine a clause – that was included in foreign distribution contracts between Nikon and some of its distributors within the EU – pursuant to which each relevant distributor was under an obligation to refrain from selling Nikon products outside the EEA and where the Commission considered that such clause was prohibiting the distributors located in the EEA from making passive sales in Switzerland.
ABUSE OF DOMINANT POSITION – INTERIM MEASURES
The Competition Commission extends the interim measures ordered in the watch industry
On Mai 7, 2012, the Competition Commission decided to extend, for a period of one additional year, the interim measures that were ordered in 2011 with regard to the supply by the Swatch Group of mechanical watch movements and watch components. The extension is intended to allow other companies active in the watch industry to plan alternative sources of supply for the next year. The extension is said to be justified by the fact that mechanical watch movements' orders take few months and the investigation against Swatch Group, which was opened last summer, will not be terminated before the middle of 2012.
It may be recalled that on June 6, 2011, the Competition Commission launched an investigation against Swatch Group. This investigation aims to establish whether the Swatch Group's decision to stop supplying certain components which are necessary for mechanical watch movements should be held unlawful in the light of the Swiss Cartel Act and constitutes an abuse of the Swatch Group's dominant position. The procedure follows its ordinary course. At the same time, the Competition Commission ordered provisional measures, on the basis of a mutual agreement reached with Swatch Group. Those measures provide, among other things, that the Swatch Group is permitted to reduce its supplies of mechanical watch movements down to 85% of the quantities purchased in 2010, and down to 95% as far as assortments are concerned. These supply quantities are henceforth valid for 2013 as well.
Footnotes
1. The annual report is available in English at the following address: http://www.weko.admin.ch/dokumentation/00226/index.html?lang=en.
2. RPW/DPC 2010/1, p. 65.
3. See EU Guidelines on Vertical Restraints, 2010/C 130/01.
4. See German Federal Cartel Office, Decision dated 25.9.2009, B 3 – 123/08 – Contact lenses. Also, French Competition Council's decision n° 08-D-25 of 29.10.2008 relating to practices implemented in the sector of cosmetics and personal care products sold under the guidance of a pharmacist.
5. The press release is available in French, German or Italian at the following address: http://www.news.admin.ch/message/index.html?lang=fr&msg-id=44680.
6. The text of the Nikon case is available in German at the following address: http://www.weko.admin.ch/index.html?lang=fr.
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.
