The Finnish Competition Act

This article first appeared in the European Antitrust Review - A Global Competition Review Special Report.

The Act on Restrictions on Competition, 480/92, as amended, (‘the Act’) is the primary source of Finnish competition law. It aims to protect effective economic competition from detrimental restrictions. The Act covers restrictive business practices such as vertical price-fixing, collusive agreements in competitive bidding, agreements or arrangements between competitors to fix or recommend prices, restrict production or share markets or sources of supply, and abuse of dominant position. In addition to these prohibitions, the Act has a general clause under which restrictive practices not prohibited per se found to have harmful effects, may be investigated. Since October 1, 1998 the Act has also contained merger control provisions.

The Act applies generally to all economic activities performed by business undertakings or by associations of business undertakings. In the context of the Act a business undertaking is defined as any natural person, or a private or public legal person professionally engaged in providing, acquiring, or delivering goods or services in exchange for compensation.

Agreements and arrangements concerning the labour market have specifically been excluded from the scope of application of the Act. This exception has been interpreted in a rather narrow manner and is deemed to cover merely agreements and other arrangements that directly concern conditions of employment. Agreements, decisions and other arrangements concerning agricultural production which promote productivity, market function, the availability of foodstuffs, and the achievement of fair consumer prices and a lower cost level, are also excluded from the scope of the Act. If such arrangements, however, constitute an abuse of a dominant position or significantly hinder effective competition in the market for agricultural products, the Act shall apply.

As to the geographical scope of application, the Act applies to arrangements restricting competition in Finland or affecting imports into Finland. Restrictive practices having effects outside the territory of Finland or affecting exports from Finland may come under the scrutiny of the Finnish Competition Authority (the FCA) only if they are directed against Finnish customers.

The Act prohibits a business undertaking from fixing the price (or establishing a minimum or maximum price) of a commodity for sale or rent at the next level of trade. It is generally regarded as permissible to issue price recommendations to the next level of trade, provided that they are non-binding. However, if the use of such price recommendations may in a specific case have harmful effects on competition, the FCA can intervene under the general clause of the Act (see ‘Other detrimental restrictions on competition’ below). An exemption may be granted for vertical price-fixing under certain circumstances (see ‘Exemptions’ below).

The Act prohibits the application of an agreement or other collusive arrangement in connection with competitive bidding for the sale or purchase of goods or the rendering of a service, if as a result of the arrangement:

• a party shall abstain from the bidding;
• a party shall offer a higher or a lower price than another party; or 
• the price, advance payment, or other credit terms are otherwise based on cooperation between the business undertakings. 

This prohibition does not, however, prevent business undertakings from joining forces where the task for which tenders are invited is too extensive in scale or scope for a single business undertaking to manage. An exemption may be granted also for collusive bidding under certain circumstances (see ‘Exemptions’ below).

The Act prohibits horizontal agreements and concerted practices between business undertakings operating at the same level of production or distribution if they result in:

• fixing or recommendation of prices to be obtained or paid; 
• restriction of production; or 
• sharing of markets or sources of supply.

The prohibition on restriction of production and sharing markets or sources of supply does not apply if it can be shown that the restriction is necessary for arrangements which increase the efficiency of production or distribution, or which further technical or economic progress, and are mainly to the benefit of customers or consumers. For example, research and development agreements and specialisation agreements can be considered to fall into this category and can be regarded as permissible, unless they contain particularly anti-competitive provisions, such as market-sharing or price-fixing. A business undertaking involved in such horizontal arrangements must be prepared to show the alleged benefit of such arrangements. Should the arrangement not meet the aforesaid criteria, an exemption may yet be granted under certain circumstances (see ‘Exemptions’ below).

The Act prohibits the abuse of a dominant position. Under the Act a business undertaking (or an association of business undertakings) is deemed to have a dominant position if it has an exclusive right or other corresponding dominant position which allows it to control price levels or delivery terms or other conditions at a certain level of production or distribution. There is no specific market share percentage which is considered to establish dominance. In the assessment of dominance, relevant factors to be considered are, inter alia, the market share, the bargaining power of the customers and suppliers, potential competition, and barriers to market entry, etc. The dominant position may be deemed to affect the whole country, or parts of it.

Among practices constituting an abuse of a dominant position under the Act are, inter alia, the following:

• refusal to enter into a business relationship without proper cause; 
• use of business terms which restrict the freedom of action of customers and which are not based on fair trading conditions; 
• use of exclusive sales or purchase agreements without specific reason; 
• applying prices that are likely to be unreasonable or evidently aimed at restricting competition; or 
• exercise of a dominant position in order to restrict competition in the production or marketing of other commodities.

As regards the abuse of a dominant position, the Act provides no possibility for exemption.

In addition to the above per se prohibitions, the Act includes a general provision concerning other restrictive business practices. The provision does not prohibit the use of restrictive business practices as such, but is rather a tool by which the FCA can investigate practices that are not prohibited, if they are found to have harmful effects on competition. Consequently, this provision provides that a restriction on competition is deemed to have harmful effects if it, in a manner ‘improper for sound and effective economic competition’:

• decreases or is likely to decrease the effectiveness of trade; or 
• prevents or hinders the trade of another business undertaking.

It follows from this provision that there may be many forms of restrictive business practices that are not considered to affect competition in an improper manner. Various vertical agreements, such as selective distribution, exclusive distribution, purchasing agreements, and franchising may fall within this category.

As stated above, the FCA may grant an individual exemption to the prohibitions on:

• vertical price-fixing; 
• collusive bidding; and 
• horizontal arrangements with competitors.

The exemption may be granted if the restriction on competition contributes to an increase in the efficiency of production or distribution, or the furtherance of technical or economic progress, and if the restriction is mainly to the benefit of customers or consumers. Thus, the premises under the Act to grant such an exemption are the same as the conditions under which certain horizontal arrangements between competitors are deemed acceptable (see above). However, there is no express requirement that the arrangement shall be indispensable to the attainment of the efficiency objectives. The FCA, however, requires that the applicant for an exemption submit information on the necessity of the restraint and show that the prerequisites for obtaining the exemption exist.

An exemption may be applied for by a business undertaking or an association of business undertakings and it may be issued conditionally. It can be granted for a limited period or until further notice. It can further be withdrawn if the terms and conditions for the exemption are infringed or if there has been a material change in circumstances subsequent to the granting of the exemption.

Apart from an actual exemption, the FCA may, upon application by a business undertaking, issue a negative clearance for arrangements which do not fall within the scope of the prohibitions on vertical price-fixing, collusive bidding, and horizontal arrangements with competitors.

The authorities in charge of the supervision and enforcement of the Finnish competition rules are:

• the FCA; 
• the Market Court (former Competition Council); and 
• on a regional level, the local county governments.

The FCA has extensive powers to investigate practices by business undertakings suspected of having harmful effects on competition. It examines competition restrictions, either following a complaint or on its own initiative. In cases where the FCA deems a practice, agreement, or arrangement to have harmful effects on competition, the first procedure is negotiation with the relevant undertakings. The FCA may upon application grant interim injunctions or orders. As noted above, it can also issue negative clearances and exemptions from prohibitions of the Act. The FCA may refrain from taking action if the effect of the restrictive practice on competition is considered minor. Since Finland’s entry into the European Union in 1995, the FCA also assists the European Commission when it investigates competition restrictions.

If the negotiations with the FCA fail, the matter shall be referred to the Market Court, which may prohibit the arrangement or practice at issue. Moreover, the Market Court may order the business undertaking to supply commodities to all business undertakings in a similar position on equal terms.

Restrictive contractual conditions, or conditions based on other restrictive arrangements, which violate either the prohibitions of the Act or an order or injunction issued by the FCA or the Market Court, are invalid and unenforceable.

Business undertakings in breach of the prohibitions set forth in the Act may be subject to an administrative fine ranging from € 840 to € 673,000. Exceptionally, a fine of up to 10 per cent of the most recent annual turnover of each business undertaking or association of undertakings involved in the restrictive business practice can be imposed. Such fine shall be imposed unless the violation is deemed minor or the fine is not considered necessary for safeguarding competition. There is a five-year limitation period for the imposition of fines, starting from either the termination of the infringement or the date when the FCA became aware of the infringement, whichever occurs last.

A business undertaking which deliberately or negligently breaches the prohibitions of the Act or a Market Court decision is liable to compensate other undertakings for any damage thereby incurred. Claims for damages under the Act fall within the jurisdiction of general courts. The period of limitation for actions for damages is five years from the date when the business undertaking was informed or should have been informed of the occurrence of the damage.

The Act also contains sanctions against breaches of the procedural rules. Conditional fines can be used to secure the supply of information or documents or to enforce the application of an injunction. Wilful submission of false information to the competition authorities is also subject to a fine or a maximum of six months’ imprisonment. The FCA may, furthermore, issue a temporary injunction prohibiting a restrictive business practice, or a temporary order to deliver a commodity to a business undertaking on the same conditions as to other business undertakings. The FCA must then without delay submit the decision to the Market Court, which may issue the injunction or order on a permanent basis.

The Finnish merger control system is broadly similar to the EC Merger Regulation and it requires obligatory prior clearance for concentrations which meet the thresholds and other requirements set forth in the Act. The merger control system contains time limits both for filing a notification with the FCA and for decision-making, as well as a suspension period for implementation of the concentration.

Under the Act a concentration shall be deemed to arise where: 

• control (juridical or actual) of an undertaking is acquired;
• the whole or part of a business is acquired; 
• two or more undertakings merge; or 
• a joint venture performing on a lasting basis all the functions of an autonomous economic entity is established.

The Finnish merger control rules establish two thresholds that a concentration must reach in order to be subject to the regulation. Consequently, a notification has to be made to the FCA where:

• the combined aggregate world-wide turnover of the parties, ie the purchaser and the target, exceeds € 336,375,853; and 
• the aggregate world-wide turnover of each of at least two of the parties exceeds € 25,228,184.

In the turnover calculation the turnover of the buyer’s whole group (or in the case of a merger, the receiving company’s group) shall be taken into account, whereas of the seller’s turnover only the amount relating to the target of the acquisition (including the entities over which the target exercises control) is relevant. If, however, the target company is acquired in stages over a period of two years, all such acquisitions are taken into account in the turnover calculation. Moreover, if the same company acquires several undertakings operating in the same field of activity in Finland, a notification is required if the combined world-wide turnover of such target undertakings acquired during the last two years exceeds the threshold, even though the turnover of each of the acquired companies does not exceed € 25,228,184.

The scope of application is not restricted to purely national concentrations. Foreign-to-foreign transactions may be subject to Finnish merger control rules. The FCA is authorised to carry out a merger investigation if the target company (or any entity over which it exercises control), a merging entity, or the proposed joint venture conducts business in Finland. The requirement of conducting business in Finland is considered fulfilled where any of the above companies offers for sale goods or services through a subsidiary, a branch, a sales office or some other establishment in Finland. This requirement has been defined quite broadly in the practice of the authorities. The Finnish merger control provisions do not apply to transactions subject to EC merger control.

When assessing a merger, the FCA applies only the Finnish merger control provisions. The concentration may be prohibited if it creates or strengthens a dominant position as a result of which competition would be significantly impeded in the Finnish market or a substantial part of it (for the definition of dominance see above). If the concentration appears to pose problems, the FCA should always endeavour to impose conditions rather than request the Market Court to ban the concentration. Under the main rule, the conditions should be structural rather than behavioural.

Responsibility for notifying a concentration rests with the merging parties, the acquirer, or those obtaining a joint control. Notification of a concentration must be submitted to the FCA within one week of:

• the acquisition of control over an undertaking or the acquisition of a business, ie the signing of a binding acquisition agreement; 
• the publication of a public bid; 
• the decision of the undertakings involved to merge, if the merger is implemented as a direct merger of two undertakings by absorption or by combination; or 
• the holding of the constitutive meeting of a joint venture company.

Where more than one of these events takes place, the first to occur triggers the notification obligation.

The notification shall contain the information requested in a form broadly similar to Form CO of the EC Merger Regulation. The notification must be submitted either in Finnish or in Swedish. Appended documents in English are, however, accepted. The time limits set for the authority’s decision-making will not start to run until a complete notification has been filed.

During the first stage, the FCA has a period of one month from the receipt of the notification to either clear the concentration or decide to initiate a further investigation. If an in-depth investigation is carried out, the FCA must, within three months (or five months with the permission of the Market Court), decide to clear the concentration or request the Market Court to block it. Where the involvement of the Market Court is requested, it has another three months to issue a decision. Thus, in a worst-case scenario the merger control procedure can mean a maximum aggregate investigation period of nine months. Most of the concentrations are, however, cleared by the FCA within the first one-month investigation period. Up to July 2002 the FCA had proposed the blocking of a concentration only once (Sonera Oyj/Yleisradio Oy/Digita Oy 1010/81/1999), though several cases had been investigated in depth, resulting in undertakings by the parties concerned. The Sonera/Yleisradio/Digita deal was later cleared by the Market Court subject to conditions, but the undertakings proved too hard for the parties to accept and the merger was ultimately dissolved.

The filing of a notification with the FCA is mandatory if the concentration is caught by the Competition Act. The parties may not implement a concentration before clearance by the competition authorities. If the parties fail to comply with the filing obligation or implement the concentration before clearance is given, they may be subject to an administrative fine (for the amount, see above). In addition, the time limits set for the authorities’ decision-making will not start to run until a complete notification is filed with the FCA. 

Notwithstanding a prior decision, the Market Court may, upon the proposal of the FCA, reappraise the concentration or order it to be dissolved if it becomes evident that the parties to the concentration have supplied false or misleading information that has had a substantial effect on the decision-making. The same applies if the concentration has been implemented in disregard of the conditions imposed by the competition authorities, or during the suspension period. The FCA must inform the parties of its intention to reassess the concentration no later than one year after the final decision or after implementation of the concentration, whichever occurs last.

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