Switzerland: National Competition Law Report – Q3 2006

POLICY AND PROCEDURE

Draft amendment to the Notice on Vertical Agreements.

On September 5, the FCC issued a draft amendment on the Notice on Vertical Agreements of February 18, 2002.

The purpose of the Notice on Vertical Agreements is to identify vertical agreements that are presumed to eliminate or appreciably restrict competition and those that are considered as appreciably restricting competition and therefore unlawful in the absence of economic efficiency justifications. The FCC intends to adapt the Notice on Vertical Agreements of February 18, 2002 to come in line with the amendments to the Competition Act of June 20, 2003 and to the Swiss De Minimis Notice of December 21, 2005, ensuring harmonization with EC competition law (in particular, the EC Block Exemption Regulation).

The draft amendment to the Notice sets forth the following principles:

Elimination of competition. Pursuant to Section 5 par. 4 of the Competition Act, vertical agreements that determine minimum or fixed resale prices or absolute territorial protection are presumed to eliminate competition. The presumption of a restriction eliminating competition cannot be rebutted by evidence of the existence of inter-brand competition and cannot be justified on grounds of economic efficiency.

Appreciable restriction of competition. The following agreements (qualified restrictions) are generally considered as appreciably restricting competition and therefore are unlawful:

• the direct or indirect determination of resale prices or minimum resale prices;
• direct or indirect territorial or customer allocation;
• limits on members of a selective distribution system making active and passive sales to end users;
• the restriction on cross-supplies between distributors within a selective distribution system;
• the restriction on selling spare parts to third parties;
• a non-compete obligation, the duration of which exceeds five years or one year after the termination of the agreement; or
• the restriction on selling other brands within a selective distribution system.

However, when the market share held by the supplier (or purchaser, as the case may be) does not exceed 30% of the relevant market, vertical agreements are presumed to be justified by economic efficiencies, except those vertical agreements which contain restrictions presumed to restrict competition appreciably. Nonetheless, where the relevant market share is not in excess of 30%, even agreements containing restrictions presumed to restrict competition appreciably can be justified (upon an individual analysis) on the grounds of economic efficiency, provided that:

• the fixing of maximum prices or price recommendations is not tantamount to final or minimal price fixing because of influence over or incentives extended to the buyer;
• the restriction of active sales within an exclusive territory or to exclusive customer groups does not in any way restrict passive sales to such territories or customer groups;
• the restriction of sales to end users applies only to wholesale buyers;
• the restriction of sales to unauthorized distributors is imposed upon the members of a selective distribution system;
• the restriction of the buyer’s ability to sell components is limited to customers who would use them to manufacture competing goods;
• the non-compete obligation that exceeds five years applies to a buyer who offers goods or services from premises owned or rented by its supplier; or
• the restriction on selling other brands within a selective distribution system is not directed at particular suppliers.

Agreements of minor importance. Subject to cumulative effects issues, vertical agreements entered into by undertakings whose market share on the relevant market does not exceed 15% and that do not contain qualified restrictions are considered, in principle, not to cause appreciable restrictions to competition.

Commentary. The draft amendment of the Notice on Vertical Agreements primarily integrates the amendments of the Competition Act concerning the presumption of elimination of competition and the De Minimis Notice. Most noteworthy, the FCC states that the presumption on the elimination of competition cannot be rebutted by evidence of the existence of inter-brand competition. The FCC’s position brings this controversial question to an end and makes the rebuttal of the presumption of unlawfulness much more difficult for undertakings. The draft amendment of the Notice on Vertical Agreements is subject to a public consultation procedure until October 31.

ABUSE OF MARKET POWER

Supreme Court Judgments relating to the Practices of Credit Card "Acquirers"

On July 26, the Swiss Supreme Court issued four identical judgments in cases involving credit card "acquirers" in Switzerland - Telekurs Multipay AG, Cornèr Bank AG, UBS Card Center AG, and Swisscard AECS AG.

Credit card acquirers sell to merchants the ability to accept credit card payment by customers. On November 18, 2002 the FCC found that the four credit card acquirers held a collective dominant position in the market for such services, and found further that the prohibition against recouping the acquirer’s commission from customers, inserted in their standard terms with merchants, was an abuse of that dominant position. The FCC ordered the four acquirers to cease and desist from using such a clause.

On appeal by the acquirers, the Appeal Commission found that entry of foreign "cross-border acquirers" subsequent to the FCC’s decision had stimulated competition in the market, thereby finding that there was no longer a collective dominant position held by the four acquirers.

The Federal Department of the Economy, on appeal to the Swiss Supreme Court, argued that, contrary to the usual practice under the general Administrative Law Procedural Regulation, in competition matters the Appeal Commission must base its decisions on the factual situation existing at the time of the contested FCC decision.

A determination as to this significant issue was not to be, since prior to the Swiss Supreme Court’s decision the FCC accepted an amicable settlement offer made by the acquirers. The Supreme Court declared the matter to be moot, even though, as the Supreme Court remarked, the Federal Department of Economy and the FCC had an interest in receiving an answer to the question posed.

FCC Punishes Zurich Airport For Abuse Of Dominant Position

The company Unique operates Zurich airport including its parking facilities. On December 1, 2003, the FCC initiated an investigation in connection with Unique’s termination of two contracts of valet parking service providers at Zurich airport. These valet parking operations competed with parking lots at Zurich airport run by Unique, in that they offered off-site parking at cheaper rates whereby a customer’s car would be driven from the airport to the off-site parking lot, and held until required again by the customer at the airport.

The FCC first issued a provisional cessation order against Unique. When Unique did not comply with this order, in December 2005 the FCC imposed a fine of CHF 248,000 (around €156,000) .

On September 18, 2006, the FCC issued its final decision that established, consistent with its provisional cessation order, that this practice was indeed an abuse of a dominant position. A condition of the FCC’s decision was that Unique agreed to allow at least one off-site valet parking service provider to operate at Zurich airport. As a result of the FCC’s finding, Unique was fined a modest amount of CHF101,000 (around € 63,500) in view of Unique’s full, albeit belated, co-operation with the FCC’s investigation.

This was the first application of the FCC’s new powers under the 2005 amendments to the Competition Act to impose so-called "direct" penalties, that is, penalties directly against anti-competitive behaviour rather than merely for a violation of a prior FCC order in connection with a finding of anti-competitive behaviour.

In its decision, the FCC emphasised its lack of tolerance for companies restricting access to important infrastructure, especially where the third party excluded is a small-medium enterprise (SME).

On July 11, the Appeal Commission upheld the FCC’s decision of March 21, 2005 finding that the "uniform book price" practice of fixing resale prices of publishing products in Switzerland operated in restriction of competition and was not justified by reason of economic efficiencies.

This is the most recent stage of the proceedings that began on September 28, 1998, with an investigation into an agreement whereby publishers of German-language books fixed the resale price of such books. By decision of September 6, 1999, the FCC found that this agreement violated Swiss competition law and ordered publishers and intermediate sellers of books to discontinue their practices under this agreement. The basis of the FCC’s decision was that the price fixing created a legal presumption of the elimination of competition, and that, in this case, that presumption was not rebutted. In October 1999, Swiss and German publishing interests appealed the decision to the Appeal Commission. The Appeal Commission rejected the appeal, agreeing with the FCC as to the non-rebuttal of the legal presumption of a violation of competition law, and declaring that the FCC’s finding of facts was complete and correct.

The appellants then challenged the Appeal Commission’s decision before the Swiss Supreme Court, which quashed the Appeal Commission’s decision and ordered that the matter be re-decided by the FCC in accordance with the Supreme Court’s directions. The Supreme Court held that the presumption of elimination of competition could be rebutted by evidence that, despite the restriction, competition persisted in the market. For example, it could be proven that price was not the only competitive parameter in the market. Other competitive parameters may include, for instance, product quality and services. Moreover, the Supreme Court held that even if the agreement entailed an appreciable restriction of competition, it could still be justified on the basis of economic efficiencies.

On January 8, 2003, the FCC resumed its investigation in accordance with the Supreme Court’s directions. On March 21, 2005, the FCC concluded that the agreement was an appreciable restriction of competition that could not be justified by four claimed efficiencies, including the reduction of production and distribution costs.

In the second appeal to the Appeal Commission, the Swiss and German publishing interests contended upon various bases that the FCC incorrectly understood and wrongly applied the test for efficiencies. In a detailed examination of the four claimed efficiencies raised by appellants, the Appeal Commission upheld the FCC’s approach and analysis. In doing so, the Appeal Commission noted that it remains open to the parties to apply to the Federal Council for a political approval of the agreement under Article 8 of the Competition Act. The Appeal Commission also indicated that the Federal Council, in its assessment of the public interest, is empowered to take into account not just economic reasons, but also cultural and educational considerations.

For more information, please contact Silvio Venturi (venturi@taverniertschanz.com) or Phillip Landolt (landolt@taverniertschanz.com), tel. +41 (0) 22 704 3700.