Switzerland

Franz Hoffet, Marcel Dietrich and Katrin Ivell

Homburger

This year has been marked by several large-scale and landmark merger control decisions in the retail business and organisational changes within the Swiss Competition Commission (ComCo) as well as the start of the evaluation of the Swiss Act on Cartels (ACart) with a view to proposing amendments to it.

Main developments

Landmark merger control decisions in the Swiss retail business

This year has seen a major shakeup in the Swiss retail business, when industry leaders Migros and Coop bought their smaller domestic competitors Denner and Carrefour respectively. These merger control procedures were subject to highly political debates and controversies among economists and lawyers in Switzerland. Ultimately, the ComCo cleared both acquisitions (ie, Migros/Denner and Coop/Carrefour) in second-phase procedures and subject to far-reaching behavioural and structural remedies. The clearance of both deals has to been seen in the context of the previous judgements by the Swiss Federal Supreme Court in the Swissgrid case and the merger control procedure relating to 20 Minuten. In these cases the Federal Supreme Court clarified that the substantive test for mergers in Switzerland consists of two elements, namely:
• the creation or strengthening of a dominant position; and
• the possibility of an elimination of competition.

The second criterion constitutes an additional test against which concentrations have to be assessed.¹ Following these judgments, the ComCo will only be able to block mergers if they can lead not only to the creation or strengthening of a dominant position, but also to an elimination of competition as such.
The decision in Migros/Denner will probably be treated by the ComCo as the leading precedent case for a number of issues. First, the decision features a remarkable approach to defining the geographical market. According to the ComCo, the relevant geographical market can at the same time be both national and local, and this question was not left open. In spite of strong evidence as to existence of substitution chains due to overlapping local markets (ie, isochrones around a food shop defined by a 10-minute car ride), the local markets were further narrowed down using a statistical segmentation of Switzerland which allowed the ComCo to define very small non-overlapping local markets. This novel theory has been used in other cases such as Coop/Fust and Coop/Carrefour as well.
Second, the ComCo examined in a first step whether or not a single dominant market position could be created or strengthened by the proposed merger between Migros and Denner. Rather unexpectedly, the decision suddenly turns to the question of collective dominance (by Migros and Coop) after having answered the question of single dominance in the negative. The reasoning in this respect was quite unusual since the specific conditions in a given market usually either indicate single or collective dominance; they rarely (if ever) support both contentions at the same time.
Third, the assessment of collective dominance is characterised by highly theoretical and abstract considerations. The standard criteria are listed and then applied to the case at hand without presenting any solid or convincing evidence why these criteria should be fulfilled. For instance, Migros and Coop are said to have multi-market relationships (petrol stations, travel and gastronomy), entailing the possibility of retaliation in case one of them should deviate from the - alleged - tacitly collusive action in the food sector. However, literally nothing is put forward to show how any retaliation should actually work in practice, given that both companies are small players outside the food sector. It remains to be seen if this thoughtless application of the criteria for collective dominance will stand up in court.
However, the main conclusion to be drawn from Migros/Denner could be that prohibition decisions will become rare in Switzerland as a result of the dual test to be overcome (in particular proving the elimination of competition by clear and convincing evidence). At the same time the ComCo seems to be inclined to use the concept of collective dominance to impose far-reaching behavioural remedies and thus to score well as a watchdog in terms of public attention and recognition.

Evaluation of the Swiss Act on Cartels

Following the enactment of the revised ACart in 2004, the ComCo was entrusted with new enforcement instruments (in particular the possibility to issue direct fines) to ensure a more effective enforcement of the competition rules in Switzerland. In this context, article 59a of the ACart obliges the Swiss Federal Council (SFC) to evaluate the efficiency and execution of the law within five years of the enactment. The SFC will have to provide the federal parliament with an evaluation report and possible suggestions for amendments of the ACart, if necessary. The evaluation of the ACart started in 2007, inter alia, by questioning on a broad basis the relevant stakeholders, that is, the industry, lawyers and associations, in order to assess whether the major amendments of the reform have been successful in practice. The evaluation is being supported by a broad case study commissioned by the State Secretariat for Economic Affairs (SECO), which is looking in depth into certain cases and analysing the micro- and macroeconomical effects of the decisions taken by the ComCo.
The main part of the revision of the ACart in 2003 was the enactment of the rules relating to direct sanctions for certain hardcore restrictions, such as horizontal agreements regarding prices, customers, etc, as well as vertical agreements regarding prices and exclusive territories. However, within the review period since the enactment of the revision in 2003, there has not been a single decision on any of these matters. The only decisions resulting in direct sanctions have concerned the behaviour of dominant undertakings. In particular, it seems that the much discussed vertical restrictions, which allegedly prevent parallel imports and lead to higher prices in Switzerland (the ‘high-price island’) have not played any major role in practice. The final evaluation report, which should be submitted by the SFC to the federal parliament later in 2008, will show whether further amendments of the ACart can be expected in the foreseeable future. Possible topics that might be raised include the procedural safeguards and institutional changes to improve due process and the amendment of the substantive test in merger control as well as the notification thresholds.

Legal and organisational developments

Reorganisation of the ComCo

The headcount of the ComCo has been reduced from 15 to 12. Long-time members Roger Zäch, Yves Flückiger (both former vice presidents), as well as Klaus Hug and Marino Baldi left the ComCo. Andreas Kellerhals of the University of Zurich has been added as a member of the ComCo. Further, Vincent Martinet has been promoted to vice president. While the reduction of the number of members in the ComCo could be seen as a sign of increased efficiency, the fundamental problem remains that the members of the ComCo are only dealing with the cases in part-time mandates and only meet twice monthly. In particular, in complex cases with long briefs and large amounts of supporting material, the workload for thorough preparation will possibly exceed such part-time mandates.

Call for increased international cooperation

In an interview, the president of the ComCo, Professor Walter Stoffel, has called for enhanced cooperation between Switzerland and the EU. Professor Stoffel would like to see a treaty signed between Switzerland and the EU to formalise their cooperation in the enforcement of the competition laws. Such a cooperation would mainly help the ComCo with regard to merger control procedures that are notified simultaneously to the Swiss and the European authorities because the Swiss authorities tend to rely to an important extent on the results of the European Commission’s merger control assessment. Furthermore, an enhanced cooperation might be useful in the context of leniency applications and subsequent international coordination of dawn raids as well as for the cooperation regarding the examination of documents seized during dawn raids.

Further explanations regarding the vertical restraints notice

Following the entering into force on 1 January 2008 of the revised vertical restraints notice, Professor Stoffel has explained his interpretation of the new vertical restrains notice in two speeches in January and February 2008.² These clarifications concern the limited role of interbrand competition for the rebuttal of the legal presumption regarding vertical restraints.³ Second, the clarifications concern the list of factors which are considered to be relevant for the assessment of the legality of non-binding price recommendations.

Recent cases: agreements

No decisions regarding vertical restraints

The ComCo has not rendered any decisions this year with regard to possible restrictions of competition due to vertical agreements. While the ComCo has already issued its second notice on vertical restraints, and while vertical restraints have, in the past, been repeatedly considered as one of the main competition concerns in Switzerland, the lack of any decisions in this context is remarkable. Significant legal uncertainty remains in the market for as long as there are no decisions by the authorities and the courts on the legality of certain vertical agreements.

Horizontal agreements

Investigation of the cement and concrete markets

The ComCo opened an investigation into the tendering for and supply of concrete and cement in the context of the large-scale railroad project NEAT, the new tunnel crossing the Alps. Following articles in the press, the NEAT supervisory delegation, NAD, considered that the cement and concrete for the NEAT tunnel projects was too expensive. Because there was no direct evidence that there had been any coordination amongst producers of cement and concrete, the investigation was exclusively based on indirect evidence. The authority conducted numerous pricing and offer comparisons including an analysis of the prices offered within the same subprojects as well as the prices offered in different subprojects and in comparable projects abroad. The price comparisons within the same subprojects and between different subprojects did not provide any proof for coordination. In particular, prices were higher than for projects abroad because the main criterion for the contracts was that the cement had to be delivered by rail (rather than by trucks). Neither did the authority find any indication for an agreement regarding an allocation of territories. Again, the precondition of delivery by rail and the restricted capacities of the suppliers were considered to be the reasons for the low number of offers. Therefore, the authority concluded that the investigation could be closed without further consequences. Subsequently, the ComCo issued a recommendation based on article 45, paragraph 2 of the ACart, addressed to the SFC, with suggestions of how to improve the planning of the tender procedure, lower the barriers for market entry and improve cost transparency.

Investigation regarding Bernese construction cartel

In December 2007, the ComCo closed an investigation relating to alleged horizontal agreements between four construction companies regarding a project for the Swiss National Library. The ComCo initially concluded in 2001 that there had been an agreement between four construction companies regarding the prices contained in the tender offers. Following the 2001 decision, the companies appealed in 2005 and the Appeal Commission partially annulled that the ComCo’s decision. In its partial annulment the Appeal Commission held that the ComCo had to present specific evidence to prove the alleged horizontal agreement. Such evidence could subsequently not be shown and therefore the ComCo had to conclude that there was no violation of the competition rules.

Road asphalt cartel

Based on an investigation initiated in 2005, the ComCo found that between 1999 and 2004 a large number of road asphalt companies in the Italian-speaking canton of Ticino participated in a cartel. These companies shared information on public tenders and private work in order to guarantee each of them a specific percentage of the market. However, as the cartelistic behaviour was discontinued before the end of the grace period following the amendment of the ACart, the ComCo was not in a position to impose any fines. Nevertheless, the ComCo stated that but for the grace period, the undertakings would have been fined a total of approximately 30 million Swiss francs (approximately €20 million).

Dominance

Discrimination: procurement of military helicopters

The procurement of all equipment purchased by the Swiss army is organised through Armasuisse. In the context of the procurement of 20 helicopters, Agusta SpA, an Italian helicopter manufacturer, complained that the purchase by Armasuisse of 20 helicopters from Eurocopter was a discriminatory abuse of the dominant position of Armasuisse. The ComCo confirmed that the ACart is applicable to publicly owned entities, even if they are active in the procurement of equipment for military purposes. However, the ComCo determined that the market for the purchase of helicopters was a worldwide market and that therefore Armasuisse did not have a dominant position. While the investigation was closed based on these findings, the ComCo issued a recommendation based on article 45, paragraph 2 of the ACart, addressed to the SFC, with suggestions how to improve the legal procedural safeguards and thus the rights of bidders in the context of procurements by Armasuisse.

Abusive pricing: distribution of French books in Switzerland

The ComCo initiated an investigation with regard to the behaviour of importers of French books into Switzerland. As part of the investigation the ComCo will have to assess whether some of the Swiss distributors of French books could be considered dominant, based on the fact that each importer has exclusivity agreements with the French publishing houses which it represents. Allegedly, the importers are abusing their dominant position by requesting higher prices in Switzerland than in France. The investigation is still ongoing. It is not unlikely that the investigation was opened to tackle exclusive vertical agreements that allegedly lead to higher prices in Switzerland rather than preventing an alleged abuse of a dominant position of Swiss distributors. If no evidence for illegal vertical restrains can be found, the ComCo may well take the approach that exclusivity agreements could lead to a dominant position and that higher prices than abroad would therefore be illegal because they constitute an abusive behaviour.

Merger control

Non-horizontal mergers – SWX/SIS/Telekurs concentration

The ComCo has cleared the concentration between the stock market operator SWX, the financial services company SIS (active in post-trade processing, clearing and settlement, etc), as well as the financial services company Telekurs (active in financial information, payment services, etc). The ComCo extensively looked into possible vertical relationships between the undertakings and analysed potential possibilities and incentives of the merging undertakings for input or customer foreclosure. Based on this analysis, the ComCo cleared the transaction subject to the commitment by the merging undertakings to adhere to the European Code of Conduct for Clearing and Settlement (the Code) to ensure non-discriminatory access and interoperability between competitors, freedom of choice of banks and traders with regard to stock exchange transactions, and price transparency and unbundling of products and services. The Code was originally launched by three European trade associations⁴ in collaboration with the European Commission.

Private enforcement

Refusal to supply – Cheese caverns

A producer of a specific Swiss cheese (called L’Etivaz), which is subject to an AOP regulation (appellation d’origine protégée; protected indication of origin) has in a civil litigation requested to obtain access to certain caverns of the defendant in order to stock his cheese during its ripening process. The plaintiff argued that access to these caverns is required to sell the cheese under the specific AOP indication of origin and that no other caverns were available. In its assessment, the civil court considered whether the refusal to provide access to the defendant’s caverns could constitute an abuse of a dominant position. The local civil court ruled that there are acceptable alternatives to the caverns to which the plaintiff has requested access because other caverns could be adapted to fulfil the necessary criteria for the AOP approval. The court indicated that the defendant’s refusal to provide storage space in its caverns was therefore not abusive because by making some investments, the plaintiff would be in a position to store the cheese in other available caverns.

Notes

1 See the Switzerland chapter in The European Antitrust Review 2008 for further details on these decisions.
2 See www.weko.admin.ch/publikationen/00276/VertBek_Redetxt_3.pdf?lang=de). For more on the revised vertical restraints notice, see the Switzerland chapter in The European Antitrust Review 2008.
3 ACart, article 5, paragraph 4.
4 The Federation of European Securities Exchanges, the European Association of Central Counter Party Clearing Houses, and the European Central Securities Depositories Association.

An extract from The European Antitrust Review 2009