Newsletter 3/2021: Implementation of the Fair Price Initiative through legislation: extension of dominance regulation to companies with relative market power and introduction of the ban on geoblocking


Introduction On 12 December 2017, the popular initiative "Stop the high price island - for fair prices" (also known as the "Fair Price Initiative") was submitted. The popular initiative aimed to enable Swiss buyers to purchase goods abroad at the (generally lower) prices applicable there. The Federal Council subsequently drew up an indirect counter-proposal to the popular initiative, which was, however, amended by parliament to such an extent that the Fair Price Initiative is being implemented virtually 1:1 through legislation. The parliament adopted the amended counter-proposal in the final vote on 19 March 2021, thereby introducing the concept of relative market power into the Swiss Cartel Act (CA). The prohibition of abuse for market-dominant companies under Article 7 CA is now extended to companies with relative market power, whereby such companies are exempt from direct sanctions. In addition, the restriction of the possibility to purchase goods and services available both in Switzerland and abroad at the prices and conditions abroad is now considered an abusive practice under Article 7 CA. Finally, an amendment to the Federal Act against Unfair Competition (UCA) prohibits private geo-blocking in online trading. Subject to an unlikely referendum, the new rules are expected to come into force on 1 January 2022. Relative market power According to the wording of the new Article 4 para. 2^bis CA, an undertaking is deemed to have relative market power if "another undertaking does not have sufficient and reasonable alternatives in the supply of or demand for goods or services and is therefore dependent on the dominant undertaking". Thus, for the existence of relative market power - in contrast to dominant position within the meaning of Article 4 para. 2 CA - market structure data such as market shares are not relevant. Rather, only the lack of sufficient and reasonable supply or demand alternatives resp. the "individual-vertical dependency relationship" between a company and its (potential) business partner (buyer or supplier) is relevant (see in detail: STÄUBLE/SCHRANER, DIKE-KG, Art. 4 para. 2 N 119 and 153). Accordingly, companies with a rather low market share can now also be qualified as having relative market power and thus be subject to the behavioural obligations of dominant undertakings according to Article 7 CA. Since relative market power can only ever exist in relation to a specific business partner and a specific product or service of a company, the assessment must be made on a case-by-case basis which will increase the complexity of antitrust compliance. In a first step, it must be examined whether the buyer or supplier has alternative options in the form of objectively equivalent sources of supply or demand. Any alternative sources must be reasonable for the buyer or supplier from an economic point of view, i.e. the switch to the other company must not significantly impair its competitiveness. However, a "self-inflicted" dependency should not deserve protection. In a second step, it should therefore be examined whether the business partner has caused its dependence on the company by himself, e.g. through a wrong strategic decision. If both questions are answered negatively, it follows that the company has relative market power. Accordingly, the company must observe the prohibition of abuse according to Article 7 CA and may not impose supply or demand restrictions on a dependent business partner or treat him unequally in terms of prices or other business conditions compared to the other business partners without an objective reason for justification. Individual price negotiations will become inadmissible and discounts will only be permitted if corresponding cost savings can be proven which noticeably restricts the contractual freedom of the company. In contrast to the abusive conduct of a dominant company, no direct sanction under Article 49a CA can be imposed in the case of abuse of a position of relative market power. The dependent company must assert its possible claims (removal or omission of the restraint of competition, claims for damages and disgorgement of profits) through civil proceedings. Contracts that violate the new provisions are void in whole or in part. Accordingly, the enforcement of contracts against structurally dependent companies has become more uncertain. The Swiss Competition Commission ("COMCO") intends to quickly issue guiding decisions and form case groups after the new provisions enter into force. However, in the longer term, such claims will have to be brought before the civil courts, as they are usually bilateral disputes that do not justify the use of the COMCO's resources. In forming case groups, the COMCO is likely to be guided by German jurisprudence on the concept of relative market power. In Germany, the following case groups in particular have emerged so far: Assortment-related dependency: A retailer is dependent on carrying specific products in its assortment in order to be competitive ("must-in-stock problem"). Company-dependent dependency: A company (e.g. authorised dealer) is dependent on another company due to the specific orientation of its business operations or corresponding investments ("lock-in effect"). Demand-side dependence: A supplier is dependent on a particular buyer due to the lack of sufficient and reasonable alternative distribution channels. Right to buy abroad at local prices and conditions With the new Article 7 para. 2 let. g CA, the catalogue of examples of abusive conduct is expanded to include the offence of restricting the ability of buyers to purchase goods or services offered in Switzerland and abroad at the prices and conditions applicable abroad. This provision applies in particular to international groups which have set up their own distribution structures in Switzerland in the form of subsidiaries and is intended to address refusals to supply and price discrimination by suppliers abroad with a dominant position or relative market power which cannot be justified by legitimate business reasons. However, if goods or services are offered exclusively in Switzerland and not also abroad, the new Article 7 para. 2 let. g CA does not apply. Prohibition of geo-blocking In the Unfair Competition Act (UCA), Article 3a para. 1 let. a introduced a provision on discrimination in online commerce. According to this provision, discrimination occurs if a customer is discriminated against in Switzerland with regard to price or payment terms on the basis of his/her nationality, place of residence, place of establishment, the location of his payment service provider or the place of issue of his/her means of payment. Discrimination also occurs if the customer's access to an online portal is blocked or restricted, or if the customer is redirected to a version of the online portal other than the one he/she originally visited without his consent. The aim is to enable both natural and legal persons to shop online at the price conditions practiced in the respective country. Consequences The introduction of relative market power means that for many Swiss companies, in particular also (specialised) SMEs, it will now be necessary to examine individually for each existing and potential business relationship whether a relationship of dependency exists which constitutes a position of relative market power and thus entails the applicability of the dominance regulation under Article 7 CA. If this is the case, the business relationship in question or the structure of the conditions must be reviewed to determine whether there is a need for adjustment. For the self-assessment of the market position, the companies - until the publication of the first leading decisions of the COMCO - can at least rely on the already established practice of the German courts, which have formed various case groups and corresponding assessment criteria for relative market power. Alternatively, companies can of course also "voluntarily" comply with the regime of Article 7 CA and, in particular, refrain from treating their business partners differently in terms of prices and conditions - a measure that makes little sense from a business perspective. If you have any questions, please do not hesitate to contact us.

Introduction

On 12 December 2017, the popular initiative "Stop the high price island - for fair prices" (also known as the "Fair Price Initiative") was submitted. The popular initiative aimed to enable Swiss buyers to purchase goods abroad at the (generally lower) prices applicable there. The Federal Council subsequently drew up an indirect counter-proposal to the popular initiative, which was, however, amended by parliament to such an extent that the Fair Price Initiative is being implemented virtually 1:1 through legislation.

The parliament adopted the amended counter-proposal in the final vote on 19 March 2021, thereby introducing the concept of relative market power into the Swiss Cartel Act (CA). The prohibition of abuse for market-dominant companies under Article 7 CA is now extended to companies with relative market power, whereby such companies are exempt from direct sanctions. In addition, the restriction of the possibility to purchase goods and services available both in Switzerland and abroad at the prices and conditions abroad is now considered an abusive practice under Article 7 CA. Finally, an amendment to the Federal Act against Unfair Competition (UCA) prohibits private geo-blocking in online trading.

Subject to an unlikely referendum, the new rules are expected to come into force on 1 January 2022.

Relative market power

According to the wording of the new Article 4 para. 2^bis CA, an undertaking is deemed to have relative market power if "another undertaking does not have sufficient and reasonable alternatives in the supply of or demand for goods or services and is therefore dependent on the dominant undertaking".

Thus, for the existence of relative market power - in contrast to dominant position within the meaning of Article 4 para. 2 CA - market structure data such as market shares are not relevant. Rather, only the lack of sufficient and reasonable supply or demand alternatives resp. the "individual-vertical dependency relationship" between a company and its (potential) business partner (buyer or supplier) is relevant (see in detail: STÄUBLE/SCHRANER, DIKE-KG, Art. 4 para. 2 N 119 and 153). Accordingly, companies with a rather low market share can now also be qualified as having relative market power and thus be subject to the behavioural obligations of dominant undertakings according to Article 7 CA.

Since relative market power can only ever exist in relation to a specific business partner and a specific product or service of a company, the assessment must be made on a case-by-case basis which will increase the complexity of antitrust compliance. In a first step, it must be examined whether the buyer or supplier has alternative options in the form of objectively equivalent sources of supply or demand. Any alternative sources must be reasonable for the buyer or supplier from an economic point of view, i.e. the switch to the other company must not significantly impair its competitiveness. However, a "self-inflicted" dependency should not deserve protection. In a second step, it should therefore be examined whether the business partner has caused its dependence on the company by himself, e.g. through a wrong strategic decision. If both questions are answered negatively, it follows that the company has relative market power. Accordingly, the company must observe the prohibition of abuse according to Article 7 CA and may not impose supply or demand restrictions on a dependent business partner or treat him unequally in terms of prices or other business conditions compared to the other business partners without an objective reason for justification. Individual price negotiations will become inadmissible and discounts will only be permitted if corresponding cost savings can be proven which noticeably restricts the contractual freedom of the company.

In contrast to the abusive conduct of a dominant company, no direct sanction under Article 49a CA can be imposed in the case of abuse of a position of relative market power. The dependent company must assert its possible claims (removal or omission of the restraint of competition, claims for damages and disgorgement of profits) through civil proceedings. Contracts that violate the new provisions are void in whole or in part. Accordingly, the enforcement of contracts against structurally dependent companies has become more uncertain.

The Swiss Competition Commission ("COMCO") intends to quickly issue guiding decisions and form case groups after the new provisions enter into force. However, in the longer term, such claims will have to be brought before the civil courts, as they are usually bilateral disputes that do not justify the use of the COMCO's resources.

In forming case groups, the COMCO is likely to be guided by German jurisprudence on the concept of relative market power. In Germany, the following case groups in particular have emerged so far:

Assortment-related dependency: A retailer is dependent on carrying specific products in its assortment in order to be competitive ("must-in-stock problem").
Company-dependent dependency: A company (e.g. authorised dealer) is dependent on another company due to the specific orientation of its business operations or corresponding investments ("lock-in effect").
Demand-side dependence: A supplier is dependent on a particular buyer due to the lack of sufficient and reasonable alternative distribution channels.

Right to buy abroad at local prices and conditions

With the new Article 7 para. 2 let. g CA, the catalogue of examples of abusive conduct is expanded to include the offence of restricting the ability of buyers to purchase goods or services offered in Switzerland and abroad at the prices and conditions applicable abroad. This provision applies in particular to international groups which have set up their own distribution structures in Switzerland in the form of subsidiaries and is intended to address refusals to supply and price discrimination by suppliers abroad with a dominant position or relative market power which cannot be justified by legitimate business reasons. However, if goods or services are offered exclusively in Switzerland and not also abroad, the new Article 7 para. 2 let. g CA does not apply.

Prohibition of geo-blocking

In the Unfair Competition Act (UCA), Article 3a para. 1 let. a introduced a provision on discrimination in online commerce. According to this provision, discrimination occurs if a customer is discriminated against in Switzerland with regard to price or payment terms on the basis of his/her nationality, place of residence, place of establishment, the location of his payment service provider or the place of issue of his/her means of payment. Discrimination also occurs if the customer's access to an online portal is blocked or restricted, or if the customer is redirected to a version of the online portal other than the one he/she originally visited without his consent. The aim is to enable both natural and legal persons to shop online at the price conditions practiced in the respective country.

Consequences

The introduction of relative market power means that for many Swiss companies, in particular also (specialised) SMEs, it will now be necessary to examine individually for each existing and potential business relationship whether a relationship of dependency exists which constitutes a position of relative market power and thus entails the applicability of the dominance regulation under Article 7 CA. If this is the case, the business relationship in question or the structure of the conditions must be reviewed to determine whether there is a need for adjustment. For the self-assessment of the market position, the companies - until the publication of the first leading decisions of the COMCO - can at least rely on the already established practice of the German courts, which have formed various case groups and corresponding assessment criteria for relative market power.

Alternatively, companies can of course also "voluntarily" comply with the regime of Article 7 CA and, in particular, refrain from treating their business partners differently in terms of prices and conditions - a measure that makes little sense from a business perspective.