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Successful Fair Price Initiative: New Competition Law Risks in Switzerland

18.03.2021

The Swiss Parliament has decided to revise the Cartel Act (CartA) and the Federal Act against Unfair Competition (UCA): As an indirect counter-proposal, this revision implements the so-called Fair Price Initiative, which aims to enable the purchase of products outside of Switzerland at potentially more favorable purchasing conditions. The revision establishes various new behavioral obligations for "relatively powerful" companies, prohibits discrimination while procuring goods and services abroad and prohibits practices of so-called "geo-blocking". For companies in Switzerland and abroad, this results in significant additional competition law risks:

 

  • New regulations for companies with "relative market power": The current prohibition of abusive conduct applies only to market dominant companies, i.e. primarily to companies with high market shares (more than 40-50%). Such companies are not allowed to hinder or disadvantage other companies or consumers (e.g. by refusing to deal, discriminatory conditions, predatory pricing, etc.). With the revision, these rules of conduct have now been extended to companies with relative market power, i.e. to companies on which other companies are dependent in terms of supply or demand. Dependence already exists if the counterparties do not have "sufficient or reasonable possibilities to switch to other companies". This means that potentially a large number of currently non-dominant companies are now to be regarded as having relative market power, provided that customers or suppliers of these companies do not have any reasonable alternatives. The market shares or size of the company are no longer relevant. The assessment is made in each individual case on the basis of the dependency relationships existing between two companies with regard to specific products or services. In many cases, companies are, therefore, unable to predict whether they have relative market power. Such situations could arise, for example, in the case of "must-in-stock" products, if the business model is geared to specific products ("lock-in"), in the case of necessary original spare parts, etc.
     
  • New obligation to supply from abroad: The catalog of abusive practices in the Cartel Act has been supplemented accordingly and the restriction of the possibility for customers to purchase goods or services from abroad at the applicable foreign market prices and customary conditions has now been expressly deemed abusive. Therefore, price discriminations by companies with relative market power to the detriment of companies from Switzerland can be countered by means of administrative proceedings or civil actions.
     
  • Also applies to re-imports of Swiss products: The obligation to supply also explicitly applies to products of Swiss companies that are sold abroad at lower prices than in Switzerland, e.g. due to the existing competitive situation or the price level abroad. Accordingly, Swiss companies must enable or permit such re-imports at lower prices in the future.
     
  • Purely Swiss situations are also regulated: The concept of relative market power is not limited to cross-border discriminatory conditions, but encompasses the entire catalog of abusive conduct in the Cartel Act. Companies newly classified as having relative market power would, therefore, no longer be readily allowed, even within Switzerland, to, for example, set up certain discount systems, reject business inquiries, terminate contracts, grant substantial price discounts or deny access to intellectual property rights. This is a significant legal change for many Swiss companies, which may potentially have much more far-reaching consequences than the obligation to supply from abroad.
     
  • No direct sanctions, but indirect sanction risks: The introduction of relative market power is cushioned by the fact that there are no direct sanctions. However, in the event of violations of conduct orders issued by the competition authorities, sanctions can be imposed on both the companies with relative market power and their responsible officers. In addition, civil actions are possible, so that actions for supply or for the cancellation of terminations or discriminatory conditions cannot be ruled out in the future.
     
  • Geoblocking: Geographic discrimination in e-commerce with regard to prices or payment terms, access to online portals or forwarding to other versions of an online portal will be deemed unfair competition. In contrast, audiovisual services, in particular, are exempt from the prohibition of discrimination. In the future, there is a risk that "discriminatory" price differentiations in international online offers could be deemed unfair.

The new regulation is expected to come into force in the current year 2021 or at the beginning of 2022.

In summary, the behavioral obligations for both Swiss and foreign companies will become significantly stricter. Due to the need to interpret the new rules, initially, there will be considerable legal uncertainty. It is to be expected that the first leading cases of the Swiss Competition Commission and the courts will take time. Companies should already adapt their compliance measures to the new rules now, before they come into force, in order to proactively reduce the risks of administrative proceedings or civil litigation.

 

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