On Friday, 19 March 2021, the Swiss parliament adopted in its final vote the amended parliamentary counter-proposal to the popular initiative "Stop the high price island - for fair prices". This counter-proposal to what is known as the Fair Price Initiative will lead to two major amendments to Swiss law. Firstly, the concept of relative market power will be introduced into the Cartel Act (CartA) by including the definition of relative market power and a new type of abuse. Secondly, a ban on geoblocking will be included in the Federal Act against Unfair Competition (UCA). These new provisions are expected to enter into force before the end of 2021, provided that no referendum against them is launched.
The Fair Price Initiative was launched in 2017 with the aim of combating high prices in Switzerland. However, the question of whether the provisions initiated were the right ones for this purpose became a point of controversy in the media and among experts. It is expected that the implementation of these provisions will require further clarification for many companies and adjustments to business practices and internal compliance standards.
Introduction of the concept of relative market power
The new concept of relative market power makes companies on which other companies are dependent subject to the regulation of Art. 7 CartA. As a result, the provisions on abuse of dominance will in the future not only apply to companies with a dominant position, but also to companies with relative market power. With the introduction of this concept, the CartA will no longer only protect effective competition, but also individual dependent companies.
A situation of dependency emerges where customers or suppliers have no actual or reasonable alternative. However, general statements about the existence or non-existence of relative market power cannot be made. Similar to the question of a dominant market position, a case-by-case examination will be necessary in each situation. In contrast to market dominance, the assessment is not limited to an analysis of the position on a specific market, but instead concerns the individual relationships between individual companies. In extreme cases, this could even apply to a single product or a specific service. Considering the legal uncertainty that comes with the concept of relative market power, it is crucially important to companies that a violation of the new provisions, other than cases of abuse of dominance, is not subject to direct sanctions under Art. 49a CartA. Fines are only imposed in the event of repeated infringement.
A comparison with other legal systems reveals that the concept of relative market power is not entirely new. Germany has already had regulations in place for about 50 years. However, a look at the situation with this neighbour reveals that even after decades of established practice, questions and ambiguities still exist and keep the courts and competition authorities busy. The German practice has developed the following categories of relative market power:
- assortment-related dependence;
- company-related dependence;
- relative buyer power; and
- shortage-related dependence.
Assortment-related dependence means a retailer must have a product in stock to be competitive at all. These constellations are also referred to as 'must-in-stock products'. In contrast, relative buyer power refers to the dependence of a supplier on a purchaser since the supplier does not have sufficient possibilities to switch to other purchasers. In the context of the revision of German competition law at the beginning of this year (i.e. the "GWB-Novelle"), the German legislator also introduced two new relative market power categories of data-related dependency and relative intermediation power. In this context, particular access to relevant data from a competition point of view and a key position in the mediation of services are relevant. The German practice and its categories could help companies make an assessment under Swiss law as long as there is no corresponding practice by the Swiss authorities. However, as in Germany, a case-by-case assessment of possible complex dependency relationships will be the standard in Switzerland.
As a result of the introduction of the new provisions on relative market power, the scope of the existing Art. 7 CartA will be extended considerably. This is also expected to have a significant impact on the distribution concept of not only large companies, but also of many SMEs. Types of behaviour that are permissible under current rules could be prohibited under the new regime. This applies in particular to price differentiations, rebate systems or the rejection of business relationships with certain distribution partners.
The Swiss heritage clause, which was originally included in the popular initiative, was deleted without replacement. As a result, the new provisions also apply to all companies domiciled in Switzerland with a potential relative market power.
New type of abuse
In addition, the implementation of the counter-proposal adds a new type of abuse to Art. 7 CartA. According to the new Art. 7 para. 2 lit. g CartA, a company with market dominance or relative market power is also behaving abusively if it restricts the ability of customers to purchase goods or services offered in Switzerland and abroad at the prices and conditions prevailing abroad. Thereby, the legislator creates a right for Swiss companies to purchase abroad at the conditions applicable there.
Due to the limited impact on overall competition, claims against companies with relative market power are likely to be assessed primarily by the civil courts. On 16 March 2021, the President of the Swiss Competition Commission stated in the context of the reconciliation of differences in parliament that the competition authority will aim at issuing relatively quick decisions allowing for categorisation into different groups of cases. Beyond that, complainants would be referred to the civil courts. It remains to be seen whether the affected companies will be prepared to make greater use of civil proceedings in the event of infringements by companies with relative market power, considering that civil law proceedings are – in the context of competition law – still rarely used in Switzerland due to their inherent risks.
Prohibition of geoblocking
The new Article 3a, which is to be introduced into the UCA in the course of the revision, has the same objective as the new Art. 7 para. 2 lit. g CartA. The intention of Article 3a UCA is to enable customers in Switzerland to shop online without discrimination across national borders (i.e. a ban on geoblocking). Unlawful discrimination occurs when foreign online retailers deny customers in Switzerland access to their stores, deny access to presumably lower foreign conditions or re-route them to other versions of the store.
Need for action for companies
Companies are advised to analyse their distribution structures and their relationship with business partners from the new perspective of a potential relative market power. In particular, this assessment should be made principally in view of a potential relationship of dependency within the meaning of the concept of relative market power and that it can exist in relation to another undertaking with regard to each individual product or service.
Depending on the results of this assessment, chances or risks may arise for affected companies. If such an assessment indicates dependencies, one should decide as a second step whether to adjust the business relationship with the respective party. In practice, the focus is likely to be on constellations such as the initiation or termination of business relationships, unequal conditions vis-à-vis different business partners, rebate systems or exclusivities. In addition, companies that offer goods in Switzerland and abroad will have to review their pricing policy and other terms and conditions when receiving enquiries from Switzerland.
Finally, any measures that may lead to a discrimination of customers in Switzerland, such as price discrimination, blocking visits to retail websites or an automated re-routing to alternative sites, should be reviewed and, if necessary, removed.
If you have any questions on this new concept of relative market power in Switzerland or any of the other amendments, contact the authors or your regular CMS partner.