The Federal Supreme Court's judgment in the matter "Hors-Liste Medikamente (Preisempfehlungen)" – Substantiation of the concept of concerted practice and assessment of price recommendations

On 21 April 2021, the Federal Supreme Court published a judgment against Pfizer regarding the sanction order of the Competition Commission (COMCO) in the matter Hors-Liste Medikamente (Preisempfehlungen) in which it substantiates the concept of concerted practice. In its ruling, the Federal Supreme Court assessed the question of whether non-binding, vertical price recommendations qualify as a concerted practice pursuant to Art. 4 para. 1 Cartel Act ("CartA") and concluded that the price recommendations in the present case qualify as a concerted practice and are unlawful due to a lack of justification.

The three Pharma companies Eli Lilly (Suisse) SA, Bayer (Schweiz) AG and Pfizer AG had communicated non-binding price recommendations to wholesalers and retailers for the distribution of erectile dysfunction drugs. These non-binding recommendations were transmitted to retailers by a database operator via the checkout (POS) system. These drugs require a prescription, but are not included on the list of specialties under health insurance law. Hence, their costs are borne by the patients themselves (i.e Hors List drugs). On 26 June 2006, the COMCO opened an investigation against the three Pharma companies on the basis of Art. 27 CartA. The COMCO came to the conclusion that the publication of and the compliance with the price recommendations qualified as an unlawful agreement affecting competition according to Art. 5 para. 1 in connection with Art. 5 para. 4 CartA. As a result, the competition authority imposed a fine of CHF 5.7 million in total on the three companies. The companies appealed the COMCO's decision to the Federal Administrative Court, where they prevailed. After the Federal Supreme Court upheld an appeal by the Federal Department of Economic Affairs, Education and Research ("EAER"), the Federal Administrative Court again ruled in favour of the three companies. The EAER then again appealed to the Federal Supreme Court.

Substantiation of the concept of concerted practice

According to previous case law, for concerted practice to exist, there must be a minimum degree of coordination between the companies, parallel behaviour on the relevant market, and a causal link between coordination and parallel behaviour. In the context of an information exchange, the element of coordination is the exchange of information itself or the manner in which it is exchanged. If this information is also used by the companies involved in the exchange (causal link) to adapt their market behaviour to each other (parallel behaviour), the existence of a coordinated practice is established.

Following this, the Federal Supreme Court first stated in its judgment that a concerted practice includes two elements: coordination and conduct based on such coordination in the sense of successful coordination ("Abstimmungserfolg"). With regard to the first element of coordination, the Federal Supreme Court considers the distinction from legitimate adaptation to the behaviour of other market participants (lawful parallel behaviour) to be crucial. The latter occurs when companies spontaneously react in the same or a uniform manner or mutually imitate each other. In contrast, coordination of behaviour is based on the utilisation of information that is available as a result of a conscious exchange of information among market participants. In this context, a minimal level of communication is necessary; the Federal Supreme Court speaks of mutual contact ("gegenseitige Fühlungnahme"), whereby an exchange of intentions is not required. In fact, unilateral information sharing can also be sufficient if it can be assumed that competitors will adjust their market behaviour accordingly.

As for the second element (successful coordination), the Federal Supreme Court states that the market conduct of the undertakings involved must be influenced by the related coordination (first element). Usually, according to the court, successful coordination manifests itself in a more or less visible, actual market conduct.

When assessing the causal link between coordination and market conduct the Federal Supreme Court refers to the 'Anic presumption' of the European Court of Justice, according to which, if coordination is proven, there is a rebuttable presumption that the undertakings involved also took the exchanged information (first element) into account when determining their market conduct. According to the court's decision, this presumption applies in particular if the exchange has taken place regularly over a long period of time. The Federal Supreme Court further states that, conversely, similar behaviour can also indicate a concerted practice or rather coordination underlying the same market conduct.

The price recommendations in the present case qualify as concerted practice

Regarding the element of coordination, the Federal Supreme Court initially states it could be assumed in the present case that the retailers were aware of the recommended prices when reading the barcode since the manufacturer Pfizer provided the recommended prices to retailers using the electronic checkout (POS) system. Accordingly, Pfizer also had to expect that the retailers would refrain from setting their own prices as this would have been associated with additional efforts (i.e. own calculation and adaptation of the software). The Federal Court further considered that the retailers themselves had accepted the provision of prices and could assume that the displayed prices represented the optimal retail price. Furthermore, the retailers were also aware that they all had the same information. The retailers thus, at least partially, tacitly concerted with the manufacturers.

For the assessment of the element of successful coordination, the Federal Supreme Court primarily focused on how many retailers actually used the recommended prices. Contrary to previous Swiss and current EU case law, no further consideration was given to whether incentives were created or pressure exerted to ensure adherence to the recommendations. The Federal Supreme Court assumes that from an adherence rate of more than 50%, there is market conduct corresponding to the coordination and thus the second element of successful coordination fulfilled. In the present case, 89.3% of the pharmacies and 81.7% of the self-dispensing physicians had set their sales price according to the price recommendations of the manufacturer Pfizer. Thus, the 50% threshold was clearly exceeded, which, in the opinion of the Federal Supreme Court, indicates market conduct which corresponds to the coordination. With regard to the causal link, the Federal Supreme Court primarily focused, in addition to relying on the presumption that exchanged information has an impact on market conduct, on the high level of adherence, the long duration of the price recommendation and the fact that the retailers could not reasonably have known the actual prices of their competitors without the price recommendations.

Since the Federal Supreme Court also concluded that the price recommendation had the effect of a fixed price (and not merely a maximum price), it qualified the conduct, in line with the COMCO, as unlawful resale price maintenance. Referring to its decision in the Gaba case and denying the existence of reasons to justify the conduct, the court finally confirmed the sanction against Pfizer in principle and referred the case back to the Federal Administrative Court to determine the amount of the fine.

New way of dealing with price recommendations

With its decision, the Federal Court has established a stricter approach to the assessment of price recommendations than the European competition authorities. In EU antitrust law, price recommendations are, in principle, only deemed inadmissible if pressure is imposed on retailers or incentives are provided to ensure that the price recommendations are actually followed. Contrary to this, the Federal Supreme Court now states that neither an exertion of pressure nor an incentive to adhere to a price recommendation is required. However, the court's reasoning indicates that an overall assessment is still necessary and that adherence to the recommendation on its own is not sufficient.

In addition to the restrictive approach regarding non-binding price recommendations, the decision is likely to result in a stricter assessment by authorities of information exchange.

Companies are therefore well advised to conduct a critical review of their non-binding price recommendations to resellers and their exchange of information in general with market participants in light of this latest decision of the Federal Supreme Court.

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