Under Swiss competition law, a proposed concentration may trigger a mandatory pre-merger notification obligation if one of the undertakings concerned has been held to be dominant, irrespective of the statutory turnover thresholds. The scope of this provision is controversial. The Federal Administrative Court (FAC) has now adopted a broad interpretation of the merger notification obligation for dominant undertakings, thereby exacerbating the issues associated with this provision.(1)
Merger notification obligation for dominant undertakings
Pursuant to Article 9(4) of the Federal Act on Cartels and other Restraints of Competition (CartA), and irrespective of whether the turnover thresholds of Articles 9(1) and 9(3) of the CartA are met, a proposed concentration must be notified to the Swiss Competition Commission (ComCo) if:
- one of the undertakings concerned has been held to be dominant on a market in Switzerland in a final and non-appealable decision in proceedings under the CartA; and
- the concentration concerns either that market or an adjacent, upstream or a downstream market.
By international standards, this provision is quite unique and a Swiss peculiarity. It aims to prevent the elimination of effective competition through mergers in regional markets or in highly concentrated markets with small volumes. In addition, it allows ComCo to take action against companies which are already dominant in the market and which attempt to eliminate effective competition by successive acquisitions of smaller companies by taking advantage of the (relatively high) thresholds of Articles 9(1) and 9(3) of the CartA. However, due to its wide material scope and the absence of a temporal limitation, Article 9(4) of the CartA is disputed in doctrine.
FAC's decision in favour of wide scope of application
In the case at hand, the FAC had to assess the scope and substantive aspects of the notification obligation under Article 9(4) of an undertaking which had been held dominant in a 1997 ComCo decision. The appeal of the undertaking which had been held to be dominant over 20 years ago was undisputedly aimed at the judicial clarification of these aspects. However, the case was formally brought before the FAC by an appeal against ComCo's decision on the flat fee for the review of a recent proposed concentration. The appellant chose this rather unusual approach because the CartA provides no mechanism by which the obligation to notify under Article 9(4) of the CartA, once triggered by a final decision finding dominance, could be repealed.
This was essentially confirmed by the FAC's decision. The FAC highlighted that the CartA provides no stand-alone procedure for determining the notification obligation under Article 9(4) of the CartA. Further, the FAC held that the short procedural deadlines of the CartA would also preclude a stand-alone decision on the obligation to notify (eg, in the form of a declaratory judgment). According to the FAC, an undertaking concerned is therefore entitled to challenge the decision on merger review fees in order to have its obligation to notify under Article 9(4) of the CartA reviewed. However, importantly, the FAC appears to limit such review to the proposed concentration in question. Consequently, challenging the cost decision is not a viable way of obtaining a general release from the notification requirement under Article 9(4) of the CartA either.
Moreover, the FAC also followed ComCo practice and confirmed that in purely administrative merger proceedings, the proximity requirement of Article 9(4) of the CartA must be interpreted broadly. Therefore, according to the FAC, the notification obligation under Article 9(4) of the CartA does not require that the transaction concerns a market directly adjacent, upstream or downstream of the dominated market. Rather, the notification obligation under Article 9(4) of the CartA is triggered if it cannot be ruled out from the outset that the dominant position might have competitive effects on any market affected by the proposed concentration. All other aspects which may be relevant (eg, the proximity of markets, the market structure or the scope of the previous decision finding dominance) would by contrast not be dealt with when assessing the notification obligation but only in the context of ComCo's material assessment of the proposed concentration.
However, the FAC also confirmed in its decision that due to the requirement of certainty under criminal law, Article 9(4) of the CartA must be interpreted more narrowly in penalty proceedings for failure to notify, as opposed to purely administrative notification procedures. Hence, while the requirements for the existence of a notification obligation under Article 9(4) of the CartA are low, they are in turn higher if the dominant company is to be penalised for failure to comply with such obligation.
The FAC's decision, which has been appealed to the Federal Supreme Court, confirms the broad scope of the merger notification obligation for dominant undertakings and extends it even further. Moreover, the decision raises the question of whether and how undertakings once found to be dominant could realistically ever be released from the notification obligation such a finding entails. Although such release must in principle be possible (eg, by a declaratory judgment adopted outside the framework of a specific merger review), the FAC's decision underlines the far-reaching implications that a final and non-appealable finding of market dominance in proceedings under the CartA may have. Once an undertaking has been held dominant in a final decision, it must notify all proposed concentrations, regardless of any turnover thresholds, for which it cannot be ruled out from the outset that the dominant position might have competitive effects on the markets affected by the proposed concentration. This may significantly impede acquisitions by the dominant undertaking for decades, thus causing considerable bureaucratic burdens.
Endnotes
(1) DFAC B-1471/2016 of 6 October 2020 (appealed to the Federal Supreme Court).
