Parliament agrees on stricter concept of market power

Introduction
What is 'relative market power'?
Scope of new provisions on relative market power
Re-import clause
Enforcement
Comment

Introduction

Parliament is currently debating the so-called 'fair price initiative' and an indirect counter-proposal by the government, both of which aim to tighten the Cartel Act. Among other new provisions, the concept of relative market power will be introduced to combat foreclosure of the Swiss market and price discrimination against Swiss corporate customers. Although differences between the two chambers of Parliament remain, on 2 December 2020 both agreed that the concept of relative market power should apply not only to companies outside Switzerland which supply goods and services to Swiss purchasers, but also as a general concept to all sorts of abusive conduct (ie, conduct of domestic companies and purchasers).

What is 'relative market power'?

A company is considered to have 'relative market power' if other companies depend on it with respect to the supply of or demand for a product or service in such a way that there is no sufficient and reasonable possibility to switch to other companies. In contrast to the traditional determination of market dominance, it is irrelevant whether the allegedly dominant company can behave independently of other market participants to a significant extent. Whether a company has relative market power must always be determined in relation to a specific bilateral business relationship.

Similar legislation to prevent the abuse of economic dependence exists in several EU member states, including Germany and France. In Germany, it is primarily used to combat refusal to supply and the termination of business relationships.

Scope of new provisions on relative market power

Both chambers of Parliament have agreed that the concept of relative market power will apply not only to suppliers, but also to customers. Thus, a company can be relatively market dominant both as a supplier and a buyer of products and services.

In addition, both chambers of Parliament have agreed to generally expand the current rules on unilateral conduct to cover all companies with relative market power. Hence, a company with mere relative market power behaves unlawfully if, by abusing its market position, it hinders competition.

Re-import clause

Parliament has not yet agreed on whether a so-called 're-import clause' should be introduced to Swiss competition law. Under such a provision, companies would be allowed to unilaterally restrict the procurement of goods that they export if these goods are to be re-imported into the country of production and resold there without further processing. This would, for example, allow a market-dominant Swiss company to export its products and (unilaterally) prevent their re-import into Switzerland. This issue is on the legislative agenda for Spring 2021.

Enforcement

Direct penalties for an abuse of relative market power (ie, for a first offence) are not envisaged at present. However, in the event of a violation against a final decision prohibiting a certain abusive behaviour of a relatively dominant company, such company may be fined up to 10% of the turnover generated in Switzerland in the past three business years. Victims of such abuse will likely primarily pursue such cases themselves through civil litigation (as opposed to administrative proceedings conducted by the competition authorities), which could lead to a revival of civil antitrust litigation in Switzerland.

Comment

Introducing the concept of relative market power to the Cartel Act would extend the rules on the prohibition of abusive behaviour to a larger number of domestic and international companies. Companies would have to check individually whether a particular contractual partner is dependent on them in a particular contractual relationship, which may not be readily apparent. This will lead to legal uncertainty and higher compliance costs. In addition, companies would have an incentive to avoid dependency relationships as far as possible, which could lead, for example, to foreign buyers increasingly refraining from purchasing goods or services from Swiss small and medium-sized enterprises.

The proposed market power model does not take into account how a dependency relationship arose. Companies that have voluntarily (ie, not due to certain market conditions) entered into a dependency in the sense of a cluster risk would also be protected.

For more information please contact Marcel Meinhardt or Virginia Ondelli at Lenz & Staehelin by telephone (+41 58 450 80 00) or email (marcel.meinhardt@lenzstaehelin.com or virginia.ondelli@lenzstaehelin.com). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.