30 March 2017
While the digital economy offers abundant opportunities to customers and retailers alike, it also raises a number of competition concerns, including the impact on bricks-and-mortar businesses, the potential for abuse of market power by major digital platforms and the challenge of fostering online competition while preventing free riding. Competition authorities must evolve and adapt traditional antitrust principles and approaches to meet the challenges of the rapidly changing digital market.
What impact has the rapidly changing digital market had on competition in your jurisdiction, and how have legislators and competition authorities responded?
The rise of the digital market in Switzerland has led to lasting changes in consumer behaviour, with over 62% of Swiss consumers having used the Internet to buy goods and services in 2015.(1) The Competition Commission (ComCo) has in the past investigated and published several leading cases relating to online sales and internet platforms and has also revised its guidelines on vertical restraints(2) in order to expand its practice relating to vertical restraints (in line with the practice of the European Commission) to hold that online sales of goods and services are generally considered passive sales.
The most significant case in Switzerland relating to the digital market to date is the 2011 ComCo decision on the obstruction of online sales.(3) In this decision, ComCo held that a general and absolute prohibition of online sales of products by manufacturers (in this case, in a selective distribution system) at the expense of resellers could be qualified as a prohibition of passive sales and a significant restraint of competition. While ComCo did not make a statement that in the actual case parallel imports had been prevented, it dismissed the arguments submitted by the parties under investigation (manufacturers of household appliances) that a prohibition of the online sales of its products was necessary in order to prevent free riding. Instead, it noted that unsupervised sales took place both offline and online and that a prohibition of online sales was not the least severe means of preventing free-riding scenarios. This decision is in line with European Commission practice and in its deliberations ComCo frequently referred to the commission's practice, as well as that of other competition authorities (eg, French and German authorities). The practice established in this decision was subsequently implicitly confirmed in a decision rendered in 2014 in connection with the prohibition of online sales of coffee machines, but ComCo indicated that there might be a need for additional qualifying circumstances and that a mere prohibition of online sales might be insufficient to qualify as a hardcore restriction of competition.(4)
Another decision in connection with the digital market was rendered by ComCo in 2015 relating to online hotel booking platforms.(5) This was the first decision in which ComCo investigated two-sided internet platforms and prohibited the use of wide parity clauses (so-called 'non-discrimination clauses') relating to prices or room availability in contracts between hotels and hotel booking platforms. Such clauses had stipulated that hotels must offer the same prices as well as the same room availability through all contractually defined sales channels. ComCo found these clauses to be an unlawful restriction under Article 5(1) of the Cartel Act. In this regard, ongoing legislative activity is considering a possibility of prohibiting narrow parity clauses. The outcome of these discussions remains unclear.
In terms of market definition, are online services considered to be in the same market as traditional services in your jurisdiction? What impact has this had on competition?
ComCo has a differentiated approach regarding market definitions in the digital market depending on whether the products and services are available both online and offline or online only. If products (and it is to be assumed services as well, though no decision in this regard has been rendered) are available online as well as offline, ComCo has refrained from defining separate online and offline markets for these products. Instead, it held that online sales should be considered a form of passive sale of the product.(6)
With regard to services that are rendered online only (eg, hotel booking platform services), ComCo has ruled that direct sales (eg, by hotels via online or offline methods) are separate from the services provided by online platforms. Therefore, in this regard there appears to be a distinction between online and traditional services. In 2015 ComCo also considered whether a separate market for e-commerce platforms on which goods and services are offered should be defined. However, it refrained from further investigation and left this question open.(7)
What types of conduct constitute abuse of dominance in the online space and what practices are most likely to catch out unwary online players?
So far, there is limited authority practice relating to abuse of dominance in the online space in Switzerland. ComCo has investigated this in only one case so far, relating to online hotel booking platforms in which there had been indications that booking.com might be dominant. However, ComCo found no indications of abusive behaviour.(8)
In general, any type of behaviour that constitutes abuse in the offline space is also likely to constitute abuse in the online space. Therefore, it is advisable that any potentially dominant companies in the online space refrain from engaging in any practices that may qualify as abusive under Article 7 of the Cartel Act with no reasonable economic reasons for such practices (ie, legitimate business reasons). These practices include:
What steps are competition authorities in your jurisdiction taking to prevent online retailers and service providers from free riding on the investments of bricks-and-mortar retailers and service providers?
In the decisions rendered thus far, ComCo appears to be sceptical of claims of free riding through online sales and services. For example, it has explicitly held that:
However, ComCo has made some concessions with regard to the argument that free riding may constitute a problem and has allowed manufacturers to require the following from its distributors within a selective distribution system:(10)
How can competition authorities best ensure that these steps do not hinder innovation or consumer choice and promote the continued evolution of online services?
ComCo is restrictive in its practice of allowing manufacturers to prevent or restrict online sales and it has held that such restrictions may be considered lawful under Swiss competition rules only under exceptionally strict conditions.(11)
ComCo holds online sales to be a positive development, emphasising that they lead to lower prices due to price-competitive suppliers and higher price transparency, thus leading to an increase of competitive pressure. It is also openly sceptical of any arguments against online sales such as free-riding arguments and has in its current decisional practice almost completely dismissed them.
For further information on this topic please contact Amalie Wijesundera or David Mamane at Schellenberg Wittmer by telephone (+41 44 215 5252) or email (email@example.com or firstname.lastname@example.org). The Schellenberg Wittmer website can be accessed at www.swlegal.ch.
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