Brave New Swiss Competition Law World? A Critical View on the Federal Supreme Court’s ”Elmex”-Toothpaste Decisions
Extended abstract of the lecture held by the author at the Debating Competition Dinner on 4 May 2017 in Zurich
With its decision dated 28 June 2016 on the matter GABA (2C_180/2014) the Federal Supreme Court upheld the decision of the Federal Administrative Court and confirmed in particular that hardcore agreements under Article 5 paragraph 3 and 4 of the Cartel Act are in principle significant restrictions of competition according to Article 5 paragraph 1 of the Cartel Act. Both the licensor Colgate-Palmolive Europe Sàrl (formerly Gaba International Ltd.) and the Austrian licensee Gebro Pharma GmbH (see case 2C_172/2014 of 4 April 2017 in the same matter) were finally fined for having agreed upon a ban of passive sales out of Austria in their agreement of 1982, which granted Gebro the license to produce and distribute the Elmex toothpaste in Austria.
The decision is results-oriented and policy driven. Both the decision’s reasoning finally published on 21 April 2017 and the case history imply this conclusion. Without any specific need and to the surprise of all parties, including the Swiss Competition Commission, the Federal Administrative Court was the first to come to the conclusion that so called hardcore agreements, i.e. horizontal price-fixing, quantity-limitation and territorial allocation agreements as well as resale price maintenance and absolute territorial protection in distribution agreements, in principle constitute significant restrictions of competition without the need to consider quantitative elements. This was new and contradicted the case law of the Federal Supreme Court with regard to its case on fixed book prices (BGE 129 II 18, in particular consideration 5.2.2 [“provided that it concerns goods with a significant market share”; emphasis added]). Surprisingly, the Federal Supreme Court does not mention this at all in its GABA-decision.
The GABA-decision is a good example for “bad cases make bad law”. Even if the result of the decision in general does not deviate from ex ante legal advice in practice, its reasoning is not convincing. The difficulties begin inter alia when problematic clauses have been agreed upon, but were never implemented. The GABA-decision tightens the Swiss Competition law standards for hardcore agreements considerably. However, if this decision were to be interpreted to introduce criminal liability for mere attempts into Swiss competition law, this would have to be strictly rejected.
Some Critical Comments on the Merits
The Federal Supreme Court’s considerations with regard to the scope of application of the Cartel Act are not convincing. It strongly extends the scope of application of the Cartel Act to all situations that “may have an effect” in Switzerland. This consideration is not reflected in the wording of the Cartel Act, which requires practices to “have an effect”. The communication of the Federal Council (Communication on the Cartel Act dated 23 November 1994, BBI 1995 I 468 [Cartel Act I Communication]), which was cited selectively and one-sidedly by the Federal Supreme Court, explains with regard to the territorial scope of application that it is only possible for the Cartel Act “to refer to extraterritorial subject matters if and when there is a clear domestic relation of the subject matters to domestic law [Cartel Act I Communication, 555; emphasis added]”. The Federal Supreme Court does not comment on this.
Given the fact that the Federal Supreme Court’s extension of the territorial scope of the Cartel Act is seemingly stretched measurelessly, some guidelines in that regard would have been desirable, if not mandatory. The granted wide discretion in that regard thus requires a sound judgement by the Swiss Competition Commission and its Secretariat.
The considerations of the Federal Supreme Court with regard to the significance of competition restraints are not convincing either. It is not conceivable to the reader of the GABA-decision how the Romanesque terms for “significant”, i.e. “notable” or “notevole”, suggest that “already a small degree [of competition restraint] is enough to constitute significance”. A grammatical derivation is missing completely. The unprejudiced understanding of the language should be different. Further there are no indications as to when there is a bagatelle case, or when an exception to the rule that hardcore agreements do in general constitute significant competition restraints would apply. Based on the oral deliberation of the decision on 28 June 2016, explanations would have been expected in this regard. With the reservation for bagatelle cases, the Federal Supreme Court granted the Swiss competition authorities again considerable – nota bene hardly justiciable – discretion to take up cases. Time will tell to what extent this abets a questionable and informal procedural execution under the rule of law.
If one reads the phrase in the Cartel Act I Communication stating that “a restriction of competition is not per se inadmissible [and it is ultimately decisive] whether the effects of a competition restriction are economically or socially harmful [Cartel Act I Communication, 535 et seq.; emphasis added]”, the thereto contrary conclusion of the Federal Supreme Court in the GABA-decision, according to which the Cartel Act “does not allow for an assessment of significance with regard to economic effects” also remains cryptic.
By addressing in its argumentation the “climate of anti-competitiveness” allegedly caused by hardcore agreements, the Federal Supreme Court exposes its own competition policy motivations. Ultimately, the finding of hardcore agreements pursuant to Article 5 paragraph 3 and 4 Cartel Act does ease the authority’s burden in the taking of evidence. The subsequent significance test would actually require a case-by-case evaluation including quantitative criteria. Ultimately, this portrays the decisive criterion for the delimitation from civil competition law.
According to the Federal Supreme Court, the legislator wanted to “create a materially identical rule with Article 5 paragraph 4 Cartel Act as is available under EU competition law with regard to vertical agreements, without proceeding identically in the technical legal sense”. It raises therefore serious concerns that according to the GABA-decision, this shall not be valid with regard to the EU Technology Transfer Block Exemption Regulation (TT-BER). The Federal Supreme Court neither takes the considerations of the TT-BER into account as a legal comparative nor as an interpretive aid, even though the TT-BER does also cover aspects of vertical agreements. This does not surprise: against the background of the TT-BER valid at the time of the infringement, the GABA-decision would have at least required a more in-depth reasoning in this regard. This was also made clear during the oral deliberation, since it would have been possible to assume that the specific conduct at stake was legal.
Finally the authorities’ bias to uphold the high fines raises serious questions. Particularly in the present case, there would have been ample room to reduce the fine amount significantly when considering the specific circumstances; the latter suggest inter alia a low level of culpability.
The GABA-decision tightens the Swiss competition law standards for horizontal and vertical hardcore agreements considerably and raises serious concerns in doing so. It does, however, not create a brave new Swiss competition law world from the perspective of ex ante legal advice in practice. For the future, it is to be expected that there will be a shift to the questions of whether an agreement – in particular whether a single continuous infringement – exists and if so whether this agreement actually constitutes a hardcore infringement. It is unlikely that the discussion will shift to the efficiency grounds. Efficiency grounds will play a subordinate role in practice due to the therewith associated risks of assessment and the Swiss competition authorities will hardly provide an administrative practice providing sufficient legal certainty in this regard.
Considering the substantial tightening of Swiss competition law with regard to hardcore agreements subject to heavy fines, it is important that the Swiss competition authorities interpret the types of such hardcore agreements restrictively and not as extensively as it increasingly has been the case over the past years. In light of the supposedly congruent legal framework as the one in the EU, as referred to by the Federal Supreme Court in ist GABA-decision, the Swiss competition authorities should adhere to the decision of the European Court of Justice in the matter “Groupement des cartes bancaires” (decision of the ECJ dated 11 September 2014, C-67/13), according to which the concept of the so-called “object box” is to be interpreted restrictively and the existence of “object restrictions” only to be assumed if they are proven to be anticompetitive “by their very nature”.