Fair Price Initiative Implemented by Parliament
Concept of Relative Market Power has Far-Reaching Consequences for Companies
The Swiss parliament has adopted the concept of relative market power. Under the new law, the rules on abuse of dominance will be extended to companies with relative market power. A company has relative market power if another company depends on it, as it does not have sufficient and reasonable possibilities of switching to other companies. The concept of relative market power will extend the prohibition of abusive behavior to a large number of domestic and international companies. In addition, the new law provides for a right of customers against companies with relative market power to purchase goods and services in foreign countries at local prices and conditions. Finally, geo-blocking in online commerce will be banned. These changes have far-reaching consequences for companies and create considerable legal uncertainty.
Background: Popular ballot initiative and parliamentary counter-proposal
In December 2017, the popular ballot initiative «Stop to the high price island – in favor of fair prices» (Fair Price Initiative) was submitted. It would introduce the concept of relative market power into Swiss competition law. The initiative aims at enabling Swiss companies to procure goods and services abroad at local prices and conditions in a non-discriminatory way.
The Federal Council rejected the initiative, but submitted an indirect counter-proposal to parliament. Parliament amended the Federal Council’s counter-proposal in a way that it effectively implements the initiative. Hence, a withdrawal of the initiative was announced. The parliamentary counter-proposal will therefore, subject to a referendum and the formal final vote in parliament, directly become law. It is expected that the new law may enter into force later this year.
New regulation of market power
The new law provides for two novelties: First, the existing rules on abuse of dominance under Swiss competition law will be extended to companies with relative market power. Second, a new type of abuse of dominance will be introduced. Under this new offense, restrictions to purchase goods and services abroad at local prices and conditions will be prohibited.
Introduction of relative market power
Under the new law, companies with relative market power will be subject to the same rules as dominant companies. The prohibition of abusive behavior pursuant to article 7 of the Cartel Act (CartA) will also apply to companies with relative market power.
Relative market power exists when a company is economically dependent from another company. Such dependence requires that a company does not have sufficient and reasonable possibilities to switch to other companies. There may be a lack of reasonable alternatives, for example, if the party has made specific investments, in case of exclusive agreements, must-in-stock products, original spare parts or software updates. In contrast to dominance, which exists erga omnes, relative market power is assessed vis-à-vis an individual counterparty and in relation to a specific product or service.
Companies with relative market power will be subject to the same rules on abusive behavior vis-à-vis dependent companies as dominant companies. Therefore, dependent companies must in principle be treated equally and not worse than non-dependent companies with regard to prices, discounts and other terms and conditions. However, the concept of relative market power does not create a general obligation to grant most favored conditions to dependent companies.
The legal consequence of the abuse of relative market power is a prohibition of the conduct in question and, potentially, a claim for damages. Unlike an abuse of dominance, the behavior cannot be sanctioned with fines.
Right to purchase abroad at local prices and conditions
In addition, a new type of abuse is introduced (article 7(2)(g) CartA). It creates a right for Swiss companies to purchase abroad at local prices and conditions.
Companies with relative market power (and dominant companies) are prohibited from restricting the ability of customers to purchase goods or services offered in Switzerland and abroad at local prices and conditions. This obliges companies with relative market power to supply dependent companies at the (more favorable) conditions they offer abroad (obligation to supply and obligation not to discriminate).
Enforcement of the new regulation
Civil vs. administrative enforcement
Relative market power exists vis-à-vis an individual counterparty. Such bilateral claims are likely to be enforced primarily by means of civil action against the company with relative market power. The Competition Commission is expected to limit its activities to create case law.
National vs. international enforcement
In domestic cases, a civil claim can be filed against the company with relative market power at its registered office in Switzerland. Alternatively, a complaint can be filed with the Competition Commission.
In order to enforce the right to purchase abroad, the Swiss company has to take legal action against a foreign company and demand the supply of goods or services at the local prices and conditions. In case of antitrust violations, a foreign company may be sued at the location in Switzerland where the infringing conduct had its effects. The Swiss court will apply Swiss competition law. A lawsuit filed abroad at the defendant’s domicile will hardly succeed because a foreign court is unlikely to apply Swiss competition law to procurements made there.
Prohibition of geo-blocking
To ensure non-discriminatory purchases in e-commerce, a new provision on geo-blocking will be introduced in the Act against Unfair Competition (article 3a UCA). Under the new law, it will be unlawful to discriminate Swiss customers in e- and distance commerce with regard to prices or payment terms, to restrict their access to an online portal or to redirect them without their approval.
Far-reaching consequences for companies
The new rules entail numerous challenges for companies.
The number of companies subject to the prohibition of abusive behavior will significantly increase. Practical difficulties are likely to arise in particular with regard to the question as to whether a company has relative market power.
Companies must assess specifically for any contractual relationship whether they have relative market power, i.e. whether their counterparties are dependent on them. Unlike dominance, the existence of relative market power is not determined by the characteristics of the company concerned itself, but by the individual dependency of its counterparties. This dependency may not be evident to the company concerned. The assessment of relative market power must be carried out in each individual case.
A company with relative market power must adapt its behavior to the regime of abuse under article 7 CartA. It must review and, if necessary, adapt its business relationships with dependent companies. In particular, dependent companies will need to be treated equally in terms of prices, discounts and further terms and conditions. Furthermore, the termination of agreements or the conclusion of exclusivity arrangements may need to be justified by legitimate business reasons.
Once the new law has entered into force, decisional practice and case law will need to develop. Criteria for assessing economic dependence will have to be specified for various groups of cases. It is currently open how long this will take. Until then, there will remain legal uncertainty.
This Homburger Bulletin expresses general views of the authors at the date of the Bulletin, without considering the facts and circumstances of any particular person or transaction. It does not constitute legal advice. This Bulletin may not be relied upon by any person for any purpose, and any liability for the accuracy, correctness or fairness of the contents of this Homburger Bulletin is explicitly excluded.