Background

As per 1 January 2022, the antitrust prohibition of abusive conduct has been extended to companies with relative market power: Not only dominance, but also relative market power must not be abused. A company is considered to have relative market power if another company does not have sufficient and reasonable alternative options and therefore is dependent on the former company. Companies with relative market power must in principle treat dependent companies equally with respect to prices, discounts as well as other terms and conditions. In addition, the possibility for dependent companies to purchase goods or services from outside of Switzerland at the local prices and conditions must not be restricted. The introduction of relative market power aims at the so-called “high-price island” Switzerland and is a result of the Fair-Price Initiative (see the Homburger Bulletin dated 17 March 2021).

After the existence or abuse of relative market power has been rejected in earlier rulings by both the Swiss Competition Commission (COMCO) and the Cantonal Court of Basel-Landschaft (in a case under civil law), the COMCO has now, for the first time, found an abuse of relative market power and ordered measures.

Abuse of Relative Market Power Regarding French-language Books

Distribution of French-language books in France and Switzerland

French-language books are mainly marketed by publishing houses. Booksellers at the retail level generally purchase books directly from the publishing houses. There are a few regional wholesalers in France for smaller booksellers and to address gaps in the product range.

In France, publishers such as Madrigall are legally obliged to set fixed retail prices (book price fixing), on the basis of which they grant discounts to booksellers.

Since 2007, Swiss booksellers have no longer been subject to such fixed book prices and set their own retail prices. However, their purchase prices in Switzerland for French-language books are based on the retail prices set in France, which are adjusted by a surcharge (e.g. customs duties and exchange rate adjustments) and converted into recommended Swiss retail prices. From these prices, Swiss booksellers receive individual discounts from the publishing houses, which determine the final purchase price.

It is generally permitted for Swiss booksellers to purchase books directly in France and import them into Switzerland independently, as the Swiss bookseller Payot intended to do.

Market power of Madrigall

In order to determine whether a company has relative market power, the COMCO relies on the following criteria:

1. Dependency: Does the undertaking concerned have sufficient and reasonable alternative options? The COMCO examines this question in three steps:
   1. Determination of the alternative options
   2. Determination of the possible implications of alternative options
   3. Assessment of the proportionality of the implications
2. Lack of countervailing power of the dependent company: Is there an uneven distribution of power between the companies with regard to the business in question?
3. Gross negligence: Is the dependency due to the dependent company’s own misconduct?

Madrigall is one of the largest publishing groups in France, comprising approximately 15 publishing houses. The COMCO has concluded that Payot is dependent on Madrigall as a bookseller, as there are no sufficient and reasonable alternative options for Payot. Neither wholesalers in France and Switzerland nor the grey market can supply Payot with the required quantity of books under acceptable conditions. A complete withdrawal from Madrigall books would result in a considerable loss of sales and a notable reduction in the attractiveness of Payot as a generalist bookseller, given that Madrigall offers a highly renowned product catalogue.

With regard to the question of countervailing power, the COMCO found that there is a clear imbalance in the disadvantages that the two companies would face if the distribution relationship were to be terminated. While Madrigall has numerous distribution options in French-speaking Switzerland, Payot is completely dependent upon Madrigall. The question of gross negligence was deemed irrelevant, since generalist booksellers like Payot are effectively forced to offer Madrigall’s books. Furthermore, these books can only be obtained through Madrigall’s (exclusive) distribution system. Madrigall therefore has a relative market power over Payot as a bookseller in French-speaking Switzerland.

Abuse

It is not prohibited for an undertaking to have a relative market power. It is prohibited to abuse such relative market power.

The COMCO has determined that Madrigall has abused its relative market power in this case by demanding significantly higher purchase prices from Payot than from French booksellers. Madrigall sought to justify the higher purchase prices for Payot by arguing that additional costs were involved in direct delivery to Switzerland. However, according to the COMCO, Madrigall can only prove that a small part of these additional costs arise solely because Payot operates in Switzerland and not in France. These include higher labour costs in Switzerland and damages incurred from removing labels before returning books. According to the COMCO, the other costs claimed (e.g. conversion costs) do not justify a permanent increase in purchase prices. Consequently, there is an abuse of Madrigall’s relative market power.

Measures of the COMCO

The COMCO obliges Madrigall to offer Payot the same conditions as those granted to French booksellers in the event of direct delivery from France. However, Madrigall has the option of increasing the purchase price based on proven additional costs or adjusting the discount accordingly.

Should Madrigall infringe the imposed measures, the COMCO can open a new investigation and, if necessary, impose sanctions. However, the abuse of relative market power in itself, in contrast to the abuse of a dominant market position, does not result in any direct sanctions.

Previous Rulings on Relative Market Power

COMCO’s order of discontinuation of 24 June 2024 regarding Fresenius Kabi

On 24 June 2024, the COMCO closed its investigation into the international pharmaceutical company Fresenius Kabi. The subject of the investigation was the accusation of abuse of relative market power in that Fresenius Kabi prevented or refused Galexis AG from purchasing products (drink and tube feeding solutions) from abroad at more favorable conditions.

The COMCO dismissed the existence of relative market power due to a lack of dependency. It came to the conclusion that Galexis AG had sufficient and reasonable alternative options. However, even if Fresenius Kabi had relative market power, the COMCO considered that there would be no abuse of this power, since the conditions offered by suppliers abroad were at most only slightly better and Galexis AG would therefore not have been exploited.

Decision of the Cantonal Court of Basel-Landschaft of 13 December 2023

On 13 December 2023, the Cantonal Court of Basel-Landschaft ruled on precautionary measures requested by A. GmbH against B. GmbH, based in Germany, for abusing relative market power. A. GmbH had been the sole distributor of B. GmbH products in Switzerland for 27 years and in 2022 purchased approximately 90% of its total sales volume from B. GmbH. A. GmbH claimed that B. GmbH abused its relative market power by terminating the long-standing partner conditions with a notice period of only six months. This threatened the existence of A. Ltd. as it was unable to reorganize itself within this timeframe.

The Cantonal Court came to the conclusion that A. GmbH was not able to sufficiently demonstrate that it would suffer a disadvantage that could not be easily remedied as a result of the termination of the partner conditions. The alleged price increases and the risk of insolvency were not sufficiently substantiated. Furthermore, A. GmbH was unable to demonstrate the existence of a relationship of dependency between the two parties. The mere assertion of dependency, whether product-related or company-related, was insufficient. Even if a dependency had existed, it would have been the result of unsound business decisions on the part of A. GmbH. The latter should have taken measures in a timely manner to diversify its suppliers and to provide contractual safeguards.

Implications for Companies

The decision taken by the COMCO regarding French-language books has implications for companies operating internationally. They should review, on a case-by-case basis, the dependency of their respective Swiss contractual partners. In contrast to the assessment of market dominance, the determination of relative market power is not based on the characteristics of the company in question, but on the nature of the relationships with its individual contractual partners.

If there is relative market power, the company in question should take appropriate steps to prevent an abuse. For example, it should ensure that requests from Switzerland to be supplied abroad are not rejected. While price increases with reference to Switzerland are not excluded in principle, such increases must be convincingly justified with specific additional costs in view of the COMCO decision regarding French-language books.

In general, a company with relative market power must adapt its behavior to comply with the prohibition of abuse set forth in Article 7 of the Swiss Cartel Act. In particular, dependent companies must, in principle, be treated equally with regard to prices, discounts and other terms and conditions. In addition, companies with relative market power may be required to demonstrate that contract terminations or exclusivity agreements can be justified based on objective reasons.