In this issue:

  • Reform of the Finnish Securities Market Act
  • No sanctions on the three largest retail groups in Finland for exchange of confidential information
  • Court of Appeals' Decision on Circumvention of an Effective Technological Measure

CORPORATE

Reform of the Finnish Securities Market Act

The Finnish Ministry of Finance has started preparations for a reform of the Finnish Securities Market Act (the "SMA"). The main purpose of the reform will be to evaluate the functionality and efficiency of the SMA in the changing market environment. The current SMA was introduced in 1989 when the main players i.e. the issuers, securities dealers and the stock exchange were national. After the entry into force of the SMA, there have been numerous developments in the securities markets including the EU-wide harmonisation of regulation and the increase of foreign market participants on the Finnish securities market.

For the purpose of preparing the reform, the Finnish Ministry of Finance has drafted a memorandum outlining its preliminary views on the development needs to make the SMA better respond to the changing market environment. According to the memorandum, the structure of the SMA should be clarified in connection with the reform and the introduction of certain general principles should be discussed. Further, amendments should be introduced, inter alia, to chapter 2 on the disclosure regime and chapter 6 on the takeover regime.

As regards the disclosure regime in chapter 2 of the SMA, the memorandum's proposals relate e.g. to prospectus requirements and flagging rules. In order to facilitate capital raising by Finnish companies, it is proposed that issues of securities not falling under the EU Prospectus Directive would become subject to simpler prospectus requirements than those applicable today.

In relation to shareholders' reporting requirements, these should according to the memorandum generally correspond better to the Transparency Directive and its implementing directive, as the Finnish regulation and practice currently differ in some respects from regulation and practice in other EU member states. In relation to specific flagging requirements, it will be considered whether the minimum threshold for disclosure of holdings in a Finnish publicly listed company should be lowered to two or three percent from the current five percent. The memorandum also raises a question whether the maximum disclosure threshold should be increased to 90 percent as opposed to the current threshold of 66.7 percent in order to improve transparency on the market. There are also some suggestions as to the timing of disclosure in the memorandum. Although the Transparency Directive provides that disclosure must be made on the fourth trading day, at the latest, the memorandum suggests that disclosure to the issuer and the Finnish Financial Supervision Authority could be regulated such that notification must be made at the beginning of the following trading day, at the latest, in order to decrease risks of information leakages. Such timing, compared to the current "without undue delay" criterion, would take into account e.g. events occurring after trading hours and potential needs of the target company to obtain further information prior to the release of disclosure.

In respect of chapter 6 of the SMA on takeover bids, the memorandum discusses e.g. the role of self-regulation in takeover situations. Specifically, the memorandum suggests that it be considered whether the Panel on Takeovers and Mergers of the Central Chamber of Commerce of Finland could take a stronger role in self-regulation and whether more market-initiated opinions on actual takeover cases could be brought to the Panel.

Finally, as to the potential reform of prospectus liability that has been discussed during the past few years, the memorandum suggests that these will be further examined based on the committee report of the Prospectus Liability Working Group published in 2005.

A more concrete proposal as to the contents of the reform will be issued based on the comments received from the market participants. According to a preliminary timetable, the renewed SMA could be expected to enter into force in 2011.

EU & COMPETITION

No sanctions on the three largest retail groups in Finland for exchange of confidential information

The Finnish Competition Authority ("FCA") has closed its investigation into the exchange of confidential information between Ruokakesko Oy ("Kesko"), Suomen Osuuskauppojen Keskuskunta ("SOK") and Tradeka Oy, the three largest retail groups in Finland with a combined market share in the Finnish market for retail trade of daily consumer goods of approximately 85 %. The exchange of information was carried out through ScanTrack, an information service provided by the market research company AC Nielsen Oy ("AC Nielsen"). The FCA decided not to propose that the Finnish Market Court impose a fine on the companies despite finding the exchange of information to be prohibited.

According to the FCA, Kesko, SOK and Tradeka had regularly exchanged recent and detailed information on sales figures through the ScanTrack service. The information collected at point of sale from supermarkets and other retail outlets and transmitted to ScanTrack's customers after being processed by AC Nielsen included, inter alia, value and volume of sales, consumer price and market share segmented into product group, segment, producer, brand and brand name at both national and regional level.

The FCA found that the group level information exchanged through the ScanTrack service directly revealed the value and volume of sales and the weighted average price per product of each of Kesko, SOK and Tradeka to their competitors. Further, the FCA found that the concentrated market structure in conjunction with the recent and detailed store level information exchanged through the ScanTrack service had enabled the two largest retail groups, Kesko and SOK, to monitor each other's prices and to find out even small changes in each other's prices.

The FCA found the exchange of information to be in violation of the Finnish Competition Act and Article 81 EC. However, the FCA did not propose that the Market Court impose a fine on the companies, since the FCA's investigation was initiated as a result of contacts from Kesko and SOK and, after the initiation of the FCA's investigation, both Kesko and SOK had ceased using the ScanTrack service.

IP & TECHNOLOGY

Court of Appeals' Decision on Circumvention of an Effective Technological Measure

The Court of Appeals of Helsinki has rendered a judgment in a matter concerning circumvention of technological measures designed to protect copyrighted works. The Court of Appeals reversed the District Court's decision and found that CSS protection qualifies as an effective technological measure under the Copyright Act.

The case concerned a computer program intended for circumventing CSS (Content Scrambling System) protection on a DVD. The circumvention program had been developed by one of the defendants in the case and distributed on the internet by the other. According to the Finnish Copyright Act (404/1961, as amended) and the Directive 2001/29/EC, it is prohibited to circumvent any effective technological measure used to prevent unauthorized use of copyright-protected works. It is also prohibited to distribute means to circumvent such effective technological measures.

The District Court had dismissed charges against the defendants on the grounds that CSS protection did not meet the standard of an effective technological measure due to circumvention programs being widely available on the internet. The District Prosecutor appealed the judgment to the Court of Appeals and claimed that CSS protection was intended for preventing and restricting the copying of DVDs and distributing such copies online. The Prosecutor further stated that circumvention of CSS protection is not common activity among consumers.

To support its case, the District Prosecutor obtained an opinion of the Finnish Copyright Counsel and presented the opinion as new evidence before the Court of Appeals. In the opinion (2007:9), the Copyright Council evaluated the notion of an effective technological measure on the basis of the Copyright Act and the EC Directive.

In its decision, the Court of Appeals found that the copyright holder had through CSS protection intended to prevent unauthorized copying of DVDs and distribution of such copies. The Court further noted that circumvention of CSS protection requires programming skills or the use of a separate program for the circumvention. Therefore, the Court concluded that CSS protection does constitute an effective technological measure under the Copyright Act. Consequently, the provision of services enabling circumvention of such a measure was prohibited. However, due to wide availability of corresponding software, the defendants having proactively reported themselves to the police and the minor effects of the defendants' actions, the Court of Appeals did not order any sanctions on the defendants.

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