Switzerland: Cases And Precedents: Vertical Restraints 2021 - Switzerland

Overview

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Enforcement activities focus on resale price maintenance and the restriction of passive sales as these are the instances of conduct that are subject to fines in Switzerland.

In 2003 the Swiss competition law on vertical restraints was toughened as a means to fight high prices in Switzerland. In that regard Swiss competition law has a market integration objective similar to the one of the EU competition law. The difference to the EU is that this market integration objective is not limited to the Swiss internal market but that ComCo treats Switzerland as if it were a part of the EEA. It is unclear whether this market integration objective extends beyond the EEA, in particular the UK, but also the US and other countries. Legislative history suggests that this is not the case. ComCo, however, has declared export bans in US-distribution contracts as unlawful under Swiss competition law. This would imply that a prohibition in, for example, a Korean distribution agreement to sell the contract goods outside Korea would be unlawful.

Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

ComCo has issued the following notices on vertical restraints:

• Notice on the competition law assessment of vertical restraints on 28 June 2010 (as amended on 22 May 2017) (Vertical Restraints Notice). The Vertical Restraints Notice largely reflects the Block Exemption Regulation 330/2010 of the European Commission. The Vertical Restraints Notice provides that vertical agreements are justified for reasons of economic efficiency if the market share held by the supplier does not exceed 30% of the relevant market on which it sells the contract goods or services and the market share held by the buyer does not exceed 30% of the relevant market on which it purchases the contract goods or services. This general justification does not apply in case of hardcore restrictions and certain non-compete obligations. Also the general justification is excluded where competition is restricted by the cumulative effects of parallel networks of vertical agreements.
• Explanations on the Vertical Restraints Notice of 12 June 2017 (as amended on 9 April 2019).
• Notice on the competition law assessment of vertical restraints in the motor vehicle sector of 29 June 2015 (as amended on 9 September 2019) (Motor Vehicle Notice).
• Explanations on the Motor Vehicle Notice of 29 June 2015 (as amended on 9 September 2019).

A leading case as regards vertical restraints is the Gaba case from 2016. This case concerned a contractual prohibition in a license agreement that obliged the Austrian licensee not to sell the contractual goods outside Austria. The Federal Supreme Court held that such an agreement would constitute a significant restriction that would be unlawful in the absence of an efficiency justification. The Federal Supreme Court also held that no appreciable effects in Switzerland would be needed for Swiss competition law to apply. Possible effects in Switzerland would be sufficient.

Non-selective distribution

Relevant legislation

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

Regulators

Swiss competition law is enforced by ComCo and its Secretariat:

• The Secretariat is a full-time body with more than 70 employees. It leads the investigation and submits proposals to ComCo to make a decision.
• ComCo is a part-time body of currently 12 members. ComCo has a three-member presiding committee. The majority of the members of ComCo are independent experts, usually professors of law or economics. The rest of the members are representatives of business associations and consumer organisations. ComCo decides on the Secretariat's proposals.

Principles

A non-selective distribution system is generally justified up to a market share of 30% if the following hardcore restrictions are absent:

• Resale price maintenance.
• The restriction of the territory into which, or of the customers to whom, the buyer (without prejudice to a restriction on its place of establishment) may sell the contract goods or services, except:
• • the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the customers of the buyer,
  • the restriction of sales to end users by a wholesaler,
  • the restriction of the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.
• The restriction, agreed between a supplier of components and a buyer who incorporates those components, of the supplier's ability to sell the components as spare parts to end-users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods.

Selective distribution

Relevant legislation

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

Regulators

Swiss competition law is enforced by ComCo and its Secretariat:

• The Secretariat is a full-time body with more than 70 employees. It leads the investigation and submits proposals to ComCo to make a decision.
• ComCo is a part-time body of currently 12 members. ComCo has a three-member presiding committee. The majority of the members of ComCo are independent experts, usually professors of law or economics. The rest of the members are representatives of business associations and consumer organisations. ComCo decides on the Secretariat's proposals.

Principles

A selective distribution system that is based on qualitative criteria only does generally not constitute a restriction of competition and is lawful if the following hardcore restrictions are absent:

• Resale price maintenance.
• The restriction of the territory into which, or of the customers to whom, the buyer (without prejudice to a restriction on its place of establishment) may sell the contract goods or services, except:
• • the restriction of sales to end users by a wholesaler,
  • the restriction of sales by the members of a selective distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system, and
  • the restriction of the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.
• The restriction of active or passive sales to end users by members of a selective distribution system operating at the retail level.
• The restriction of cross-supplies between distributors within a selective distribution system.
• The restriction, agreed between a supplier of components and a buyer who incorporates those components, of the supplier's ability to sell the components as spare parts to end-users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods.

A selective distribution system that is based on qualitative and quantitative criteria is generally justified for reasons of economic efficiency up to a market share of 30% if the above-mentioned hardcore restrictions are absent.

Resale price maintenance

Relevant legislation

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

Regulators

Swiss competition law is enforced by ComCo and its Secretariat:

• The Secretariat is a full-time body with more than 70 employees. It leads the investigation and submits proposals to ComCo to make a decision.
• ComCo is a part-time body of currently 12 members. ComCo has a three-member presiding committee. The majority of the members of ComCo are independent experts, usually professors of law or economics. The rest of the members are representatives of business associations and consumer organisations. ComCo decides on the Secretariat's proposals.

Principles

Resale price maintenance is generally prohibited and subject to fines in Switzerland. It can be assumed that ComCo will practically never accept an efficiency justification for resale price maintenance.

The term resale price maintenance mainly covers two sets of agreements:

• The restriction of the buyer's ability to determine its sale price.
• Maximum sale prices and recommended sale prices that amount to a fixed or minimum sale price of the buyer as a result of pressure from, or incentives offered by, any of the parties. In the Hors-Liste Drugs case, however, the Federal Supreme Court held that the respective recommended resale prices would constitute unlawful resale prices even though the supplier had not exercised any pressure or offered incentives to adhere to the recommended resale prices. The Federal Supreme Court relied mainly on the argument that the recommended resale prices had been constantly communicated to the pharmacies through a third-party database which was connected to the cash registers of the pharmacies which then showed the recommended resale price as the default price.

The term resale price maintenance only captures restrictions of the buyer's ability to determine its sale price and the ones of the seller.

Territorial restrictions (including online)

Relevant legislation

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

Regulators

Swiss competition law is enforced by ComCo and its Secretariat:

• The Secretariat is a full-time body with more than 70 employees. It leads the investigation and submits proposals to ComCo to make a decision.
• ComCo is a part-time body of currently 12 members. ComCo has a three-member presiding committee. The majority of the members of ComCo are independent experts, usually professors of law or economics. The rest of the members are representatives of business associations and consumer organisations. ComCo decides on the Secretariat's proposals.

Principles

Restrictions of where or to whom a buyer can sell the goods are subjected to different rules depending on whether the distribution system is selective or not.

A particularity of the Swiss competition law is that only the unlawful restriction of passive sales into a territory is subject to fines. An unlawful restriction of active sales and an unlawful restriction of sales to customer groups is not. This means that an unlawful restriction of online sales is generally not subject to fines.

In a non-selective distribution system, restrictions of the territory into which, or of the customers to whom, a buyer (without prejudice to a restriction on its place of establishment) may sell the contract goods or services are generally not justified for reasons of economic efficiency, with the following exceptions:

• the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the customers of the buyer,
• the restriction of sales to end users by a wholesaler,
• the restriction of the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.

Furthermore, the restriction agreed between a supplier of components and a buyer who incorporates those components of the supplier's ability to sell the components as spare parts to end-users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods is generally not justified for reasons of economic efficiency.

In a selective distribution system, the following territorial/customer restrictions are not justified for reasons of economic efficiency:

• Restrictions of the territory into which, or of the customers to whom, a buyer (without prejudice to a restriction on its place of establishment) may sell the contract goods or services are not generally justified for reasons of economic efficiency and need an efficiency justification in each case, with the following exceptions:
• • the restriction of sales to end users by a wholesaler,
  • the restriction of sales by the members of a selective distribution system to unauthorised distributors within the territory reserved by the supplier to operate that system;
  • the restriction of the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.
• The restriction of active or passive sales to end users by members of a selective distribution system operating at the retail level.
• The restriction of cross-supplies between distributors within a selective distribution system.
• The restriction, agreed between a supplier of components and a buyer who incorporates those components, of the supplier's ability to sell the components as spare parts to end-users or to repairers or other service providers not entrusted by the buyer with the repair or servicing of its goods.

Restrictions of online sales are generally treated as restrictions of passive sales. Online advertisement is only considered as a form of active sales if the online advertisement is specifically addressed to certain customers. Examples of restrictions of passive sales are:

• An obligation that the (exclusive) reseller shall prevent customers located in another (exclusive) territory to view its website.
• An obligation that the (exclusive) reseller shall terminate consumers' transactions over the internet once their payment card data reveals an address that is not within the distributor's (exclusive) territory;
• An obligation that the reseller shall limit its proportion of overall sales made over the internet. The supplier can, however, require that the buyer sells at least a certain absolute amount (in value or volume) of the products offline.
• Dual pricing, namely an obligation that the reseller shall pay a higher price for products intended to be resold online than for products intended to be resold offline.

However, the supplier may impose quality standards for online sales. However, the quality standards for online sales have to be overall equivalent to the criteria imposed for offline sales. Also, the supplier can require its distributors to have one or more brick and mortar shops or showrooms as a condition for becoming a member of its distribution system. Furthermore, within a selective distribution system for luxury goods, retailers may be prohibited from selling the goods over a third-party platform.

Non-compete obligations

Relevant legislation

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

Regulators

Swiss competition law is enforced by ComCo and its Secretariat:

• The Secretariat is a full-time body with more than 70 employees. It leads the investigation and submits proposals to ComCo to make a decision.
• ComCo is a part-time body of currently 12 members. ComCo has a three-member presiding committee. The majority of the members of ComCo are independent experts, usually professors of law or economics. The rest of the members are representatives of business associations and consumer organisations. ComCo decides on the Secretariat's proposals.

Principles

Non-compete obligations are generally lawful up to a market share of both parties of 15%.

Above the market share of 15%, the following non-compete obligations are not generally justified for reasons of economic efficiency and need an efficiency justification in each case:

• Any direct or indirect non-compete obligation, the duration of which is indefinite or exceeds five years. This also applies to tacitly renewable non-compete obligations. This does not apply to non-compete obligations where the contract goods or services are sold by the buyer from premises and land owned by the supplier or leased by the supplier, provided that the duration of the non-compete obligation does not exceed the period of occupancy of the premises and land by the buyer.
• Any direct or indirect obligation causing the buyer, after termination of the agreement, not to manufacture, purchase, sell or resell goods or services. This does not apply where all of the following conditions are fulfilled: (a) the obligation relates to goods or services which compete with the contract goods or services; (b) the obligation is limited to the premises and land from which the buyer has operated during the contract period; (c) the obligation is indispensable to protect know-how transferred by the supplier to the buyer; (d) the duration of the obligation is limited to a period of one year after termination of the agreement.
• Any direct or indirect obligation causing the members of a selective distribution system not to sell the brands of particular competing suppliers.

To the extent that a non-compete obligation restricts cross-supplies within a selective distribution system, it is not justified for reasons of economic efficiency.

Parity clauses (including MFN)

Relevant legislation

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

Regulators

Swiss competition law is enforced by ComCo and its Secretariat:

• The Secretariat is a full-time body with more than 70 employees. It leads the investigation and submits proposals to ComCo to make a decision.
• ComCo is a part-time body of currently 12 members. ComCo has a three-member presiding committee. The majority of the members of ComCo are independent experts, usually professors of law or economics. The rest of the members are representatives of business associations and consumer organisations. ComCo decides on the Secretariat's proposals.

Principles

Parity clauses like most favoured nation/customer clauses are generally justified for reasons of economic efficiency up to a market share of 30%.

Other

Relevant legislation

Vertical restraints are regulated in the Act on Cartels of 6 October 1995 (CA). Vertical restraints are generally governed by Article 4(1) and Article 5 CA. Article 5(4) CA creates a presumption that resale price maintenance and the restriction of passive sales eliminate effective competition. Unlawful vertical agreements that are captured by Article 5(4) CA are subject to fines.

Regulators

Swiss competition law is enforced by ComCo and its Secretariat:

• The Secretariat is a full-time body with more than 70 employees. It leads the investigation and submits proposals to ComCo to make a decision.
• ComCo is a part-time body of currently 12 members. ComCo has a three-member presiding committee. The majority of the members of ComCo are independent experts, usually professors of law or economics. The rest of the members are representatives of business associations and consumer organisations. ComCo decides on the Secretariat's proposals.

Principles

Exclusive customer allocation is assessed under the same principles as territorial restrictions.

Exclusive supply obligations are generally justified for reasons of economic efficiency up to a market share of 30%.

Upfront access payments are generally justified for reasons of economic efficiency up to a market share of 30%.

Category management agreements are generally justified for reasons of economic efficiency up to a market share of 30% if they include no hardcore restrictions. In certain cases category management can lead to an unlawful hub-and-spoke collusion between the distributors or an unlawful collusion between the supplier and the distributor that sells private label goods. Therefore, information exchange has to be limited to what is necessary to perform the category management and Chinese walls should be installed within the supplier's organisation.

Originally published by Law Business Research, Global Competition Review (GCR), Switzerland Analysis 2021.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.