Vertical Restraints: EU and Switzerland

lic. iur. David Mamane, LL.M.

2015 ABA SIL Asia Forum - Tokyo

Vertical Restraints: EU and Switzerland 2 March 2015 Page 2/11

General framework

Competition law issues regarding distribution agreements >  Main competition law concerns in EU and Switzerland:

>  Absolute territorial restriction: Imposing import/export bans between EU member states/Switzerland

>  Fixing resale prices or setting minimum prices à “restriction by object” (in EU) and rarely considered to be lawful

>  Specific historical background: Enabling the EU common market à territorial restrictions prevent the market integration

>  Switzerland: Focus of the authority on verticals in order fight the perceived “high-price island” >  current pressure due to CHF/EUR exchange rate fluctuation >  application to foreign distribution systems

Vertical Restraints: EU and Switzerland 2 March 2015 Page 3/11

General framework

>  European Union: Article 101 of the Treaty on the Functioning of the European Union (TFEU): >  Anticompetitive agreements: having “as their object or effect the prevention,

restriction or distortion of competition” >  Possibility of an exemption in case of economic efficiencies (rare for

restrictions by object) >  Risk of sanctions, damages, and/or nullity of unlawful clauses; no possibility

for leniency applications for vertical agreements >  Switzerland: Article 5 of the Cartel Act

>  Similar rules as in the EU, but with “Swiss finish” >  Risk of sanctions, damages, and/or nullity of unlawful clauses; possibility for

leniency applications for vertical agreements

Vertical Restraints: EU and Switzerland 2 March 2015 Page 4/11

General framework

>  Specific rules: Verticals Block Exemption Regulation and corresponding Guidelines

>  But: multilayered application >  Application by European Commission >  Application by courts/authorities of EU member states >  (Indirect) application by courts/authorities in neighboring countries (e.g.

Switzerland) >  Application and practice may vary significantly >  Negative consequences of local differences:

>  Difficulties in designing trans-European distribution systems >  Need for local advice in certain cases >  E.g. distribution systems lawful in the EU may be unlawful in Switzerland

Vertical Restraints: EU and Switzerland 2 March 2015 Page 5/11

Exclusive distribution

>  Exclusivity for specific territories or customer groups >  Market partitioning: absolute territorial protection vs parallel imports

>  Exclusivity without absolute territorial protection is generally allowed >  Lawful to prohibit active sales into exclusive territories of other parties; but

passive sales (responding to unsolicited requests ) must always be possible >  In case of price differentiation it remains possible to do arbitrage

>  Extensive reach and application >  Indirect measures that may affect parallel imports >  Restrictions of guarantee services >  Dual pricing for exported goods >  Also applicable to distribution agreements outside of the territory

Vertical Restraints: EU and Switzerland 2 March 2015 Page 6/11

Exclusive distribution

>  Practical example and extraterritorial effects >  Nikon: hindering parallel imports into Switzerland (fine by Swiss competition

authority of USD 13 million) > Applicable to distribution systems outside of (and far away from) the

territory “[Distributor] shall not, directly or indirectly, transmit, send or export any product or software to any foreign country (i) in violation of any of the US export control laws or regulations, and (ii) without first obtaining the express written consent of [Manufacturer]. In no event shall customer directly or indirectly, transmit, send, or export any product outside the territory”

à restriction of sales into Switzerland

Vertical Restraints: EU and Switzerland 2 March 2015 Page 7/11

Pricing behavior

>  Establishment of a fixed or minimum resale price to be observed by the buyer à restriction by object; problematic

>  Also applicable to indirect measures >  E.g. margin fixing, linking to prices of other market participants, threats,

intimidation, warnings, penalties, delay or suspension of deliveries or contract terminations in relation to observance of a given price level

>  Maximum or recommended resale prices >  Generally lawful, unless pressure or incentives lead to fixed/minimum prices >  Price monitoring systems and contacting resellers may be problematic >  Increased risk in case of less inter-brand competition (market share >30%)

à target/reference price >  Practice: Fine of USD 6 million for RPM based on price recommendations in

Switzerland (Pfizer/Bayer/Eli Lilly)

Vertical Restraints: EU and Switzerland 2 March 2015 Page 8/11

Pricing behavior

>  Possible efficiencies in order to justify RPM (rare): >  Introduction of a new product à good for inter-brand competition >  Uniform short-term low price campaigns

>  Assessment of actual effects vs restriction by object approach >  De minimis assessment: in case of low market shares and competitive

market, national investigations have been stopped à unlikely to have a competitive harm

>  Price differentiation: >  If enforced by territorial restriction à generally problematic >  In case of dominance: excessive pricing, refusal to supply or discrimination? >  Switzerland: Concern about price differentiation compared to EU member

states à relative dominance or general obligation to supply as a solution?

Vertical Restraints: EU and Switzerland 2 March 2015 Page 9/11

E-commerce

>  E-commerce is in the focus of the EU Commission >  EU Commission considers the internet sales channel to be of particular

importance for the consumer benefit >  General approach:

> “every distributor must be allowed to use the Internet to sell products” >  Acceptable restrictions

>  Payment of fixed fee for online or offline sales support (“not a variable fee where the sum increases with the realized offline turnover as this would amount indirectly to dual pricing”) à no dual pricing!

>  Prohibition of targeted online marketing measures in exclusive territories >  Requiring minimum amount of sales in “brick-and-mortar” shops (by turnover

or volume) >  Quality requirements à 3rd party platform prohibitions? Disputed.

Vertical Restraints: EU and Switzerland 2 March 2015 Page 10/11

E-commerce

>  Recent cases: >  Garmin: “kick back” system leading to higher prices for internet dealers; also

different rebate levels, offline functional rebates, etc. >  Online booking platforms and Apple E-books: most favored nation (MFN)

clauses >  Pierre Fabre: Selective distribution of luxury cosmetics must be possible via

the internet; many national procedures >  Adidas: platform bans may be problematic

Vertical Restraints: EU and Switzerland 2 March 2015 Page 11/11

David Mamane david.mamane@swlegal.ch Schellenberg Wittmer Ltd / Attorneys at Law Löwenstrasse 19 / P.O. Box 1876 / 8021 Zurich / Switzerland T +41 44 215 5252 / F +41 44 215 5200 www.swlegal.ch

Thank you for your attention.

ZURICH / GENEVA / SINGAPORE