The Federal Administrative Court recently issued a judgment(1) regarding the November 28 2011 Competition Commission (ComCo) penalty decision against digital camera manufacturer Nikon. In its 2011 decision, ComCo fined Nikon Sfr12.5 million (approximately $12.79 million) for impeding parallel imports of Nikon imaging products into Switzerland. ComCo considered that Nikon had sealed off the Swiss market by means of:
- a ban on exports into Switzerland in foreign distribution agreements;
- a ban on imports in the Swiss wholesaler agreement; and
- putting pressure on parallel importers.
The main focus of ComCo's decision was the examination of various Swiss and foreign distributorship agreements. Several wholesaler distributorship agreements contained clauses that were considered to impede (directly or indirectly) the possibility to import Nikon imaging products and were qualified as hardcore restrictions. In particular, some of the Swiss agreements imposed an obligation on behalf of the retailer to buy the contractual products from Nikon only or the official authorised distributor within the contractual area. ComCo qualified this purchasing and sourcing obligation as a prohibition of parallel imports. It also held that the prohibition of parallel imports into the Swiss market was not only included in national distributorship agreements, but also in different distributorship agreements of the Nikon group outside Switzerland. These agreements restricted the contractual territory (eg, to the European Economic Area (EEA) or the United States) and therefore excluded Switzerland. On this basis, ComCo qualified a contractual clause not to sell products outside the EEA or United States as an export ban regarding Switzerland.
The 2016 Federal Administrative Court decision confirmed the ComCo decision in all material aspects. The court amended the decision with regard only to the calculation of the fine and decreased the fine by a minimal amount. The decision continues a line of restrictive judgments and imposes a restrictive regime against international distribution agreements (for further details please see "Landmark decision: stricter rules for licence and distribution agreements").
Broad territorial scope of application (including US agreements)
The Federal Administrative Court ruled that distribution agreements in any country in Europe or outside Europe are within the jurisdiction of ComCo if they contain clauses that are objectively capable of affecting parallel imports into Switzerland. In this case, ComCo considered that even the US distribution contracts of Nikon infringed the Cartel Act. The court confirmed that the Swiss competition authority should have jurisdiction over such agreements. This is in line with the court's recent BMW decision.
Implementation of agreement necessary
Following the recent Gaba decision by the Federal Supreme Court, all hardcore restrictions (including the prohibition of parallel imports and passive sales) are deemed to significantly restrict competition, irrespective of the actual quantitative effect of such a restriction. In Nikon, the Federal Administrative Court clarified that an agreement must still be implemented in order to trigger consequences under the Cartel Act. On this basis, the court analysed whether the potentially problematic clauses had been implemented and applied in practice.
Clauses limiting sales to certain territories are problematic
The Federal Administrative Court considered that contractual clauses in distribution agreements which prohibit sales outside a defined area potentially prevent passive sales and parallel imports into Switzerland. This affects agreements that limit sales (eg, to the United States or European Union). On this basis, a restriction imposing an export ban on a US retailer (and therefore import bans into Switzerland) was considered problematic. Agreements which limit sales to the EEA were also considered to be unlawful. In particular, with regards to US-related distribution agreements, the court noted that there are strong economic interdependences between Switzerland and other jurisdictions, and therefore the lack of intent to exclude Swiss imports in such agreements was of no relevance.
Exclusive purchasing considered problematic
The Federal Administrative Court and ComCo considered certain exclusive purchasing obligations of Swiss Nikon retailers to be unlawful. These clauses required Swiss Nikon retailers to purchase all their supplies of Nikon products from the Swiss Nikon entity. The court concluded that such clauses therefore prevented Swiss retailers from making parallel imports.
Calculation of the fine based on Swiss turnover only
The only point of the original ComCo decision, that was changed by the Federal Administrative Court, concerned the calculation of the fine. Based on the Cartel Act, the fine must be calculated based on Swiss turnover. ComCo also included minimal non-Swiss turnover in its fine calculation and this mistake was corrected by the court. On this basis, there was a minimal reduction of the original fine by approximately Sfr500,000 (approximately $510,000).
The Federal Administrative Court decision, as well as the original ComCo decision, will lead to a significant number of uncertainties when setting up international distribution systems.
In particular, the broad scope of territorial application (ie, to distribution agreements outside the European Union) may raise concerns, given that in theory distribution agreements around the world could affect the Swiss market. A risk assessment for such agreements must be made on the basis of a de minimis standard by arguing lack of effects.
The restrictive approach towards purchase obligations will also trigger the need for increased scrutiny when drafting such agreements, even if the agreements are in line with the practice of Switzerland's neighbouring countries. This is particularly problematic because such clauses are – at least for the purposes of EU competition law – generally considered to be lawful or at least block exempted under the EU Verticals Block Exemption Regulation (cf Paragraph 152 of the EU Verticals Guidelines). The Swiss equivalent, the Verticals Notice issued by ComCo in 2010, does not consider such purchasing obligations to be problematic.
It will be up to ComCo to reconcile this judgment with its own practice in order to provide guidance and legal certainty for future agreements.
For further information on this topic please contact David Mamane at Schellenberg Wittmer by telephone (+41 44 215 5252) or email (firstname.lastname@example.org). The Schellenberg Wittmer website can be accessed at www.swlegal.ch.
(1) Federal Administrative Court decision, September 29 2016.
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