Watch the Treatment of Switzerland in Distribution Agreements

On 29 September 2016, the Swiss Federal Administrative Court (FAC) handed down a judgment impacting any distribution agreement which could touch Switzerland (press release available here in German). The judgment calls for a review of any existing or new agreements for products which might make their way to the country.

The case was an appeal from a decision issued by the Swiss Competition Commission (ComCo) in 2011. In that decision, ComCo found that digital camera manufacturer Nikon had infringed the Swiss Cartel Act by excluding parallel imports, including passive (or unsolicited) sales, by foreign wholesalers and retailers into Switzerland. The FAC upheld this decision and the fine which ComCo imposed on Nikon.

This judgment is consistent with previous decisions and case law in Switzerland concerning distribution agreements outside Switzerland which may impact the country. In particular, it is notable that distribution agreements concerning any country in the EU or outside it (Switzerland is not an EU member state) are within the jurisdiction of ComCo if they contain clauses that are objectively capable of affecting parallel imports into Switzerland. In this case, the contracts in question were U.S. agreements.

Further, clauses in distribution agreements which prohibit sales outside a defined area will potentially prevent passive sales and parallel imports into Switzerland. Examples are agreements that limit sales to the U.S. or the EU/EEA (as many do).

Finally, in the Nikon case, the FAC and ComCo considered that certain exclusive purchasing obligations of Swiss Nikon retailers were unlawful since they also restricted parallel imports. These clauses required the retailers to purchase all their supplies of Nikon products from the Swiss Nikon entity. Such clauses fall under the EU Vertical Restraints Block Exemption Regulation (and thus are generally exempt from EU competition law, at least for a certain period), but the position has been held to be different in Switzerland.

Cooperation Between Competitors Can Be Dangerous

On 25 October 2016, the European Commission (EC) launched an investigation into a cooperation agreement between competing mobile telephony providers in the Czech Republic (see press release here). The case provides a reminder that it’s not only cartel behaviour that may infringe competition law. Normal cooperative behaviour involving competitors also needs to be analysed closely, from the manufacturing level down to sales and distribution.

The case concerns a network-sharing agreement between O2 CZ and T-Mobile CZ, which together serve around 75 percent of the Czech retail mobile telecommunications market. The network-sharing cooperation between O2 CZ and T-Mobile CZ started in 2011 and has been increasing in scope. Currently, it covers all mobile technologies (2G, 3G and 4G) and the entire territory of the Czech Republic with the exception of Prague and Brno (thus covering around 85 percent of the population).

The EC will investigate in particular whether the cooperation risks slowing down quality improvements in existing infrastructure and delaying or hindering the deployment of new technologies and new services based on them, without giving rise to offsetting efficiencies. If this were the case, the cooperation would be contrary to EU competition rules that prohibit anticompetitive business practices.

UK Private Competition Litigation Continues to Expand

Small companies in the UK are increasingly looking to direct private claims under competition law to protect their interests. The specialist Competition Appeal Tribunal (CAT) has seen numerous cases launched since its rules were changed last year to make them easier to bring.

The latest CAT case was filed on 30 September 2016 (see notice of claim here). This is another claim of foreclosure and refusal to supply by a downstream competitor against upstream suppliers. The claimants are in the business of providing veterinary services for cattle, sheep, pigs and poultry throughout the UK, principally to farms.

The defendants are a number of veterinary practice groups which deliver UK government veterinary work, including managing the supply of tuberculosis testing and other specified veterinary services for the government. In summary, the claimants allege that the defendants each hold a dominant position with regard to the award of subcontracts to eligible veterinary practices to provide TB testing to livestock in the five English regions where they have been awarded a monopoly to provide a fully managed delivery service for TB testing. The allegation is that they have abused this position by seeking to foreclose the market for TB testing services in various ways (including imposing unfair trading conditions, refusing to supply branches with the necessary registration and refusing to supply a subcontract).

Fast-track treatment is sought under the CAT’s rules. This is a procedure designed to ensure quick and relatively cheap treatment for small and medium-sized enterprises which are using competition law to protect themselves.

EU Competition Law and Sports Bodies

On 27 September 2016, the EC announced that it has sent a Statement of Objections (SO: preliminary statement of its case) to the International Skating Union (ISU) (see press release here). The ISU is an administrative body for figure and speed skating and perhaps not an obvious target for competition law enforcement. However, sporting rules are subject to EU competition law when the body setting the rules or the companies and persons affected by the rules are engaged in an economic activity.

In this case, the concern is that the ISU eligibility rules ban skaters from international speed-skating events such as the Olympic Games or the World Championships if they participate in international speed-skating events that are not approved by the ISU. If skaters break these rules, they can face up to a lifetime ban. The EC’s preliminary view is that these rules restrict the athletes' commercial freedom unduly and result in a situation where they are not willing to participate in speed-skating events other than those organised by the ISU or its members (national federations). This prevents new entrants from organising alternative international speed-skating events because they are unable to attract top athletes.

On the basis of EU Court case law, sporting rules are compatible with EU competition law if they pursue a legitimate objective and if the restrictions that they create are inherent and proportionate to reaching this objective. The EC will need to apply this test, which applies equally to similar sporting (and other) bodies.

Additional European competition law news coverage can be found in our news section.