Regulation of the distribution relationship

Competing products

Are restrictions on the distribution of competing products in distribution agreements enforceable, either during the term of the relationship or afterwards?

Restrictions on the distribution of competing products in distribution agreements are enforceable only if they comply with the Federal Cartel Act and, in particular, the Competition Commission’s (COMCO) Notice regarding the Competition Law Treatment of Vertical Agreements (the Verticals Notice).

According to the Verticals Notice, distribution agreements with non-compete obligations for an indefinite period or a fixed period exceeding five years are deemed to significantly restrict competition and are likely to be considered unlawful. This also applies to post-contractual non-compete obligations, with a few narrow exceptions.

Prices

May a supplier control the prices at which its distribution partner resells its products? If not, how are these restrictions enforced?

Restrictions on the distribution partner’s price-setting freedom are only enforceable if they comply with the Federal Cartel Act and, in particular, the Verticals Notice.

Under the Cartel Act, agreements between suppliers and distributors regarding fixed or minimum prices (resale price maintenance (RPM)) are generally prohibited. RPM clauses are vigorously prosecuted by COMCO. Parties to distribution agreements containing RPM clauses may be fined with up to 10 per cent of the turnover achieved in Switzerland in the preceding three financial years. In practice, these fines are mostly imposed on the suppliers.

An exception to the prohibition of RPM exists with regard to commercial agency agreements. In principle, principals under commercial agency agreements can determine the prices for the transactions, which are facilitated or concluded by agents on their behalf. However, for that purpose, it is important that agents do not bear any significant risks.

May a supplier influence resale prices in other ways, such as suggesting resale prices, establishing a minimum advertised price policy, announcing it will not deal with customers who do not follow its pricing policy, or otherwise?

Suppliers may influence resale prices to a limited extent by setting maximum resale prices or by communicating non-binding resale price recommendations.

Specifically with regard to resale price recommendations, it must be safeguarded that these suggested resale prices do not become tantamount to fixed or minimum prices owing to the exercise of pressure by the supplier or economic incentives, which cause the distributor to comply with the suggested prices. Resale price recommendations are less problematic if they are publicly accessible and expressly non-binding.

In the case of a selective distribution system, suppliers may also set high qualitative requirements to be complied with by all authorised distributors (eg, demanding a luxury retail environment). This will generally lead to higher costs on the part of the authorised distributors and thereby result in higher prices.

Minimum advertised price policies are likely to be qualified as an unlawful form of RPM and could give rise to turnover-based administrative penalties.

May a distribution contract specify that the supplier’s price to the distributor will be no higher than its lowest price to other customers?

Generally, yes. However, some exceptions may exist, in particular with regard to online platforms. In 2015, COMCO prohibited online travel agencies from obliging hotels not to offer lower prices on other platforms. Further exceptions may apply in the case of a dominant position.

Are there restrictions on a seller’s ability to charge different prices to different customers, based on location, type of customer, quantities purchased, or otherwise?

In principle, sellers are allowed to charge different prices for different customers. However, the Federal Cartel Act prohibits sellers with a dominant position on the relevant market from discriminating between trading partners in relation to prices or other conditions of trade. Such abuses of dominance may be fined with up to 10 per cent of the turnover achieved in Switzerland in the preceding three financial years.

Geographic and customer restrictions

May a supplier restrict the geographic areas or categories of customers to which its distribution partner resells? Are exclusive territories permitted? Is there a distinction between active sales efforts and passive sales that are not actively solicited, and how are those terms defined?

Geographic areas and categories of customers can be restricted if the restriction complies with the Federal Cartel Act and, in particular, the Verticals Notice.

Under the Cartel Act, clauses contained in distribution agreements regarding the allocation of territories are prohibited to the extent that sales by other distributors into these territories are not permitted.

According to the Verticals Notice, a supplier may generally restrict active sales efforts by the distributor into an exclusive geographic territory or to an exclusive customer group reserved to the supplier itself or allocated to another distributor, provided that these restrictions do not limit passive sales; responses to unsolicited orders from customers from other geographic territories or other categories of customers must still be possible.

In principle, internet sales are considered to be passive sales, unless a website or marketing efforts ‘actively’ target customers from another exclusive territory.

Exclusive territories, also limited to active sales efforts, are generally not permitted in the case of selective distribution systems.

Online sales

May a supplier restrict or prohibit e-commerce sales by its distribution partners?

In principle, e-commerce sales are considered to be passive sales, unless a website or marketing efforts ‘actively’ target customers from another exclusive territory. Therefore, suppliers cannot restrict or prohibit e-commerce sales outside the territory exclusively allocated to a distributor. ‘Invasion fees’ or similar amounts payable by the distributor in the case of (passive) sales into the exclusive territory of another distributor are generally unlawful.

However, in the context of a selective distribution system, suppliers may set qualitative requirements to be complied with by all authorised distributors. These requirements should be equivalent to the criteria requirements applicable to brick-and-mortar shops

Refusal to deal

Under what circumstances may a supplier refuse to deal with particular customers? May a supplier restrict its distributor’s ability to deal with particular customers?

Based on the principle of freedom of contract, undertakings can freely choose their contractual partners and decide on which terms they are willing to conclude a contract. Therefore, a refusal to deal with particular customers is generally lawful.

However, there are important exceptions. A refusal to deal may amount to an abuse of a dominant position under the Federal Cartel Act, if a supplier holds a dominant position on a relevant market.

Competition concerns

Under what circumstances might a distribution or agency agreement be deemed a reportable transaction under merger control rules and require clearance by the competition authority? What standards would be used to evaluate such a transaction?

Typically, distribution or agency agreements do not fall under the Swiss merger control rules. If concluded between competitors, distribution or agency agreements may rather give rise to concerns under article 5 of the Federal Cartel Act (ie, the statutory provision governing anticompetitive agreements).

However, it cannot be excluded that distribution or agency agreements may under (very) exceptional circumstances fall under the merger control rules. This could be the case if these agreements allow one undertaking (eg, the supplier) to exercise a decisive influence over the activities of the other undertaking (eg, the distributor). In such a case, an acquisition of control in terms of the Merger Control Ordinance would exist. Nonetheless, even franchising agreements, which typically provide a franchisor with far-reaching rights to issue directives and, thus, to maintain a significant degree of control over the business activities of the franchisee, do usually not fall under the merger control regime.

Moreover, the establishment of a joint venture in connection with a distribution or agency relationship could also trigger merger control obligations, for example, if two undertakings set up a joint venture for the joint commercialisation of goods or services. If two or more undertakings establish a new joint venture, the joint venture is reviewable if it performs all the functions of an autonomous economic entity on a lasting basis and if business activities from at least one of the controlling undertakings are transferred to the joint venture.

Do your jurisdiction’s antitrust or competition laws constrain the relationship between suppliers and their distribution partners in any other ways? How are any such laws enforced and by which agencies? Can private parties bring actions under antitrust or competition laws? What remedies are available?

Under the Federal Cartel Act, all agreements that eliminate effective competition or significantly restrict competition in a market for specific goods or services and are not justified on grounds of economic efficiency are prohibited. These agreements are null and void.

To set out under which conditions agreements affecting competition are justified on grounds of economic efficiency, COMCO issued the Verticals Notice, which follows the European Vertical Block Exemption Regulation. In addition, COMCO also published short explanatory guidelines on the Verticals Notice. In the motor vehicles sector, a separate notice and guidelines exist.

The Verticals Notice and the accompanying explanatory guidelines address, inter alia, RPM, exclusivity rights granted in relation to geographic territories or customer groups, selective distribution systems (ie, ‘closed’ systems of authorised distributors selected on the basis of certain requirements), non-compete obligations or certain restrictions in the e-commerce sector.

In addition, the Cartel Act also addresses abusive conduct by dominant undertakings, such as refusals to deal, discrimination of trading partners, and tying and bundling practices.

The rules set forth in the Cartel Act are enforced by COMCO and its Secretariat. The Secretariat investigates conducts investigations and disposes of far-reaching investigative powers, including the right to conduct dawn raids and summon witnesses. On the basis of the outcome of investigations, COMCO renders its decision, prohibits unlawful conduct and imposes fines. It may also approve an amicable settlement concluded between the Secretariat and the undertakings concerned.

Parties to distribution agreements containing RPM clauses or an unlawful allocation of territories to the extent that passive sales by other distributors into these territories are not permitted may be fined up to 10 per cent of the turnover achieved in Switzerland in the preceding three financial years. The same fines can be imposed on undertakings that abuse their dominant position on a specific market.

COMCO may prohibit also other anticompetitive clauses contained in distribution agreements, but this does not lead to direct turnover-based fines. These fines can be imposed only if such restrictions are maintained in spite of a decision of COMCO, which specifically prohibits the restrictions.

In addition, anticompetitive agreements or abuses of dominance can lead to private actions. Private parties hindered by unlawful anticompetitive conduct from entering or competing in a market are entitled to request the elimination of or desistance from the anticompetitive conduct, damages and the surrender of unlawfully earned profits. However, private enforcement of competition law rules in Switzerland is rare.

Law stated date

Correct as of

Give the date on which the information above is accurate.

11 January 2021.