Switzerland: New rules on relative market power, abusive pricing and geo-blocking

In brief

The Swiss Parliament has adopted new provisions in the Swiss Cartel Act regarding the business conduct of companies with relative market power, the freedom of powerful companies to set prices, and geo-blocking practices. The revised Swiss law will enter into force on 1 January 2022.

Under the revised Swiss law:

  • all Swiss competition law rules against the abuse of a dominant position will apply not only to dominant companies but also to companies with relative market power;
  • a new category of abusive pricing by dominant companies and companies with relative market power will be introduced; and
  • any geo-blocking of Swiss customers in distance selling and e-commerce will be prohibited.

These new rules have considerable implications for companies doing business in Switzerland.

Recommended actions

Companies potentially holding a dominant position or relative market power on a Swiss market should ensure compliance with the new rules. Starting at the beginning of 2022, not only dominant companies, but also companies with relative market power are advised to avoid any violation of the new Swiss rules before engaging in relevant conduct towards a Swiss customer such as, e.g. terminating an agreement, refusing to enter into an agreement, treating customers unequally, engaging in tying practices, significantly increasing prices or refusing to supply Swiss customers abroad at local prices and conditions.

While the new Swiss concept of relative market power is similar to the German concept, the new Swiss category of abusive pricing is internationally unique. Its introduction is supposed to exert downward pressure on relatively high prices in some Swiss product markets. Swiss customers are expected to bring civil actions mainly against suppliers with relative market power that have distribution entities both in Switzerland and abroad and achieve relatively high margins in Switzerland.

Finally, given that the new Swiss law on geo-blocking practices will largely be in line with current EU rules, companies that are active in distance selling and e-commerce in Switzerland are advised to apply their EU compliance standard to any potential geo-blocking practices affecting the Swiss market. In particular, companies should check if they offer the same prices and conditions to all website users regardless of their nationality or place of residence, disable any automatic re-routing from a foreign to a Swiss website and enable the use of Swiss delivery and invoice addresses during the order process.

New concept of relative market power

Under the new Swiss competition law rules, a company has relative market power if customers or suppliers depend on it for the supply of or demand for a good or service, because there are no sufficient and reasonable possibilities of switching to other companies.

The Swiss concept of relative market power follows the current German concept. It is expected that Swiss case law will be strongly influenced by long-standing German case law on relative market power and that the following forms of dependency will be considered:

  • Top position dependency: A form of assortment-related dependency on "must have" products. The criterion here is a high distribution rate of more than 50%. Market shares are not relevant and even market shares as low as 10% may suffice.
  • Top group dependency: A form of assortment-related dependency on "must have" brands. The relevant criteria here are market shares and distribution rate.
  • Company-related dependency: Dependency, e.g., on business achieved with goods or services of a specific partner, especially in a relationship between supplier and authorized retailers/franchisees, or dependency on spare parts.
  • Demand-related dependency: Dependency on business achieved with a specific customer, distributor or retailer, e.g., if a retail chain purchases 10% of the total volume of a food producer.
  • Scarcity-related dependency: Dependency on a scarce commodity (semiconductors, oil, or the like).
  • Intermediation-related dependency: Dependency on intermediary services or on access to a certain interface to access procurement or sales markets.
  • Data-related dependency: Dependency on access to a specific database or critical information.

Unlike for dominant companies, abusive conduct of companies with relative market power is not subject to direct sanctions (i.e., fines) by the Swiss Competition Commission. Nevertheless, to create certain standards of conduct for these companies, the Swiss authority announced that it intends to run a number of pilot investigations in the coming years. The Swiss authority can prohibit any abuse of relative market power and impose behavioral or structural remedies. Any breach of a respective decision will thereafter be subject to fines.

Predominantly, the new Swiss rules are expected to be enforced privately, i.e., through civil litigation against companies with relative market power. For example, a company with relative market power engaging in abusive conduct may be obliged to contract at fair conditions determined by a civil court or to pay damages or disgorge profits in case of an abusive behavior. In Europe, Swiss court decisions against foreign companies can be enforced based on the Lugano Convention.

New category of abusive pricing

Switzerland also introduces a new category of abusive conduct: Both dominant companies and companies with relative market power that offer goods or services in Switzerland must not restrict the ability of Swiss companies to procure these goods or services abroad at local market prices and conditions. As a result, dominant companies and companies with relative market power are obliged to supply Swiss customers at the (more favorable) conditions they offer abroad.

As mentioned above, Swiss companies are expected to enforce their right to procure abroad at local prices and conditions mainly through civil litigation. The Lugano Convention and Swiss private international law provide for Swiss antitrust jurisdiction and the application of Swiss competition law if competition in the Swiss market is affected by an abusive conduct. Any civil action filed abroad at the defendant's domicile would hardly succeed though given civil courts tend to apply local competition law which does not cover this Swiss novelty.

New geo-blocking rules

Geo-blocking limits access to a website based on the user's location. Usually, access is denied based on the IP address of the user, but also based on its credit card details or shipping address. The new Swiss geo-blocking provision addresses cases in which Swiss commercial or private customers who wish to purchase from a foreign online shop are re-directed to a Swiss online shop operating at higher prices.

The new Article 3a of the Swiss Unfair Competition Act bans any discrimination of Swiss customers with regard to prices or payment conditions, any restriction of access to non-Swiss online portals and any re-directing of Swiss customers to another version of the online portal, unless the customer has consented or the conduct is objectively justified. Objective justifications include, e.g., different regulatory requirements for the distribution of a product. The new provision provides for a number of exceptions that allow geo-blocking practices in various sectors, including financial services, electronic communications services, public transportation services, health services, gambling and lotteries, private security services, social services, and audio-visual services.

Swiss customers will enforce the new geo-blocking rules privately. They can request a Swiss court to prohibit an imminent or existing infringement and to award damages. In Europe, Swiss court decisions against foreign companies can be enforced based on the Lugano Convention.

Swiss law does not provide for administrative or criminal procedures or sanctions in case of a violation of the new geo-blocking rules.

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