Leading case concerning unique Swiss rules on abusive pricing
In August 2022, the Swiss Competition Commission (ComCo) launched an investigation against the multinational healthcare company Fresenius Kabi Group ("Fresenius"). The investigation was triggered by a complaint of Galexis, a Swiss subsidiary of Swiss Galenica Group. Galexis claims that Fresenius abuses an alleged position of relative market power as Galexis' supplier of sip and tube feed nutrition.
Galenica Group is a leading Swiss pre-wholesaler and wholesaler of pharmaceutical products. It supplies Swiss hospitals, nursing homes, self-dispensing medical practitioners and pharmacies. In the past, the Swiss Fresenius subsidiary has supplied Galexis at Swiss wholesale prices. Media reports indicate that, based on the new Swiss abuse of relative market power rules, Galexis attempted to order the same products from Dutch and German Fresenius entities at lower Dutch and German wholesale prices, and that Galexis' order was refused by the Dutch and German Fresenius entities.
ComCo investigates if Fresenius Kabi (i) holds a position of relative market power in relation to Galexis and (ii) engages in abusive geographic price differentiation. This is ComCo's first investigation into the new category of abusive conduct.
ComCo intends to complete the investigation by the end of 2023. If found unlawful, ComCo may prohibit Fresenius from refusing to supply Galexis in the Netherlands and Germany at local terms and conditions. ComCo may also impose behavioral remedies on Fresenius.
Background: 2022 revision of the Swiss Cartel Act
On 1 January 2022, the revised Swiss Cartel Act including new rules on relative market power entered in force (see our Client Alert of September 2021 regarding the new rules on relative market power and geo-blocking). According to the new rules, a company has relative market power if other companies 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 suppliers or customers. The new Swiss rules are modelled after the long-established German concept of relative market power.
In addition to the concept of relative market power, the revised Swiss Cartel Act introduced a new category of abusive pricing which may well be unique in the world: Article 7 para. 2(g) of the Swiss Cartel Act prohibits suppliers holding a position of dominance or relative market power from refusing to supply Swiss customers abroad at the terms and conditions applicable in the foreign country, unless the refusal is justified due to legitimate business reasons (prohibition of geographic price differentiation). Basically, the new law obliges dominant suppliers and suppliers with relative market power to supply Swiss importers, wholesalers, retailers and direct customers (but not consumers) in a foreign country at (lower) local prices. The Swiss legislator expects that the new rule will reduce price differences between Switzerland and other countries.
In case of an alleged abuse, ComCo may conduct an investigation against a (Swiss or foreign) company holding a position of dominance or relative market power, which may involve substantial costs and reputational risks for the company and eventually lead to ComCo prohibiting the abusive conduct and imposing remedies. Furthermore, dominant entities engaging in abusive conduct may face fines of up to 10 per cent of the turnover achieved in Switzerland in the preceding three financial years. By contrast, no abusive conduct of companies with relative market power is subject to direct fines.
In addition, Swiss law allows claimants to bring a civil action against a company holding a position of dominance or relative market power and engaging in abusive conduct. In Europe, Swiss court decisions against foreign companies can be enforced based on the Lugano Convention.
Presently, the conditions and scope of the new rules on relative market power and in particular on geographic price differentiation are still largely unclear. ComCo announced to provide further guidance in a few selected pilot investigations such as the Fresenius investigation, thereby opening up a realistic pathway for dependent Swiss purchasers and suppliers to bring civil claims against companies holding positions of relative market power.
Recommended precautionary measures
While the new Swiss rules have entered into force at the beginning of 2022, potential claimants are not expected to take significant action before civil courts until ComCo has provided further guidance. The Fresenius leading case is expected to provide such guidance by the end of 2023. Still, companies doing business in Switzerland should be aware that, once the scope and conditions of the new rules have been clarified, they may have major implications for their business and in particular their pricing in Switzerland.
As a precautionary measure, companies doing business in Switzerland should consider taking the following steps:
- Identifying potential positions of relative market power: If a non-Swiss company sells its products or services to dependent Swiss customers, it may hold a position of relative market power, be it due to a "must have" quality of its products or services, the customer's commercial dependency on the turnover achieved with these products or services, the customer's dependency on spare parts, or other circumstances. Also, a non-Swiss company may hold a position of relative market power in relation to dependent Swiss suppliers as a customer of components or raw products. The Swiss law analysis is largely identical to the analysis under the German rules of relative market power. If and where relative market power is identified, compliance processes should be established to ensure that the company does not engage in abusive conduct in relation to the dependent Swiss party such as e.g., refusal to supply, tying/bundling, abusive rebates, price discrimination or, specifically in Switzerland, geographic price differentiation.
- Identifying risks arising from potential geographic price differentiation: In view of the new Swiss rules being increasingly applied and invoked, suppliers with relative market power may want to assess their individual risk of orders being placed by Swiss customers at foreign sales entities and of claims of geographic price differentiation being brought by Swiss customers under the new Swiss rules. As a first step, companies should analyze products and services that may confer relative market power, Swiss customers depending on these products and services, channels of import and distribution of these products and services, and differences between Swiss and foreign purchase prices and conditions. Based on this information, a commercial and legal defense strategy can be prepared.