Partial Revision of the Cartel Act: Swiss Federal Council Presents Draft Law
On May 24, 2023, the Swiss Federal Council adopted the dispatch on the partial revision of the Swiss Cartel Act: The effects control of hardcore anti-competitive agreements is to be reintroduced. In merger control proceedings, the notification requirement will be limited and the intervention threshold lowered. In addition, the draft law strengthens civil enforcement of competition law and modifies cartel administrative proceedings. The draft law will now go into parliamentary deliberation. Entry into force of the revised Cartel Act is expected in 2024 at the earliest.
On May 24, 2023, the Swiss Federal Council adopted the dispatch on the partial revision of the Cartel Act (the Dispatch). Like the preliminary draft presented in November 2021, the draft revision of the Cartel Act (Draft-CartA) concerns four pillars: (1) reintroduction of the effects control for hardcore anticompetitive agreements; (2) modernization of merger control by limiting the notification requirement and introducing a new substantive test; (3) strengthening of civil enforcement of competition law, including by extending the right of action to consumers; and (4) modification of the cartel administrative procedure. As compared to the preliminary draft, the consultation process has led to certain adjustments, in particular with regard to the effects control of anticompetitive agreements; overall, however, the draft law largely follows the preliminary draft. The matter will now be transferred to the place where the last attempt to revise the Cartel Act (CartA) failed in 2012: deliberation in parliament.
Separately from this amendment of the CartA, a re-organization of the competition authorities is being considered (so-called institutional reform). On March 17, 2023, the Swiss Federal Council commissioned the Federal Department of Economic Affairs, Education and Research (EAER) to set up a committee of experts as of May 1, 2023. This committee is chaired by former Federal Judge Prof. Hansjörg Seiler and will present options by the end of this year 2023.
I. Re-introduction of effects control for hardcore anticompetitive agreements
With the judgment of the Swiss Federal Supreme Court in the Gaba case (BGE 143 II 297 of June 28, 2016), the long-standing practice of the Swiss Competition Commission (ComCo) on anticompetitive agreements pursuant to Article 5 CartA was tightened. According to this judgment, agreements under Article 5(3) and (4) CartA (hardcore horizontal and vertical agreements) do, as a rule, fulfill the significance test. Since this judgment, it has therefore been no longer necessary to examine whether such agreements actually affect competition, i.e. whether they have been implemented and what effects they have on competition.
As a reaction to the Gaba judgment, the Swiss Federal Council was requested by the parliamentary motion Français of December 13, 2018, to amend Article 5 CartA by clarifying that both qualitative and quantitative criteria must be considered when assessing whether an agreement affecting competition is unlawful or not. This central point of the motion is taken over in Article 5(1bis) Draft-CartA. Qualitative criteria relate to the characteristics of an agreement, while the quantitative criteria for the significance test include, for example, market shares, sales, market entries or exits.
To address further concerns expressed in the public consultation on the practice addressing anticompetitive agreements, the Swiss Federal Council supplements this provision with two further adjustments:
- First, Article 4(1bis) Draft-CartA expressly states that consortia (German: Arbeitsgemeinschaft; ARGE) which «enable effective competition or strengthen such competition» are not deemed to be agreements affecting competition. The Dispatch sets out that the consortia permitted under this provision also include cases of cooperation in which the risks associated with a project are not bearable for an individual company alone (p. 33).
- Second, Article 27(1bis) Draft-CartA explicitly lays down the opportunity principle: An investigation may be waived or discontinued if there are «indications of minor infringements». According to the Dispatch, the seriousness of the infringement is determined on the basis of the damage potential of the restraint of competition, including its scope and duration (p. 41). Relief based on the opportunity principle is possible not only for hardcore anticompetitive agreements (Article 5(3) and (4) CartA), but also for abusive conduct of dominant companies (Article 7 CartA) that would otherwise be subject to a fine.
II. Merger control
The reform of merger control includes the limitation of the notification requirement and the introduction of a new intervention threshold in the form of the SIEC test (significant impediment to effective competition).
A. Limitations related to the notification obligation
In the case of international transactions that are also assessed by the European Commission, the notification requirement is to be waived according to the Dispatch if all product markets concerned by the transaction are to be defined geographically in such a way that they cover Switzerland and at least the European Economic Area (EEA) (Article 9(1bis) Draft-CartA).
The companies concerned are thereby exempted from having to notify the transaction both to the EU Commission and the Swiss ComCo, respectively, in cases where only markets comprising at least Switzerland and the EEA are in question. This is justified, given that the SIEC test – which is already the applicable test in the EU today – will be applied in Switzerland as well when examining transactions in Switzerland. Therefore, deviating results would not be expected. This is likely to bring some relief for companies in terms of resources. However, the savings should not be overestimated: Already today, the notification in Switzerland is regularly based on the EU notification in cases of parallel filings. In addition, it is to be expected that the delineation of the relevant geographic markets may give rise to discussions and that, in case of doubt, a merger would still have to be notified to the ComCo – especially since the Dispatch expressly states that the companies concerned must self-assess whether or not the conditions for an exemption from the obligation to notify are met, and that, in the event of an erroneous omission of notification, such notification is to be made «without delay» (p. 34 f.).
B. Reduction of the intervention threshold for mergers
The Dispatch marks a new attempt to introduce the so-called SIEC test. Since the introduction of this test in European competition law in 2004, there have been discussions in Switzerland about harmonizing the legislation.
Under current law, the qualified market dominance test (dominance plus) applies. This means that ComCo can only prohibit a merger or approve it subject to remedies if the merger creates or strengthens a dominant position that could eliminate effective competition (Article 10(2) CartA).
2. Intervention criteria of the SIEC test
With the introduction of the SIEC test, the Competition Commission can intervene in the case of mergers if they (i) significantly impede effective competition and (ii) do not produce any efficiency gains for consumers that are substantiated by the companies concerned and verifiable and that offset the disadvantages of the significant impediment to competition (Article 10(2) Draft-CartA). In contrast to the dominance test, the SIEC test allows for intervention in the event of unilateral (non-coordinated) effects below the threshold for single market dominance (gap cases). Unilateral effects arise when a merger in an oligopoly market does not create dominance but reduces the competitive pressure exerted on each other. Conceptually, the SIEC test is intended to prevent welfare losses (e.g. price increases for differentiated products) in the event of mergers between close competitors in oligopolistic markets.
3. Efficiency defense
According to the Draft-CartA, any efficiency gains to be considered in the efficiency defense must to some extent benefit the demand side (consumers), similar to EU merger control law. The Dispatch sets out that such an advantage can also arise in dynamic terms, for example through the realization of innovation potential (p. 38). However, the term «dynamic consumer welfare standard», which was still used in the accompanying report to the preliminary draft, is no longer to be found. Unlike the preliminary draft, the wording of Article 10(2)(b) CartA specifies that the efficiency gains must be «justified and verifiable». According to the Dispatch, this wording underlines the companies’ «increased obligation to cooperate and substantiate» (p. 38).
4. Lower threshold for intervention
According to the Draft-CartA, the referral thresholds of merger control remain unchanged. Accordingly, the number of notifications will not increase due to the introduction of the SIEC test. In contrast, a lower intervention threshold and hence more examination procedures (Phase II) can be expected: First, the requirement of the possibility of eliminating competition will no longer apply, which is likely to make some mergers more difficult. Second, it will also be possible to intervene in case of unilateral effects below the threshold of (individual) dominance.
Whether or not this will lead to more interventions remains, however, open. First, the ComCo has already interpreted the concept of collective dominance broadly under current law. Second, it remains to be seen what requirements will be imposed in practice to prove that effective competition is significantly impeded. A look at the practice in EU competition law shows this leeway: Following increasingly interventionist application of the SIEC test by the European Commission, this practice is currently under the scrutiny of judicial review (see judgment of the European General Court T-399/16, CK Telecoms UK Investments v. European Commission of May 28, 2020, appeal pending before the ECJ, Case C-376/20).
5. Impact on companies
After the introduction of the SIEC test, economic analyses will likely be used more frequently, including to determine closeness of competition as a factor in unilateral effects analysis. This is likely to increase the complexity of Phase II proceedings and have a cost-driving effect. Furthermore, additional efforts may be required to provide comprehensive evidence for the efficiency defense. The possibility to extend the deadlines in the review procedure with the consent of the notifying companies points in the direction of longer procedures (see Articles 32(3) and 33(4) Draft-CartA).
However, it is in the hands of ComCo how extensively it will apply the SIEC test and what information requirements it will develop in practice. The flexibility of the test is reflected, for example, in the fact that the effort required for merger control proceedings before the European Commission has steadily increased (e.g., comprehensive information requests and lengthy pre-notification procedures), whereas in Germany the additional information effort following the introduction of the SIEC test has so far been rather moderate. In the event of an introduction of the SIEC test in Switzerland, increasing legal uncertainty for companies can be expected, at least in an initial phase, due to the lack of established decisional practice.
III. Changes in civil enforcement of competition law
Another central concern of the partial revision of the CartA is the strengthening of civil enforcement of competition law, which has so far only been of minor importance in Switzerland. The most important changes in this regard are presented below.
A. Extension of the right to bring an action to consumers
At present, according to the prevailing view, the wording of Article 12 CartA means that end customers, and thus consumers in particular, are not entitled to assert civil claims in the event of an unlawful restraint of competition. This may lead to a liability gap: A company that restricts competition may be able to defend itself against claims for damages from other companies by arguing that the latter have not suffered any damage because they were able to pass on the price overpaid due to the unlawful restraint of competition to the downstream market level – ultimately to consumers (so-called passing-on defense). For their part, these end customers cannot assert claims for damages due to a lack of a right of action.
In its Dispatch, the Federal Council proposes to extend the possibility of civil action, which is currently limited to market participants, to all those whose economic interests are affected by restraints of competition (Article 12 Draft-CartA). As a result, end customers (including, e.g., public contracting authorities) will also be able to assert their rights in civil proceedings in the future.
Companies must be prepared that there may be more competition law civil claims. It remains to be seen how many consumers will in fact file a lawsuit, especially in the case of low amounts in dispute. It is open whether claims will increasingly be asserted collectively, e.g. by consumer protection organizations. According to the Dispatch, this should in principle be possible pursuant to the general rules of civil procedure law. Consumer protection organizations can then sue according to the general rules of civil law if they have the claims assigned to them by the consumers, insofar as they are not themselves directly prejudiced.
B. Suspension of the statute of limitations during investigation proceedings
Claims arising from unlawful restraints of competition are subject to the relative limitation period of 3 years under tort law pursuant to Article 60 of the Swiss Code of Obligations (CO). In the future, the statute of limitations for claims arising from unlawful restraints of competition is therefore to be suspended from the opening of an investigation by ComCo until a final decision has been rendered (Article 12a(1) Draft-CartA). The statute of limitations would subsequently begin or continue to run in accordance with Article 134(2) CO. This is intended to alleviate the problem that persons who have suffered harm are forced to file their civil action an early stage. According to the Dispatch, Article 12a(1) Draft-CartA also covers claims that a person who has suffered harm brings against a person involved in an infringement of the CartA who is not a party to the investigation. In addition, it covers all group companies.
This amendment essentially corresponds to the legal situation in the EU (cf. Article 10(4) of the Antitrust Damages Directive 2014/104/EU).
C. Civil compensatory payments will reduce administrative sanctions
Article 49a CartA is supplemented in the Draft-CartA by a new paragraph 5 concerning the consideration of damages payments in the determination of sanctions. This relates to cases in which a company sanctioned by ComCo in administrative proceedings voluntarily (i.e. without being obliged to do so by a civil court) pays damages, reparations or surrenders profits at a later date. In this case, the company may request ComCo or the appeal instance to reduce the administrative sanctions appropriately by filing a request for revision.
Thus, when determining administrative sanctions, any subsequent and voluntary compensatory payments made by the companies involved to aggrieved parties should also be taken into account. Companies may thus have an incentive to reach an early settlement with aggrieved parties in civil proceedings. This is also in line with the recent practice of ComCO, which takes into account voluntary payments in the context of a settlement with the injured party when determining sanctions (Construction Services Graubünden).
IV. Changes in administrative procedural law
A. Strengthening the principle of investigation and the presumption of innocence
With the Draft-CartA, the Federal Council is also implementing two concerns of the parliamentary motion Wicki of September 30, 2021 (21.4189):
- Strengthening the principle of investigation: The principle of investigation is now to be explicitly set out in the Cartel Act (Article 39a Draft-CartA). In particular, it is clarified that the competition authorities must establish the incriminating and exculpatory circumstances with equal care.
- Strengthening of the presumption of innocence: In addition to the explicit mention of the presumption of innocence, it is set out that the burden of proof for the existence of an alleged conduct lies with the authorities (Article 53(3) and (4) Draft-CartA).
Both the principle of investigation and the presumption of innocence already apply under current law, so the practical impact of the provisions should not be overestimated. However, in particular Article 39a(3) Draft-CartA, which is formulated along the lines of Article 6 Code of Criminal Procedure, should remind the competition authorities and appellate bodies that exculpatory facts must also be investigated with the same diligence and that the relevant procedural guarantees under criminal law must be observed. In addition, the authorities will in future have to investigate or prove the existence or absence of efficiency grounds, which, however, requires the cooperation of the companies concerned.
B. Notification proceedings
Pursuant to Article 49a(3)(a) CartA, a company may notify ComCo in advance of planned conduct that could be qualified as unlawful. Under the current law, the reported conduct does may not be sanctioned unless ComCo opens proceedings against the company within five months. The purpose of the procedure is to enable companies to obtain an assessment from ComCo within a reasonable period of time as to whether a practice could be subject to sanctions.
This procedure is to be transferred to Article 49a(4) Draft-CartA and adapted in two respects. First, the period within which ComCo must take action is to be reduced to two months. Second, in the future, only the opening of a formal investigation pursuant to Article 27 CartA and not, as is currently the case, the opening of a simple preliminary investigation pursuant to Article 26 CartA, will cause the risk of sanctions to reemerge. Thus, the direct sanction risk for the reported conduct shall now definitely cease in all cases in which the Competition Commission does not open an investigation within the objection period.
From the company’s point of view, the question arises as to whether these adjustments are sufficient to sustainably increase the attractiveness of the notification procedures. For companies, the most important factor is the overall time period within which proceedings can be concluded. For companies, it is also not very attractive if a sanction risk is revived by opening an investigation. A company will therefore have to consider whether to make substantial investments in a project if it must expect to be exposed to a sanction risk again for several years as a result of the opening of an investigation.
C. Introduction of time limits and reimbursement in case of representation costs
The parliamentary motion tabled by Fournier instructs the Federal Council, first, to simplify and accelerate court proceedings under competition law. Second, it calls for the parties’ representation costs in administrative competition proceedings to be reimbursed:
The Draft-CartA provides for the introduction of time limits in investigation proceedings in accordance with the principle of comply or explain (Article 44a Draft-CartA). The time limits are 30 months for ComCo, 18 months for the Federal Administrative Court and 12 months for the Federal Supreme Court. This means that a maximum of 5 years should elapse between the opening of the investigation and the final decision of the court of last instance.
The effect of the statutory time limits is likely to remain limited in practice. Even without formal time limits in the CartA, the principle of accelerating proceedings already applies today.
Next, it is proposed to introduce reimbursement of representation costs in first instance cartel administrative proceedings (Article 53b Draft-CartA). If an investigation is – in whole or in part – discontinued, the parties’ representation costs can be reimbursed. Article 53b Draft-CartA is a lex specialis to Article 64 Swiss Civil Procedure Code (CPC), according to which – as a rule – no reimbursement of representation costs is owed in first instance administrative proceedings.
In practice, cartel administrative proceedings before ComCo are often laborious and complex. The envisaged reimbursement of representation costs will in practice lead to considerable relief for companies affected by an investigation that is discontinued or if ComCo’s decisions is revoked.
The draft law will now be deliberated in Parliament. The revised CartA is not expected to enter into force before 2024.
This Bulletin expresses general views of the authors as of the date of this Bulletin, without considering any particular fact pattern or circumstances. It does not constitute legal advice. Any liability for the accuracy, correctness, completeness or fairness of the contents of this Bulletin is explicitly excluded.