The Swiss Cartels Act (CartA), a pivotal piece of competition law in Switzerland, is the cornerstone of maintaining a fair and competitive market economy. It is designed to counter cartels’ adverse economic or social effects and other competitive constraints. It prohibits agreements among competitors that significantly restrict competition and tackles abusive practices by dominant undertakings. It is crucial for all types of undertakings, including consumers and suppliers of goods or services, to grasp this law as it fosters fair competition, a vital pillar of a liberal market economy. This article will provide an overview of the law, its enforcement regime, and guidelines for compliance and enforcement.
Legal Framework
In Switzerland, the primary regulation of cartels and monopolies is governed by the Federal Act of 6 October 1995 (with a partial revision adopted in 2023), known as the Cartels Act. This legal framework is further reinforced by various ordinances issued by the federal government. The Swiss Competition Commission (ComCo) is a regulatory body and the central authority responsible for enforcing Swiss competition law violations. Its role is not just pivotal but crucial in this regulatory landscape, ensuring the fair and effective implementation of the law.
The purpose of the Cartels Act is not just to prevent the harmful economic and social effects of cartels and other restraints on competition. It’s also about fostering competition and supporting a liberal market economy. The scope of the Act is not limited to purely economic concerns. It extends to include broader public interest factors. It empowers the ComCo to evaluate the economic impacts of competitive restrictions and company mergers. After that, the Swiss Federal Council assesses whether these align with the general public interests. This comprehensive coverage ensures that all aspects of competition are considered, leaving no room for unfair practices.
The Cartels Act prohibits unlawful restraints of competition, such as anti-competitive agreements. Anti-competitive agreements are defined as binding or non-binding agreements or concerted practices between undertakings operating at the same or at different levels of production that have a restraint of competition as their object or effect (Articles 4 (1) of CartA).
The Cartel Act operates on the principle of abuse, stipulating that an agreement is illegal if it either eradicates effective competition or substantially hinders it without justifiable economic reasons. Articles 5 (3) and (4) of the Cartel Act identify specific horizontal and vertical restraints presumed to obliterate the effective competition, categorizing them as hard-core agreements:
- horizontal agreements that directly or indirectly fix prices or restrict quantities of goods or services to be produced, purchased, or supplied, or allocate markets geographically or according to trading partners; and
- vertical agreements that set minimum or fixed prices or allocate territories to the extent that (passive) sales by other distributors into those territories are not permitted.
Under Article 5(2), arrangements are justified on the grounds of economic efficiency if:
- they are necessary to reduce production or distribution costs, improve products or production processes, promote research into or dissemination of technical or professional know-how, exploit resources more rationally; and
- they will, under no circumstances, enable the parties involved to eliminate effective competition.
Dominant undertakings behave unlawfully if abusing their position in the market hinders other undertakings from starting or continuing to compete or disadvantage trading partners (Article 7). The following behavior is, in particular, considered unlawful:
- any refusal to deal (e.g., refusal to supply or to purchase goods);
- any discrimination between trading partners in relation to prices or other conditions of trade; c. any imposition of unfair prices or other unfair conditions of trade;
- any under-cutting of prices or other conditions directed against a specific competitor;
- any limitation of production, supply, or technical development;
- any conclusion of contracts on the condition that the other contracting party agrees to accept or deliver additional goods or services;
- the restriction of the opportunity for buyers to purchase goods or services offered both in Switzerland and abroad at the market prices and conditions customary in the industry in the foreign country concerned.
Authorities and Enforcement Regime
The Swiss Competition Authorities, which include the Competition Commission (ComCo) and its Secretariat, enforce the Swiss Cartel Act of 1995 (CartA) publicly. Located in Bern, ComCo, composed of 11 – 15 members appointed by the Federal Council, regularly convenes to adjudicate cases. Meanwhile, the Secretariat is tasked with conducting investigations and presenting recommendations to ComCo for resolution. ComCo predominantly consists of independent experts like law and economics professors, complemented by a minority of stakeholders such as representatives from industry and trade unions. The Secretariat, comprising about 70 lawyers, economists, and other professionals (equivalent to 65.3 full-time positions), is organized into four divisions of equal size: infrastructure, services, product markets, and construction. Generally, the secretariat examines allegations made by businesses, consumers, and those seeking leniency. Investigations prioritize cases that could significantly affect the Swiss economy, especially those involving market foreclosure through restrictions on parallel trade. In Switzerland, cartels that have a minimal impact on competition do not face financial penalties, and parties affected by such cartels are typically directed toward civil remedies by the Competition Authorities.
Sanctions
According to Article 49a of the Cartels Act, companies involved in either horizontal cartels or vertical restraints that are considered to eradicate competition, as defined in Article 5 (3) and (4), or those that abuse their dominant position under Article 7 of the Cartels Act, are subject to direct sanctions. The maximum penalty for violations under the Cartel Act is a fine of up to 10% of the company and its group’s turnover in Switzerland during the last three fiscal years (Article 49a(1) and Article 50, Cartel Act). When setting the fine, it is necessary to consider the profits likely resulting from the illegal activity (Article 49a(1) and Article 50, Cartel Act). Criminal penalties may be applied to individuals responsible for deliberately breaching an amicable agreement, a definitive and unappealable decision by the competition authorities, or a judgment by an appellate body, with fines up to CHF 100,000 (Article 54, Cartel Act). Moreover, employees of a company who intentionally fail to fully adhere to a competition authority’s decree concerning the duty to provide information are subject to a fine of up to CHF 20,000 (Article 55, Cartel Act).
Decided Cartel Cases.
Abuse of dominant market position
On December 4, 2023, ComCo concluded its investigation into Swisscom’s network expansion tactics, specifically its ‘Network Expansion Strategy 2025.’ Since early 2020, Swisscom (Schweiz) AG modified its network design to prevent competitors from having direct Layer 1 access to its infrastructure in regions it was developing exclusively with fiber optics. ComCo determined that Swisscom holds a dominant market position in providing access to physical network infrastructure, where Swisscom’s fiber optic connections are the only options available. Swisscom was found to have abused this position by denying Layer 1 access to other telecom providers, thereby hindering their technical progress.
The ruling mandates Swisscom to either decommission or retrofit existing fiber optic connections that lack Layer 1 access within set transitional periods, except where objectively justified. Furthermore, Swisscom must avoid future construction or expansion of its fiber optic network that would block Layer 1 access at its exchanges. Swisscom also faced a CHF 18 million fine. The decision is subject to appeal to the Federal Administrative Court (FAC).
Price Setting
In March 2023, ComCo imposed fines on seven Volkswagen vehicle retailers in Ticino for forming a cartel that operated from 2006 to 2018. These retailers colluded to set high sales prices and reduce competition in selling new vehicles to private individuals and the public sector. They coordinated sales by agreeing on bids, setting pricing policies, and dividing Ticino into different operational zones. ComCo treated their actions as a collective agreement, applying the concept of a “single, continuous infringement” similar to EU law to describe this unified approach. This method is broadly used by ComCo, which also addressed criticisms by referencing the European Court of Justice’s rulings on tacit consent to illegal activities. The cartel faced fines totaling approximately CHF 44 million, considering the dominant role of the AMAG Group, a major competitor and supplier, which exerted significant contractual pressure on local dealers and sales partners.
Conclusion
Understanding and complying with the Swiss Cartels Act is crucial for businesses operating within or planning to enter the Swiss market. Companies are advised to regularly review their competitive practices and seek legal counsel to ensure their operations align with the Act’s provisions. This prevents legal repercussions and promotes a fair and competitive business environment in Switzerland. By keeping informed and vigilant, businesses can successfully navigate the complexities of the Swiss Cartels Act, ensuring they operate legally and ethically in the marketplace.
References:
https://www.fedlex.admin.ch/eli/cc/1996/546_546_546/en
The COMCO – a brief guide (admin.ch)
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