Secretariat of Competition Commission advises on merger filing obligation based on dominant market position

Introduction
Secretariat consultation
Assessment

Introduction

Under the Cartel Act, a merger filing is generally required when the relevant turnover thresholds pursuant to Article 9(1) of the act are met.

However, in addition to these thresholds, the Cartel Act also provides for a filing obligation based on a dominant market position.

According to Article 9(4) of the Cartel Act, a merger filing obligation is triggered, irrespective of the turnover thresholds if:

• one of the undertakings concerned has been held to be dominant in a Swiss market; and
• the concentration in question concerns either that market, an adjacent market or a market upstream or downstream thereof.

However, the merger filing obligation based on a dominant market position is controversial. On the one hand, there is no official registry for dominant undertakings which are subject to a filing obligation. On the other hand, the identification of adjacent or upstream and downstream markets is largely a question of interpretation.

As a result of this legal uncertainty, one of the three leading media groups in Switzerland, Ringier AG, recently asked the Secretariat of the Competition Commission (Secretariat) in a consultation request whether its intended acquisition of a small media agency specialising in cars and mobility (the target) would trigger a merger filing obligation even if the turnover thresholds were clearly not met.

Secretariat consultation

The first question addressed by the Secretariat was whether Ringier is still considered dominant in a market despite the fact that the precedent is almost 22 years old and dates back to a time before the digitalisation of the media markets had taken place.

However, according to the Secretariat, the Competition Commission's order of 1 December 1997, in which a subsidiary of Ringier was held dominant on the "market for supra-regional analytical daily newspapers in French-speaking Switzerland", was still pertinent under Swiss merger rules.

The Secretariat concluded that the intended acquisition of the target would trigger a merger filing obligation if the concentration concerned either the market for supra-regional analytical daily newspapers in French-speaking Switzerland or an adjacent market or a market upstream or downstream thereof.

As the target produces text, image and video products in the automotive sector, the Secretariat found that the transaction did not concern the market for supra-regional analytical daily newspapers in French-speaking Switzerland. It then further examined whether the transaction concerned a market upstream or downstream to this market or an adjacent market.

The Secretariat held that 'upstream' and 'downstream' markets within the meaning of Article 9(4) of the Cartel Act are those which have a vertical relationship to the market in which dominance has been established. It further held that the markets do not need to be directly upstream or downstream; competitive effects may also arise between more distant markets.

A similar broad interpretation applies to the criterion of 'adjacent'. An adjacent market is one which comprises goods which are to a certain extent substitutable with the goods of the market concerned and whose demand runs parallel.

The Secretariat made it clear that the concepts of upstream, downstream and adjacent markets are to be interpreted broadly and that it is not required that such markets are directly linked.

Hence, the Secretariat concluded that it could not exclude that the target was active in a market upstream of the market for supra-regional analytical daily newspapers in French-speaking Switzerland. The fact that the target is active only in the German-speaking market and that it does not produce any French-language products did not affect this finding as its products had previously been translated into French by its customers for the purpose of using the products in French editions.

As a consequence, a merger filing obligation was triggered based on Article 9(4) of the Cartel Act.

Assessment

The Secretariat interprets Article 9(4) of the Cartel Act very broadly; however, significant legal uncertainty is created as a result. In addition, this understanding of Swiss merger law contradicts the fairly recent case law of the Federal Administrative Court established in Swatch Group.

In Swatch Group, the Federal Administrative Court had to decide on the fine imposed by the Competition Commission on Swatch Group for breaching the filing obligation set out in Article 9(4) of the Cartel Act. It held that companies' limited ability to foresee filing obligations must be taken into account when interpreting the filing obligation under Article 9(4) of the Cartel Act given the unclear legal concepts of upstream, downstream and adjacent markets.

As foreseeability may be problematic under Article 9(4) of the Cartel Act, the Federal Administrative Court ruled that Article 9(4) of the Cartel Act must be interpreted restrictively with regard to the markets affected by a transaction. According to the court, this is especially true where a penalty is imposed based on that interpretation.

The Competition Commission and its Secretariat have taken the view that this precedent is applicable only in case of a fine if a dominant company breaches its merger filing obligation. However, contrary to the opinion of the authority, the Federal Administrative Court's case law does not refer solely to cases in which a penalty is imposed for a breach of the filing obligation. By contrast, the narrow interpretation of the application of Article 9(4) of the Cartel Act is a general obligation as it is precisely in order to avoid a penalty that companies must be able to assess in advance whether a merger filing obligation exists.

Arguably, the definitions of 'upstream', 'downstream' and 'adjacent markets' in a merger filing proceeding cannot differ from the definitions of such markets in sanction proceedings, in which a breach of the filing obligation is assessed. The examination as to whether there has been a breach of the filing obligation is part and parcel of the issue as to whether there exists a filing obligation. Therefore, the review standard cannot be stricter in merger filing proceedings than in sanction proceedings.

For more information please contact Marcel Meinhardt or Sinem Süslü at Lenz & Staehelin by telephone (+41 58 450 80 00) or email (marcel.meinhardt@lenzstaehelin.com or sinem.sueslue@lenzstaehelin.com). The Lenz & Staehelin website can be accessed at www.lenzstaehelin.com.