Parallel trade ban: Swiss Supreme Court upholds record fine imposed on BMW

What is it all about?

The remarkable fine is the highest ever imposed in Switzerland for unlawful anticompetitive agreements in terms of article 5 of the Cartel Act and the highest ever upheld by the Swiss Supreme Court in competition cases so far. It is based on the following facts:

BMW’s contracts with authorised dealers located in the European Economic Area (EEA), in force since 2003, restricted them to either sell, directly or through third parties, new BMW cars and original spare parts to customers in countries outside the EEA, or re-equip cars for that purpose.

Based on 16 complaints from customers who claimed that they unsuccessfully tried to import new BMW cars to Switzerland and following a television report in the popular Swiss consumer protection show “Kassensturz”, the Swiss Competition Commission (Comco) opened a formal investigation against BMW in October 2010.

The Decision of the Swiss Competition Commission

In May 2012, the Comco decided that abovementioned clause in BMW’s contracts with authorised dealers constitutes an unlawful vertical agreement in terms of article 5 paragraph 4 in conjunction with paragraph 1 of the Cartel Act, concretely an agreement in a distribution contract regarding the allocation of territories to the extent that sales by other distributors into these territories are not permitted (i.e., prohibition of passive sales).

The Comco ordered BMW to refrain from preventing its authorized dealers from exporting BMW cars to Switzerland and imposed a fine in the amount of about CHF 157 million (see MLL-News of 07/26/2012, German) directly on the German parent company of the BMW group seated in Munich and not on its Swiss subsidiary.

Rejected appeal of BMW and confirmed Elmex toothpaste decisions by the Federal Administrative Court

In November 2015, the Federal Administrative Court rejected BMW’s appeal and confirmed the decision of the Comco and the imposed fine (see MLL-News of 01/19/2016, German).

At that time, the case law of the Federal Administrative Court in competition cases was ambiguous, namely with regard to the question whether and to what extent actual effects of agreements covered by article 5 paragraph 3 and 4 of the Cartel Act (“hardcore restrictions”) need to be established in order to constitute a significant restriction of competition if the Cartel Act’s presumption that hardcore restrictions eliminate effective competition has been successfully rebutted.

In that context, the Federal Administrative Court confirmed its strict view as ruled in its Elmex toothpaste decisions (see MLL-News of 04/29/2014, German), stating that hardcore restrictions in principle constitute significant restrictions of competition and that ComCo would not have to examine any actual effects of such agreements anymore (see MLL-News of 01/19/2016, German).

The Supreme Court’s confirmation of the fine and the Elmex toothpaste decisions

Since the Swiss Supreme Court in essence confirmed this strict, form based approach as established in the leading Elmex toothpaste cases for the first time (see MLL-News 05/30/2017), the judgment of the Supreme Court to uphold the BMW decision in principle did not come as a surprise.

Indeed, the Swiss Supreme Court confirmed its position adopted in the Elmex toothpaste cases. It reiterated that it is neither necessary to assess nor admissible to require actual effects for hardcore restrictions, i.e. agreements falling under article 5 paragraph 3 and 4 of the Cartel Act, to constitute significant restrictions of competition in cases where the Cartel Act’s presumption of elimination of effective competition has been successfully rebutted. Hence, hardcore restrictions in principle are unlawful, unless they can be justified on the grounds of economic efficiency in terms of article 5 paragraph 2 of the Cartel Act. BMW did however not assert any such justification.

Aside general criticism against the above mentioned strict, form-based approach of the Federal Supreme Court in hardcore restraints cases (see MLL-News 05/30/2017), the BMW decision is notable at least in two respects and gives cause for some critical comments, firstly with regard to the scope of application, secondly with regard to the fine amount:

Even though the Swiss Supreme Court notes without further explanation that vertical agreements that restrict exports from the U.S. to Canada would not be subject to the Cartel Act and fined, it corroborated nonetheless a measurelessly stretched (extra-)territorial scope of application of the Swiss Cartel Act by stating that all agreements which could at least potentially have effects on competition in Switzerland shall be subject to competition scrutiny in Switzerland, without any requirements as to the intensity of such effects. In the case at hand, the contracts with dealers which gave rise to the substantial fine were concluded between the German parent company of the BMW group of companies and BMW dealers located within the EEA.

The confirmation of the high fine amount of about CHF 157 million is salient, particularly against the background that during the whole proceeding, the above mentioned 16 consumer complaints remained the only proven cases of actually implemented parallel trade restrictions. Besides the vast number of almost 1800 proven cases of effectively parallel-imported new BMW cars, the fine amount appears excessively high. It was the Federal Supreme Court that elaborated in the Elmex toothpaste cases that established effects of an infringement must be taken into account when calculating the fine. In the BMW case, however, the Federal Supreme Court simply noted that these numbers of effective or actually failed parallel exports are no indication on how many consumers effectively have failed to export a new BMW car from the EEA to Switzerland. As a consequence, the Federal Supreme Court held that the chosen gravity multiplier of 5% for setting the base amount of the fine (the gravity multiplier range is between 0-10%) is appropriate and reflects that the export ban seemingly had only partially been implemented. In the light of a ratio of successful export bans of about 1:110, the confirmation of the 5% gravity multiplier points to a questionable lack of willingness for a in depth scrutiny of the level of fines imposed by Comco.

Lessons learned?

The BMW decision of the Swiss Supreme Court makes clear that even a small number of complaints from customers about unsuccessful attempts to import products such as cars from abroad may lead to substantial fines, also directly imposed on companies seated abroad. It shows that “EEA clauses” in distribution agreements, stating that passive sales from EEA to non-EEA countries shall be prohibited, constitute a significant compliance risk for the undertakings concerned. Therefore, undertakings are well advised to treat Switzerland equally to countries within the EEA – the Comco will proceed rigorously against absolute territorial protection and therewith implemented foreclosure of the Swiss market.

Further Information (predominantly in German):

• Swiss Supreme Court Press Release of October 24th, 2017 (only available in German)
• Swiss Supreme Court Decision of October 24th, 2017 (2C_63/2016) (only available in German)
• Swiss Federal Act on Cartels and other Restraints of Competition (Cartel Act, CartA)
• MLL-News: „Kartellrecht: Bundesverwaltungsgericht bestätigt WEKO-Entscheid und -Sanktion gegen BMW“
• MLL-News: „Brave New Swiss Competition Law World? A Critical View on the Federal Supreme Court’s ”Elmex”-Toothpaste Decisions”
• MLL-News: „Kartellrechtswidriges Parallelimportverbot von Elmex: Bundesverwaltungsgericht bestätigt WEKO-Praxis und verschärft diese zusätzlich“
• MLL-News: „Kfz-Bekanntmachung: WEKO präsentiert neue Wettbewerbsregeln für den Schweizer Kfz-Vertrieb“
• MLL-News: „Vortrag: Kfz-Vertrieb und Ersatzteile im Schweizer Kartell- und Vertriebsrecht“