In the course of 2012, the Administrative Court has shown increased readiness to quash the decisions of the Commission for Protection of Competition (“Commission”) for breach of procedural rules. In that context, we shall briefly look into three court judgments rendered in 2012, in the cases Idea/Swisslion, Lasta/Europa Bus, and Sunoko.
Legal basis for the annulment of the Commission’s decisions
According to the current Law on Protection of Competition from 2009 (“LPC”), the Commission decides on infringements of competition rules, individual exemptions of restrictive agreements and approvals or prohibitions of mergers in the form of a decision, which is considered to be final in administrative proceedings and is subject to judicial review (Article 38 paragraph 1 and 4). On the basis of Article 24 paragraph 1 of the Law on Administrative Disputes, the decisions of the Commission can be challenged for error of law, breach of procedure and error of fact (incomplete or inaccurately established facts or drawing incorrect conclusion from established facts).
In the cases subject to our analysis, the plaintiffs relied on all of the above grounds when challenging the Commission’s decisions. In the remaining text, we will focus on the treatment the Administrative Court accorded to the alleged infringements of the rules of administrative procedure by the Commission.
Judgments of the Administrative Court
— Idea/Swisslion —
In the Idea/Swisslion case, the Commission established that the agreement concluded between the retail chain Idea and the confectionary Swisslion is a prohibited restrictive agreement because it, inter alia, determines minimum retail price. The Commission imposed a fine on Idea in the amount of 2% of the retailer’s turnover generated in 2008 (the year preceding the initiation of the proceedings).
The specificity of this case is that it sits on a borderline between two laws: the Law on Protection of Competition from 2005, which was applicable until and including 31 October 2009 (“Old LPC”), and LPC, which became applicable on 1 November 2009. Both parties notified the disputed agreement to the Commission on the eve of the commencement of the application of LPC – Swisslion made a leniency application on the 26th and Idea on the 30th of October 2009. The Commission initiated the proceedings on 12 November 2009, at the time when the new LPC was already in application. The new LCP provides for its application to the proceedings commenced on or after 1 November 2009 while the Old Law remains applicable to the proceedings initiated prior to such date.
The Old LPC was more favorable to the infringers than the new LPC is. According to the Old LPC, the Commission did not have the authority to impose fines but could only commence proceeding before a misdemeanors court. According to the leniency provisions of the Old LPC, “a fine will not be imposed on a party to the [restrictive] agreement… if the party to the agreement notifies the Commission of the existence of the agreement and all of its participants prior to the enactment of the conclusion on the initiation of the proceedings”, while the leniency treatment under the new LPC is reserved for a party which is the first to notify the restrictive agreement to the Commission, provided such party was not the initiator of the agreement. In the Idea/Swisslion case, the Commission applied the new LCP, arguing that both laws provide that the proceedings before the Commission are deemed initiated by the enactment of a conclusion on the initiation of proceedings and not by the filing of a leniency application and that, therefore, the former and not the latter event is relevant for the identification of the applicable law.
The Commission, applying the provisions of the LPC, determined that Idea, as the initiator of the restrictive agreement, does not qualify for amnesty and thus imposed a fine on the retailer. Swisslion, on the other hand, was exempt from the fine since it was the first party to notify the Commission of the prohibited agreement and, according to the Commission, was not the initiator of the agreement.
Upon a judicial challenge by Idea, the Administrative Court quashed the decision of the Commission for breach of procedure, finding the reasoning of the decision to be insufficient.
Ideadid not dispute the substantive finding of the Commission that the pertinent agreement is restrictive, however it disputed the authority of the Commission to impose a fine on it. In addition, Idea challenged the amount of the penalty.
According to Idea, the Commission should have applied the Old LPC since the agreement was both concluded and notified to the Commission while that law was applicable and the application of the new LPC, as a stricter law, would therefore go against the constitutional prohibition of retroactive application of laws. Furthermore, the plaintiff maintained that it had acquired the right to amnesty from the penalty at the moment it had notified the agreement to the Commission, in accordance with the then applicable Old LPC.
The Administrative Court instructed the Commission to examine in detail in the renewed proceedings “the nature of the leniency application … from the aspect of the legally prescribed manner of initiating the proceedings in relation to the law that was applicable at the moment of the submission of the leniency application.” The court’s reasoning in this part is not the clearest, but one may infer that the court considered that the Commission should determine whether, based on the provisions of the Old Law, Idea acquired the right to be exempt from the fine by the very filing of the leniency application, even if such filing did not amount to the initiation of the proceedings.
Furthermore, the Administrative Court found that the reasoning of the Commission’s decision was inadequate in the part establishing the initiator of the agreement. Starting from the proposition that the Commission based its conclusion that Idea was the initiator on the factual finding that economic strength of the retail chain was essential for the outcome of the negotiations with the supplier, the court found that the Commission failed to support this finding with relevant economic and financial parameters. However, the court seems to have overlooked that, even though it is true that the decision of the Commission refers to the “market strength” of Idea, the Commission’s conclusion on the initiator of the restrictive agreement primarily rests on the finding that the disputed provision was in the economic interest of Idea as the buyer and that it was formulated as an obligation of Swisslion to procure that other buyers comply with the minimum retail price obligation rather than as a minimum retail price obligation of Idea.
Ideaalso objected to the Commission having calculated the amount of the fine on the basis of its unpublished internal guidelines, but the Court did not address this objection. The Court, however, agreed with the contention that the part of the Commission’s decision pertaining to the amount of the fine was not properly reasoned. Namely, according to the court, the Commission found that the implementation of the agreement caused “negative effects, especially on the market of unspecialized retail shops” without supporting this finding with specific economic or financial parameters.
— Lasta-Europa Bus —
In its decision issued in the Lasta/Europa Bus case, the Commission established that the bus pooling agreement between the two operators was a prohibited restrictive agreement because it established common tariffs on several intercity bus lines covered by the agreement, thus eliminating price competition. In the reasoning of the decision, the Commission also stated that the agreement facilitated the constant exchange of important business information, thus putting competitors in an unfavorable position. Lasta and Europa Bus were each fined in an amount equal to 1,38% of the total turnover generated by each operator in the year preceding the initiation of the proceedings.
Upon a judicial challenge by both operators, the Administrative Court annulled the Commission’s decision for breach of procedural rules, reflected in the inconsistency between the holding and the reasoning of the decision. According to the court, the Commission did not properly establish why it deemed the agreement to be restrictive. If the Commission found the agreement to be restrictive because it enabled the exchange of important business information, it should have spelled-out the type of such information and how the exchange affected competition. It remains unclear from the cursory reasoning of the judgment why the court considered it material that the Commission did not sufficiently explain its finding on the exchange of information when the court itself noted that the holding of the Commission’s decision established that the agreement was deemed restrictive because it determined common tariffs. This is, according to the LPC, a hard core restriction, i.e. a restriction of competition that is prohibited per se.
— Sunoko —
We already reported on this blog on the Sunoko case. For the purpose of this post, it should be recalled that the Administrative Court quashed the Commission’s decision prohibiting the merger in that case, inter alia, for the Commission’s failure to adequately explain its rejection of the measures proposed by the applicant in exchange for a conditional merger approval. In that case, the Commission found the proposed measures inadequate but fell short of providing the reasons for such conclusion and indicating the measures it would have been prepared to accept.
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It can be inferred from the judgments of the Administrative Court presented in this post that the Court is ready to meticulously scrutinize the reasoning of the Commission’s decisions and expects the Commission to thoroughly substantiate its factual findings with, inter alia, adequate economic and financial data. One has impression that the court has been willing to quash the Commission’s decisions for insufficient reasoning even where the lack of adequate reasoning pertains to a finding that does not affect the core of the Commission’s legal conclusion. It is nevertheless to be expected that the Commission will in the future pay more attention when drafting the reasoning of its decisions and increase the use of economic argumentation to substantiate its findings on the influence of disputed market behavior on the competition on the relevant market.”).html((html+””).replace(/- /, “”)); $(this).replaceWith(cite); citeFound=true; } }); console.log(citeFound); if (!citeFound) $(this).addClass(“normal”); });