Prices of branded goods in Switzerland have historically been higher than in neighboring countries. As a result, measures that impede parallel imports into Switzerland have long been seen as preventing Swiss customers from purchasing cheaper products from the European Union (EU), and have triggered complaints to the Swiss competition authority (ComCo). ComCo has actively investigated brand owners for such measures, imposing fines in some cases. For instance, it fined BMW CHF156 million ($174 million) in 2012 because BMW prohibited its dealers in other European countries from selling to Swiss customers.
The Swiss Federal Administrative Tribunal’s judgment of January 15, 2014 endorses ComCo’s aggressive enforcement activity regarding restrictions on parallel imports. The judgment confirms ComCo’s decision imposing fines totaling CHF4.8 million ($5.3 million) on Gaba International and its Austrian licensee-distributor for preventing exports of Elmex toothpaste from the EU to Switzerland (the tribunal found that the distribution contract prohibited resale outside of Austria). The probe was triggered by a Swiss retailer who complained to ComCo that it could not obtain (cheaper) toothpaste from Austria.
The judgment, which essentially upholds ComCo’s approach, will come as a disappointment to brand owners as it:
- Takes the hardline view that distribution agreements preventing imports into Switzerland are anti-competitive “by their nature”. In other words, the absence of anti-competitive effects is unlikely to be an effective defense.
- Signals that, while it remains theoretically possible to justify such territorial restrictions on efficiency grounds, it will be onerous for brand owners to do so. In this case, the licensor had stressed that the export prohibition was necessary not only to comply with Swiss regulatory restrictions but also to: (i) maintain the consistency of its selective distribution system; (ii) focus the Austrian distributor’s efforts on developing the Austrian market; and (iii) address capacity and production constraints. However, the Tribunal rejected these arguments, holding that the licensor could not justify the absolute prohibition of all toothpaste exports to Switzerland.
In sum, this judgment reinforces the likelihood that ComCo will continue to scrutinize distribution agreements for foreign countries that appear to curb the export of goods to Switzerland. While ComCo might consider the absence of anti-competitive effects and a brand owner’s commitment to lift the territorial restrictions, and decide to close a probe without imposing fines (as it did in a recent case about cosmetics distribution), the judgment makes it clear that ComCo is under no obligation to do so. Further, while the highest risks in practice may concern restrictions on parallel trade from other European countries, ComCo might well take issue with similar restrictions in brand owners’ agreements with distributors in other regions.
Given all of this, it is important that brand owners review their distribution arrangements, to ensure that any export restrictions comply with the laws of the foreign countries that might be affected by export bans or clauses with similar effects, such as Switzerland.