Finland Competition & Regulatory newsletter Autumn 2020

This newsletter features a look into notable recent Finnish competition and regulatory case law. We have acted as advisors in many of the cases presented on this newsletter.

Infringement fine proposal for resale price maintenance shows the Finnish Competition and Consumer Authority’s interest in online sales

In May 2020, the Finnish Competition and Consumer Authority issued a proposal to the Market Court to impose an infringement fine of EUR 9 million to the import and hardware company Isojoen Konehalli (IKH) for engaging in resale price maintenance. On the same grounds, the FCCA has ordered IKH to stop agreeing on fixed prices in the company’s online store. The matter is currently pending at the Market Court.

The alleged restriction concerns two main types of practices:

• First, IKH allegedly pressured its resellers to comply with recommended prices in their brick-and-mortar stores. According to the FCCA, IKH removed discounts, forbade the use of the IKH trademark and suspended deliveries if retailers did not follow the recommended prices.

• Second, the FCCA says that IKH agreed on fixed resale prices in the company’s online store. According to the FCCA, the online store is a shared online sales platform where both IKH and its independent retailers take part in the sales of IKH products. Because the prices of products sold via the online store are determined solely by IKH, the business of the online store is said to result in resale price maintenance. IKH holds that the retailers do not act as sellers in the online store, but only carry out tasks related to the delivery of the products to the end-customers once the sales transaction has taken place between IKH and the end-customer.

Online sales models comparable to IKH’s online store have not previously been assessed in terms of resale price maintenance in Finnish or EU case law. However, in June 2020, the German competition authority cleared Intersport’s online platform sales model containing similar elements. In Intersport’s sales model, Intersport Digital GmbH (IDG) operated the online platform and determined the sales prices. IDG acted as the seller with regard to end-customers, but forwarded the orders to its retailers for order processing and delivery. The individual retailers were, however, allowed to determine a price for which they were prepared to sell a particular product to IDG.

The last time a company was fined for resale price maintenance in Finland was in 2011, when the Market Court imposed a fine of EUR 3 million on the homeware design company Iittala. The FCCA’s intervention illustrates the growing interest of European competition authorities in online practices and platforms.

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Recent case law shows a more permissive approach to right of appeal in competition and pharma matters

Under Finnish administrative judicial law, a decision may be appealed by any person whose right, obligation or interest is directly affected by it. Courts often face the difficult question of when such a direct effect is at hand.

Traditionally, the approach has been relatively strict, resulting in appeals being declared inadmissible in many cases where no direct effect is obvious. But a more permissive trend can be discerned in certain recent pharmaceuticals and competition law cases.

Examples include two benchmark decisions by the Supreme Administrative Court on the rights of companies holding marketing authorisations for original pharmaceutical products in parallel trade matters.

In one case (KHO 2019:70, 28 May 2019), the Supreme Administrative Court held that the Finnish Medicines Agency’s decision to reject a request for action against a parallel importer constituted a decision which could be appealed by the original marketing authorisation holder. In the other case (KHO 2019:71, 28 May 2019), the Supreme Administrative Court held that a parallel trade marketing authorisation granted to an importer could be appealed by the same product’s original marketing authorisation holder.

According to the court, the Finnish Medicines Agency’s decisions to reject the request for action and to grant a parallel trade marketing authorisation both had a direct effect on the appellant, taking into account that it had originally introduced the products concerned into the market.

Meanwhile, a recent Market Court ruling (MAO 278/20, 17 June 2020) confirms that counterparties to potentially dominant companies often can appeal a decision by the Finnish Competition and Consumer Authority to not pursue an abuse of dominance case. The Market Court held that a video-on-demand service provider could appeal the FCCA’s decision to drop an investigation into alleged discriminatory pricing by the performance rights organisation Teosto. This was because Teosto’s actions could have affected the service provider’s ability to serve its customers.

Similarly, the Supreme Administrative Court has recently considered that the status of the appellant as a competitor and customer to an allegedly dominant company established a right of appeal (KHO 2018:132, 27 September 2018).

These developments are slowly bringing Finnish case law on right of appeal closer to European Union level case law, which has traditionally been more open to the admissibility of appeals.

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The Market Court blocks a merger for the first time at the Finnish Competition and Consumer Authority’s request

In February 2020, the Market Court prohibited the acquisition of wholesaler Heinon Tukku by conglomerate Kesko (MAO 50/20, 17 February 2020). The Market Court found that the merger would result in Kesko’s dominant market position or a corresponding significant impediment to competition in the wholesale of groceries to foodservice customers This is the first time a merger has been blocked in Finland following a proposal to the Market Court by the Finnish Competition and Consumer Authority (FCCA).

Kesko and Heinon Tukku are both active in general wholesaling, offering a wide range of products to foodservice customers like restaurants, cafés and hotels nationwide in Finland. In its proposal to the Market Court to prohibit the merger, the FCCA concluded that the merger would significantly impede effective competition in the sale of daily consumer goods to foodservice customers.

Market definition was a key issue in the case. The FCCA argued that general wholesalers compete primarily against other general wholesalers, while Kesko and Heinon Tukku held that special wholesalers and grocery producers should also be considered competitors. The FCCA conducted a customer survey to assess the extent to which customers of general wholesalers see other suppliers as alternatives to general wholesalers.

The survey was complemented with a critical loss test that utilised information on the survey results as well as Kesko’s actual customer transfers and general wholesale margins. According to the FCCA, the test indicated that customers would not significantly transfer their purchases to other suppliers, enabling general wholesalers to increase their prices profitably post-transaction. The Market Court expressed doubts on whether the test was sufficient to prove the FCCA’s position about the relevant market, but ultimately accepted the view that general wholesalers constitute a separate product market based on overall evidence. The parties had a high combined market share under this market definition.

The FCCA did not conduct an econometric assessment on the effects of the merger. In response, Kesko sought to show that the transaction would not lead to a price increase by using IPR (illustrative price rise) and GUPPI (gross upward-pricing pressure index) analyses. The Market Court did not ultimately consider Kesko’s assessment to be reliable due to uncertainties in the methods and the data.

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The Supreme Administrative Court discusses legal privilege and calculation of infringement fines in precedent-setting bus cartel case

In 2016, the Finnish Competition and Consumer Authority proposed an infringement fine to seven bus companies, a trade association and the service company Matkahuolto. Handling the proposal, the Market

Court found that a competition restriction had taken place between competitors, but dismissed many of the FCCA’s claims. Both the FCCA and the parties appealed to the Supreme Administrative Court.

In its recent ruling (KHO 2019:98, 20 August 2019), the Court agreed with the Market Court on many topics, but disagreed on certain points that are likely to have precedent value. These include the approach to legal professional privilege and the calculation of infringement fines.

A broad interpretation of legal professional privilege affirmed

The evidence presented by the FCCA included an email featuring legal advice given by Matkahuolto’s external advisor and a statement about the advice by Matkahuolto’s in-house representative. The Market Court held that legal professional privilege did not extend to Matkahuolto’s own interpretation of external advice, and the email could be used as evidence.

Drawing from European Union case law such as Akzo Nobel Chemicals (C-550/07) and AM & S v Commission (C-155/79), the Supreme Administrative Court stated that not only the correspondence between an external advisor and the client, but also any other communication involving legal advice between these parties should be protected. Accordingly, the email was covered by legal privilege.

The email had later been forwarded to a person working for the trade association. The question also arose whether Matkahuolto had waived legal privilege by forwarding the message outside the company.

The Supreme Administrative Court held that the rights of defence in competition cases should generally be interpreted widely. Thus, the correspondence was covered by legal privilege even in this case.

Imposing uniform infringement fines was against equal treatment

The Market Court imposed fines of EUR 100,000 for each party even though their turnovers differed considerably. By contrast, the Supreme Administrative Court held that imposing the same penalties on different entities without adequate justification was contrary to the principle of equal treatment.

The Supreme Administrative Court emphasised that fines should be based on an overall assessment of the nature, extent, degree of gravity and duration of the infringement with regard to each participant. The basis for the fines imposed by the court was each party’s turnover accrued from the relevant market. Under this logic, the total amount of the fines ultimately increased, yet fell far short of what the FCCA had originally proposed (EUR 8.9 million compared to EUR 38 million).

The ruling ties into a long-running debate in Finland on an appropriate and predictable level of infringement fines. A set of more detailed rules on the calculation of fines has been included in a recent draft government proposal, which has encountered criticism from various stakeholders. It remains to be seen how these rules – intended to be implemented concurrently with the ECN+ Directive in early 2021 – will be ultimately formulated.