Problem: restricting parallel / direct imports in Switzerland is forbidden
Currently, orthopedic products for upper extremity amputees - prosthetic hands, hooks, cables, replacement parts, liners, silicone liners, cosmetic gloves and so on - as well as other stump wear such as stump socks are imported to Switzerland and re-sold through solitary exclusive corporate channels or company conglomerates.
People are often interested in how, exactly, prosthetic arms are evaluated and paid for in Switzerland. I mean, how, *exactly*. Particularly now, as there are an increasing choice of so-called "bionic" and sport supporting systems out, one might wonder what Swiss athletes, managers and other people actually do should they need a prosthetic item that is somewhat out of their reach or that they would like to see covered by insurance. As that is not being discussed in public, though, it is a matter of public interest to discuss import regulations.
If ever one tries to do a direct import to Switzerland, the usual answer of the company representative is for me to buy it through a Swiss orthopedic technician. That is where the product is sold at absolutely prime prices if at all the technician manages to fight through an English catalog. With not an inch better quality.
Turns out that forcing me to do that is illegal in Switzerland. Turns out that I (as customer) or my technician (as the one that buys the stuff) are perfectly entitled to directly import to Switzerland ourselves - and if you as manufacturer abroad believe you can coerce us to feed some of your friends by having them add howevermuch to that price you are selling it locally, you do infringe on Swiss law.
Still, as consumer and customer, it is currently almost impossible to buy orthopedic products - prosthetic parts, stump socks - anywhere else than at the orthopedic technicians' offices. Orthopedic technicians are always named as the one institution where I - as amputee - would be - in the view of manufacturers - entitled to buy.
Our state disability insurance / Invalidenversicherung (IV) restricts support to simple and effective technical means for work. All items for comfort, sports and play have to be paid for myself. The list contains stump socks, sports equipment, choices of hooks and other parts.
Along the trade and import relay stations, prosthetic and orthopedic products get a massive increase in price. That increase is paid for by (a) disabled consumers such as me or (b) insurances such as disability insurance / IV - Invalidenversicherung. Mostly, the ones that get screwed by this type of scam are insurances - so really, tax payers and insurance members are getting screwed. Because it is a scam. Import into Switzerland is not subject to any particular regulation or quality control. Prosthetic or orthopedic items such as prosthetic hands are absolutely equal to t-shirts, socks, shoes or trousers. In other words, current resale channels are enforce at the loss of the user, and without any increase in product quality.
In fact, a lot of prosthetic components are manufactured in a particularly cheap fashion. The discrepancy between miserable product quality and high price is huge. The assumption that in fact, orthopedic medical import companies are dealing with body parts, is not matched by trade law. There, they are dealing with items that legally are indistinguishable from cheap junk. Always instructive to check out photos of my cosmetic hand that is built with cheap wire and cheap mounting foam.
As dependency of amputees and insurance situations are exploited, these companies are actual social parasites: they ream off, and they do so sometimes even illegally, and consciously.
Swiss price surveillance office is not interested in the subject too much. However they point to the orthopedic support section of the disability insurance. There, at the Federal office of Social Insurances (Bundesamt fuer Sozialversicherungen BSV), I obtain confirmation that orthopedic and prosthetic products such as the ones mentioned above are not at all restricted, regulated or particularly inspected, controlled, checked or otherwise legally constrained. They are, in each and every aspect, similar to all kinds of consumer products such as shoes, socks or shirts.
And that means that (definitely since August 2009), companies must not restrict parallel imports to Switzerland. In other words, if Ossur (Sweden) does not sell to me directly (but to other customers in Switzerland), but restricts me to a Swiss or German reseller, they thereby restrict my right to conduct a parallel import. That, in Switzerland, is not allowed.
Swiss cartel commission (WeKo) invites submissions of problematic situations. You could now very well assume that I will be more than happy to wait for someone to redirect me to my orthopedic technician, so I can then submit your company to that cartel commission and get you fined - but I could not possibly comment.
1) Parallel importing
What is parallel imort / direct import to Switzerland: Parallel import means the following: a company that manufactures prosthetic gloves in China and has their office in Hong Kong regularly sells their gloves through Ortho Reha Neuhof (Germany). That would be where my orthopedic technician orders these gloves for considerable prices. - If I, privately, would order such a glove directly from the manufacturer in Hong Kong, that then would constitute a parallel import or direct import.
Obviously there is a lot of money to be made in re-selling goods.
Thus, many companies and their affiliates try to suppress parallel imports any way possible. Since August 2009, Swiss trade and cartel law explicitly forbids the suppression of parallel imports. And our cartel commission means it - they even fined Nikon with ~12 Million USD 1 and BMW with ~154 Million USD 2 recently; that is a real lot of money, and if you read this as a manufacturer, remember that I am an eager customer and consumer, and all I want is buy - not for the highest price though. Why not just do just that.
A company representative of Medi GmbH (Germany) told me very clearly that I (living in Switzerland) would not be able to order their product (an Umbrellan stump sock) directly. She said that quite clearly I would have to buy it at my orthopedic technician's shop, who would order it through Atlas Medical (Volketswil, Switzerland). Stump socks underlie no regulation at all, in Switzerland these are goods just as socks or shirts. Forcing me to order elsewhere makes the act of that company representative legally objectionable in Switzerland. In other words, this does quite simply not look legal from my view as an end user / customer.
A person working at Strack AG (Schaffhausen) tells me I can only order Otto Bock (Germany) stump socks through my orthopedic technician. Both Otto Bock and Strack, if cooperating in this, look really like they have a problem.
Prosthetic manufacturer TRS Inc., USA told me after I had asked for an Adult Grip Prehensor to turn to Centri (Schweden) who then forwarded me to Frey Orthopaedie-Bedarf AG in Switzerland. There, the Adult Grip Prehensor is sold for about 2500 CHF.
Buying it at my orthopedic technician's who adds about 30%, the price will then be around 3300 CHF. That price difference shows that some people are probably insane assuming that I go ahead and buy for these prices: no normal amputee will pay 3300 CHF to feed that type of highway robbery - first of all because of pride.
Secondly, no quality is added. The product neither gets better, faster, sturdier, lighter or covered with better warranty.
Thirdly, also prosthetic components are not regulated in Switzerland. They underlie the exact same regulations just as fans, cables, wires, shoes or ties.
It is forbidden to deny me, as Swiss customer, a direct import option. They may try it - but it is not legal to do that.
2) Prices in context of quality
Otto Bock prints "CE" onto their Movohook 2Grip. This is there to suggest the Movohook 2Grip would actually be "CE conformant". In other words they propose their product conforms to some quality guidelines. From practical usage I can assert that this product has deep issues. The official Otto Bock product declaration states that the hook is built to function "service free". Bollocks. The hook has a cheap plastic disc inside. That wears down real fast, a few months and the hook exhibits an extreme wiggle of about 5mm or more. Then it must be serviced. Another problem of that hook contains the springs and the lever - at one point, wear down can cause the hook claws to not fully close any more.
Funnily enough, the prosthetic component specialists of the BSV (Federal Office of Social Insurances) is entirely aware of the issue. She also said that the "CE" label was a self declaration thing and as such, it was useless. She said that the BSV or disability insurance (IV) has no restrictions on where to buy prosthetic components. As far as insurance is concerned, the products can be purchased anywhere. She said they were more concerned that the parts bought and combined actually were technically compatible but she said also, that was a given.
It is pretended - by orthopedic technicians or manufacturers, resellers or importers - that the BSV or disability insurance (IV) only accepts orders from such expensive resellers. A fact check with the people in charge reveals otherwise.
My orthopedic technician also sold me Otto Bock adapter pieces for 80 CHF each that are so cheaply made, that a number of them actually failed. The variance of their diameters was too large. As rumors have it, Otto Bock lets them be manufactured in China, and does not conduct their own quality control. Rumors, you now they can be true. From close up inspection we figured these Otto Bock "surprise diameter" bolts cost no more than about 2-3 CHF to manufacture. While Otto Bock never quite managed to simply apologize for their audacity they support sadomasochistic amputee fetish art instead - I find that problematic. Here, however, these bolt problems illustrate how jacked up trade inflated prices do not at all improve life for the end consumer. Instead, my huge payment of 80 CHF for what boils down as a 1 dollar crap item is, at least in part, used by the oppressors of Otto Bock to finance hat I see as sick attitudes that are directly hostile and degrading to amputees. And that is where problems start to become house sized. That is why friends don't let friends wear Otto Bock.
Quality of a Regal Prosthesis glove is the exact same whether I order it through Hong Kong or Ortho-Reha Neuhof (Germany). It is just more expensive at the Neuhof place. In Switzerland (and I hope you do sense a pattern here) it is forbiddden for both companies to restrict my orders to just about any of these - I am absolutely entitled to directly import from Regal Prosthesis in Hong Kong - even if they hate it. They otherwise infringe on Swiss trade law and - as example show - can be fined quite heavily.
In addition, by and large and overall, quality of many prosthetic components and orthopedic products is so bad that its contrast to high prices are a problem.
On December 15 2011 the Competition Commission announced that it had fined the Swiss subsidiary of Japanese camera company Nikon Sfr12.5 million for restricting parallel imports of its Nikon Imaging products. Following a complaint, the commission gathered evidence of Nikon restricting parallel imports into Switzerland. On March 24 2010 the commission launched a regular investigation through a dawn raid at Nikon's offices. It concluded that Nikon had illegally foreclosed the Swiss market by inserting clauses in foreign distribution contracts to restrict exports to Switzerland and, conversely, by inserting similar clauses in Swiss distribution contracts to restrict supply abroad. In addition, evidence was found that Nikon exerted pressure on parallel distributors. The commission's investigation revealed that between Spring 2008 and Autumn 2009 Nikon's conduct resulted in higher prices for consumers.
The export and import prohibitions imposed on distributors of the Nikon Imaging products and the actions taken in order to hinder parallel distributors from importing such products into Switzerland did not eliminate competition, but nevertheless appreciably restricted competition in the relevant product markets. Thus, the commission fined Nikon Sfr12.5 million for the ban on parallel imports based on the turnover that Nikon achieved in Switzerland, and taking into account the duration and gravity of the infringement.
On 24 October 2017, the Swiss Supreme Court upheld a fine in the amount of about CHF ~157million imposed by the Swiss Competition Commission on Bayerische Motoren Werke AG (BMW) for unlawfully restricting parallel imports of BMW cars to Switzerland.
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.
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.