Anti-competitive sales activities by public entities

Public and private companies should face similar conditions when they compete in the same market. This is reason for the rule in the Swedish Competition Act to prevent unfair competition between public and private companies.

The rules on anti-competitive public sales activities are laid down in chapter 3 article 27 of the Swedish Competition Act and mean that the courts can prohibit the state, county councils or municipalities from selling goods and services in a way that restricts competition. Leasing activities are also included. County councils and municipalities may also be  prohibited from operating certain types of sales activities altogether if they restrict competition. A public entity that violates a prohibition may be forced to pay a penalty to the state.

The Patent and Market Court decides on prohibitions and possible penalties. Anyone that wishes to appeal against a prohibition may apply to the Patent and Market Court of Appeal.

Public entity

The rule on anti-competitive public sales activities applies to the state, municipalities and county councils. The rule also applies to companies that the state, a municipality or a county council has a dominant influence over. A dominant influence can be achieved through ownership, but can also be achieved in other ways, for example through conditions on financing, board appointments, legislation and agreements.

Sales activity (the concept of an undertaking)

The term sales activity means that the operations must be of an economic or commercial nature. The public sales activities need not be focused on financial gain. The concept of sales activities should have the same meaning as the concept of an undertaking used in other areas of competition law. Sales activities concern only sales and leases however. Public procurement rules are governed by other legislation.

Anti-competitive activities

That an activity is anti-competitive implies that the state, municipalities or county councils distort or impede effective competition. In a legal sense it is sufficient that a public sales activity is likely to distort or impede effective competition for it to be deemed anti-competitive.

Examples of what may constitute anti-competitive behaviour:

Distortive effects

The Swedish Competition Authority investigates whether anti-competitive behaviour harms the incentives to compete. The starting point for the assessment is whether competitive pressure increases or decreases as a result of a public entity’s behaviour. Increased competitive pressure leads to our society’s resources being used more efficiently. Reduced competitive pressure may mean that a public entity is distorting or impeding the conditions for effective competition.

Some behaviour is completely competitively neutral. For example, a public operator can maintain service and other infrastructure in areas where there is no commercial alternative.

Relevant markets

A central concept in competition law is that of the relevant market, which involves investigating where the restriction of competition occurs. The Swedish Competition Authority determines a relevant product market and describes the goods or services the public entity sells or leases. All goods and services that buyers consider to have comparable characteristics, uses and prices to those of a public entity’s products are in the same product market. The Swedish Competition Authority also investigates whether there are goods and services that can be quickly modified or adapted so that they can be comparable with the public entity’s products.

The Swedish Competition Authority also defines the relevant geographic market. In the geographic market are those companies that sell or lease such products that have already been identified in the relevant product market. The Swedish Competition Authority investigates whether the competitive conditions are similar enough within the defined geographic area that it may be distinguished from neighbouring areas.

Conduct prohibition- or activity prohibition

The Swedish Competition Authority may institute proceedings in the Patent and Market Court to prohibit the state, municipalities or county councils from acting in a certain way in connection with their sale or leasing of goods and services. This is called a conduct prohibition. The Swedish Competition Authority may also bring an action to prohibit municipalities or county councils from selling or leasing a product or service altogether. This is called an activity prohibition.

Exceptions

With conduct prohibitions the court must weigh the public interest objective of the anti-competitive behaviour against the interest of effective competition. If the court considers that the public interest of a behaviour outweighs the interest of effective competition, the anti-competitive conduct is justifiable and cannot be prohibited.

With activity prohibitions the court must assess whether there is legislation which gives the municipality or county council the right to sell or lease certain goods or services. If there is legislation that permits a municipality or county council to conduct a certain sales or leasing activity then it cannot be prohibited.

Penalties

The Swedish Competition Authority may bring an action in court to order the state, county councils or municipalities to make a penalty payment if a prohibition is violated. The penalty payment is made to the state and can be set at a very high level.

If the Swedish Competition Authority decides not to bring an action against the state, municipalities or county councils, the companies affected by the conduct or activity may themselves bring an action in court.

The Swedish Competition Authority’s decision not to bring an action in a particular case cannot be appealed.

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