This week CELEC’s Vice Chairman, Professor Lars Henriksson, discusses the recent ruling of the Swedish Market Court against KIA Motors and the tensions which it highlights. The case finds that KIA Motors’ seven year warranty policy – which entails that a warranty is only maintained if the customer uses an approved dealer or repairer – restricts competition in the after-sales market and hence should be prohibited. However, this is in contradiction with the SCA assessment, who decided not to proceed, and raises the question of whether there is a disparity between the two institutions’ interpretation of the law.
In December last year, the Market Court delivered its ruling in the KIA Motors case (MD 2012:13). The case it yet another in the series of subsidiary claims for injunctions according to Chapter 3, section 2 of the Swedish Competition Act.
Essentially that provision of the Act provides a party a one-instance instrument – after the Swedish Competition Authority has decided not to proceed – to swiftly bring infringements to an end. It does not entail any compensation for the suffering parties, but it addresses the heart of the problem as it is directed towards the alleged prohibited behaviour. Many times, this appears to be sufficient and there have so far been no follow on cases for damages subsequent to the Market Court findings of e.g. abuse of dominance resulting in an injunction. The Market Court has so far decided some 14 cases, several of them successfully for the petitioner.
The Current case involved a 7-year warranty for all its models. To maintain the warranty, however, the customer must use Kia dealer or an authorised repairer. The customer had to bear the charge for services. In case the customer chose an independent repairer (not authorised by Kia) she/he would void the 7-year warranty and be left a 3-year warranty. KIA practiced a system of authorised dealers and repairers, a selective distribution system in which membership could be awarded for dealers and repairers that met KIA’s qualitative criteria. The association SBF, Bildelsgrossisterna, complained to the Competition Authority, but the SCA decided not to proceed with the matter, as there were insufficient grounds for actions to questions the conditions attached to the 7-year warranty.
The Market court ruled that the relevant market should be delineated to not only the aftersales market (a separate market from the market of new cars), but also a car brand-specific aftersales market, which essentially implied that KIA and its partners held up to 80 per cent of the relevant market. Regarding the conditions of the warranty, the Market Court held that the condition had serious foreclosing effects in that independent repairers were shut out from the possibility of offering a service and repairs without forfaiting the 7-year warranty, whereby competition for aftermarket services was restricted. Therefore, the Market Court held that this inescapable exclusion, viewed objectively, had as at least one of its objects to restrict competition for regular service/repairs for KIA-cars.
To summarise, the Market Court found that the condition of warranty was to be viewed as restriction of competition that shall be prohibited under Article 101 TFEU and its Swedish national counterpart in the Swedish competition Act.
This case triggers several serious questions that need to be dealt with and I will revert to them in a forthcoming Article. Some main concerns can be outlined tentatively, though:
Is it legally correct of the Market Court to view the agreement between KIA and its partners for repair and service as restrictive of competition because the warranty condition applied by KIA vis-à-vis its customers? It appears as that particular vertical agreement could be caught by Article 101 TFEU, but is that agreement really anti-competitive in the sense laid down by the Market Court?
Notwithstanding any concerns related to the assessment in that individual case, the KIA-case marks yet another case involving subsidiary claims for injunctions. These cases have in common that the SCA has decided not to proceed with the matter and the highest ranking Court has subsequently ruled on the market behaviour/agreement as serious violation of law and contrary to competition law. The reader is therefore left with one important question unanswered: Why did the SCA not act in these cases? Naturally, internal priority concerns and budget restrictions would offer plausible and perhaps acceptable explanations; but what if there is a disparity in the view of the law? Also, what can be expected in terms of actions by the SCA in the wake of successful subsidiary claims for injunctions?
Professor of Competition & Antitrust law