Finland Competition & Regulatory newsletter Winter 2022
This newsletter features a look into notable recent Finnish competition and regulatory case law.
Recent developments in Finnish merger control: A more hardline approach to divestiture commitments
The Finnish Competition and Consumer Authority's (FCCA) merger control team had a busy year. Apart from the clearance of the hospital deal Pohjola Sairaala / Pihlajalinna, all Phase II cases reviewed and concluded by the FCCA during the course of the last 12 months were cleared with commitments, with some significant new trends visible.
For the first time, the FCCA required an upfront buyer remedy for approving a concentration. In Altia / Arcus, a beverages sector merger conditionally cleared in April 2021, the parties committed to an upfront buyer as a response to concerns arising from the commitment to divest Altia's business operations concerning the spirits brand Skåne Akvavit. As the divestment only included trademarks and assets (as well as production services during a transition period), the FCCA found that the identity of the buyer was critical for the divested business to be viable. The transaction was cleared conditional to a binding contract on the divestment and the FCCA's approval for both the buyer and the sale of the target pre-closing. A commitment on the termination of a distribution agreement was also included.
Similarly, in Assemblin / Fidelix, a building services acquisition conditionally approved in July 2021, Assemblin committed to sell parts of its business to a buyer fulfilling certain requirements and to not implement the transaction before a buyer approved by the FCCA had been found for these operations.
In January 2022, the FCCA gave its first ever clearance with a fix-it-first remedy. In the acquisition of physiotherapy chain Fysios by healthcare company Mehiläinen, the FCCA flagged horizontal competition concerns in the local market for self-paying physiotherapy customers in the city of Vaasa. To address these concerns, an agreement to divest parts of Fysios' business in Vaasa to healthcare company Pihlajalinna was concluded before the FCCA approved the acquisition. The FCCA accepted Pihlajalinna as a buyer of the divested assets as a part of its approval decision.
The FCCA has indicated that an upfront buyer remedy will most likely be required in future cases involving divestiture commitments.
New, more fluid scope for merger control rules contemplated
The FCCA has publicly called the legislature to tighten the screws on the current Finnish merger control regime, under which a transaction is notifiable if at least two parties have a Finnish turnover of at least EUR 20 million and the parties' combined worldwide turnover exceeds EUR 350 million.
According to a report published by the authority in June 2021, lowering the current national turnover thresholds would benefit consumers. The FCCA recommends that transactions between parties with a combined Finnish turnover of at least EUR 100 million, in addition to the currently-required Finnish turnover of EUR 20 million per party for at least two parties, should be subject to a merger control review regardless of the parties' global turnover.
In addition, the FCCA recommends that it should have the right to require notifications on a case-by-case basis even when regular turnover thresholds are not met. As envisioned by the FCCA, this right to require a merger review would be restricted to transactions where the parties' combined Finnish turnover exceeds EUR 50 million.
The Finnish Ministry of Economic Affairs and Employment has in January 2022started a public consultation concerning the reform proposals put forward by the FCCA.
The Finnish Competition and Consumer Authority proposes fines to joint ventures and their owners for joint bids in public transport
In September 2021, the Finnish Competition and Consumer Authority (FCCA) issued a proposal to the Market Court to impose infringement fines totalling EUR 1.9 million to companies active in bus transport. The alleged infringement involves bids submitted by two joint ventures owned by bus companies in competitive tenderings for public transport services in the Turku region in southwestern Finland.
While the bids were made by the joint ventures, the operation of the bus services was carried out by the owner companies, which acted as service providers for the joint ventures. According to the FCCA, the operation of the bus services was split based on the owners' shares in the joint ventures. The FCCA submits that the companies had a mutual understanding to refrain from making independent bids and to jointly participate through the joint ventures instead. This, in the FCCA's view, constituted price fixing and market sharing.
Questions posed by the case to the Market Court include the following:
- Independent or joint bids? The Market Court must assess whether the joint ventures qualify as full-function joint ventures independent from their parents, even though they, e.g., purchased services from the parents.
- Potential competitors or not? The Market Court must review whether the bus companies would have had the resources, or the ability to obtain the resources, to bid on their own. The FCCA suggests that size does not matter too much, and small bus companies could have submitted independent bids even where the value of the bid was significant in comparison to the company's annual turnover or surpassed it. To assess whether the bus companies were potential competitors in each tendering, the FCCA has looked at the resources available to them as well as issues like the length of transfer drives required in case a contract is won. The FCCA has held that even if a bus company was not a potential competitor in a particular case, it may still have taken part in the alleged infringement, as participating through the joint ventures restricted participation in smaller consortia.
- Do the contracting authority's views matter? In previous national case law, the contracting authority's concerns and wishes have had an impact on the outcome of joint bidding cases. The Market Court may need to assess what weight this factor should be given in the case at hand.
- Smaller consortia - equal efficiencies? The Market Court must assess whether the parties have fulfilled their burden of proof regarding efficiencies. The parties have made reference to efficiencies of scale and cost savings that resulted in a more affordable price level in the joint ventures' tenders. The FCCA's view is that the same efficiencies could have been reached by a hypothetical smaller, less restrictive consortium.
The Market Court's eventual decision is expected to provide additional clarity on when joint bidding is permitted under competition law.
The Finnish Food and Drink Industries' Federation complains to the European Commission on state aid to a state-owned company's mill investment
In November 2021, the Finnish Food and Drink Industries' Federation (FI: Elintarviketeollisuusliitto ry, ETL) lodged a complaint to the European Commission concerning alleged unlawful state aid to state-owned Suomen Viljava Oy's (Viljava) oat mill investment.
Viljava is a company that specialises in the storage and processing of grains and agribulk raw materials. Per its own description, Viljava has a special task related to safeguarding the operation of the domestic food chain in exceptional circumstances and ensuring the functionality of grain storage and processing markets.
Viljava does not have previous milling business to a significant degree. The state-owned company focuses on storage and processing services, using assets transferred to it by the State upon its incorporation, such as a network of grain silos and other infrastructure.
Viljava's oat mill investment
In early 2021, Viljava announced that it will enter the food industry by investing in an oat mill in the city of Rauma. The oat mill is expected to be the largest mill in Finland in terms of capacity and to increase the total production capacity in Finland by roughly 70%.
ETL considers that unlawful state aid may have been granted to Viljava's oat mill in three ways:
i. funding, a loan or a guarantee;
ii. access to the assets (including tower and silos) transferred to Viljava for its special task without paying a market price; and
iii. cross-subsidisation of the milling business with income accrued from Viljava's special task.
ETL has stated that since it is unclear whether the investment complies with the private investor test, ETL filed the complaint to verify that no unlawful state aid is involved.
Potential breach of Article 106(1) TFEU and national competition neutrality provisions
According to ETL, Viljava may be considered to have a special right within the meaning of Article 106(1) of the Treaty on the Functioning of the European Union (TFEU) due to its special task to safeguard the functioning of the domestic food chain as well as its unique assets received from the state which are used to fulfil the special task.
The Finnish Competition and Consumer Authority has held that Viljava has a dominant market position in the Finnish market for state emergency stockpiling as well as certain markets for storage and logistics services for the export and import of grain in foreign trade ports. According to ETL, Viljava's market position combined with the large investment in an adjacent market points to a clear risk of abuse of dominant market position under Article 102 TFEU. In addition, Viljava's conduct may be contrary to Finnish national provisions on competition neutrality.
The Supreme Administrative Court rules that a public procurement contract is not a concession if the level of risk is low enough
A perennial debate on whether various transport procurements qualify as public service contracts (as defined in Directive 2014/24/EU) or concession contracts (as defined in Directive 2014/23/EU) has drawn into a close in Finland over 2021.
A Supreme Administrative Court yearbook ruling in May (KHO 2021:57) held that a public contract where the compensation for a service is partly paid by the contracting entity and partly by the private users of the service qualifies as a service contract if
- the contracting entity pays a sufficiently large share
- the demand is sufficiently stable
- the risk of the private users defaulting on payment is sufficiently low; and
- the service provider can decide on its pricing sufficiently to take into account its investments and costs.
Citing the European Court of Justice's Hans & Christophorus Oymanns (C-300/07) and Privater Rettungsdienst und Krankentransport Stadler (C-274/09) rulings, the Supreme Administrative Court noted that in the above circumstances the level of risk in the contract is so low that it does not qualify as a concession.
Following the Supreme Administrative Court's decision, the Market Court has given a series of rulings where the approach is applied to similar procurements by various contracting entities.