587334 Dec. No: 387/11/COL Non-Confidential Version [626584]

Case No: 59120 Event No: 587334 Dec. No: 387/11/COL

Non-confidential version [626584]

EFTA SURVEILLANCE AUTHORITY DECISION

of 14 December 2011

Relating to proceedings pursuant to Articles 53 and 54 of the EEA Agreement

Case No. 59120 Color Line

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TABLE OF CONTENTS

1 INTRODUCTION ...... 6 2 THE PROCEDURE ...... 6 3 THE FACTS ...... 9

3.1 COLOR LINE ...... 9 3.2 THE MUNICIPALITY OF STRÖMSTAD ...... 12 3.3 AGREEMENTS CONCLUDED BETWEEN COLOR LINE AND THE MUNICIPALITY OF STRÖMSTAD ...... 13 3.4 THE SANDEFJORD – STRÖMSTAD ROUTE ...... 15 3.4.1 The passengers on the route ...... 16 3.4.2 The importance of tax-free shopping ...... 17 3.4.3 Tonnage and number of sailings per day ...... 19 3.4.4 Turnover, gross margins and increase in demand ...... 19 3.5 COLOR LINE’S INVESTMENTS IN THE SANDEFJORD – STRÖMSTAD ROUTE ...... 21 3.5.1 Color Line’s investments in Strömstad ...... 21 3.5.2 Color Line’s investments in Sandefjord ...... 22 3.5.3 Color Line’s investments in tonnage ...... 22 3.5.4 Other investments ...... 23 3.6 THE APPLICABLE TAX-FREE REGIME ...... 23 3.6.1 General framework ...... 23 3.6.2 Tax-free sales on ferry routes between the Nordic countries ...... 24 3.6.2.1 Prior to 1 June 2002 ...... 24 3.6.2.2 Post-1 June 2002 ...... 27 4 THE RELEVANT MARKET ...... 28

4.1 INTRODUCTION ...... 28 4.2 THE RELEVANT MARKET FOR PASSENGER SERVICES ...... 29 4.3 COLOR LINE’S SUBMISSIONS ON MARKET DEFINITION ...... 33 4.4 CONCLUSION ON THE RELEVANT MARKET ...... 35 5 ARTICLE 53(1) EEA ...... 36

5.1 INTRODUCTION ...... 36 5.2 JURISDICTION ...... 36 5.3 AGREEMENT BETWEEN UNDERTAKINGS ...... 37 5.4 RESTRICTION OF COMPETITION ...... 39 5.4.1 Introduction ...... 39 5.4.2 The restrictions resulting from the harbour agreement in Strömstad ...... 41 5.4.3 Color Line’s market position and barriers to entry ...... 42 5.4.4 Attempts at new entry and Color Line’s response thereto ...... 45 5.4.5 Assessment of harbour alternatives ...... 51 5.4.5.1 Introductory remarks ...... 51 5.4.5.2 The Port of Strömstad ...... 51 5.4.5.2.1 The Myren and Abba-piren area ...... 52 5.4.5.2.2 Color Line’s arguments regarding the Port of Strömstad ...... 54 5.4.5.2.3 Conclusion on the port of Strömstad ...... 60 5.4.5.3 Kålvik ...... 60 5.4.5.3.1 Introduction ...... 60 5.4.5.3.2 The situation prior to the adoption of the in-depth general plan in October 2003 ...... 62

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5.4.5.3.3 The situation after the adoption of the in-depth general plan in October 2003 until the end of 2005 ...... 67 5.4.5.3.4 Road access to Kålvik and Nordby ...... 69 5.4.5.3.5 Conclusion on regulatory obstacles and uncertainties ...... 70 5.4.5.3.6 The attractiveness of Kålvik as a destination during the relevant period ...... 71 5.4.5.3.7 Recent developments at Kålvik ...... 74 5.4.5.3.8 Conclusion on Kålvik ...... 77 5.4.5.4 Lysekil ...... 77 5.4.5.4.1 Assessment of Lysekil as a harbour alternative ...... 77 5.4.5.4.2 Color Line’s arguments regarding Lysekil...... 80 5.4.5.4.3 Conclusion on Lysekil ...... 83 5.4.5.5 Other harbours ...... 83 5.4.5.6 Conclusion on harbour alternatives ...... 84 5.4.6 Capacity at Torskholmen ...... 84 5.4.6.1 Color Line’s right of expansion argument ...... 85 5.4.6.2 Color Line: there was no spare capacity for a new entrant ...... 86 5.4.6.3 Color Line: capacity constraints led the Municipality to reject applications for harbour access ...... 89 5.4.6.4 The relevance of the Bronner case ...... 90 5.4.6.5 Conclusion on the capacity at Torskholmen ...... 90 5.4.7 The extent to which the Municipality of Strömstad considered itself bound by the exclusivity ...... 91 5.4.7.1 The circular nature of Color Line’s argument ...... 91 5.4.7.2 Color Line’s arguments lack support in the available facts ...... 91 5.4.7.3 Color Line actively invoked its exclusivity with a view to preventing Kystlink from obtaining access to Torskholmen and entering the relevant market ...... 93 5.4.7.4 Conclusion ...... 98 5.4.8 The tax-free regime prior to 1 June 2002 ...... 98 5.4.9 Counter-factual ...... 103 5.4.10 Color Line’s harbour agreements with Norwegian ports ...... 105 5.4.11 Conclusion on the restrictive effects of the harbour agreement ...... 107 5.5 EFFECT ON TRADE BETWEEN CONTRACTING PARTIES ...... 107 5.6 CONCLUSION ON ARTICLE 53(1) EEA ...... 108 6 ARTICLE 53(3) EEA ...... 108

6.1 INTRODUCTION ...... 108 6.2 COLOR LINE’S SUBMISSIONS ...... 111 6.2.1 First and second conditions: improvement in the production or distribution of goods / promotion of technical or economic progress; benefit to consumers ...... 111 6.2.2 Third condition: indispensability ...... 113 6.2.3 Fourth condition: elimination of competition ...... 114 6.3 ASSESSMENT OF COLOR LINE’S SUBMISSIONS ...... 115 6.3.1 First condition: improvement in the production or distribution of goods / promotion of technical or economic progress ...... 115 6.3.2 Second condition: benefit to consumers ...... 117 6.3.3 Third condition: indispensability ...... 118 6.3.4 Fourth condition: elimination of competition ...... 122 6.4 CONCLUSION ON ARTICLE 53(3) EEA ...... 123 7 ARTICLE 54 EEA ...... 123

7.1 JURISDICTION ...... 124 7.2 COLOR LINE AS A DOMINANT UNDERTAKING ...... 124 7.2.1 Color Line’s submissions regarding dominance ...... 126

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7.2.2 Assessment of Color Line’s submissions regarding dominance ...... 126 7.2.3 Conclusion on dominance...... 127 7.3 ABUSE OF DOMINANCE ...... 127 7.3.1 The concept of abuse ...... 127 7.3.2 Color Line’s conduct was capable of restricting competition on the relevant market . 129 7.3.3 Color Line’s submissions regarding the finding of abuse ...... 130 7.3.4 Assessment of Color Line’s submissions regarding the finding of abuse ...... 131 7.3.5 Conclusion ...... 134 7.3.6 Objective justification ...... 134 7.3.7 Conclusion on the abuse assessment ...... 136 7.4 EFFECT ON TRADE BETWEEN CONTRACTING PARTIES ...... 136 7.5 CONCLUSION ON ARTICLE 54 EEA ...... 137 8 DURATION OF THE INFRINGEMENT ...... 137 9 CONCLUSION ON THE INFRINGEMENT OF ARTICLES 53 AND 54 EEA ...... 137 10 LIABILITY FOR THE INFRINGEMENT AND ADDRESSEES OF THE DECISION .... 138 11 REMEDIES AND FINES ...... 141

11.1 ARTICLE 7 OF CHAPTER II OF PROTOCOL 4 TO THE SURVEILLANCE AND COURT AGREEMENT ...... 141 11.2 ARTICLE 23(2) OF CHAPTER II OF PROTOCOL 4 TO THE SURVEILLANCE AND COURT AGREEMENT ...... 142 11.3 THE BASIC AMOUNT OF THE FINE ...... 144 11.3.1 Calculation of the value of sales ...... 144 11.3.2 Determination of the basic amount of the fine ...... 144 11.3.2.1 Gravity ...... 144 11.3.2.1.1 Nature of the infringement ...... 145 11.3.2.1.2 Market share ...... 145 11.3.2.1.3 Geographical scope of the infringement ...... 145 11.3.2.1.4 Conclusion on gravity ...... 145 11.3.2.2 Duration ...... 145 11.3.3 Conclusion on the basic amount of the fine ...... 146 11.4 MITIGATING CIRCUMSTANCES ...... 146 11.5 AGGRAVATING CIRCUMSTANCES ...... 146 11.6 CONCLUSION ...... 147

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THE EFTA SURVEILLANCE AUTHORITY,

HAVING REGARD to the Agreement on the European Economic Area,

HAVING REGARD to Chapter II of Protocol 4 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice on the general procedural rules implementing Articles 53 and 54 of the EEA Agreement, and in particular Article 7 and Article 23(2) thereof,

HAVING given the undertakings concerned the opportunity to make known their views on the objections raised by the Authority pursuant to Article 27(1) of Chapter II and Article 12 of Chapter III of Protocol 4 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice,

AFTER consulting the Advisory Committee on Restrictive Practices and Dominant Positions,

HAVING REGARD to the final report of the hearing officer,

WHEREAS:

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1 INTRODUCTION

1. This Decision concerns an agreement entered into between Color Line AS (“Color Line”, at the time Scandi Line AS) and the Municipality of Strömstad dated 26 March 1991, concerning access to Torskholmen in Strömstad harbour in Sweden.

2. That agreement contained terms that prevented the Municipality of Strömstad from granting access to harbour facilities to other ferry companies. The agreement granted long-term exclusivity to Color Line for the use of Torskholmen in Strömstad harbour for a total period of 25 years, initially for a period of 15 years, with an entitlement to a 10-year extension.

3. On the basis of its market investigation, the EFTA Surveillance Authority (the “Authority”) has concluded that the long-term exclusive harbour agreement infringed both Article 53 and Article 54 of the EEA Agreement. The infringement addressed in this Decision covers the period from 1 January 1994 to 20 December 2005 (referred to herein as “the period under examination” or “the relevant period” as the case may be).

4. The Authority has defined the relevant market on which competition was restricted as the market for short-haul passenger ferry services with tax-free sales on which Color Line was the sole operator during the period under examination in this Decision with its route between Sandefjord, Norway, and Strömstad, Sweden. The harbour agreement prevented potential competitors from obtaining access to Strömstad harbour and, as a result, protected Color Line against effective competition contrary to Article 53(1) EEA. The Authority considers that Color Line has not shown that the harbour agreement fulfilled the conditions in Article 53(3) EEA.

5. The Authority also concludes that Color Line was in a dominant position on the relevant market and that the long-term exclusive rights enjoyed by Color Line pursuant to the harbour agreement were capable of restricting competition. The Authority further concludes that Color Line has not shown that there was an objective justification for maintaining its exclusive rights in force from 1 January 1994 until 20 December 2005, and that it therefore abused its dominant position on the relevant market within the meaning of Article 54 EEA.

6. The Authority considers that it is necessary to impose a fine in the present case. The Authority has fixed the amount of the fine to be imposed on Color Line at EUR 18.811 million.

2 THE PROCEDURE

7. Kystlink AS contacted the Norwegian Competition Authority in the autumn of 2005, and subsequently lodged a complaint1 with the Norwegian Competition Authority on 20 December 2005, concerning agreements entered into and practices engaged in by Color Line. In November 2003, Kystlink AS had begun

1 Event # 356797.

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co-operating with a subsidiary of Glittertind AB, Rederi AB Utrikes Linjer (“RAUL”), with a view to establishing a passenger ferry service from Norway to Strömstad. Kystlink AS bought 49% of the shares in RAUL in March 2004 and the remaining 51% in May 2005.

8. On 14 December 2005, the Norwegian Competition Authority, on the basis of information obtained from Kystlink in meetings, notified the Authority of the case pursuant to Article 11(3) of Chapter II of Protocol 4 to the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (the “Surveillance and Court Agreement”).2

9. Following discussions with the Norwegian Competition Authority, it was decided that the case should be reallocated to the Authority pursuant to the rules set out in the EFTA network notice.3

10. From 4 to 6 April 2006, the Authority carried out inspections at the premises of Color Line AS, Color Group ASA and O.N. Sunde AS in Oslo, Norway. Subsequently, the Authority and the parties held various meetings and exchanged correspondence. The Authority also sent requests for information to several other undertakings in the course of the investigation.

11. Kystlink AS ran into financial problems in late 2005 and was formally declared bankrupt in May 2006. In December 2005, Torggaten 13 AS bought the activities and assets of Kystlink AS. Torggaten 13 AS subsequently changed its name to Nye Kystlink AS.4 Following the bankruptcy of Kystlink AS, Nye Kystlink AS confirmed that it wished to pursue the complaint before the Authority.5 In November 2006, Nye Kystlink commenced a passenger ferry service from Langesund in Norway to Strömstad, which was in operation until November 2008.

12. On 16 December 2009, the Authority notified a Statement of Objections (SO) in English to Color Line. Following a request from Color Line on 17 December 2009,6 a Norwegian version of the SO was prepared and was notified to Color Line on 5 February 2010.7 The Authority took the preliminary view that the undertakings to which the SO was addressed had infringed Articles 53 and 54 of the EEA Agreement.

2 Event # 356345, notification under Article 11(3) of Chapter II of Protocol 4 to the Surveillance and Court Agreement. An updated notification was received on 9 February 2006 (event # 362266). 3 Event # 365839, Notice on Cooperation within the EFTA Network of Competition Authorities, OJ C 227, 21.9.2006, p.10 and EEA Supplement to the OJ No 47, 21.9.2006, p. 1. 4 Unless otherwise specified, any reference to “Kystlink” in this Decision will include Kystlink AS, Nye Kystlink AS and RAUL. 5 Event # 411514, letter from Nye Kystlink dated 18 January 2007. 6 Event # 540485. 7 Event # 545617.

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13. On 12 April 2010, Color Line submitted its Reply to the SO in Norwegian8 and requested that the language of the proceedings before the Authority be Norwegian.9

14. On 29 January 2010, Fjord Line AS, a ferry company in competition with Color Line on another ferry route, sought leave to intervene in the proceedings.10 The Hearing Officer granted that request on 9 February 2010.11 On 12 May 2010, Bastø-Fosen AS, a company operating a ferry route between the Norwegian cities of Moss and Horten, also requested leave to intervene.12 The Hearing Officer granted that request on 18 May 2010.13

15. In application of Articles 6(1) and 13 of Chapter III of Protocol 4 to the Surveillance and Court Agreement, the Authority provided Fjord Line AS and Bastø-Fosen AS with a copy of the non-confidential version of the SO on 29 March and 19 May 2010 respectively.14 The Authority also provided both companies with a copy of the non-confidential version of Color Line’s Reply to the SO, on 23 April 2010 and 19 May 2010 respectively.15 Both of those companies made their views known in writing, on 21 May 201016 and 3 June 201017 respectively.

16. At Color Line’s request, an oral hearing was held, in the Norwegian language, on 14 June 2010. Bastø-Fosen AS also participated at the oral hearing.

17. On 15 February 2011, at Color Line’s request, a state of play meeting was held by the Authority.18 A further meeting with Color Line took place, at its request, on 11 May 2011, prior to which, on 6 May 2011, Color Line submitted a position paper.19

8 Event # 553056, reply dated 12 April 2010. 9 Event # 553010, cover letter to Color Line’s Reply to the SO. Quotes in English in this Decision taken from Color Line’s Reply to the SO are taken from the translation of that Reply commissioned by the Authority. 10 Event # 544803, letter from Fjord Line dated 29 January 2010. 11 Event # 545972, letter from the Hearing Officer to Fjord Line. 12 Event # 557376, letter from Bastø-Fosen’s legal counsel dated 12 May 2010. 13 Event # 557718, letter from the Hearing Officer to Bastø-Fosen dated 18 May 2010. 14 Event # 551778 and event # 557795. 15 Event # 554680 and event # 557795. 16 Event # 558536, letter from Fjord Line dated 21 May 2010. The letter was sent to Color Line by e- mail (event # 558567) on 26 May 2011. On 27 May 2011, Fjord Line submitted certain amendments to its comments (event # 558801), which were forwarded to Color Line the same day (event # 558800). 17 Event # 559296, e-mail with attachments from Bastø-Fosen dated 3 June 2010; sent to Color Line on 4 June 2010 (event # 559327). 18 Commission Notice on Best Practices for the conduct of proceedings concerning Articles 101 and 102 TFEU (OJ C 308, 20.10.2011), p. 15. 19 Event # 599365, position paper from Color Line dated 6 May 2011.

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3 THE FACTS

3.1 Color Line

18. O.N. Sunde AS is an investment company active in the shipping business, tourism, chemicals, clothing distribution, sport and leisure, property and financial investments. Its ferry activities are handled by Color Group AS (previously Color Group ASA and before that Color Line ASA). Color Group AS has activities in the transport of passengers and goods, hotels, restaurants and organised tours. During the period under examination, ferry services on the Sandefjord – Strömstad route were handled by Color Line AS (and its predecessors). Color Line AS is a wholly-owned subsidiary of Color Group AS, which is in turn 100% owned by O.N. Sunde AS.

19. In 2010, O.N. Sunde AS’s worldwide turnover was EUR 1271 million. Color Group AS had worldwide turnover of EUR 563 million.20

20. The Sandefjord – Strömstad route was started in 1986 by the company Scandi Line AS. On 1 June 1994, Scandi Line AS was dissolved, and its activities were transferred to a newly established company also named Scandi Line AS, wholly owned by the publicly listed company Larvik Scandi Line AS.

21. Scandi Line AS remained the operating company on the route until 2000. However, as explained below, ownership and control of the company changed significantly throughout the period from 1994 to 2000.

22. O.N. Sunde AS gradually acquired all of the shares in Larvik Scandi Line AS, and by December 1996 had acquired a 100% shareholding in the company. At that time, Scandi Line AS, the operating company on the route, also became a wholly owned subsidiary of O.N. Sunde AS.

23. By December 1997, Larvik Scandi Line AS had acquired a 52% shareholding in Color Line ASA. By the end of 1998, that shareholding had increased to 77%.

24. In 1998, the group of companies was reorganized, and Larvik Scandi Line AS created Skagerak Line AS as a parent company (without turnover) of Scandi Line AS, Larvik Line AS, Color Air AS and Hotel Skagen AS. Thus, until 30 September 1998, the group had the following structure.

20 Event # 600018, reply from Color Line dated 1 June 2011. Exchange rate 2010, 1 Euro: NOK 8.0043; source ECB.

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(Source: Color Line’s reply of 4 December 2006, event # 401814)

25. Thus, O. N. Sunde AS controlled 100% of Larvik Scandi Line AS which in turn controlled 77% of Color Line ASA. Larvik Scandi Line AS also owned 100% of Skagerak Line AS which in turn controlled 100% of Scandi Line AS, the operating company on the Sandefjord – Strömstad route.

26. On 30 September 1998, the group implemented an internal re-organisation: Color Line ASA acquired 100% of the shares in Skagerak Line AS; Color Line ASA changed its name to Color Group ASA, and became a holding company in charge of the central administration of the group; Skagerak Line AS changed its name to Color Line AS; and Scandi Line AS changed its name to Color Scandi Line AS.21

21 Event # 401814, reply from Color Line dated 4 December 2006, and event # 401820, annex 3.

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(Source: Color Line’s reply of 4 December 2006, event # 401814)22

27. After that reorganisation, the company operating the Sandefjord – Strömstad route at that time – then called Color Scandi Line AS – became a wholly owned subsidiary of Color Group ASA through its wholly owned subsidiary Color Line AS.

28. Larvik Scandi Line AS continued to hold the bulk of the shares in Color Group ASA (77%). O.N. Sunde AS still held 100% of the shares in Larvik Scandi Line AS. O.N. Sunde AS’s share in the operating company on the Sandefjord – Strömstad route was therefore reduced to 77% (by virtue of its 100% shareholding in Larvik Scandi Line AS) from 30 September 1998.

29. Finally, also in 1998, Larvik Scandi Line AS was absorbed by O.N. Sunde AS.

30. In December 1999, O.N. Sunde AS acquired approximately 100% of all outstanding shares in Color Group ASA,23 at which time the operating company (then Color Scandi Line AS) again came under O.N. Sunde AS’s full control.

31. In 2000, Color Scandi Line AS was absorbed by Color Line AS. From 2000, Color Line AS was the operating company on the Sandefjord to Strömstad route, and the company group had the following structure.

22 The Authority notes that the reference to “Scandi Line AS” in this organigram, provided by Color Line, should be to “Color Scandi Line AS”. 23 Event # 401814, p. 4, reply from Color Line dated 4 December 2006.

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(Source: Color Line’s reply of 4 December 2006, event # 401814)

32. That structure remained in place until 2007, when the group was reorganised. In 2007, the group announced a reorganisation involving the de-merger of Color Line AS into three separate limited companies, focussing on cargo, cruise and transport respectively, with Color Line AS remaining as the holding company. The cruise division would be in charge of Color Line’s overnight routes, whereas shorter routes without night sailings, including the Sandefjord – Strömstad route, would be run by the transport division, Color Line Transport AS.24 On March 25 2010, Color Group ASA became a limited company (Aksjeselskap), thus becoming Color Group AS.25

33. In this Decision, references to Color Line include the Color Line group of companies where relevant.

3.2 The Municipality of Strömstad

34. Strömstad is a town in Bohuslän in South West Sweden close to the Norwegian border. The harbour of Strömstad is owned by the Municipality of Strömstad. It is managed and operated by a Technical Board,26 which answers to the Municipal Assembly. The Municipal Assembly adopts the harbour regulations and the harbour taxes. Harbour fees are determined by the Municipal Assembly based on suggestions from the Technical Board, and are set on the basis of costs incurred and market conditions.27 Important decisions on harbour activities and financing are taken by the Municipal Assembly, whereas the day-to-day activity is managed by the Harbour Director and the Technical Board.28

24 Color Line’s Annual Report for 2007, available at: http://www.colorline.no/polopoly_fs/1.2796!/cg_com_2007.pdf. 25 Event # 600018, reply from Color Line dated 1 June 2011. 26 The Technical Board was first called the Harbour Board (“Hamnstyrelsen”), and subsequently the Environment Board (“Miljönämnden”), before changing its name to the Technical Board. 27 Event # 408737, reply (to question 5) of the Municipality of Strömstad dated 22 January 2007. 28 Event # 408737, reply from the Municipality of Strömstad dated 22 January 2007.

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35. The Municipality of Strömstad’s total turnover from commercial activities in 2005 was EUR 8.7 million. Income from the harbour amounted to EUR 2.3 million, of which EUR 1.8 million was generated from Color Line.29

3.3 Agreements concluded between Color Line and the Municipality of Strömstad

36. Color Line and its predecessors have operated passenger ferry services on the Sandefjord – Strömstad route since 1986. During the initial years, it appears that there was no written agreement between the ferry operator and the Municipality of Strömstad. In 1989, Color Line’s predecessor, Scandi Line AS, entered into an agreement with the Municipality of Strömstad.30 The agreement was for a four-year period, from 1 July 1989 to 30 June 1993, and thereafter automatically renewable for a further four-year period in the absence of explicit notice of termination by either party. The agreement contained a clause granting the harbour authority the right to “if necessary, and without interfering with Scandi Line’s operations, use the berth for non-competing activities”.31 The agreement also stipulated that the generally applicable harbour fees should apply.

37. In 1990/91, prior to expiry of that agreement, Color Line sought to negotiate a new agreement.32 Following negotiations, a harbour agreement (“Arrendeavtal”) was concluded on 26 March 1991, valid for 15 years from 1 January 1991 to 30 December 2005.33 Thereafter, Color Line was entitled to have the agreement extended for a further 10 years (clause 2).

38. Pursuant to the harbour agreement, the Municipality of Strömstad leased a designated area within the harbour – the area referred to as Torskholmen – to Color Line, including the right to use the ramp and the lining-up area for cars (clause 1). A map showing the designated area is annexed to the agreement. Torskholmen is also indicated in the photograph at Section 5.4.5.2 below.

39. It was agreed in the Arrendeavtal (clause 1) that a particular area at Torskholmen should be leased to Color Line in the form of a ground rental agreement (“Tomterättsavtal”). This area was designated for the erection of a terminal building and a tube from the ferry to the terminal.

40. A separate ground rental agreement (Tomterättsavtal) was therefore signed on 13 February 1992.34 The duration of that agreement was initially 20 years from 1 January 1991, with automatic renewal for a further 20 years unless terminated

29 Event # 408737, reply from the Municipality of Strömstad dated 22 January 2007. Exchange rate 2005, 1 Euro: SEK 9.2822; source ECB. 30 Event # 432050, reply from the Municipality of Strömstad dated 29 July 2007, p. 42. 31 Unofficial translation from Swedish by the Authority (“Hamnstyrelsen har vid behov utan att inkräkta på Scandi Lines trafikk rätt att utnyttja färjeläget för icke konkurrerande verksamhet”). 32 Event # 408737, reply from the Municipality of Strömstad dated 22 January 2007. 33 Event 553056, Color Line’s Reply to the SO, attachment 12. 34 Event # 370985, p. 39 (PAB 38); see also event # 553056, Color Line’s Reply to the SO, paragraphs 224-227.

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two years before expiry. The initial period expired on 1 January 2011, but was renewed for a further 20-year period ending on 1 January 2031.35

41. A supplementary agreement regarding the maintenance and other responsibilities of the Municipality of Strömstad and Color Line respectively for the installations in Strömstad harbour was entered into on 26 March 1991. A further agreement was entered into on 19 January 1993, governing the division of costs relating to additional works to be done in the harbour to meet Color Line’s requirements following the introduction of a second vessel on the route.36

42. Through the Arrendeavtal Color Line secured exclusive access to the area designated for ferry activities in Torskholmen.

43. Color Line’s right to exclusive use of the area in Torskholmen was provided for in clause 7 of the Arrendeavtal, which provided that the Municipality was entitled to grant third parties access to the ramp and lining-up area for cars, except to competing ferry activities. It also provided that in the event that third parties were granted access, such access should be coordinated with Color Line in order to avoid disturbances to Color Line’s ferry operations as a result of the use of the facilities by others. The relevant clause (clause 7) provided as follows:

“During the contract period, the municipality may occasionally grant others access to the car ramp and lining up area; however, this does not apply to competing ferry activities. If this right is exercised, coordination with Color Line shall take place, in order not to cause operational disturbances for the ferry activities.”37

44. According to the Municipality of Strömstad, such access has been granted to Koster Marine, a company operating a cargo ferry for the Koster islands just off the Swedish coast, on around 10 occasions.

45. Pursuant to clause 3 of the Arrendeavtal, the harbour fees for Color Line were fixed at a discount rate of SEK 1.5 million per year up to and including the year 2000. Thereafter, the standard harbour fees would apply. Pursuant to the further agreement dated 19 January 1993, the Municipality of Strömstad undertook to bear the costs of extending the quay to meet Color Line’s needs following the introduction of a second vessel on the route, in return for an amount of SEK 1.4 million to be paid by Color Line to the Municipality during 1995, 1996 and 1997.38 The harbour fees were renegotiated in 2000, following which Color

35 See event # 553056, Color Line’s Reply to the SO, paragraph 227. 36 Event # 553056, Color Line’s Reply to the SO, paragraphs 222-224. 37 Unofficial translation from Swedish by the Authority (“Kommunen äger under avtalstiden tilfälligt rätt att ge andra trafikanter rätt att använda ilandkörningsanlegg för bilar och uppställningsplats, dock ej för konkurrerande färjeverksamhet. Om denna rätt skall utnyttjas, skall samordning mellan bolaget och kommunen ske, så att upplåtelsen ej orsakar driftsstörningar för färjetrafiken”). 38 See event # 408737, reply of the Municipality of Strömstad dated 22 January 2007, question 6.

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Line’s annual fees rose from SEK 1.5 million per year to between SEK 11.9 and 15.2 million from 2001 onwards.39

46. Prior to the expiry of the Arrendeavtal in 2005, Color Line sought to invoke its right to extend the duration of the agreement for 10 years as provided for therein.40 However, since in the meantime the compatibility of the agreement with competition law had been questioned, the Municipality refused to agree to an extension unless Color Line’s exclusivity was revoked.41

47. On 21 December 2005, just prior to the end of the initial 15-year period of the Arrendeavtal, the Municipality decided to grant Kystlink access to the harbour.42

48. This Decision concerns the extent to which the Arrendeavtal, which in the following is referred to as the harbour agreement or the 1991 harbour agreement as the case may be, produced anti-competitive effects contrary to Articles 53 and 54 EEA. This Decision does not concern the ground rental agreement (Tomterättsavtal) or the extent to which it may have produced anti-competitive effects.

3.4 The Sandefjord – Strömstad route

49. The Sandefjord – Strömstad route links the towns of Sandefjord, located in Vestfold in Norway, approximately two hours by car to the south of Oslo on the western side of the Oslofjord and Strömstad, located on the west coast of Sweden, close to the Norwegian border. A map of the route is shown below.

39 Event # 401815, Color Line’s reply to question 10. 40 Event # 401818, p. 93, letter of 18 July 2005 from Color Line. 41 Event # 401818, p. 109-111. 42 Event # 401817, p. 31-36 (minutes from a meeting of Strömstad Municipal Assembly of 21 December 2005).

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Map of Oslofjorden

Source: Google Maps

50. The ferry crossing between Sandefjord and Strömstad is 38 nautical miles long and takes approximately 2.5 hours.

3.4.1 The passengers on the route

51. As explained below (paragraph 67), the number of passengers on the Sandefjord – Strömstad route increased substantially during the period under examination. Significantly more passengers travelled from Norway to Sweden than in the opposite direction. Data for 2001, 2003 and 2005 show that between 748,000 and 823,000 passengers travelled from Sandefjord to Strömstad with Color Line in each of those years. The number of passengers who bought a return ticket

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with Sandefjord as the point of departure fell from around 141,000 in 2001 to around 92,000 in 2005.43

52. Far fewer passengers travelled in the opposite direction: according to Color Line, between 391,000 and 419,000 passengers travelled from Strömstad to Sandefjord between 2001 and 2005. The number of passengers who bought a return ticket with Strömstad as the point of departure fell from around 28,000 to just below 10,000 during the same period.44

53. In the Reply to the SO, Color Line states that about two-thirds of passengers travel from Norway to Sweden, while one-third travel in the opposite direction.45 A significant share of passengers who travel from Sandefjord to Strömstad drive back to Norway via the border crossing at Svinesund, north of Strömstad.46

54. According to Color Line, approximately 90% of passengers on the Sandefjord – Strömstad route are Norwegian.47 In the summer of 2001, a survey carried out by Color Line of the passengers travelling by car on Color Line routes from South East Norway, found that almost two-thirds of passengers travelling from Sandefjord to Strömstad came from the Norwegian counties of Telemark, Buskerud and, in particular, Vestfold.48

3.4.2 The importance of tax-free shopping

55. Many passengers on the Sandefjord – Strömstad route travel on short trips to Sweden in order to take advantage of duty-free goods available on the ferry and cheaper duty-paid goods available in Sweden. In a market study commissioned by Color Line, the route between Sandefjord and Strömstad has been described as a “pure border trade route; short travelling time, very low fares, many cars and significant on-board sales (half alcohol/wine)”.49 The “very low fares” seem to have been disproportionately low compared to other routes.50

43 Event # 401813, reply from Color Line dated 4 December 2006, annex 2.1. 44 Event # 401813, reply from Color Line dated 4 December 2006, annex 2.1. 45 Event # 553056, Color Line’s Reply to the SO, paragraph 148. 46 Event # 556768, p. 103, Annex 3 to Color Line’s Reply to the SO. 47 Event # 553056, Color Line’s Reply to the SO, paragraphs 136 and 158. See also event # 371361, p. 57 (TM7 19/22), report commissioned by Color Line, “Smoke over troubled water – Hvordan vil Norges inntreden i EU påvirke Color Lines rammebetingelser, og hvordan bør Color Line tilpasse sin strategi for å utnytte disse?”, p. 19. 48 Event # 371458, p. 69 (HZI 58 11/12, slide 22): Vestfold 33.4%, Telemark 19.0%, Buskerud 10.1%. 49 Event # 371361, p. 57 (TM7 19/22), (unofficial translation from Norwegian by the Authority: “SS er en ren grensehandelslinje; kort reisetid, svært lave billettpriser, mange biler og betydelig ombord-salg (halvparten sprit/vin)”). See also event # 371458, p. 61 (HZI 58 3/12, slide 6). 50 See, inter alia, event # 370702, p 167, (HZI 21, Budget for the routes of Vestfold County for 2006): whereas the estimated average ticket price per passenger on the Sandefjord – Strömstad route in 2005 was only NOK 39.79, estimated spending per passenger in shops on-board averaged NOK 608.59 (p 180, HZI 21 14/23). By comparison, the estimated average ticket price per passenger on the Larvik –

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56. In its Reply to the SO, Color Line agrees that the share of on-board sales is high and that the share of ticket revenue is low compared to longer ferry routes to, for example, Denmark or Germany.51

57. Color Line does not offer mini-cruises or cruises on the Sandefjord – Strömstad route comparable to its offerings on other routes. There is, for example, no possibility of overnight accommodation on its Sandefjord – Strömstad ferries.

58. Color Line has submitted that cargo transport constitutes approximately [0- 20%] of passengers and “cruise” passengers around [0-30%].52 Passengers motivated by shopping opportunities are roughly estimated at between 65 and 75%.53

59. In its Reply to the SO, Color Line confirms that a high share of passengers buy alcohol and tobacco on-board its ferries on the Sandefjord – Strömstad route.54 The market study carried out by Color Line in May 2010 suggests that only [less than 30%] of passengers do not make use of their tax-free quota at all.55

60. In its Reply to the SO, Color Line states that in 1993 turnover from on-board sales amounted to 75% of operating revenue and tickets sales only 20%. In 2000, on-board sales amounted to approximately 90% of operating revenue and have […] to around [more than 75%] in recent years.56 Color Line links that phenomenon to the availability of tax-free goods: “The high share of on-board sales has to do with the sale of tax-free goods on board.”57

61. The possibility for tax-free sales has thus been very important for Color Line as it has created a distinct motive for consumers to travel on its Sandefjord – Strömstad ferries.

62. When setting the prices for its tax-free goods, the Authority understands that Color Line adjusts its prices so that they are below the price of the goods in question in the destination country (in casu, Sweden), in order to maximize its

Frederikshavn route was NOK 202.17 (albeit on a longer trip) and estimated average spending in on- board shops was NOK 341.03 (p 184, HZI 21 18/23). 51 Event # 553056, Color Line’s Reply to the SO, paragraph 159 (“Andelen ombordsalg er høy og andelen billettinntekter er lav sammenliknet med lengre fergelinjer til f.eks. Danmark og Tyskland”). 52 Event # 553056, Color Line’s Reply to the SO, paragraphs 142-143. “Cruise” in this regard refers to passengers who return on the same ferry (“Cruisepassasjerer er passasjerer som reiser tur-retur med samme ferge”). 53 Event # 568548, e-mail from Color Line dated 6 September 2010 (“Basert på tallene over, kan det meget omtrentlig anslås at transportkundene med handlemotiv utgjør mellom 60-75 % av totalt antall reisende (begge veier)”). 54 Event # 553056, Color Line’s Reply to the SO, paragraph 161 (“En høy andel av de reisende kjøper alkohol og tobakk om bord.”). 55 Event # 559854, question 17. 56 Event # 553056, Color Line’s Reply to the SO, paragraphs 159-161. 57 Event # 553056, Color Line’s Reply to the SO, paragraph 161 (“Den høye andelen ombordsalg har sammenheng med salget av taxfreevarer om bord.”).

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profits.58 Thus, in 2002, for example, prices in Color Line’s tax-free shops on the Sandefjord – Strömstad route were reported to be 20-23% lower than prices in Strömstad.59

3.4.3 Tonnage and number of sailings per day

63. When the services on the route began in 1986, Color Line operated one ferry and offered two daily sailings in each direction. In 1990/1991, the frequency of sailings was increased to three per day in each direction in peak season (which corresponds approximately to the school summer vacation in Norway).60

64. In May 1992, Color Line acquired a second ferry, M/S Sandefjord, and increased its activity to four daily sailings in each direction, five in peak season.61

65. In 1994, Color Line increased its activity to five daily sailings in each direction and six in peak season (07:00, 10:00, 13:30, 17:00, 20:00 and 23:00). That schedule was essentially maintained in subsequent years subject to minor adjustments. In January and in parts of February there have only been two daily departures using a single ferry, due to maintenance works. From 2009, Color Line dropped its late night departure from Sandefjord (23:00) and now operates with five daily departures in low and peak season.62

3.4.4 Turnover, gross margins and increase in demand

66. In its Reply to the SO, Color Line points out that there has been a significant increase in the number of passengers on the route over the period. It links this increase in demand partly to its own investments in tonnage, harbour facilities and marketing efforts.63 However, it also notes that there was a particularly large increase in the number of passengers in the period from 1995 to 2000, during which Color Line did not make any significant changes in the tonnage used on the route. This surge in demand was essentially the result of exogenous factors. According to the Menon Report (Annex I to the Reply to the SO), it became increasingly advantageous for Norwegians to shop in Sweden during the 1990s (due, inter alia, to exchange rate and price movements). The advantage of shopping in Sweden for Norwegian citizens increased from 1994 to 2000 from 20% to 40%. Color Line claims that the increased advantage of

58 Event # 371361, p. 50 (TM 7 12/22), page 12 of the report entitled “Smoke over troubled water …” (“Siden Color Line i dag har lagt sine priser rett i underkant av prisene i land på destinasjon”). 59 Event # 370865, p. 66 (BAL 30 15/30), presentation for Color Line Board meeting of 10 December 2002, “Budsjett 2003”. 60 Event # 553056, Color Line’s Reply to the SO, paragraph 249. 61 Event # 553056, Color Line’s Reply to the SO, paragraph 250. 62 Event # 553056, Color Line’s Reply to the SO, paragraphs 244-254. 63 Event # 553056, Color Line’s Reply to the SO, paragraph 156.

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shopping in Sweden corresponds almost perfectly to the increase in the number of passengers on the Sandefjord – Strömstad route during the same period.64

67. The increase in passengers on the Sandefjord – Strömstad route is illustrated by a chart set out in Color Line’s Reply to the SO at paragraph 156:

Passenger numbers in thousands, Color Line’s Sandefjord–Strömstad route

68. Color Line’s turnover on the route increased year-by-year from 1994, peaking at NOK 899.7 million in 2005. Gross margins obtained on the route were in the range of […], at least between 2001 and 2005.65

69. Color Line confirmed at the oral hearing that its EBITDA margins (Earnings Before Interest, Taxes, Depreciation and Amortization) as well as its EBIT margins (Earnings Before Interest and Taxes) on the route have exceeded […].66

70. As regards its profit margins on the route, Color Line argues that “gross profit margins” are a very imprecise measure of how profitable the route has been,

64 Event # 553056, Color Line’s Reply to the SO, paragraphs 157-158. 65 Event # 401819, annex 2.2 to Color Line’s reply dated 4 December 2006. The turnover on the route according to information provided by Color Line was NOK 274.6 million in 1995; NOK 331.6 million in 1996; NOK 454.2 million in 1997; NOK 684.6 million in 1998; NOK 774.4 million in 1999; NOK 759.2 million in 2000; NOK 749.8 million in 2001; NOK 828 million in 2002; NOK 846.9 million in 2003; NOK 895.2 million in 2004; and NOK 899.7 million in 2005. Operating profit as a percentage of turnover on the route (“bruttodriftsmargin”) was, according to Color Line’s internal accounts, […]% in 2001, […]% in 2002, […]% in 2003, […]% in 2004 and […]% in 2005. Prior to 2001 the financial statements of the operating company on the route in question submitted by Color Line report significant profits (event # 401819, annex 2.2). Turnover on the route in 1993 already amounted to NOK 239.6 million, and net profits after tax to NOK 44.5 million. 66 “Det som kjennetegner marginbildet over alle disse årene er at frem til 1997, så var vi aldri over den […] marginen som nevnes her. … Resultatet før skatt har vel egentlig aldri vært over […] i margin. Når det gjelder driftsresultatmarginen, altså etter avskrivninger men før finans, så har marginene i noen år vært noe over […], men også i mange år vært under […]. EBITDA-marginen ligger naturlig nok noe over driftresultatmarginen og har noen flere år som ligger over […], men også enkelte, eller relative mange år, som ligger under […]. Så det er ikke noe entydig bilde”, recording from oral hearing at 1h22m30sec.

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since neither the costs of capital, such as interest payments, depreciation or contributions to shared costs of the group, are included. It also emphasises that ferry operations entail substantial fixed costs because of investments in tonnage.67 Nevertheless, Color Line accepts that it enjoyed “good margins” on the route.68

71. While there is no need for the purposes of the present case to determine the precise level of profits enjoyed by Color Line on the route, it follows from the above that the route generated significant revenues and was a lucrative operation for the company.69

3.5 Color Line’s investments in the Sandefjord – Strömstad route

3.5.1 Color Line’s investments in Strömstad

72. Color Line has informed the Authority that it invested a total of NOK 31.5 million in Strömstad in the period from 1991 to 2006.70 Of that sum, NOK 12.8 million was invested in 1992 in erecting the terminal building and the passenger tube; the rest was spread out over the entire period and included upgrading the ramp (NOK 7.7 million in 1999), new customs facilities (NOK 4.1 million in 2000) and modification of the quay to the new vessel, Color Viking (NOK 0.7 million in 2000).71

73. In addition, Color Line paid an extra yearly harbour fee of SEK 467 000 in the period from 1995 to 1997 as compensation to the Municipality for lengthening the quay at Color Line’s request.72 Color Line has stated that it made no

67 Event # 553056, Color Line’s Reply to the SO, paragraphs 1102-1103. 68 Event # 553056, Color Line’s Reply to the SO, paragraph 1103. 69 See also, for example, event # 371507, p. 38 (HZI 94 3/14) where […] in 1999 reports on the current situation on the Sandefjord – Strömstad route: “It is well-known in the market that Color Line has large revenues…” (unofficial translation from Norwegian by the Authority: “Det er velkjent i markedet at Color Line har store inntekter…”); event # 371507, p. 83 (HZI 98 1/2), assessing the threat of new entry on the Sandefjord – Strömstad route by, amongst others, Bastø-Fosen, and referring to the fact that “Color Line…remains the strongest player in the market and continues to be a good source of income in the long run” (unofficial translation from Norwegian by the Authority: “Color Line…forblir den sterkeste aktøren i markedet og fortsetter å være en god inntektskilde over lang tid”). See also event # 410203, p. 8, internal Bastø-Fosen presentation, December 1999, pointing out that the Sandefjord – Strömstad route had been very profitable to Color Line over a long period of time and characterising the route as a “milking cow within Color Line” (“Sandefjord – Strømstad har over en lang periode gitt god lønnsomhet – er i dag en “melkeku”innen Color Line”). 70 Event # 553056, Color Line’s Reply to the SO, chapter 5.3.2. See also event # 401814, Color Line’s reply to Question 10 (a), and event # 401815, which shows that investments in Torskholmen from 1991 to 2005 totalled NOK 29.981 million. 71 See event # 401814, Color Line’s reply of 4 December 2006, Question 10 (a) and event # 401813, annex 10.2 to reply of 4 December 2006. See also event # 553056, Color Line’s Reply to the SO, paragraphs 205-208. 72 See event # 401814, Color Line’s reply of 4 December 2006, Question 10 (b).

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significant investments in the harbour before the agreements in Strömstad were entered into.73

3.5.2 Color Line’s investments in Sandefjord

74. In Sandefjord, Color Line has stated that it has invested a total of approximately NOK 19 million since 1991. 40% of that investment was made in 1992 to upgrade the existing terminal building and the tube (i.e. approximately NOK 7.6 million).74

3.5.3 Color Line’s investments in tonnage

75. According to the Reply to the SO, Color Line has invested a total of NOK 464.2 million in tonnage on the route since 1988. Since 1991, when the agreement with the Municipality of Strömstad was concluded, NOK 405 million has been invested in purchasing and upgrading vessels. Those investments can be summarised in the table below based on the information submitted by Color Line in its Reply to the SO (paragraphs 244-248).

Color Line’s investments in tonnage on the Sandefjord – Strömstad route between 1991 and April 2010 (million NOK):

Vessel Capacity Acquisition Upgrades Total (Passengers/ costs investment cars)

M/S Bohus 550 / 65 19.4 n.a. 19.4 (1986-1988)

M/S Bohus II 650 / 145 31.8 8 39.8 (1988-1992)

Total 51.2 8 59.2 investments prior to 1991

M/S Sandefjord 1135 / 125 49 31 80 (1992-2000)

M/S Bohus 1480 / 230 75 40 115 (Lion Princess) (1994– present)

M/S Color 1750 / 340 148 62 210 Viking (2000 – to present)

73 Event # 430419, Color Line’s reply dated 19 July 2007, Question 7 (c). 74 Event # 553056, Color Line’s Reply to the SO, paragraph 180.

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Vessel Capacity Acquisition Upgrades Total (Passengers/ costs investment cars)

Total 272 133 405 investments since 1991

Total 323.2 141 464.2 investments since 1986

3.5.4 Other investments

76. Color Line also refers to marketing costs. It has provided data for the years from 1994 to 2009, during which it states that its total investment in marketing amounted to NOK [300-400] million at current prices. Marketing costs from 1994 to 2005 amounted to NOK 275.7 million.75 Those costs were spread fairly evenly over the whole period from 1994 to 2005, as shown in the table below.

Line specific marketing costs from 1994-2009 (million NOK):

1994 1995 1996 1997 1998 1999 2000 2001

13 13.3 16.8 20.6 33.9 37.8 37 20.2

2002 2003 2004 2005 2006 2007 2008 2009

20.4 21.8 22.7 23.1 22.7 […] […] […]

3.6 The applicable tax-free regime

3.6.1 General framework

77. VAT and excise duties are normally due in Norway on alcoholic beverages when they are sold within Norwegian territory.

78. The Norwegian VAT Act 196976 provides that the sale of goods and services shall be subject to value added tax (Section 13). Goods for export are, however, exempt from VAT (Section 16(1)(a)), as are “goods and services […] for use

75 Event # 553056, Color Line’s Reply to the SO, paragraph 259. 76 Act No 66 of 19 June 1969. A new VAT Act was adopted in 2009 (Lov om merverdiavgift, Act No 58 of 19 June 2009, which entered into force on 1 January 2010). This Decision refers to the VAT Act of 1969 since that was the applicable legislation throughout the entire period under examination.

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aboard ships of at least 15 metres in length on international routes which transport passengers or cargo upon consideration”.77

79. The Norwegian Ministry of Finance is empowered to adopt regulations “delimiting, adding detail to or implementing” these provisions.78

80. Excise duties are fixed annually by the Norwegian Parliament79 on the basis of the Excise Duty Act 1933.80 As a general rule, excise duties are due when alcoholic beverages are produced or imported; goods for export are not subject to excise duties and benefit from an excise duty refund in the event that such duties have already been paid.

81. Norwegian VAT and excise duties are normally charged on imports (Section 62 of the VAT Act). However, as a general rule, the import of small quantities of alcoholic beverages by private persons is exempt from VAT and excise duties.81 Earlier versions of the relevant provisions have not always explicitly exempted on-board sales, but only imports of goods into Norway by passengers. However, in practice, on-board sales have also been exempt from VAT and excise duties.

82. The right to import alcoholic beverages free of duty is also subject to the condition that the traveller, if a Norwegian resident, remain outside the customs area for at least 24 hours (the “24-hour rule”).82

3.6.2 Tax-free sales on ferry routes between the Nordic countries

3.6.2.1 Prior to 1 June 2002

83. Tax-free sales on ferry routes between the Nordic countries have been and continue to be subject to a specific set of rules.

84. In 1968, Norway, Sweden, Finland and Denmark entered into the “Nordic Agreement on the Provisioning for Passenger Vessels in Traffic between Ports in Denmark, Finland, Norway and Sweden”.83 Pursuant to Article 3(a) of that

77 Section 16(2)(a). Unofficial translation from Norwegian by the Authority: “varer og tjenester … til bruk for skip på minst 15 meter største lengde når det i utenriks fart frakter last eller mot vederlag befordrer passasjerer ”. 78 Section 16, second paragraph. Unofficial translation from Norwegian by the Authority: “Departementet kan gi forskrifter om avgrensning, utfylling og gjennomføring av bestemmelsene i første ledd …”. 79 Vedtak om særavgifter til statskassen. 80 Lov om særavgifter av 19. mai 1933 nr 11. 81 Currently, the exemption is laid down in Section 5-2-1 of the Customs Regulation (Forskrift til lov om toll og vareførsel, Regulation No 1502 of 17 December 2008, which entered into force on 1 January 2009); see also Section 7-2(1) of the new VAT Act and Section 2-6 of Regulation No 1451 of 11 December 2001 on Excise Duties. 82 That rule is currently found in Section 5-1-1-(1) of the Customs Regulation. 83 Event # 406232, reply from Norway dated 8 January 2007, annex 4, Overenskomst angående proviantering av passasjerfartøyer i trafikk mellom havner i Danmark, Finland, Norge og Sverige, referred to as “the Nordic Provisioning Agreement”.

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Agreement, only tobacco, chocolate and other confectionery could be sold tax- free on board ferries on “routes which, according to the duty free regulations, are to be considered as ‘short’”.84 Short routes were defined as all routes north of the line from Risør in Norway to Lysekil in Sweden.85 Pursuant to Article 3(b), on “long” routes alcoholic beverages could also be sold tax-free on board ferries.

85. These rules were implemented into Norwegian law by way of the Travel Goods Regulation.86 Sections 2 and 3 set out the conditions under which private persons were entitled to bring small quantities of alcoholic beverages into Norway without being subject to VAT, excise and customs duties. Section 6 provided that “goods bought aboard vessels operating on short routes between Norway and other countries cannot be imported free of customs duties and other taxes as provided for in Section 2 and 3 of this regulation”.87 Sections 2 and 3 laid down a number of other conditions for the import of duty-free goods, inter alia requirements relating to the value, quantity and strength (of alcoholic beverages) of goods, as well as the “24-hour rule” (Section 2(6)).

86. In Swedish law, the provisions of the Nordic Provisioning Agreement were incorporated into Section 8 of Regulation (1987:1072) on the right of travellers and others to import customs and duty-free goods.88 When Color Line applied for a licence to sell a full range of tax-free goods on board its ferries on the Sandefjord – Strömstad route, there was no legal basis for allowing such sales because that route was a “short” route. On 15 December 1987, the Norwegian Ministry of Finance nevertheless granted Color Line an exemption from the general rules, to the effect that its route from Sandefjord to Strömstad was

84 Unofficial translation from Norwegian by the Authority (“på ruter som i henhold til tollfrihetsreglene for reisende anses som korte”). 85 According to the Norwegian Travel Goods Regulation (Forskrifter om tollfrihet for reiseutstyr og reisegods No. 12 of 26.5.1978). 86 Regulation No 12 of 26 May 1978. 87 Unofficial translation from Norwegian by the Authority (“Varer kjøpt ombord i fartøyer som trafikkerer korte ruter mellom Norge og utlandet, tillates ikke medbragt toll- og avgiftsfritt etter bestemmelsene i §§ 2 og 3 foran”). 88 Förordning (1987:1072) om rätt för resande m.fl. att införa varor tull- och skattefritt. The provision read: “On those maritime and air transport routes between Sweden and Denmark, Finland and Norway specified in the second paragraph of this provision, the right to duty-free import of goods purchased aboard shall not apply to liquor, wine or strong beer and not to more than 40 cigarettes or 20 cigars or cigarillos or 100 grammes of other tobacco goods. The right to duty free imports pursuant to paragraph 1 applies to travellers who arrive by vessel in traffic on routes between […] a Norwegian harbour from Risör in the west to the Swedish border in the east and a Swedish harbour from the Norwegian border in the north to Lysekil in the south.” (Unofficial translation from Swedish by the Authority: “På sådana fartygs- och flyglinjer mellan Sverige och Danmark, Finland eller Norge som anges i andra stycket omfattar rätten till tullfri införsel av varor som anskaffats ombord inte spritdrycker, vin eller starköl och inte mer än 40 cigaretter eller 20 cigarrer eller cigariller eller 100 gram andra tobaksvaror. Rätt till tullfri införsel enligt första stycket gäller i fråga om resande som kommer med fartyg i trafikmellan […] norsk hamn från och med Risör i väster till svenska gränsen i öster och svensk hamn från norska gränsen i norr till och med Lysekil i söder […].”). This Regulation was later replaced by Regulation (1994:1694) on Certain provisioning, etc. (Förordning om viss proviantering m.m.).

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treated as a “long” route. As a result, Color Line was able to sell tax-free alcoholic beverages on board its ferries on the route. This was made possible by inserting a legal basis for granting exemptions into Section 6 of the Travel Goods Regulation, which empowered the Ministry of Finance to “grant exemptions for certain ferry routes by deciding that they are to be considered as ‘long routes’”.89 This regulatory change was agreed between Norwegian and Swedish customs authorities.90

87. A corresponding amendment was inserted into the applicable Swedish Regulation.91 As from 1 July 1999, the Regulation was revoked and the rules were taken into Section 6 of a new Act (1999:446) relating to the Provisioning of Vessels and Aircrafts.92 While the original version the Act contained no legal basis for derogating from the prohibition on tax-free sales on short routes, an amendment inserting a provision replicating the former derogation provision was adopted in December 1999.93 Derogations under the provision would be retroactively applicable back to 1 July 1999. Thus, in substance, the rules remained identical as concerns the route in question.94

88. Color Line has been permitted to offer tax-free sales on the Sandefjord – Strömstad route since 1 January 1988.95 However, from 1992 until 1998 Color Line had to apply each year for a prolongation of its tax-free licence.96

89. While Color Line was granted an exemption, the Norwegian authorities declined applications from other operators wishing to start ferry services with tax-free sales on “short” routes.

90. In 2001, Bastø-Fosen AS challenged in court a refusal by the Norwegian authorities to grant it a tax-free licence, alleging that the Norwegian authorities had infringed the non-discrimination principle in Norwegian administrative law. Bastø-Fosen had applied for a licence to sell tax-free goods on a proposed route

89 Unofficial translation from Norwegian by the Authority (“Finans- og tolldepartementet kan gjøre unntak for særskilte fartøysruter slik at rutene blir å anse som ‘lange’”). 90 Event # 556768, p. 241, letter from the Swedish Ministry of Finance to the Norwegian Ministry of Finance, annex 26 to Color Line’s Reply to the SO. 91 A new provision was inserted as paragraph 3 of Section 8 of Regulation (1987:1072): “The Government may decide that the provisions of paragraphs 1 and 2 shall not apply in respect of certain maritime routes.” (Unofficial translation from Swedish by the Authority: “Regeringen kan medge att bestämmelserna i första och andra styckena inte skall gälla i fråga om viss fartygslinje.”). The same provision was later found in Section 6, 5th paragraph, Regulation (1994:1694). 92 Lag (1999:446) om proviantering av fartyg och luftfartyg. 93 Act (1999:1332) amending Act (1999:446) relating to the Provisioning of Vessels and Aircrafts. Unofficial translation from Swedish by the Authority (Lag (1999:1332) om ändring i lagen (1999:446) om proviantering av fartyg och luftfarty), entry into force on 1 January 2000. 94 Event # 406232, reply from Norway dated 8 January 2007; event # 553056, Color Line’s Reply to the SO, paragraph 266; and event # 556768, annex 26 to Color Line’s Reply to the SO. 95 Event # 406232, reply from Norway dated 8 January 2007, enclosure 1; event # 553056, Color Line’s Reply to the SO, paragraphs 284-291. 96 Event # 553056, Color Line’s Reply to the SO, paragraphs 290-291.

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from Sandefjord to Strömstad in June 1998.97 The national court took the view that the difference in treatment between Bastø-Fosen AS and Color Line, was discriminatory and in breach of general principles of Norwegian administrative law.98 The court emphasised in particular that Color Line had been allowed to increase its capacity on the route both prior to Bastø-Fosen’s application and again when Color Line replaced its vessel M/S Sandefjord with M/S Color Viking, shortly after the final rejection of Bastø-Fosen’s application (in November 1999).

3.6.2.2 Post-1 June 2002

91. Following the judgment in the Bastø-Fosen case, the tax-free rules were amended, in 2002. Norway and Sweden concluded the “Short Routes Agreement”.99 Article 3 of that Agreement provided that the prohibition on tax- free sales on “short routes” would continue to apply; however, the competent authorities of Norway and Sweden were empowered to make derogations in favour of routes as far north as the Sandefjord – Strömstad line which met the criteria laid down in Article 4. Pursuant to Article 4, derogations could only be made for routes operated on a year-round basis according to a fixed schedule, which had the capacity to transport cargo and vehicles to a significant extent, and provided that satisfactory customs arrangements were in place.

92. In Norway, these rules were subsequently incorporated into Section 6 of the Travel Goods Regulation. From 1 June 2002, Section 6(3) provided that the customs authorities could allow tax-free sales to passengers on board vessels on routes from a Norwegian harbour located between Sandefjord and Risør to a Swedish harbour located between the Norwegian border and Lysekil, provided that the route operated on a year-round basis according to a regular schedule, that it had the capacity to transport cargo and vehicles to a significant extent, and that satisfactory customs arrangements were in place. It was also made clear in the preparatory works to the amended rules that a tax-free licence must be granted where those conditions are met.100 Thus, under the new provision, the granting of a licence is no longer subject to the authorities’ discretion where the conditions are met. Finally, it was clear from the provision that, “[w]hen such permission has been granted, the passengers may import goods purchased on board in accordance with Sections 2 and 3 above”,101 which entailed, inter alia, that the “24-hour rule” applied.

97 See event # 413602, p. 20, reply from Norway dated 8 January 2007, annex 11; event # 409259, judgment by Oslo City Court of 5.10.2001, p. 2. 98 Event # 409259, judgment by Oslo City Court of 5.10.2001. The refusals by the Norwegian authorities of applications for tax-free licences on “short” routes from operators other than Color Line is described in some detail in the judgment at p. 27-28. 99 Event # 406232, reply from Norway dated 8 January 2007, annex 3. 100 Event # 406232, consultation paper issued by the Norwegian Ministry of Finance on 6 September 2001 (annex 6 to reply from Norway dated 8 January 2007). 101 Event # 406232, reply from Norway dated 8 January 2007, annex 7. (Unofficial translation from Norwegian by the Authority: “Når slik tillatelse er gitt, kan den reisende innføre varer kjøpt om bord etter bestemmelsene i §2 og §3 foran”).

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93. In Sweden, the exemption provision in Section 6 of the Act relating to the Provisioning of Vessels and Aircrafts was also amended.102 As from 1 June 2002, it read: “The Customs Authority shall, upon application, decide that the provisions of paragraphs 1 and 2 [of Section 6] shall not apply to a maritime route between a Swedish harbour from Strömstad in the north to Lysekil in the south and a Norwegian harbour from Risør in the west to Sandefjord in the east, which operates on a year-round basis according to a regular schedule and which has the capacity to transport vehicles and cargo to a significant extent.”103

94. A number of technical changes have subsequently been made to the tax-free rules, both in Norway and Sweden, but in substance the rules concerning short routes and tax-free sales have remained the same.

4 THE RELEVANT MARKET

4.1 Introduction

95. According to the Authority’s Notice on the definition of the relevant market, the main purpose of market definition is to identify in a systematic way the competitive constraints that the undertakings concerned face. The objective of defining a market is to identify the competitors of the undertakings concerned that are capable of constraining those undertakings’ conduct and of preventing them from behaving independently of effective competitive pressure.104

96. A relevant product market comprises all those products and/or services which the consumer, by reason of the products’/services’ characteristics, their prices and their intended use, regards as interchangeable or substitutable.105

97. The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas.106 In transport markets, the definition of the relevant market usually includes a geographic element in its own right, since the place where the service is provided needs to be taken into account in determining whether the service is substitutable for other services.

102 Amendment (2002:264) of the Act relating to Provisioning of Vessels and Aircrafts (Lag om ändring (2002:264) i lagen (1999:446) om proviantering av fartyg och luftfartyg). 103 Unofficial translation from Swedish by the Authority: “Tullverket skall på ansökan besluta att bestämmelserna i första och andra styckena inte skall tillämpas om det är fråga om en fartygslinje mellan svensk hamn från och med Strömstad i norr till och med Lysekil i söder och norsk hamn från och med Risör i väster till och med Sandefjord i öster med åretrunttrafik enligt regelbunden tidtabell och kapacitet att transportera gods och fordon i betydande omfattning.” (http://www.riksdagen.se/webbnav/?nid=3911&bet=1999%3A446). 104 The Authority’s Notice on the definition of the relevant market for the purposes of EEA competition law, OJ L 200/48 of 16 July 1998 and EEA Supplement No 28, 16.7.1998, p. 3, paragraph 2. 105 Notice on the definition of the relevant market, paragraph 7. 106 Notice on the definition of the relevant market, paragraph 8.

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98. When defining a relevant market, regard may be had both to demand substitution and supply substitution. However, from an economic point of view, demand substitution generally constitutes the most immediate and effective disciplinary force on the suppliers of a given product, in particular in relation to their pricing decisions. Basically, the exercise of market definition consists of identifying the effective alternative sources of supply for the customers of the undertakings concerned, both in terms of products/services and geographic location of suppliers.107

99. Supply-side substitutability may also be taken into account when defining markets in those situations in which its effects are equivalent to those of demand substitution in terms of effectiveness and immediacy. This means that suppliers are able to switch production to the relevant products/services and market them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices. When supply-side substitutability entails the need to make significant adjustments to existing tangible and intangible assets, additional investments, strategic decisions or time delays, it will generally not be considered at the stage of market definition.108

4.2 The relevant market for passenger services

100. The present case concerns the provision of passenger ferry services by Color Line between the Norwegian port of Sandefjord and the port of Torskholmen in Strömstad harbour in Sweden. That is the starting point for the definition of the relevant market.109

101. As described above, the crossing from Sandefjord to Strömstad is a passenger ferry service of short duration (approximately 2.5 hours). There is no possibility of overnight accommodation on the ferry. In that regard, the route is different from most of Color Line’s other routes, which also offer mini-cruises or roundtrips with overnight lodging on the ferry. The Sandefjord – Strömstad route is a short-haul point-to-point passenger transport service.

102. The European Court of Justice (ECJ) and the General Court have confirmed that markets for passenger transport services can be defined on the basis of individual routes or a bundle of routes, to the extent that there is substitutability between them according to the specific features of the case.110 The test to be

107 Notice on the definition of the relevant market, paragraph 13. See also, Case T-177/04 EasyJet v Commission [2006] ECR II-1931, paragraph 99. 108 Notice on the definition of the relevant market, paragraphs 20 and 23. 109 Those services must be distinguished from the port facilities and services provided by Sandefjord and Torskholmen harbours to ship operators calling at those ports, which is to be seen as an upstream market to the provision of passenger ferry services. See event # 451831, Opinion of the European Commission in application of Article 15(1) of Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty – Swedish Supreme Court (Högsta Domstolen) case T-2808-05, Danska Staten genom Bomholmstrafiken v Ystad Hamn Logistik Aktiebolag, paragraphs 23-24. 110 Case 66/86 Ahmed Saeed Flugreisen [1989] ECR 803, paragraphs 39-41; Case T-2/93 Air France v Commission [1994] ECR 320, paragraphs 84 and 85; Case T-177/04 EasyJet v Commission [2006] ECR II-1913, paragraphs 55-57, 61.

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applied in determining whether a particular route can be distinguished from possible alternatives is therefore whether there are specific characteristics as a result of which that route is not interchangeable with those alternatives and is affected only to an insignificant degree by competition from them.111 Elements to be taken into account in that exercise include the place of origin and destination of the ferry customers, existing traffic flows and customer sensitivity to changes in total travel time, crossing time, price and service (which includes the frequency of services and the existence of road and rail connections from the port).112

103. An important feature of the Sandefjord – Strömstad route is the availability of duty-free products aboard the ferries. As described above, the possibility to provide duty-free sales on short routes between Norway and Sweden has been limited to a specific geographic area along the Norwegian and Swedish coasts.

104. It is recalled that Color Line itself has described the route as a “pure border trade route; short travelling time, very low fares, many cars and significant on- board sales (half alcohol/wine)”. It is also recalled that the route is characterised by a high share of passengers who buy tax-free products aboard the ferries, that a very high share of Color Line’s operating revenue comes from on-board sales, and that the share of ticket revenue is low (paragraphs 55-61 above).

105. During the period under examination, the only other direct ferry service between Norway and Sweden was between Gothenburg and Kristiansand. That service ceased operating in 2006. That route was a long-haul route which benefitted from tax-free sales, but it only operated three sailings per week. The frequency of that route was therefore much more limited than the Sandefjord – Strömstad route, which had several sailings per day. The route was also of considerably longer duration – 6½ to 7 hours, depending on the sailing – than the route between Sandefjord and Strömstad.113

106. In addition, most passengers travelling from Sandefjord to Strömstad come from Telemark, Buskerud and, in particular, Vestfold (see paragraph 54 above) and a large part of the passengers on the Sandefjord – Strömstad route are motivated by shopping possibilities. Many drive home by car.114 The distance between Kristiansand and Sandefjord is 207 km, approximately a 2 hour and 40 minute drive; the distance from Skien in Telemark to Kristiansand is 181 km, approximately a 2 hour and 20 minute drive; while the distance from Skien to Sandefjord is around 52 km, approximately a 50 minute drive.115 In that light, it

111 Case 66/86 Ahmed Saeed Flugreisen [1989] ECR 803, paragraph 40. 112 Event # 451831, Opinion of the European Commission to the Swedish Supreme Court in case T- 2808-05, paragraphs 23-24. 113 Event # 372556, DFDS’ schedules for 2006, which was the last year of operation of the route (electronic document from the inspection carried out at Color Line’s premises). 114 See also event # 371458, HZI 58 10/12 (slide 20), which indicates alternative routes back home for passengers who buy one-way tickets on Color Line’s ferry routes. It is notable that very few passengers travelling on the Sandefjord – Strømstad route indicated that other international ferry routes were considered as alternatives. 115 Source: Google Maps.

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is very unlikely that the route between Gothenburg and Kristiansand represented a relevant competitive constraint on Color Line’s route between Sandefjord and Strömstad.

107. The Authority is not aware of any information that indicates that Color Line’s pricing on the route between Sandefjord and Strömstad was influenced by the pricing of the ferry operator DFDS on the route between Kristiansand and Gothenburg. No such information has been submitted by Color Line, who would be the first to feel such constraints. There is no evidence, therefore, that the route between Gothenburg and Kristiansand placed any competitive constraints on Color Line’s Sandefjord – Strömstad route, such that it should be included in the relevant market.

108. There were several ferry routes from South East Norway to destinations in Germany and Denmark, but those routes were generally of considerably longer duration than the Sandefjord – Strömstad route, more expensive in terms of ticket prices, and most offered only one or two departures per day.116 For the vast majority of passengers travelling between Norway and Sweden on the Sandefjord – Strömstad route travelling via Denmark or Germany was not an alternative to which they would likely have switched in the case of small, permanent changes in relative prices.117

109. There is a car ferry between the Norwegian ports of Horten and Moss in the Oslo Fjord, operated by Bastø-Fosen AS. For passengers travelling by car with Color Line from Norway to Sweden, driving to Horten and then taking the ferry to Moss and driving from Moss to Sweden would have been the most obvious alternative.118 The distance by road between Sandefjord and Horten is around 40 km, which takes around 40 minutes to drive. The ferry crossing between Horten and Moss takes approximately 30 minutes (there are very frequent crossings – in rush hour, departures are every 30 minutes). The distance by road between Moss and Strömstad is around 80 km, which took more than more than one hour to drive at the relevant time.119 In addition to the fares on the Horten – Moss ferry, passengers would have had to pay fuel costs and, since July 2005, the road-toll between Moss and Strömstad. However, as that route is between two Norwegian ports, tax-free sales are (and were) not available.

116 Oslo – Kiel: approximately 19.5 hours; Oslo – Fredrikshavn: approximately 12 hours; Oslo – Copenhagen: approximately 16.5 hours; Larvik – Hirtshals: approximately 5 hours and 45 minutes (3 hours and 45 minutes after the introduction of SuperSpeed in 2008); Kristiansand – Hirtshals: approximately 2.5 to 4.5 hours (depending on the vessel used) (3 hours and 15 minutes after the introduction of SuperSpeed in 2008). 117 Notice on the definition of the relevant market, paragraph 15. 118 Driving the whole way via the Oslo Fjord Tunnel between Hurum and Drøbak or via Oslo could also be alternatives but would be more time consuming for people living close to Sandefjord/Horten. The distance by road between Sandefjord and Strömstad (via the subsea tunnel at Drøbak) is 231 km and takes around three hours to drive. A person driving the whole way would have to pay toll and fuel costs. However, tax-free sales would not be available on such a route. 119 Due to significant road improvements, the travel time from Moss to Strömstad today is around one hour (source: Google Maps).

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110. Although passengers taking such a route could have bought (duty-paid) products in Sweden more cheaply than in Norway, depending on prevailing taxes and exchange rates, Color Line’s prices aboard its ferries, which are (and were) free of taxes, would normally be lower (but still provide Color Line with a good margin on each sale – see Section 3.4.2 above). As already indicated in that Section, on-board sales are and have been a very important source of revenue for Color Line.

111. Given the importance of on-board shopping and the price differences between duty-free products on-board and duty-paid products in Sweden, driving via the Horten – Moss ferry (or driving the whole way) was not a substitute for the vast majority of passengers, with or without a car, who valued access to low prices and tax-free products on the Sandefjord – Strömstad route.

112. For passengers travelling without a car, driving via the Horten-Moss connection (or driving all the way) was not an alternative to taking the ferry between Sandefjord and Strömstad; such passengers would have had to arrange transport from Sandefjord to Horten and from Moss to Strömstad (or all the way to Strömstad).

113. Finally, the significant earnings that Color Line has enjoyed on the Sandefjord – Strömstad route (see Section 3.4.4 above) indicate that driving via the Horten – Moss ferry (or driving the whole way) combined with shopping in Sweden did not exert significant competitive constraints on Color Line. As a result, those alternatives were not sufficiently close substitutes to the ferry service from Sandefjord to Strömstad such as to be included in the relevant market.

114. In the light of the above, the Authority takes the view that, during the period under examination, there were no alternative routes which were sufficiently close substitutes to Color Line’s Sandefjord – Strömstad route so as to be included in the same relevant market for the provision of short-haul passenger ferry services with tax-free sales.

115. As regards the geographical dimension of the relevant market, Color Line’s route between Sandefjord and Strömstad concerns short-haul passenger ferry services with tax-free sales between specific ports on the coast of Norway and Sweden. Therefore, there is an inherent geographical dimension in the definition of the relevant product market, firstly, by reference to the Norwegian and Swedish ports in question and, secondly, by the exclusion of long-haul routes from the market definition which excludes routes operated from ports too far away from the ports used by Color Line to be regarded as short-haul routes.

116. In November 2006, Kystlink began the operation of a short-haul passenger ferry service with tax-free sales between Langesund, in Norway, and Strömstad in Sweden in competition with Color Line, which might indicate that routes from ports between Langesund and Sandefjord could have formed part of the relevant market. However, for the purposes of the present case the exact definition of the geographical scope of the relevant market can be left open since Color Line was, in any event, the only provider of short-haul passenger ferry services with tax-free sales between Norway and Sweden during the period under examination in this Decision.

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4.3 Color Line’s submissions on market definition

117. Color Line has argued that the Authority has put too much emphasis on travelling time, and that the relevant market should include harbours south of Strömstad on the Swedish side, and possibly also harbours south of Langesund on the Norwegian side. Color Line also claims that prior to their amendment in June 2002, the tax-free regulations did not prevent ferry lines from ports north of Sandefjord from obtaining a tax-free licence. Thus, harbours north of Sandefjord should also have been included in the relevant market until June 2002.120

118. Color Line also maintains that the Authority wrongly assumes, when defining the relevant market, that most passengers infringe the 24-hour prohibition on bringing tax-free goods into Norway, since the Authority believes, Color Line alleges, that it is important to passengers to be able to return to Norway shortly after they have finished shopping in Sweden.121

119. Color Line further argues that the Authority should have distinguished between different passenger segments, since cruise, cargo and purely transport-motivated customers have other alternatives when compared to customers motivated by shopping. Also, harbours south of Strömstad, for instance Lysekil, are an alternative for the mainly transport-orientated customers going to Gothenburg or other southern destinations.122

120. Finally, Color Line maintains that the ferry route between Horten and Moss is a significant competitive factor for Color Line’s Sandefjord – Strömstad route.123

121. None of those arguments calls into question the Authority’s definition of the relevant market for the purposes of this case.

122. With regard to harbours south of Strömstad and Sandefjord and harbours north of Sandefjord the Authority notes, in response to Color Line’s arguments, that there were no competing ferry lines from such harbours during the period under examination. Therefore, Color Line’s customers did not have the possibility of switching to alternative ferry services in response to a hypothetical small but significant increase in Color Line’s prices. Further, the available facts do not in any way suggest that supply-side substitution could have had a disciplinary effect on the competitive behaviour of Color Line (see paragraph 99 above). In line with its Notice on market definition, the Authority will not consider potential competitive constraints posed by the possibility of operating short-haul routes with tax-free sales from alternative harbours at the market definition

120 Event # 553056, Color Line’s Reply to the SO, section 9.3. 121 Event # 553056, Color Line’s Reply to the SO, paragraphs 478-479. 122 Event # 553056, Color Line’s Reply to the SO, section 9.3. 123 Event # 553056, Color Line’s Reply to the SO, paragraph 166.

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stage. The Authority will revert to that issue when assessing in its competition analysis factors and circumstances relating to the conditions of market entry.124

123. As regards Color Line’s submission as to the 24-hour rule, the Authority refers to a report submitted by Color Line which indicates that only [less than 25]% of passengers do not take advantage of the tax-free quota on-board. That report also indicates that in 2010 [60-90]% of passengers were day travellers, that is, travellers who leave and return on the same day.125 In its Reply to the SO, Color Line states that in 1993 turnover from on-board sales amounted to 75% of operating revenue; by 2000 that had risen to approximately 90% (see paragraph 60 above).126 The Authority also notes that the Norwegian Ministry of Finance has, on a number of occasions, referred to the difficulties in ensuring that the 24-hour rule is complied with.127 In any event, Color Line’s arguments have no impact on the definition of the relevant market. As discussed above, during the period under examination, there were no competing ferry lines operating short- haul passenger ferry services with tax-free sales between Norway and Sweden.

124. Finally, as regards Color Line’s argument to the effect that the relevant market should be split along the lines of the different customer segments, the Authority notes that the vast majority of customers have always been motivated by shopping and that cargo, cruise and purely transport-motivated customers represent a minority.128 Moreover, the overwhelming majority of the profits derived from the route have come from tax-free sales on-board, while income from transport fares has been disproportionately low.129 Thus, the importance to a ferry operator of customers other than shopping-motivated customers was marginal throughout the relevant period. Therefore, a new ferry operator in the market would have had to rely mainly on income from shopping-motivated passengers, and not from cargo passengers or purely transport-orientated passengers, a small and unprofitable segment compared to shopping-motivated passengers. The loss of some of the former passengers in response to a price

124 Notice on the definition of the relevant market, paragraphs 14 and 24. Paragraph 24 provides that: “… potential competition, is not taken into account when defining markets since the conditions under which potential competition will actually represent an effective competitive constraint depend on the analysis of specific factors and circumstances related to the conditions of entry. If required, this analysis is only carried out at a subsequent stage, in general once the position of the companies involved in the relevant market has already been ascertained, and when such position is indicative of concerns from a competition point of view”. See Section 5.4.5 below. 125 Event # 566191, “Analyse av hvilke steder i Sverige som utgjør reisemotiv for reisende med Color Lines linje Sandefjord‐Strømstad”, 19 May 2010, p. 6-7. 126 Event # 553056, Color Line’s Reply to the SO, paragraphs 159-161. 127 Event # 406232, attachment 11. 128 Event # 553056, Color Line’s Reply to the SO, section 5.1.2.1 and paragraph 467. Color Line argues that transport customers with shopping motives constitute a distinct product market which must be limited to the routes whose location at any given time provide the possibility of being granted an exception to sell tax-free goods. 129 See paragraph 60 above. See also event # 371361, TM7, report entitled “Smoke over troubled water”, p. 19, where it is stated that “the main source of income today is on-board sales with high margins” (unofficial translation from Norwegian by the Authority: “hovedinntektskilden i dag er salg om bord, med høye marginer”).

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increase by Color Line would not be sufficient to have any disciplinary effects on Color Line’s behaviour, such as to make it necessary to expand the relevant market in this case.

125. Even if a separate relevant market were to be found for those customers whose motivation for travelling is only related to their transport needs and, further, that such a market would include both the Sandefjord – Strömstad route and the alternative of driving via the ferry connection Horten – Moss, such a finding would neither negate nor contradict the finding of another, separate relevant market for the provision of short-haul passenger ferry services with tax-free sales between Sandefjord and Strömstad. Customers belonging to the first market would not represent a competitive constraint on Color Line’s pricing of tax-free goods, the main source of its turnover and its profits on the route in question.130

4.4 Conclusion on the relevant market

126. In the light of the above considerations, the Authority takes the view that during the period from 1 January 1994 to 20 December 2005, which was characterised by the fact that Color Line was the sole operator with its route between Sandefjord, Norway, and Strömstad, Sweden, the relevant market was likely limited to the provision of short-haul passenger ferry services with tax-free sales between ports in these two municipalities (see paragraph 122).

127. However, for the purposes of this Decision, the question can remain open as to whether the geographical scope of that relevant market, as regards the Norwegian coast, also extended to a stretch between Sandefjord and Langesund (the port from which Kystlink operated its route to Strömstad between November 2006 and November 2008),131 or even to a stretch north of Sandefjord, since Color Line was, in any event, the sole supplier of short-haul passenger ferry services with tax-free sales between Norway and Sweden during the period from 1 January 1994 to 20 December 2005.

128. For the same reason, the question as to whether the relevant market could be defined more broadly to include routes operated from ports on the Swedish coastline south of the Municipality of Strömstad can remain open for the purposes of this Decision.

130 Thus, Color Line’s argument that “it remains important to us that prices on Sandefjord – Strömstad should be competitive in relation to Bastø-Fosen” does not say anything about the strength of Bastø- Fosen’s ticket prices as a competitive constraint on Color Line’s pricing on the Sandefjord – Strömstad route for the purposes of market definition in this case, and has no impact on the market definition analysis set out above, event # 553056, Color Line’s Reply to the SO, paragraphs 166 and 167, unofficial translation from Norwegian by the Authority (“Det er fortsatt viktig for oss at prisene på Sandefjord-Strömstad er konkurransedyktige i forhold til Bastø-Fosen”). 131 See paragraph 11 above.

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5 ARTICLE 53(1) EEA

5.1 Introduction

129. Article 53(1) of the EEA Agreement prohibits as incompatible with the functioning of the EEA Agreement all agreements between undertakings and concerted practices which may affect trade between Contracting Parties and which have as their object or effect the prevention, restriction or distortion of competition within the territory covered by the EEA Agreement.

130. Article 53(1) EEA is identical in substance to Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). According to Article 6 EEA and Article 3(2) of the Surveillance and Court Agreement the case law of the ECJ and the General Court is therefore relevant for the interpretation of Article 53 EEA.132

131. It is a fundamental objective of the EEA Agreement to achieve and maintain uniform interpretation and application of those provisions of the EEA Agreement that correspond to provisions of the TFEU, and to arrive at equal treatment of individuals and economic operators as regards conditions of competition in the whole of the EEA.133

5.2 Jurisdiction

132. The division of competences between the Authority and the European Commission as regards the application of Article 53 EEA is laid down in Article 56(1) EEA, which provides that:

“1. (a) individual cases where only trade between EFTA States is affected shall be decided upon by the EFTA Surveillance Authority;

(b) without prejudice to subparagraph (c), the EFTA Surveillance Authority decides, as provided for in the provisions set out in Article 58, Protocol 21 and the rules adopted for its implementation, Protocol 23 and Annex XIV, on cases where the turnover of the undertakings concerned in the territory of the EFTA States equals 33 per cent or more of their turnover in the territory covered by this Agreement;

(c) the [European] Commission decides on the other cases as well as on cases under (b) where trade between [EU] Member States is affected, taking into account the provisions set out in Article 58, Protocol 21, Protocol 23 and Annex XIV …”

133. It follows from the provisions of Article 56(1) EEA read in conjunction with Article 56(3) EEA that, without prejudice to cases whose effects on trade between EU Member States and on competition within the EU are appreciable,

132 See Case E-3/97 Jan and Kristian Jæger AS [1998] EFTA Ct. Rep. 1, paragraph 19; and Case E- 8/00 Landsorganisasjonen i Norge [2002] EFTA Ct. Rep. 114, paragraph 39. 133 Case E-8/00 Landsorganisasjonen i Norge [2002] EFTA Ct. Rep. 114, paragraph 39.

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the Authority is the competent authority under Article 56(1)(b) EEA in cases where the turnover of the undertakings concerned in the territory of the EFTA States amounts to 33% or more of their turnover in the EEA as a whole.

134. According to Article 2 of Protocol 22 to the EEA Agreement:

“Turnover within the meaning of Article 56 of the Agreement shall comprise the amounts derived by the undertakings concerned, in the territory covered by the Agreement, in the preceding financial year from the sale of products and the provision of services falling within the undertaking’s ordinary scope of activities after deduction of sales rebates and of value-added tax and other taxes directly related to turnover.”

135. As regards the agreement in Strömstad, the undertakings concerned are Color Line AS and the Municipality of Strömstad. The parties have provided the following turnover figures for 2005, the year preceding the start of the Authority’s investigation.

Turnover Color Line AS134 Municipality of Strömstad135 (million Euro) (million Euro)

EFTA-wide 489.69 0

EU-wide 80.28 2.3

136. On the basis of the above figures, the combined EEA turnover of the parties amounted to EUR 572.27 million in 2005, of which EUR 489.69 million, or 85.6%, was in the territory of the EFTA States. In that light, the EFTA turnover of the parties was significantly greater than 33% of their combined EEA turnover.

137. In conclusion, therefore, as regards the application of Article 53 EEA, the Authority is the competent authority pursuant to Article 56 EEA.

5.3 Agreement between undertakings

138. Article 53(1) of the EEA Agreement applies to agreements between undertakings. The definition of an “undertaking” covers any entity engaged in an economic activity, regardless of the legal status of that entity and the way in which it is financed. It is the activity consisting of offering goods and services

134 Event # 401815, reply from Color Line dated 4 December 2006, annex 4. Exchange rate 2005, 1 Euro: NOK 8.0092, source ECB. 135 Event # 408737, reply from the Municipality of Strömstad dated 22 January 2007. Exchange rate 2005, 1 Euro: SEK 9.2822, source ECB.

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on a given market that is the characteristic feature of an economic activity.136 The operation of a port constitutes a commercial activity.137

139. The fact that a public entity (a municipality) owns and operates the port does not in itself alter that conclusion.138 However, Article 53 EEA does not apply to an entity that acts in the exercise of official authority. That is the case where the activity in question is a task in the public interest which forms part of the essential function of the State and where that activity is connected by its nature, its aim and the rules to which it is subject with the exercise of powers which are typically those of a public authority.139

140. Color Line is an undertaking within the meaning of the EEA competition rules.

141. The Municipality of Strömstad, when entering into the harbour agreement in 1991, also acted in its capacity as an undertaking and not in its capacity as a public authority.140

142. The act at issue in the present case is termed an “agreement” and is, in its form and contents, similar to any other private law contract governing the offer of services in return for remuneration. The Municipality of Strömstad has confirmed to the Authority that Swedish municipalities are separate legal entities and may enter into private law agreements within their areas of competence. They may also operate commercial activities with a view to providing services of general utility or services to the inhabitants of the municipality, and charge fees for them. The Municipality has further explained that the agreement with Color Line at issue “produces legal effects under civil law and may be tried before the courts for example on pleas concerning breach of contract. The municipality is, in entering into the agreement, also subject to Swedish law such as the Act relating to the conclusion of agreements, the act relating to real estate in so far as the disposal of real estate is concerned, etc”.141

143. Thus, under Swedish law, the harbour agreement concluded in 1991 with Color Line was governed by private law and its conclusion did not depend on the exercise of public powers by the Municipality of Strömstad; nor was its objective to regulate harbour access in Strömstad.

144. The Authority also notes that the agreement is not in the form of a concession or licence: Color Line has not been granted an exclusive concession or licence

136 Case C-205/03 P FENIN v Commission [2006] ECR I-6295, paragraph 25. 137 See, for example, European Commission Decision 94/19/EC, OJ L 15, 18/01/1994, p. 8, concerning the port of Holyhead, and IP/95/492 / XXV Report on competition policy, paragraph 43, concerning the port of Roscoff in France, and European Commission Decision 94/119/EC, Port of Rødby, OJ L 55, 26/02/1994, p. 52. 138 Case C-393/92 Gemeente Almelo and others v Energiebedrijf IJsselmij [1994] ECR I-1477. 139 Case C-343/95 Calì e Figli [1997] ECR I-1547, paragraphs 22-23. 140 Case 30/87 Corinne Bodson [1988] ECR 2479. 141 Event # 408737, reply from the Municipality of Strömstad dated 22 January 2007, p. 2-3.

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under Swedish public law.142 The content of the agreement is essentially confined to regulating the rights and obligations of the parties with regard to the subject-matter of the agreement, that is, the provision of harbour access by the Municipality of Strömstad for Color Line’s exclusive use against remuneration, which was negotiated between the parties. The evidence suggests that it was Color Line that took the initiative to negotiate and conclude the long-term agreement and was eager to obtain exclusive access to Torskholmen while the Municipality simply regarded it as an advantage to have a long-term user in the harbour.143 Consequently, the exclusivity clause was neither imposed by the Municipality in its capacity as a public authority nor inspired by general interest objectives.

145. In that light, there is no indication that the objective of the Municipality of Strömstad in this case was to regulate the market on the basis of provisions pertaining to public law; rather, the provision by the Municipality of harbour access and related services to Color Line was commercial in nature.144 The harbour agreement therefore constitutes an agreement between undertakings for the purposes of Article 53(1) EEA.

5.4 Restriction of competition

5.4.1 Introduction

146. An agreement infringes Article 53(1) of the EEA Agreement if it has as its object or effect the prevention, restriction or distortion of competition within the territory covered by the EEA Agreement.

147. In order for an agreement to be restrictive by effect it must affect actual or potential competition to such an extent that on the relevant market negative effects on prices, output, innovation or the variety or quality of goods or services can be expected with a reasonable degree of probability.145 According to settled case law, anti-competitive effects may be both actual and potential.146

148. Negative effects on competition within the relevant market are likely to occur when the parties individually or jointly have or obtain some degree of market

142 Case C-393/92 Gemeente Almelo and others v Energiebedrijf IJsselmij [1994] ECR I-1477. 143 Event # 408737, reply from the Municipality of Strömstad to question 7a (“Rederiet tog initiativ till förhandling om upprättande av ett arrandeavtal. [...] Rederiet var angeläget att ha en exklusiv tillgång til ramp och uppställningsplats. Från kommunens sida ansågs det fördelaktigt med en långsiktig brukare av hamnen […]”). 144 The fact that the Municipality of Strömstad was active commercially is illustrated by its turnover from commercial activities, which, in 2005, was EUR 8.7 million, of which EUR 2.3 million was income from its harbour activities (see paragraph 35 above). 145 The Authority’s Guidelines on the application of Article 53(3) of the EEA Agreement, OJ C 208, 06.09.2007, p. 1 and EEA Supplement to the OJ No 42, 06.09.2007, p. 1, paragraph 24. Guidelines on Vertical Restraints, adopted on 15 December 2010, not yet published in the Official Journal of the EU or the EEA Supplement thereto, paragraph 97. 146 Case C-7/95 P John Deere v Commission [1998] ECR I-3111, paragraph 77, and the case law cited therein.

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power and the agreement contributes to the creation, maintenance or strengthening of that market power or allows the parties to exploit such market power.147 The creation, maintenance or strengthening of market power can result from a restriction of competition between the parties to the agreement and between any of the parties and third parties, for example because the agreement leads to foreclosure of competitors or because it raises competitors’ costs, limiting their capacity to compete effectively with the contracting parties.148

149. For the purposes of analysing the restrictive effects of an agreement a number of factors may be taken into account, including the nature of the products, the market position of the parties, the market position of competitors, the market position of buyers, the existence of potential competitors and the level of entry barriers.149

150. The negative effects that may result from long-term exclusive agreements and which EEA competition law aims at preventing essentially concern anti- competitive foreclosure of other suppliers through the raising of barriers to entry or expansion. Foreclosure may harm consumers, in particular by increasing prices, limiting the choice of products/services, lowering their availability and quality, or reducing the level of innovation.

151. In its recent judgment in Visa v Commission, the General Court restated the legal test that must be met in order to find that an agreement restricts competition by effect within the meaning of Article 101(1) TFEU, and thus under Article 53(1) EEA:

“It is evident from settled case-law that in assessing an agreement, a decision of an association of undertakings or a concerted practice under Article [101] (1) EC, account should be taken of the actual conditions in which they produce their effects, in particular the economic and legal context in which the undertakings concerned operate, the nature of the products or services concerned, as well as the real operating conditions and the structure of the market concerned, unless the matter at issue is an agreement containing obvious restrictions of competition such as price-fixing, market-sharing or the control of outlets ... The examination of conditions of competition on a given market must be based not only on existing competition between undertakings already present on the relevant market but also on potential competition, in order to ascertain whether, in the light of the structure of the market and the economic and legal context within which it functions, there are real concrete possibilities for the undertakings concerned to compete among themselves or for a new competitor to enter the relevant market and compete with established undertakings …

147 Guidelines on the application of Article 53(3) EEA, paragraph 25. See also Guidelines on Vertical Restraints, paragraph 97. 148 Guidelines on the application of Article 53(3) EEA, paragraph 26. 149 Guidelines on the application of Article 53(3) EEA, paragraph 27.

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Further, if an agreement, a decision of an association of undertakings or a concerted practice is to be considered to be prohibited by reason of the distortion of competition which is its effect, the competition in question should be assessed within the actual context in which it would occur in the absence of the agreement, decision of an association of undertakings or concerted practice in dispute …”150 152. The Authority’s Guidelines on Vertical Restraints are consistent with the test set out in Visa v Commission.151

153. In the present case, it is relevant, inter alia, to carry out an analysis of barriers to entry faced by undertakings which were not already competing on the relevant market. Barriers to entry are factors that make entry impossible or unprofitable while permitting established undertakings to charge prices above the competitive level. Whether entry is profitable depends in particular on the cost of (efficient) entry and the likely prices post-entry. The higher the cost of entry and the lower the likely post-entry prices, the greater the risk that entry will be unprofitable and therefore not attempted. Entry barriers may result from a wide variety of factors, such as economies of scale and scope, government regulations, especially where they establish exclusive rights, state aid, import tariffs, intellectual property rights, ownership of resources where the supply is limited due to for instance natural limitations, essential facilities, a first mover advantage and brand loyalty of consumers created by strong advertising over a period of time. Vertical restraints and vertical integration may also work as an entry barrier by making access more difficult and foreclosing (potential) competitors.152

154. Persistently high market shares may be indicative of the existence of barriers to entry.153

5.4.2 The restrictions resulting from the harbour agreement in Strömstad

155. The harbour agreement in Strömstad granted access to the Torskholmen area within Strömstad harbour exclusively to Color Line for a significant period. It prevented the Municipality of Strömstad from granting access to the facilities in Torskholmen to anyone other than Color Line for an initial period of 15 years, with an entitlement granted to Color Line to extend that period for an additional 10 years.

150 Case T-461/07 Visa Europe Ltd and Visa International Service v Commission, judgment of 14 April 2011, not yet published, paragraphs 67-69 and 166-167, and the case law cited therein. See also Case E-7/01 Hegelstad Eiendomsselskap Arvid B. Hegelstad and Others v Hydro Texaco AS, EFTA Court Report 2002, p. 310, paragraph 33. 151 See Guidelines on Vertical Restraints, paragraph 194-197. 152 Guidelines on Vertical Restraints, paragraph 117. 153 Communication from the Commission — Guidance on the Commission’s enforcement priorities in applying Article 102 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 24.2.2009, p. 7, paragraph 16.

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156. Through that agreement, Color Line effectively obtained a right to exclusive use of all available capacity in that strategically located harbour for a period of 25 years (15 plus 10 years), irrespective of whether it would actually use or even need that capacity. Color Line operated the route between Sandefjord and Strömstad from 1986 to 2006 – that is, over 20 years – without any competition: during that period, Color Line was the only company offering passenger ferry services on the relevant market.

157. In the following Sections, the Authority will show that, in a market already characterised by high barriers to entry, the harbour agreement excluded the possibility for other companies to operate ferry services from the port of Torskholmen in Strömstad, made access to the market considerably more difficult and thereby foreclosed the relevant market for a substantial period of time, thus allowing Color Line to maintain a monopoly position on that market.

158. In the Authority’s view, in the light of the characteristics of the market in question, the entry of a new player would have created scope for further competition in a market distinguished by an extremely high degree of concentration.

5.4.3 Color Line’s market position and barriers to entry

159. The possible restrictive effects of an agreement within the meaning of Article 53(1) EEA must be assessed (inter alia) in the light of the position of the parties on the market and the level of entry barriers (see paragraph 149 above).154

160. Color Line was the only operator on the relevant market for passenger ferry services throughout the period under examination. It enjoyed a first-mover advantage, and had the time to acquire experience, and build up and optimise its service in the absence of competition. The absence of competition also enabled Color Line to build its brand name and become well-known to consumers. Color Line has also become well-known in the market generally, due to the scope of its operations. It has grown to become by far the biggest ferry operator on routes between Norway and neighbouring countries. Thus, its operations on other routes, as well as marketing for such routes and general branding activities, are also likely to have contributed to brand loyalty on the Sandefjord – Strömstad route during the relevant period.155

161. An example of a measure promoting brand loyalty is Color Club: membership (currently NOK 160 per annum) allows passengers to collect bonus points which can later be exchanged for free trips with Color Line. Membership also gives other advantages, such as discounts in on-board shops.156 Color Club was introduced in 2001; prior to that, Color Line had different loyalty schemes on

154 Guidelines on the application of Article 53(3) EEA, paragraph 27. 155 In Case T-342/07 Ryanair v Commission, judgment of 6 July 2010 (not yet published), the General Court upheld the Commission’s finding that entry costs and risks were significant “in a market already served by two strong airlines with well-established brands”, paragraphs 276-281. 156 Event # 582507, extract from Color Line’s Internet homepage.

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different routes.157 Due to the time Color Line has operated on the Sandefjord – Strömstad route and other routes, and the number of routes on which it operates, such programmes are likely to have had strong loyalty-enhancing effects on regular passengers.158 Indeed, in its Reply to the SO, Color Line states that the Sandefjord – Strömstad route has many regular customers, many of whom are members of Color Club.159

162. Given the size of Color Line’s operations, it is also likely to have benefited from a degree of bargaining power vis-à-vis the suppliers of goods that are sold aboard its ferries, which smaller players would be unable to match.

163. Color Line has grown to become a large and profitable company, whose financial standing is significantly superior to that of its competitors. Color Line’s long-term sole presence in the relevant market has allowed it to enjoy significant earnings on the route, thereby adding to its financial strength.160

164. In that light, it is clear that Color Line had market power during the period under examination and that it strengthened its market position significantly during that period.

165. Color Line’s conduct also shows the lengths to which it has been prepared to go in order to protect its long-term exclusivity on the Sandefjord – Strømstad route and to prevent potential competitors from gaining access to the market. Color Line has established itself as an aggressive competitor, willing and able to defend its position and exercise its market power in order to do so.

166. Thus, a strategy paper for a Color Line board meeting in December 1999 stated that:

“… Neutralize threats

With neutralizing threats we mean that when competitors try to work their way into our domains, we have to try to protect our position in these areas in a rational, sensible and strategically correct way …

The threat from competitors which want to enter the Sandefjord – Strömstad route in addition to capacity problems, led to our decision to introduce a new ship [i.e. MS Color Viking] on this route (even if this is a great effort), and in that way try to neutralize threats.”161

157 Event # 370865, p. 109 (BAL 32, p. 12: “Fra tre klubber til Color Club fra 1. januar 2001”). 158 See, for example, event # 371391, p. 43 (HSO 2 39/48: “Ingen reiselivsaktører i Norge kan tilby et lojalitetsprogram av samme omfang som CL”). 159 Event # 553056, Color Line’s Reply to the SO, paragraph 144. 160 See Section 3.4.4 above. 161 Event # 371458, p. 151-152 (HZI 66 1/5 – 2/5, unofficial translation from Norwegian by the Authority: “Nøytralisere trusler. Med å nøytralisere trusler mener vi at når konkurrenter forsøker å arbeide seg innpå våre enemerker må, vi på en rasjonell, fornuftig og strategisk riktig måte prøve å beskytte vår posisjon på de områdene…Trusselen fra konkurrenter som vil innpå Sandefjord-

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167. In an internal memorandum dated 29 February 2000, Color Line describes how it is in a position of dominance on the Sandefjord – Strømstad line, and how the solution to dealing with potential newcomers is to use its dominance, and through its control of terminals close to the centre of “both cities”.162 Examples of Color Line’s actual response to attempted new entry are described below in Section 5.4.4.

168. Color Line’s reputation, in combination with its strong market position and financial strength, has sent a clear signal to potential new entrants of limited prospects, if any at all, for survival in the market. That has been capable, therefore, of discouraging and deterring potential new entry. The European Courts have held that building up a reputation for deterring the entry of competitors can create a barrier to entry for new competitors.163

169. In addition, Color Line has pointed out in its Reply to the SO that ferry operations are in general characterised by substantial sunk costs. Fixed costs include, in particular:

 Operations-independent fixed costs, which are incurred independently of the volume of the operation of the route, and include investments in tonnage and onshore facilities. Such costs may in part be irrecoverable as investments may have little or no re-sale value (e.g. investments in harbour installations, adaptations of tonnage to ports and routes and route-specific marketing).

 Operations-dependent fixed costs, which are incurred during operations but depend on passenger numbers only to a limited degree; they include expenses relating to technical operations, maintenance, port fees, fuel and administration.164

170. In this regard, the Authority notes that sunk costs are costs that have to be incurred in order to enter or be active on a market but that are lost when the market is exited. The more costs that are sunk, the more potential entrants have to weigh up the risks of entering the market, and the more credibly incumbents can threaten that they will match new competition, as sunk costs make it costly for incumbents to leave the market. Thus, sunk costs which have been incurred by Color Line as the incumbent operator and which would be required for new entry are a factor that raise barriers to entry in the relevant market.165

Strømstsad samt kapasitetsproblemer gjorde at vi besluttet å sette inn et nytt skip på ruten (selv om det er et stort løft), og på den måten forsøke å nøytralisere trusler”). 162 Event # 371507, p. 83 (HZI 98 1/2), strategy document of February 2000 (“Color Line kan konkurrere med potensielle inntrengere gjennom markedsdominans og ved i kontrollere sentrumsnære terminaler i begge byer”); see also the lobbying strategy outlined in a discussion paper of 3 April 2000, event # 371507, p. 50 (HZI 95). 163 In Case T-342/07 Ryanair v Commission, judgment of 6 July 2010, paragraphs 284-288 (not yet published), the General Court upheld the Commission’s finding that in building up a reputation for deterring the entry of competitors, Ryanair had created a de facto barrier to entry for new competitors. 164 Event # 553056, Color Line’s Reply to the SO, paragraphs 154-155. 165 Guidelines on Vertical Restraints, paragraph 117.

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171. Finally, the restrictions in the harbour agreement must be seen in the context of the special regime, described above in section 3.6, for tax-free sales on short- haul routes between Norway and Sweden. In order to compete with Color Line, a new entrant had to apply for and obtain an exemption from the tax-free rules by way of a tax-free licence for a competing route. That added an additional burden for potential new entrants and represented a legal barrier to entry.

5.4.4 Attempts at new entry and Color Line’s response thereto

172. At least three significant attempts have been made by potential competitors to enter the relevant market for passenger ferry services and compete with Color Line on the Sandefjord to Strömstad route. Two of those attempts were unsuccessful; the third – by Kystlink – succeeded only after the initial period of exclusivity granted to Color Line under its agreement with the Municipality of Strömstad came to an end.166

Bastø-Fosen

173. Bastø-Fosen, the operator of the Horten – Moss line, first considered the possibility of establishing a competing route in 1997. In its view, Color Line’s ferries on the route at the time were of poor quality; ticket prices, especially in summer, were excessive; and tax-free prices were among the highest in Europe. As a result, Bastø-Fosen considered that it would be possible to enter the market profitably.167

174. Bastø-Fosen applied for access to Strömstad harbour and Sandefjord harbour on 4 June 1998.168 It appears that the harbour administration in Strömstad initially gave positive signals to Bastø-Fosen, but stated that it would be necessary to expand the infrastructure in Strömstad harbour and that that possibility was being assessed.169 However, in response to a question from the Authority, Bastø-Fosen has explained that neither the Municipality of Strömstad nor the harbour authorities gave any indications that they would endeavour to let Bastø- Fosen have access to Torskholmen.170

166 In correspondence with the Authority, the Municipality of Strömstad has referred to some other companies that have tried to establish ferry lines since 1994. However, none of those companies succeeded in establishing a route that was able to compete successfully with Color Line: event # 408737, reply from the Municipality of Strömstad of 22 January 2007 (p. 4-5, reply to question 10); event # 371458, p. 166 (HZI 71 3/5). 167 Event # 410202, reply of Bastø-Fosen dated 15 February 2007, p. 1-2. See also event # 410203, p. 8, internal Bastø-Fosen presentation, December 1999, pointing out that the Sandefjord – Strömstad route had been very profitable to Color Line over a long period of time and characterising the route as a “milking cow within Color Line” (“Sandefjord – Strømstad har over en lang periode gitt god lønnsomhet – er i dag en “melkeku”innen Color Line”). 168 Event # 410204, annex 2 to Bastø-Fosen’s reply of 15 February 2007, p. 4; event # 413828, annex 38 to the reply by the Municipality of Sandefjord dated 14 March 2007. 169 Event # 410204, annex 2 to Bastø-Fosen’s reply of 15 February 2007, p. 38 (letter from the Municipality of Strömstad to Bastø-Fosen dated 8 June 2001). 170 Event # 410202, reply of Bastø-Fosen dated 15 February 2007, p. 3.

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175. At that time, during peak season, Color Line operated six arrivals and departures from Strömstad per day.171 The ships used were MS Bohus, with a capacity of 240 cars, and MS Sandefjord, with a capacity of 134 cars. In January 2000, Color Line applied to exchange MS Sandefjord with Color Viking, which had capacity for 370 cars. The application was granted by the Norwegian authorities on 23 February 2000.172 After that, Color Line occupied even more of the available capacity at Torskholmen, and the Municipality of Strömstad decided (on 28 March 2000) that no permits for additional development in the harbour would be granted as there were no possibilities for additional establishments without large incursions into the surrounding area.173 Color Viking was operational from 14 June 2000.

176. Bastø-Fosen has explained that, as a consequence of the Municipality of Strömstad’s negative decision, and the refusal of its application for a tax-free licence by the Norwegian Ministry of Finance, it gave up its plans to enter the relevant market.174

Larvik-Strømstadlinjen AS

177. A second attempt to establish a competing route was made in 1999/2001 by Larvik-Strømstadlinjen AS. Larvik-Strømstadlinjen AS announced its plans to establish a route between Larvik and Strömstad on 19 September 2000.175 It appears that the company had been promised access to the harbour in Larvik.176 By 6 September 2001, a proposal to amend the tax-free rules had been made public.177 The Municipality of Strömstad investigated the possibilities for co- localisation at Torskholmen and consulted both Larvik-Strømstadlinjen AS178 and Color Line179 concerning the frequency of trips, type of boats, number of

171 Event # 401813, annex 14.1 to Color Line’s reply dated 4 December 2006; event # 553056, paragraphs 249-254. 172 See reference in event # 406232, annex 1, letter dated 2 March 2000 from the Ministry of Finance to Color Line granting it a tax-free licence. 173 Event # 410205, judgment by Oslo City Court of 5 October 2001 p. 40 (annex 3 to Bastø-Fosen’s reply dated 15 February 2007). 174 Event # 410202, reply of Bastø-Fosen dated 15 February 2007, p. 3. 175 Event # 440704, p. 4 article in the local newspaper Østlandsposten dated 19 September 2000 (“Ny ferge mellom Norge og Sverige”, http://www.op.no/Innenriks/article84472.ece). 176 Obtaining that promise was however a time-consuming process. According to Color Line, Larvik- Strømstadlinjen’s application for harbour access was made on 3 December 1999, while a draft harbour agreement was not presented to Larvik-Strømstadlinjen until 13 August 2001. The draft agreement was only temporary and required significant investments on the part of Larvik-Strømstadlinjen (see event 553056, Color Line’s Reply to the SO, paragraphs 340-341 and annexes 39-41). 177 See event # 406232, p. 19, annex 6 to Norway’s reply of 8 January 2007. 178 Event # 407261, p. 161, reply from the Municipality of Strömstad dated 22 January 2007, annex 3, letter from Larvik-Strømstadlinjen AS dated 12 March 2001. This document shows that Larvik- Strømstadlinjen wished to co-locate with Color Line at Torskholmen and gives several examples of co- location at other harbours. Larvik-Strømstadlinjen was of the opinion that co-location with Color Line at Torskholmen would not be a practical problem. 179 Event # 407261, reply from the Municipality of Strömstad dated 22 January 2007, annex 3, letter from Color Line AS dated 24 April 2001.

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boats, possibility of co-localisation in the terminal, customs facilities, and load times (see also below, Section 5.4.5.2.2).

178. Color Line claimed that the frequency of its sailings would probably increase, and that the harbour already at that time had too little space. It also pointed to potential problems concerning the use of the berth and the lining-up area if another operator were allowed to call at Torskholmen.180

179. Only shortly after Larvik-Strømstadlinjen’s announcement of its planned new route, in spring 2001 Color Line announced plans to establish a route between Larvik and Strömstad as of spring 2002,181 which would increase its daily sailings from Strömstad from six to seven in peak season.182 Minutes from a Color Line board meeting on 29 May 2001 reported that:

“… Larvik - Strømstadlinjen AS appears as a concrete attack against the Sandefjord – Strömstad route. The company will get access to quay spaces in Larvik harbour, but has problems in Strømstad. The company does not have a licence for tax-free sales on short routes. It is presumed that the availability of tonnage is good. As a response to the threat it has been announced that MS Skagen is to be put on the Larvik – Strømstad route. The only thing which is missing is the licence for tax-free sales. It is expected that the authorities will come out with a report concerning the licensing rules in spring 2002. MS Skagen will during the peak season 2001 be used in RO/RO traffic between KRS and Hirtshals with one weekly trip to Larvik. MS Skagen will be manned to transport 50 passengers. The Board of Directors took note of the report.”183

180. A Color Line working group estimated that the cost of the new route between Larvik and Strömstad would be in the region of NOK 49 million, whereas the estimated turnover was only NOK 40 million.184 Instead of introducing the new route, the working group recommended a reduction in tax-free prices on the Sandefjord – Strömstad route in order to keep customers.185 However, Color Line’s […] disagreed:

180 Event # 407261, p. 163-168, reply from the Municipality of Strömstad dated 22 January 2007, annex 3, letter from Color Line AS dated 24 April 2001. 181 Event # 408737, p. 162, annex to reply from the Municipality of Strömstad dated 22 January 2007 (letter from the Municipality of Strömstad to Color Line dated 1 April 2001). 182 Event # 408737, p. 48, annex to reply from the Municipality of Strömstad dated 22 January 2007 . 183 Event #371458, p. 162 (HZI 70 1/2: unofficial translation from Norwegian by the Authority: “Larvik - Strømstadlinjen fremstår som et konkret angrep mot Sandefiord - Strømstadlinjen. Selskapet vil få tilgang på kaiplass i Larvik havn, men har problemer i Strømstad. Selskapet står uten konsesjon for tax free salg på kort rute. Det antas at tilgjengelighe på tonnasje er god. Som motsvar på trussel er det annonsert at MS Skagen settes inn på ruten Larvik-Strømstad. Det eneste som mangler er konsesjon for tax free salg. Det er ventet at myndigheten vil komme med en utredning vedr. konsesjonsbestemmelsene våren 2002. MS Skagen vil i høysesongen 2001 benyttes i RO/RO trafikk mellom KRS og Hirtshals med en tur ukentlig til Larvik. MS Skagen blir bemannet for å frakte 50 passasjerer. Styret tok rede-gjørelsen til etterretning.”). 184 Event # 370702, p. 222-225 (HZI 26 and 27: the cost would be NOK 81.2 million including lost revenue on the Sandefjord – Strømstad route due to cannibalisation). 185 Event # 370702, p. 224-225 (HZI 27).

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“My recommendation is that we should have 5 departures here from Sandefjord as we have today (with some changes in the schedule). In addition I think that we should take out M/S Skagen from Larvik 1 trip in low season and possibly 2 in peak season. (This is in harmony with the working group’s suggestion in the enclosed documents). I think that we in this way more rapidly will manage to get rid of a competitor than if we only continue to use our two boats here from Sandefjord. If we continue with departures only from Sandefjord, I am afraid that it might take a long time before the competitor “goes under”. I am aware that a new player will hit the price in tax-free first. There is possibly nothing else to do here than to answer – but this we will have to decide on later. The difference between me and the group is that I want to spend more resources in order to, as quickly as possibly, get rid of the competitor. I know that this can be quite costly to begin with, but what I fear most is a prolonged war.”186

181. However, in March 2002, it became clear that Larvik-Strømstadlinjen would not be able to commence its route during summer 2002: it appears that the company struggled to obtain sufficient financing187 as well as harbour access in Sweden (see also below, Sections 5.4.5.2.2 and 5.4.5.4.1). That same month, March 2002, on […] recommendation, Color Line decided to postpone its proposed service from Larvik to Strömstad:

“… - do not believe in any establishment in Strömstad or Lysekil during summer. The earliest start-up is during autumn in Lysekil or during 2003 in Strömstad. Start-up in Kålviken is possible at the earliest in the last half of 2003, but will be very resource-demanding financially.

- Our recommendation is, therefore, that we withdraw the start-up of M/S Skagen on Larvik – Strømstad on 1 June 2002 and announce that we will perhaps wait for a later start-up…”.188

186 Event # 370702, p. 224 (HZI 27 1/2: unofficial translation from Norwegian by the Authority: “Min instilling er at bør ta 5 avganger her fra Sandefjord slik vi har I dag (med noen rutetidendringer). I tillegg mener jeg at vi bør ta M/S Skagen ut fra Larvik 1 tur i lavsesong og eventuelt 2 i høysesong. (Dette samstemmer med gruppens opplegg i vedlagte dokumenter). Jeg mener at vi på denne måten hurtigere vil klare å ”feie” en konkurrent av banen enn at vi bare skal fortsette å gå med våre to skip her fra Sandefjord. Jeg er klar over at en ny aktør vi[l] gå på pris i taxfree først. Her har vi muligens ikke noe annet å gjøre enn å svare, men det får vi ta stilling til senere. – Forskjellen på meg og gruppen er at jeg vil sette inn mer ressurser for hurtigst mulig å bli kvitt konkurrenten. Jeg vet det kan koste hardt med det samme, men jeg er mest redd for en “langvarig krig”.”). 187 Event # 371458, p. 189 (HZI 76 1/2), internal Color Line memorandum stating that it had been ascertained that Larvik-Strømstadlinjen (which in the meantime had changed its name to Larvik- Lysekillinjen) had not established the necessary financial platform to commence a route beween Larvik and Lysekil (“Det er konstatert (fra presse og havnemyndigheter etc) at Larvik-Lysekillinjen AS ikke har etablert nødvendig finasielt ståsted til å starte opp ruten mellom Larvik og Lysekil til sesongen 2002”). 188 Event # 371458, p. 181 (HZI 74 3/7: unofficial translation from Norwegian by the Authority: “Tror ikke på noen etablering verken i Strømstad eller Lysekil i sommer. Tidligste oppstart er til høsten i Lysekil eller i år 2003 i Strømstad. Oppstart i Kålviken er tidligst mulig siste halvdel år 2003, men er sterkt ressurskrevende finansielt. – Vår anbefaling er derfor at vi trekker tilbake oppstarten av M/S Skagen på Larvik - Strømstad den 1.6.2002 og meddeler at vi eventuelt avventer en senere oppstart.”). See also event # 371458, p.189 (HZI 76), annex to result/estimate regarding decision to postpone start up of the Larvik – Strömstad route, with attached press release.

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182. Larvik-Strømstadlinjen never succeeded in establishing the route and the company has since been dissolved. Color Line never established a service between Larvik and Strömstad.

Kystlink

183. The third serious attempt – and the only successful attempt – at establishing a competing route was launched on 4 November 2003, at a time when the tax-free rules had been amended, when RAUL (Kystlink) applied to the Municipality of Strömstad for harbour access at Torskholmen.189

184. When Color Line found out that Kystlink was looking for new tonnage and was attempting to establish a route to Strömstad, it immediately started looking for “corresponding tonnage”.190 It decided to charter the vessel MS Thjelvar on very short notice.191 The decision to do so was explained to the Board of Color Line as follows:

“To the board of Color Line AS. For information. We have today signed the enclosed BB charter party to secure the vessel “MS Thjelvar” as a replacement for MS Skagen. As known, Kystlink has also been in final negotiations for the same vessel and with this we hope to pre-empt Kystlink with regard to the employment of this vessel in order to be able to defend our routes out of Vestfold. Kr. […].”192

189 Event # 401818, reply of Color Line dated 6 December 2006, p. 10. 190 Event # 371458, p. 43 (HZI 53 1/1), internal Color Line e-mail dated 12 November 2003, referring to a meeting between Grenland Industriutvikling / Kystlink at which Color Line was informed that Kystlink was looking for new tonnage in the market, and to the fact that Color Line, as a consequence of this, had engaged a broker to look for corresponding tonnage: “Viser til vårt seneste møte med Grenland lndustriutvikling / Kystlink. Som nevnt i møtet er Kystlink i markedet for ny ro-pax tonnasje (20 knop, 12 - 1500 lm, pax sertifikat) ifm varslet utskiftning av M/S Boa Vista. Oppdraget er etter våre opplysninger gitt til Brax Shipping. Vi har som konsekvens av nevnte engasjert […] i Simsonship til å søke i markedet etter tilsvarende tonnasje (høy kvalitetl/levering snarest/bb). Dette som et alternativ til M/S Skagen som idag går i paralell rute med Kystlink. (er idag fullt utnyttet nordover slik at Kystlink tar markedsandeler / veksten i dette segmentet samt presser ratene)”). 191 On 12 November 2003, Color Line received information about possible vessels from the brokers involved in the transaction, including information on MS Thjelvar to the effect, inter alia, that the b/b (bareboat) rate was EUR 9000 per day (event # 371451, HZI 42). It appears that Color Line responded to this offer: on 14 November, the owner of MS Thjelvar sent an e-mail to Color Line, advising it to “react promptly” if it was interested in the vessel (event # 372630, MSG 0353, event # 371451, HZI 41). Only hours later, Color Line’s brokers e-mailed the owner of MS Thjelvar stating the terms that Color Line had authorised them to offer for the vessel. The e-mail shows that the price offered had been raised to EUR 12000 per day (event # 371451, HZI 39). Color Line only inspected MS Thjelvar the following day (event # 371451, HZI 34). In a hand-written account of the technical inspection, the vessel is said to be “in good repair, but some cosmetic internal and external upgrading should be considered” (event # 371451 HZI 34). Color Line signed the charter party for MS Thjelvar on 17 November 2003 (event # 371451 HZI 46). 192 Event # 371089, p. 48 (JAA 50 1/1), e-mail from […] to board members, November 2003 (unofficial translation from Norwegian by the Authority: “Til styret i Color Line A S. Til orientering. Vi har i dag undertegnet vedlagte BB certeparti for å sikre oss båten “M/S Thjelvar” som erstatning for M/S Skagen. Som kjent har Kystlink også vært i avsluttende forhandlinger om samme båt og vi håper

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185. By chartering the MS Thjelvar, Color Line acted in direct response to Kystlink’s activities with regard to the Sandefjord – Strömstad route.

186. Kystlink’s application to the Municipality of Strömstad triggered discussions between the Municipality and Color Line regarding the latter’s long-term exclusivity to the area and installations.193 Color Line vigorously defended its long-term exclusive agreements with the Municipality, seeking to maintain its exclusivity and thereby prevent Kystlink from entering the market. From 9 January 2004 to 21 December 2005, in a number of letters to the Municipality of Strömstad, Color Line and its lawyers invoked the exclusivity under the agreements and threatened legal action to enforce it (see paragraphs 384 to 401 below for a more detailed account of these events).194

187. Notwithstanding such threats, on 21 December 2005, just prior to the end of the initial 15-year term of the harbour agreement on 30 December 2005, the Municipality of Strömstad decided to grant Kystlink access to Torskholmen (see paragraph 47 above).195 The Municipality had concerns as to the compatibility of the long-term exclusivity with competition rules.196 Kystlink began sailings from Langesund to Strömstad on 1 November 2006.

188. Thus, Kystlink’s attempt to enter the market was successful (for a short period, it turned out) in spite of Color Line’s attempts to block access, but only because it was able to gain access to Torskholmen as a result of the Municipality of Strömstad’s refusal to continue Color Line’s long-term exclusivity. If the Municipality had succumbed to the pressure applied by Color Line on the basis of the long-term exclusivity, such harbour access would not have been provided.

189. According to Kystlink, Color Line also sought to complicate the practical co- existence in the harbour area, inter alia by trying to prevent Kystlink from getting access to specific areas and installations in the harbour, by appealing Kystlink’s building permit for its customs building, and claiming that Kystlink’s signposting in the harbour would require a building permit and should be covered up outside the periods right before Kystlink’s departures.197

190. The Authority understands that Color Line has in fact continued to claim that the decision to allow Kystlink access to Torskholmen was contrary to the harbour agreement and has refused to sign a new agreement with the Municipality of Strömstad. Indeed, as recently as June 2008, when a prolongation of Kystlink’s two-year harbour agreement with the Municipality of

med dette å kunne komme Kystlink i forkjøpet med hensyn til disponeringen av denne båten for dermed å kunne forsvare våre linjer ut ifra Vestfold. Mvh […]”). 193 See event # 401818, reply of Color Line dated 6 December 2006, annex 18, p. 22 et seq. 194 Event # 371458, p. 43 (HZI 53 1/1), internal Color Line e-mail dated 13 November 2003. Event # 401818, annex 18 to Color Line’s reply dated 4 December 2006, p. 22 et seq, p. 62 et seq, p. 75-76, p. 78-80. 195 See event # 401817, reply of Color Line dated 6 December 2006, annex 18, p. 31. 196 Event # 401818, p. 109-111. 197 Event # 492145, reply from Kystlink dated 19 September 2008.

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Strömstad was under consideration by the Municipality, Color Line sought to persuade the Municipality that there was no obligation under competition law to grant Kystlink continued access, and that Color Line’s exclusive right of access under the harbour agreement was still valid.198

5.4.5 Assessment of harbour alternatives

5.4.5.1 Introductory remarks

191. As stated above (paragraph 150), the negative effects that may result from long- term exclusive agreements and which EEA competition law aims at preventing essentially concern anti-competitive foreclosure of other suppliers through the raising of barriers to entry or expansion. The stronger competitors are and the greater their number, the less risk there is that a party will be able, individually, to exercise market power and foreclose the market.

192. In the context of passenger ferry services, such as those at issue in the present case, if there exist sufficient alternatives for end-users from a demand-side perspective, foreclosure is unlikely to be a real problem. In the present case, however, Color Line faced no actual competition in the relevant market during the entire period under examination. Yet, as already described, there were several (unsuccessful) attempts at entry by potential new entrants during the period under examination.

193. Nevertheless, if, from a supply-side perspective, there existed sufficient and satisfactory alternative harbours from which potential competitors could establish competing operations within a reasonable time frame, foreclosure would not necessarily be a real problem.199

194. The Authority examines below possible alternative harbours during the relevant period with a view to ascertaining whether potential competitors could have established competing ferry operations within a reasonable time frame.

5.4.5.2 The Port of Strömstad

195. An overview of Strömstad harbour is provided in Photograph I below.

198 Event # 556768, annex 20 to Color Line’s Reply to the SO, p. 165 et seq, letter from Color Line to the Municipality of Strömstad dated 10 June 2008. 199 See the Authority’s Guidelines on Vertical Restraints, paragraph 197.

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Photograph I: Overview of Strömstad Harbour

Marina for pleasure craft

Torskholmen

Abba‐piren Nils Ljungqvists väg Myren

Röseberget / petrol storage facility

Source: Google Maps

5.4.5.2.1 The Myren and Abba-piren area

196. Myren and Abba-piren lie in Strömstad harbour, south of Torskholmen, as indicated in the photograph above. Photograph II below shows the layout of the Myren/Abba-piren area in more detail as it appears today.

197. In the Myren/Abba-piren area there is currently a marina for small pleasure craft. A rescue station has recently been built at Abba-piren. A company selling pleasure craft, engines and boat equipment, and operating a petrol station for boats and a service shop is located at Myren.200

198. Adjacent to Myren is Röseberget, where a petrol storage facility was built in 1964. It is supplied by vessel.201

200 www.axmarin.se. 201 According to a draft in-depth general plan for Strömstad dated 6 June 2006, p. 17, the petrol storage facility is supplied with approximately 9000 tons of petrol per month by vessel and 15 truckloads of petrol are lifted from the facility each day (the draft in-depth general plan of the central parts of Strömstad and Skee is available at www.stromstad.se). See also event # 556818, p.180-185, attachment 54 to Color Line’s Reply to the SO, submitting p. 39-44 of the draft plan.

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Photograph II: Myren/Abba-piren

Rescue station at Abba‐piren

Abba‐piren / Marina for small pleasure craft AX Marin AB

Myren harbour

Terminal for petrol supply

Source: Google Maps

199. No harbour facilities or quay structures from which ferry services could be provided have ever existed at Myren/Abba-piren.202 Thus, unlike the public harbour of Torskholmen, at Myren/Abba-piren there were no harbours in operation during the relevant period from which ferry services could be provided (nor are there currently).

200. In 2001, the Oslo City Court assessed alternative harbours to Torskholmen in the period from 1998 to 2002, including Abba-piren and Myren, in the case brought by Bastø-Fosen referred to above (paragraph 90).203 In its judgment, the City Court refers to testimony from the Municipality of Strömstad representative, who stated before the Court that there were no alternatives in Strömstad for ferry activities, other than Abba-piren, but that there had been intense political disagreement regarding the use of that area. The City Court

202 In addition, there does not appear to be sufficient space for a lining-up area for cars. Such an area would therefore have to be created by way of filling compound. 203 Event # 410205, judgment of Oslo City Court, 5 October 2001, in particular at p. 40-43; see also event # 370985, p. 98 (PAB 64 2/7), Color Line internal memo dated 24 February 2002 (summarising the situation (i.e. the political process) in Strömstad and the possibilities of establishing new quay facilities there).

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concluded that both Myren and Abba-piren were unavailable for ferry activities, and that Bastø-Fosen could not have gained access thereto.

201. The Municipality of Strömstad confirmed to the Authority in January 2007 that Torskholmen was the only possible place of call within the port of Strömstad when Kystlink applied for harbour access in 2003. It stated explicitly that Myren and Abba-piren had not been developed for harbour purposes in the past for environmental and esthetical reasons.204

202. In addition, the existence of the petrol storage facility at Myren was (and continues to be) a complicating factor for the planning and construction of a ferry harbour due to the necessary safeguards that would need to be taken if passenger ferry services and the transport of dangerous substances were to take place contemporaneously within the Myren/Abba-piren area.205

203. In conclusion, therefore, during the relevant period, Myren/Abba-piren was not a harbour alternative on which potential new entrants could rely in order to establish a route to Norway in competition with Color Line’s existing route from Torskholmen.

5.4.5.2.2 Color Line’s arguments regarding the Port of Strömstad

204. In its Reply to the SO, Color Line argues that Myren was just as commercially suitable for servicing a ferry route to Norway as Torskholmen, since the location is virtually identical. It argues that there was considerable political interest in developing Myren into a ferry harbour during the period under examination, and that it was due to a lack of concrete attempts at establishment that the plans did not come to fruition. Color Line also claims that the Municipality of Strömstad assessed Myren at an earlier date and found it to be technically capable of being developed for ferry services.206

205. In this regard, the Authority notes that it is correct that the question of developing Myren/Abba-piren into a ferry harbour has been subject to discussion. However, the argument that Myren was commercially suitable for servicing a ferry route to Norway during the relevant period cannot be accepted for the reasons already stated.

206. Further, in response to Color Line’s arguments in the Reply to the SO, a detailed assessment of the discussions that took place with regard to

204 Event # 407261, p. 7, Municipality of Strömstad’s reply of 22 January 2007 to question 16 of the Authority’s request for information (event # 399077). See also event # 440698, p. 15, newspaper article in Bohusläningen dated 6 February 2007, in which a representative of Strömstad Municipality states that plans exist in Strömstad to extend the harbour in the Myren area but that politicians have not yet adopted any decision to extend the harbour (“Det finns planer i Strömstad på att bygga ut hamnen i detta område […]. Men politikerna har annu inte tagit beslut om att bygga ut hamnen”). 205 Event # 410205, p. 40-42 of the judgment of Oslo City Court, 5 October 2001; see also draft in- depth general plan of the central parts of Strömstad and Skee dated 20 June 2006, p. 42, available at www.stromstad.se (“Inom överskådlig tid kommer även hanteringen av farligt gods (bensin) att fortgå vilket måste beaktas i fortsatt fysisk planering inom denna del av staden.”). 206 Event # 553056, Color Line’s Reply to the SO, paragraphs 410-423 and 752-761.

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Myren/Abba-piren confirms that that area was not a harbour alternative which potential new entrants could rely on in order to establish a route to Norway in competition with Color Line’s existing route from Torskholmen during the relevant period.

207. The possibility of providing ferry services from Myren/Abba-piren was assessed subsequent to Bastø-Fosen’s attempt to establish a route to Strömstad in the late 1990s. Between 1999 and 2001, Larvik-Strømstadlinjen also showed interest in Myren (in addition to co-location with Color Line at Torskholmen).

208. On 28 March 2000, the Executive Committee of Strömstad Municipality decided that for the time being no permission to extend Strömstad harbour would be granted because it was considered that further establishment was not possible without significantly affecting the physical environment. Further analysis of the physical environment was therefore required, which was to be carried out in the context of an ongoing process to establish an in-depth general plan for the central parts of Strömstad Municipality.207

209. On 21 June 2001, the Environmental Committee (Miljönämden) of Strömstad held a meeting regarding the possible establishment of a ferry route between Larvik and Strömstad. The minutes of that meeting refer to a request by the Environmental Committee, supported by the Municipal Executive Committee (Kommunestyrelsen), in February 2001, that the Environmental Administration (Miljöförvaltningen) assess the possibilities for co-ordinating several ferry operators at Torskholmen, or alternatively at Myren.208

210. Following its assessment, the Environmental Administration found, in June 2001, that co-location at Torskholmen was not practically possible with the volumes of traffic that had been estimated.209 Instead it was recommended that Myren be developed into a harbour for general purposes.210

207 Event # 410205, p. 40 of the judgment of Oslo City Court (“Kommunestyret i Strømstad vedtok den 28.3.00 at man for tiden ikke ville gi tillatelse til ytterligere utbygging av havnen siden det ikke fantes mulighet for flere etableringer uten at det ble gjort store inngrep i det fysiske miljøet. For å få et overblikk over det fysiske miljøet og forutsetningene ville man foreta en analyse, noe man alt var i ferd med å foreta i Miljøforvaltningen i kommunen i sammenheng med en “fördjupad översiktsplan” (FÖP) for Strømstad tettsted.”). 208 Event # 553056, p. 277, attachment 82 to Color Line’s Reply to the SO (p. 1 of the minutes from a meeting of the Environmental Committee on 21 June 2001). 209 Note that that estimate was based on the expected traffic after the introduction of the vessel Color Viking by Color Line, which increased Color Line’s capacity on the route significantly. See Section 5.4.6.2 below regarding the capacity at Torskholmen. 210 See event # 553056, p. 277, attachment 82 to Color Line’s Reply to the SO, p. 1 of the minutes from a meeting of the Environmental Committee on 21 June 2001 summarising the assessment of the Environmental Administration (“…bedömer att en samlokalisering på Torskholmen med de trafikvolymer som beräknas, inte er praktiskt genomförbar. Istället rekommenderas att utveckla Myren till en hamnanläggning av universell karaktär”); and event # 407261, p.169-170, reply from Strömstad Municipality (analysis by the Environmental Administration dated 10 June 2001 addressed to the Environmental Committee).

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211. The Environmental Committee decided to support that assessment. It adopted the view, on 21 June 2001, that the area was a natural possibility for long-term harbour development and decided that the assessment of the area, including the environmental assessment, should be carried out separately from the ongoing process of establishing an in-depth general plan for central parts of Strömstad, and be given priority.211

212. In that regard, and with reference to Larvik-Strømstadlinjen’s interest in Strömstad, an internal Color Line memorandum dated 22 August 2001 reported that:

“Larvik-Strømstadlinjen has come one step closer to harbour access in Strømstad. A proposal will be submitted to the Municipal Assembly [kommunestyret] on 29.8 regarding the establishment of a committee which shall assess specifically and quickly the environmental consequences of an extension of Abba-piren and the construction of a lining-up area of cars at Myren. The aim is that the assessment be finalised so quickly that the municipality already this autumn will be able to provide an answer to new players as to whether Strømstad is a possible port of call. It is likely that the Municipal Assembly [kommunestyret] says yes to such a proposal on 29.8.”212

213. On 20 September 2001, a meeting took place in the Municipal Assembly of Strömstad. Color Line was present at the meeting, and an internal memorandum to Color Line’s CEO subsequently reported that:

“What an anticlimax this must be for the Larvik – Strömstad line. It had been announced that the Municipal Assembly would discuss development of the Myren area and say yes or no to harbour development. The Presidium (the municipal executive committee) had attached a proposal to decide on the question. This was changed before the actual meeting because it was clear already before the meeting that a majority would not accept to open a debate and to vote on a case which still was under assessment. The Presidium changed the proposal before the meeting. It wanted the Municipal Assembly to discuss the Myren development and give its approval to continue the assessment!!!! The end of the farce was that Myren was debated and when this debate was over, it was concluded that the ongoing assessment would be transferred from the Environmental Committee via the Municipal Executive Committee to the Municipal Assembly for a discussion on substance in a later meeting [of the Municipal Assembly]. What happened yesterday was, in other words, a debate on Myren as a future ferry harbour, but with no commitments. Signals from

211 Event # 553056, p. 279, attachment 82 to Color Line’s Reply to the SO (p. 4 of the minutes from a meeting of the Environmental Committee on 21 June 2001). 212 Event # 371458, p. 166 (HZI 71 3/5), internal Color Line memorandum of August 2001 (unofficial translation by the Authority: “Larvik-Strømstadlinjen har kommet et skritt videre mot havnetilgang i Strømstad. Det skal fremmes et forslag til kommunestyret den 29.8 om nedsettelsen av et utvalg som skal utrede særskilt og i løpet av kort tid de miljømessige konsekvensene ved en utbygging av Abba- piren og oppstillingsplass i Myren. Det tas sikte på at utredningen skal være ferdig så raskt at kommunen allerede i høst skal kunne gi et svar til nye aktører om Strømstad havn er aktuell anløpshavn. Det er trolig at kommunestyret sier ja til et slikt forslag den 29.8.”).

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speakers were clearly unfavourable to the development. A ‘monument of the tax-free era’ in the inner harbour was not deemed desirable. The interesting thing was that many argued that a ferry/container harbour should be located at Kålvik. They were of the opinion that one should initiate an assessment process up there.”213 (emphasis added)

214. A subsequent internal Color Line memorandum dated 26 October 2001, discussing the conditions on the connection between Norway and Sweden, noted that:

“In a meeting in the Municipal Assembly of Strömstad on 20 September Larvik- Strømstadlinjen did not get any clear positive answer regarding harbour access by 1 June 2002. The Municipal Assembly decided to carry out a wider environmental assessment of Strömstad harbour ...”.214

215. Shortly afterwards, in its judgment in October 2001 in the Bastø-Fosen case, as already described, the Oslo City Court concluded that Myren and Abba-piren were unavailable for ferry activities. It also noted that Larvik-Strømstadlinjen had not been able to obtain harbour access in Strömstad (although, according to the Municipality of Strömstad representative, it had been the most active company seeking such access).215

216. In 2002, the assessment of the possible development of a ferry harbour at Myren/Abba-piren continued. In February 2002, as part of its assessment of Myren, the Municipality wrote to a number of potential ferry operators to identify interest in operating a route to Strömstad.216

217. Scandilines confirmed its interest on 8 March 2002 and referred to Fosen Trafiklag A/S as one of its partners. However, it stated that it would await the assessment and conclusions of the Municipality of Strömstad, while at the same

213 Event # 370702, p. 222 (HZI 26 1/2), internal Color Line memorandum dated 21 September 2001 (unofficial translation by the Authority: “Hvilket antiklimaks dette måtte være for Larvik - Strømstadlinjen. Det var bebudet at bystyret skulle behandle utbygging av Myren-området og si ja eller nei til utbygging. Presidiet (bystyreledelsen) hadde lagt ved en innstilling om å ta stilling til spørsmålet. Dette ble endret før selve møtet startet fordi det var klart allerede før møtet ble satt at flertallet ikke ville akseptere å ta opp til debatt og votering en sak som fortsatt var under utredning. Presidiet endret innstillingen før møtet startet. Man ønsket at bystyret skulle diskutere Myrenutbygging og gi sin tilslutning til å fortsette utredningen!!!!. Enden på farsen ble at man debatterte Myren og da denne debatten var ferdig, konkluderte man at pågående utredning ville gå fra Miljøutvalget via formannskapet til realitetsbehandling i et senere bystyre. Det som kom fram i går var dermed en uforpliktende debatt om Myren som framtidig fergehavn. Signalene fra de som talte var klart i disfavør av utbygging. Man ønsket ikke et "monument" fra Tax-free-tiden liggende i indre havn. Det interessante var at mange tok til orde for å legge ferge/kontainerhavn til Kålvik. De mente at man måtte sette i gang en utredningsprosess der oppe.”). 214 Event # 371458, p. 158 (HZI 69 1/4: unofficial translation by the Authority: “I bystyremøte i Strømstad 20 September fikk ikke Larvik-Strømstadlinjen AS noe entydig ja til havneplass til 1. juni 2002. Bystyret vedtok å foreta en videre miljøutredning av Strømstad havn …”). 215 Event # 410205, judgment of Oslo City Court, 5 October 2001, in particular at p. 40-43 of the judgment. 216 Event # 553056, Color Line’s Reply to the SO, paragraph 417; event # 556818, p.152, attachment 50 to Color Line’s Reply to the SO.

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time continuing internal discussions regarding development and assessment of business concepts for a potential new ferry route to Strömstad.217

218. A summary of the assessment regarding development of a commercial harbour in the port of Strömstad at Myren was drawn up by the Environmental Administration on 22 May 2002. A number of concerns were assessed such as technical installations, geotechnical issues, environmental concerns, risk analyses relating to the existing petrol storage facility, economic concerns, the opinion of the general public and architectural issues. Mention was made of a public hearing held in March 2002.218 It was concluded that it was possible to build a flexible harbour facility at Myren which would cater for existing and future needs for sea transportation; that Myren was a resource for harbour purposes in the long-term even if, politically, it were decided not to develop the harbour for the time being; and, finally, that, economically, any development of the area as a harbour would need to be linked to considerable interest (i.e. in exploiting the harbour commercially), which, the summary considered, existed.219

219. In November 2002, the Municipality of Strömstad applied for permission to build a quay with accompanying facilities at Myren. The application was granted by the Environmental Court (Vänersborg District Court) on 19 June 2003 (water judgment).220 The application comprised filling in the quay area with 7500 m³ of filling compound, works on the seabed, the placement of rocks as erosion protection measures, construction of a 165 metre long quay in two parts (90 + 75 metres) and two floating breakwaters 30 and 60 metres long respectively. However, those works were never carried out.

220. In the 2004 Budget for the Municipality of Strömstad it was stated that:

“The harbour development has come to a stop as regards the plans for Myren, partly in relation to a new commercial harbour but also the harbour which shall serve amongst others the ferry to the Koster islands and the Coast Guard are moved into the future. Additional work is required to find suitable stages and possibly other means of financing. The work is ongoing. The interest from additional ferry operators still exists.”221

217 Event # 556818, p. 156, attachment 51 to Color Line’s Reply to the SO. 218 Event # 556818, p. 157-160, attachment 52 to Color Line’s Reply to the SO. 219 Event # 556818, p. 157, attachment 52 to Color Line’s Reply to the SO. 220 Event # 553056, Color Line’s Reply to the SO, paragraph 417; event # 556818, p. 160, attachment 53 to Color Line’s Reply to the SO. 221 The 2004 Budget for Strömstad Municipality, p. 28 available at www.stromstad.se (unofficial translation from Swedish by the Authority: “Hamnutvecklingen har avstannat vad gäller planerna i Myren, dels vad gäller ny handelshamn men även hamnanläggningen som skall betjäna bl. a. Kosterfärjan och Kustbevakningen flyttas framåt i tiden. Här krävs ytterligare arbete att finna lämpliga etapper och ev andra finansieringsformer. Arbete pågår. Intresset från ytterligare färjeaktörer finns fortsatt.”).

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221. The same statement was repeated in the 2005 Budget for the Municipality.222

222. A draft in-depth general plan for the central parts of Strömstad and Skee dated 20 June 2006 was submitted for public consultation from July to October 2006.223 In relation to Torskholmen – Myren, the draft plan states that:

“During the past few years the question of a future location for ferry traffic has been assessed by the municipality. The locations which have been discussed inside the central parts of Strömstad are Abba-piren and Myren harbour. In order to shed light on the different options several different studies were carried out in 2002. The studies found that it is fully technically possible to build a flexible harbour facility at Myren which can accommodate present and future maritime transport needs.

The Municipality views Myren as a resource for harbour purposes, which is recommended in the General Plan of the Municipality. It has been politically decided that the harbour area around the pleasure craft marina in the Myren and Abba area is not currently an option for relocation/development of a ferry facility, and that the whole Myren harbour area is strategic and set aside for development of a commercial harbour. Abba-piren may for the time being be used as parkland within the harbour’s development area.

In the foreseeable future the handling of dangerous substances (petrol) will continue which must be taken into account in continued physical planning regarding this part of the city. Until the construction of a commercial harbour becomes topical the existing activities and the pleasure craft marina shall remain as shall the newly created park.”224 (emphasis added)

223. More recently, in a programme plan for a detailed plan regarding the Myren Industrial Area dated 17 February 2011 it is explained that, “Work with a view to detailing the general plan for Strömstad is on-going. The in-depth general plan for Strömstad and Skee was subject to renewed consultation between July and October 2006. The Municipality aims at resuming the planning work during

222 The 2005 Budget for Strömstad Municipality, p.57, available at www.stromstad.se. 223 Event # 556818, p.180-185, attachment 54 to Color Line’s Reply to the SO (submitting p. 39-44 of the draft plan). The entire draft in-depth general plan of the central parts of Strömstad and Skee is available at www.stromstad.se. 224 Draft in-depth general plan of the central parts of Strömstad and Skee 2006, p. 42, available at www.stromstad.se (unofficial translation from Swedish by the Authority: “Under de senaste åren har frågan om framtida läge för färjetrafik utretts i kommunen. De lägen som diskuterats inom tätorten är Abba-piren och Myrens hamn. För att belysa olika handlingsalternativ har under 2002 flera olika utredningar utförts. Utredningarna har konstaterat att det är fullt tekniskt möjligt att i Myren bygga en flexibel hamnanläggning som kan tillvarata nuvarande och kommande behov av transporter till sjöss. Kommunen ser Myren som en resurs för hamnändamål, vilket rekommenderas i kommunens ÖP. Politiska beslut har fattats om att hamnområdet kring småbåtshamnen i Myren och Abbaområdet i dagsläget inte är aktuellt för flyttning/utbyggnad av färjeläge samt att hela Myrens hamnområde är strategiskt och avsett för utveckling av en handelshamn. Abbapiren ska tillsvidare kunna användas som parkmark inom hamnens utvecklingsområde. Inom överskådlig tid kommer även hanteringen av farligt gods (bensin) att fortgå vilket måste beaktas i fortsatt fysisk planering inom denna del av staden. Tills utbyggnad av handelshamnen aktualiseras ska befintliga verksamheter och småbåtshamn ligga kvar liksom den nyanlagda parken.”).

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2011…”.225 It appears, therefore, that as recently as February 2011 consideration of Myren/Abba-piren for possible ferry activities was still ongoing and that the in-depth general plan had not yet been adopted.

224. In the light of the above, while the location of Myren may, in principle, as argued by Color Line, be suitable for the provision of ferry services in competition with the services provided by Color Line from Torskholmen, if it were to be developed as a harbour, it follows from the evidence available, including Color Line’s own contemporaneous statements and documents submitted with its Reply to the SO, that development of Myren/Abba-piren to accommodate ferry services was controversial politically, and for that reason uncertain, and, further, that the potential for developing Myren for ferry purposes was, at best, long-term in nature.

225. In addition, even assuming that the political and regulatory issues could have been resolved, development of Myren/Abba-piren would in any case have required substantial works and investments (including the necessary quay structures and a lining-up area for cars), which would have taken time to carry out.

226. In conclusion, therefore, Color Line’s arguments cannot be accepted.

5.4.5.2.3 Conclusion on the Port of Strömstad

227. In the light of all of the above, the Authority concludes that no alternative area within the Port of Strömstad provided genuine possibilities for new entry during the period under examination.

5.4.5.3 Kålvik

5.4.5.3.1 Introduction

228. Kålvik is located north of Strömstad. The distance from Strömstad centre to Kålvik by car is approximately 20 km and takes around 24 minutes to drive (Google Maps). See the map below.

225 Detaljplan för Myrens Industriomåde Strömstad Kommun – Planprogram 2011-02-17, p. 6, available at www.stromstad.se (unofficial translation from Swedish by the Authority: “Det pågår ett arbete med en førdjupning av översiktsplanen för Strömstad. Denna plan, Fördjupad översiktsplan för Strömstad med Skee, har varit på förnyat samråd under juli – oktober, 2006. Kommunens avsikt är att återuppta planarbetet under år 2011.”). See also: http://www.stromstad.se/omkommunen/forvaltningar/kommunledning/oversiktligplanering/fordjupade oversiktsplanerfop/stromstadtatortmedskee.719.html.

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Map: Kålvik to Strömstad

Kålvik

Svinesund

Nordby

Source: Google Maps

229. Kålvik, which is a natural deep-sea area, was used for the construction of the oil platform Skanska Doris in the mid-1970s by the company Skanska AB. In connection with the construction of the oil platform, a quay was constructed at Kålvik and the infrastructure at Kålvik was upgraded. Skanska retained ownership of the Kålvik area after the construction of Skanska Doris but the quay at Kålvik was not in regular use.226

226 According to a report by Norconsult commissioned by Color Line in 2001 (event # 451824), the quay was not used after the construction of the oil platform in the 1970s (p.1, “Kaien har ikke vært i bruk siden”). According to the judgment of the City Court of Oslo in the Bastø-Fosen case, at the time of the judgment the area at Kålvik was used for storage and freight transport purposes, but no indication of the intensity of that use was given (event # 410205, p. 43). According to an environmental impact assessment carried out by Orveline in 2008 (event # 476613), the area had been in decay and

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230. During the period under examination there was no ferry harbour in operation and no harbour services provided to ferry companies at Kålvik. The situation at Kålvik was therefore very different from the situation at Torskholmen which was a public harbour in daily use. The question is thus whether Kålvik nevertheless provided good possibilities for market entry for ferry companies despite the fact that a ferry harbour would have had to be developed at Kålvik before any market entry could take place.

231. In its SO, the Authority found that there were a number of regulatory and other concerns which gave rise to difficulties that prevented Kålvik from being a viable alternative to Strömstad, at least in the short to medium term.

232. In its Reply to the SO, Color Line argues, in essence, that Kålvik was a very attractive harbour alternative. Color Line maintains that the fact that a new entrant must expect to apply for various permits to establish a ferry route, including permits concerning harbour access, cannot in itself disqualify a harbour as a realistic alternative. It is of the view that, compared to Torskholmen, obtaining the required permits for Kålvik was not considerably more uncertain or time-consuming. Therefore, Color Line argues, Kålvik constituted a realistic alternative to Torskholmen.227

5.4.5.3.2 The situation prior to the adoption of the in-depth general plan in October 2003

233. The deep sea area at Kålvik and the deep sea channel leading up to it are unique in Sweden. The Kålvik area and the channel were therefore designated by the Swedish Maritime Administration as an area of national interest (“riksinteresse”) for industrial activities which were dependent on a deep sea harbour.228 The designated area included a larger area onshore between Kålvik – Lunneviken and Nordby Köpcenter.229

234. The purpose of designating an area (or site) as being of national interest is to protect the area or site in question against measures that may be prejudicial to the establishment or use of that area (or site).230

had deteriorated until 2007 (p. 4) and no environmental permit had been obtained for the harbour previously (p. 1). 227 Event # 553056, Color Line’s Reply to the SO, paragraphs 728-730. 228 Event # 468237, 2003 in-depth general plan for Högdalsnäset, p. 14-15, 18. 229 Event # 468237, 2003 in-depth general plan for Högdalsnäset, p. 18. 230 See Section 8 of the Swedish Environmental Code, which reads: “Land and water areas that are particularly suitable as sites for facilities for industrial production, energy production, energy distribution, communications, water supply or waste treatment shall, to the extent possible, be protected against measures that may be prejudicial to the establishment or use of such sites. Areas that are of national interest on account of facilities mentioned in the first paragraph shall be protected against measures that may be prejudicial to the establishment or use of such sites” (http://www.sweden.gov.se/content/1/c6/02/28/47/385ef12a.pdf). See also event # 464581, Delphi opinion, p. 4/38.

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235. It was only following a proposal in May 2000 by the Swedish Maritime Administration (“Sjöfartsverket”) that a review of areas previously designated of national maritime interest, including deep sea harbours, was carried out. In October 2001, this led the Maritime Administration to decide, in relation to Kålvik, that “more general exploitation of the area might also be possible”, and that the possible use of Kålvik as a harbour should be assessed.231

236. The designation of Kålvik as an area of national interest for deep sea harbour activities therefore excluded passenger ferry services prior to October 2001, and a reclassification of the area would have been necessary before it could have been developed into a ferry harbour. That seems also to have been the assessment of Color Line at the time.232

237. In May 2002, the Municipality of Strömstad issued a General Plan for the Municipality, including Kålvik, which, following the conclusions of the Maritime Administration in 2001, decided that the possible use of Kålvik as a harbour should be assessed and that an in-depth general plan should be undertaken for that purpose.233

238. On 16 October 2003, the Municipality of Strömstad issued an in-depth general plan covering the area around Kålvik.234 The plan took legal effect on 13 November 2003.

239. In the plan, the Municipality considered that the natural conditions and existing quay facilities were suitable for harbour development. It was stated that:

“The Kålvik area has what is required for transformation into a harbour area. The natural conditions for a deep harbour are good, which is why it is considered that quay facilities can be constructed without damaging appreciably the values of the water area. Kålvik will with construction of a new road E6 and exit at Nordby get good transport conditions by the carrying out of the upgrading of Road 1038 to Kålvik.”235

231 Event # 468237, 2003 in-depth general plan for Högdalsnäset, p. 18, referring to the 2001 decision of the Swedish Maritime Administration (unofficial translation from Swedish by the Authority: “avses ges en mera generell framtida användingsmöjlighet”). The decision of the Maritime Administration of 22 October 2001 entitled “Sjöfartens Riksinteressen” is available at http://www.sjofartsverket.se/sv/e- bibliotek/Rapporter--remissvar1/2001/. 232 Event # 371458 p. 58 (HZI 57 1/1), e-mail from […] reporting in 2000 that the Ministry in Stockholm needed to be involved in order to achieve a change of use for the deep sea quay area in question (“Departementet i Stockholm må inn i bildet skal man få til en bruksendring på dette dypvannskai-området”). 233 See event # 468237, p. 19, in-depth general plan of 2003 for Högdalsnäset. The 2002 General Plan is available at: http://www.stromstad.se/omkommunen/forvaltningar/kommunledning/oversiktligplanering/oversiktspl an2002.238.html. 234 Event # 468237, in-depth general plan of 2003 for Högdalsnäset, a larger area in the Northern part of Strömstad Municipality which includes Kålvik and Nordby. 235 Event # 468237, 2003 in-depth general plan, p. 19 (unoffical translation from Swedish by the Authority: “Kålviksområdet har föutsetningar att omvandlas till ett hamnområde. De naturliga

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240. The 2003 in-depth general plan explained that the national interest in Kålvik would be maintained, but that the area could be given more general use in the future.

241. The purpose of an in-depth general plan is:

“to assist users / exploiters who at an early stage can see if there are possibilities to build in an area or if e.g. nature interests will be given more weight.”236

242. The 2003 in-depth general plan would therefore have been of importance for a potential new entrant considering developing Kålvik into a ferry harbour since the plan allowed the Municipality the possibility to assess Kålvik as a possible harbour.

243. However, in order to carry out the required assessment, the implications of the contemplated use of Kålvik as a harbour had to be set out in a more detailed manner in a concrete proposal for the use of the harbour site and the adjacent land. It was also explained that, at the time of adoption of the in-depth general plan, the Municipality did not have any such concrete plans but presupposed that the Swedish State was prepared to continue the discussion if such plans were presented.237

244. In addition, the 2003 in-depth general plan stated explicitly that:

“Future exploitation of Kålvik for harbour activities shall be preceded by a detailed plan.”238

245. It also explained that:

“As regards the area which previously was set aside as a reserve area for deep harbour dependent industry, and which covers a larger area between Kålvik –

förutsättningarna för en djuphamn är goda varför kajanläggningar bedöms kunne byggas ut utan att vattenområdets värden påtagligt skadas. Kålvik kommer med utbyggnad av ny väg E6 och trafikplats vid Nordby att få ett bra transportläge genom att upprustningen av väg 1038 till Kålvik genomförs.”). 236 Event # 468237, 2003 in-depth general plan, p. 3 and 19 (unofficial translation from Swedish by the Authority: “Den fördjupade översiktsplanen är en overenskommelse mellan kommun och stat. En fördjupad oversiktsplan är vidare till hjälp för exploatörer som i ett tidigt skede kan se om det finns förutsättningar att bygga i ett område eller om t ex naturintressena kommer att väga över.”). 237 Event # 468237, 2003 in-depth general plan, p. 19 (“Kommunen anser att djuphamnsläget bör kunne medge en mer generell använding i form av hamnområde och vill kunne pröva Kålvik som hamn. För att en prövning ska kunne ske måste dock kommunen precisera innebörden av dette i ett konkret förslag till nyttjande av hamnläge och tillhörande landområde. I nuläget har kommunen inga sådana konkreta planer med utgår ifrån att staten är beredd att forsätta diskussionen om sådana framlägges.”). 238 Event # 468237, 2003 in-depth general plan, p. 33 (unofficial translation from Swedish by the Authority: “En framida exploatering av Kålvik för hamnverksamhet ska föregås av detaljplan.”). See also event # 464581, Delphi opinion, p. 29/38.

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Lunneviken and Nordby Köpcenter, currently a detailed plan can only be established when such industry requires access to the deep sea area.”239

246. The 2003 in-depth general plan also explained that the national interest in the deep harbour resource implied that both the water and land area should be assessed as a whole.240

247. The adoption of the in-depth general plan appears to have been a step in the direction of developing Kålvik into a harbour that could be used by a ferry operator. However, the discussion above shows that further planning work at a detailed level would have been required. Such work would have needed to be coordinated among several public bodies. In that regard, the designation of Kålvik as a place of national maritime interest continued to be a factor that had to be taken into account (see paragraph 240 above).

248. In addition to a detailed plan, a potential developer would have needed to obtain an environmental permit and, possibly, a water judgment in order to develop Kålvik into a regular ferry harbour.

249. Under the Swedish Environmental Code, prior permission is required for environmentally hazardous activities (environmental permit), which include harbours used by ships of more than 1350 gross tonnage. The procedure for obtaining such permission can be long and complex: a legal opinion commissioned by the Authority estimates that the initial stages of the procedure, that is, the consultation process and the submission of a permit application, take from approximately six to 12 months. Thereafter, the processing of the application, including hearings, is estimated to take from six to 18 months. If the decision is appealed, the proceedings can last a further two to three years.241

239 Event # 468237, 2003 in-depth general plan for Högdalsnäset, p. 18 (unofficial translation from Swedish by the Authority: “För det område som sedan tidligare är avsatt som reservområde för djuphamnsberoende industri, och som omfatter ett större område mellan Kålvik – Lunneviken och Nordby köpcenter, gäller idag att detlajplan får upprättas först när sådan industri ställer anspråk på djupvattenläget.”). 240 Event # 468237, p.19: “Att djuphamnsresursen är av riskinteresse innebär att både vatten- och landområde ska ses som en helhet. En felaktig använding av angränsande markområden kan försvåra eller förhindra att vattenområdet kan nyttjast för det exklusive syftet. Detta innebär att olika verksamheter mm temporärt kan få nyttja området men endast i sådana lägen och på sådant sätt att ett framtida nyttjande av hele den exklusiva naturresursen inte omöliggörs.” 241 Event # 464581, legal opinion from Delphi, executive summary, p. 2. Appeals can, in principle, be brought by environmental organisations and any affected parties. Similar projects in Bohuslän in recent years have faced considerable resistance. Lysekil is one example: Lysekil Municipal Assembly’s decision to allow the construction of a new ferry landing at Anderssons kaj in central Lysekil was eventually overturned by the environmental courts (see below). A more recent example is the project for a catamaran from Drammen to Ellös, just south of Lysekil (event # 471487). The decision by the County Administrative Board granting an environmental permit was appealed to the Environmental Court by a number of private individuals and a local company CEO (Bohusläningen: “Ellösföreningen”, “Naturskyddsföreningen”). The Environmental Court (on 25 February 2008) referred the case back to the County Administrative Board for a new assessment, on the grounds that the environmental impact assessment had been incomplete (see event # 469546, decision by the County Administrative Board and judgment by the Environmental Court). Color Line has argued (paragraph 732 of the Reply to the SO) that Kålvik is in an uninhabited area and, therefore, that no neighbours or

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250. The Authority understands that in order to upgrade the existing harbour facilities to meet the needs of bigger vessels such as those used on the Sandefjord – Strömstad route, works on the seabed could be necessary, which would, in turn, trigger the need for a “water judgment” from the Environmental Court (vattendom: permission for water undertakings).242 The Authority understands that the normal time frame for obtaining a water judgment is approximately one year.243

251. An additional factor to be taken into account (after 2000) is the fact that the sea outside Kålvik lies within a Natura2000 area. As a result, permission for industrial activities may only be granted provided that neither the environment nor the species under protection may suffer damage as a consequence thereof.244 A Natura2000 area is a natural habitat deemed to be worthy of protection pursuant to Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora.245 The maritime environment in Kålvik is part of the area Kosterfjorden – Väderöfjorden, which is protected because it “contains the most species-rich and diverse maritime area in Sweden. Most of the reefs are situated in deep water and are strongly sloping. The maximum depth of water is 247 m. Kosterfjorden – Väderöfjorden contains around 200 species of animals and 9 species of algae which in Sweden occur only in this site. It is the only area in Sweden with coral reefs.” 246

252. In conclusion, prior to the adoption of its in-depth general plan in October 2003, which took effect in November 2003, it must be regarded as very unlikely that it

other interested parties would have an interest in opposing the project. Although a direct comparison between different cases is not possible, the Authority notes that at least one of the complainants in the cases referred to above seems to have been an environmentalist group. In the Authority’s view, this illustrates that the absence of neighbours does not guarantee that the project as such would be uncontroversial. 242 Event # 464581, Dephi opinion, executive summary, p. 2 and 14. The requirement for a vattendom was presumed by Orveline in the event that further works were to be carried out at Kålvik in order to accommodate vessels comparable to the size of Color Line’s on the Sandefjord – Strömstad route: see event # 461682, reply to question 11 in Orveline’s reply of 14 January 2008; and event # 488273, Orveline’s letter dated 13 August 2008, reply to question 2d. It appears from Color Line’s internal documents that Skanska was also of this view: see event # 370702, p. 222 HZI 26 1/2, where it was reported that “... Skanska thinks itself that it will take no less than one year to obtain necessary permits (water judgment) to start extending the quay...” (unofficial translation from Norwegian by the Authority: “Skanska mener selv at det vil ta mints 1 år for å få nødvendige aksepter (vattendom) for å starte utvidelsen av kaien…”). A water judgment was also considered to be required by the witnesses from Skanksa and Strömstad Municipality in the Bastø-Fosen case before the City Court of Oslo (event # 410205, p. 44 of the judgment). 243 It appears that both Skanska and Color Line considered one year as a reasonable time frame for obtaining a water judgment: see, respectively, event # 370702, HZI 26, internal Color Line memorandum dated 21 September 2001, and event # 564200, presentation by Mannheimer Swartling at the oral hearing, part 4d. 244 Environmental Code, Section 28b, Chapter 7; see event # 464581, Delphi opinion, executive summary, p. 2. 245 Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora, OJ L 206, 22.7.1992, p.7. 246 Event # 471485, http://w3.vic-metria.nu/n2k/jsp/main.jsp.

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would have been possible at all to operate passenger ferry services from Kålvik within a reasonable time frame due to the regulatory obstacles that existed. At the very least, a potential new entrant faced a heavy regulatory burden prior to the adoption of the 2003 in-depth general plan and could not expect to be able to enter the relevant market in the short to medium term using Kålvik as a ferry harbour on the Swedish side.

5.4.5.3.3 The situation after the adoption of the in-depth general plan in October 2003 until the end of 2005

253. As explained above, at the time of adoption of the in-depth general plan, the Municipality of Strömstad did not have any concrete plans for use of the harbour site and adjacent land at Kålvik. Regulatory obstacles therefore continued to exist even though an in-depth general plan had been adopted.

254. Indeed, at the end of 2006, the Municipality confirmed that no harbour developments had yet been realised at Kålvik.247 When asked to identify legal or regulatory barriers that could prevent the execution of works necessary at Kålvik in order to accommodate international car ferries, the Municipality stated that: “the land is not owned by the municipality, a detailed plan is lacking, national interests such as nature and recreational areas exist which today are in conflict with exploitation for traffic purposes”.248

Private ownership of Kålvik

255. As regards the private ownership of Kålvik, it appears that this factor has played a role as an impediment to new entry during the relevant period. Color Line has argued that the landowner, Skanska, seems to have been very interested in achieving an agreement with a ferry operator at Kålvik during the entire period under examination.249

256. However, documents obtained by the Authority during the inspection carried out at Color Line’s premises provide a more nuanced picture. In an e-mail from […] to Color Line management in June 2003, it was reported that Skanska hesitated to initiate cooperation with Larvik-Strømstadlinjen but, on the other hand, that it had asked whether a container harbour at Kålvik would interest Color Line.250 In September 2001, it was reported internally in Color Line that Skanska would welcome Color Line as developer of Kålvik but that Color

247 Event # 408737, p. 8 (unofficial translation from Swedish by the Authority: “Det är riktigt att någon hamnanläggning i Kålvik inte forverkligats.”). 248 Event # 408737, p. 8 (unofficial translation from Swedish by the Authority: “Marken ägs inte av kommunen, detaljplan saknas, riksintressen såsom natur och friluftsområden föreligger som idag kolliderar med exploatering för trafikändamål.”). 249 Event # 553056, Color Line’s Reply to the SO, paragraph 404. 250 Event # 371458, p. 58 (HZI 57 1/1: “Skanska vegrer [s]eg for å gå inn i noe samarbeid med Larvik – Strømstad-linjen, og spør om det er interessant for oss med en containerhavn i Kålviken.”).

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Line’s interest in Kålvik was limited to blocking that harbour for other players.251

257. In contrast, it is recalled that Larvik-Strømstadlinjen was welcomed at the public harbour of Lysekil (although it faced regulatory obstacles there – see Section 5.4.5.4 below).

258. Consequently, if the Kålvik area had been municipal land and the Municipality of Strömstad had launched a plan to develop Kålvik as a public harbour, a potential new entrant is likely to have faced a significantly different situation at Kålvik.

A detailed plan was required

259. In June 2007, the Municipality of Strömstad informed the Authority that in order to engage in harbour activities in Kålvik a detailed plan was required in order to regulate the change in use of the land (from an area of “national interest” for activities depending on a deep sea harbour).252 As explained above, this is consistent with what was expressly set out in the Municipality’s contemporaneous planning documents (see paragraph 244 above).

260. The Municipality also explained to the Authority that the time frame for a possible change of land use was difficult to estimate since other authorities (such as the county administrative board and the environmental court) also needed to give the go-ahead, and also because there had to be a willingness on the part of both the Municipality and the harbour owner to take things forward. The Municipality estimated that it would, in any event, take more than three years to obtain the necessary regulatory permits, including the adoption of a detailed plan for the area and an environmental permit.253

261. Thus, the Municipality, which has the sole power to initiate the detailed planning process,254 and which would have a key role in the planning works that needed to be carried out before a ferry harbour at Kålvik could be realised, itself considered as late as 2007 that it would take several years before a ferry harbour could be realised.

251 Event # 370702, p. 222 (HZI 26 1/2: “Skanksa ønsket oss velkommen som utbugger av Kålvik […] Vår interesse i Kålvik vil derfor være begrenset til å blokkere den havnen for andre aktører.”). 252 Event # 432050, p. 1-2 (“För att få bedrive hamnverksamhet i Kålvik krävs en detaljplan som reglerar denna förändrade markanvändingen. Nu gällande markanvänding är riksinteresse för djupvattenläga dvs det som en gång på 70-talet var en verksamhet på platsen som var byggnation av oljeplattformar för Nordsjön.”). 253 Event # 421145, the Authority’s letter dated 20 June 2007, question 5, and event # 432050, reply from the Municipality of Strömstad of 31 August 2007, p. 1-2 (“Tidsramen för en eventuell förändrad markanvänding är svår att sia om då det krävs jakande svar från andra myndigheter såsom länstyrelsen och miljödomstolen samt att kommunen och markägaren är interesserade att driva frågan. Uppskatningsvis pratar vi om mer än 3 år i vilket fall.”). 254 Event # 464581, Delphi opinion, p. 30/38 (confirming that no private entity can force a municipality to initiate such a planning process).

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262. The Municipality also reported in 2008 that the scope and shape a harbour facility at Kålvik could take had not been assessed in any detailed plan and that no such planning works had been initiated.255

263. In the light of these considerations, it is hard to conceive that a potential new entrant in 2004 or 2005 had reason to believe that entry into the relevant market could take place using Kålvik in a significantly shorter time frame than that estimated by the Municipality of Strömstad itself in 2007.

5.4.5.3.4 Road access to Kålvik and Nordby

264. Road access to Kålvik and Nordby was regarded as problematic: the 2003 in- depth general plan considered that upgrading of the access route to Kålvik/Nordby was necessary. The plan stated that Kålvik “will get” good transport connections once the road infrastructure around Nordby was upgraded in connection with the plans for the new shopping centre.256 Statements in the 2003 in-depth general plan also indicate that access via the E6 motorway and parking facilities at Nordby needed to be upgraded; heavy traffic jams were common during weekends and in summer.257

265. However, the upgrading of the roads to Nordby was not completed until June 2005 when the bridge across Svinesund and the new local road network were opened.258

266. According to Color Line, the local problems surrounding the access road to Nordby from the E6 were resolved by means of dedicated traffic lights just after the in-depth general plan for the area was adopted, that is after October 2003 (paragraph 719 of Color Line’s Reply to the SO). Later, however, those traffic

255 Event # 469954, reply to question 7 from the Municipality of Strömstad dated 13 March 2008 (“Därimot är det inte prövat genom en detaljplanelägging vilken omfattning och utforming en hamnanläggning skulle kunna få här. Den prövningen är inte gjord och finns inte heller något uppstartat arbete med.”). 256 Event # 468237, in-depth general plan of 2003 for Högdalsnäset, p.19: “Through the development of the new E6 motorway and the new junction at Nordby, Kålvik will acquire a good transport situation by the completion of the upgrading of road no. 1038 to Kålvik” (unofficial translation from Swedish by the Authority: “Kålvik kommer med utbyggnad av ny väg E6 och trafikplats vid Nordby att få ett bra transportläge genom att upprustning av väg 1038 till Kålvik genomförs.”). 257 Event # 468237, in-depth general plan of 2003 for Högdalsnäset, p. 21: “In the summer months and during some peak weekends significant traffic problems arise in the crossing between road no. 1038 and road E6, with heavy traffic jams as a result” (unofficial translation from Swedish by the Authority: “Under sommarmånaderna och vissa storhleger uppstår stora trafikproblem i korsningen mellan väg 1038 och väg E6 med långa köer som följd.”). 258 A press release in 2006 issued by the Olav Thon group, the owners of the Nordby Shopping Center, also indicates that there were infrastructure problems prior to the upgrade: “Nordby Shopping Center opened in June 2004. In June 2005 the bridge across Svinesund and the new local road network were opened. This significantly improved the accessibility of the centre, and, in 2005, it achieved a turnover of 919 million [NOK], up from 494 million [NOK] in 2004”, event # 468239, press release from Olav Thon-gruppen of 4 January 2006, p. 4 (unofficial translation from Norwegian by the Authority: “Nordby Shopping Center åpnet i juni 2004. I juni 2005 ble ny Svinesund-bro og nytt lokalvegsystem åpnet. Gjennom dette har senterets tilgjengelighet bedret seg betydelig, og senteret hadde i 2005 en omsetning på 919 mill, opp fra 494 mill i 2004.”).

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lights were replaced by a roundabout (see the left hand photograph at paragraph 700 of Color Line’s Reply to the SO).

267. As a matter of fact, there is still doubt as to whether the access road to Kålvik is sufficiently developed for ferry traffic of a size comparable to Color Line’s in Strömstad harbour. When Orveline obtained an environmental permit for extended activity at Kålvik in 2009 (see below, Section 5.4.5.3.7), the Road Administration made the following observations:

“Road 1038 [the road down to Kålvik] will experience a considerable increase in traffic and vehicle flows of up to 2000 vehicles per day and will require higher demands with regard to design and capacity than what the road has today. In order for the Road Administration to take a positive stance to an extension of activities in the harbour, a number of measures may be needed to improve the road standard. The measures which are needed as a result of the increased harbour activity will have to be clarified in consultation with the Road Administration and be paid for in their entirety by the developer of the harbour.”259

268. The Authority therefore considers that the road infrastructure from Kålvik towards Strömstad and the Norwegian border was underdeveloped, at least for a significant part of the period under examination. This has two consequences. Firstly, this must have reduced the attractiveness of Kålvik as such from the point of view of potential new entrants. Secondly, as long as serious congestion problems existed at Nordby it would appear doubtful that the public authorities would allow the development of a ferry harbour for passenger traffic to commence at Kålvik at all.

5.4.5.3.5 Conclusion on regulatory obstacles and uncertainties

269. As described above, a new entrant seeking to enter the relevant market using Kålvik as a ferry harbour during the period under examination would have faced significant regulatory and other difficulties and uncertainties. It would have had to reckon with the risk of procedures possibly lasting for several years before construction works could even begin.

270. The Authority is of the view that those obstacles presented a major barrier to Kålvik offering a genuine alternative for new entry during the period under examination.

259 Page 6 of the environmental permit, submitted by Orveline as an attachment to event # 527712 and by Color Line as event # 526889 and event # 556818, p. 141 et seq (attachment 47 to Color Line’s Reply to the SO) (unofficial translation from Swedish by the Authority: “Väg 1038 kommer att få en betydande trafikökning och fordronsflöden på upp emot 2000 fordon per dygn kommer att ställa högre krav på utformning och kapacitet än vad vägen har idag. För att Vägverket ska kunne ställa sig positiva till en utökning av hamnverksamheten kan ett antal åtgärder behövas för en förbättrad vägstandard. De åtgärder som behövs till följd av den utökade hamnverksamheten får klarläggas i samråd med Vägverket och får till sin helhet bekostas av hamnexploatören.”).

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5.4.5.3.6 The attractiveness of Kålvik as a destination during the relevant period

271. Kålvik is not a populated area. At least prior to the opening of Nordby Shopping Center, in June 2004, the shopping opportunities at Nordby were very limited compared to the situation today. In addition, there has never been any possibility of buying alcohol in Nordby (other than low-alcohol beer).

272. Color Line argues that in the SO the Authority seems to emphasise that Nordby/Kålvik was not an attractive destination before the development of the new shopping centre at Nordby in 2004 and claims that that is not correct. It argues that Nordby was described in the Norwegian national press in the mid- 1990s as “one of the landmarks of the border traders”, and attaches several articles from the Norwegian newspaper Dagens Næringsliv concerning the shopping facilities at Nordby between 1995 and 1997.260

273. From those articles it appears that in 1995 a shopping centre had existed at Nordby for 10 years. However, it only consisted of an ICA grocery store, a Q8 petrol station and a road restaurant and motel located along the E6 (taken over by the road restaurant and motel chain Rasta that year).

274. The new Nordby Shopping Center opened in June 2004, merged with the old shopping centre in 2007, and expanded further in 2008-2009. The turnover of the new shopping centre developed as follows.261

Turnover Development at Nordby Shopping Center, 2004 to 2008.

Year Turnover (MSEK)

2004 424

2005 917

2006 1064

2007 1904

2008 2094

275. By 2010, the turnover of the shopping centre had increased to NOK 3.56 billion.262

260 Event # 553056, Color Line’s Reply to the SO, paragraphs 711-712. See also paragraph 719 where Color Line claims that the shopping centre at Nordby was an important attraction for Norwegian customers long before the expansion of the centre in 2004. 261 Event # 552153, extracts from presentation of Nordby Shopping Center (submitted to the Authority by Orveline as event # 527712).

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276. It is true, as argued by Color Line, that border shopping has also been possible at Svinesund, closer to the Norwegian border than Nordby.263 However, those shopping possibilities cannot be compared to the current Nordby Shopping Center, which Color Line itself has referred to as “Norway’s largest” and which is one of the largest shopping centres in the Nordic countries after the last extension, which was completed in 2009.264

277. While shopping possibilities at Nordby and Svinesund did exist prior to the development of Nordby Shopping Center, the Authority cannot see, in the light of the above, how Kålvik provided any advantage over Strömstad harbour in this respect.

278. On the contrary, Strömstad was, and remains, the only city centre in this area of Sweden. It was, and remains, the only place with an alcohol monopoly. In addition, the 24-hour rule, which applies to tax-free sales aboard ferries under Norwegian legislation, does not apply with respect to taxed purchases at the Swedish alcohol monopoly. Thus, in order to respect this rule, ferry passengers who travel back to Norway the same day and who wish to benefit from lower alcohol prices in Sweden will have to visit Strömstad city centre.

279. For shopping-minded ferry passengers who intended to drive back to Norway, arriving at Strömstad harbour would make a combined visit possible to the centre of Strömstad and to the Nordby and Svinesund areas since the latter areas are en route to the Norwegian border. For passengers arriving at Kålvik, however, such a combined visit would be more cumbersome and lengthy as a detour southward to Strömstad would be required.

280. Kystlink has stated that a competitor would be disadvantaged by being outside the city, since it is a Norwegian tradition to travel to Strömstad to shop, and that, in order to accommodate the wishes of its passengers, in particular those not travelling by car or bus, calling at a harbour such as Strömstad would be the best choice.265 That has been criticised by Color Line.266

281. However, Color Line’s criticism focuses on the shopping possibilities at Nordby today, not on the situation prior to 2005. It is common ground that Strömstad has been a destination often visited by Norwegians. Strömstad has been a city with attractions, shopping possibilities, cafés, restaurants and accommodation possibilities. Moreover, even today (December 2011) Color Line states on its website under the heading “Strömstad and Bohuslän” that:

262 Olav Thon 2010 Annual Report, p. 13, available at www.olavthon.no. See also event # 549890, presentation of Nordby Shopping Center, p. 7 according to which the shopping area was 85 000 m² and consisted of 115 shops and parking capacity for 3500 cars. 263 Event # 553056, Color Line’s Reply to the SO, paragraph 379. 264 Event # 553056, Color Line’s Reply to the SO, paragraph 377 and section 11.3.2.2.2. 265 Events # 445223 and 439592 (attached pictures of Kålvik can be found in events # 445221, 445219, 445217 and 445215). 266 Event # 553056, Color Line’s Reply to the SO, paragraphs 97, 704 and 709.

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“The coastal town which is much more than cheap border shopping! Cosy shops, the harbour with fishing boats, the idyllic Koster islands and the popular spa- and conference hotels, make the town exciting all year around.”

282. This text was until recently accompanied by the photograph below.

Photograph from www.colorline.no.

283. Thus, it appears that Color Line still markets Strömstad as an exciting destination to travel to. On the other hand, there does not seem to be any mention of Nordby Shopping Center on its website.

284. Further, in its 2002 Annual Report Color Line stated that:

“The market trend whereby an increasing number of passengers consider the destination as an integrated part of the cruise experience enhances the importance of terminals located in the centres and forming part of the centre of the cities. There should be attractions, shopping possibilities and cafés, restaurants and accommodation possibilities in or in the immediate vicinity of the terminal facilities.”267 (emphasis added)

285. Color Line argues in its Reply to the SO that the Authority has taken that statement out of context and that it must be considered in the context of Color Line’s overall activities, not the Sandefjord – Strömstad route in particular.268

286. However, an internal Color Line memorandum concerning the threat of competition on the Sandefjord – Strömstad route in particular, and the question of renewal of tonnage in the year 2000 on that route, stated that:

267 Color Line’s Annual Report 2002, p. 15-16 (unofficial translation from Norwegian by the Authority: “Markedstrenden der en økende andel av passasjerene vil se destinasjonen som en integerert del av cruiceopplevelsen, forsterker betydningen av at terminalen ligger sentralt og inngår i byutvikling og byenes sentrumsfunksjon. Det bør finnes attraksjoner, shoppingmuligheter og serverings- og overnattingstilbud i eller i umiddelbar nærhet av terminalanlegget.”). A similar statement was made at p. 11 of the Report. 268 Event # 553056, Color Line’s Reply to the SO, paragraph 723.

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“Color Line can compete with potential intruders through market dominance and by controlling terminals close to the centre of both cities”.269

287. The latter contemporaneous statement contradicts Color Line’s arguments in its Reply to the SO and indicates that Strömstad as a destination was a factor that was given weight.

288. In conclusion, therefore, the Authority considers that from the viewpoint of a new entrant Kålvik as a destination posed a degree of uncertainty with regard to potential demand for ferry services that Strömstad harbour did not pose.

5.4.5.3.7 Recent developments at Kålvik

289. In its Reply to the SO, Color Line refers to the recent activities of Orveline at Kålvik. It has referred to the fact that Orveline was able to obtain an environmental permit in the course of about one year, that a detailed plan was not required for the activities initiated by Orveline, and that the works carried out at the quay at Kålvik did not require a water judgment (vattendom).270

290. In this regard, the Authority notes that Orveline concluded an agreement on 16 May 2007 with Skanska which gave it access to Kålvik. Orveline’s operations at Kålvik commenced in April 2008 with a vessel with a gross tonnage of only 1169.5, a fairly small vessel, and significantly smaller than the vessels operated by Color Line on the Sandefjord – Strömstad route. Those operations required an upgrade of the existing facilities at Kålvik, but did not require any water works to be undertaken.271

291. Orveline explained to the Authority in January 2008 that the harbour was sized for vessels below 1350 tons, which did not require any environmental permit.272

292. It appears that Orveline applied for an environmental permit in 2008 for procedural reasons. It did not have any concrete plans to introduce larger vessels at Kålvik with which it could enter the relevant market in the present case.273

269 Event # 371507, p. 83 (HZI 98 1/2) (unofficial translation from Norwegian by the Authority: “Color Line kan konkurrere med potensielle inntrengere gjennom markedsdominans og ved å kontrollere sentrumsnære terminaler i begge byer”). 270 Event # 553056, Color Line’s Reply to the SO, paragraphs 382-399, 732, 736, and 739. 271 Event # 461682, p. 8, annex I to Orveline’s reply dated 14 January 2008, submission to the Municpality of Strömstad in 2007 entitled “Etablering av ny passagerarhamn i Kålvik, Strömstad Kommun”. 272 Event # 461682, Orveline’s reply dated 14 January 2008, p. 4 (Q7). See also event # 461682, p. 7, annex I to Orveline’s reply dated 14 January 2008, submission to the Municipality of Strömstad in 2007 entitled “Etablering av ny passagerarhamn i Kålvik, Strömstad Kommun”, where it is stated: “As a start, rebuilding is proposed whereby the harbour is given capacity for vessels up to 1 350 GRT” (unofficial translation from Swedish by the Authority “lnledningsvis föreslås en ombyggnad där hamnen ges kapacitet för fartyg upp till 1 350 BRT.”). 273 Event # 461682, Orveline’s reply dated 14 January 2008, p. 6 (Q11), where Orveline stated that it did not know whether it would be of interest to change vessel (“Vi vet idag inte om det blir aktuellt att byta fartyg”).

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293. Orveline started preparing an application for an environmental permit in spring 2008,274 and applied for a permit on 25 June 2008.275 The permit was granted on 27 March 2009.276 That decision was not appealed.

294. When asked to explain the background to its application for an environmental permit,277 Orveline stated:

“The background is to be able in the future to have larger tonnage in the harbour and that existing activity can apply before 30 June 2008 and thereafter maintain existing activity (and new) until a decision in the matter has been made by the County Administrative Board.”278

295. When asked to describe any works and/or projects planned to upgrade the existing harbour facilities, and whether it expected that any planned works would require a detailed plan of the area or other permits (for example, a vattendom),279 Orveline stated:

“No construction works will be initiated in the harbour as a result of the application for environmental permit. Strömstad municipality has pointed out in its decisions that the area shall be subject to a detailed plan before building permits for facilities and buildings can be expected [to be granted]. This prevents in practice the possibilities to expand with for example other ferry traffic due to the need for a terminal building etc. until a detailed plan has entered into force.”280

296. The Authority then pointed out to Orveline that according to the environmental impact assessment (p. 9) no works should be necessary in order to allow vessels of more than 1350 gross tonnage to call at Kålvik, and asked whether vessels such as those used by Color Line or Kystlink could call at Kålvik as soon as the

274 Event # 556818, p. 137, attachment 46 to Color Line’s Reply to the SO, according to which Orveline consulted the County Administrative Board on 21 February 2008 and on 3 April 2008 published an advertisement in the local press about its plans. 275 Event # 553056, Color Line’s Reply to SO, paragraph 388; and event # 556818, p. 137-140, attachment 46 of Color Line’s Reply to the SO. 276 Event # 526889, submitted to the Authority by Color Line on 20 July 2009 (event # 526890); and event # 556818, p. 141 et seq., attachment 47 to Color Line’s Reply to the SO. 277 Event # 477901, question 2.b. 278 Event # 488273, Orveline’s reply dated 8 August 2008 (unofficial translation from Swedish by the Authority: “Bakgrunden är att i framtiden kunna ta större tonnage i hamnen samt att befintlig verksamhet kan söka före 30 juni 2008 och derefter upprätthålla befintlig verksamhet (och ny) fram till beslut fattas i frågan av Länsstyrelsen.”). 279 Event # 477901, question 2.c. 280 Event # 488273, reply from Overline, p. 1 (answer to question 2.c) (unofficial translation from Swedish by the Authority “Något anläggningsarbete som följd av ansökan om miljötillstånd kommer inte att påbörjas i hamnen. Strömstads kommun i sina beslut påpekat att området skall underställas detaljplan innan bygglov för anläggningar och byggnader kan påräknas. Detta hindrar i praktiken möjligheterna att utöka med exempelvis annan färjetrafik på grund av behovet av terminalbyggnader m.m fram till en detaljplan har vunnit laga kraft.”).

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permit was granted, without significant additional construction works, on the quay or underwater, being required.281 Orveline replied:

“If larger tonnage (for example ferries that call at Strömstad today) shall be able to use the harbour dredging is amongst others required which in turn requires permission for waterworks [i.e. a water judgment].”282

297. It follows from the environmental permit granted to Orveline that:

“The activity shall take place mainly in accordance with what the applicant has stated in the application documents and otherwise undertaken in this case if not otherwise specified by the conditions below.”283

298. It is also stated in the permit that:

“Quay facilities which exist in the harbour today are considered to be able to manage the new activity without further amendments. Thus, new facilities will not be established as a result of the application for an environmental permit.”284

299. Thus, it appears that the existing quay facilities, which have been upgraded by Orveline for a small scale project, cannot necessarily be extended under the existing environmental permit.

300. It is noted that Orveline’s ferry activities at Kålvik came to an end early in 2009 because the activities did not comply with the applicable tax-free rules.285 As far as the Authority is aware, no further ferry activity has taken place at Kålvik.

301. In the light of the above, it appears that even if the environmental permit obtained by Orveline in 2009 allowed Orveline to introduce vessels above 1350 gross tonnage at Kålvik and 2700 calls a year,286 all regulatory issues were not settled. Nevertheless, it seems possible that due to the developments at Kålvik in recent years, the planning and regulatory obstacles that remain may be less significant than those which existed prior to those developments.

281 Event # 477901, question 2.d. 282 Event # 488273, reply from Overline, p. 1 (answer to question 2.d). (unofficial translation from Swedish by the Authority: “Om större tonnage (exempelvis färjor som idag trafikerar Strömstad) skall kunne nyttja hamnen kråvs bland annat muddring som i sin tur kräver tillstånd för vattenverksamhet.”). 283 Event # 527712, reply from Orveline, p. 1 of the environmental permit (unofficial translation from Swedish by the Authority: “Verksamheten ska bedrivas i huvudsaklig överenstämmelse med vad sökanden angivit i ansökningshandlingarna och i övrigt åtagit sig i ärendet om inte annt frangår av nedanstående villkor.”). 284 Event # 527712, reply from Orveline, p. 5 of the environmental permit (unofficial translation from Swedish by the Authority: “Kajanläggningar som idag finns inom hamnen bedöms kunna klara den nya verksamheten utan ytterligare förändringar. Således kommer inte nya anläggningar att tillföras området som en följd av ansökan om miljötillstånd.”). 285 Judgment by the City Court of Oslo on 12 April 2011, Orveline AB v Ministry of Finance. 286 Event # 553056, Color Line’s Reply to the SO, paragraph 386.

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302. Against this background, the Authority cannot see that the developments at Kålvik from 2007 onwards, and the environmental permit which was granted to Orveline in March 2009 in particular, call into question the conclusions which have been drawn above regarding the extent to which Kålvik could have been used by a potential new entrant in order to enter the relevant market in the present case during the period under examination.

303. In conclusion, therefore, Color Line’s arguments regarding the developments at Kålvik after 2007 do not change the Authority’s conclusion that Kålvik did not offer a genuine alternative for new entry to a potential entrant seeking to compete with Color Line on the relevant market during the period under examination.

5.4.5.3.8 Conclusion on Kålvik

304. The Authority concludes that there were a number of factors which, taken together, prevented Kålvik from providing genuine possibilities for new entry within a reasonable time frame during the period under examination.

5.4.5.4 Lysekil

5.4.5.4.1 Assessment of Lysekil as a harbour alternative

305. Lysekil is located approximately 95 km south of Strömstad (approximately a 100 minute drive) and approximately 110 km from the Norwegian border.287 Lysekil is a public port. There are no public ports between Strömstad and Lysekil.288 The location of Lysekil is indicated on the map below.

287 All distances and driving times according to today’s road standards were obtained from Google Maps. Prior to road improvements in recent years driving time from Strömstad to Lysekil was somewhat longer. 288 SJÖFS 1988:5 available at http://www.sjofartsverket.se/, see also event # 464581, Delphi opinion, p. 3/38.

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Sandefjord ‐ Strömstad

Larvik ‐ Lysekil

306. As can be seen from the map, in comparison with Strömstad Lysekil is disadvantaged by its location. The duration of a crossing from Norway to Lysekil would be substantially longer than the Sandefjord – Strömstad crossing: according to Color Line, a crossing from Larvik, which is south of Sandefjord, to Lysekil would take up to four hours.289 Lysekil is also further from Norway by car than Strömstad, and it is further to the E6 motorway. Therefore, the total journey time would be significantly longer, in particular for the many passengers who take the ferry from Norway to Sweden and then drive back to Norway, thus making the route less attractive for passengers.

289 According to Color Line’s own internal calculations (see below, paragraph 318).

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307. Further, a crossing to Lysekil would be mostly in open sea and, as a result, be more exposed to adverse weather conditions. The longer crossing time and rougher conditions would raise operating (including fuel) costs for a ferry operator.

308. In addition, no area in the port of Lysekil appears to have been regulated for ferry services during the period under examination. It is likely that the construction of a harbour or the upgrading of any existing facilities would have required at least one building permit, which in principle requires detailed development plans.290 The process for acquiring such permits normally lasts from between six months to two years, excluding any time for appeals.291 In addition, an environmental permit and, possibly, a water judgment would have been required, as was the case for Kålvik. Therefore, similar uncertainties relating to public approvals as described above in relation to Kålvik also applied in Lysekil.

309. Those factors presented significant obstacles to using Lysekil as a destination harbour for new entry in the relevant market during the period under examination.

310. Despite those obstacles, Larvik-Strømstadlinjen AS attempted to establish a route to Lysekil, after the problems it faced in obtaining access to Strömstad harbour.292 As already described (see Section 5.4.4 above), Larvik- Strømstadlinjen AS faced considerable difficulties in securing harbour access in Lysekil and its efforts to establish a route to Lysekil eventually failed.

311. In October 2001, after reaching an agreement with Larvik-Strømstadlinjen AS, the Municipal Assembly of Lysekil decided to construct a new ferry landing on Anderssons kaj in central Lysekil. However, that decision was overturned in 2002 by the Swedish environmental courts on procedural grounds, following a complaint based, inter alia, on environmental grounds.293

312. The question regarding the location of a possible ferry line in Lysekil was controversial in any event. Thus, an internal Color Line memorandum dated 24 February 2002 referred to the fact that many citizens were against placing a terminal on Anderssons kaj.294 The debate in the Municipal Assembly that took place before the decision was taken to construct a ferry landing on Anderssons kaj also illustrates that the decision was controversial among local politicians.295

290 Event # 464581, Delphi opinion, p. 29. 291 Event # 464581, Delphi opinion, p. 31-32. 292 In that regard, the company changed its name to Larvik-Lysekillinjen. 293 See event # 553056, Color Line’s Reply to the SO, attachment 59 (decision of the environmental court); event # 440698, article in Bohusläningen dated 30 December 2002, “Ingen färjetrafik från Anderssons kaj”; and event # 440704, article in Østfoldsposten dated 1 October 2002, “Nye ferjeplaner i Lysekil”. 294 Event # 370985, p. 99 (PAB 64, p. 3/7); and event # 371458, p. 181 (HZI 74, p. 3/7) (“mange av byens borgere er imot at man etablerer en fergeterminal på Andresons kaj”). 295 Event # 553056, Color Line’s Reply to the SO, attachment 57.

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313. Furthermore, it appears that significant investments were required, including in infrastructure, before a ferry line to Lysekil could have been established. Color Line states in its Reply to the SO that Larvik-Strømstadlinjen planned to invest SEK 65-80 million, including a terminal on Anderssons kaj.296 Color Line’s own assessment of Anderssons kaj at the time was that it was 100 years old and weak. In a memorandum dated 12 March 2002, Color Line stated that since the Municipality did not wish to tear down the existing buildings until it was certain that if a new ferry line commenced operations in the harbour it would be there for the long-term, such a line would have to make do with a temporary floating ramp, a small lining-up area for cars, and barracks for a terminal in the initial phase.297

314. It follows from the above that the public port of Lysekil cannot be regarded as having offered genuine possibilities for new entry within a reasonable time frame for a potential new entrant seeking to compete with Color Line on the relevant market for passenger ferry services.

5.4.5.4.2 Color Line’s arguments regarding Lysekil

315. In its Reply to the SO, Color Line argues that there are several areas in Lysekil harbour that could be used for ferry operations and that there were no regulatory barriers or uncertainties in relation to obtaining harbour access in Lysekil. Color Line claims that harbour access could have been obtained in about one year. It also argues that establishment in Lysekil was possible with limited investments/technical works in the harbours.298

316. However, as stated above, no area in the port of Lysekil was regulated for ferry services during the period under examination and the evidence (referred to above) shows that the location of a possible ferry line in Lysekil was controversial.299 None of the areas to which Color Line refers (apart from Anderssons kaj) appear to have been properly assessed by the Municipal Assembly at the time. The newspaper articles which Color Line cites in support of those alternatives are based simply on suggestions from citizens or political figures, without any evidence that they had been properly assessed.

317. In the section dealing with Lysekil in its Reply to the SO, Color Line itself refers to the uncertainty regarding public approvals/permits, stating that:

296 Event # 553056, Color Line’s Reply to the SO, paragraph 436. In a memorandum dated 26 October 2001, Color Line referred to a large quay that was to be built in the centre of Lysekil at a cost of NOK 65 million, of which the ferry company Larvik-Linjen AS was to pay NOK 55 million. The rest would be recovered by the Municipality through harbour fees, event # 371458, p. 158 (HZI 69, 1/4). 297 Event # 370985, p. 98-99 (PAB 64, p. 2/7-3/7); and event # 371458, p. 180-181 (HZI 74, p. 2/7- 3/7). 298 Event # 553056, Color Line’s Reply to the SO, sections 7.3.4.4 and 11.3.2.4.3. 299 Event # 370985, p. 97-98 (PAB 64, p. 2/7-3/7); event # 371458, p. 180-181 (HZI 74, p. 2/7-3/7); and event # 553056, Color Line’s Reply to the SO, attachment 57.

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“Regulatory circumstances, including in particular how long time it will take to get the required permits in place, depend to a large degree on the political will found in each individual municipality/county”.300

318. Furthermore, many of Color Line’s arguments do not sit well with its own contemporaneous assessments of Lysekil. Thus, in 2001, Color Line found that it would be difficult for a ferry service to Lysekil to compete with its Sandefjord – Strömstad route with regard to comfort, availability, duration and cost. A Color Line memorandum from October 2001 in relation to a potential route to Lysekil is telling in that regard. Under the heading “competitive assessment” it is stated that:

“The crossing between Sandefjord and Strömstad is around 38 nautical miles and approximately the same is valid for Larvik and Strömstad. The crossing between Larvik and Lysekil totals 66 nautical miles. Our captains calculate this crossing to take around 4 hours compared to our 2 ½. The sea between Larvik and Lysekil is very exposed to the weather. Our route is in sheltered waters apart from ½ hour in the middle. The crossing Larvik – Lysekil will by and large be in open sea without protection from islets and rocks.

If they start at 0700, they will at the earliest be able to finish the day at 2400. This demands two crews per day. They will also have much larger fuel costs than us per trip. There will probably only be ½ or 1 hour ashore before they turn – which makes shopping on land for day trip guests more difficult. The guests will have to stay 8 hours on board without cabins.

The road from Lysekil to E-6 has been improved lately, but is still long and bendy.

All in all it seems quite difficult to compete with us concerning comfort, availability and time. There is an element of danger that the passengers in the start-up months June and July, who are going on holiday southwards in Sweden, Denmark and Germany and eastwards, choose Larviklinjen. These might find it convenient to take Larviklinjen. The distance Strömstad – Gøteborg is covered in 1½ hours, so there is little to gain for a passenger with a car.”301

300 Event # 553056, Color Line’s Reply to the SO, paragraph 763. 301 Event # 371458, p. 159 (HZI 69 2/4), memorandum of 26 October 2001 (unofficial translation from Norwegian by the Authority: “Konkurransemessig vurdering – Overfarten mellom Sandefjord og Strømstad er 38 nautiske mil og omtrent det samme gjelder mellom Larvik og Strømstad. Overfarten mellom Larvik og Lysekil er på hele 60 nautiske mil. Våre kapteiner beregner denne overfarten til å ta bortimot 4-timer mot våre 2 1/2. Havområdet mellom Larvik og Lysekil er meget værutsatt. Vi går innaskjærs hele tiden bortsett fra 1/2 time midt utpå. Overfarten Larvik- Lysekil vil stort sett foregå i åpent hav uten beskyttelse av holmer og skjær. Dersom de starter kl 0700 vil de tidligst kunne avslutte dagen kl 2400. Det betinger to crew pr. dag. De vil også få langt større fuelkostnader enn oss per legg. Det vil sannsynligvis bare bli 1/2 eller 1 times landligge før de snur – hvilket vanskeliggjør handling på land for dagsturgjester. Gjestene skal oppholde seg 8 timer om bord uten lugarer. Veien fra Lysekil og opp til E-6 er utbedret siste tiden, men er likevel lang og svingete. Alt i alt synes det ganske vanskelig å kunne konkurrere med oss hva gjelder behagelighet, tilgjengelighet og tid. Det synes likevel å være et faremoment i at gjester i oppstartmånedene juni og juli skal på ferie sydover i Sverige,

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319. Color Line refers at the end of this quote to passengers travelling to destinations south of Lysekil and points out that Lysekil’s more southern location (compared to Strömstad) would be an advantage for passengers travelling to destinations south of Lysekil/the rest of Europe, and that the shorter distance to Gothenburg is an advantage for Lysekil.302

320. As already stated, such passengers only formed a small segment of Color Line’s customer base which were not a priority for Color Line and which would not have been a priority for a potential new entrant in the relevant market.303 Moreover, the total travel time of taking a ferry from Larvik to Lysekil (approximately 4h) and driving to Gothenburg (approximately 1h45) would be approximately 5h45. That is in fact longer than the total travel time (approximately 4h40) of taking the ferry from Sandefjord to Strömstad (approximately 2h30) and driving to Gothenburg (approximately 2h10).304 In that light, the southern location of Lysekil does not provide any significant advantages for Lysekil as compared to Strömstad.

321. Color Line also argues that with a faster ferry, such as Color Line’s “Superspeed”, travelling time to Lysekil could be reduced to three hours.305 This would still be 30 minutes longer than Color Line’s crossing time. More importantly, the costs of investing in such a high-speed ferry would be significant and probably prohibitive. According to Color Line’s 2008 annual report, the contract price for “Superspeed” was EUR 126.7 million, (over NOK 1 billion).306 In comparison, Color Line invested only approximately NOK 210 million (including upgrades) in its largest vessel on the Sandefjord – Strömstad route, in 2000/01.307 Higher speed would also increase fuel costs, which would already be high for a conventional ferry sailing to Lysekil compared to a crossing from Larvik to Strömstad.308

Danmark, Tyskland og østover velger Larviklinjen. Disse kan finne det hensiktsmessig å ta Larviklinjen. Strekningen Strømstad- Goteborg kjøres på 1 1/2 time, slik at det er lite å hente for en gjest med bil”). 302 See also event # 553056, Color Line’s Reply to the SO, paragraph 773. 303 See Section 4.3 above. 304 The driving distance between Strömstad and Gothenburg is approximately 163 km or two hours and 10 minutes (Source: Google Maps). In the past, driving times may have been slightly longer due to road improvements on the E6 motorway in recent years. 305 Event # 562106, slide 49; event # 553056, Color Line’s Reply to the SO, paragraph 439; Color Line made the same point at the oral hearing. 306 Annual report 2008, page 9, http://www.colorline.se/polopoly_fs/1.2799!/aarsrapport_08.pdf. 307 Event # 553056, Color Line’s Reply to the SO, paragraph 248. 308 Color Line also claimed at the oral hearing that a vessel which sailed at 22 knots, with a travelling time of 3 hours and 15 minutes could be used, event # 562106, slide 49. That remains 45 minutes longer than Color Line’s ferries and fuel costs would increase significantly. Moreover, it is unclear what type of vessel this would require, since Color Line’s own vessels seem to be unable to operate at this speed. According to Color Line’s web site, Color Viking has a service speed of 18 knots (http://www.colorline.com/ships_and_sailings/stromstad_- _sandefjord/technical_facts_m_s_color_viking).

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322. In the light of the above, Color Line’s arguments do not alter the Authority’s assessment of Lysekil as a harbour alternative.

5.4.5.4.3 Conclusion on Lysekil

323. In conclusion, the Authority finds that Lysekil cannot be regarded as having offered genuine possibilities for new entry within a reasonable time frame for a potential new entrant seeking to compete with Color Line on the relevant market for passenger ferry services during the period under examination.

5.4.5.5 Other harbours

324. Color Line argues that not only existing harbour facilities had the potential to constitute a viable alternative to Torskholmen and states that “presumably within this coastline there are areas that have been/may potentially be classified for harbour purposes”.309 It argues that the fact that the building of a quay/harbour in such an area would require regulatory permits is not something that on a general basis can exclude a given area from the assessment and that all facilities on the Swedish side that make it possible to enter the relevant market – independently of whether this requires investments and regulatory clarification – must be included in the competition analysis, even harbours up to and including Gothenburg.310

325. The Authority cannot accept these arguments.

326. Firstly, Color Line has failed to identify any concrete alternative north of Lysekil that has not been included in the Authority’s analysis above. The Authority is not aware of any such alternatives. None of the respondents with whom the Authority has been in contact during its investigation have indicated any possible harbour alternatives for ferry operators on the Swedish coast north of Lysekil other than those considered in detail above.

327. Secondly, the Authority notes that the entire coastline from the Norwegian border to Lysekil is, in principle, an area of national interest for tourism and outdoor recreation. That was the case throughout the period under examination. Therefore, in unexploited areas, an exemption from the national interest would have had to be granted before any construction could be undertaken. Rules regarding the protection of the shoreline are also relevant: they provide that within a belt of 100 metres from the shoreline the construction of buildings or other structures that prevent public access is a priori prohibited. A special exemption would therefore have been required in order to construct a quay in a previously unspoiled area.311

328. In that light, and for the reasons already stated, even assuming that there were other potential areas between Strömstad and Lysekil that were physically

309 Event # 553056, Color Line’s Reply to the SO, paragraph 693. 310 Event # 553056, Color Line’s Reply to the SO, paragraphs 689-695. 311 Event # 464581, Delphi opinion.

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suitable for harbour activities, exploitation of such areas with no quay/harbour would have faced significant regulatory obstacles, most likely in addition to a lack of the necessary inland infrastructure.

329. As regards any potential harbours south of Lysekil, given that a crossing to Lysekil would have taken significantly longer than the route to Strömstad, as explained above, such possibilities can be ruled out on the basis of travel time alone.

5.4.5.6 Conclusion on harbour alternatives

330. In the light of the above, the Authority is of the view that the possible alternatives to Torskholmen were limited: in all cases, significant uncertainties existed in relation to permits, the duration of the application processes and the likely success or otherwise of such applications. Uncertainties also existed in relation to commercial and other factors. All of those uncertainties led to a lack of predictability and stability for potential new entrants, a factor which was also likely to have an impact on the possibilities of obtaining financing for a potential new ferry operation.

331. The Authority notes that a potential new entrant in the relevant market during the period under examination would have had to assess the risks in potential alternative harbours ex ante. Color Line has consistently stressed its own need for predictability in order to operate a ferry service and carry out economically desirable investments. When defending its long-term exclusivity in its Reply to the SO, Color Line argues that “[u]ndisturbed harbour access was again a precondition for Color Line being able to exercise its planned activity and consequently also a precondition for investments to be made”,312 and that its exclusivity was necessary to ensure the predictability it required to build up a route.313

332. By contrast, Color Line argues in its Reply that a new entrant could start operations without even having the certainty that relevant permits would be granted. Following Color Line’s arguments regarding its own operations, a new entrant would not have been able to make the necessary investments or to plan and expand its activities in such a state of uncertainty.

333. The Authority therefore concludes that during the period under examination none of the possible alternatives to Torskholmen constituted genuine harbour alternatives for new entry within a reasonable time frame for a potential new entrant seeking to penetrate the relevant market for passenger ferry services and compete with Color Line.

5.4.6 Capacity at Torskholmen

334. Color Line argues that circumstances other than harbour alternatives also show that the harbour agreement did not have any foreclosure effects.

312 Event # 553056, Color Line’s Reply to the SO, paragraph 944. 313 Event # 553056, Color Line’s Reply to the SO, paragraphs 15-25 and 532 et seq.

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5.4.6.1 Color Line’s right of expansion argument

335. Color Line claims in its Reply to the SO that there must be a clear “right of expansion” in the permit Color Line was granted for the use of Torskholmen; that the question of whether there would be space for a second operator cannot take as a point of departure Color Line’s existing exploitation of capacity at any and all times and, finally; that assessment under the competition rules must allow for natural expansion.314

336. Color Line argues further that the consequence of the Authority’s conclusions concerning capacity expansions is that an operator is restricted to the quantity it finds it responsible to operate in a start-up phase, without any possibility of subsequent expansion. It considers that it is legitimate in a start-up phase to reserve more capacity than initially used while customer volumes are built.315

337. However, Color Line has not explained why a right of expansion under a long- term exclusive agreement should be upheld under Article 53 EEA. In this regard, it must be recalled that under the harbour agreement Color Line was granted exclusive access to Torskholmen for 15 years with the right to renew that period for a further 10 years. A central concern in the present case is that by concluding the harbour agreement Color Line reserved to itself all capacity at Torskholmen for up to 25 years to the exclusion of all potential entrants. It is that very fact which allowed Color Line to maintain its monopoly position on the relevant market until the end of 2005 and which, thereby, created anti- competitive foreclosure effects prohibited by Article 53(1) EEA.

338. Under those circumstances, a possible right of expansion would have to be justified by Color Line under Article 53(3) EEA and would require an explanation of why such a right was indispensible and proof that the long-term exclusivity did not afford Color Line the possibility of eliminating competition in respect of a substantial part of the products/services in question (see Section 6 below).

339. Allowing for “natural expansion” as argued by Color Line when this would lead to the maintenance of a monopoly cannot be accepted under Article 53(1) EEA. In the circumstances of the present case, Color Line’s “right of expansion argument” cannot by any means take its long-term exclusive harbour agreement outside the reach of Article 53(1) EEA.

340. Color Line’s argument that as a consequence of the Authority’s reasoning an operator is restricted to the quantity it finds it responsible to operate in a start-up phase is not convincing either. The absence of exclusivity would not prevent an operator from gradually increasing its presence in the market, for example in response to increases in demand. However, the operator would have to live with the risk that available harbour capacity which was not used by that operator could be allocated to a competitor and, as a result, that the first operator would

314 Event # 553056, Color Line’s Reply to the SO, paragraph 867. 315 Event # 553056, Color Line’s Reply to the SO, paragraphs 852 and 859.

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face competition in the future. It is that risk that Article 53(1) EEA is designed to protect. At the very least, in the circumstances of the present case, the need to remove that risk would require justification under Article 53(3) EEA before it could be accepted.

341. The alleged legitimate need to reserve more capacity than initially used in a start-up phase while customer volumes are built cannot, in any case, apply to a period of 25 years.

342. Color Line’s arguments must therefore be rejected.

5.4.6.2 Color Line: there was no spare capacity for a new entrant

343. Color Line also argues that there was no spare capacity for a new entrant at Torskholmen, and, therefore, that there was no room for potential new entrants during the period under examination, irrespective of Color Line’s exclusivity. It claims that it is highly unrealistic that a competing offer would have arisen out of services offered from the same harbour facilities in the absence of the exclusive harbour agreement. It refers in that context to the number of sailings required to make profitable the investments in tonnage etc., and to the times of day at which it is necessary to have departures in order to capture a sufficiently large market.316

344. Color Line has pointed out that the capacity at Torskholmen is limited for a number of reasons, including the fact that the environmental permit limits the number of calls to 2700 per year; the lining-up area accommodates a maximum of 220 cars; the traffic from the ferry landing to the E6 partly passes through central parts of Strömstad, creating heavy traffic problems; and that there are limited physical possibilities of developing Torskholmen and little political will to do so.

345. These arguments seem to be based on the premise that during the whole period that the exclusivity applied Color Line would have occupied the better part of the capacity at Torskholmen so that only a limited part of the total capacity would, in any case, have been available to a potential new entrant.317 That premise thus assumes a skewed allocation of the available capacity in favour of Color Line even in the absence of long-term exclusivity.

346. However, in an alternative situation with a non-exclusive agreement or with an exclusive agreement of shorter duration, the Municipality of Strömstad would have retained its freedom to grant other operators access to Torskholmen, at least at more regular intervals than every 25 years. In such a scenario, Color Line would not have had any right to expand its activities to the detriment of a potential new entrant. Nor would it have had an inherent right to maintain for the future all sailings it had operated in a previous period. Thus, such an

316 Event # 553056, Color Line’s Reply to the SO, paragraphs 824-836. 317 See, in particular, event # 553056, Color Line’s Reply to the SO, paragraph 858, where Color Line argues that “since Torskholmen only has space enough to receive one ferry at a time, a potential second operator would have to be granted access between Color Line’s departures”.

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alternative situation would have provided a possibility for introducing competition in the market, which was removed by Color Line’s exclusive agreement.

347. The premise on which Color Line builds its argument cannot therefore be accepted.

348. Moreover, the available evidence in the present case does not suggest that the total capacity available at Torskholmen, in the absence of Color Line’s long- term exclusivity, was insufficient to enable new entrants viably to operate routes to Norway from Torskholmen in competition with Color Line.

349. Firstly, during the period under examination, Color Line experienced a substantial increase in demand.318 From 1994 to 1999, for example, the number of passengers travelling on the route more than doubled from less than 600 000 to more than 1.2 million.319 Color Line’s activity on the route expanded significantly over time both in terms of the number of sailings320 and in terms of the size of vessels, number of passengers and cars per boat.321

350. This suggests that the capacity in the harbour was far from saturated when the harbour agreement was entered into in 1991, when the long-term exclusivity was obtained, or in 1994, when the EEA Agreement entered into force.

351. Secondly, Color Line had concrete plans to introduce a third ferry in Strömstad in response to the threat of new entry by Larvik-Strømstadlinjen in 2001, even after the capacity increases that Color Line had already introduced and in particular after the introduction of Color Viking on the route.322

352. Thirdly, after expiry of the initial 15-year term of the harbour agreement in December 2005, the Municipality of Strömstad granted Kystlink access to Torskholmen, for up to three daily departures,323 in spite of Color Line’s use of the harbour at that time (six sailings per day in peak season). Indeed, in a letter to Color Line in December 2003, the Municipality, referring to Torskholmen, stated that “there is space in the harbour”.324

318 See Section 3.4.4 above. 319 Event # 553056, Color Line’s Reply to the SO, paragraph 156. It is also recalled that the increase in demand during these years was largely the result of exogenous factors outside Color Line’s own control (see Section 3.4.4 above). 320 See Section 3.4.3 above. 321 See Section 3.5.3 above. 322 See paragraphs 179-180 above; see also event # 556818, p. 298, attachment 86 to Color Line’s Reply to the SO (letter from Color Line to Strömstad Municipality dated 24 April 2001 referring to the frequency of calls (“turtetthet”) and the plans to introduce a third ship from Strömstad). 323 Event # 413438, p. 1 (harbour agreement between the Municipality of Strömstad and Kystlink). See paragraphs 183 to 190 above. 324 Event # 407261, p. 12 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007. Unofficial translation from Swedish by the Authority: “och då plats finns i hamnen”).

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353. While Color Line has claimed, on the basis of the situation in summer 2007, that Kystlink’s service caused problems in relation to traffic jams, security, and deterioration of Color Line’s service due to the fact that Kystlink’s customers approached Color Line staff and used Color Line toilets,325 both Kystlink326 and the Municipality of Strömstad have stated that there were no operational problems resulting from the presence of two companies on the quay. The Municipality of Strömstad has stated that:

“no major problems have occurred. The smaller problems we have faced have been caused by co-ordination problems, not by the increased number of departures as such.”327

354. Indeed, as Color Line itself points out, after an initial provisional two-year period of access granted to Kystlink, on 17 June 2008 the Municipality of Strömstad decided that Kystlink would be granted continued access to Torskholmen.328 Thus, in the view of the Municipality, even in 2008, after two years of competing activity, there was still sufficient capacity to allow that activity to continue.329

355. Fourthly, Bastø-Fosen considered that the prospects of new entry on the route were good at the end of the 1990s,330 and around the year 2000 Larvik- Strømstadlinjen appeared willing to enter the market if it could obtain access to Torskholmen.331 It appears that both Bastø-Fosen and Larvik-Strømstadlinjen were planning to enter the market with a single vessel.332 Thus, there is no indication that entry with only one vessel was regarded by potential new entrants as not economically viable. It is recalled that Color Line enjoyed significant earnings on the route.333

325 Event # 451440, reply from Color Line dated 6 November 2007. However, Color Line does not explain why Kystlink’s one daily departure caused traffic jams “throughout the day” as it claims. 326 Event # 439592, reply from Kystlink dated 31 August 2007. 327 Event # 469954, reply from the Municipality of Strömstad dated 13 March 2008 (Unofficial translation from Swedish by the Authority: “Några större problem har inte uppstått. De små problem som uppstått har varit en följd av samordningssvårigheter, inte av det ökade antalet avgånger i sig.”). 328 See event # 553056, Color Line’s Reply to the SO, paragraph 882. 329 The Authority notes that there is no information available which suggests that Kystlink’s exit from the market in 2008 was the result of limited capacity at Torskholmen. 330 See paragraphs 173-176 above. 331 See paragraphs 177-182 above. 332 See, as regards Bastø-Fosen, event # 410203 (page 2 of Bastø-Fosen’s internal presentation of December 1999 shows that its net present value calculations was based on the premise that it would enter the market with one ferry). There is no information available which suggests that Larvik- Strømstadlinjen was considering entering the market with more than one ferry. 333 See Section 3.4.4 above.

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356. In addition, vessels used on sailings from Norway to Strömstad could also have been used on routes to other destinations. For example, that possibility was used by Kystlink.334

357. In conclusion, Color Line’s arguments relating to the extent to which there was spare capacity at Torskholmen for a new entrant must be rejected.

5.4.6.3 Color Line: capacity constraints led the Municipality to reject applications for harbour access

358. Color Line claims that it was circumstances relating to capacity constraints that led the Municipality of Strömstad to reject applications for harbour access at Torskholmen until Kystlink in December 2005, and not the exclusivity granted to Color Line in the harbour agreement.335

359. In this regard, it is observed firstly that Color Line’s claim is closely related to its argument that the Municipality did not feel bound by the exclusivity.336 The latter argument is dealt with in more detail in Section 5.4.7 below, which shows that the exclusivity was a significant complicating factor that the Municipality had to take into account when considering whether to grant potential new entrants access to Torskholmen.

360. Secondly, as regards the question of whether there was sufficient capacity at Torskholmen to accommodate two competing ferry operators, reference is made to the preceding Section 5.4.6.2.

361. Thirdly, as Color Line points out, in June 2001 the Environmental Administration concluded, after an overall assessment and after hearing Color Line and Larvik-Strømstadlinjen, that, given the circumstances at that time, co- location at Torskholmen would not be possible.337 However, that assessment took Color Line’s existing use of Torskholmen in 2001 as a starting point and as a given parameter. Further, it was noted that the exclusive harbour agreement with Color Line was a factor of importance for the assessment. It also seems that the introduction of a possible third Color Line vessel was factored into the considerations,338 precisely, it seems, because Color Line had an exclusive right to use Torskholmen. On the other hand, no weight seems to have been given to the consideration that maintaining Color Line’s long-term exclusive agreement might raise questions under competition law.

334 Kystlink sailed to Denmark during the night and Strömstad during the day with the same vessel. 335 Event # 553056, Color Line’s Reply to the SO, paragraphs 858-867. 336 See event # 553056, Color Line’s Reply to the SO, section 11.7. 337 Event # 556818, p. 296-305, attachment 86 to Color Line’s Reply to the SO; and event # 408737, p. 169-170, reply from Strömstad Municipality (analysis by the Environmental Administration dated 10 June 2001 addressed to the Environmental Committee). 338 Event # 556818, p. 304, attachment 86 to Color Line’s Reply to the SO, assessment by the Environmental Administration indicating, on the basis of information submitted to it by Color Line, that a Color Line route to Larvik might be introduced (“Color Line som idag trafikerar Sandefjord har ochså deklarerat att en lijne til Larvik can be aktuell”).

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362. Fourthly, as argued above, subsequent developments regarding Kystlink’s application for access to Torskholmen showed, in spite of Color Line’s use of the harbour at the time, that it was possible to let a new entrant have access to Torskholmen. At that later stage, the Municipality gave more weight to competition law concerns since Kystlink, when applying for harbour access in November 2003, had argued that Color Line’s exclusive access to Torskholmen was an infringement of competition law.

363. In conclusion, Color Line’s argument must be rejected.

5.4.6.4 The relevance of the Bronner case

364. Color Line argues that the consequence of the Authority’s arguments would be that Color Line would have had to relinquish or reduce its presence in Strömstad after a certain time in order to allow entry by other operators. It claims that that could only follow if access were absolutely necessary for operating on the relevant market; in such circumstances, the conditions laid down in the Bronner case law would apply,339 which, according to Color Line, are not fulfilled in the present case.340

365. However, in the present case, the question is not whether Color Line unilaterally refused to supply to its (potential) competitors a service necessary in order to develop a related market, which could be contrary to Article 54 EEA and, therefore, justify the application of the “essential facilities doctrine”. This case is one where the position that Color Line reserved itself, through its agreement with the Municipality of Strömstad, was capable of giving rise to a restriction of competition on the relevant market during the period under examination.341

366. In conclusion, Color Line’s Bronner argument is not relevant for the assessment in the present case.

5.4.6.5 Conclusion on the capacity at Torskholmen

367. In the light of all the above, Color Line’s arguments relating to the limited capacity at Torskholmen cannot be accepted.

368. The Authority notes in any event that, even if capacity had been saturated (quod non), that would not necessarily have removed the harbour agreement from the scope of Article 53(1) EEA due to the very lengthy duration of the exclusivity granted under that agreement. Color Line’s unrestricted right to capacity for such a long duration put it in a position that allowed it to exclude competition on the relevant market during a significant period of time.

339 Case C-7/97 Oscar Bronner [1998] ECR 7791. 340 Event # 553056, Color Line’s Reply to the SO, paragraphs 835 and 623-624. 341 See, to that effect, Case T-419/03 Altstoff Recycling Austria AG v Commission, judgment of 22 March 2011, not yet reported, paragraphs 104-110.

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5.4.7 The extent to which the Municipality of Strömstad considered itself bound by the exclusivity

369. Color Line argues that the Municipality of Strömstad never felt bound by the exclusivity in the harbour agreement and, therefore, that the agreement did not have any restrictive effect on competition. According to Color Line, the Municipality consistently acted as if it had a more wide-ranging right to let other ferry companies access Torskholmen, giving positive signals to several shipping companies, including Larvik-Strømstadlinjen, and granting access to Kystlink in December 2005 in violation of the agreement. Color Line claims that, to its knowledge, the harbour agreement has never been cited by the Municipality as an impediment to granting access to Torskholmen, which indicates that the exclusivity clause was not perceived by the Municipality as a restriction of its freedom to grant access to competing ferry companies.342

370. Those arguments cannot be accepted.

5.4.7.1 The circular nature of Color Line’s argument

371. Color Line’s argument that the Municipality never felt bound by the exclusivity is circular: Color Line does not dispute that there was a legally binding long- term agreement concluded between Color Line and the Municipality at the outset which granted Color Line exclusive access to Torskholmen. Color Line has further argued that that agreement was legally enforceable.343 It is obvious that the agreement, if legally enforceable, limited the Municipality’s freedom to grant other, competing ferry operators access to Torskholmen.

372. Moreover, the fact that one contracting party ultimately decides not to honour a contract which is in violation of the EEA competition rules does not imply that the other party escapes liability under Article 53 EEA.344

373. As regards Color Line’s claim that to its knowledge the harbour agreement has never been cited by the Municipality as an impediment to granting access to Torskholmen, it is noted that it is not a requirement under Article 53(1) EEA that one party to a written agreement has expressed to the other party, or to third parties, that the agreement in question is or has been an impediment to market access.

374. For these reasons alone, Color Line’s argument must be rejected.

5.4.7.2 Color Line’s arguments lack support in the available facts

375. Color Line’s claim that the Municipality consistently acted as if it had a more wide-ranging right to let other ferry companies access Torskholmen, in addition

342 Event # 553056, Color Line’s Reply to the SO, paragraphs 872-886. 343 As late as August 2008 Color Line maintained vis-à-vis the Municipality that the 1991 harbour agreement still gave it an exclusive right to Torskholmen. See event # 553056, Color Line’s Reply to the SO, paragraph 882. 344 See Case C-453/99 Courage v Crehan [2001] ECR I-6297.

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to being a circular argument as explained above, also lacks support in the available evidence.

376. First, Color Line asserts in this regard that the Municipality gave positive signals to several shipping companies, including Larvik-Strømstadlinjen. However, Color Line has not referred to any piece of evidence which supports the assertion that the Municipality gave such signals with respect to the use of Torskholmen in violation of the provisions of the 1991 harbour agreement.

377. Secondly, it appears from the evidence that the Municipality of Strömstad actively attempted to have the harbour agreement with Color Line amended and, in that regard, took initiative to remove the exclusivity and thereby make room for a second operator. The 1991 harbour agreement stipulated that Color Line’s special harbour fee rebate would come to an end in 2000 and that normal harbour fees would apply thereafter. When Color Line commenced negotiations with the Municipality of Strömstad in 2000 with a view to avoiding a substantial rise in its harbour fees, the Municipality was prepared to enter into a new agreement, subject to the exclusivity being removed.345

378. A draft agreement that would have entered into force on 1 January 2001 was approved by the Municipal Assembly on 21 December 2000 in that regard.346 However, although the Municipality had understood that Color Line had accepted the new agreement, Color Line pressed for amendments and required that its exclusive access to Torskholmen be maintained.347 At the time, the Municipality explained to a local newspaper that it would not “for yet another period accept something which may be perceived as a monopoly for Color Line”,348 and referred to the fact that the Municipality had to take EU competition law into account.349

379. Nevertheless, the outcome of the negotiations with Color Line was that the 1991 harbour agreement, including the exclusivity, was maintained, but that Color Line accepted to pay higher harbour fees.350

345 Event # 432050, p. 1 and 3 et seq, reply from Strömstad Municipality dated 29 July 2007. 346 Event # 401822, p. 57-60, reply from Color Line dated 4 December 2006, annex 9. 347 Event # 401822, p. 66 (e-mail from Strömstad Municipality to Color Line dated 8 March 2001 referring (inter alia) to Color Line’s request that paragraph 7 of the 1991 harbour agreement (the exclusivity clause) be transferred to the new agreement and responding that politically that would not be possible, and stating that it was very regrettable that such important issues in relation to the agreement were raised in “added time”, and asking whether Color Line intended to sign the agreement which “everybody thought had been accepted by the company”); event # 432050, reply from Strömstad Municipality dated 29 July 2007, p.1 (reply to question 2) and p. 17-18 (correspondence between the Municipality and Color Line). 348 Event # 401822, p. 70, reply from Color Line dated 4 December 2006, annex 9 (Strömstad Tidning Tuesday 20 March 2001, unofficial translation from Swedish by the Authority: “Kommunen vill inte för en ny period gå med på något som kan tydas som ett monopol för Color Line.”). 349 Event # 401822, p. 71. 350 Those fees were considerably higher than the harbour fees it had paid previously. Color Line states that it paid between NOK 11.9 and 15.2 million in harbour fees annually from 2001. From 1996 to

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380. While the Municipality’s efforts to remove the exclusivity at this stage failed, Color Line’s claim that the Municipality consistently acted as if it had a more wide-ranging right to let other ferry companies access Torskholmen is not supported by this turn of events.

381. Thirdly, the Environmental Administration of the Municipality of Strömstad assessed in a memorandum to the Environmental Board, dated 10 June 2001, whether it would be possible to have more ferry operators at Torskholmen. In that regard, mention was made of the harbour agreement with Color Line as a factor of importance for the assessment.351

382. Fourthly, in finding in 2001 that neither Bastø-Fosen nor Larvik- Strømstadlinjen could have obtained access to Torskholmen, in spite of the fact that at least the latter company had actively attempted to obtain such access, the City Court of Oslo referred to Color Line’s exclusive agreement as a factor of relevance in that regard.352

383. Thus, prior to granting Kystlink’s application for harbour access at Torskholmen in December 2005, the Authority cannot see how the available evidence supports Color Line’s claim that the Municipality acted as if it had a right to grant other ferry companies access to Torskholmen.

5.4.7.3 Color Line actively invoked its exclusivity with a view to preventing Kystlink from obtaining access to Torskholmen and entering the relevant market

384. It is recalled that when Kystlink applied for harbour access in Strömstad Color Line vigorously defended its long-term exclusive agreement before the Municipality, seeking to maintain its exclusivity and thereby prevent Kystlink from entering the market (see paragraphs 186-187 above). Events around that period show that the Municipality respected its agreement with Color Line until it determined, towards the end of 2005, that the exclusivity provisions infringed the competition rules.

385. When Kystlink applied for harbour access in November 2003, it maintained that Color Line’s exclusive access to Torskholmen was contrary to competition law.353 This led the Environmental Administration of the Municipality of Strömstad to write to Color Line on 4 December 2003, after receiving Kystlink’s application for access to Torksholmen, informing Color Line that:

2000 it paid around NOK 1.6 million (annex 10.2 to Color Line’s reply of 4 December 2006, event # 401815). 351 Event # 556818, p. 304, attachment 86 to Color Line’s Reply to the SO; and event # 408737, p. 169- 170, reply from Strömstad Municipality (analysis by the Environmental Administration dated 10 June 2001 addressed to the Environmental Board). 352 Event # 410205, p. 42-43 of the judgment (“Etter avtalens pkt. 7 har kommunen ikke rett til å bestemme at ilandkjøringsanlegg for biler og biloppstillingsplasser skal benyttes av konkurrerende fergevirksomhet”). 353 Event # 407261, p. 12 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007).

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“As the Municipality understands, [Kystlink] claims that this provision [paragraph 7 of the Arrendeavtal] is contrary to competition law. [Kystlink] has submitted a memorandum with extracts from the Swedish Competition Act and its preparatory works regarding Articles 6, 7, concerning prohibited restrictions of competition and 19, concerning abuse of a dominant position.

The Municipality’s preliminary assessment is that the provision in the Arrendeavtal constitutes a restriction of competition and is invalid. In such a case and as there is space in the harbour [Kystlink] can despite the Arrendeavtal not be denied the right to call at the harbour and to use the quay and the ramp.”354

386. In a letter dated 9 January 2004, Color Line replied to the Municipality, referring to the 1991 agreement and maintaining its exclusivity. It claimed that:

“The agreement is binding on the Municipality until ordinary expiration, possibly until it has been ultimately determined that the agreement is invalid because it is contrary to the law.”355

387. In its letter, Color Line submitted a number of arguments pertaining to Swedish and EU competition law, together with a legal opinion in support of its position.356 Color Line concluded that it would be consistent with applicable EU law if the Municipality acted in accordance with the 1991 agreement and dismissed Kystlink’s application for harbour access.357

388. On 4 February 2004, the Municipality obtained its own legal opinion, which disagreed with Color Line’s arguments and legal opinion, concluding that:

“The municipality cannot for these reasons refuse [Kystlink] access to the quay and the ramp in the harbour. In case of refusal, the Municipality would risk being sued by [Kystlink] before the competition authorities, the imposition of fines and damages. We consider that a possible suit by Color Line against the

354 Event # 407261, p. 12 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007 – Kystlink is referred to as “UL” by the Municipality, a reference to RAUL, which was acquired by Kystlink in 2004-2005 (see paragraph 7 above). Unofficial translation from Swedish by the Authority: “Som kommunen förstår påstår UL att denne bestämmelse [p. 7] är i strid med konkurrensrätten. UL har ingett ett PM med utdrag av den svenska konkurranslagen och dess förarbeten avseende paragraferna 6, 7 avseende förbjudna konkurransbegränsningar och 19 avseende missbruk av dominerande ställning. Kommunens preliminära bedömning är att betstämmelsen i arendeavtalet utgör en konkurrensbegränsning och därmed är ogiltig. Vid sådant förhållande och då plats finns i hamnen kan UL trots arrendeavtalet inte nekas rätt att anlöpa hamnen och använda kaj och ramp. ”). 355 Event # 407261, p. 16-36 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Norwegian: “Avtalen er bindende for kommunen frem til ordinært utløp, eventuelt frem til det er endelig fastsatt at avtalen er ugyldig fordi den strider med lov.”). 356 Event # 407261, p. 37-43 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, p. 21 of Color Line’s letter). 357 Event # 407261, p. 36 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007).

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Municipality for breach of contract and damages would, under these circumstances, be unsuccessful.”358

389. In a letter to the Municipality dated 12 March 2004, Color Line maintained its exclusive rights under the 1991 agreement.359 Notwithstanding Color Line’s stance, on 16 March 2004, after having received comments from its own legal expert to Color Line’s latest submission,360 the Municipal Technical Board decided that:

“There cannot be regarded to exist any legal impediment to allowing other shipping companies to have access to the ferry berth at Torskholmen.”361

390. In a letter dated 16 April 2004 to the Municipality, Color Line claimed that the decision of the Technical Board was wrong. It maintained that a municipal decision could not change the content of an agreement that had been entered into, that the question should be resolved by an independent body, in principle a court, and that the decision of 16 March 2004 by the Technical Board could not, in Color Line’s view, be regarded as more than a non-binding expression as to how the agreement was to be understood when assessed in the light of the applicable law.362 Color Line also stated that:

“We assume that Strömstad Municipality at a later stage […] will decide on the question whether [Kystlink] will be allowed to call at Torskholmen. This possible decision will, as we understand, imply something completely new and different compared to the decision that was adopted on 16 March 2004. Color Line retains its right to seek full legal review of such a new possible decision as soon as it is available.”363

358 Event # 407261, p. 51-54 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Swedish: “Kommunen kan av dessa skäl inte vägra att ge [Kystlink] tillträde till kaj och ramp i hamnen. En vägran skulle riskera en talan av [Kystlink] mot kommunen hos konkurrensmyndigheterna, utdömande av böter liksom skadestånd. En ev. talan av Color Line mot kommunen för kontraktsbrott och skadestånd skulle vi under dessa förhållanden inte bedöma som framgångsrik.”). 359 Event # 407261, p. 55-65 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007). 360 Event # 407261, p. 66-67 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007). 361 Event # 407261, p. 69 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation from Swedish by the Authority: “Att det ej kan anses föreligga något juridiskt hinder att låta andra rederier anlöpa färjeläget på Torskholmen.”). 362 Event # 407261, p. 73 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007). 363 Event # 407261, p. 69 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007 – Kystlink is referred to as “RABUL” by Color Line, a reference to RAUL, which was acquired by Kystlink in 2004-2005 (see paragraph 7 above). Unofficial translation from Norwegian by the Authority: “Vi antar at Strømstad commune på et senere tidspunkt […] vil ta stilling til spørsmålet om RABUL tillates å anløpe Torskholmen. Dette eventuelle vedtak vil etter det vi kan forstå innebære noe helt nytt og annet i forhold til det vedtak som ble fattet 16. mars 2004. Color Line forbeholder seg retten til å søke en full rettslig overprøving av dette nye eventuelle vedtaket så snart det foreligger.”).

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391. During the process of designating a lining-up area for cars for the use of Kystlink, Color Line wrote to the Municipality on 18 May 2004,364 referring to such designation as a first step towards:

“a conscious and planned breach of contract on the part of the Municipality.”365

392. It stated further that:

“Strömstad Municipality has in its agreement with Color Line undertaken to refrain from allowing competing ferry activity at Torskholmen. The agreement is still in force. Color Line will act in accordance with the agreement unless and until a court has confirmed that it is not compatible with the law.”366

393. Minutes from a meeting of the Municipal Technical Board on 5 October 2004 stated that:

“Work is ongoing in order to establish, together with judicial expertise, the consequences of the existing agreement with Color Line in relation to the legal conclusions which have been stated previously regarding the deviation from applicable legislation.”367

394. In minutes from a meeting of the Municipal Technical Board on 14 December 2004 it was stated that:

“The legal status regarding the existing agreement with Color Line is subject to further assessment.”368

395. In a letter to the Municipality on 18 July 2005, Color Line requested a 10-year extension of the 1991 harbour agreement on the basis of its rights under that agreement.369

364 Event # 407261, p. 76-78 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007). 365 Event # 407261, p. 76 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Norwegian: “Som første skritt på veien mot et bevisst og planlagt kontraktsbrudd fra kommunens side.”). 366 Event # 407261, p. 76 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Norwegian: “Strømstad kommune har i sin avtale med Color Line forpliktet seg til å avstå fra å tillate konkurrerende fergevirksomhet fra Torskholmen. Avtalen løper fortsatt. Color Line forholder seg til avtalen helt til det eventuelt endelig er fastslått av en domstol at den ikke er forenlig med lovgivningen.”). 367 Event # 407261, p. 86 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Swedish: “Arbete pågår att tillsammans med juridisk kompetans utröna konsekvenserna av befintligt avtal med Color Line i förhållande till de juridiska slutsatser som angivits tidligare angående diskrepansen i förhållande till gällande lagstiftning.”). 368 Event # 407261, p. 92 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Swedish: “Rättsläget avseende befintligt avtal med Color Line utreds vidare.”). 369 Event # 407261, p. 109 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007).

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396. On 2 December 2005, the Municipal Technical Board informed Color Line that the harbour agreement needed to be adjusted in respect of the exclusivity clause because it considered that that clause infringed Article 81 EC (now Article 101 TFEU).370

397. On 12 December 2005, Color Line sent two letters to the Municipal Technical Board. The first letter, which concerned Kystlink’s application for harbour access and Color Line’s exclusive right to operate ferry services at Torskholmen, stated that:

“The Municipality takes on a considerable responsibility if it adopts a decision which is in breach of the agreements entered into and which is not necessary in relation to EU Law. Color Line will if necessary protect its interests”.371

398. The second letter concerned Color Line’s request for renewal of the 1991 harbour agreement. Referring to its right to extend the agreement for a further 10-year period, Color Line maintained that the extension had already been granted since the Municipality had confirmed receipt of Color Line’s written request for an extension. It also stated that:

“The draft contract that the Municipality has sent to Color Line contains on some points significant deviations from the existing contract. The most significant [point] is that Color Line’s exclusive right to operate ferry services at Torksholmen is removed. The Municipality knows that Color Line cannot accept this amendment. The Municipality’s draft is based on an understanding of the law which Color Line disagrees with.”372

399. On 19 December 2005, Color Line’s lawyers informed the Municipality that if it did not confirm that the 1991 harbour agreement was still applicable Color Line would sue the Municipality in order to have that established. With regard to Kystlink’s application for access to Torskholmen, the Municipality was informed that Color Line would take legal measures in the event of a breach of contract, including claiming damages.373

400. On 21 December 2005, just prior to expiry of the initial 15-year term of the 1991 agreement, the Municipal Assembly of Strömstad decided to grant Kystlink’s application for access to Torskholmen for a two-year trial period (see

370 Event # 407261, p. 129 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007). 371 Event # 407261, p. 124-125 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Norwegian: “Kommunen påtar seg et betydelig ansvar hvis den fatter et vedtak som bryter med inngåtte avtaler og ikke er nødvendig i forhold til EU- retten. Color Line vil om nødvendig beskytte sine interesser.”). 372 Event # 407261, p. 127-128 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007, unofficial translation by the Authority from Norwegian: “Utkastet til kontrakt som kommunen har oversendt til Color Line inneholder på enkelte punkter vesentlige avvik fra gjeldende kontrakt. Det mest vesentlige er at Color Lines eksklusive rett til å drive fergevirksomhet på Torskholmen er tatt vekk. Kommunen vet at Color Line ikke kan akseptere denne endringen. Kommunens utkast til kontrakt baserer seg på en lovforståelse som Color Line er uenig i.”). 373 Event # 407261, p. 142 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007).

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paragraph 47).374 Reference was made to the examination that had been made of EU competition law. One premise for the decision was that the Municipality could not prevent competitive activity, and that access to Torskholmen had to be given to other operators if space was available.375

401. Consequently, when Kystlink applied for harbour access in November 2003, Color Line’s exclusivity enabled it to put the Municipality under considerable pressure with a view to preventing Kystlink from entering the market. The exclusivity was therefore a significant complicating factor that the Municipality had to, and did, take into account when considering whether to grant potential new entrants access to Torskholmen. In the absence of the exclusive harbour agreement it would have been easier for a potential new entrant to gain access to Torskholmen. The exclusivity was therefore an impediment to new entry at least until the decision of the Municipal Assembly on 21 December 2005 granting Kystlink’s application.376

5.4.7.4 Conclusion

402. In the light of all the above, Color Line’s arguments to the effect that the exclusive harbour agreement did not have any restrictive effects on competition because the Municipality never felt bound by the exclusivity must be dismissed.

5.4.8 The tax-free regime prior to 1 June 2002

403. In Section 11.4 of the Reply to the SO, Color Line maintains, with reference to the Suiker Unie and Daimler Chrysler cases,377 that it is settled case law that where a market is regulated in such a way that competition is excluded, agreements or concerted practices which could have had restrictive effects, do not fall within the scope of Article 53 EEA. The reason is, according to Color Line, that no causal relationship can be established between the conduct of private parties and the absence of competition.

404. Color Line claims that the Norwegian authorities rejected all applications for tax-free licences other than Color Line’s application until 1 June 2002, and that this amounted to a “practice” that represented an absolute barrier to entry prior to that date, irrespective of Color Line’s long-term exclusivity. It also claims that the Swedish authorities rejected all applications for tax-free licences prior to 1 June 2002.

374 Event # 407261, p. 141 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007). 375 Event # 407261, p. 148-154 (attachment 2 to reply from Strömstad Municipality dated 22 January 2007). 376 The Authority notes that if the Municipality had succumbed to Color Line’s pressure in relation to Kystlink’s application, Color Line would successfully have prevented new entry to the market. The fact that Color Line’s efforts in that regard were unsuccessful does not in any way exonerate Color Line from liability under Article 53 EEA. 377 Joined Cases 40 to 48, 50, 54 to 56, 111, 113 and 114-73 Suiker Unie and others v Commission [1975] ECR 1663; Case T-325/01 DaimlerChrysler v Commission [2005] ECR II-3319.

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405. Thus, according to Color Line, even without the harbour agreement, new entry on the relevant market would have been impossible before 1 June 2002, when the tax-free regulations were changed; therefore, in Color Line’s view, the harbour agreement could not have had any restrictive effects on competition in the relevant market contrary to Article 53(1) EEA.378

406. The tax-free regime and the approach of the Norwegian authorities in respect of applications for tax-free licences are discussed in detail in Section 3.6 above.379 The tax-free regime was recognised as a barrier to entry in Section 5.4.3 above.

407. However, the Authority cannot agree with Color Line’s arguments.

408. According to settled case law, an agreement or conduct which restricts competition and which normally would be caught by Article 53(1) EEA can, in exceptional circumstances, nevertheless fall outside the scope of Article 53(1).

409. That case-law was recently summarised by the ECJ in Deutsche Telekom:

“According to the case-law of the Court of Justice, it is only if anti-competitive conduct is required of undertakings by national legislation, or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, that Articles [101 TFEU] and [102 TFEU] do not apply. In such a situation, the restriction of competition is not attributable, as those provisions implicitly require, to the autonomous conduct of the undertakings. Articles [101 TFEU] and [102 TFEU] may apply, however, if it is found that the national legislation leaves open the possibility of competition which may be prevented, restricted or distorted by the autonomous conduct of undertakings…

The possibility of excluding anti-competitive conduct from the scope of Articles [101 TFEU] and [102 TFEU] on the ground that it has been required of the undertakings in question by existing national legislation or that the legislation has precluded all scope for any competitive conduct on their part has thus been accepted only to a limited extent by the Court of Justice...

Thus, the Court has held that if a national law merely encourages or makes it easier for undertakings to engage in autonomous anti-competitive conduct, those undertakings remain subject to Articles [101 TFEU] and [102 TFEU]…”.380

410. It follows from this case-law, firstly, that Article 53 does not apply if national legislation requires undertakings to act anti-competitively. Secondly, it follows

378 Event # 553056, Color Line’s Reply to the SO, paragraphs 779-810. 379 Event # 553056, Color Line’s Reply to the SO, paragraphs 261-301. In its Reply, Color Line provides an extensive overview of the tax-free regulations and the alleged “practice” of the Norwegian authorities in that regard. In a position paper dated 6 May 2011, submitted to the Authority prior to a meeting with the Authority on 11 May 2011, Color Line essentially repeats its main arguments in relation to the tax-free regime. 380 Case C-280/08 P Deutsche Telekom v Commission, judgment of 14 October 2010 (not yet published), paragraphs 80-82.

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that Article 53 does not apply if national law creates a legal framework which eliminates any possibility of competitive activity on the part of the undertakings in question.

411. Conversely, Article 53 remains applicable if it is found that the national legislation at issue does not preclude undertakings from engaging in autonomous anti-competitive conduct, but merely facilitates or encourages such conduct. Consequently, if national law merely encourages or makes it easier for an undertaking to engage in autonomous anti-competitive conduct, the undertaking remains subject to the EEA competition rules and may incur penalties for infringing those rules.381

412. The Authority notes that the possibility of excluding specific anti-competitive conduct from the scope of Article 101(1) TFEU or Article 53(1) EEA on the grounds described above has been applied restrictively by the European Courts.382 The scope of application of this “state compulsion” doctrine, as it is often referred to, has been characterised as an “exclusion” which is extremely narrow.383

413. When applying this case law, the Courts have emphasised the extent to which the anti-competitive conduct is the result of the autonomous conduct of the undertakings in question, or, put differently, whether the anti-competitive conduct is engaged in “on their own initiative”.384 Consequently, in Deutsche Telekom the question was whether the appellant had “scope to avoid” the anti- competitive margin squeeze at issue in that case, and, in particular, whether the German legal framework during the period at issue removed any possibility of competitive conduct by the appellant or whether it gave the appellant sufficient scope to set its prices at a level which would have enabled it to end or reduce the margin squeeze identified by the Commission.385

414. It is undisputed that the national legislation in place prior to June 2002 at issue in this case did not require Color Line to enter into a long-term exclusive harbour agreement. The question is therefore whether the national legislation in place prior to June 2002 created a legal framework which eliminated any possibility of competitive activity such that the restriction of competition established in this Decision would not be attributable to Color Line.

381 Case C-198/01 Consorzio Industrie Faimmifieri [2003] ECR I-8055, paragraphs 56-57. 382 Joined Cases 209/78 to 215/78 and 218/78 Van Landewyck and Others v Commission [1980] ECR 3125, paragraphs 130 and 133; Joined Cases 240/82, 241/82, 242/82, 261/82, 262/82, 268/82 and 269/82 Stichting Sigarettenindustrie and Others v Commission [1985] ECR 3831, paragraphs 27 to 29; and Case T-387/94 Asia Motor France and Others v Commission [1996] ECR II-961, paragraphs 60 and 65. 383 See, for example, Faull & Nikpay, The EC Law of Competition, second edition, p. 217 (Oxford 2007). 384 Joined Cases C-359/95 P and C-379/95 P Commisson and France v Ladbroke Racing [1997] ECR I- 6265, paragraph 33. 385 Case C-280/08 P Deutsche Telekom v Commission, judgment of 14 October 2010 (not yet published), paragraphs 56, 84-89.

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415. The legal framework at issue did not in any way limit Color Line’s freedom to act in concluding and maintaining its long-term harbour agreement with the Municipality of Strömstad entered into in 1991. That legal framework did not therefore preclude all scope for competitive activity on the part of Color Line.

416. As in Deutsche Telekom, therefore, Color Line had sufficient “scope to avoid” the anti-competitive conduct in question. For these reasons, the Authority is of the view that Article 53 EEA applies to the anti-competitive conduct at issue in the present case.

417. Even if the case law cited by Color Line could be applied to a situation where the legal framework as such is unrelated to the anti-competitive conduct on the part of the undertaking concerned, the Authority considers that the Norwegian tax-free legislation did not create a legal framework which itself eliminated any possibility of competitive activity on the relevant market.

418. The Authority is of the view that even if both harbour access and a tax-free licence for long routes were necessary in order to enter the relevant market, the Norwegian tax-free regime left open “the possibility of competition”: it did not in any way prevent the Norwegian authorities from issuing licences to applicants other than Color Line. The Norwegian authorities had a margin of appreciation and were required to examine each application on its merits before reaching a decision. Indeed, as Color Line points out in its Reply to the SO (paragraphs 290-291), it had itself to apply for an extension of its tax-free licence every year from the end of 1992 to the end of 1998: the Norwegian authorities could have denied Color Line an extension and granted a similar licence to another operator. Thus, it could not be known with any certainty in advance how an individual application would be treated.

419. The conduct of the Norwegian authorities, which Color Line describes as an administrative “practice”, can only be described in such a way with hindsight. It could not be known during the period under examination whether, and if so for how long, such an approach would be maintained: even if there had been a series of negative findings in the past, it was always possible for the authorities to take a different position in respect of a given application. Thus, there was uncertainty as to the outcome of future applications for a tax-free licence throughout the relevant period. Indeed, applicants such as Bastø-Fosen are unlikely to have applied for a licence if it had been certain that their applications would be rejected.

420. In that regard, Color Line’s conduct in relation to the threat of new entry on the relevant market, described in detail in Sections 5.4.3 and 5.4.4 above, illustrates the length to which Color Line was willing to go in order to protect its market position and demonstrates that the applicable legal framework did not “preclude all scope for any competitive conduct”. Color Line was not granted a legal monopoly to operate on the relevant market. On the contrary, it faced a competitive threat from potential new entrants and had an interest in

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maintaining its exclusive access to Torskholmen so as to foreclose the relevant market in order to fend off that competitive threat.386

421. Color Line enclosed with its Reply to the SO a letter from Bastø-Fosen to the Norwegian Ministry of Finance dated 22 March 1999,387 claiming that that letter shows that Bastø-Fosen regarded the Ministry’s “practice” as an absolute barrier to entry.388 However, the letter is an appeal against the Ministry’s decision not to grant Bastø-Fosen a tax-free licence. Therefore, it does not concern the effects of a general practice but the effects of the specific decision addressed to Bastø-Fosen, which was binding upon that company.

422. Indeed, Bastø-Fosen argues in the letter that:

“[B]ased on the earlier exemptions granted to Scandi-Line, Bastø-Fosen had, in our opinion, a legitimate expectation that the application be subject to equivalent treatment as Scandi-Line’s earlier applications, which would entail that, as a consequence of earlier practice, it be granted a ‘long route status’ and the application would appear to be a mere formality”.389

423. Consequently, contrary to what Color Line claims, the negative decisions adopted by the Ministry in respect of applicants other than Color Line were not perceived either by Color Line itself or by market players at the time as amounting to a “practice” constituting an absolute barrier to entry.

424. Thus, while it may be true that during the period prior to June 2002 for as long as no other undertaking was granted a similar tax-free licence to that obtained by Color Line it was in an advantageous situation and was protected against effective competition, Color Line never knew how long the beneficial treatment it had been given would be maintained. The risk that a new entrant would be granted a tax-free licence that would enable it to enter the relevant market, provided harbour access could be obtained, was always present. New entry was therefore a potential threat to Color Line throughout the relevant period. Color Line therefore had a clear incentive to protect its market position against that threat.

425. It also follows that the potential competitive pressure on Color Line would have been greater in the absence of its long-term exclusivity in Torskholmen, because the likelihood of potential new entry would have been greater.

386 The Authority notes that it was stated explicitly in the 1991 harbour agreement that Torskholmen should not be made available to “competing ferry activities”. This shows that Color Line was concerned about the competitive threat from the outset. 387 Event # 556818, annex 76 to Color Line’s Reply to the SO. 388 Event # 553056, Color Line’s Reply to the SO, paragraph 787. 389 Event # 556818, annex 76 to Color Line’s Reply to the SO (unofficial translation from Norwegian by the Authority: “På bakgrunn av ScandiLines tidligere innvilgelser, hadde Bastø Fosen etter vår mening en berettiget forventning om at søknaden ble undergitt tilsvarende behandling som Scandi Lines tidligere søknader, her under at ruten som en konsekvens av tidligere praksis var klassifisert som lang rute, slik at søknaden i realiteten kun fremstod som en formalitet.”).

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426. In addition, it was always possible for an applicant to challenge a negative decision by the Norwegian authorities before the courts, as Bastø-Fosen did successfully in 2001. If an applicant had secured viable harbour access it would have had increased incentives to challenge before the courts a refusal to grant a tax-free licence, in particular in view of the fact that damages would in principle have been available.

427. The arguments set out above apply equally to Color Line’s submissions in relation to the rejection by the Swedish authorities of applications for tax-free licences prior to June 2002.390 In addition, as described in Section 3.6.2.1 above, the tax-free regulations are founded on a treaty between Norway and Sweden (and Denmark and Finland). The content of the Norwegian and Swedish tax- free regulations as regards tax-free licences were therefore essentially the same, and changes in the regulations were normally made at the same time, and as a result of cooperation between the two countries.391

428. In the light of the above, despite the existence of the applicable tax-free regime and the way in which it was administered, Color Line had a genuine interest in protecting itself against potential new entry by securing long-term exclusive access to the only public harbour in Strömstad. The foreclosure effect that Color Line’s long-term exclusivity gave rise to therefore restricted competition within the meaning of Article 53(1) EEA also prior to June 2002.

429. It follows that Color Line cannot rely on the case law relating to the attributability of competition law infringements, referred to above, in order to escape liability under the EEA competition rules in respect of the anti- competitive long-term harbour agreement at issue.

430. In the light of all the above, Color Line’s arguments relating to the applicable tax-free regime prior to 1 June 2002 must be rejected.

5.4.9 Counter-factual

431. Color Line argues that the Authority did not, in its SO, substantiate any alternative competition scenario without the long-term exclusivity, as required by the case law. It argues that a concrete assessment must be made of how market conditions would have developed without the long-term exclusivity. It claims that the Authority failed in its SO to perform any counterfactual analysis and that its statements regarding the alternative scenario were limited to mere claims to the effect that the harbour agreement had a foreclosing effect because de facto there was limited entry on the market, and that this was due to the

390 Event # 553056, Color Line’s Reply to the SO, paragraph 302, and event # 556768, attachment 37. Color Line refers to only three decisions of the Swedish authorities. In two of those decisions, it is stated that the application was decided after consultation with the Norwegian authorities. Thus, if the Norwegian position had been different, it seems likely that the Swedish authorities would have followed suit, in particular in view of the fact that the traffic on the route was mainly from Norway to Sweden, and, therefore, the potential loss of tax revenues due to increased tax-free sales and border trade much greater for Norway than for the Sweden. 391 Indeed, this is clear from Color Line’s description of the tax-free regime in both countries in its Reply to the SO, event # 553056, paragraphs 261-301.

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harbour agreement. In Color Line’s view, the Authority’s assessment does not allow for other causes/barriers in the market that have led to there being no new entry on the relevant market.392

432. Those arguments cannot be accepted. As regards the requirement for a counterfactual, in the recent O2 case the European Court of First Instance held that:

“…the effects of the agreement should be considered and for it to be caught by the prohibition it is necessary to find that those factors are present which show that competition has in fact been prevented or restricted or distorted to an appreciable extent. The competition in question must be understood within the actual context in which it would occur in the absence of the agreement in dispute; the interference with competition may in particular be doubted if the agreement seems really necessary for the penetration of a new area by an undertaking...

The examination required in the light of Article [101(1) TFEU] consists essentially in taking account of the impact of the agreement on existing and potential competition (see, to that effect, Case C-234/89 Delimitis [1991] ECR I-935, paragraph 21) and the competition situation in the absence of the agreement (Société minière et technique at 249-250), those two factors being intrinsically linked”.393

433. First, the Authority notes that in the present case, unlike in O2, it has not been established (or argued) that the long-term exclusivity entered into by Color Line allowed entry into the market of a competing undertaking. On the contrary, the effect of the exclusivity was to foreclose potential competitors from the relevant market.394

434. In any event, the Authority has, in this Decision (and in the SO), carried out a thorough analysis of the effects of the conduct at issue and concluded that potential competition has been prevented. In the Authority’s view, in the light of the characteristics of the market in question, the entry of a new player would have created scope for further competition in a market distinguished by an extremely high degree of concentration – that is, by monopoly.395

435. Indeed, in the SO the Authority referred to the impact of Kystlink’s entry into the market in 2006. While Kystlink commenced operations with only one daily sailing (although it was permitted to operate up to three daily sailings), for consumers Kystlink’s entry nevertheless meant an increase in the number of

392 Event # 553056, Color Line’s Reply to the SO, section 11.2.1. In its position paper dated 6 May 2011, submitted to the Authority prior to a meeting with the Authority on 11 May 2011, Color Line essentially repeats the arguments summarised in this Section. 393 Case T-328/03 O2 (Germany) [2006] ECR II-1231, paragraphs 66-72. 394 See, to that effect, Case T-419/03 Altstoff Recycling Austria AG v Commission, judgment of 22 March 2011 (not yet published), paragraph 79. 395 See, in that regard, Case T-461/07 Visa Europe Ltd and Visa International Service v Commission, judgment of 14 April 2011 (not yet published), paragraphs 131 and 195.

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sailings (since Color Line did not reduce its activity in response to new entry). In addition, there was an almost immediate impact on prices. Color Line lowered its prices in the tax-free shops aboard its ferries: in November 2006, just a fortnight after Kystlink started sailing, Norwegian newspaper Verdens Gang compared the two companies with respect to, inter alia, prices and service. The newspaper reported that a sign was put up on board Color Line’s ferries, informing passengers that “We have reduced our prices on strong liqueur, fortified wine and tobacco as of 1 November 2006”,396 that is, as of the date on which Kystlink started sailing. Color Line itself has confirmed that, following entry by Kystlink, it “reduced prices on liquor, fortified wine and tobacco. The price reduction was necessary to meet the strong competition from Kystlink with aggressive price reductions.”397

436. While there is insufficient evidence to determine whether Color Line’s response was simply the aggressive response of the incumbent operator seeking to protect its position, or whether it felt a real competitive constraint imposed by Kystlink (in particular in light of Kystlink’s limited service and the fact that Kystlink exited the market after only two years),398 as soon as Kystlink entered the market customers benefited from lower prices and increased output.

437. The Authority also concludes that the restrictive clauses at issue were not necessary for the penetration of the market by Color Line, in particular in the light of the limited investments it made on the route. Finally, the Authority also carefully assesses the other barriers in the market that Color Line alleges contributed to the lack of new entry in the relevant market during the relevant period. In particular, it has concluded that the tax-free regime in place until 2002 did not amount to an absolute barrier to entry (Section 5.4.8 above).

5.4.10 Color Line’s harbour agreements with Norwegian ports

438. The Authority considers that Color Line’s long-term exclusivity in Torskholmen is sufficient to find an infringement of Article 53(1), given that in order to operate a route that competed with Color Line access to harbours in both Sweden and Norway was necessary.

439. Color Line also entered into long-term exclusive arrangements on the Norwegian side of the route, with the Municipality of Sandefjord. The first formal written agreement entered into by Color Line (at the time Scandi Line

396 Event # 540104, article from Verdens Gang of 15 November 2006 (unofficial translation from Norwegian by the Authority: “Vi har redusert våre priser på sprit, hetvin og tobakk fra 1. november”). 397 Event # 430419, reply of Color Line dated 19 July 2007, p. 26. 398 Color Line’s own assessment in its Reply to the SO is to the effect that the very limited time period during which Kystlink operated on the market “is far from sufficient to give a definite picture of what the effect on prices and production with competition on the market would become over time”. It also states that, in its view, “the adjustment of prices and production that took place after Kystlink’s entry, was far from representative of a sustainable price level in the market over time”, event # 553056, Color Line’s Reply to the SO, paragraphs 1107-1108.

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AS) with the Municipality of Sandefjord was in 1991.399 The duration of the agreement was 15 years; thereafter, Color Line was entitled to a further 10-year term.

440. Pursuant to clause 13 of the agreement, the Municipality undertook not to enter into agreement with any third parties concerning landing rights for car or passenger ferries on routes between Sandefjord and destinations on the Swedish coast situated between the Norwegian border and Gothenburg, as long as Color Line’s ferry activities were operated in a satisfactory manner.

441. Upon expiry of the initial term of the agreement in early 2006, on Color Line’s initiative a new 10-year agreement was entered into, with a right to a further 10- year extension upon expiry.400 Under that new agreement, Color Line enjoys an exclusive right to use the areas and facilities rented out under the agreement.

442. In addition, the public harbour of Larvik, located 20 km to the south of Sandefjord, has been used by Color Line for routes to Denmark for many years. The Authority understands that Color Line’s predecessor, Larvik- Frederikhavnferjen,401 which was acquired by Color Line in 1997, entered into an agreement in Larvik in 1985, of 25 years’ duration, for the lease of a terminal building and the ramp and quay in Larvik Central Harbour, with a view to providing ferry services on the route between Larvik and Hirtshals in Denmark.402

443. In its Reply to the SO, Color Line does not “exclude that it would be possible to develop the western harbour area [of Larvik], on the inside of the western berth, for ferry operations”. Even though the entire harbour was limited to the north by the railway, there were, according to Color Line, areas westwards towards the Fritzøe berth that seemed adequate as lining-up areas.403

444. It nevertheless appears that through its 1985 agreement Color Line controlled the existing harbour facilities in the public harbour of Larvik for 25 years, that potential competitors at best would have had to establish new harbour facilities adjacent to Color Line’s existing facilities or alternatively at Revet outside the centre of Larvik.

399 Event # 401821, rental agreement between Scandi Line AS and the Municipality of Sandefjord, annex 5 to Color Line’s reply of 4 December 2006, p. 19. 400 Event # 413823, the Municipality of Sandefjord’s reply to question 4e, and event # 413828, annex 23 (p. 89); event # 401821, annex 5 to Color Line’s reply of 4 December 2006, p. 28-40. 401 Larvik-Frederikhavnsferjen changed its name to Larvik Line in 1988 and was incorporated into Color Line in 1997. 402 Event # 371073, p. 42 (PAB 9). The duration of the agreement was laid down in a 1994 addendum in the form of a letter from Larvik harbour, which confirms that the agreement was valid until 25 November 2009 (i.e. 25 years from the signature of the agreement), and that the ferry company would enjoy a preferential right to leasing the facilities if they were still to be leased after that date (event # 371073, p. 45 (PAB 9 4/4)). 403 Event # 553056, Color Line’s Reply to the SO, paragraph 334.

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445. While it seems that Larvik-Strømstadlinjen AS was at one stage promised access to Revet in 2001 (see above, paragraph 177), it appears that such access would only have been provided by means of the construction of a “temporary facility” outside the central harbour.404 The long-term viability of such a solution was therefore questionable and, indeed, it was never taken up.

446. In 2003, Larvik Municipality decided to move its ferry harbour out of the central city area, and Color Line considered looking for alternatives. However, it appears that Color Line was hesitant to give up its position in the existing harbour and found that “abandoning Larvik and leaving the port open to other operators seems risky.”405

447. While this Decision is limited to finding an infringement in respect of the harbour agreement entered into by Color Line with the Municipality of Strömstad, the fact remains that Color Line also ensured itself a long-term presence in the public and operative harbours of Sandefjord and Larvik. Both of those harbours appear to have been of strategic importance for entry in the relevant market.

448. The Authority considers that Color Line’s strong position in those harbours strengthened Color Line’s overall position on the relevant market.

5.4.11 Conclusion on the restrictive effects of the harbour agreement

449. In the light of the above, the Authority considers that the long-term exclusivity contracted in the harbour agreement concluded by Color Line with the Municipality of Strömstad in 1991 prevented potential competitors from accessing the relevant market, effectively foreclosing the market to new entrants.

450. In the light of the characteristics of the market in question, the entry of a new player would have created scope for further competition in a market distinguished by monopoly. New entry would almost certainly have led to positive effects on the market in terms of price, quality and variety of services. In preventing new entry, the harbour agreement has caused appreciable negative effects on the relevant market to the detriment of consumers, contrary to Article 53(1) EEA.

5.5 Effect on trade between Contracting Parties

451. Article 53 EEA requires that the agreement/conduct at issue “may affect trade between Contracting Parties”. It is settled case law that that includes any

404 Event # 370985, p. 93 (PAB 61 1/2), letter from Larvik-Strømstadlinjen AS to the Municipality of Strömstad dated 14 August 2000; and event # 440704, “Larvik klar for to Strømstadferjer”, article from Østlandsposten, 20 June 2001. 405 Event # 371073, p. 41 (PAB 8 3/3), minutes from meeting dated 16 December 2003 (unofficial translation from Norwegian by the Authority: “Å forlate Larvik og legge havnen åpen for andre aktører synes risikabelt”). Eventually, the Authority understands, the ferry operations (of Color Line) in Larvik were moved to a new harbour at Revet in 2008 and the old harbour area was surrendered to other uses (http://www.larvik.havn.no/terminaler/ferjeterminal-revet-article32-119.html).

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“influence, direct or indirect, actual or potential, on the pattern of trade between EEA states”.406

452. During the period under examination Color Line was the sole supplier on the relevant market. Color Line’s turnover on the route increased year-by-year from 1994, peaking at NOK 899.7 million (EUR 112 million) in 2005 (see paragraph 68 above). The number of passengers on the route also increased over the period, reaching 1.2 million passengers in 1999 and remaining at or above that level until 2005 (with the exception of a slight dip in 2001, see paragraph 67 above).

453. International ferry services are by their very nature cross-border. The impact of the harbour agreement on the possibilities for competitors to establish a service in competition with Color Line between Sweden and Norway on the relevant market is sufficient to establish that the harbour agreement was capable of appreciably affecting intra-EEA trade within the meaning of Article 53(1) EEA.

5.6 Conclusion on Article 53(1) EEA

454. In the light of all the above, the Authority finds that the harbour agreement infringed Article 53(1) EEA.

6 ARTICLE 53(3) EEA

6.1 Introduction

455. Article 53(3) of the EEA Agreement sets out an exception rule, which provides a defence to undertakings against a finding of an infringement of Article 53(1) EEA. Agreements, decisions of associations of undertakings and concerted practices caught by Article 53(1) which satisfy the conditions set out in Article 53(3) are valid and enforceable, no prior decision to that effect being required.407

456. It follows from the cumulative nature of the conditions in Article 53(3) that once it has been found that one of those conditions has not been met, it is, in principle, unnecessary to examine the remaining conditions.

457. In order to meet the criteria under Article 53(3) EEA, an agreement/conduct falling within Article 53(1) must contribute to improving the production or distribution of goods or to promoting technical or economic progress (first condition), while allowing consumers a fair share of the resulting benefits (second condition), and not imposing restrictions which are not indispensable to the attainment of these objectives (third condition), and not affording such undertakings the possibility of eliminating competition in respect of a substantial part of the products concerned (fourth condition).

406 Guidelines on the effect on trade concept contained in Articles 53 and 54 EEA, OJ C 291, 30.11.2006, p. 46 and EEA Supplement to the OJ No 59, 30.11.2006, p. 18, paragraph 23. 407 Guidelines on the application of Article 53(3) EEA, paragraph 1.

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458. It follows from the Authority’s Guidelines on the application of Article 53(3) that efficiencies are normally made within the confines of each relevant market to which the agreement/conduct relates. However, in some cases, only consumers in a downstream market are affected, in which case the impact of the agreement/conduct on consumers must be assessed. What falls to be examined in the present case is the extent to which efficiencies were generated within the relevant market for passenger ferry services.408

459. Pursuant to the first condition in Article 53(3), the restrictive conduct at issue must contribute to improving the production or distribution of goods or to promoting technical or economic progress. The provision refers expressly only to goods, but applies by analogy to services.409

460. The purpose of the first condition in Article 53(3) is to define the types of efficiency gains that can be taken into account and be subject to the further tests of the second and third conditions in Article 53(3). The aim of the analysis is to ascertain what the objective benefits created by the conduct are and the economic importance of such benefits. Given that for Article 53(3) to apply the pro-competitive effects flowing from the agreement must outweigh its anti- competitive effects, it is necessary to verify the link between the agreement and the claimed efficiencies and the value of these efficiencies.410

461. It is clear from the Authority’s Article 53(3) Guidelines that efficiencies of a qualitative nature creating sufficient value for consumers to compensate for the anti-competitive effects of the agreement/conduct can be relevant for the application of Article 53(3). Technical and technological advances form an essential and dynamic part of the economy, generating significant benefits in the form of new or improved goods and services.411

462. In that regard, significant upfront investments can, in certain circumstances, justify vertical restrictions of limited duration, including exclusivity, as they can lead to efficiencies, in particular to promoting non-price competition and improved quality of services.412 When applying Article 53(3) it is necessary to take into account the initial sunk investments made by any of the parties and the time needed and the restraints required in order to commit to and to recoup an efficiency enhancing investment.413

463. Exclusivity agreements lasting longer than five years are, for most types of investment, not considered necessary to achieve the claimed efficiencies, or the

408 Guidelines on the application of Article 53(3) EEA, paragraph 43. 409 Guidelines on the application of Article 53(3) EEA, paragraph 48. 410 Guidelines on the application of Article 53(3) EEA, paragraph 50. 411 Guidelines on the application of Article 53(3) EEA, paragraphs 69-70, 102. 412 Guidelines on Vertical Restraints – see, for example, paragraphs 61, 106, 107b. 413 Guidelines on the application of Article 53(3) EEA, paragraphs 44 and 80; Guidelines on Vertical Restraints, paragraphs 123 and 202.

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efficiencies are not considered sufficient to outweigh the foreclosure effects of such long-term exclusivity.414

464. The second condition in Article 53(3) requires that consumers receive a fair share of any efficiencies generated by the restrictive conduct. The concept of ‘fair share’ implies that the pass-on of benefits must at least compensate consumers for any actual or likely negative impact caused to them by the restriction of competition found under Article 53(1). In line with the overall objective of Article 53 to prevent anti-competitive conduct, the net effect of the conduct must at least be neutral from the point of view of those consumers directly or likely affected by it. If such consumers are worse off following the conduct, the second condition in Article 53(3) will not be fulfilled. The positive effects of conduct must be balanced against and compensate for its negative effects on consumers. When that is the case consumers are not harmed by the conduct. Moreover, society as a whole benefits where the efficiencies lead either to fewer resources being used to produce the output consumed or to the production of more valuable products and thus to a more efficient allocation of resources.415

465. Under the third condition in Article 53(3), an assessment of whether the restriction of competition is indispensable for the attainment of the economic or technical improvements is required.416 The decisive question is whether or not the agreement and the individual restrictions therein make it possible to perform the activity in question more efficiently than would likely have been the case in the absence of the agreement or the restriction concerned.417 The restriction must be the least restrictive possible in order to achieve the claimed efficiencies.418

466. In some cases, a restriction may be indispensable only for a certain period of time, in which case the Article 53(3) exception only applies during that period. In making such an assessment it is necessary to take due account of the period of time required for the parties to achieve the efficiencies justifying the application of the exception. In cases where the benefits cannot be achieved without considerable investment, account must, in particular, be taken of the period of time required to ensure an adequate return on such investment.419

467. The fourth condition in Article 53(3) requires that the agreement/conduct must not afford the undertaking(s) concerned the possibility of eliminating competition in respect of a substantial part of the relevant products/services.

414 See, for example, Guidelines on Vertical Restraints, paragraph 195. 415 Guidelines on the application of Article 53(3) EEA, paragraphs 83 and 85. 416 Guidelines on the application of Article 53(3) EEA, paragraph 73. 417 Guidelines on the application of Article 53(3) EEA, paragraphs 73-74. 418 See, inter alia, Commission Decision 98/531/EC, Van den Bergh Foods Limited, OJ L 246, 4/09/1998, paragraph 241. 419 Guidelines on the application of Article 53(3) EEA, paragraph 81; Joined Cases T-374/94 European Night Services and Others [1998] ECR II-3141, paragraph 230.

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Ultimately, the protection of rivalry and the competitive process is given priority over potentially pro-competitive efficiency gains which could result from restrictive agreements. The last condition in Article 53(3) recognises the fact that rivalry between undertakings is an essential driver of economic efficiency, including dynamic efficiencies in the shape of innovation. In other words, the ultimate aim of Article 53 is to protect the competitive process.420 When competition is eliminated the competitive process is brought to an end and short-term efficiency gains are outweighed by longer term losses stemming inter alia from expenditure incurred by the incumbent to maintain its position (rent seeking), misallocation of resources, reduced innovation and higher prices.421

468. The Authority’s Guidelines on the application of Article 53(3) specify that the assessment of the fourth condition depends to a large extent on the degree of competition existing prior to the agreement/conduct at issue and its impact on competition.422

469. It follows from Article 2 of Chapter II of Protocol 4 to the Surveillance and Court Agreement that the undertaking claiming the benefit of Article 53(3) EEA bears the burden of proving that the conditions laid down in that Article are fulfilled.423 The following Sections assess Color Line’s submissions with regard to Article 53(3) EEA.

6.2 Color Line’s submissions

6.2.1 First and second conditions: improvement in the production or distribution of goods / promotion of technical or economic progress; benefit to consumers

470. Color Line has submitted the following arguments in relation to claimed efficiencies.424

471. First, it claims that the assessment must have as its point of departure the situation in 1991 when the harbour agreement was entered into. It argues that the Authority largely bases its preliminary views in the SO on developments in the years after the agreement was entered into, and makes no attempt to analyse the situation and future prospects in 1991 or in the ensuing years. At that time, Color Line needed to secure long-term future capacity in the harbours so that it could invest in upgrades of harbours and tonnage, and thus increase its capacity on the route and improve its services to its customers. To enable the development of the route service there was a need for considerable harbour

420 See, in that regard, Case T-461/07 Visa Europe Ltd and Visa International Service v Commission, judgment of 14 April 2011 (not yet published), paragraph 126 and the case law cited therein. 421 Guidelines on the application of Article 53(3) EEA, paragraph 105. 422 Guidelines on the application of Article 53(3) EEA, paragraph 107. 423 See also Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P GlaxoSmithKline Services v Commission [2009] ECR I-9291, paragraph 82. 424 Event # 553056, Color Line’s Reply to the SO, paragraphs 923-972.

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investment and investment in new tonnage as well as, subsequently, in marketing the expanded service offer. The expansion required predictability and flexibility with regard to access to harbours on both sides, particularly given the capacity limitations in the harbours. The long duration of the harbour agreement provided predictable conditions for access to the harbour and for Color Line’s ferry operation, and increased predictability of return on the risky investments required, thus making it possible for Color Line to invest in a developed offer. Undisturbed harbour access was a precondition for Color Line to be able to exercise its planned activity and for the investments to be made.425

472. Secondly, Color Line submits that its investments led to significant improvements on the Sandefjord – Strömstad route: operations are more reliable with two vessels, which are larger and of higher quality than previously; departures are more frequent; and consumers enjoy increased flexibility. According to Color Line, the quality of its services has improved through better on-board services and better facilities in the harbours. The growth in passenger numbers since 1991 provides clear evidence of the fact that the harbour agreement contributed towards improving production and furthering economic development in the relevant market. These developments have, Color Line argues, been beneficial to both private individuals and transport firms that have used Color Line’s services since 1991.426

473. Thirdly, Color Line argues that if the harbour agreement had allowed competing routes to be freely established in the harbour, Color Line would not have had any guarantee that the harbour would have had the capacity to accommodate its expansion in the 1990s. The most direct threat would have been a lack of sufficient physical capacity in the harbour to allow Color Line to operate the route with a second vessel from 1992 onwards, that its ferries would not have been able to call at the harbour at the times Color Line desired, and that the areas required to service larger ferries would have been unavailable. If Color Line had had to adapt to the calls of other operators using the harbour that could also have led to less efficient exploitation of its tonnage capacity (its sailing plan could have become less efficient). A further possible consequence could also have been insufficient space for night mooring at berth for two ferries, so that Color Line would have had to find alternative options for night mooring, with the ensuing costs and disadvantages.427

474. Fourthly, Color Line claims that predictable harbour access contributed to combating “free-rider” problems, in that the investments it made to develop the service between Sandefjord and Strömstad could not be exploited by competing operators. The risk of other operators being given access to the harbour facilities that Color Line used and to all or part of the onshore facilities developed for its

425 Event # 553056, Color Line’s Reply to the SO, paragraphs 934-944 and 959-967. 426 Event # 553056, Color Line’s Reply to the SO, paragraphs 945 and 956-958. 427 Event # 553056, Color Line’s Reply to the SO, paragraphs 946-947 and 961-963.

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operation, would have reduced the return on Color Line’s investments and thus influenced its willingness to invest at all.428

475. Fifthly, Color Line argues that there was considerable uncertainty as to the framework conditions linked to its ferry operation. The sale of tax-free goods on-board was decisive in order to be able to run the route profitably. At the same time, there was uncertainty about the duration of the permit, both as a consequence of the possibility of Norway entering the EU in the early 1990s, with the result that tax-free sales would then cease, and because during certain periods there was considerable political uncertainty as to the continuation of tax-free sales on short-haul routes. According to Color Line, this uncertainty contributed to the general future prospects for the route and, therefore, towards an increased investment risk. Predictability regarding harbour access contributed to reducing the overall investment risk and thus to stimulating the investments and the expansion of services that have taken place since 1991.429

476. In summary, Color Line argues that the harbour agreement contributed to the realisation of considerable investments in a service offer that had not been developed before the agreement was entered into. The agreement, including the exclusivity clause at issue, laid the foundation for considerable investments in new tonnage, facilities and infrastructure in the harbour and the marketing of the service to end-users. Predictability regarding available capacity during a long- term planning horizon was essential in this context. The outcome was a well- developed and stable service of high frequency and high popularity among consumers, and a stable transport connection for transport companies and other professional users. Thus, the harbour agreement led to an improvement in production and furthered the economic development of the areas influenced by the route. Those improvements have benefited consumers.

6.2.2 Third condition: indispensability

477. Color Line’s arguments in respect of the third condition essentially repeat its claims in relation to the first and second conditions.430 It makes no arguments in relation to whether the restrictions were the least restrictive possible in order to achieve the claimed efficiencies. In short, Color Line argues that predictable access to the harbour facilities concerned was indispensable in order for it to undertake the investments it made following conclusion of the harbour agreement in 1991. The realisation of those investments required predictability that the capacity in the harbour would not be tied-up by other activities in the harbour. Predictability was especially critical as a consequence of the limited capacity in the harbour and the high frequency of sailings on the route.

478. Although Color Line did not at all times exploit the full capacity in Torskholmen, Color Line argues that it was essential for the realisation of its investments for it to have the possibility of expanding capacity over time. The

428 Event # 553056, Color Line’s Reply to the SO, paragraphs 948 and 964. 429 Event # 553056, Color Line’s Reply to the SO, paragraphs 949-954. 430 Event # 553056, Color Line’s Reply to the SO, paragraphs 959-967.

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new tonnage added in 1994 and 2000 had larger on-board capacity, entailing increased pressure on the on-shore areas in terms of use. The increase in frequency to six daily departures also required increased available capacity in the harbour.

479. If other operators had been granted access to the harbour, such capacity expansions would not have been possible. Color Line claims that it is therefore not correct that during certain periods in the 1990s there was spare capacity in the harbour, as argued by the Authority. Rather, the subsequent capacity expansions by Color Line confirm the need for predictability regarding capacity in order for Color Line to have been able to realise investments in tonnage and service expansion to meet market demand.

480. Color Line argues that the agreements were also necessary to prevent potential new entrants from exploiting its investments (free-riding).

481. Finally, Color Line argues that the Municipalities in Sandefjord and Strömstad also wished to provide the conditions for investments in ferry services between the two cities. The Municipalities had experienced several failed attempts at establishing a route, and saw the need for investments in both on-shore facilities and tonnage to develop the service. The Municipalities made substantial contributions to the development, both by providing access to areas and by contributing towards the required investments in harbour facilities and offering reduced fees for the first 10 years. To effect this development it was essential for the Municipalities to ensure that Color Line had a long-term perspective, thus entering agreements that provided the conditions for long-term operation and development of the service. In a situation where total harbour capacity was severely limited, it was necessary for the Municipalities to give Color Line certainty that the possibility of exercising the activity in the harbours would not be hindered over time as a consequence of other ferry operators occupying substantial parts of the available capacity.

6.2.3 Fourth condition: elimination of competition

482. Color Line has argued in its Reply to the SO that its long-term exclusivity did not constitute a substantial barrier to competitors on the relevant market.431

483. First, it claims that the principal entry barrier for competing services until June 2002 was not access to harbours, but rather the inability to obtain a licence for tax-free on-board sales (see Sections 3.6 and 5.4.8 above). The long-term exclusivity granted to Color Line did not therefore constitute any additional barrier to competing services before June 2002.

484. Secondly, Color Line claims that there were available alternative harbour facilities for potential competitors during the entire period under examination. As a result, Color Line was exposed to potential competition from routes between alternative harbours during the entire period.

431 Event # 553056, Color Line’s Reply to the SO, chapters 11.3 – 11.6.

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485. Thirdly, Color Line claims that it follows from the conduct of the Municipality of Strömstad that Color Line’s exclusivity was not respected by the Municipality. The harbour agreement was not therefore a barrier to the establishment of competing services wishing to use Torskholmen in Strömstad as a port of call.

6.3 Assessment of Color Line’s submissions

6.3.1 First condition: improvement in the production or distribution of goods / promotion of technical or economic progress

486. As regards the point of depature for the analysis, it is recalled that the assessment of restrictive agreements under Article 53(3) is made within the actual context in which they occur and on the basis of the facts existing at any given point in time. The assessment is thus sensitive to material changes in the facts. The exception rule in Article 53(3) applies as long as the four conditions are fulfilled and ceases to apply when that is no longer the case.432

487. Article 53(3) requires Color Line to identify and determine the specific nature of the efficiencies generated by the long-term exclusive harbour agreement – in other words, it must demonstrate a causal link between the exclusive harbour agreement and the efficiencies – and demonstrate how and when each claimed efficiency would be achieved. In order to establish that the efficiencies generated outweigh their anti-competitive effects, it must establish the likelihood and magnitude of such efficiencies.433

488. Color Line must also justify that its long-term exclusivity was necessary in order to achieve the claimed efficiencies. That is essentially a question of indispensability, which is assessed in Section 6.3.3 below.

489. As regards Color Line’s asserted need to secure long-term future capacity in the harbour in order to develop the service it provided on the Sandefjord to Strömstad route and make it possible for it to invest, the Authority notes that the question is to what extent the long-term exclusive harbour agreement created economic benefits.

490. While the developments in the harbour may have led to improvements and enhancements to the service on the route, Color Line has not demonstrated a causal link between the exclusive harbour agreement and the claimed improvements or enhancements. It simply asserts that long-term future capacity in the harbour was necessary in order to develop the service. In that regard, the Authority notes that Color Line made relatively limited initial sunk investments at the time the harbour agreement was entered into, and has provided no evidence of planned expansion at the time of the agreement. Moreover, between 1995 and 2000 Color Line experienced a surge in demand, which to a large extent was the result of factors external to Color Line and not to risky investments on the part of Color Line (see paragraph 66); its principal

432 Guidelines on the application of Article 53(3) EEA, paragraph 44. 433 Guidelines on the application of Article 53(3) EEA, paragraph 51.

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investments in tonnage appear to a large extent to have been made reactively, in response to that increase in demand. In addition, Color Line introduced the vessel Color Viking on the route in 2000 at least in part in order to fend off the threat from potential new entrants (see paragraphs 165-166 above).

491. Further, in the light of the assessment of capacity constraints in Section 5.4.6 above, the guarantee inherent in the long-term exclusive agreement that the harbour would have capacity to accommodate any future expansion by Color Line (to the detriment of potential new entrants and, thus, to the competitive process) cannot be recognised as an economic benefit as such under the first condition of Article 53(3).

492. As to the risk of free-riding on Color Line’s investments, it is noted, firstly, that Color Line has not set out in any detail in its Reply to the SO that there was a real free-rider problem or that free-riding was perceived as a risk by Color Line at the relevant time. Secondly, Color Line’s investments at Torskholmen were very limited in comparison to its turnover and profits on the route and were quickly recouped. Thirdly, Color Line could, presumably, have charged for use of its facilities/investments to the extent competitors had needed access thereto in order to operate at Torskholmen. Fourthly, the Municipalities also invested in the harbours, both upfront and through significant reductions in harbour fees over a considerable period of time, as Color Line itself points out in its arguments (see paragraphs 45 and 481 above). It is therefore very unlikely, in the light of these considerations, that the threat of free-riding created any real and significant risk of under-investment.

493. Consequently, the Authority takes the view that Color Line has not in any way demonstrated that its agreement generated efficiency gains that consisted in preventing an alleged risk of free-riding detrimental to Color Line. In any event, any such benefits could only have been very limited.

494. The alleged uncertainties as to the framework conditions (tax-free sales) linked to Color Line’s ferry operations and the contribution of the harbour agreement to reducing the overall investment risk are too indirect, uncertain and remote to be taken into account.434 No evidence has been submitted by Color Line that would tend to show that the reduction of investment risks was perceived by Color Line at the time as an important feature of the harbour agreement. Furthermore, investment risks would only be relevant to the extent that investments were sunk. As will be explained below, that was only the case to a limited extent. In any event, given that “the sale of tax-free goods on board was decisive to be able to run the route profitably” (Reply to the SO, paragraph 949), it is not clear how long-term exclusivity in the harbour could have alleviated any risk associated with any uncertainty as to the framework conditions. Color Line does not provide any explanation in that regard. Following the logic of the statement at paragraph 949 of the Reply to the SO, if tax-free sales on short routes had been abolished Color Line’s operations on the route would no longer have been viable, irrespective of exclusivity in the

434 Guidelines on the application of Article 53(3) EEA, paragraph 54.

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harbour. In that light, it is not clear how economic benefits within the meaning of the first condition in Article 53(3) could have been created by long-term harbour access.

495. Overall, the Authority considers that it must be concluded that any efficiency gains brought about by the long-term exclusive harbour agreement have either been insufficiently substantiated or were, at best, limited in nature. For these reasons, the Authority considers that the first condition in Article 53(3) is not satisfied.

6.3.2 Second condition: benefit to consumers

496. The second condition in Article 53(3) EEA requires that any positive effect of the harbour agreement must be balanced against and compensate for its negative effects on consumers. Such negative effects are set out in detail in Section 5 above.435

497. The Authority does not dispute that the expansion of Color Line’s services on the route, seen in isolation, resulted in some benefits to consumers. However, in an alternative scenario with competing service providers in the relevant market it must be assumed that consumers would have been better off than under monopoly: it is recalled that Color Line maintained a monopoly position on the relevant market throughout the period under examination.436 The substantial increase in demand experienced during the period under examination would, under normal circumstances, have created good prospects for new market entry with ensuing benefits to consumers.

498. A restrictive agreement which maintains, creates or strengthens a market position approaching that of a monopoly cannot normally be justified on the grounds that it also creates efficiency gains. The reason for that is that in the absence of rivalry between undertakings the dominant undertaking will lack adequate incentives to continue to create and pass on efficiency gains to consumers.437

435 Guidelines on the application of Article 53(3) EEA, paragraph 85. 436 See Guidelines on the application of Article 53(3) EEA, paragraph 92, which states that when carrying out the balancing test between anti-competitive effects and pro-competitive effects it must be taken into account that competition is an important long-term driver of efficiency and innovation: “Undertakings that are not subject to effective competitive constraints — such as for instance dominant firms — have less incentive to maintain or build on the efficiencies. The more substantial the impact of the agreement on competition, the more likely it is that consumers will suffer in the long run”; and Guidelines on Vertical Restraints, paragraph 127. 437 See the Authority’s Guidelines on Vertical Restraints, paragraph 127: “Rivalry between undertakings is an essential driver of economic efficiency, including dynamic efficiencies in the form of innovation. In its absence, the dominant undertaking will lack adequate incentives to continue to create and pass on efficiency gains. Where there is no residual competition and no foreseeable threat of entry, the protection of rivalry and the competitive process outweighs possible efficiency gains. A restrictive agreement which maintains, creates or strengthens a market position approaching that of a monopoly can normally not be justified on the grounds that it also creates efficiency gains”; see also the Commission’s Guidance Paper on Article 102 TFEU, paragraph 30, last indent.

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499. In that light, and in the light of the, at best, limited economic benefits that have been demonstrated under the first condition in Article 53(3) EEA, the long-term restrictive effects caused by the harbour agreement, and Color Line’s monopoly positition throughout the period under examination, the Authority takes the view that Color Line has failed to show that the benefits of any efficiencies that can be said to have been brought about by the harbour agreement outweigh the harm to consumers resulting from its long-term exclusivity.

500. For these reasons, the Authority considers that the second condition in Article 53(3) is not satisfied.

6.3.3 Third condition: indispensability

501. The Authority is of the view that the effect of the long-term exclusivity granted to Color Line was to prevent all potential competitors from accessing Torskholmen for an exceptionally long period of time.

502. Color Line essentially argues that predictable access to the harbour facilities concerned was indispensable in order for it to undertake the investments it made following conclusion of the harbour agreement in 1991.

503. In order to be held to be indispensable to any claimed benefits, such long-term exclusivity must have been required for substantial initial sunk investments that were not recoupable in the short-term.438

504. It is generally considered, as a rule of thumb, that restrictive clauses in vertical agreements should not exceed five years where market shares are below 30%. With regard to exclusive supply arrangements, the Vertical Guidelines state that arrangements which are:

“shorter than five years [and] entered into by non-dominant companies usually require a balancing of pro- and anti-competitive effects, while agreements lasting longer than five years are for most types of investments not considered necessary to achieve the claimed efficiencies or the efficiencies are not sufficient to outweigh the foreclosure effect of such long-term exclusive supply agreements”.439

Investment in harbour facilities

505. Color Line’s investments in the Sandefjord – Strömstad route have been described in Section 3.5 above. In total, from 1992 to 2006, Color Line claims

438 Guidelines on the application of Article 53(3) EEA, paragraphs 44 and 80-81; see also, Joined Cases T-374/94, T-375/94, T-384/94 and T-388/94 European Night Services [1998] ECR II-3141, paragraph 230, where the European Court of First Instance stated: “Since, moreover, such progress and benefits cannot be achieved without considerable investment, the length of time required to ensure a proper return on that investment is necessarily an essential factor to be taken into account when determining the duration of an exemption …”; and Guidelines on Vertical Restraints, paragraph 117. See above, Section 6.1. 439 Guidelines on Vertical Restraints, paragraph 205.

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that it made investments in Torskholmen amounting to NOK 31.5 million.440 The amounts invested can broadly be divided as follows:

a. 1992: NOK 12.8 million,441 relating to construction of a terminal building.

b. 1995 to 1997: SEK 467 000 per year in increased harbour fees for works carried out by the Municipality.

c. 1999: NOK 7.7 million to upgrade the ramp.

d. 2000: NOK 4.1 million on constructing new customs facilities and NOK 0.7 million on adapting the quay to the new vessel Color Viking.

506. In Sandefjord, Color Line states that its total investments in the harbour since 1991 amount to NOK 19 million. The largest single investment, of approximately NOK 7.5 million, was made in 1992 to upgrade the existing terminal building and the tube.442

507. First, the Authority points out that the investments made by Color Line in harbour facilities were very limited in comparison to Color Line’s turnover and profits on the route and must have been quickly recouped. Color Line’s total turnover on the route in the period from 1993 to 2005 (Color Line has not provided accounts for the period prior to 1993) amounted to approximately NOK 8 billion. Turnover on the route in 1993 already amounted to NOK 239.6 million, and net profits after tax to NOK 44.5 million.443

508. Secondly, these investments were far from large initial sunk investments: they were all made after the harbour agreement came into force, in some cases many years after its conclusion. In addition, Color Line had already been operating on the route for a number of years, and with exclusivity in Torskholmen from July 1989, when the 1991 harbour agreement was entered into (see Section 3.3 above). Therefore, at the very least in comparison with the launch of a completely new product or service on the market, Color Line must have had a reasonable degree of certainty as to the likely success of its ferry operation at the time of the 1991 harbour agreement.444 Finally, as already noted, some of Color Line’s investment risks were offset by harbour fee/tax rebates from the Municipality of Strömstad (see Section 3.3 above).

509. In that light, Color Line has not demonstrated that the investments in harbour facilities justify the long-term exclusivity granted in the harbour agreement.

440 See event # 553056, Color Line’s Reply to the SO, paragraphs 205-207. 441 Event # 401815, annex 10.1 to Color Line’s reply of 4 December 2006. 442 Event # 553056, Color Line’s Reply to the SO, paragraph 180. 443 Event # 401819, p. 4, annex 2.2 to Color Line’s reply of 4 December 2006. 444 See, in that regard, the Authority’s Guidelines on the application of Article 53(3) EEA, paragraph 80, which provide that the more uncertain the success of the product covered by the agreement, the more a restriction may be required in order to ensure that the efficiencies will materialize.

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Investment in tonnage

510. According to the information provided by Color Line, it invested NOK 59.2 million in tonnage on the route prior to the 1991 harbour agreement (see Section 3.5.3 above). Those investments are irrelevant to the assessment of the 1991 harbour agreement under Article 53(3) EEA since that agreement could not have any influence on Color Line’s incentives to invest prior to its conclusion.

511. In the initial years after the conclusion of the 1991 harbour agreement, it appears that Color Line invested NOK 195 million in tonnage on the route (M/S Sandefjord and M/S Bohus). Even assuming that such an investment can be taken into account as an upfront investment, Color Line has not demonstrated that the total amount of that investment was sunk: the NOK 195 million investment in tonnage is a gross figure, from which the sales of M/S Bohus II and MS Sandefjord in the same period have not been deducted.445 This investment cannot be seen as sunk in its entirety given the resale value on the market of the vessels in question and the fact that they could be deployed on other routes or leased to other operators. Far from the whole investment in these vessels would be likely to have been lost if Color Line had had to exit the relevant market. Only to the extent that investments in vessels were sunk could Color Line argue that it needed long-term access to harbours in order to recoup those investments.

512. In 2000, Color Line introduced Color Viking on the Sandefjord – Strömstad route and invested NOK 210 million in that regard. Again Color Line has not shown to what extent that investment was a sunk cost. In any event, the need to recoup an investment made in 2000 cannot justify an exclusivity agreement which was entered into approximately nine years prior to that investment.

513. On the basis of the available information, the Authority must consider that the investments made in vessels were only to a limited degree sunk. The sunk investments must therefore be regarded as rather modest. That is particularly the case when compared to the significant earnings Color Line enjoyed on the route.

Marketing costs

514. Finally, Color Line refers to marketing costs, providing data for the years from 1994 to 2005, during which it states that total investment in marketing, which it claims was a risky investment in the circumstances, amounted to NOK 275.7 million.446

515. Color Line has itself explained that marketing is carried out primarily at local and regional levels – partly through local and regional media, sponsoring and the like, partly as direct marketing towards customers – and that the repurchase percentage is high among parts of the customer base.

445 Event # 553056, Color Line’s Reply to the SO, paragraphs 244-248. 446 Event # 553056, Color Line’s Reply to the SO, paragraphs 259 and 943. Color Line has provided information regarding both its marketing costs and its accounts for the period 1994-2005. For the accounts see event # 401819.

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[………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………………………………………………………………………………… …………. ].447

516. In that light, and in the absence of more precise information provided by Color Line, it must be assumed that to a large extent the marketing costs were geared towards increasing demand in the short term, and that a large part of those costs were recouped the same year they were incurred.

517. In other words, Color Line’s specific marketing costs on the route in question cannot be regarded as large initial sunk investments, but a re-occurring expense recouped in the short term. Those costs cannot therefore justify the long-term exclusivity.

The restrictions in the harbour agreement were not the least restrictive possible

518. As already stated (paragraph 477), Color Line makes no arguments in relation to whether the restrictions were the least restrictive possible in order to achieve the claimed efficiencies.

519. In the Authority’s view, Color Line could have ensured itself harbour access in Sweden by less restrictive means. When making investment in new tonnage for example, it could have required a sufficient number of slots in Torskholmen for a sufficient period of time to ensure a reasonable return on its investments. At the very least, due to the limited initial sunk investments, a much shorter exclusive agreement would have sufficed to provide Color Line with the required incentives to invest.

520. As regards the possibility that competitors could exploit Color Line’s investments, to the extent that there was a real free-rider problem (paragraphs 492-493 above), Color Line has not at all justified that a 25-year exclusivity period was a necessary and proportionate means to protect its investment or to increase its incentives to invest. The same applies in relation to the alleged benefits relating to the contribution of the harbour agreement to reducing any uncertainty pertaining to framework conditions, even if such benefits were to be accepted (paragraph 494 above).

The Municipality’s alleged need to give Color Line certainty

521. Color Line’s claim that it was essential for the Municipality to ensure that Color Line had a long-term perspective and that it was necessary for it to give Color Line certainty (paragraph 481) cannot justify the exclusivity. First, that does not take away the restrictive effects of the exclusivity; nor is it clear why that alleged need created economic benefits in the first place that are unrelated to the

447 Event # 553056, Color Line’s Reply to the SO, paragraphs 255-259.

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size of Color Line’s initial sunk investments. Secondly, as already stated above (paragraph 144), the evidence suggests that it was Color Line that took the initiative to conclude the long-term harbour agreement with the Municipality of Strömstad and was eager to obtain exclusive access to Torskholmen, while the Municipality merely regarded it as an advantage to have a long-term user in the harbour.448 Thirdly, even if it were to be accepted that there was a perceived need on the part of the Municipality of Strömstad to give Color Line certainty and that such a need could be related to an underlying economic benefit, it is not apparent from the information submitted by Color Line why long-term exclusivity of 25 years was a reasonable and proportionate means of achieving that benefit.

Conclusion

522. Against this background, the duration of the exclusivity granted to Color Line went way beyond what was acceptable and was fundamentally disproportionate to, and cannot be justified by, the limited sunk investments made by Color Line in the harbour and in tonnage, free-rider concerns or a perceived need on the part of the Municipality of Strömstad to give Color Line certainty. The Authority thus concludes that Color Line has not demonstrated that the indispensability condition laid down in Article 53(3) EEA is satisfied.

6.3.4 Fourth condition: elimination of competition

523. As already stated, whether competition is eliminated within the meaning of the last condition of Article 53(3) depends on the degree of competition existing prior to the agreement and on the impact of the agreement on competition. The more competition is already weakened in the market concerned, the slighter the further reduction required for competition to be eliminated within the meaning of Article 53(3). The greater the reduction of competition caused by the agreement, the greater the likelihood that competition in respect of a substantial part of the products concerned risks being eliminated.449

524. The actual market conduct of the parties can provide insight into the impact of the agreement. If, following the conclusion of the agreement, the parties have engaged in conduct indicative of the existence of a considerable degree of market power, it is an indication that the parties are not subject to any real competitive pressure and that competition has been eliminated with regard to a substantial part of the products concerned.450

525. The Authority notes that there was no competition on the relevant market prior to the 1991 harbour agreement. Indeed, even before that time, there was no scope for actual competition: as already noted, from 1 July 1989 Color Line also

448 Event # 408737, reply from the Municipality of Strömstad to question 7a (“Rederiet tog initiativ till förhandling om upprättande av ett arrandeavtal [...] Rederiet var angeläget att ha en exklusiv tillgång til ramp och uppställningsplats. Från kommunens sida ansågs det fördelaktigt med en långsiktig brukare av hamnen.[…]”). 449 Guidelines on the application of Article 53(3) EEA, paragraph 107. 450 Guidelines on the application of Article 53(3) EEA, paragraph 111.

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had exclusive access to the facilities in Torskholmen.451 As regards potential competition, the Authority has examined in detail above the scope for potential competition (Section 5.4), analysing the barriers to entry faced by potential new entrants, including conduct engaged in by Color Line indicative of market power, and reached the conclusion that barriers to market entry were high and that there was a lack of genuine harbour alternatives for new entry within a reasonable time frame. The possibilities for placing real competitive pressure on Color Line, the monopoly operator, during the relevant period, were therefore severely limited. Thus, Color Line’s long-term exclusivity foreclosed potential competitors from accessing the relevant market for passenger ferry services (as defined above) and effectively enabled Color Line to reserve, for the entire period under examination, that market to itself.

526. It follows that the long-term exclusivity granted to Color Line does not meet the fourth condition in Article 53(3) EEA.

6.4 Conclusion on Article 53(3) EEA

527. In the light of the above, the Authority does not consider that Color Line has shown that the conditions laid down in Article 53(3) EEA are satisfied.

7 ARTICLE 54 EEA

528. Article 54 of the EEA Agreement prohibits any abuse by one or more undertakings of a dominant position within the territory covered by the EEA Agreement or in a substantial part of it as incompatible with the functioning of the EEA Agreement insofar as it may affect trade between Contracting Parties. Pursuant to point (b) of the second paragraph of Article 54, such abuse may, in particular, consist of limiting production or markets to the prejudice of consumers.

529. Article 54 EEA is identical in substance to Article 102 TFEU. Pursuant to Article 6 EEA and Article 3(2) of the Surveillance and Court Agreement the case law of the ECJ and the General Court is therefore relevant for the interpretation of Article 54 EEA.452 In the same way as for Article 53 EEA, it is a fundamental objective of the EEA Agreement to ensure uniform interpretation of those provisions.453

530. The Authority is of the view that the long-term exclusivity held by Color Line under the harbour agreement concluded with the Municipality of Strömstad in 1991, which foreclosed competition on the relevant market (as defined in Section 4 above), also constituted an abuse by Color Line of its dominant position on that market.

451 Event # 553056, Color Line’s Reply to the SO, paragraph 211 and attachment 11. 452 See Case E-3/97 Jan and Kristian Jæger AS [1998] EFTA Ct. Rep. 1, paragraph 19; and Case E- 8/00 Landsorganisasjonen i Norge [2002] EFTA Ct. Rep. 114, paragraph 39. 453 Case E-8/00 Landsorganisasjonen i Norge [2002] EFTA Ct. Rep. 114, paragraph 39.

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7.1 Jurisdiction

531. Pursuant to Article 56(2) of the EEA Agreement, the surveillance authority in whose territory a dominant position is found to exist is competent to examine an alleged abuse of a dominant position within the meaning of Article 54 EEA.

532. In this case, the dominant position at issue is on the relevant market for passenger ferry services (as defined above). In that market, Color Line operated a route between two EEA ports during the period under examination: the Norwegian port of Sandefjord, which is located within the jurisdiction of the Authority, and the Swedish port of Strömstad, which is located within the jurisdiction of the European Commission. Therefore, Color Line’s dominance covers the territories of both surveillance authorities, and, therefore, by virtue of the second sentence of Article 56(2), the rules set out in Articles 56(1)(b) and (c) apply.

533. As set out in Section 5.2 above, the application of the relevant turnover thresholds referred to in Article 56(1) results in the Authority being the competent authority also insofar as this case falls under Article 54 EEA.

534. In that light, the Authority is the competent surveillance authority within the meaning of Article 56(2) EEA with regard to the application of Article 54 EEA in this case.

7.2 Color Line as a dominant undertaking

535. Color Line is an undertaking within the meaning of the EEA competition rules (see Section 5.3 above).

536. The assessment of whether an undertaking is in a dominant position and of the degree of market power it holds is a first step in the application of Article 54 of the EEA Agreement. According to the case-law, holding a dominant position confers a special responsibility on the firm concerned, the scope of which must be considered in the light of the specific circumstances of each case.454

537. The dominant position referred to in Article 54 EEA relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition from being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers.455

454 Case 322/81 Nederlandsche Banden Industrie Michelin (Michelin I) v Commission [1983] ECR 3461, paragraph 57; Case T-83/91 Tetra Pak v Commission (Tetra Pak II) [1993] ECR II-755, paragraph 114; Case T-111/96 ITT Promedia v Commission [1998] ECR II-2937, paragraph 139; Case T-228/97 Irish Sugar v Commission [1999] ECR II-2969, paragraph 112; and Case T-203/01 Michelin v Commission (Michelin II) [2003] ECR II-4071, paragraph 97. 455 Case 27/76 United Brands v Commission [1978] ECR 207, paragraph 65; Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paragraph 38.

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538. Such a position is consistent with some degree of competition, but it enables the undertaking in question at least to have an appreciable influence on the conditions under which that competition will develop.456

539. In determining whether a market position is a dominant one within the meaning of Article 54 EEA, it is settled case law that very high market shares, of over 50%, are in themselves, and save in exceptional circumstances, evidence that a firm is dominant.457 Market shares between 70% and 80% have, according to the case law, been held to be in themselves a clear indication of the existence of a dominant position.458

540. In the period from 1986 until Kystlink entered the market in 2006, Color Line was the sole, that is, the monopoly supplier on the relevant market as defined in Section 4 above, with a market share of 100%.

541. Thus, Color Line was the only possibility for passengers seeking ferry services on the relevant market throughout the period under examination. Most of Color Line’s passengers on the route were individuals with limited or no buyer power: therefore, they were unlikely to possess sufficient countervailing buyer power to undermine Color Line’s market position.

542. The Authority has identified a number of barriers to entry in the relevant market. They have been described in detail above in Section 5.4.3, and relate, in particular, to: (i) Color Line’s market position, brand and reputation; (ii) a lack of viable harbour alternatives due to structural, regulatory and commercial barriers; and (iii) the special regime for tax-free sales on short-haul routes, which represented a legal barrier to entry.

543. In the light of the above, the Authority concludes that Color Line enjoyed a dominant position on the relevant market at least during the period under examination.

544. The relevant market on which a dominant position is found to exist concerns the provision of passenger ferry services between two EEA Contracting Parties. The number of passengers in that market increased substantially over the period under examination, reaching 1.2 million passengers in 1999 and remaining at or above that level until 2005 (see paragraph 67 above). The turnover generated on the route also increased year-by-year from 1994, peaking at NOK 899.7 million (EUR 112 million) in 2005 (see paragraph 68 above). During the period under examination Color Line was therefore dominant in a substantial part of the EEA.

456 Case 85/76 Hoffman-La Roche v Commission [1979] ECR 461, paragraph 39. 457 Case 85/76 Hoffmann-La-Roche v Commission [1979] ECR 461, paragraph 41; Case T-83/91 Tetra Pak v Commission [1994] ECR-II 755, paragraph 109. 458 Case T-30/89, Hilti v Commission [1991] ECR II-1439, paragraph 92, confirmed by the Court of Justice in Case C-53/92 P Hilti v Commission [1994] ECR I-667.

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7.2.1 Color Line’s submissions regarding dominance

545. Color Line argues that it was not dominant when it entered into the harbour agreement in 1991 since it was still in the phase where it was establishing itself on the relevant market. In 1991, it argues, market prospects and the very foundation of the business were highly uncertain, in particular taking into account previous failed entry attempts.459 In that regard, Color Line refers to the Commission’s Guidelines on the applicability of Article 101 TFEU to horizontal cooperation agreements,460 which provide that:

“If the R & D aims at developing a product which will create a complete new demand, market shares based on sales cannot be calculated. Only an analysis of the effects of the agreement on competition in innovation is possible. Consequently, the R & D block exemption Regulation exempts these agreements irrespective of market share for a period of seven years after the product is first put on the market.”461

546. Color Line has also argued that the Authority failed to establish in the SO that it was dominant from 1994 onwards. For a dominant position to exist it is required that the undertaking can behave independently. In 1994, the route was operative, but passenger numbers were still moderate. At that time, Color Line argues, it is doubtful whether Color Line – at least in the market for harbour services – possessed any kind of purchaser power. On the contrary, it claims that at that time there was considerable uncertainty attached to Norway’s potential EU membership and the ensuing loss of tax-free sales; as a result, Color Line was perceived as an uncertain customer in the market. In that light, Color Line claims that it is uncertain whether it held a dominant position when the EEA Agreement entered into force on 1 January 1994.462

7.2.2 Assessment of Color Line’s submissions regarding dominance

547. The Commission’s Guidelines on the applicability of Article 101 TFEU to horizontal cooperation agreements, which concern, inter alia, research and development agreements, are not relevant to the provision of ferry services; nor are the Guidelines relevant for the assessment of dominance under Article 54 EEA.

548. In any event, Color Line began its activities on the Sandefjord – Strömstad route in 1986. It obtained a tax-free licence on 1 January 1988. From 1 July 1989, Color Line had exclusive use of Torskholmen harbour under a four-year (renewable) agreement with the Municipality of Strömstad, which was replaced in 1991 by a further agreement granting exclusivity for 25 (15 plus 10) years (see Section 3.3 above). Color Line faced no competition on the route until November 2006. Thus, when Color Line entered into the harbour agreement on

459 Event # 553056, Color Line’s Reply to the SO, paragraphs 982-996. 460 (2001) OJ C 3/2, paragraph 54. 461 Event # 553056, Color Line’s Reply to the SO, paragraph 986. 462 Event # 553056, Color Line’s Reply to the SO, paragraphs 995-996.

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1 January 1991, it had already operated on the Sandefjord – Strömstad route for five years, as a monopolist, with a 100% market share.

549. When the EEA Agreement entered into force on 1 January 1994, Color Line had operated the route for a further three years without any exposure to competition.

550. As regards Color Line’s argument that the Authority failed in the SO to establish that it was dominant from 1994, the Authority notes that Color Line appears to be referring to the upstream market for harbour services. However, this case is not about dominance in the upstream market for harbour services; rather, it concerns the downstream market for ferry services (as defined in Section 4.4 above), where it is undisputed that throughout the period under examination Color Line was the sole ferry operator with its route between Sandefjord and Strömstad. Moreover, the route had been operative for eight years (since 1986) at that stage, and passenger numbers had already grown significantly (see above, paragraph 67).463 Yet, Color Line faced no competition. It is not clear how any uncertainty attached to Norway’s potential EU membership and the ensuing loss of tax-free sales could impact upon Color Line being in a dominant position at that time as Color Line claims.

7.2.3 Conclusion on dominance

551. In the light of the foregoing, the Authority concludes that throughout the period under examination – that is, from 1 January 1994 to 20 December 2005 – Color Line held a dominant position in a substantial part of the EEA within the meaning of Article 54 EEA.

7.3 Abuse of dominance

7.3.1 The concept of abuse

552. The fact that an undertaking holds a dominant position is not in itself contrary to the competition rules; rather it is the abuse of such a position that is prohibited.

553. It is settled case law that the concept of an abuse within the meaning of Article 54 EEA is:

“an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those governing normal competition in products or services on the basis of transactions of commercial operators, has the effect of hindering the

463 Event # 553056, Color Line’s Reply to the SO, paragraphs 156 and 1074. Color Line describes passenger numbers in 1994 as “moderate” (Reply to the SO, paragraph 995), but the tables set out at paragraphs 156 and 1074 of its Reply to the SO (see above at paragraph 67) show that passenger numbers had risen from under 90,000 in 1986 to over 600,000 in 1994; and that from 1991 to 1994 passenger numbers doubled (from approximately 300,000 to over 600,000).

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maintenance of the degree of competition still existing in the market or the growth of that competition”.464

554. The effect referred to in that case law does not necessarily relate to any concrete or actual effect of the dominant undertaking’s behaviour. For the purposes of establishing an infringement of Article 54 EEA it is sufficient to show that the conduct of the undertaking in a dominant position tends to restrict competition or, in other words, that the conduct is capable of having or liable to have that effect.465

555. An undertaking enjoying a dominant position is under a special responsibility not to allow its conduct to impair genuine undistorted competition in the internal market.466 That special responsibility requires it to ensure that its conduct does not undermine effective and undistorted competition.467 Its scope must be considered in the light of the specific circumstances of each case which show that competition has been weakened.468

556. As a result, a dominant undertaking is subject to certain limitations that do not apply to other undertakings. A practice that would be unobjectionable under normal circumstances can amount to an abuse if carried out by an undertaking in a dominant position.

557. Thus, it follows from the nature of the obligations imposed by Article 54 EEA that, in specific circumstances, undertakings in a dominant position may be deprived of the right to adopt a course of conduct or take measures which are not in themselves abuses and which would even be unobjectionable if adopted or taken by non-dominant undertakings.469 Similarly, the ECJ has held that the strengthening of the position of an undertaking may be an abuse, “regardless of the means and procedure by which it is achieved”, and even “irrespective of any fault”.470

464 Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paragraph 91; Case 322/81 Michelin v Commission (Michelin I) [1983] ECR 3461, paragraph 70; Case C-62/86 AKZO v Commission [1991] ECR I-3359, paragraph 69; Case T-228/97 Irish Sugar v Commission [1999] ECR II-2969, paragraph 111; Case T-219/99 British Airways v Commission [2003] ECR II-5917, paragraph 241; Case T-271/03 Deutsche Telekom v Commission [2008] ECR II-477, paragraph 233. 465 Case T-203/01 Michelin v Commission (Michelin II) [2003] ECR II-4071, paragraph 239; Case T- 155/06 Tomra and Others v Commission, judgment of 9 September 2010, not yet published (under appeal in Case C-549/10 P). 466 Case 322/81 Michelin v Commission (Michelin I) [1983] ECR 3461, paragraph 57. 467 Case 322/81 Michelin v Commission (Michelin I) [1983] ECR 3461, paragraph 57. 468 Joined Cases C-395/96 P and C-396/96 P Compagnie Maritime Belge Transports SA and Others v Commission [2000] ECR I-1365, paragraph 114; Case T-83/91 Tetra Pak International SA v Commission (Tetra Pak II) [1994] ECR-II 755, paragraph 115. 469 Case 322/81 Michelin v Commission (Michelin I) [1983] ECR 3461, paragraph 57; and Case T- 111/96 ITT Promedia v Commission [1998] ECR II-2937, paragraph 139. 470 Case 6/72 Europemballage and Continental Can v Commission [1973] ECR 215, paragraphs 27 and 29; Case T-128/98 Aéroports de Paris v Commission [2000] ECR II-3929, paragraph 170.

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558. Article 54 EEA does not only aim at preventing practices that may cause damage to customers or to consumers directly, but also those that are detrimental to them through their impact on the competitive structure and thus on competition as such.471

559. According to consistent case-law, the list of abusive practices contained in Article 54 does not exhaust the methods of abusing a dominant position prohibited by the EEA Agreement.472

7.3.2 Color Line’s conduct was capable of restricting competition on the relevant market

560. Under the factual circumstance in the present case, as set out in detail above, the arrangement contracted in the harbour agreement between Color Line and the Municipality of Strömstad reserved to Color Line exclusive harbour access in Strömstad harbour. It explicitly prevented the Municipality from granting access to Torskholmen to any “competing ferry activities”, that is, to any potential future competitors of Color Line. That arrangement extended the legal exclusivity (initially four years) already existing under the initial 1989 agreement by a period of 15 years (from 1 January 1991 until 30 December 2005), with a right for Color Line to have the exclusivity arrangement even further extended thereafter by an additional 10 years, that is, from 31 December 2005 until 30 December 2015 (see section 3.3 above).

561. In entering into that arrangement, Color Line effectively reserved to itself exclusive rights of access to all available capacity at Torksholmen in Strömstad harbour for a very long period of time and independent of Color Line’s actual or future capacity needs in Strömstad harbour at that time.

562. At the same time, as demonstrated in detail in Section 5.4.5 above, during the period under examination there was a lack of genuine harbour alternatives along the Swedish coastline that potential new entrants could have made use of in order to enter the relevant market and compete with Color Line.

563. Consequently, the long-term exclusive reservation of the entire capacity of Torksholmen in Strömstad harbour resulting from its long-term harbour agreement with the Municipality of Strömstad enabled Color Line to prevent other ferry companies from gaining access to Torskholmen and, thereby, to shield its ferry services on the relevant market (as defined in section 4 above) from competition for a very long period of time.

471 Case 6/72 Europemballage Corporation and Continental Can Company Inc. v Commission [1973] ECR 215, paragraph 26; Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paragraph 125; Case C-95/04 P British Airways plc v Commission [2007] ECR I-2331, paragraph 106. 472 Case C-95/04 P British Airways plc v Commission [2007] ECR I-2331, paragraph 57; Case 6/72 Europemballage and Continental Can v Commission [1973] ECR 215, paragraph 26; Joined Cases C- 395/96 P and C-396/96 P Compagnie Maritime Belge Transports SA and Others v Commission [2000] ECR I-1365, paragraph 112.

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564. This contractual exclusivity thus resulted in the creation, by Color Line, the monopolist on the relevant market, of a significant additional barrier to entry on a market already characterised by significant entry barriers (Section 5.4.3). In addition, as also described above (Section 5.4.4), Color Line took active steps to enforce its long-term exclusive rights.

565. In the absence of the distortions resulting from Color Line’s long-term exclusivity under the harbour agreement, the likelihood that the relevant market for passenger ferry services with tax-free sales (as defined above) would have witnessed competition between ferry companies would have increased.

566. In the light of the above considerations, Color Line’s long-term exclusive harbour access arrangements at the very least tended to restrict competition and were capable of having restrictive effects on the relevant market within the meaning of Article 54 EEA, by foreclosing potential new entrants from the market.

567. In addition, and although not required to do so under the case law in order to establish an abuse of a dominant market position within the meaning of Article 54 EEA,473 the Authority has demonstrated in great detail in the present case the negative impact that Color Line’s exclusive harbour access arrangements in Torksholmen in Strömstad harbour had on potential competition. The exclusive access contracted between Color Line and the Municipality of Strömstad prevented potential competitors from accessing the relevant market, and so effectively foreclosed that market to new entrants (see above, Section 5.4).

568. Similarly, while Article 54 EEA does not require the Authority to examine specifically whether the conduct of the dominant undertaking has caused prejudice to consumers,474 new entry would almost certainly have led to positive effects on the relevant market in terms of price, quality and variety of services to the benefit of consumers (Section 5.4 above).

7.3.3 Color Line’s submissions regarding the finding of abuse

569. Color Line claims that “input exclusivity” can only constitute a restriction of competition if the input concerned represents a bottleneck or a scarcity and that the exclusive reservation of capacity is not treated as a formal infringement, but must be subjected to a concrete effects assessment before any abuse can be found under Article 54 EEA. It also argues that there is no case law where an agreement entered into by a non-dominant company is subsequently considered abusive.475

473 Case T-219/99 British Airways plc v Commission [2003] ECR II-5917, paragraph 293 (upheld on appeal in Case C-95/04 P British Airways plc v Commission [2007] ECR I-2331). 474 Case C-95/04 P British Airways plc v Commission [2007] ECR I-2331, paragraph 107. 475 Event # 553056, Color Line’s Reply to SO, paragraphs 997-1010. Color Line refers, inter alia, to the Commission’s Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings [2009] OJ C 45/7, points 20 and 35.

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570. Color Line claims that in the SO the Authority failed to conduct an independent analysis of whether there was an abuse, but simply recycled its Article 53 analysis. That approach, it claims, is contrary to the case law. It cannot be presumed that an agreement that falls within the scope of Article 53 must automatically be considered an abuse of a dominant position.476

571. Color Line argues that where the establishment of abuse depends on the establishment of anti-competitive effects through foreclosure of competitors, in an ex post perspective it must be substantiated that the conduct actually had such an effect. Color Line appears to argue that the potential effect must be concretised when an analysis of the alleged abusive conduct is made ex post.

572. Color Line argues that the Authority fails to take into consideration the special nature of the harbour agreement, which is in the form of a ground lease. It claims that the exclusive right to an (upstream) lease object must be considered as an inherent part of a lease agreement – subject to special regulation in this case under the Swedish Land Code – and, therefore, that the Authority must specifically provide reasons for why the characteristics of the relevant market would nonetheless indicate that such an agreement should be considered an abuse of a dominant position. It argues that both the distinctive nature of the harbour agreement and the particular commercial circumstances indicate that Color Line did not depart from normal competition in the market.477

573. Color Line also claims that the Authority has not established any relevant anti- competitive effects. The fact that alternative harbours are poorer or entail higher costs cannot mean that competition is foreclosed; the limit must be drawn at major disadvantages that have a prohibitive effect on entry on the market, in the sense that it is not profitable to build up the infrastructure for a service that corresponds to Color Line’s own.478

574. Further, until the rules were changed on 1 June 2002, Color Line argues, the requirement for a tax-free permit and the systematic refusal by the Norwegian authorities of applications from other companies constituted an absolute entry barrier.

575. Finally, Color Line claims, the Authority has not specified any actions that may be considered an abuse, beyond a reference to the harbour agreement.479

7.3.4 Assessment of Color Line’s submissions regarding the finding of abuse

576. None of Color Line’s arguments call into question the Authority’s finding that Color Line abused its dominant market position.

476 Event # 553056, Color Line’s Reply to the SO, paragraphs 1015-1019. 477 Event # 553056, Color Line’s Reply to the SO, paragraphs 1020-1029. 478 Event # 553056, Color Line’s Reply to the SO, paragraphs 1030-1040. 479 Event # 553056, Color Line’s Reply to the SO, paragraphs 1046-1055.

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577. As regards first, Color Line’s contention that the Authority, in its SO, merely recycled its assessment under Article 53 EEA for the purposes of appraising Color Line’s conduct under Article 54 EEA, the Authority notes that it based its relevant findings concerning Color Line’s abuse on case-specific findings of fact and law which demonstrate that all of the relevant criteria in Article 54 are fulfilled in this case.

578. As is demonstrated in the present Decision, as well as in the SO (section 6), the Authority defines the relevant market, establishes that Color Line had a dominant position on that market during the relevant period, and finds Color Line’s conduct, in its relevant legal and economic context, to have been abusive within the meaning of Article 54 EEA. In particular, the Authority finds, on the basis of its in-depth examination, that, in the circumstances of this case, the long-term exclusive harbour agreement tended to restrict competition and was capable of having restrictive effects on the relevant market and, consequently, amounted to an infringement under Article 54 EEA from 1 January 1994.

579. Moreover, Color Line has not demonstrated how the case law it relies on in support of its “recycling of arguments” claim supports that claim in the circumstances of the present case.480 Accordingly, the assertion remains unsubstantiated both as regards the present proceedings and in the light of the relevant case law. 481

580. Secondly, Color Line’s contentions that, (i) the Authority has not established any relevant anti-competitive effects; and (ii) where an abuse depends on the establishment of anti-competitive effects through foreclosure of competitors, in an ex post perspective it must be shown that the conduct had such an effect, cannot be accepted. For the purposes of establishing an infringement of Article 54 EEA it is sufficient under the existing case law to show that the conduct of the undertaking in a dominant position tends to restrict competition or, in other words, that the conduct is capable of having or liable to have that effect.482

480 It is true that in the Flat Glass judgment that Color Line cites (Joined Cases T-68, 77 and 78/89 SIV and Others v Commission [1992] ECR II-1403, paragraph 360), the then EU Court of First Instance held that the European Commission had “recycled” the facts constituting an infringement of then Article 85 EC and had based a finding of abuse of dominance on that basis, without carrying out any market survey to show that the parties in that case jointly held a substantial share of the market, that by virtue of that fact alone they held a collective dominant position, and that their unlawful behaviour constituted an abuse of that position. However, as demonstrated, no such flaw is present in the present investigation. 481 Indeed, in Van den Bergh Foods (Case T-65/98 Van den Bergh Foods [2003] ECR II-4653, paragraph 162), the then Court of First Instance rejected a similar complaint that the Commission had simply “recycled” facts constituting an infringement of Article 101(1) TFEU in order to find that the conduct in question also infringed Article 102 TFEU. The Court held that: “the Commission analysed the relevant market at length in the contested decision and concluded that HB had a dominant position on that market. The Commission then correctly concluded that by inducing retailers to obtain supplies exclusively from HB under the conditions referred to in paragraphs 159 and 160 above, HB had recourse to methods different from those which condition normal competition in consumer products”; see also Case T-155/06 Tomra and Others v Commission, judgment of 9 September 2010, not yet published, paragraphs 217-218 (under appeal in Case C-549/10 P). 482 See paragraph 554 above and the case law cited therein.

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581. In any event, the Authority has shown in the present Decision that Color Line’s long-term exclusive reservation of harbour access at Torksholmen in Strömstad had the effect of foreclosing potential competitors and therefore that it had restrictive effects. The Authority has carried out an in-depth analysis of possible alternative harbours, and reached the conclusion, after taking due account of Color Line’s arguments, that none of the possible alternatives constituted genuine harbour alternatives for new entry within a reasonable time frame for a potential new entrant seeking to penetrate the relevant market and compete with Color Line (see above, Section 5.4.5).483

582. As regards Color Line’s claim that the Authority fails to take into consideration the special nature of the harbour agreement, the Authority notes that clause 7 of the harbour agreement specifically targets competing ferry activities (paragraph 43 above) with a view to ensuring Color Line exclusive harbour access in Torskholmen. Color Line has pointed to the inherent nature of the exclusivity in its harbour agreement, which is in the form of a ground lease, but it has not argued that it was compelled to enter into long-term exclusivity by any obligation under Swedish law. In any event, the formal classification of an agreement under national law cannot be decisive for the classification of an agreement as abusive under Article 54 EEA. Furthermore, while the conclusion of lease agreements may in most circumstances form part of normal business conduct, Color Line has not shown that that is the case as regards the reservation, by a monopolist, of all capacity in a public harbour like Torksholmen in Strömstad. That strategically located harbour was the only public harbour on a long stretch of the Swedish coastline (see Section 5.4.5 above).

583. In relation to Color Line’s arguments regarding the tax-free regime, it suffices to refer to Section 5.4.8 above, which applies mutatis mutandis to Article 54.

584. As regards Color Line’s argument to the effect that the Authority has not specified any actions that may be considered an abuse beyond a reference to the harbour agreement, it is recalled that the Authority, in the present case, does not take issue with Color Line’s use of the Torksholmen harbour facilities in Strömstad as such, or with the fact that Color Line and the Municipality of Strömstad entered into a contractual agreement to that end. What the Authority takes issue with is the fact that Color Line reserved to itself in the harbour agreement, a right of exclusive access of up to 25 years to the entire capacity in that harbour. As has been demonstrated above, it is that conduct, and the resulting foreclosure of potential competition on the relevant market, which constituted an abuse of Color Line’s dominant position as from the entry into force of the EEA Agreement (and its competition rules) in Norway and Sweden on 1 January 1994.

483 The Authority also recalls that the General Court held in Tomra that foreclosure by a dominant undertaking of a substantial part of the market could not be justified by showing that the contestable part of the market was still sufficient to accommodate a limited number of competitors: Case T-155/06 Tomra and Others v Commission, judgment of 9 September 2010, not yet published (under appeal in Case C-549/10 P), paragraph 241.

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585. Indeed, from 1 January 1994, Color Line, as a dominant undertaking, had a special responsibility not to allow its conduct to impair genuine undistorted competition in the internal market. That responsibility must also apply to conduct which was commenced or engaged in prior to the entry into force of the EEA Agreement but which produced or continued to produce anti-competitive effects thereafter.484 Therefore, and contrary to Color Line’s claims, long-term exclusive agreements such as that at issue in the present case, which, in their legal and economic context, entail, and are capable of bringing about, anti- competitive effects, do not escape the prohibition on abuse of dominant market positions laid down in Article 54 EEA merely because the abusive conduct at issue in a specific case began prior to the entry into force of the EEA Agreement. Indeed, an interpretation of Article 54 EEA such as advocated by Color Line would deprive Article 54 EEA of its practical effectiveness.

7.3.5 Conclusion

586. The Authority concludes that Color Line has abused its dominant position within the meaning of Article 54 EEA unless it is able to show that there is an objective justification for the conduct at issue.

7.3.6 Objective justification

587. Exclusionary conduct can fall outside the prohibition of Article 54 EEA if the dominant company can demonstrate that its conduct is objectively necessary or produces efficiencies which outweigh the negative effect on competition.485

588. The dominant undertaking has the burden of proving such objective necessity or efficiency defence. Thus, it is for the dominant undertaking concerned, and not for the Authority before the end of the administrative procedure, to raise a plea of objective justification and to support it with arguments and evidence. It then falls to the Authority, where it proposes to make a finding of an abuse of a dominant position, to show that the arguments and evidence relied on by the undertaking cannot prevail and, accordingly, that the justification put forward cannot be accepted.486

484 Indeed, from 1 January 1994 undertakings had the possibility of notifying agreements concluded prior to that date for negative clearance. Thus, Article 2 of Chapter II of Protocol 4 SCA, in its original version, stated that: “upon application […] the EFTA Surveillance Authority may certify that […] there are no grounds under Article 53(1) or Article 54 of the EEA Agreement for action on its part in respect of an agreement, decision or practice”. Under Article 15(5) of Chapter II of Protocol 4 SCA, immunity against fines was granted “in respect of acts taking place after notification” provided they fell “within the limits of the activity described in the notification”. 485 Case 27/76 United Brands v Commission [1978] ECR 207, paragraph 184; Case T-83/91 Tetra Pak v Commission (Tetra Pak II) [1994] ECR II-755, paragraph 136; Case C-95/04 P British Airways v Commission [2007] ECR I-2331, paragraphs 69 and 86. 486 Case T-201/04 Microsoft v Commission [2007] ECR II-3601, paragraph 688.

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589. If the exclusionary effect of Color Line’s conduct bears no relation to advantages for the market and consumers, or if it goes beyond what is necessary in order to attain such advantages, that conduct must be regarded as an abuse.487

590. Color Line argues that its long-term exclusivity was objectively justified on the basis of efficiencies that resulted therefrom. It argues that the harbour agreement led to a substantial improvement in the services offered and that its long-term exclusive rights were necessary in order to secure stable, predictable and flexible harbour access and to allow it to make the investments in tonnage, facilities and marketing that made those developments and improvements possible. Color Line also argues that consumers have benefited considerably through a high frequency, high quality service, greatly improved since 1991, as evidenced by passenger growth since that time.488

591. The Authority notes first that it is unlikely that abusive conduct of a dominant company with a market position approaching that of monopoly – as here – can be justified on the ground that efficiency gains would be sufficient to counteract its actual or likely anti-competitive effects.489

592. Secondly, Color Line’s arguments in relation to possible objective justification are essentially the same arguments it puts forward in relation to Article 53(3). The Authority has assessed the merit of those arguments in detail in Section 6 above under each of the four conditions in Article 53(3) EEA.

593. In particular, the Authority has found that any efficiency gains brought about by the long-term exclusive harbour agreement have either been insufficiently substantiated or were, at best, limited in nature, and that Color Line has failed to show that the benefits of any efficiencies that can be said to have been brought about by its harbour agreement outweighed the harm to consumers resulting from its long-term exclusivity.

594. Even if improvements have been made in the harbour and in the service on the route, as referred to in Section 6 above, Color Line’s arguments are tantamount to claiming that it was entitled to reserve all capacity in the harbour for itself during a considerable period of time, and thereby exclude potential competition, so as to ensure that it could develop its service in the future. The commercial circumstances Color Line claims justified long-term exclusivity appear to be the company’s need for flexible, but stable and uninterrupted access to harbour facilities.490 While it might be possible in certain circumstances to justify long-

487 Case C-95/04 P British Airways v Commission [2007] ECR I-2331, paragraph 86. 488 Event # 553056, Color Line’s Reply to the SO, paragraphs 1063-1079. 489 See the Authority’s Guidelines on the application of Article 53(3) EEA, paragraph 92; and the Guidelines on Vertical Restraints, paragraph 127. 490 Event # 553056, Color Line’s Reply to the SO, paragraphs 1023 and 1027-1029.

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term exclusivity in order to safeguard certain interests/ initial sunk investments, exclusivity must be directly linked to those interests/investments.491

595. Color Line has not demonstrated any causal link between the long-term exclusive harbour agreement and the claimed improvements or enhancements, or shown that the agreement, which excluded competition, was objectively necessary for and proportionate to achieving economic benefits. Color Line simply asserts that long-term future capacity in the harbour was necessary in order to develop its ferry service but has not provided any evidence of planned expansion at the time of the agreement. Further, the Authority considers that Color Line could have ensured itself harbour access in Sweden by less restrictive means.

596. With regard to Color Line’s investments, the Authority has concluded in Section 6 above, on the basis of the available evidence, that the investments Color Line made in the harbours were at best very limited and in any event insufficient to justify the long-term exclusivity; that Color Line’s investments in tonnage on the route were only to a limited degree sunk; and that Color Line’s specific marketing costs on the route could not justify the long-term exclusivity.

597. Since the arguments relied on by Color Line do not fulfil the criteria in Article 53(3) EEA they cannot amount to objective justification under Article 54 EEA.

598. In the light of these considerations, Color Line’s plea of objective justification and the arguments and evidence it relies on cannot prevail. The Authority therefore concludes that Color Line has failed to show that the long-term exclusivity in its harbour agreement, which resulted in foreclosure of competition in the relevant market, was objectively justified.

7.3.7 Conclusion on the abuse assessment

599. In the light of the above, the Authority concludes that after the entry into force of the EEA Agreement the exclusive rights enjoyed by Color Line pursuant to the 1991 harbour agreement to use the harbour facilities at Torskholmen in Strömstad for a period of 25 (15 plus 10) years were, at the very least, capable of restricting competition. By maintaining those rights in force from 1 January 1994 until 21 December 2005 Color Line therefore abused its dominant position within the meaning of Article 54 EEA.

7.4 Effect on trade between Contracting Parties

600. Article 54 EEA prohibits the abuse of a dominant position within the territory covered by the EEA Agreement or in a substantial part of it insofar as it may affect trade between Contracting Parties. As has been demonstrated in paragraphs 451 to 453 above, international ferry services are by their very nature cross-border, and the relevant market for ferry services in this case forms a substantial part of the common market.

491 Guidelines on the application of Article 53(3) EEA, paragraphs 44 and 80; Guidelines on Vertical Restraints, paragraphs 123 and 202.

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601. In that light, Color Line’s abuse of its dominant position on the relevant market was capable of appreciably affecting intra-EEA trade within the meaning of Article 54 EEA.

7.5 Conclusion on Article 54 EEA

602. In the light of the foregoing, the Authority concludes that from 1 January 1994 until 20 December 2005 Color Line abused its dominant position on the relevant market within the meaning of Article 54 EEA.

8 DURATION OF THE INFRINGEMENT

603. In establishing the duration of the infringement of Articles 53 and 54 EEA, the Authority notes that the harbour agreement at issue was entered into in 1991. The Authority considers that the infringement commenced at the date of entry into force of the EEA Agreement, that is, on 1 January 1994. In maintaining the agreement from that time onwards, Color Line infringed both Articles 53 and 54 EEA.492

604. The Municipality of Strömstad declared on 21 December 2005 that it would no longer grant Color Line exclusive access, and Kystlink was allowed to establish itself in Strömstad harbour from November 2006 (see paragraph 47). Thus, at least until 20 December 2005, the harbour agreement excluded all potential competitors from access to Torskholmen.

605. Color Line has argued, regarding the duration of the infringement, that the rejection by the Norwegian authorities of all applications for tax-free licences other than Color Line’s prior to 1 June 2002 prevented entry into the relevant market, and, therefore, that there could be no infringement before that date in any event.493

606. However, the Authority has rejected Color Line’s arguments to the effect that the tax-free legislation created a legal framework which eliminated any possibility of competitive activity on the relevant market prior to 1 June 2002 such that Color Line is exonerated from liability under the EEA competition rules (see Section 5.4.8 above). Color Line’s arguments regarding the duration of the infringement must, therefore, also be rejected.

9 CONCLUSION ON THE INFRINGEMENT OF ARTICLES 53 AND 54 EEA

607. The Authority concludes that from 1 January 1994 to 20 December 2005 the long-term exclusive rights enjoyed by Color Line pursuant to the 1991 harbour agreement to use the harbour facilities at Torskholmen in Strömstad had the effect of preventing, restricting or distorting competition within the meaning of Article 53(1) EEA. The Authority further concludes that Color Line has not shown that the conditions laid down in Article 53(3) EEA are satisfied.

492 See Article 12 of Protocol 21 to the EEA Agreement. 493 Event # 553056, Color Line’s Reply to the SO, paragraphs 1041-1045.

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608. The Authority also concludes that from 1 January 1994 to 20 December 2005 the long-term exclusive rights enjoyed by Color Line pursuant to the 1991 harbour agreement to use the harbour facilities at Torskholmen in Strömstad were, at the very least, capable of restricting competition. The Authority further concludes that Color Line has not shown that there was any objective justification for maintaining its exclusive rights in force from 1 January 1994 until 20 December 2005, and that Color Line therefore abused its dominant position on the relevant market within the meaning of Article 54 EEA.

609. Therefore, Color Line’s conduct constituted an infringement of Articles 53 and 54 EEA.

10 LIABILITY FOR THE INFRINGEMENT AND ADDRESSEES OF THE DECISION

610. The subjects of the EEA competition rules are undertakings, a concept which is not identical to that of corporate legal personality for the purposes of national commercial or fiscal law. The undertaking that participated in the infringement is therefore not necessarily identical to the precise legal entity within the group of companies whose representatives actually took part in the infringement. The term “undertaking” may refer to any entity engaged in commercial activities. The case law has confirmed that Articles 53 and 54 of the EEA Agreement are aimed at economic units which consist of a unitary organisation of personal, tangible and intangible elements which pursue a specific economic aim on a long-term basis and can contribute to the commission of an infringement of the kind referred to in those provisions.494

611. Firstly, it falls, in principle, to the natural or legal person managing the undertaking in question when the infringement was committed to answer for that infringement.495 Thus, when an undertaking that has committed an infringement of the competition rules of the EEA Agreement subsequently disposes of the assets which contributed to the infringement and withdraws from the market in question, it continues to be answerable for the infringement if it has not ceased to exist.496 Liability for illegal behaviour may pass to a successor where the corporate entity which committed the infringement has ceased to exist. If the legal person initially answerable for the infringement ceases to exist and loses its legal personality, being purely and simply absorbed by another legal entity, that latter entity must be held answerable for the whole period of the infringement and thus is liable for the activity of the entity that was absorbed.497

494 See Case T-11/89 Shell International Chemical Company Ltd v Commission [1992] ECR II-757, paragraph 311; and Case T-352/94 Mo Och Domsjö AB v Commission [1998] ECR II-1989, paragraphs 87-96. 495 See Case C-279/98 P Cascades v Commission [2000] ECR I-9693, paragraph 78. 496 Case T-6/89 Enichem Anic v Commission (Polypropylene) [1991] ECR II-1623; Case C-49/92 P Commission v Anic Partecipazioni SpA [1999] ECR I-4125, paragraph 81. 497 See Case C-279/98 P Cascades v Commission [2000] ECR I-9693, paragraphs 78 and 79: “It falls, in principle, to the natural or legal person managing the undertaking in question when the

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612. In the case at hand, the company Scandi Line AS, incorporated under Norwegian law, operated the Sandefjord to Strömstad route and relied on the long-term exclusive agreement during the period from 1991 to 2000 (under the name of Color Scandi Line AS from 30 September 1998 (paragraphs 20 to 31 above). In 2000, Color Scandi Line AS was absorbed by Color Line AS. In 2007, Color Line AS transferred operation of the route to a newly established subsidiary, Color Line Transport AS (paragraph 32 above). Thus, the legal entity that operated the ferry route from Sandefjord to Strömstad and that relied on the long-term exclusivity remained the same from 1991 to 2005. Its current name is Color Line AS. Although Color Line AS has now divested operation of the route to its wholly-owned subsidiary Color Line Transport AS, it continues nevertheless to be liable for the infringement for the relevant period.498 Therefore, this Decision is addressed to Color Line AS, in its capacity as the legal entity that directly participated in the infringement addressed by this Decision for the period from 1 January 1994 to 20 December 2005.

613. Secondly, the anti-competitive conduct of an undertaking can be attributed to another undertaking where the undertaking directly participating in the infringement has not decided independently upon its own conduct on the market, but carried out, in all material respects, the instructions given to it by that other undertaking having regard in particular to the economic links between them.499 In the case of wholly-owned (or almost wholly-owned) subsidiaries, the infringement committed by a wholly-owned subsidiary is also attributable to the parent company, as the parent company is presumed to have exercised decisive influence over its wholly-owned subsidiary.500 However, the parent company and/or subsidiary may rebut this presumption by producing sufficient evidence that shows that the subsidiary decided independently on its own conduct on the market.501

614. Color Line AS has been part of Color Group AS since 30 September 1998. Color Group AS (previously Color Line ASA) is the parent company of Color Line AS, and has wholly owned (100%) Color Line AS since 30 September 1998. In those circumstances, there is a presumption that Color Group AS

infringement was committed to answer for that infringement, even if, when the Decision finding the infringement was adopted, another person had assumed responsibility for operating the undertaking ... Moreover, those companies were not purely and simply absorbed by the appellant but continued their activities as its subsidiaries. They must, therefore, answer themselves for their unlawful activity prior to their acquisition by the appellant, which cannot be held responsible for it”; and Joined Cases T- 259/02 to T-264/02 and T-271/02 Lombard Club [2006] ECR II-5169, paragraphs 319-336. 498 Case C-204/00 Aalborg Portland v Commission [2004] ECR I-123, paragraphs 355-358. 499 Case C-294/98 P Metsä-Serla Oyj [2000] ECR I-10065, paragraph 27; Case 107/82 AEG v Commission [1983] ECR 3151, paragraph 49; and Case 48/69 Imperial Chemical Industries [1972] ECR 619, paragraphs 132-133. 500 Joined Cases T-71/03, T-74/03, T-87/03 and T-91/03 Tokai Carbon a.o. v Commission [2005] ECR II-10, paragraph 60; Case T-354/94 Stora Kopparbergs Bergslags v Commission [1998] ECR II-2111, paragraph 80, upheld by the ECJ in Case C-286/98 P Stora Kopparbergs Bergslags v Commission [2000] ECR I-9925, paragraphs 27-29; and Case 107/82 AEG v Commission [1983] ECR 3l5l, paragraph 50. 501 Case C-97/08 P AKZO v Commission [2009] ECR I-8237, paragraphs 58-60.

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exercised decisive influence over the commercial policy of Color Line AS, its wholly owned subsidiary, from 30 September 1998 until at least 20 December 2005. As Color Line has not rebutted that presumption by adducing any evidence to show that Color Line AS acted on the market independently of Color Group AS, the Authority holds Color Group AS liable for the infringement of Articles 53 and 54 EEA identified in this Decision from 1 October 1998 until 20 December 2005.

615. This Decision is not addressed to the Municipality of Strömstad. The Authority has the discretion to decide not to bring proceedings against all undertakings that may have been involved in an infringement of the EEA competition rules.502 In the present case, the restrictive clauses were effectively imposed by Color Line or, at the very least, included in the agreement on its initiative (see paragraph 144 above). Those clauses were essentially to Color Line’s benefit, reserving it exclusive rights of access to all capacity at Torskholmen for 25 (15 plus 10) years, thereby strengthening its position in the relevant market in which it provided its ferry services, in which it enjoyed significant earnings, and in which the clauses produced their restrictive effects. Maintaining those exclusive rights in force amounted to abusive conduct within the meaning of Article 54 EEA. The evidence shows that the Municipality of Strömstad attempted to remove the long-term exclusivity provision from the harbour agreement during negotiations in 2000/2001, and that Color Line refused (see paragraphs 377- 380).503 Further, it was the Municipality which, despite substantial pressure from Color Line, decided in December 2005 to grant Kystlink access to Torskholmen (see paragraphs 186-187 and Section 5.4.7.3 above). In those circumstances, the Authority has decided not to pursue the infringement of Article 53 EEA against the Municipality of Strömstad.

616. On the basis of the above, this Decision is addressed to:

 Color Line AS from 1 January 1994 until 20 December 2005 by virtue of its direct participation in the infringement.

 Color Group AS from 1 October 1998 until 20 December 2005 as a result of its decisive influence over its wholly-owned subsidiary Color Line AS.

617. Each of those companies will be held jointly and severally liable for the infringement insofar as those periods of infringement overlap.504

502 Decision 2004/138/EC, Austrian Banks, OJ L 56 p.1, paragraph 472, upheld by the European Court of First Instance in Joined Cases T-259-264 and 271/02 Raiffeisen Zentralbank Österreich and Others v Commission ECR [2006] II-5169, paragraphs 134-147 (not appealed on this point). 503 Event 401822, correspondence between Color Line and the Municipality of Strömstad from 2000- 2001 regarding harbour fees and possible amendments to the agreement. Of particular relevance is the letter from Color Line dated 10 April 2001 (p. 76). 504 Case C-97/08 P AKZO v Commission [2009] ECR I-8237, paragraph 61.

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11 REMEDIES AND FINES

11.1 Article 7 of Chapter II of Protocol 4 to the Surveillance and Court Agreement

618. Where the Authority finds that there is an infringement of Articles 53 and/or 54 EEA it may by decision require the undertakings concerned to bring such infringement to an end in accordance with Article 7(1) of Chapter II of Protocol 4 to the Surveillance and Court Agreement and to impose any remedy which is proportionate to the infringement committed and necessary to bring the infringement effectively to an end.

619. Pursuant to Article 7(1) of Chapter II of Protocol 4 to the Surveillance and Court Agreement, if the Authority has a legitimate interest in doing so, it may also find that an infringement has been committed in the past.

620. This Decision finds that Color Line has committed an infringement of Articles 53 and 54 EEA for the period from 1 January 1994 until 20 December 2005. While the Authority considers, on the basis on the available evidence, that the infringement ceased on 20 December 2005, for the avoidance of doubt, the undertakings which remain active in the relevant market and to which this Decision is addressed should be required to bring the infringement to an end, if they have not already done so, and henceforth to refrain from any act or conduct which might have the same or similar object or effect.

621. The Authority also considers that it is necessary to adopt a decision for the following reasons.

 Color Line continues to deny that its behaviour was contrary to Articles 53(1) and 54 EEA.

 Color Line was able to remain as the sole operator on the relevant market and on a number of occasions took action to deter new entry so as to ensure that that remained the case.

 The long-term exclusive harbour agreement prevented other ferry operators from gaining access to Torskholmen and thereby foreclosed the relevant market for a substantial period of time.

 Without the restriction on potential competition, it is likely that the market would have delivered greater benefits to consumers as a whole, such as increased choice and innovation, and lower prices.

 It is important for the proper functioning of the single market that anti- competitive practices committed by market players are not tolerated.

622. As explained in Section 11.2 below, the Authority has the power to impose fines and has decided to do so in the present case. It is established case law that the express power to impose fines necessarily entails a power to find an

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infringement,505 and that the Authority’s power to impose fines is in no way affected by the fact that the Authority considers that the conduct constituting the infringement has ceased.506

11.2 Article 23(2) of Chapter II of Protocol 4 to the Surveillance and Court Agreement

623. Under Article 15(2) of the previous Chapter II of Protocol 4 to the Surveillance and Court Agreement and under Article 23(2) of Chapter II of Protocol 4 as it now stands,507 the Authority may by decision impose fines on undertakings which, either intentionally or negligently, infringe Articles 53 and/or 54 EEA. Any fine imposed shall not exceed 10% of the undertaking’s total turnover in the preceding business year.

624. The ECJ has ruled that it is not necessary for an undertaking to have been aware that it was infringing the rules of competition laid down in the TFEU for an infringement to be regarded as having been committed intentionally. It is sufficient that it could not have been unaware that the contested conduct had as its object or effect the restriction of competition.508 The same applies with regard to the competition rules of the EEA Agreement.

625. In the present case, the Authority considers that, based on the facts described in this Decision and the assessment set out above, the addressees of this Decision could not have been unaware that the harbour agreement had as its effect the restriction of competition.509 It is recalled that Color Line was able to remain the sole operator on the relevant market throughout the period under examination, and on several occasions took action to ensure that that remained the case. As a result, the addressees of this Decision must be regarded as having intentionally, or at least negligently, committed the infringement of Articles 53 and 54 EEA established in this Decision.

626. In fixing the amount of the fine, pursuant to Article 23(3) of Chapter II of Protocol 4 to the Surveillance and Court Agreement the Authority must have regard to all relevant circumstances and in particular to the gravity and duration of the infringement. In setting the fines to be imposed, the Authority will refer

505 Case 7/82 GVL v Commission [1983] ECR 483, paragraph 23; Joined Cases T-22/02 etc. Sumitomo Chemicals Co. Ltd. and others v Commission [2005] ECR 4065, paragraph 36. 506 Case 41/69 ACF Chemiefarma NV v Commission [1970] ECR 661, paragraph 175; Joined Cases T- 22/02 etc. Sumitomo Chemicals Co. Ltd. and others v Commission [2005] ECR 4065, paragraph 37. 507 The previous version of Chapter II of Protocol 4 to the Surveillance and Court Agreement was replaced by a new version through an Agreement of 24 September 2004 between the EFTA States amending Protocol 4 to the Surveillance and Court Agreement following the incorporation of Regulation (EC) No 1/2003 into the EEA Agreement (see Article 3(1)(3) of Protocol 21 to the EEA Agreement). The Agreement of 24 September 2004 between the EFTA States entered into force on 20 May 2005. 508 Case 246/86 Belasco and others v Commission [1989] ECR 2117, paragraph 41; Case C-279/87 Tippex v Commission [1990] ECR I-261, paragraph 165; and Case T-59/99 Ventouris Group Enterprises SA v Commission [2003] ECR II-5257, paragraph 54. 509 Case T-59/99 Ventouris Group Enterprises SA v Commission [2003] ECR II-5257, paragraph 54.

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to the principles laid down in its Guidelines on the method of setting fines and will set the fines at a level sufficient to ensure deterrence.510

627. In the light of the above considerations, and having regard to the circumstances in the present case, in particular the monopoly position of Color Line throughout the relevant period and the nature and duration of the infringement, the Authority concludes that it is necessary to impose a fine on the addressees of this Decision for the breach of the EEA competition rules which has been identified.

628. Although the Authority has identified an infringement of the EEA competition rules from 1 January 1994, in exercising its power to impose fines, the Authority has decided, exceptionally, under the wide margin of discretion that it enjoys in setting fines, and in the light of the particularities of the present case, not to impose a fine for the entire period of the infringement.511

629. In doing so, the Authority, firstly takes into consideration the fact that the harbour agreement, which was concluded in 1991, had been in force for three years prior to the entry into force of the EEA Agreement on 1 January 1994.

630. Secondly, the Authority gives some weight, insofar as the first years of the infringement are concerned, to the fact that the EEA competition rules resulted in a new competition regime in the EEA EFTA States which was significantly different from the national competition law regimes applicable in those States at the time.

631. Thirdly, the Authority takes into account the time that elapsed between the entry into force of the EEA Agreement and the submission of the complaint in December 2005 (paragraph 8 above).

632. Fourthly, while there were several applications to obtain a tax-free licence for envisaged short routes between Norway and Sweden, weight is given to the fact that, on the basis of the Authority’s investigation, the evidence suggests that the first major attempts at establishing a competing route comparable to Color Line’s route occurred several years after 1994 (Bastø-Fosen in 1998/99; Larvik- Strømstadlinjen in 2000-2002); and to the fact that by the late 1990s the turnover on the Sandefjord – Strömstad route had reached very significant levels.

633. In the light of these considerations, the Authority has decided to exercise its discretion to impose fines only for the period of the infringement committed from 1 January 1999 until 20 December 2005.

510 Guidelines on the method of setting fines imposed pursuant to Article 23(2) of Chapter II of Protocol 4 to the Surveillance and Court Agreement, OJ C 314, 21.12.2006, p. 84 and EEA Supplement to the OJ No 63, 14.12.2006, p. 44. 511 The Guidelines on the method of setting fines provide that: “Although these Guidelines present the general methodology for the setting of fines, the particularities of a given case or the need to achieve deterrence in a particular case may justify departing from such methodology”, paragraph 37. See Case C-248/98 NV Koninklijke KNP BT v Commission [2000] ECR I-9655, paragraph 45.

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634. In this case, the addressees of the Decision have committed a simultaneous infringement of two provisions of the EEA Agreement. The Authority considers that fines should not be applied cumulatively in respect of the same set of facts and time period, and, therefore, that a single fine should be imposed. It follows that no increase in the fine is applied due to the fact that both Articles 53 and 54 EEA have been infringed. In the same way, the fine imposed is not apportioned between those two Articles but is applied to the infringement of the EEA competition rules as such.

11.3 The basic amount of the fine

11.3.1 Calculation of the value of sales

635. As a general rule, the basic amount of the fine is to be set at a level up to 30% of the value of sales in the relevant geographic area within the EEA of the products/services to which the infringement directly or indirectly relates. The Authority normally takes the sales made by the undertaking during the last full business year of its participation in the infringement.512 In this case that is 2004.

636. According to information provided by Color Line, its turnover in 2004 on the Sandefjord – Strömstad route amounted to NOK 899.683 million.513 That is equivalent to approximately EUR 107.492 million.514

11.3.2 Determination of the basic amount of the fine

637. The basic amount of the fine is related to a proportion of the value of sales, depending on the degree of gravity of the infringement, multiplied by the number of years of the infringement.515

11.3.2.1 Gravity

638. In order to decide whether the proportion of the value of sales to be considered in a given case should be at the lower end or at the higher end of the scale, the Authority carries out a case-by-case analysis, taking into account all of the relevant circumstances of the case. The Authority has regard to a number of factors, such as the nature of the infringement, the market share of the undertakings concerned and the geographic scope of the infringement.516 Those factors are analysed below.

512 Guidelines on the method of setting fines, paragraphs 4-18. 513 Event # 600018, reply from Color Line dated 1 June 2011. 514 The average exchange rate for 2004 was 1 EUR:NOK 8.3697 according to the European Central Bank’s historical Euro foreign exchange reference rates. 515 Guidelines on the method of setting fines, paragraph 19. 516 Guidelines on the method of setting fines, paragraphs 12 and 14.

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11.3.2.1.1 Nature of the infringement

639. In its assessment of the gravity of the infringement in this case, the Authority takes into account, in particular, the following factors.

 In a market already characterised by high barriers to entry, the harbour agreement excluded the possibility for other companies to operate ferry services from the port of Torskholmen in Strömstad and thereby foreclosed the relevant market for a substantial period of time (see Sections 5.4.2 and 7.3 above).

 Color Line’s conduct allowed it to maintain a monopoly position on the relevant market during the relevant period (see Sections 5.4.2 and 7.3 above).

 After 1 January 1999, Color Line took action to deter new entry (see Section 5.4.4 above).

 Color Line enjoyed significant earnings on the route (see Section 3.4.4 above) which, under normal conditions, is likely to have attracted new entry.

11.3.2.1.2 Market share

640. Color Line was in a monopoly position on the relevant market for the entire duration of the infringement, it was an unavoidable trading partner for all passengers wishing to travel between Sandefjord and Strömstad, and it did not face any competition at all during the period under examination.

11.3.2.1.3 Geographical scope of the infringement

641. The Authority takes into account the fact that the 1991 harbour agreement applied to ferry services which were cross-border in nature and affected competition on a route between two EEA States, thereby distorting competition in the internal market.

642. On the other hand, the Authority also takes account of the fact that the infringement only affected a single route and did not extend to other routes operated by Color Line to and from Norway.

11.3.2.1.4 Conclusion on gravity

643. In conclusion, having regard to all of the factors discussed above and taking into account the specific circumstances of this case, the Authority considers that the proportion of the value of sales to be used to establish the basic amount of the fine should be 2.5%.

11.3.2.2 Duration

644. According to paragraph 24 of the Guidelines on the method of setting fines: “In order to take fully into account the duration of the participation of each undertaking in the infringement, the amount determined on the basis of the value of sales […] will be multiplied by the number of years of participation in

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the infringement. Periods of less than six months will be counted as half a year; periods longer than six months but shorter than one year will be counted as a full year.”

645. Color Line’s infringement commenced on 1 January 1994 and continued until 20 December 2005 – a total of 11 years, 11 months and 20 days.

646. However, as explained above, due to the particularities of the present case, the Authority has exceptionally decided only to impose fines from 1 January 1999 until 20 December 2005 (six years, 11 months and 20 days).

647. The overall duration of the period taken into account by the Authority for the calculation of the fine therefore amounts to 7 years.

11.3.3 Conclusion on the basic amount of the fine

648. On the basis of the above, the basic amount of the fine is fixed at EUR 18.811 million.

11.4 Mitigating circumstances

649. According to the Guidelines on the method of setting fines, the basic amount of the fine may be reduced where the Authority finds that mitigating circumstances exist, such as the undertaking providing evidence that it has terminated the infringement as soon as the Authority intervened; the infringement has been committed as a result of negligence; the undertaking has effectively cooperated with the Authority outside the scope of the Leniency Notice517 and beyond its legal obligations to do so; or where the anti-competitive conduct of the undertaking has been authorised or encouraged by public authorities or legislation.518

650. The Authority considers that there are no mitigating circumstances in the present case.

11.5 Aggravating circumstances

651. The basic amount of the fine may be increased where the Authority finds that there are aggravating circumstances, such as where an undertaking continues or repeats the same or a similar infringement after the Authority or a national competition authority has made a finding that the undertaking infringed Articles 53 or 54, or for refusal to cooperate with or obstruction of the Authority in carrying out its investigations.519

517 Notice on immunity from fines and reduction of fines in cartel cases, OJ C 294, 3.12.2009, p. 7 and EEA Supplement to the OJ No 64, 3.12.2009, p. 1. 518 Guidelines on the method of setting fines, paragraph 21. The Guidelines list other types of possible mitigating circumstances but these apply mainly to cartels. 519 Guidelines on the method of setting fines, paragraph 20. The Guidelines list other types of possible aggravating circumstances but these apply mainly to cartels.

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652. The Authority considers that there are no aggravating circumstances in this case.

11.6 Conclusion

653. In view of the considerations above, the final amount of the fine to be imposed on Color Line is set at EUR 18.811 million.

654. In 2010 the turnover of Color Group AS was NOK 4 508.912 million (EUR 563.311 million).520

655. The fine does not exceed 10% of the total turnover of the undertaking participating in the infringement in the business year preceding this Decision.

520 Event # 600018, reply from Color Line dated 1 June 2011. Exchange rate 2010, 1 Euro: NOK 8.0043, according to the European Central Bank’s historical Euro foreign exchange reference rates.

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HAS ADOPTED THIS DECISION:

Article 1

Color Line AS and Color Group AS have infringed Article 53 and Article 54 of the EEA Agreement through the long-term exclusive rights enjoyed by Color Line AS pursuant to the harbour agreement contracted with the Municipality of Strömstad in 1991, as follows:

a) Color Line AS, by virtue of its direct participation in the infringement, from 1 January 1994 until 20 December 2005;

b) Color Group AS, as a result of its decisive influence over its wholly-owned subsidiary Color Line AS, from 1 October 1998 until 20 December 2005.

Article 2

For the infringement referred to in Article 1 for the period from 1 January 1999 to 20 December 2005, a fine of EUR 18.811 million is imposed on Color Line AS and Color Group AS, for which they are jointly and severally liable.

Article 3

The fine shall be paid into the following bank account within three (3) months of the date of notification of this Decision:

Account No: 363-0750881-44 of the EFTA Surveillance Authority with: ING Bank, 23 Rue Champ de Mars, B-1050 Brussels Code SWIFT: BBRUBEBB Code IBAN: BE55 3630 7508 8144

After the expiry of that period, interest shall automatically be payable at the interest rate applied by the European Central Bank to its main refinancing operations on the first day of the month in which this Decision is adopted plus 3.5 percentage points.

Article 4

The undertakings referred to in Article 1 shall immediately bring to an end the infringements referred to in that Article, insofar as they have not already done so.

They shall refrain from repeating any act or conduct described in Article 1, and from any act or conduct in the future which might have the same or equivalent object or effect.

Article 5

This Decision is addressed to:

Color Line AS Hjortnes 0250 OSLO Norway

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and

Color Group AS Bryggegata 3 0250 OSLO Norway

Done at Brussels, 14 December 2011

For the Authority,

Oda Helen Sletnes Sverrir Haukur Gunnlaugsson President College Member

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