Kiri

LOGOS

TO THE EFTA COURT

Reykjavík, 13 December 2024

APPLICATION FOR ANNULMENT

PURSUANT TO ARTICLE 36 OF THE SURVEILLANCE AND COURT AGREEMENT

by

Toska ehf., registration no.670112-0390, Síðumúla 20, 108 Reykjavik ("Toska"), and Lyf og heilsa hf., registration no. 650299-2649, Síðumúla 20, 108 Reykjavik ("L&H"), as the applicants

represented by supreme court attorney-at-law Halldór Brynjar Halldórsson, LOGOS legal services, Efstaleiti 5, 103 Reykjavik

The EFTA Surveillance Authority ("ESA") as the defendant

seeking the annulment of the EFTA Surveillance Authority Decision No. 158/24ICOL of 3 October 2024, presented to the applicants on 14 October 2024, to submit to an inspection in accordance with Article 20 (4) of Protocol 4 to the Surveillance and Court Agreement.

A. THE CONTESTED DECISION

1. On Monday 14 October 2024, representatives of ESA conducted an inspection at the premises of the applicant L&H. The inspection was concluded on Friday 18 October 2024. During the inspection, ESA seized 687 items, all the property of the applicant L&H.

2. The grounds for the inspection was ESA's decision no LSB/24ICOL of 3 October 2024, obliging the applicant Toska ehf. (the applicant's L&H ultimate parent company), and all its subsidiaries, to submit to an inspection, in accordance with Article 20 (4) of

Registered at the EFTA Court under NºE-31/24-01 on 13 day of December 2024.

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Protocol 4 to the Surveillance and Court Agreement (the "contested decision" or the "decision").

3. The applicants maintain that the EFTA Court should annul the contested decision and declare it void. As the contested decision was addressed to the applicant Toska, and all items seized during the inspection were the property of the applicant L&H, Toska's subsidiary, both applicants have standing to challenge the decision.

4. ESA's decision stipulates that it is in possession of information, indicating that the applicant Toska, and in particular the applicant L&H, has and still may be, participating in concerted practices, in breach of Article 53 of the EEA Agreement, together with SKEL rjórfestingafélag hf. ('SKEL"), in particular its subsidiary LyÍjaval ehf. ("Lyfjaval").

5. The decision maintains in paragraph 3 that the alleged concerted practice consists of the following:

a, An asset swap agreement dated 26 April 2022, between Lyf & heilsa hf. and Lyfjaval ehf., with certain "traditional pharmacies" of the parties, which were subsequently closed;

b. Coordination on Lyrjaval's "neill policy" for "car pharmacies";

c. Limitation of Lyf & Heilsa's capacity to open "car pharmacies" and Lyfjaval's capacity to open "traditional pharmacies."

6. Paragraph 4 of the decision states that according to ESA's information, the parties (SKEL and its subsidiaries, in particular Lyrjaval on the on hand, and Toska and its subsidiaries, in particular L&H on the other), operate pharmacies both within and outside the capital area. The paragraph goes on to state that 70olo of the retail sale of medicine in Iceland is sold within the capital area. Thus, the paragraph concludes, "the alleged concerted practice includes a significant part of the lcelandic market."

7. Paragraph 5 of the decision states that according to ESA's information, the alleged concerted practice may have started "at least" in May 2O2I, and may still be ongoing. This unsupported statement is difficult to reconcile with the fact that SKEL did not become Lyrjaval's indirect owner until sometime after 7 September 2021, cf. paragraph 13 of this application.

B. In the first place, the applicants maintain that ESA lacked competence to take the contested decision, as it should have been both clear and obvious to ESA that it does not have jurisdiction over the alleged infringements, as even if founded, they are not capable of affecting trade between the contracting parties to the EEA Agreement, within the meaning of Article 53 of the EEA Agreement.

9. Secondly, the applicants maintain that the contested decision contains insufficient reasoning, in particular due to the fact that the alleged infringement outlined in the decision, had already been notified as mergers under Icelandic competition law and approved as such. That fact furthermore leads to the contested decision being in breach of the fundamental rights of legal certainty, ne bid in idem and no dual process, enshrined in the EEA Agreement and the ECHR,

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IO.Third, the applicants maintain that ESA did not objectively fact check the information the decision is said to be based on, leading it to conduct the inspection on the basis of factually false premise. Thus, ESA did not have sufficient grounds (indicia) to justify an inspection, which also constitutes a separate breach of the proportionality principle, as the information could have been fact checked and proven misguided, through less intrusive means.

B. FACTUAL BACKGROUND

11.The applicant Toska is a holding company with no independent operations, the ultimate owner of the applicant L&H. The latter applicant operates pharmacies located around Iceland. The applicant Toska is also the ultimate owner of the company Faxar ehf., which owns all real estate in which the applicant's L&H pharmacies are operated.

L2.Lyfjaval was previously owned by two individuals, Mr. Þorvaldur Arnason and Ms. Auður Harðardóttir. It was purchased by Lyfsalinn ehf., a subsidiary of SKEL, in June 202L

13. The merger between Lyfsalinn ehf. and Lyfjaval was cleared by the Icelandic Competition Authority by its decision no. 34/2021, dated 7 September 2Q21. Thus, SKEL became the ultimate owner of Lytjaval ehf, after that date, the specific date of which is not being known be the applicants.

14.In the spring and summer of 202t, the applicant L&H attempted to sell its loss making pharmacy located in the outlet of Glæsibær, Reykjavik. The sale process proved unsuccessful, with no interested parties making an offer.

15. On 26 April 2022, Lyfjaval and Faxar ehf., entered into an asset swap agreement (the "asset swap"), whereby Faxar ehf. sold its retail space in the outlet Glæsibær, in which the applicant L&H's pharmacy had been operated, to Lyfjaval's, for Lyfjaval's retail space in the outlet Mjódd, Reykjavik. The contested decision incorrectly states that the asset swap was entered into between Lyfjaval and the applicant L&H.

16.As the applicant L&H and Lyrjaval are competitors, the parties treat carefully in all discussions and no sensitive business information exchange took place, All communication was through intermediaries, with the applicant L&H utilizing the financial advisor Jón Scheving Thorsteinsson, and Lyfjaval utilizing the lawyer Einar Sverrisson.

17.The parties notified the Icelandic Competition Authority (the'ICA") of the asset swap as a merger within the meaning of Article t7 of the Icelandic Competition Act no. 44/2OO5 (the "Competition Act"). Article 3,1, of the asset swap specifically stated as a requirement that the transaction would not be completed until the conditions of Article 17 were fulfilled.

18.The ICA confirmed on 25 October 2022 that the merger notification was complete within the meaning of Article 17 , and that the time limits for the ICA to intervene had therefore started to lapse.

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19.In the latter stages of the merger process, the ICA reversed course, suddenly stating on 1 March 2023, its view that the transaction did not constitute a merger within the meaning of Article 17 of the Icelandic Competition Act, and dropped the investigation.

20.The parties appealed that decision of the ICA to the Competition Appeals Committee (the "CAC", in Icelandic: ófrfjunarnefnd samkeppnismóla), which rendered its rulings in cases no. I/2O23 and 2/2023, on 9 August 2023. The rulings annulled the ICA's decision to drop the investigation, stating i.a. that:

"By confirming a complete merger notification, the ICA was obligated to assess the competitive effects of the merqer in ouestion, in conformity with the Competition Act and rules no. 1390/2020." (p. 19) (emphasis added).

"If the appellant's views on the transaction had changed, or new evidence surfaced which changed the ICA's views on the transaction, that could naturally possibly lead to the ICA annullina the meraer or imposing remedies." (emphasis added). (p. 20)

"The ICA is hereby instructed to finish the process of the merger case in conformity with the competition act, with reference to the fact that the time limits stÍpulated in the act started lapsíng on 26 October 2022...'4

21, Thus, the Competition Appeals Committee clearly held that the transaction constituted a merger within the meaning of the Icelandic Competition Act.

22.As the time limits to intervene in a merger had lapsed, the ICA closed the matter with a letter dated 18 September 2023. However, the letter stated that the ICA was of the view that the transaction did not constitute a merger within the meaning of the Competition Act, contrary to the clear findings of the CAC, of which the ICA is bound by law. Thus, Icelandic law stipulates the clear rule of law that a lower authority governmental entity is bound by decisions and rulings of a higher authority governmental entity. The ICA further stated that its preliminary assessment, that the transaction entailed market sharing in breach of Article 10 of the Competition Act, remained unchanged,

23,As regards the allegation of market sharing between "traditional pharmacies" and "car pharmacies", the applicants note that the contested decision appears to be based on a misunderstanding of the facts.

Z4.Thus, all "car pharmacies" in Iceland are also "traditional pharmacies". This stems from the simple fact that Icelandic law clearly states that every physical pharmacy must have an entrance where customers can enter, and a secluded space where

1 Translation LOGOS. In Icelandic: "Við móttöku ó fultnægjandi samrunatilkynningu hvítdi sú skytda ó Samkeppniseftirlitinu að taka viðkomandi mél til rannsóknar og meta samkeppnisleg éhrif umrædds samruna í samræmi við ékvæði samkeppnislaga og reglur nr. 1390/2020."t...l"Hafi afstaða éfrijanda til þeirra viðskipta sem lógu að baki samrunatilkynningunni tekið breytingum eða nf gögn haft í för með sér breytingar af hétfu Samkeppniseftirlitsins til rannsóknar mólsins gat það eðli mólsins samkvæmt mögulega haft það í för með sér að éstæða þætti til að hafna samrunanum eða setja honum skilyrði af þeim sökum." t...1 "Fr því tagt fyrir Samkeppniseftirlitið að ljúka samrunamélsinu í samræmi við ékvæði samkeppnislaga, að teknu tittiti til þeirra lögbundnu tímafresta sem byrjuðu að líða 26. október 2022, sbr. 7. mgr. 17. gr. d. Samkeppnistaga."

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customers can consult with a pharmacist in private, cf. Article 26 of Regulation no. 7340/2022.2 Accordingly, customers can enter all "car pharmacies" in Iceland on foot.

25. From the reading of the contested decision, this key fact does not appear to have been known to ESA.

26. The applicants would however like to point out that they have not been of the view that pharmacies with a drive through option is an attractive option for their business. For that reason, they have not opened such a pharmacy to date, almost two decades after the first such pharmacy was opened in Iceland. The applicant L&H, who's CEO is a certified pharmacist, thus maintains that the development of the market is likely to be through more personal and tailor-made services to customers, provided by pharmacists. This is difficult to establish via drive-through services.

27.The emphasis of certain competitors on those types of services can in the applicants' view primarily be explained by the fact that they are owned by holdings companies which also own petrol stations. These holding companies thus own properties primarily located for drive-through services, which need a new role with the decline of the petrol market.

28, Conversely, the applicants own no such prime real estate. Nevertheless, and notwithstanding the CEO's firm believe referred to above, the applicant L&H has reviewed possible opportunities to open a new pharmacy with a drive through option. In particular, two such opportunities were reviewed carefully but ultimately were not considered economica lly viable.

C. FIRST PLEA - LACK OF COMPETENCE

29.8y its first plea, the applicants argue that ESA lacked competence to take the contested decision, as the alleged infringements are not capable of affecting trade between the Contracting Parties, within the meaning of Article 53 of the EEA

Agreement.

30. According to Article 53 of the EEA Agreement , "all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Contracting Pafties and which have as their object or effect the prevention, restriction or distortion of competition within the territory covered by this Agreement are prohibited as incompatible with the functioning of the Agreement." Therefore, it is a necessary condition, for certain conduct to be considered unlawful within the Article, that the conduct may affect trade between the member states to the Agreement.

2 Paragraps 1-2 of the Article read as follows: "Í ryryaOlA sem afgreiðir tyf tit sjúklings eða umboðsmanns hans yfir afgreiðsluborð skal vera fyrir hendi samtalsaðstaða sem gerir viðskiptavinum kleift að ræða í einrúmi við lyfjafræðing eða lyfjatækni. Sé lyf afgreitt í gegnum netverslun með lyf eða aðrar fjarskiptaleiðir er heimilt að samtalsaðstaða sé é formi netspjalls eða í gegnum síma.

Skal aðstaða þar sem afhending lyfja fer fram vera útbúin með þeim hætti að aðstaðan geri viðskiptavinum kleift að ræða í næði við lyfjafræðing, lyfjatækni eða annað þjólfað starfsfólk og hægt sé að s,ina sjúktingi eða umboðsmanni hans lyf og veita róðgjöf."

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31.The effect on trade criterion defines the scope of application of EEA competition law. If agreements or practices are not capable of appreciably affecting trade between EEA states, EEA competition law, and therefore Article 53 of the EEA Agreement, is not applicable.

32.The retail pharmaceutical market in Iceland is, and has always been, considered local in nature, i.e. geographically limited to certain areas within lceland, or restricted to certain neighborhoods. In previous decisions by the ICA, no. 2B|1OLB and 9/2O2I, the ICA concluded that the market for retail sales of pharmaceutical products was geographically limited to Mosfellsbaer, a town located close to Reykjavik which however in any other context has always been considered a part of the greater Reykjavik capital area. To be precise, the geographical Icelandic retail pharmaceutical market has never been considered Iceland as a whole.

33. Under the merger investigation of the aforementioned asset swap, the ICA issued a Statement of Objection dated 13 February 2023. In its statement, the ICA's preliminary conclusion was that the mergers entailed "harmful local competitive effects of the area containing Mjodd and its immediate surroundings" and "harmful local competitive effects of the area containing Glæsibær and its immediate su rrou nd i ngs".

34. Furthermore/ in its Statement of Objection, the ICA referred to a decision by the CMA, the British Competition and Markets Authority from 2016, concerning a merger between Celesio and Sainsbury's.3 The ICA stated that CMA's inspection relied, among other things, on an analysis of a number of competitors to identify areas where there was a risk of competition problems following the merger. The areas served by the pharmacies of Celesio and Sainsbury's were investigated, but the area was generally within a radius of 2.3 to 5.5 km from each pharmacy located in adjacent conurbations, cities and towns, and a radius of 3.7-7.5 km in rural and very rural areas. Where the merger affected competition, the distance between the merging parties' pharmacies was generally short, or from about 50 meters to about 2

km (5.5 km in exceptional cases). Substitutability was considered high, or in the range of 37o/o to B9o/o, In response to the aforementioned distortion of competition, the merging parties agreed to divest pharmacies in the aforementioned areas following the merger.

35. Further, the ICA referred to its previous decision no. 2B/2OIB, where in the opinion of the ICA, numerous observations by the ICA indicated that competition in the retail pharmaceutical market was very local. Thus, the results of an observation among pharmacy licensees where they were asked, among other things, about their main competitor were that 42o/o of respondents named a main competitor that was located 1 km away or less, 72o/o nðmed a main competitor 2 km away or less and BBo/o

named a main competitor 3 km away or less. Only three respondents named a main competitor that was more than 3 km away. The ICA concluded that this indicated that important competitors in the retail sale of medicines are generally close to each other, which indicates that competition is very local.

3 The decision is available at: chrome- extension ://efaidn bmnn n ibpcajpcglclefindmkaj/https://assets. pu blishing. service.gov. u k/med i a/56a9e335e527 4 a24e900000a/Fu ll_text_decision-Celesio-Sainsburys. pdf.

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36.In 2006 ESA issued guidelines on the effect on trade concept contained in Article 53 of the EEA agreement,a In its own guidelines, ESA stipulates that in case of agreements that cover only part of an EEA state, it must be taken into account what proportion of the national territory is susceptible to trade. Furthermore, the ESA guidelines stipulate the following :

Where an agreement forecloses access to a regional market, then for trade to be appreciably affected, the volume of sales affected must be significant in proportion to the overall volume of sales of the products concerned inside the EEA State in question. 1...1

In general, the best indicator of the capacity of the agreement to (appreciably) affect trade between EEA States is therefore considered to be the share of the national market in terms of volume that is being foreclosed.

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Agreements that are local in nature are in themselves not capable of appreciably affecting trade between EEA States. This is the case even if the local market is located in a border region.

37.The contested decision seems to derive mainly from the asset swap, The agreement concerned an asset swap, whereby Faxar ehf. gave up the retail space in the outlet of Glæsibær, in which the applicant L&H's pharmacy had been operated, in exchange for Lyfjaval's retail space in the outlet Mjódd, Reykjavik. The agreement therefore concerned two retail spaces for pharmacies, in two small distinct local shopping outlets.

38.In its Statement of Objection, the ICA concluded that within a 2 km radius of Glæsibær, in total 10 pharmacies were being operated: 4 by the applicants, 2 by Lyfja, 1 by Lyfjaver, 1 by Efstaleiti Apotek, 1 by Farmasia and 1 by Borgar Apotek, The ICA therefore concluded that "fol/owing the merger it can be assumed that Lyfjaval will face competitive constraints from pharmacies owned by five competitors within a two-kilometer radius of Glæsibær." Furthermore, the ICA stated: The Competition AuthorÍty's preliminary assessment is that the merging parties are each other's closest competitors in G[æsibær, which wíll lead to a significant distortion of competitíon as a result of the merger."The following picture was depicted in the Statement of Objection:

a See here : https ://eur-lex.europa.eu/lega l- content/ENÆXT/PDF/?uri=CELEX: E2006C1130(01)&qid=L4L2259258329&from= EN

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42.The applicants cannot assume otherwise than that outside the depicted radius, the asset swap would not entail competitive effects.

43.To this end, it should also be noted that according to the ICA, there is not even a competitive constraint or effect between pharmacies in Mjódd on the one hand and Glæsibær on the other, as they fall outside of each other's 2 km radius.

44.The applicants refer to the Judgment of the EU Court (First Chamber), case no. C- 393/08, EU:C:2010:388, paragraph 32:

"In that regard, however, it is ouite obvious that the national legislation at issue in the main proceedings, relating to the possible grant of an exemption in relation to the opening periods of a pharmacy located in a specific municipal area of the municioality of Rome cannot in itself or bv its application, affect trade between Member States within the meanina of Articles 87 EC and 82 EC (see, a contrario, Case B/72 Vereniging van Cementhandelaren v Commission [1972] 977, paragraph 29; Case C-179/90 Merci convenzionali porto di Genova [1991] ECR I-5889, paragraphs 74 and 75; and Case C-35/99 Arduino [2002] ECR I-1529, paragraph 33)." (emphasis added)

45.The annual turnover of the applicants' pharmacies in Glæsibær and Mjódd combined amount to approx. 2o/o of the total turnover of all pharmacies located in the greater Reykjavik capital area and thus even a less share of the entire country. The volume of sales affected by the asset swap is therefore insignificant in proportion to the overall volume of sales of the products concerned inside the EEA State in question, as required to significantly affect trade, per ESA's own guidelines. No retail sales of pharmaceutical products across the borders of the EEA states take place. In fact,

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such a cross border retail sale is illegal, cf. Article 37 of Act no. IOO/2020 on Medicine. Further, its pricing is largely determined by relevant authorities.

46.In the contested decision, ESA stipulates the following in recital (4):

"According to the information available to the Authority, the involved undertakings operate pharmacies as pharmacy chains both within and outside the Reykjavik capital area. In the Reykjavik capital area almost 70o/o of all retail sales of pharmaceuticals in Iceland take place. Therefore, the alleged anti-competitive conduct covers a significant part of the lcelandic market."

47.It follows from the aforementioned case-law, and even the ICA merger cases regarding the same conduct that falls under the contested decision, that pharmaceutical markets are by their nature very local, The fact presented by ESA, that "[i]n the Reykjavik capital area almost 70o/o of all retail sales of pharmaceuticals in lceland take place" has in fact no practical significance in justifying ESA's jurisdiction. ESA's statement has no causal link with the alleged conduct. If such a

statement is sufficient to justify the contested decision, it is hardly difficult for ESA to simply justify all decisions of inspections without there being actual effect on trade under Article 53 EEA, and thereby extend ESA's competence far beyond the EEA Agreement. In the same way as in the contested decision, ESA could in effect claim that the relevant undertakings are active in Iceland and "700o/o of all retail sales of pharmaceuticals in lceland take place in lceland and therefore the conduct covers a significant part of the lcelandic markets."

48. Such an oversimplistic statement cannot, in the opinion of the applicants, justify a coercive measure such as an inspection carried out in the entire offices and other areas of the applicant's private business area. In this regard and although it may not be relevant to the substantive assessment of the Court, it should nevertheless be noted that ESA's investigation took a full working week (Monday to Friday), with the number of ESA and ICA agents exceeding all the employees in the applicant's office, occupying all the company's meeting rooms for a full working week and effectively rendering the applicants business activities virtually inoperable the entire week.

49,It is of the opinion of the applicants that such an extensive coercive measure by a public entity, requires a substansive assessment by the Court, especially when such a measure is justified, based upon simplistic statements by the same public entity, which believes that it has no duty to further explain or objectively justify, as the applicants where in fact, on the first day of the inspection, informed by ESA agents that if the applicants were to seek an order from an Icelandic national court to assess the legality of the inspection, such a measure would be considered an unlawful obstruction of the inspection, subject to fines by ESA.

50,It is clear from the fact that ICA agents were present during the investigation and from ICA's press lease, that ESA was assisted by ICA before and during the inspection,s In light of ICA's previous investigation into the same conduct as that under the contested decision, ESA must be required to explain and argue, in glaring

s See: https://www.samkeppni.islutgafa,/frettir/eftirlitsstofnun-efta-framkvaemir-fyrirvaralausa-athugun

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contradiction to ICA's conclusion into the same conduct, why the alleged unlawful conduct has in its opinion effect on trade between EEA States, where the ICA was of the opinion, when assessing the same transaction, that it could not affect competition outside a small radios around two local shopping outlets. Such arguments have as of yet not been presented to the applicants.

51. With reference to all of the above, ESA lacks jurisdiction for the contested decision

D. SECOND PLEA - INSUFFICIENT REASONING - LACK OF LEGAL CERTAINTY - DUAL PROCESS AND NE BIS IN IDEM

52.8y its second plea, the applicants maintain that the contested decision contains insufficient reasoning, in particular due to but not limited to the fact that the alleged infringement outlined in the decision, had already been notified as mergers under Icelandic Competition Act and approved as such.

53.In the contested decision, recital (3) point (a), ESA specifies that the applicants had conducted the suspected infringement of Article 53 of the EEA Agreement, by way of the asset swap. ESA specifies that the asset swap concerned "certain traditionat pharmacies of the Parties which were operated but later closed in Mjoddin (Mjódd) and Glaesibaer (GIæsibær)".

54,The applicants refer to the fact that the asset swap, which the applicant L&H was in fact not a party to but Faxar ehf., was in fact notified to the Icelandic Competition Authority (ICA) as a merger, under Article 17 of the Icelandic Competition Act.

55.The agreement consisted of the selling of retail spaces in two local outlets, located in different suburbs in Reykjavik, Mjóddin on the one hand, and Glæsibær on the other. Both Parties owned a retail space in each centre, where they hosted their pharmacies. The applicant L&H purchased Lyfjaval's retail space in Mjoddin and in exchange, Lyrjaval purchased the applicant's retail space in Glæsibær. This transaction met the required criteria for a merger within the meaning of the Icelandic Competition Act as well as the EUMR and therefore, they were notified to the ICA as two separate mergers.

56.The applicants note that the ICA confirmed on 25 October 2022that the merger filing was indeed complete, which in turn led to phase I of the investigative period to begin. Furthermore, this confirmation by the ICA also confirmed that the transactions were indeed a merger, thus procedural rules on merger investigations of the transactions ex-ante applied. During the investigation the ICA issued a Statement of Objections, After receiving responses from both parties, the ICA decided to discontinue its evaluation of the concentrations, neither confirming nor annulling the mergers.

57. On appeal, the CAC found that the ICA had acted unlawfully by discontinuing its review without either approving or prohibiting the mergers. The CAC ruled that the ICA was required to conclude the merger cases in accordance with the Icelandic Competition Act. Since the ICA failed to issue decisions within the investigative period deadline, the concentrations were effectively approved following CAC rulings No. L/2O23 and 2/2023.

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58.The applicants therefore respectively submit to the EFTA Court that the alleged unlawful conduct, as described in the contested decision, has in fact already been reviewed and approved by the relevant authorities, following the CAC rulings. The harmonized system for merger filings assumes that mergers which are notified and approved are not subsequently subject to retrospective infringement investigations by competition authorities, A contrary approach would undermine the effectiveness, predictability, and legal certainty essential for parties to a concentration,6

59. Due to the contested decision, the applicants have in fact received approval for their notified merger by way of CAC rulings, but subsequently have now lost all necessary legal certainty regarding the lawfulness of their transaction, thereby compromising predictability and rendering the system for ex-ante merger proceedings ineffective, The applicants submit that concentrations should not be subject to retrospective, ex- post review under Article 53 of the EEA Agreement after having undergone and been approved through ex-ante assessment.

60. Furthermore, the ICA decided to conclude its investigation by stating that the merger filings were incomplete, due to alleged lack of information provided by the applicants. However, the ICA also stated that this decision had no effect on the current investigation by the ICA that the transactions violated Article 10 of the lcelandic Competition Act, which is substantially identical to Article 53 of the EEA Agreement, In its Statement of Objection, ICA further contended that the concentrations could violate Article 10 of the lcelandic Competition Act and Article 53 of the EEA Agreement through market sharing.

61,Therefore, it seems ICA had already received sufficient information to assess the alleged unlawful conduct which ESA has now based its contested decision on.

62. Not only has the conduct been approved through CAC rulings, but the applicants seems to be subject of not only both ex-ante and ex-post investigations of the same conduct, but also the subject of dual procedures, whereas ICA seems to be still investigating the alleged breach of Article 10 of the Icelandic Competition Act at the same time the applicants received the contested decision of ECA of a possible breach of Article 53 of the EEA Agreement, It should be noted in this regard, that according to Article 26 of the Icelandic Competition Act, if the ICA so requests, when Icelandic courts apply the provisions of the Icelandic Competition Act in relation to agreements between undertakings, decisions of associations of companies, or concerted practices within the meaning of Article 53(1) of the EEA Agreement, which could affect trade between parties to the EEA Agreement, they shall also apply Article 53 of the EEA Agreement in relation to such agreements, decisions, or concerted practices.

63.The applicants submit that the contested decision appears to rest entirely on the same factual and legal allegations presented by the ICA during the merger procedures, whereas there is significant overlap between the approved mergers cf. CAC rulings, and the contested decision.

64. With reference to all of the above, the applicants submit that ESA does not have the authority to reexamine the same conduct ex post under Article 53 of the EEA

6 See Illumina v Commission, C-6lI/22 P and C-625/22 P, E|:C:2O24'.677, paragraph 206.

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Agreement, resulting in ESA lacking competence to issue the contested decision on this basis, whereas concentrations defined by the ECHR are governed exclusively by merger rules, and cannot be subject to ex-post investigations under Article 53 of the EEA Agreement.

65.In light of the above, the applicants maintain that the contested decision infringes upon the applicants' fundamental rights of legal certainty and no dual process, enshrined in the EEA Agreement. Further, the applicants could legitimately expect that the transactions had been ruled lawful by the relevant authorities. Thus, the subsequent investigation by ESA infringes upon the applicants' rights of ne bis in idem, protected by Article 4 to Protocol 7 the ECHR, enshrined in the EEA Agreement.

66.According to Article 16 of the Surveillance and Court Agreement the decisions of ESA shall state the reasons for which they are based. The reasoning required under Article 16 of the Surveillance and Court Agreement must align with the measure in question and clearly and unequivocally present ESA's rationale, This ensures that the affected parties can understand the basis for the measure, allowing them to defend their rights, and enables the Court to carry out its review. The contested decision should therefore detail the characteristics of the suspected infringement, including the market believed to be impacted, the nature of the suspected restrictions on competition, the sectors involved in the alleged infringement, and how the undertaking is thought to be implicated.

67.This obligation cannot generally be reduced based on the need for investigative efficiency. ESA must demonstrate that it has in fact solid evidence of a possible infringement. While it is not required to include this evidence in the decision, it must confirm that its files contain sufficient information to justify the investigation.T The applicants submit that these conditions have not been met.

68. Paragraph 5 of the contested decision states that according to ESA's information, the alleged concerted practice may have started "at least" in May 202I, and may still be ongoing. The applicants maintain that the contested decision regards potential unlawful conduct between the applicants and "SKEL fjérfestingafélag hf." However, SKEL did not have control over Lyrjaval, until sometime after 7 September 2O2L, cf. ICA decision no. 34/2024 which regarded the purchase of Lyrjaval by SKEL. Prior to that date, SKEL did in fact not have control over Lyfjaval. SKEL publicly notified of its purchase of Lytjaval on June 25 2027, whereas the purchase was made subject to approval by the ICA.8 Therefore, the applicants maintain, that any alleged concerted practice, between the applicants and SKEL, could not have taken place "af least in May 2027", as stated by ESA in the contested decision, as SKEL was not at that time active on the pharmacy market through any control over Lytjaval. In fact, nowhere in the contested decision is it further explained what is supposed to have happened in May 2021-

69. Paragraph 3, recital (B) and (C) stipulate that the alleged concerted practice consist of coordination on Lyfjaval's "new policy" for "car pharmacies" and limitation of the

7 See Casino, Guichard-Perrachon and AMC v Commission,T 249/17, EIJ:T:2O2O:458, paragraph 114I See: https: //www.o lobenewswire.com/news-release/2021l06/25l2253386/0/is/Skeljuno u r-hf- KauÞtilboo/oC3o/o B0i- Lvfsa lans-ehf-o/oC3o/oAD-Lyfiava l-ehf-samYoC3go BEykkt-skeliunq ur-hf-eig nast- sa m h lioloC3Yo B0a -oloC3o/oBEvo/oC3o/oAD-56-o/oC3o/oAD- Lyfsalan u m-ehf-ga nqi- ka uoin-eftir. html

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applicant L&H's capacity to open "car pharmacies" and Lytjaval's capacity to open "traditional pharmacies. "

70.As explained in para. 24 above, no such thing as "car pharmacies" exists in lceland, and all pharmacies are in fact"traditional pharmacies".

71.Therefore, the applicants are by Icelandic pharmaceutical laws unable to conduct the alleged unlawful concerted practice, as the applicants cannot conduct a concerted practice to limit Lyfjaval to only operating "car pharmacies", as all pharmacies must in fact and by law also be "traditional" walk-in pharmacies".

72. Furthermore, prior to the asset swap, which led to Lytjaval closing its operation in Mjódd, the company had already opened a new pharmacy in Suðurfell, located just 1

km from its former pharmacy in Mjódd. The new pharmacy is in direct competition with the applicant's L&H pharmacy located in Mjodd, as there is only approx. 1km between the two pharmacies. To that effect, the closing of Lyfjavals branch in Mjódd had no effect on competition, as the company had already opened up and operated a new and improved pharmacy close to Mjódd.

73.The applicants maintain that the only referred date in the contested decision is in fact the date of the asset swap, which was notified to the ICA. In all other respects, it seems that the contested decision is presented solely to justify ESA's jurisdiction in the case.

74. Considering all of the above, the applicants maintain that the contested decision does not meet the criteria of Article 16 of the Surveillance and Court Agreement. Thus, the contested decision does not sufficiently reason:

a. How transactions which the relevant competent authority in lceland has deemed to be mergers, and approved as such, can also constitute an infringement of Article 53 of the EEA Agreement;

b. How the applicants could restrict Lyfjaval's capacity to open "traditional pharmacies";

c, How it could possibly make sense for the applicants to let a small competitor, Lyfjaval, restrict its capacity to open "car pharmacies";

d. How alleged concerted practices can have begun "at least" at a point in time where only one of the parties was active on the market;

E. THIRD PLEA INSUFFICIENT GROUNDS AND BREACH PROPORTINALITY PRINCIPTE

OF

75.8y its third plea, the applicants maintain that ESA did not objectively fact check the information the decision is said to be based on, leading it to conduct the inspection on the basis of factually false premise. Thus, ESA did not have sufficient grounds in the form of valid evidence (indicia) to justify an inspection, rendering it illegal,

76, The applicants maintain that this also constitutes a separate breach of the proportionality principle, as the information could have been fact checked and proven misguided, through less intrusive means.

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77.The applicants note in this regard that it should be borne in mind that in accordance with settled case-law, the interpretation of a provision of EU law requires account to be taken not only of its wording but also of its surrounding context and the objectives and purpose pursued by the act of which it forms part, cf. the ECJ's judgment in case C-690/2OP, Casino, Guichard-Perrachon SA and Achats Marchandises Casino SAS v. the Commission, para, 82. The applicants maintain that the same must be held to apply in EEA law.

TB.Taking into account the surrounding context, the object and purpose of an inspection decision, ESA cannot take such a decision unless, at the date of the decision, it has in its possession "sufficiently serious indicia" of the existence of an alleged infringement, to justify an inspection (see Casino, Guichard-Perrachon SA and Achats Marchandises Casino SAS v. the Commission previously cited, para. I22).

79,The applicants maintain that the EFTA Court must review whether such indicia existed at the time of the decision, Other result could lead to arbitrary use of ESA's powers, endangering the fundamental rights of the parties, enshrined in the EEA Agreement and the ECHR, including but not limited to Article 8 of the ECHR.

80. The applicants maintain that ESA cannot have had such a sufficiently serious indicia at the time of the contested decision. In fact, as has been specifically outlined under the second plea above, ESA based its decision on a serious misrepresentation of the actual facts,

B1.To that effect, the applicants refer to the submissions made under the second plea, and highlight in particular the following:

a. ESA cannot have a sufficiently serious indicia of SKEL and Toska having begun the alleged concerted practices "at least in May 2027", when SKEL did not obtain indirect control of Lyrjaval until after 7 September 2O2I;

b. The contested decision incorrectly states that the asset swap was entered into between the applicant L&H and Lyfjaval, where the fact is that it was entered into between Faxar ehf. and Lyfjaval;

c, The contested decision appears to be based on the false premise that the Icelandic pharmacy market can be segmented into "traditional pharmacies" and "car pharmacies", Since 2005, when the first pharmacy with a drive through option was opened in Iceland, the Icelandic Competition Authority has never made such a distinction in its extensive practice on the pharmacy market, The simple fact is that no such distinction can be made, as all pharmacies with a drive through option in Iceland are also "walk in" pharmacies, as obligated by law;

d. Thus, no such thing as "car pharmacies" exists. It follows that ESA cannot have any sufficiently serious indicia that the applicants have "limited Lyfjaval's capacity to open "traditional pharmacies"" or Lyfjaval has "limited Lyf og heilsa's capacity to open "car pharmacies"", as is maintained in the contested decision;

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e As the asset swap constituted of two notified and approved mergers under Icelandic law, ESA cannot have had any indicia that they constituted an infringement of Article 53 of the EEA Agreement. This is especially serious in light of the fact that the contested decision specifically states that the ICA was consulted, which nevertheless does not seem to have brought this fact to ESA's attention;

f. The same goes with the fact that as pharmacy markets have been defined narrowly in Iceland by the ICA itself, consisting at most of a 2 km radius, ESA could not have had any indicia that the asset swap could be capable of affecting trade between the contracting parties, within the meaning of Article 53 of the EEA Agreement;

I. The fact that the contested decision refers to neither of these two clear facts, nor any other information from the ICA's merger file which is exculpatory for the applicants, seems to indicate that either ESA cherry picked the facts outlined in the contested decision, or the ICA did the cherry picking before submitting it to ESA,

82.In either case, the contested decision does not objectively lay out the actual facts, The applicants maintain that in the absence of an objective factual basis, ESA cannot have held a sufficiently serious indicia to justify taking the contested decision,

83. The applicants further maintain that this separately constitutes a breach of the proportionality principle and ESA's investigatory duties.

84.Thus, had ESA fulfilled its investigatory duties, by fact checking and thoroughly reviewing the factual background in an objective manner, there would have been no need for the contested decision, as no indicia would exist of a breach. An inspection went far beyond what was necessary to assess that there could be no indicia of a

breach, infringing the proportionality principle.

35.According to Article 20, recital (1) of Section V of protocol 4 of the surveillance and court agreement, on the functions and powers of the EFTA surveillance authority in the field of competition, ESA' powers of investigations are based upon the indispensable requirement that the inspection is necessary, for ESA to carry out its duties,

86.The inspection conducted at the premises of the applicants was an overwhelming coercive measure, whereas it must be assumed that ESA, which exercises public authority, has a duty to ensure that the action in question is necessary to achieve the stated objective. It is quite clear that the alleged unlawful conduct had already been investigated in detail by the ICA, whereas the ICA had obtained numerous documents from the applicants, incl. the asset swap agreement, and even presented the applicants with a Statement of Objections,6T pages long, accompanied by 150 documentary evidence.

B7.In the Statement of Objections, the ICA even concluded that its preliminary assessment was that the conduct could perhaps infringe Art. 53 of the EEA Agreement. This hardly indicates anything other than that the ICA already considered that it had all the relevant information at its disposal to be able to conclude in its

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initial assessment that the conduct might infringe the aforementioned provision. From this it can hardly be considered that about a year and a half later, it was necessary, within the meaning of Article 20, recital (1) of Section V on the functions and powers of the EFTA surveillance authority in the field of competition, for ESA, another authority to submit the applicants to an on-site inspection, due to the same conduct.

BB.To this extent, it must also be borne in mind that both Icelandic Competition rules and Art. 11 of Section IV of Protocol 4 of the surveillance and court agreement, on the functions and powers of the EFTA surveillance authority in the field of competition, assume a high level of cooperation between ESA and ICA, data sharing and the obligation to provide each other with all relevant information.

89,The applicants maintain that given the information and documents the applicants had already provided to the ICA, the indispensable requirement of necessity of the contested decision, was not met.

F. ADOPTION OF A MEASURE OF ORGANIZATION OF PROCEDURE

90.According to Article 57 of the Rules of Procedure of the EFTA Court, the purpose of measures of organization of procedure shall be to ensure that cases are prepared for hearing, procedures carried out, and disputes resolved under the best possible conditions. According to Article 57(3), measures of organization of procedure may, consist of asking the parties for information or particulars, asking the parties to produce documents or any papers relating to the case as well as inviting the parties to make written or oral submissions on certain aspects of the proceedings,

91.The applicants submit that it is necessary for the review of the contested decision, that all relevant documents obtained by ESA prior to the contested decision are at the Courts disposal, as the applicants has as of yet not received any documents of such, other than the contested decision itself.e Unless ESA produces the documents, the applicants cannot take adequate measures to protect their interests in the proceedings. Further, if the documents are not provided, the applicants maintain that the Court cannot ascertain whether ESA had sufficiently serious indicia to justify the contested decision, and must annul it.

92. The applicants reserve the right to submit further evidence, information and reasoning as appropriate, allowed by the Court and with the objective of ensuring the case is as informed as possible. The applicants furthermore cordially request to be given the opportunity to present their views in response to the arguments and documents presented by the defendant, as allowed by the Court.

e See e.g. the judgments in Intermarché Casino Achats v Commission,T 254/17, EU:T:2020:459, paragraph 14,..and Les Mousquetaires and ITM Entreprises v Commission, T-255l17,ÉU:T:2O2'.46O,paragraph 18, as well as Öeské dróhy v Commission, T-325/16, EU:T:2018:368, paragraphsT2et seq, Öeské dróhy v Commission, T- 62Ilt6, EU:T:2018:515, paragraphs 14 and 3l-34, and Deutsche Bahn and others v Commission, T-289/Il,f- 290/fi and T 521111, EU:T:2013:404, paragraphs 28, 132 and 182

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G. FORM OF ORDER SOUGHT

93. Based on the foregoing, the applicants respectfully request the Court to:

1. Annul ESA decision no. L5B/24/COL, dated 3 October 2024, requiring Toska ehf. together with all undertakings directly or indirectly, solely or jointly controlled by it, including Lyf and heilsa hf,, to submit to an inspection in accordance with Article 2O(4) of Chapter II of Protocol 4 to the Surveillance and Court Agreement;

2. Adopt a measure of organisation of procedure ordering ESA to produce all of the documents and other information on the basis of which it considered on the date of the contested decision that it had sufficient justification to carry out an inspection at the applicants' premises, and requesting the applicants to express its views on the documents and information produced;

3. Order ESA to pay the costs of the proceedings.

***

Reykjavik, 13 December 2024, LOGOS legal services

vJl"bG? Halldór Brynjar Halldórsson, supreme court attorney

Avenue des Arts 19H, B-1000 Brussels, tel: +32 2 286 18 11, www.eftasurv.int

Brussels, 03 March 2025 Case No: 93334 Document No: 1510481

ORIGINAL

IN THE EFTA COURT

DEFENCE

Submitted, pursuant to Article 107 of the Rules of Procedure of the EFTA Court, by

THE EFTA SURVEILLANCE AUTHORITY

represented by Claire Simpson, Daniel Vasbeck, Sigrún Ingibjörg Gísladóttir

and Melpo-Menie Joséphidès, Department of Legal & Executive Affairs,

acting as Agents, in

CASE E-31/24

Toska ehf. and Lyf og heilsa hf.

Applicants

v

EFTA Surveillance Authority

Defendant

regarding the application, pursuant to Article 36 of the Agreement between the EFTA

States on the Establishment of a Surveillance Authority and a Court of Justice (“SCA”),

for the annulment of Decision No 158/24/COL of 3 October 2024 of the EFTA

Surveillance Authority in Case No 91392, requiring Toska ehf. together with all

undertakings directly or indirectly, solely or jointly controlled by it, including Lyf og

heilsa hf., to submit to an inspection pursuant to Article 20(4) of Chapter II of Protocol

4 to the SCA.

Registered at the EFTA Court under NºE-31/24-06 on 3 day of March 2025.

Table of Contents

1 INTRODUCTION ................................................................................................1

1.1 OVERVIEW .................................................................................................1

1.2 PRELIMINARY REMARKS AND FACTUAL BACKGROUND .....................1

1.2.1 The Authority had sufficiently serious indicia to suspect the Applicants’ involvement in an infringement ...........................................................................3

2 FIRST PLEA: THE STANDARD FOR EFFECT ON TRADE WAS MET .............7

3 SECOND PLEA:THE DECISION COMPLIES WITH THE OBLIGATION TO

STATE REASONS; NO BREACH OF THE PRINCIPLES OF LEGAL CERTAINTY

OR NE BIS IN IDEM ................................................................................................ 11

3.1 LEGAL PRINCIPLES GOVERNING THE REQUIREMENT TO STATE REASONS: COMPETITION INSPECTION DECISIONS ..................................... 11

3.2 NO FAILURE TO STATE REASONS ........................................................ 14

3.2.1 The Decision was sufficiently reasoned ................................................. 14

3.2.2 The complaints raised at Application ¶¶68-74 are irrelevant to the Second Plea and/or unfounded ...................................................................................... 15

3.3 NO BREACH OF THE PRINCIPLES OF LEGAL CERTAINTY OR NE BIS IN IDEM ................................................................................................................ 18

4 THIRD PLEA: SUFFICIENTLY SERIOUS INDICIA WERE PRESENT; NO

BREACH OF THE PRINCIPLE OF PROPORTIONALITY ....................................... 22

4.1 LEGAL PRINCIPLES ................................................................................ 22

4.2 EXISTENCE OF SUFFICIENTLY SERIOUS INDICIA .............................. 23

4.3 NO BREACH OF THE PROPORTIONALITY PRINCPLE ......................... 27

5 REQUEST FOR A MEASURE OF ORGANISATION OF PROCEDURE .......... 29

6 CONCLUSION .................................................................................................. 30

7 SCHEDULE OF ANNEXES .............................................................................. 31

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1 INTRODUCTION

1.1 OVERVIEW

1. The Authority hereby responds to the application (“the Application”) of Toska ehf. and

Lyf og heilsa hf. (“the Applicants”), for the annulment of Decision No 158/24/COL of

3 October 2024 of the EFTA Surveillance Authority in Case No 91392 (“the Decision”).

2. The Decision requires the Applicants to submit to an inspection ordered by the

Authority under Article 20(4) of Chapter II of Protocol 4 to the SCA.1

3. The Applicants request the Court to: (i) annul the Decision; (ii) adopt a measure of

organisation of procedure ordering the Authority to produce the information and indicia

on the basis of which the Authority adopted the Decision; and (iii) order the Authority

to pay the costs of the proceedings.

4. In support of its action for annulment, the Applicants raise three pleas: (i) that the

Authority lacked competence to adopt the Decision, because the alleged

infringement(s) were not capable of affecting trade within the meaning of Article 53

EEA; (ii) that the Decision contains insufficient reasoning, in particular as the alleged

infringement(s) had already been approved as mergers by the Icelandic Competition

Authority (Samkeppniseftirlitið) (“ICA”), which means also that the Decision breaches

the principles of legal certainty and ne bis in idem; (iii) that the Authority did not

objectively verify the information in its possession (on which the Decision was based),

and thus did not have sufficiently serious indicia to justify an inspection, in breach also

of the principle of proportionality.

5. In the Authority’s submission, and for the reasons given below, the Application should

be dismissed in its entirety.2 Before addressing the three pleas, the Authority makes

the following preliminary remarks.

1.2 PRELIMINARY REMARKS AND FACTUAL BACKGROUND

1 “Chapter II Protocol 4 SCA”. 2 To the extent that this Defence does not expressly address points set out in the Application, this does not constitute acceptance of the Applicants’ position.

2

6. At its heart, the Application is based on two erroneous factual presumptions, namely

that the Authority: (i) seeks merely to reinvestigate an asset swap agreement of 26

April 2022 (“the asset swap agreement”) in relation to “two small distinct local

shopping outlets”;3 and (ii) did not have sufficiently serious indicia providing reasonable

grounds for suspecting the Applicants’ involvement in a competition law infringement.

These factual presumptions are flawed, as follows.

7. First, the suspected infringement which forms the subject matter of the Decision is not

the (local) asset swap agreement of 26 April 2022. Instead, the Decision clearly

identifies the suspected infringement as anticompetitive coordination of the conduct of

Toska4 (the operator of a pharmacy chain) with its competitor SKEL5 (the operator of

a pharmacy chain) on the Icelandic retail pharmacy market.6 Recital 3(a) of the

Decision specifies that the asset swap agreement is one of the ways in which this

anticompetitive coordination may have been implemented. In other words, the asset

swap agreement and its execution constitute indicia of suspected wider anticompetitive

collusive conduct, which is of a different geographic and temporal scope, pre- and post-

dating the asset swap7. It is this wider suspected collusion which the Decision seeks

to investigate. The Applicants’ failure to acknowledge this means inter alia that: (i) their

arguments on effect on trade (the First Plea) in relation to the “local”8 nature of the

asset swap are misguided and ineffective (Section 2 below); (ii) the arguments under

the Second Plea that the Authority is seeking to “reexamine the same conduct”9 as that

assessed under the Icelandic merger rules by ICA are unfounded (Section 3 below);

and (iii) the contention under the Third Plea that the Authority cannot have had

sufficiently serious indicia that “the asset swap […] constituted an infringement of

Article 53”10 is misdirected and ineffective (Section 4 below).

3 See e.g. Application ¶37, and similarly ¶¶33, 50, 52, 55, 58, 81.f. 4 This includes (as defined in the Decision, in particular Recital 1) all undertakings directly or indirectly, solely or jointly controlled by it, including, in particular, Lyf og heilsa hf. 5 This includes (as defined in the Decision, in particular Recital 2) all undertakings directly or indirectly, solely or jointly controlled by it, including, in particular, Lyfjaval ehf. 6 Recitals 1-5 and Article 1 of the Decision, and see further paragraphs 17-19 below. 7 Recital 5 of the Decision specifies that the anticompetitive conduct may have started at least in May 2021, and may still be ongoing. The asset swap agreement is dated 26 April 2022. 8 Application ¶¶32, 33, 35, 37-43, 45 and 50. 9 Application ¶¶64 and similarly ¶¶52, 58, 62, 63, 74.a. and 87. 10 Application ¶¶81.e (and similarly 81.f).

3

8. Second, the Decision is based on sufficiently serious indicia. The fact that the Authority

was in possession of such indicia was sufficiently disclosed in the Decision, which also

precisely defined the presumed facts the Authority wished to investigate and the

matters to which the inspection related. The Applicants have failed to cast doubt on

the reasonableness of the Authority’s grounds or indicia for suspecting an

infringement. Accordingly, the Authority submits that there is no need for the Court to

order the further disclosure of such indicia (Sections 4.2 and 5 below). In the interests

of the expeditious execution of these proceedings however, and to assist the Court,

the Authority nevertheless provides, in Section 1.2.1 below, a more detailed description

of its indicia. The Authority respectfully submits that, on any view, this more detailed

description sufficiently enables the Court to determine, without the need for a measure

of organisation of procedure, that the Authority possessed sufficiently serious indicia

justifying the adoption of the Decision.

9. Further and more generally, various parts of the Application (in particular the Second

Plea) raise arguments contesting the very existence of the suspected coordination.

While such arguments may be relevant at the second, inter partes, stage of the

administrative proceedings,11 or in the context of any eventual finding of infringement,

they: (i) are irrelevant to whether the duty to give reasons was complied with (Section

3 below); and (ii) fail to take into account the correct legal standard for inspection

decisions, namely whether the Authority had reasonable grounds to suspect the

existence of an infringement (Sections 2 and 4). In short, it is important to bear in mind

that, at this exploratory stage, the Authority has made no finding of infringement.

Instead, the Authority had information and indicia reasonably leading it to suspect

unlawful conduct. The inspection seeks to verify whether these suspicions were well-

founded.

1.2.1 The Authority had sufficiently serious indicia to suspect the Applicants’

involvement in an infringement

10. The Decision is based on sufficiently serious indicia, reflecting information drawn from

various sources, including information received from ICA, publicly available documents

and information (such as investor presentations, annual reports, and newspaper

11 See paragraphs 52-53, and the related footnotes, below, for a description of the distinct and successive stages of the administrative procedure under Chapter II Protocol 4 SCA. Inspections form part of the preliminary investigation stage.

4

articles) and the Authority’s own monitoring of market conduct. The Authority examined

these indicia carefully and critically.

11. Based on these indicia, the Authority had reasonable grounds for suspecting that

Toska and SKEL have been and may still be participating in anti-competitive

agreements and/or concerted practices related to coordination of their conduct on the

Icelandic retail pharmacy market.

12. The Authority had indicia suggesting that: (i) SKEL and Toska eliminated direct

competition between each other in certain locations; and (ii) SKEL concentrates on

drive-through pharmacies, while Toska does not open any such pharmacies; and that

(iii) this conduct reflected anti-competitive coordination between these undertakings

rather than their independent commercial behaviour.

13. The Authority’s indicia included the following information:12

(i) The competitors, Toska and SKEL, exchanged retail locations in Reykjavík

through the asset swap agreement of 26 April 2022.13 Toska sold SKEL its retail

property in the Glæsibær shopping centre. In that retail property, Toska operated

a traditional walk-in pharmacy in direct competition with a traditional walk-in

pharmacy of SKEL in the same centre. SKEL sold Toska its retail property in the

Mjódd shopping centre. In that retail property, SKEL operated a traditional walk-

in pharmacy in direct competition (next door) with a traditional walk-in pharmacy

of Toska. Subsequently, Toska closed its pharmacy in Glæsibær14 (while SKEL’s

pharmacy remained) and SKEL closed its pharmacy in Mjódd15 (while Toska’s

12 For some of these indicia, the Authority is in possession of documents that are similar for Toska and SKEL. However, in this Defence, the Authority will only refer to, and annex, supporting documents that can be shared with Toska, excluding documents that are or may be confidential in relation to SKEL. 13 Asset swap agreement: Application, Annexes A.5a (English translation) and A.5 (Icelandic original). 14 Letter dated 22 September 2023 from Toska, represented by its external legal counsel LOGOS, to ICA, Annexes B.1 (English translation) and B.1a (Icelandic original), page 2, paragraph 8, referring to the decision of 23 June [2023] by Toska to close its pharmacy in Glæsibær and the subsequent closure on 31 August [2023]. The closure of this pharmacy is a fact, which the Authority assumes to be not contested. 15 Merger notification form submitted by Toska on 22 September 2022 to ICA, Application, Annexes A.13a (English translation) and A.13 (Icelandic original), pages 3-4, section 3.1, stating that it is planned to discontinue the operations of the acquired pharmacy of SKEL in Mjódd if the merger takes place. The closure of this pharmacy is a fact, which the Authority assumes to be not contested.

5

pharmacy remained).16 This resulted in the elimination of direct competition

between Toska and SKEL in each of these shopping centres.

(ii) Toska and SKEL ambiguously described the real nature of this asset swap in

their interactions with ICA, presenting it in some instances as a retail pharmacy

market transaction,17 and in others as a pure real estate transaction.18

(iii) Under the asset swap agreement, SKEL sold its Mjódd retail property to Toska

for a total consideration of ISK 352.5 million, which consisted of a ISK 280 million

cash payment and the transfer of ownership of Toska’s Glaesibaer premises

(valued at ISK 72.5 million). The total consideration appeared excessive when

compared with the 2023 public property valuation of the Mjódd retail property (ISK

135.9 million)19 and the property value appraisal (ISK 87.9 million) attributed in a

Lyfjaval investor presentation,20 suggesting that it was in part a payment to SKEL

for possibly wider restrictive actions, to the benefit of Toska.21

(iv) Direct competition between Toska and SKEL was eliminated in Keflavík

(Reykjanesbær),22 through the closure in early 2023 by SKEL of its traditional

16 See also ICA Statement of Objections (“ICA SO”): Application, Annexes A.9a (English translation) and A.9 (Icelandic original), ¶¶93 and 241, where ICA preliminarily concludes that the asset swap agreement will result in the disappearance of (i) the pharmacy of SKEL in Mjódd and (ii) the pharmacy of Toska in Glæsibær, leaving only one pharmacy operated by either SKEL or Toska in each shopping centre. 17 Merger notification form submitted by Toska on 22 September 2022 to ICA, Application, Annexes A.13a (English translation) and A.13 (Icelandic original): page 4, section 3.1 refers to the hope of Toska that the revenue of its pharmacy in Mjódd will increase by part of the revenue previously generated by the pharmacy of SKEL in Mjódd; page 5, section 3.3 indicates that the merger primarily covers the market for the operation of pharmacies. Merger notification form submitted by SKEL on 25 October 2022 to ICA (confidential). 18 ICA SO: Application, Annexes A.9a (English translation) and A.9 (Icelandic original), ¶¶91-92, where ICA preliminarily concludes that the title of the asset share agreement (i.e. “purchase agreement of real estate”) and other descriptions or references in the agreement are misleading as the scope of the agreement appears to encompass not just real estate but also pharmacy operations. Reply of 27 February 2023 by Toska to the ICA SO, Annexes B.2 (English translation) and B.2a (Icelandic original), where Toska asserts that the asset swap agreement only relates to real estate including goodwill but does not include any business (¶24). Reply of 27 February 2023 of SKEL to the ICA SO (confidential). 19 ICA SO: Application, Annexes A.9a (English translation) and A.9 (Icelandic original), ¶242, where ICA observes that Toska will pay ISK 352.5 million to SKEL, despite the public property valuation of the Mjódd premises in 2023 representing only ISK 135.9 million, resulting in a difference of ISK 216.6 million. 20 Lyfjaval investor presentation (information memorandum) for bids to purchase Lyfjaval by 17 May 2021, Annexes B.3 (English machine translation, apart from page 16, translated by the Authority) and B.3a (Icelandic original), page 16, where the Mjódd premises are given an estimated value of ISK 87.9 million (highlight added by the Authority), resulting in a difference of ISK 264.6 million. 20 Presentation of Toska (confidential). 21 Presentation of Toska for its meeting with Íslandsbanki on 12 May 2021, Annexes B.4 (English translation) and B.4a (Icelandic original), slide 4, which shows that Toska considered that 70% of the turnover generated by Lyfjaval’s pharmacy in Mjódd would pass to it if closed, and 50% of the turnover generated by Lyfjaval’s pharmacy in Keflavík would pass to it if closed. 22 In the Authority’s indicia, the relevant SKEL pharmacy is sometimes referred to as being in Reykjanesbær, which area includes Keflavík.

6

walk-in pharmacy located at Hringbraut 99 (Apótek Suðurnesja),23 within 550

metres of Toska’s traditional walk-in pharmacy (with the Keflavík hospital being

in between).

(v) There were indications that SKEL implemented its drive-through strategy by

prioritising the opening of drive-through pharmacies and the closure of its

traditional walk-in pharmacies in locations where those traditional pharmacies

competed directly with Toska’s traditional walk-in pharmacies (e.g. Mjódd and

Keflavík (Reykjanesbær)).24

(vi) During the spring of 2021, Lyfjaval was put up for sale. Toska communicated to

ICA that if its bid for Lyfjaval were to be accepted, it intended to close two of

Lyfjaval’s pharmacies which were in direct competition with its own, namely

Lyfjaval’s Mjódd and Keflavík (Reykjanesbær) traditional walk-in pharmacies.25

These actions, which Toska saw as highly beneficial to its own operation and

which it planned itself to execute,26 had it successfully managed to buy Lyfjaval

in 2021,27 were in fact subsequently executed by Toska’s competitor SKEL.

(vii) SKEL has not opened any traditional walk-in pharmacies in Iceland since May

2021 and Toska has not opened any drive-through pharmacies in Iceland28

(despite Toska’s hope in May 2021 to buy and continue to operate Lyfjaval’s

Hædasmari drive-through pharmacy29).

23 Newspaper article of 24 February 2023 published in Víkurfréttir, Annexes B.5 (English translation) and B.5a (Icelandic original). This article shows that SKEL’s original pharmacy, Apótek Suðurnesja, moved its operations from Hringbraut to a new area. While the pharmacy representatives interviewed describe the new location as the new centre of the town for the future, the fact remains that the new location is further away from the Keflavík hospital and SKEL’s competitor Toska than the traditional walk-in pharmacy that was closed. 24 This pattern of behaviour was observed by the Authority in particular from publicly available information on openings and closings of these pharmacies. 25 Letter dated 18 May 2021 from Toska, represented by its external legal counsel LOGOS, to ICA, Annexes B.6 (English translation) and B.6a (Icelandic original), page 1, final paragraph, indicating that the pharmacies of Lyfjaval in Mjódd and Reykjanesbær would be closed. 26 Presentation of Toska for its meeting with Íslandsbanki on 12 May 2021, Annexes B.4 (English translation) and B.4a (Icelandic original), slide 4, which states the intention of Toska to close Lyfjaval’s pharmacies in Mjódd and Keflavík and its assumption that 70% (for Mjódd) and 50% (for Keflavík) of the revenues generated by those pharmacies will be transferred to it. 27 Toska did not ultimately acquire Lyfjaval, which was instead purchased by SKEL. 28 This pattern of behaviour was observed from publicly available information on openings and closings of these pharmacies. The absence of openings by Toska of any drive-through pharmacies in Iceland must be viewed in a context where there is significant and growing demand for this service, as highlighted by a SKEL investor presentation for the second half of 2023 (Annex B.7, slide 19) and a newspaper interview of 22 March 2024 with a representative of Lyfjaval who is describing Lyfjaval’s position on this market as unique (Annexes B.8 (English translation) and B.8a (Icelandic original)). 29 Presentation of Toska for its meeting with Íslandsbanki on 12 May 2021, Annexes B.4 (English translation) and B.4a (Icelandic original), slide 4, which states the intention of Toska to continue to operate Lyfjaval’s Hædasmara pharmacy in unchanged form in the event of a successful bid. The same

7

14. These indicia30 provided reasonable grounds for the Authority to suspect Toska and

SKEL’s involvement in a competition law infringement, as described in the Decision.

To gather evidence in order to verify the validity of the Authority’s suspicions,31 the

Authority considered it necessary to order an unannounced inspection at the premises

of Toska and SKEL.

2 FIRST PLEA: THE STANDARD FOR EFFECT ON TRADE WAS MET

15. The First Plea contends that there is no effect on trade within the meaning of Article

53 EEA, and that therefore the Authority was not competent to adopt the Decision. This

plea is without basis, and must for the following reasons be rejected.

16. First, the legal test applied in the First Plea is erroneous. The Application asserts that

“the alleged infringements are not capable of affecting trade between the Contracting

Parties.”32 It is however settled case-law that, at the preliminary investigative stage of

an inspection decision, the Authority is not required to establish an infringement, and

is similarly not required to establish all the elements of the suspected infringement

(such as an actual or potential effect on trade).33 All that is required are reasonable

grounds for suspecting that the conditions of Article 53 EEA are met,34 and thus for

suspecting an actual or potential effect on trade.35 Accordingly, as the CJEU held in

České dráhy (and contrary to the test relied on in Application ¶31), “provided that the

inspection decision contains the essential elements [(which it does: see Section 3.2.1

follows from the letter dated 18 May 2021 from Toska, represented by its external legal counsel LOGOS, to ICA, Annexes B.6 (English translation) and B.6a (Icelandic original), final paragraph on page 1 and first paragraph on page 2. 30 The various indicia on the basis of which an infringement may be suspected must be assessed not in isolation but as a whole and they may reinforce each other: Case T‑249/17 Casino v Commission, EU:T:2020:458 (“Casino GCEU”), ¶223. 31 Cases C-538/18 P and C-539/18 P, České dráhy v Commission, EU:C:2020:53 (“České dráhy CJEU”), ¶43. 32 Application ¶29, and see similarly ¶¶8, 50. Application ¶47 (wrongly) appears to consider that the Authority is required to show “[an] actual effect on trade under Article 53 EEA.” 33 České dráhy CJEU ¶¶42-43; see also Case C-37/13 P Nexans and Nexans France v Commission, EU:C:2014:2030 (“Nexans CJEU”), ¶¶36-37; and Casino GCEU ¶112. 34 See e.g. Case T-325/16 České dráhy a.s. v Commission, EU:T:2018:368 (“České dráhy GCEU”), ¶¶36, 43, 48 and more generally Section 3.1 below. 35 Note that the actual or potential effect on trade may be a direct or indirect effect on the pattern of trade: see e.g. Case T‑251/12, EGL and Others v Commission, EU:T:2016:114, (“EGL”), ¶64 and the case-law cited. The Authority recalls that, even at the stage of a final finding of infringement, potential (rather than actual) effects on trade are enough: see Cases T-259/02 to T-264/02 and T-271/02 Raiffeisen Zentralbank Österreich AG and others, EU:T:2006:396, ¶166.

8

below)], first, the Commission cannot be required to provide, in its inspection decision,

a precise definition of the relevant market and, second, it is not a fortiori essential

to show, in such a decision, the appreciable nature of the effect on trade between

the Member States.”36 It is therefore in no way a requirement for the Authority at this

stage to provide evidence which establishes the existence of even a potential effect on

trade between Contracting Parties.

17. Second, the Decision clearly identified the nature and scope of the suspected

infringement – anticompetitive coordination between Toska and SKEL – in such a way

that there were reasonable grounds for suspecting that there could be an actual or

potential effect on trade between Contracting Parties. The Decision (Recital 2, Article

1) clearly identifies that the suspected infringement relates (emphasis added) to the

“Icelandic retail pharmacy market.” Recital 4 states that, according to information

available to the Authority, “the involved undertakings operate pharmacies as pharmacy

chains both within and outside the Reykjavík capital area. The Reykjavík capital area

represents almost 70% of all retail sales of pharmaceuticals in Iceland. […].”

These matters are not disputed by the Applicants. Recital 4 concludes: “[t]he alleged

anti-competitive conduct therefore covers a significant part of the Icelandic market.”

It is settled case-law that an agreement or practice covering all or part of a territory

may be capable of affecting trade between EEA States.37 Thus, while at this stage of

the investigation the precise geographical scope of the suspected coordination is

unknown, even if confined to the Reykjavík capital area, this is a significant part of the

Icelandic market. Contrary to Application ¶¶47-48, this gave the Authority reasonable

36 České dráhy CJEU ¶80 (referring to ¶42 of the judgment and the case-law cited), emphasis added. ¶¶90-91 of the Authority’s Guidelines on the effect on trade concept contained in Articles 53 and 54 of the EEA Agreement (“Effect on Trade Guidelines”) (OJ C 291, 30.11.2006, p.46), referred to at Application ¶36, concern appreciability and are therefore not relevant at this stage of the investigation. 37 Case C-211/22, Super Bock Bebidas, EU:C:2023:529, ¶¶59-65, and case-law cited. See also Case E-14/15 Holship ¶76. The suspected conduct relates at least to an area representing almost 70% of sales of pharmaceuticals in Iceland. In such circumstances, the Authority had reasonable grounds to suspect that the conduct may have had an influence, direct or indirect, actual or potential, on the pattern of trade between EEA States: see e.g. EGL ¶64; and ¶23 of the Authority’s Effect on Trade Guidelines and the case-law cited. Further, the nature or type of the products involved in the suspected infringement may also give an indication of possible effects on trade. While the Authority was not required to disclose such information in the Decision (see paragraph 16 above and Section 3.1 and paragraphs 28-29 below for a description of the relevant legal principles), it refers to figures from the European Federation of Pharmaceutical Industries and Associations (2022 and 2023), Annexes B.9 and B.10, in each case at p. 19, which indicated, together with other publicly available data, that a significant amount of the pharmaceuticals sold in Iceland were imported.

9

grounds to suspect, in line with this settled case-law, the existence of an actual or

potential effect on trade.38

18. Connected to this point and third, the Application wrongly fixates on the asset swap

agreement, thus mischaracterising the nature, scope and potential effects of the

anticompetitive conduct described in the Decision. The Applicants (¶¶47, 50) claim that

the conduct under investigation by the Authority is the “same conduct” as the asset

swap agreement assessed by ICA under the merger rules. This is not the case. Rather,

as Recitals 2, 3, 5 and Article 1(1) of the Decision make clear: (i) the suspected

infringement, commencing at least in May 2021, is anticompetitive coordination of

Toska’s conduct with its competitor SKEL on the Icelandic retail pharmacy market; and

(ii) the asset swap agreement of 26 April 2022 (which related to two locations in

Reykjavík) is one of the ways in which this anticompetitive coordination (which may

still be ongoing) may have been implemented.39 Thus the conduct under investigation

by the Authority is not “the same conduct” as that assessed under the merger rules by

ICA: it is of a different nature and of a different temporal and geographic scope. Put

differently, the asset swap agreement and its execution constitute indicia of suspected

wider underlying anticompetitive collusive conduct (pre- and post-dating the asset

swap), which suspected collusion the Authority seeks to investigate. Thus, the different

and broader scope of conduct under investigation by the Authority means that the

Applicants’ arguments about the effects of the (narrower) asset swap agreement being

purely “local”40 in nature are misguided and ineffective – as are the Applicants’

arguments about the limited nature of the turnover of their pharmacies in Glæsibær

and Mjódd.41

38 Recital 4 of the Decision did not merely state that the Reykjavik capital area represents almost 70% of all retail sales of pharmaceuticals in Iceland. It also referred to the fact that the undertakings involved operated pharmacy chains within (and outside) that area. Further, it is clear from Recitals 2-3 of the Decision that the suspected practices concern anti-competitive coordination between the undertakings concerned on the Icelandic retail pharmacy market, thus going beyond, in particular, the asset swap agreement of 26 April 2022. Accordingly, the causal link which Application ¶47 criticises as being missing was in reality present to the requisite legal standard, supporting thus the existence of reasonable grounds for suspecting an actual or potential effect on trade. 39 Recital 3.a specifically refers to the asset swap agreement as being part of the “implementation” of the suspected practices. Recitals 3.b and c of the Decision refer to other methods by which, inter alia, such implementation may have taken place. Application ¶5 wrongly claims that the alleged concerted practice “consists” of the matters described at Recitals 3.a, b and c. 40 See Application ¶¶33-35, 37-43, 45, 47 and 50. 41 Application ¶45. More generally, Application ¶45 asserts that cross-border retail sales of pharmaceuticals may be illegal under Icelandic law, and that the pricing of pharmaceuticals is largely regulated. Such matters (even if correct) do not however exclude potential indirect effects on trade by

10

19. Fourth, the inferences drawn from ICA’s SO (Application ¶¶33-34, 38-43, 47)42 that

only very local markets were affected, or from other ICA merger decisions (Application

¶¶32, 35) that retail pharmacy markets in Iceland are local, are flawed also because

the Authority is legally required to make its own assessment, under Article 53 EEA, of

the relevant market and any related effects.43 Further, any merger assessment of the

effects of adding or removing one pharmacy in a given area of Iceland is necessarily

different from an assessment of the effects of suspected coordination in relation to

pharmacy chains on the Icelandic retail pharmacy market which, even if just restricted

to the Reykjavik capital area, relates at least to an area covering almost 70% of all

retail sales of pharmaceuticals in Iceland (Recitals 2 and 4 of the Decision).44

Moreover, the Applicants erroneously conflate the questions of relevant market and

effect on trade. As noted in paragraph 17 and footnote 37 above, an agreement or

practice covering all or part of a territory may be capable of affecting trade between

EEA States. The geographic dimension of the markets affected by the conduct is

therefore not in itself determinative, since even conduct that affects local markets may

be capable of affecting trade between Contracting Parties.

20. Finally, Application ¶¶48-50 refer also to the conduct of the inspection. This is not

relevant to the First Plea (effect on trade). The Authority recognises that its powers can

be intrusive: its officials and accompanying persons (including those from ICA)

exercised those powers carefully, in accordance with the inspection Decision and

way of imports or trade volumes (e.g. collusion may take place in relation to imported products: see further footnote 37 above). 42 Application ¶¶33, 38 fail to indicate where in the ICA SO the relevant paragraphs can be found. The Authority understands them to be ¶¶65 and 230. Application ¶¶40-43 (especially 43) similarly do not indicate where ICA made the statements referred to. The Applicants had the relevant information available to them: there is no justification for their failure to specify such information, which is not in line with Article 101(1)(e) of the Court’s Rules of Procedure. This part of the First Plea should therefore be rejected as inadmissible. More generally, certain documents are annexed to the Application. The Applicants fail, throughout the Application, to indicate to what extent they rely on information contained in any annex, and where in the annex any relevant information can be found. The Authority recalls the settled case-law according to which it is not for the Court (or the Defendant) to seek and identify in annexes the arguments on which the Court may consider the action to be based. The annexes have a purely evidential and instrumental function: E-12/20 Telenor v ESA, ¶87. 43 E-12/20 Telenor v ESA, ¶97; Joined Cases T-125/97 and T-127/97, Coca-Cola v Commission, EU:T:2000:84, ¶82. As explained above and also below at paragraphs 27-28, at the inspection stage, the Authority is not required precisely to assess and define the relevant market and show effects on trade. If the present case progresses beyond the inspection stage, such assessments must (and will) be made. 44 The reference in Application ¶44 to Case C-393/08, Sbarigia, EU:C:2010:388, which concerned the effects of the regulatory treatment of a single pharmacy in Rome, therefore misses the point and is irrelevant to the effects of the suspected conduct in the present case.

11

relevant EEA law. More generally, the Authority recalls the settled case-law that the

way in which a decision ordering an inspection is applied has no bearing on the

lawfulness of the inspection decision itself.45

3 SECOND PLEA:THE DECISION COMPLIES WITH THE OBLIGATION TO

STATE REASONS; NO BREACH OF THE PRINCIPLES OF LEGAL CERTAINTY OR NE BIS IN IDEM

21. By its Second Plea, the Applicants contend, in particular, that the Decision was

insufficiently reasoned. For the reasons given below, this claim is without basis and

should be rejected. The Authority first sets out the legal requirements it must respect

when drafting an inspection decision (Section 3.1), why the Decision meets these

requirements (Section 3.2.1), and why the Applicants’ claims that the Decision was

insufficiently reasoned must be rejected (Section 3.2.2). It then sets out why, contrary

to the Applicants’ claims, there was no breach of the principle of legal certainty or of

ne bis in idem (Section 3.3).

3.1 LEGAL PRINCIPLES GOVERNING THE REQUIREMENT TO STATE

REASONS: INSPECTION DECISIONS IN COMPETITION CASES

22. The statement of reasons required under Article 16 SCA is a fundamental requirement.

It enables affected parties to understand the reasons behind a measure, their

obligations (for example their duty to cooperate46), and to exercise their rights of

defence.47 It enables the Court to ensure that the principle of protection against

arbitrary and disproportionate intervention is respected, in so far as the statement of

reasons makes it possible to show that the intervention envisaged on the premises of

the undertakings concerned is justified.48

23. As the Court has held, the statement of reasons must be appropriate to the measure

in question, and therefore depends on the circumstances of each case, in particular

45 Casino GCEU ¶100; České dráhy GCEU ¶22; Cases T‑289/11, T‑290/11 and T‑521/11, Deutsche Bahn a.o. v Commission, EU:T:2013:404 (“Deutsche Bahn GCEU”), ¶49 and the case-law cited. 46 See e.g. České dráhy CJEU ¶40, referring to the duty to cooperate during inspections in competition cases. In this Defence, the Authority refers extensively to case-law of the EU Courts. While this case- law concerns the powers of the European Commission, the Authority considers that it applies mutatis mutandis to its own powers, given the need to ensure a homogeneous interpretation of inter alia the substantively identical provisions of Article 20 of Council Regulation (EC) No 1/2003 (OJ L 1, 4.1.2003, p.1) and Article 20 of Chapter II Protocol 4 SCA. 47 Case E-1/22 Modiano Ltd and Standard Wool (UK) Ltd v ESA (“Modiano”), ¶¶84-85, Casino GCEU ¶111. 48 České dráhy GCEU ¶51.

12

the content of the measure in question, the nature of the reasons given and the interest

which the addressees of the measure may have in obtaining explanations. It is not

necessary for the reasoning to go into all the relevant facts and points of law, since the

question of whether the statement of reasons meets the requirements of Article 16

SCA must be assessed with regard not only to its wording but also to its context and

to all the legal rules governing the matter in question.49

24. Inspection decisions of the Authority take place within the legal framework of Articles

4 and 20 of Chapter II Protocol 4 SCA. These confer powers of inspection on the

Authority, which are designed to enable it to perform its task of protecting the internal

market from distortions of competition and to penalise any infringements of the

competition rules on that market.50

25. Article 20(4) of Chapter II Protocol 4 SCA provides (emphasis added): “[u]ndertakings

and associations of undertakings are required to submit to inspections ordered by

decision of the EFTA Surveillance Authority. The decision shall specify the subject

matter and purpose of the inspection, appoint the date on which it is to begin

and indicate the penalties provided for in Articles 23 and 24 and the right to have

the decision reviewed by the EFTA Court. […]”

26. It is settled case-law that, to comply with these requirements, the Authority must state

in its inspection decision “as precisely as possible the presumed facts which it intends

to investigate, namely what it is looking for and the matters to which the inspection

must relate.”51 The case-law requires “[m]ore specifically”52 that the inspection decision

must contain four “essential features of the suspected infringement”, by stating: (i) the

market thought to be affected; (ii) the nature of the suspected restrictions of

competition; (iii) the supposed degree of involvement of the undertaking concerned;

and (iv) the powers conferred on the Authority.53

49 Modiano ¶¶84, 85; Casino GCEU ¶¶107-108; Case C-264/16 P, Deutsche Bahn AG a.o. v Commission, EU:C:2018:60, ¶41. 50 Casino GCEU ¶108; Nexans CJEU ¶33. 51 Casino GCEU ¶110 and case-law cited; Case T‑402/13 Orange v Commission, EU:T:2014:991 (“Orange”), ¶80. 52 Casino GCEU ¶110 and the case-law cited. In České dráhy GCEU ¶39 and Deutsche Bahn GCEU ¶171 the phrasing is similar: “To that end”. 53 České dráhy GCEU ¶39; Casino GCEU ¶110, and the case-law cited.

13

27. The degree of precision, and the extent of the reasoning required in an inspection

decision is moderated by the fact that inspections, by definition, take place at a very

preliminary stage of the investigation. It is settled case-law that, at such a stage, the

Authority does not yet have precise information allowing it to make a specific legal

assessment of whether the conduct in question may be characterised as an

infringement, and must first verify the validity of its suspicions and the scope of the

facts that occurred, “the purpose of the inspection being precisely to gather evidence

relating to a suspected infringement.”54

28. Accordingly, in order to safeguard the effectiveness of an inspection, it is settled case-

law that the Authority is not required to communicate to the addressee of an inspection

decision all the information at its disposal concerning the presumed infringements, or

to delimit precisely the relevant market, or to set out the exact legal nature of the

infringements, or to indicate the period during which those infringements are alleged

to have been committed.55 The fact that the products/services or geographic scope are

described in “general terms” does not mean that the decision is insufficiently reasoned,

provided the description allows the undertaking to understand the full scope of the

decision.56

29. Given the preliminary stage of the investigation, the Authority is also not required to

inform the undertaking in its inspection decision of the information or indicia which

justified the inspection: that is to say, the material which leads it to suspect an

infringement of Article 53 EEA.57 The only information which must be supplied in the

inspection decision is that showing that the Authority had sufficiently serious indicia of

an infringement, but without disclosing those indicia themselves. The decision must

therefore disclose whether the Authority was in possession of information and indicia

54 České dráhy CJEU ¶43; see also Nexans CJEU ¶37 and Casino GCEU ¶112. 55 České dráhy CJEU ¶¶41-42; Case T-254/17 Intermarché v Commission, EU:T:2020:459 (“Intermarché GCEU”), ¶111; Casino GCEU ¶112; Deutsche Bahn GCEU ¶170. 56 For example, in Nexans CJEU the CJEU found (¶¶38-39) that an inspection decision indicating that the suspected agreements/practices “probably have a global reach” had a sufficient statement of reasons regarding the geographical scope of the suspected infringement. 57 Casino GCEU ¶¶85, 91, 113 and case-law cited: the rationale being that earlier disclosure could compromise the effectiveness of the inspection, and that the undertaking will have the opportunity to challenge evidence relied upon by the Authority at the inter partes stage: see ¶¶87, 88.

14

providing reasonable grounds for suspecting the infringement in question.58 The

Decision met this requirement: see Section 4.2 below.

3.2 NO FAILURE TO STATE REASONS

3.2.1 The Decision was sufficiently reasoned

30. The Decision precisely specifies the subject matter and purpose of the inspection, in

accordance with the requirements set out in Section 3.1 above.

31. The Decision clearly identifies each of the four essential features of the subject matter

and purpose of the inspection, as required by case-law.59

32. First, the market thought to be affected: Recital 2 and Article 1(1) of the Decision

identify this as “the Icelandic retail pharmacy market” and “the retail pharmacy market

in Iceland.” Recital 4 specifies that the involved undertakings operate pharmacy chains

both within and outside the Reykjavík capital area, an area which “represents almost

70% of all retail sales of pharmaceuticals in Iceland”, and that the alleged anti-

competitive conduct therefore “covers a significant part of the Icelandic market.”

33. Second, the nature of the suspected restrictions of competition: Recitals 2-4 and Article

1(1) of the Decision describe this as “anti-competitive agreements and/or concerted

practices related to coordination of their conduct with SKEL”; the undertakings under

investigation “eliminated direct competition between each other that took place using

traditional walk-in pharmacies”; “Lyf og heilsa benefits from Lyfjaval’s closure of certain

of its traditional walk-in pharmacies, which previously directly competed with Lyf og

heilsa’s traditional walk-in pharmacies”; “Lyfjaval concentrates on drive-through

pharmacies, while Lyf og heilsa does not enter the drive-through pharmacy segment”;

possible implementation of the suspected practices involving “an asset swap

agreement of 26 April 2022 between Lyf og heilsa and Lyfjaval related to certain of the

parties’ walk-in pharmacies operated and subsequently closed in Mjóddin and

Glæsibær”; “coordination on the realisation of Lyfjaval/SKEL’s new drive-through

pharmacy strategy”; “a restriction on Lyf og heilsa’s ability to open drive-through

58 Casino GCEU ¶114, Deutsche Bahn GCEU ¶172, Case T-339/04 France Télécom v Commission, EU:T:200:80 (“France Télécom”), ¶60. 59 The Applicants (Application ¶66) appear to agree that these four features must be shown, yet do not allege (at least not clearly) that any feature was missing from the Decision.

15

pharmacies and a restriction on Lyfjaval’s ability to open traditional walk-in

pharmacies”.

34. Third, the supposed degree of involvement of the undertaking concerned: Recital 1 of

the Decision identifies the Applicants and their activities in the Icelandic economy,

including “the operation of […] pharmacies.” The subsidiary Lyf og heilsa “operates a

pharmacy chain active in the Icelandic retail pharmacy market under the Lyf og heilsa,

Apótekarinn and Gards Apótek brands” (the Icelandic retail pharmacy market being

that to which the suspected infringement(s) relate: Recital 2). Recitals 2-4 and Article

1(1) of the Decision describe the supposed degree of involvement of these

undertakings, while Recital 5 specifies that the conduct “may have started at least in

May 2021 and could still be ongoing.”

35. Fourth, the powers conferred on the Authority: Recitals 11 and 12 and Article 2 of the

Decision recall the powers conferred on the Authority in conducting the inspection.

36. Further, pages 4 and 5 of the Decision indicate the penalties provided for in Articles 23

and 24 of Chapter II Protocol 4 SCA and the right to have the Decision reviewed by

the EFTA Court, while Article 3 appoints the date on which the inspection was to begin

(or shortly thereafter).

3.2.2 The complaints raised at Application ¶¶68-74 are irrelevant to the

Second Plea and/or unfounded

37. Rather than identifying any insufficiency in the reasoning itself, most of the complaints

made at Application ¶¶68-74 (which are addressed individually below) in essence

challenge the merits of the reasons and information given in the Decision – in other

words, whether there was unlawful conduct at all. However, the Applicants’

disagreement with potential anticompetitive inferences which might be drawn from

matters described in the Decision, and their alternative explanations for certain facts,

are not relevant to the question of whether the obligation to state reasons has been

complied with.60

60 Thus, as the GCEU held in T-340/04 France Télécom, EU:T:2007:81 at ¶97 (emphasis added): “The fact that the Commission may, at a later stage of the procedure, be unable to establish the existence of [the suspected infringement] is not relevant. First of all, that question involves an analysis of the merits, which is made on the basis of the information collected during the inspection in question, and is not therefore to be examined in the context of a review of the Commission’s observance of the obligation to give reasons. […]”. See also T‑486/11 Orange Polska v Commission, EU:T:2015:1002

16

38. Contrary to Application ¶67, the Decision complied with the requirement to disclose

that the Authority was in possession of information and indicia providing reasonable

grounds for suspecting the infringement in question.61 See further Section 4 below.

39. Application ¶¶68 and 74.d argue that SKEL fjárfestingafélag hf. did not gain control

over Lyfjaval until after September 2021, and therefore could not have coordinated

Lyfjaval’s conduct with the Applicants, from “at least in May 2021”, which is when the

Decision identifies that the alleged anticompetitive conduct may have started. This

argument however goes to the substance of whether or not there was anticompetitive

conduct, and fails to identify any deficiency in the Decision’s reasoning. As the EU

Courts have held, an applicant’s disagreement with whether certain anticompetitive

conduct took place, or its alternative explanations for certain facts are not relevant to

the question of whether an inspection decision complies with the obligation to state

reasons.62 Further and in any event, as the Applicants acknowledge, SKEL publicly

notified its purchase of Lyfjaval on 25 June 2021.63 The Authority had therefore

reasonable grounds on the basis of this, and other information/indicia in its possession,

for suspecting and hence investigating anticompetitive collusion at or around that time

(“at least from May 2021”, just one month before SKEL’s public notification of its

purchase of Lyfjaval). Moreover, whether or not SKEL had control of Lyfjaval at that

time (allowing any anticompetitive practices to be implemented) does not preclude

at ¶70: “a distinction should be made between the question of the obligation to state reasons, which requires that the contested decision contain the key factual and legal elements in order to show clearly and unequivocally the reasoning of the institution which adopted the measure, and the merits of the reasons given by that institution.” Further, given the still open-ended nature of the Authority’s inquiry into the alleged facts and circumstances, the fact that the material taken into consideration may be open to different interpretations does not preclude it from constituting sufficiently serious indicia, provided that the interpretation favoured by the Authority is plausible: Intermarché GCEU ¶234; T-296/11 Cementos Portland Valderrivas v Commission, EU:T:2014:121 (“Cementos”) ¶59; Casino GCEU ¶ 222. The question whether the Authority was in possession of sufficiently serious indicia to suspect an infringement, which is separate from the question of the sufficiency of the statement of reasons, is addressed under the Third Plea, below. 61 Casino GCEU ¶114; Deutsche Bahn GCEU ¶172; France Télécom ¶60; and see paragraph 29 above. 62 See the case-law cited at footnote 60 above. For the same reason, the following are also ineffective: (i) the argument made at Application ¶72, that Lyfjaval and Lyf og heilsa remained in direct competition following Lyfjaval’s closure of its Mjódd pharmacy; (ii) the (unsupported) assertions/suppositions at Application ¶¶ 26-28 as to why Lyf og heilsa has tended to favour traditional walk-in pharmacies and why certain of its competitors may focus on drive-through services. 63 See SKEL company announcement of 25 June 2021 that SKEL will acquire Lyfsalinn which will acquire Lyfjaval (Annexes B.11 (English original) and B.11a (Icelandic original)). This document was referred to in Application footnote 8, but was not itself annexed to the Application.

17

possible coordination between SKEL (as a potential competitor in relation to the

Icelandic retail pharmacy market) and Toska in the period preceding that date.64

40. In relation to the complaint in Application ¶¶68 and 73 that the Decision does not

explain what is supposed to have happened in May 2021, the Authority recalls that

neither Article 16 SCA nor Article 20 of Chapter II Protocol 4 SCA, or the related case-

law, require the Authority to indicate the period during which the infringements are

alleged to have been committed, still less the exact date at which the alleged

infringement may have commenced.65 As a consequence, the Authority may not be

reproached when it decides, notwithstanding such jurisprudence, to state that it had

information in its possession which indicated a date by reference to which the

anticompetitive conduct may “at least” have commenced. For example, in České

dráhy the CJEU held that: “the Commission cannot be criticised for having simply

stated, in the contested decision […], that ‘such alleged anti-competitive practices may

have existed at least since 2011 […] and could still be ongoing’” (emphasis

added).66

41. Application ¶¶23-25 and 69-71 contend that customers can enter all car (drive-through)

pharmacies on foot, and therefore that all pharmacies in Iceland are “traditional

pharmacies.” This misses the point: the terms used in the Decision of “traditional walk-

in” versus “drive-through” pharmacies seek simply to distinguish those pharmacies with

a drive-through option (which may be a particular factor of competition) compared with

those which do not. Further, the arguments made by the Applicants in ¶¶26-2867 of the

Application make plain that they have understood this distinction.

64 Recitals 2 and 3 of the Decision make clear that the suspected coordination is between Toska and SKEL, including their (in)direct subsidiaries, in particular Lyf og heilsa and Lyfjaval. The Decision does not particularise any allegation about the conduct of any individual company in any given time period. 65 Intermarché GCEU ¶¶111 and in particular 127; České dráhy CJEU ¶¶41-42; Casino GCEU ¶112; Deutsche Bahn GCEU ¶170; and see more generally paragraph 28 above. Similarly, the assertions made in Application (i) ¶74.b (that the Decision should have explained how the Applicants could have restricted Lyfjaval’s capacity to open traditional walk-in pharmacies), and (ii) ¶74.c (that the concrete motive or incentive for engaging in coordination should have been explained in the Decision), must be rejected. The case-law does not require such assessments at this preliminary stage of the investigation: see paragraphs 27-28 above and the case-law cited. What is required is that the Decision clearly identifies the four essential features of the subject matter and purpose of the inspection (this requirement is met) but there is no separate requirement to also state reasons regarding each and every aspect of the suspected conduct. 66 České dráhy GCEU ¶47. 67 The claims made in Application ¶¶26 and 28, about the preference of Lyf og heilsa’s CEO for traditional pharmacies, and possible opportunities for buying pharmacies with a drive-through option, are unsupported by evidence.

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42. The claim in Application ¶74.a (which is not further developed) that the Authority should

have provided reasons as to how “transactions which [ICA] deemed to be mergers,

and approved as such, can also constitute an infringement of Article 53 [EEA]” must

be rejected. This assertion is based on the erroneous premise that the conduct under

investigation by the Authority is the same as the conduct previously investigated by

ICA (see further paragraph 44 below). In addition, the notification of the asset swap

agreement to the national competition authority is not relevant to the Authority’s duty

to give reasons: in České dráhy CJEU (¶50), the CJEU held that the fact that the

Commission in that case had “information collected by the Czech competition authority

[…] cannot, as such, have any consequences for the Commission’s obligation to state

reasons.” Finally, as explained also at paragraph 16 above, the assertion that the

Authority must explain how the conduct “can also constitute an infringement” is

erroneous. The Authority must have reasonable grounds for suspecting an

infringement.

3.3 NO BREACH OF THE PRINCIPLES OF LEGAL CERTAINTY OR NE BIS IN

IDEM

43. As part of their Second Plea, the Applicants contend (Application ¶52) that “the alleged

infringement outlined in the [D]ecision, had already been notified as mergers under

[the] Icelandic Competition Act and approved as such.” The Applicants entirely fail to

explain why this is relevant to the duty to give reasons, and do not identify any

deficiency in the Decision’s reasoning within the meaning of the settled case-law

referred to in Section 3.1 above. Rather, the claim raised by the Applicants is in

essence jurisdictional in nature (see e.g. Application ¶64), namely that the Authority

does not have competence to “reexamine the same conduct [approved by ICA under

the national merger regime] ex post under Article 53 [EEA].” In any event, this claim is

based on a number of inaccuracies, is unsupported by authority and must, for the

following reasons, be rejected.

44. First and importantly, the Applicants mischaracterise the Decision when claiming that

the alleged infringement is the same conduct as previously investigated and approved

by ICA.68 For example, Recital 3.a of the Decision does not state, as claimed by

Application ¶53, that the Applicants “had conducted the suspected infringement of

68 This claim is made in various guises in Application ¶¶52, 53, 58, 59, 61, 62, 63 and 64.

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Article 53 of the EEA Agreement, by way of the asset swap. (Emphasis added).”

Rather, the Decision (Recital 3(a)) makes plain that the asset swap is merely one

example of how the suspected infringement (anticompetitive coordination on the

Icelandic retail pharmacy market) may have been implemented. As set out in more

detail in paragraph 18 above, the concerns expressed in the Decision are of a different

nature and of a different temporal and geographic scope. Thus, the conduct under

investigation by the Authority is not “the same conduct.”

45. Accordingly, second, even if the transactions under the asset swap agreement were

approved by ICA as mergers,69 this does not affect the Authority’s competence to

investigate whether such transactions were evidence of a broader anticompetitive

conduct, distinct from the asset swap agreement itself.70 As admitted by the Applicants,

ICA’s (merger) SO also identified the preliminary concern that the asset swap

concentrations “could violate Article 10 of the Icelandic Competition Act and Article 53

of the EEA Agreement through market sharing.”71 The Authority was fully entitled to

investigate, using information obtained from ICA and on the basis also of its own

information, whether anticompetitive coordination in breach of Article 53 EEA has

taken, or is taking place. The system instituted by Chapter II Protocol 4 SCA is one of

consultation, cooperation and information exchange between the Authority and the

competition authorities of the EFTA States.72 It is settled case-law that the Authority is

entitled to conduct an inspection based inter alia on information obtained from a

69 The Authority understands that there is some dispute between ICA and the Applicants about the extent to which the transactions were properly “concentrations” within the scope of the Icelandic merger regime, and therefore whether they were even capable of being approved (or prohibited) as mergers. Even however on the Applicants’ view, the Authority understands that the mergers were approved not on the substance, but by default, because they were not approved (or remedies imposed) within the legal time limit imposed by Icelandic law: Application ¶¶22, 57. It appears from the rulings (No 1/2023 and 2/2023) of the Icelandic Competition Appeals Committee referred to in e.g. Application ¶57 and Annexes A.6A and A.7A respectively, in the Sections V Verdict, Part 4, that the Applicants and other party to the mergers recognised and agreed that ICA’s decision to terminate proceedings did not entail a substantive assessment, but was rather a procedural end to proceedings. 70 In for example a recent case examined by the French Competition Authority (Autorité de la concurrence), Décision No 24-D-05 of 2 May 2024, that authority reviewed under Article 101 TFEU exchanges between the parties inter alia prior to the relevant mergers (Annex B.12 (English translation) and B.12a (French original) ¶¶107-120. Specifically, the French Competition Authority analysed whether the information in the case file established the existence of an overall market allocation plan which included, but was not limited to, the merger transactions. On the facts of the case, it ultimately concluded that the existence of such a plan outside the scope of the mergers had not been proven (¶119). 71 Application ¶60 and see ICA SO, Annex A.9A, ¶101 (and see also ¶¶23, 67, 293 and 297). 72 Article 11(1) of Chapter II Protocol 4 SCA provides: “[t]he EFTA Surveillance Authority and the competition authorities of the EFTA States shall apply the EEA competition rules in close cooperation.” See further Articles 11(2)-(7) and 12 of Chapter II Protocol 4 SCA.

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national authority.73 Further, it is not prohibited from conducting an inspection solely

because a national authority is (or has been) investigating the same conduct under

Articles 53 or 54 EEA.74 Contrary to the Applicants’ claims, there is therefore nothing

improper in the Authority taking into account information from an investigation by ICA

in the course of commencing its own investigation.

46. Third, the fact that the Authority is investigating a broader concern than ‘just’ the

merger transactions/asset swap means that, contrary to Application ¶¶58-59 and 65,

the Authority’s investigation does not undermine any legal certainty obtained under the

merger regime, or impermissibly apply Article 53 EEA to conduct already assessed

and approved under the merger rules. Even if the transactions under the asset swap

agreement met the thresholds under EEA merger rules applied in the present case

(which they did not),75 the conduct under assessment goes beyond the asset swap

transactions and therefore the Applicants can have no expectation that their broader

conduct would not be investigated.76 If the contrary were true, notifying a concentration

between colluding businesses under the merger rules would, if cleared, remove or

insulate any broader related cartel behaviour from scrutiny.

47. Fourth, Application ¶61 appears to assert that ICA was already given sufficient material

to assess the broader Article 53 EEA market sharing conduct (“the alleged unlawful

conduct”) now under consideration. Even if this were correct, the Authority would be

entitled under Chapter II Protocol 4 SCA – especially at this preliminary stage – to

investigate the same broader Article 53 EEA conduct.77

73 See e.g. České dráhy GCEU ¶117; Orange ¶52: indeed in that case (¶55) the GCEU regretted that the Commission ordered an inspection without first examining the information obtained by the French competition authority “in relation to similar conduct”. The Commission’s inspection decision nevertheless remained lawful. 74 České dráhy GCEU ¶¶117-119; Orange ¶¶26-27. The Authority understands that ICA has not opened any further investigation into the Article 53 EEA concerns identified in its merger SO. 75 The asset swap transactions did not meet the thresholds for concentrations with an “EFTA dimension”: Article 1 of the act referred to at point 1 of Annex XIV to the EEA Agreement (Regulation (EC) No 139/2004, commonly referred to as “the EU Merger Regulation” or “EUMR”). Accordingly, the Authority did not have competence to act under the EEA merger rules (see Chapter IV Protocol 4 SCA for the relevant rules). Application ¶64 refers to the ”ECHR” but from the context the Authority understands this to mean the EUMR. 76 French Competition Authority Décision No 24-D-05 of 2 May 2024, Annexes B.12 and B.12a ¶¶107- 120. See also the Opinion of Advocate General Kokott in Case C-449/21, Towercast, EU:C:2022:777, ¶60: where the conduct of the undertaking goes beyond that which was subject to merger review, the conduct may be subject to scrutiny under Article 101 or 102 TFEU. 77 České dráhy GCEU ¶119 et seq. The Applicants can therefore (notwithstanding their claims at Application ¶62) have had no legitimate expectation that only ICA would have investigated the conduct under Article 53 EEA: see České dráhy GCEU ¶¶151-156. Note that the Protocol 4 SCA mechanism is

21

48. Finally, contrary to Application ¶¶9 and 65, neither the Decision nor the actions of the

Authority infringe the principle of ne bis in idem. The Applicants do not cite any case-

law or particularise how they consider the principle to have been breached. In any

event, the Authority recalls that the application of the ne bis in idem principle in

competition law proceedings is subject to a twofold condition: (i) there must be a prior

final decision of the requisite nature (the ‘bis’ condition); and (ii) the prior decision and

the subsequent proceedings or decisions must concern the same conduct (the ‘idem’

condition).78 Neither of these conditions is met in the present case.

49. Firstly, as regards the ‘bis’ condition, in order for a decision to be regarded as having

given a final ruling on the facts subject to a second set of proceedings, it is necessary

not only for that decision to have become final, but also for it to have been given after

a determination has been made as to the merits of the case.79 It appears to be

undisputed between the parties to the national merger proceedings that those

proceedings were not approved on the substance or merits (see footnote 69 above).

In so far as the Applicants contend that ICA has also investigated or is investigating

the same broader Article 53 EEA conduct that is now the subject of the Authority’s

investigation, any such ICA investigation has not reached the stage of a final decision,

and so any ne bis in idem claim made on those grounds must necessarily fail.80

50. Secondly, the ‘idem’ condition prohibits the same person from being tried or punished

in criminal proceedings more than once for the same offence. The relevant criterion for

the purposes of assessing the existence of the same offence is identity of the material

facts.81 In the present case, the facts under investigation are not the same. The territory

such that if the Authority formally initiates proceedings against the Applicants under Article 11(6) of Chapter II Protocol 4 SCA, this will have the effect of relieving ICA of its competence to apply Article 53 EEA. On this point, see Case T-589/22, Silgan Holdings Inc v European Commission, EU:T:2024:662 ¶¶41, 47, 60: the Commission was entitled to relieve the German national competition authority of its competence to apply Article 101 TFEU to a case, even at a relatively late stage of the national proceedings, in particular where this was necessary to ensure the effectiveness of Article 101 TFEU. 78 See the summary of the case-law in the judgment of the CJEU (Grand Chamber) in Case C-151/20 Bundeswettbewerbsbehörde v Nordzucker AG a.o., EU:C:2022: 203, (“Nordzucker”), ¶¶28-33. See also Case C-117/20 bpost v Autorité belge de la concurrence, EU:C:2022:202, (“bpost”), ¶¶ 22-28. 79 Nordzucker, ¶34 and the case-law cited; bpost, ¶29 and the case-law cited. 80 More generally, the Authority recalls that competition authorities of the EFTA States are not entitled to take decisions finding that Articles 53 or 54 EEA have not been infringed: see e.g. Orange ¶30. In so far as the Applicants’ submissions can be seen as claiming that ICA has somehow found the suspected conduct not to have breached Article 53 EEA, a claim of ne bis in idem made on this basis must also necessarily fail. 81 Nordzucker, ¶¶38, 41 and the case-law cited; bpost, ¶¶31, 33, 35-37 and the case-law cited.

22

and scope of ICA’s merger proceedings and those which are the subject matter of the

Decision are markedly different (see in particular paragraphs 44 and 46 above).

4 THIRD PLEA: SUFFICIENTLY SERIOUS INDICIA WERE PRESENT; NO

BREACH OF THE PRINCIPLE OF PROPORTIONALITY

51. The Applicants’ Third Plea alleges: (i) that the Authority did not objectively verify (“fact

check”, Application ¶75) the information on which the Decision was based, and thus

did not have sufficiently serious indicia to justify an inspection; and (ii) that this also

breaches the principle of proportionality, because the information could have been fact-

checked and “proven misguided, through less intrusive means” (Application ¶76).

These unfounded allegations are addressed respectively in Sections 4.2 and 4.3

below. Before doing so, the Authority sets out the relevant legal principles (Section

[4.1]), as the summary of the case-law cited by the Applicants is incomplete.

4.1 LEGAL PRINCIPLES

52. As noted above in paragraphs 27-29, inspections form part of the preliminary

investigation stage.82 It is therefore settled case-law that, to justify inspections, it is not

necessary for the information in the Authority’s possession to be of such a kind as to

establish the existence of an infringement.83 It is sufficient that the Authority is in

possession of information and indicia providing “reasonable grounds for suspecting an

infringement”84 (also referred to as “sufficiently serious indicia”85). Further, the

Authority is not required to inform the undertaking in its inspection decision of the

information or indicia which justified the inspection. As the GCEU has held, the

Commission is:

“under no obligation to indicate, at the preliminary investigation stage [when an inspection is ordered], apart from the suspicions of an infringement which it proposes to verify, the indicia, that is to say, the material that leads it to consider that there may have been an infringement of Article

101 TFEU, since such an obligation would upset the balance which the legislature and the Courts of the European Union have sought to establish between preserving the efficiency of the investigation and preserving the rights of defence of the undertaking concerned.”86

82 Casino GCEU ¶182. See generally Orange ¶¶77-78. 83 Casino GCEU ¶221. 84 České dráhy GCEU ¶66 (emphasis added); Cementos ¶43; EGL ¶149. See also Casino GCEU ¶230. 85 See e.g. Casino GCEU ¶165 and the case-law cited. Application ¶77 refers to C-690/20 P, Casino v Commission, EU:C:2023:171, ¶82: this paragraph of the judgment sets out principles for legislative interpretation which are not relevant to the Third Plea. 86 Casino GCEU ¶164 (emphasis added) and see also ¶91; České dráhy GCEU ¶45; Orange ¶81.

23

53. When the Court is called upon, as in the present case, to review an inspection decision

for the purposes of ensuring that it is not arbitrary, it must therefore satisfy itself that

“there are reasonable grounds for suspecting an infringement of the competition rules

by the undertaking concerned.”87 Contrary to how matters are presented in Application

¶79 however, the Court may conclude that an inspection decision was not arbitrary

without it being necessary to check and examine substantively the content of the

Authority’s indicia, provided that the facts the Authority wishes to investigate and the

matters to which the inspection relates are defined sufficiently precisely in its

Decision.88 Thus, the Court may conclude (as the GCEU did in Orange) that the

statement of reasons alone is sufficient for it to presume that, on the date of adoption of

the Decision, the Authority did indeed have reasonable grounds to suspect an

infringement and order an inspection.89

4.2 EXISTENCE OF SUFFICIENTLY SERIOUS INDICIA

54. The Authority submits (paragraph 55 below) that the Decision sufficiently precisely

stated the information required by case-law, namely showing that the Authority

considered it was in possession of serious indicia of the existence of the suspected

anti-competitive conduct.90 In other words, the statement of reasons alone sufficiently

disclosed that the Authority was in possession of information and indicia providing

reasonable grounds for suspecting the infringement in question.91 The Authority

submits (paragraph 56 below) that the Applicants have failed to “produce evidence

casting doubt” on whether the Authority had reasonable grounds for adopting its

Decision, and that the Court is not therefore required to examine those grounds and

determine whether they are reasonable.92 The Authority accordingly submits (Section

5 below) that it is not necessary for the Court to adopt a measure of organisation of

87 České dráhy GCEU ¶48. See also Nexans GCEU ¶43; Casino GCEU ¶166. 88 České dráhy GCEU ¶¶49-51; Orange ¶91. 89 Orange, ¶¶91-93; České dráhy GCEU ¶¶49-51. 90 Casino GCEU ¶114; Deutsche Bahn GCEU ¶172; France Télécom ¶60. 91 České dráhy GCEU ¶¶49-51 ; Orange ¶¶87, 91-93. 92 Nexans GCEU ¶72; České dráhy GCEU ¶49. See also Orange ¶88: “Only when a request to that effect is brought before the Court and the undertakings to which a[n] [inspection] decision […] is addressed have put forward certain arguments liable to cast doubt on the reasonableness of the grounds on which the Commission relied in order to adopt that decision may the Court take the view that it is necessary to carry out such a [review of the indicia and determination whether the Commission had reasonable grounds for suspecting an infringement]” Emphasis added, and see the case-law cited.

24

procedure to check the content of the Authority’s indicia, as sought by the Applicants

in Section F of their Application.

55. First, the Decision sufficiently precisely specified that the Authority was in possession

of information (indicia) in relation to all essential elements of the suspected

infringement,93 and therefore that the Authority had reasonable grounds for suspecting

the infringement in question. The Decision describes the information as follows:

(i) Recital 2 (nature of suspected conduct and relevant market) states that the

Authority had “information in its possession indicating that” the Applicants may

have been and may still be participating in anti-competitive agreements and/or

concerted practices related to coordination of their conduct with SKEL on the

Icelandic retail pharmacy market;

(ii) Recital 3 (further details of suspected conduct) states that “according to

information in the Authority’s possession” Toska and SKEL eliminated direct

competition between each other using traditional walk-in pharmacies, and

explains how “[a]ccording to that information” Lyf og heilsa benefits from

Lyfjaval’s conduct, and Lyfjaval concentrates on drive-through pharmacies while

Lyf og heilsa does not enter that segment. Sub-paragraphs (a)-(c) of the Recital

further explain how the suspected practices may have been implemented, by

reference inter alia to “an asset swap agreement of 26 April 2022”;

(iii) Recital 4 (geographical area of suspected conduct) states that “[a]ccording to the

information available to the Authority” the involved undertakings operate

pharmacy chains within and outside the Reykjavík capital area. It states that this

capital area “represents almost 70% of all retail sales of pharmaceuticals in

Iceland” and that the suspected conduct therefore covers a significant part of the

Icelandic market;

(iv) Recital 5 (possible temporal scope of suspected conduct) states that “[a]ccording

to the information available to the Authority”, the alleged anticompetitive conduct

may have started at least in May 2021 and could still be ongoing.

93 See in particular paragraph 26, and paragraphs 27-29 and 31-36 above.

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Thus, in these Recitals of the Decision, the Authority disclosed in detail that it

considered that it had in its possession serious information/indicia that led it to suspect

the anticompetitive conduct at issue.94

56. Second, nothing raised by the Applicants calls the sufficiency of these indicia (i.e.

whether the Authority had reasonable grounds for ordering the inspection) into

question. The Application (¶80) alleges that the Decision was based on a “serious

misrepresentation of the actual facts [,]” but entirely fails to show in the following ¶¶81-

82, or indeed anywhere else in the Application, why this is the case. In particular:

(i) Application ¶81a repeats a timing point which was addressed in paragraph 39

above;

(ii) Recital 3.a of the Decision refers to: “an asset swap agreement of 26 April 2022

between Lyf og heilsa and Lyfjaval related to certain of the parties’ walk-in

pharmacies operated and subsequently closed in Mjóddin and Glæsibær.”

Application ¶81b is correct that the asset swap agreement of 26 April 2022 was

concluded between Faxar ehf. and Lyfjaval, not Lyf og heilsa and Lyfjaval.

However, the date and other described characteristics of the agreement were

clearly sufficiently precise for the Applicants to understand which agreement the

Decision intended to refer to: indeed, they have made extensive submissions in

relation to that agreement throughout the Application. Further, the Decision’s

(Recital 1) description of Faxar ehf. as an indirect subsidiary of Toska ehf. “whose

main activity is holding the real estate properties used by Lyf og heilsa […] for Lyf

og heilsa’s daily operations as a pharmacy chain” is uncontested: the Authority

clearly understood the role played by Faxar ehf. in the Toska group. The

Application does not allege that the use of Lyf og heilsa rather than Faxar ehf. in

Recital 3.a led to any broader misunderstanding by the Authority of the facts.

Thus, the Applicants’ complaint (made also at Application ¶¶15 and 54) is merely

formalistic in nature and incapable of casting doubt on whether the Authority had

reasonable grounds for adopting the Decision;

(iii) Application ¶81c and d repeat a point addressed at paragraph 41 above: the

existence of a drive-through window (or not) can be a factor of competition.

Further and in any event, the Authority is not required to define the relevant

94 Such indicia must be assessed not in isolation but as a whole, and they may reinforce each other: Casino GCEU ¶223 and case-law cited.

26

market, or market segment, at the inspection stage (paragraph 28 above), while

any such market definition must necessarily be made by the Authority itself, rather

than by another authority (paragraph 19 and the related footnote 43 above);

(iv) The point raised at Application ¶81e has been addressed extensively under the

Second Plea (Section 3.3 above). More generally, the Applicants themselves

note at ¶87 that, in its merger SO, ICA made the preliminary assessment that

certain conduct under the asset swap agreement “could perhaps infringe Art. 53

of the EEA Agreement.”95 The Authority wonders how the Applicants can

acknowledge this while simultaneously maintaining in ¶81e that “ESA cannot

have had any indicia that [the asset swap] constituted an infringement of Article

53” ;96

(v) The point raised at Application ¶81f has been addressed extensively under the

First Plea (see in particular paragraphs 17-19 above);

(vi) Application ¶81g criticises the Decision for failing to refer to “information from the

ICA’s merger file which is exculpatory for the applicants” (‘cherry-picking’), but

fails to specify which information or why.97 The Applicants were party to each

merger and must therefore have the relevant information available to them: there

is no justification for their failure to specify and/or annex such information. This

part of the Third Plea should therefore be rejected as inadmissible. In any event

(and contrary also to Application ¶82), the purpose of an inspection decision is

not to set out in a balanced fashion all available information and evidence,

including any potential exculpatory information (even if it existed, which is not

admitted). At this preliminary stage of the investigation, the Authority is not

required to have assessed all exculpatory evidence, let alone to disclose it in its

inspection decision. This is confirmed by case-law of the CJEU, which has held

that the Commission “cannot be required to assess equally all evidence pointing

in the opposite direction.”98 Such case-law is relevant here: even more so since

95 More precisely, ICA’s merger SO (¶101, Annex A.9A) makes the preliminary assessment that the harm to competition under the asset swap purchase agreement (described in its ¶100) “may entail that the purchase agreement provides for unlawful market sharing within the meaning of Article 10 of the Competition Act and, where applicable, Article 53 of the EEA Agreement.” 96 More generally, Application ¶81e appears to wrongly proceed on the basis that the Authority must have indicia proving an infringement of Article 53 EEA. As set out at paragraph 52 above, the Authority must rather be in possession of information and indicia providing “reasonable grounds for suspecting an infringement.” 97 Further references elsewhere in the Application to the merger proceedings are not necessarily of an exculpatory nature: see e.g. Application ¶¶22, 60, 62, 87 and the discussion in paragraph 56(iv) above. 98 České dráhy CJEU ¶64, and see ¶52 for context.

27

exculpatory evidence, if any, may be put forward by the Applicant in the context

of its defence in any further inter partes administrative stage of the proceedings.99

57. In short, as set out in paragraph 55 above, the Decision disclosed the existence of

sufficiently serious indicia of suspected collusion between Toska and its competitor

SKEL. None of the arguments made by the Applicants cast doubt on such indicia:

rather, the Applicants merely reiterate their arguments made in connection with the

First and Second Pleas.

4.3 NO BREACH OF THE PROPORTIONALITY PRINCPLE

58. Application ¶¶83-89 allege that the inspection was disproportionate, because the

Authority had (or should have had) from ICA all the necessary information to assess

the allegedly unlawful conduct. The Applicants refer to the Article 53 EEA concerns

expressed by ICA in its merger SO, and infer (Application ¶87) that ICA must therefore

have had “all the relevant information at its disposal” to be able to conclude on an

infringement of Article 53 EEA. The implication of this appears to be that the Authority

should have been able to obtain such information from ICA or that solely ICA should

have investigated the suspected infringement (thus avoiding the need for an inspection

by the Authority). For the following reasons, these claims must be rejected.

59. First, it is settled case-law that, as regards the assessment of the proportionality of an

inspection measure, it is for the Authority, in principle, to assess whether information

is necessary in order to be able to detect an infringement of the competition rules. Even

if it already has indications or even evidence of the existence of an infringement, the

Authority may therefore legitimately consider it necessary to order additional

investigations to gain a better understanding of the infringement, its duration, or the

group of undertakings involved.100

99 It is not until this stage that the undertaking concerned is informed, by notification of a statement of objections (“SO”), of all the essential evidence on which the Authority relies at that stage of the procedure and that that undertaking has a right of access to the file to ensure that its rights of defence are effectively exercised: České dráhy GCEU ¶46; Orange ¶78 and the case-law cited. As the GCEU has held, if those rights were extended to the period preceding the notification of the SO, the effectiveness of the Authority’s investigation would be compromised, since the undertaking concerned would already be able, at the preliminary investigation stage, to identify the information known to the Authority, hence the information that could still be concealed from it: Casino GCEU ¶87-88; Orange ¶78 and the case-law cited. 100 České dráhy CJEU ¶63; České dráhy GCEU ¶115; and the case-law cited.

28

60. Second, while the Authority did receive information from ICA from its merger

investigation, and carefully assessed such information, such information was however:

(i) primarily related to the asset swap agreement which, for the reasons explained

above at paragraph 18 above, was of a different nature and temporal and

geographic scope than the matters under investigation in the Decision.101 It was

thus, contrary to Application ¶¶86, 87, not information related to the “same

conduct” and was therefore not complete or comprehensive with respect to the

subject matter and purpose of the inspection;

(ii) provided voluntarily by the Applicants and their competitor SKEL. As the EU

Courts have recognised, in such circumstances, examination of the file in a

national competition authority’s possession cannot be an alternative to an

inspection, since the national authority has not carried out an inspection and its

information is therefore limited to that provided voluntarily by the undertaking in

question.102

61. Third, Recital 9 of the Decision refers to this difference in nature between information

provided voluntarily or not, and explains the necessity of an unannounced inspection

in the present case: “As restrictive agreements and concerted practices constitute an

infringement of the EEA competition rules, possibly giving rise to serious financial

penalties, there is a risk that if the information were collected by request for information

or if the inspection were announced beforehand, relevant information might be

compromised or destroyed. That would apply to all information relating to the

suspected coordination of Toska’s and SKEL’s behaviour on the Icelandic retail

pharmacy market.”

62. The Authority’s inspection Decision was therefore justified and proportionate. The

Authority diligently discharged its investigatory duties by consulting ICA before the

Decision was adopted, as required by Article 20(4) of Chapter II Protocol 4 SCA, and

by cooperating and exchanging information with that authority as foreseen under

Chapter II Protocol 4 SCA. The Applicants’ claims under this part of the Third Plea

must be rejected.

101 While ICA’s merger SO identified potential market-sharing concerns under Article 53 EEA, the SO (Annex A.9A) makes plain (see e.g. ¶¶100-101) that this is in relation to the asset swap agreement. 102 České dráhy GCEU ¶123; Orange ¶56.

29

5 REQUEST FOR A MEASURE OF ORGANISATION OF PROCEDURE

63. In respect of the Applicants’ request for a measure of organisation of procedure

(Application ¶¶90-93), the Authority submits that such a measure is unnecessary.

64. First, as submitted at paragraphs 53-57 above, the Decision’s statement of reasons

sufficiently disclosed that the Authority was in possession of information and indicia

providing reasonable grounds for suspecting the infringement in question, and the

Applicants have failed to “produce evidence casting doubt” on whether the Authority

had reasonable grounds for adopting its Decision. Accordingly, and in line with settled

case-law,103 the Court may conclude that there is no need for it to order the further

disclosure of such information and indicia.

65. Second and in any event, the Authority refers to the additional explanations and indicia

provided, in Section 1.2.1 above, in the interests of the expeditious execution of these

proceedings, and to assist the Court. The Authority respectfully submits that these

explanations and indicia sufficiently enable the Court to determine, without the need

for a measure of organisation of procedure, that the Authority possessed sufficiently

serious indicia justifying the adoption of the Decision.

66. Should the Court nevertheless consider that a measure of organisation of procedure

(or of inquiry) is necessary, the Authority: (i) recalls that certain documents in its

possession emanate from Toska’s competitor SKEL, and will therefore require

confidential treatment; (ii) submits that the scope of such measure should be limited to

verifying whether the Authority was in possession of information and indicia providing

reasonable grounds for suspecting the infringement described in the Decision.

103 Nexans GCEU ¶72; České dráhy GCEU ¶49; Orange ¶88: “Only when a request to that effect is brought before the Court and the undertakings to which a[n] [inspection] decision […] is addressed have put forward certain arguments liable to cast doubt on the reasonableness of the grounds on which the Commission relied in order to adopt that decision may the Court take the view that it is necessary to carry out such a [review of the indicia and determination whether the Commission had reasonable grounds for suspecting an infringement].” Emphasis added, and see the case-law cited. Contrary to how matters are presented under Application ¶¶79 and 91, it is therefore not the case that the EFTA Court “must” review the Authority’s information and indicia, in order to assess whether it had reasonable grounds for its decision.

30

6 CONCLUSION

Accordingly, the Authority respectfully requests the Court to:

1. Dismiss the Application in its entirety; and

2. Order the Applicants to pay the costs of the present proceedings.

Claire Simpson Daniel Vasbeck

Sigrún Ingibjörg Gísladóttir Melpo-Menie Joséphidès

Agents of the EFTA Surveillance Authority

31

7 SCHEDULE OF ANNEXES

Annex

No

Description

Where

Mentioned

in Defence

Number of

pages

B.1

Letter dated from Toska represented by LOGOS to ICA (22 September 2023) - Translation

Fn. 14, p. 4 2

B.1a Letter dated from Toska represented by LOGOS to ICA (22 September 2023) - Icelandic original

Fn. 14, p. 4 2

B.2 Reply of Toska to the ICA Statement of Objections (27 February 2023) - Translation

Fn. 18, p. 5 17

B.2a Reply of Toska to the ICA Statement of Objections (27 February 2023) - Icelandic original

Fn. 18, p. 5 17

B.3

Lyfjaval investor presentation (information memorandum) for bids to purchase Lyfjaval by 17 May 2021 - Translation

Fn. 20, p. 5 38

B.3a

Lyfjaval investor presentation (information memorandum) for bids to purchase Lyfjaval by 17 May 2021 - Icelandic original

Fn. 20, p. 5 35

B.4 Presentation of Toska for its meeting with Íslandsbanki on 12 May 2021 - Translation

Fn. 21, p . 5

Fn. 26, p. 6

Fn. 29, p. 6

6

B.4a Presentation of Toska for its meeting with Íslandsbanki on 12 May 2021 - Icelandic original

Fn. 21, p . 5

Fn. 26, p. 6

Fn. 29, p. 6

6

B.5 Newspaper article of 24 February 2023 published in Víkurfréttir – Translation

Fn. 23, p. 6 3

B.5a Newspaper article of 24 February 2023 published in Víkurfréttir - Icelandic original

Fn. 23, p. 6 3

B.6 Letter from Toska represented by LOGOS to ICA (18 May 2021) – Translation

Fn. 25, p. 6

Fn. 29, p. 7 3

B.6a Letter from Toska represented by LOGOS to ICA (18 May 2021) - Icelandic original

Fn. 25, p. 6

Fn. 29, p. 7 3

32

B.7 SKEL investor presentation for the second half of 2023 – English original

Fn. 28, p. 6 45

B.8 Newspaper interview of 22 March 2024 with representative of Lyfjaval – Translation

Fn. 28, p. 6 3

B.8a Newspaper interview of 22 March 2024 with representative of Lyfjaval - Icelandic original

Fn. 28, p. 6 3

B.9

European Federation of Pharmaceutical Industries and Associations, The Pharmaceutical Industry in Figures, Key Data 2022 – English original

Fn. 37, p. 8 28

B.10

European Federation of Pharmaceutical Industries and Associations, The Pharmaceutical Industry in Figures, Key Data 2023 – English original

Fn. 37, p. 8 28

B.11

SKEL company announcement that SKEL will acquire Lyfsalinn which will acquire Lyfjaval (25 June 2021) – English original (This document was referred to in Application footnote 8, but was not itself annexed to the Application

Fn. 63, p.16 2

B.11a

SKEL company announcement that SKEL will acquire Lyfsalinn which will acquire Lyfjaval (25 June 2021) – Icelandic original (This document was referred to in Application footnote 8, but was not itself annexed to the Application)

Fn. 63, p.16 2

B.12 French Competition Authority Décision No 24-D-05 of 2 May 2024 - Translation

Fn. 70, p. 19 Fn. 76, p. 20

47

B.12a French Competition Authority Décision No 24-D-05 of 2 May 2024 - French original

Fn. 70, p. 19 Fn. 76, p. 20

47

______________________

1, rue du Fort Thüngen, L-1499 Luxembourg. Telephone: +352 42 108-1. Telefax: +352 43 43 89

E-mail: [email protected]

Case E-31/24-8

Luxembourg, 6 March 2025

Sent via e-EFTACourt

Dear Sir/Madam,

Please find enclosed copies of the application from Toska ehf. and Lyf og heilsa hf.,

dated 13 December 2024, initiating proceedings before the EFTA Court in Case E-

31/24 – Toska ehf. and Lyf og heilsa hf. v EFTA Surveillance Authority, and the

defence from the EFTA Surveillance Authority, dated 3 March 2025. Copies of

annexes to the application and the defence can be requested by contacting the Registry.

The application was received electronically on 13 December 2024, and entered in the

register of the Court (reg. No E-31/24-1) under Case No E-31/24 on that day.

The defence was received electronically on 3 March 2025 and entered in the register of

the Court on that day (reg. No E-31/24-6).

In accordance with Article 20 of the Statute of the EFTA Court, the Governments of the

EFTA States, the Union and the European Commission are entitled to submit statements

of case or written observations, in English, to the Court within two months from the date

of this notification, i.e. by Tuesday, 6 May 2025.

On behalf of the Registrar.

Yours faithfully,

Bryndís Pálmarsdóttir

Senior Administrator

Encl.