Planned Antitrust Reform in Germany - will it tame the tech giants?

Competition law allows companies to achieve market power, even dominance, where it is the product of superior skill, foresight or industry. However, once they are dominant, companies are subject to stricter limits on their commercial strategies than smaller competitors, they must not, for example, foreclose markets or discriminate. The German Parliament had already started adapting the competition rules to the digital economy in a first round of reforms in 2017, which clarified that the rules apply to ‘free of charge services’ and specified the criteria for dominance in multi-sided markets and networks.

The new reforms (proposed by the Federal Ministry of Economics and soon to be considered by the wider government) are intended to further strengthen and improve the competition law regime by extending the FCO’s review powers.

Special supervision of companies of paramount significance

Where the FCO decides that a company which is active on a multi-sided, or network, market is of “paramount significance across markets”, such a company would then become subject to a new and tighter behavioural review. The criteria for assessing whether a company is of paramount significance includes the company’s access to data and the importance of its activities for third parties' access to supply and sales markets. The FCO’s finding of paramount significance would be effective for a limited period (between five and ten years) and it is likely that it could be relied on in different proceedings.

Companies of paramount significance would be barred from:

  • self-preferencing,
  • pooling data from multiple sources; and
  • making interoperability of services or portability of data more difficult.

The FCO will also closely scrutinise the behaviour of companies of paramount significance on neighbouring markets, where they are not dominant.

It would be for the company to prove that any conduct challenged by the FCO is objectively justified and therefore does not harm competition.

There are many open questions: the definition of paramount significance across markets - compared to the well-established concept of dominance - is not very clear. Can the FCO intervene without a finding of dominance on any market or is paramount significance a form of “dominance plus”? Can the finding of paramount significance be assessed in isolation from abusive behaviour? Finally, can third parties rely on these new provisions to claim damages?

If these questions are not clarified during the ongoing legislative process, it will lead to legal uncertainty for many companies, with the Courts called upon to fill in the gaps.

A new global quasi-regulator?

A critical question is whether a regulatory challenge by the FCO (which would be limited to Germany) would nevertheless have an impact on the platform operator’s international business model. If this is the case, the FCO could end up becoming the global regulator of platform businesses.

Access to data is key

The FCO will review access to data in three different scenarios:

  • The ability to control access to data will be used to determine a company’s market power in all types of abuse proceedings, including cases involving paramount significance across markets, market dominance and a lower form of market power based on the dependency of suppliers and customers – which is a particularity of German competition law.
  • Refusal to grant access to essential data networks, or other infrastructure, may qualify as an abusive practice. This will particularly be the case for companies with market power in intermediary markets, such as platforms.
  • Companies can be dependent on other companies because of their reliance on data resources. This dependency may trigger a right of access to data, even if that data has not previously been commercialised or made available to third parties. Companies of all sizes (not only SMEs, as is the case currently) will be able to rely on this provision in the future.
Faster and more aggressive intervention

The new legislation will also lower the bar for the FCO to issue interim measures. Although this change will apply to all sectors, it was specifically designed to enable the FCO to intervene more effectively in digital markets. Going forward, for the FCO to adopt interim measures, it will need to establish:

  • that a violation of the Competition Act is very likely (whereas previously it had to have occurred or be imminent); and
  • a need to protect competition more generally, or to shield another company from imminent and serious harm.

Further, the company under investigation will bear the burden of proving any hardship caused by the preliminary injunction. This reversal of the burden of proof may be particularly relevant for companies headquartered outside of Germany, where the FCO may not be able to obtain the necessary evidence for an infringement directly from the company (i.e. in a dawn raid) but would have to rely on information provided by the dominant firm in question.

Next steps

These reforms are expected to enter into force towards the end of 2020. There is still scope for further debate and amendments, and a new draft is expected in the next few weeks. We will keep you updated on these developments.