Ramping up enforcement - The new competition law reform in Germany

The German Federal Ministry for Economic Affairs and Climate Change published its draft “Competition Enforcement Act” on Monday (26 September 2022). The envisioned amendments extend the FCO’s enforcement powers significantly and are bound to cause controversy on the boundaries of competition policy. In particular, companies involved in an FCO sector inquiry stand to be impacted the most. 

The draft is driven by the current political desire to establish a German competition law “with claws and teeth” and to free the FCO “from bureaucratic hurdles”. In this regard, it picks up several aspects from a previous bill that was abandoned in 2011. We take a closer look at the proposed amendments and point out some of the key issues with the bill. 

New FCO powers following a sector inquiry

The draft revises the approach to sector inquiries in a fundamental way. Apart from a new deadline for investigations, which should not exceed 18 months, the draft bill provides the FCO with tools to intervene in markets where a sector inquiry identifies deficiencies in competition: 

  • First, the FCO can extend merger control filing requirements if a sector inquiry indicates that future concentrations may restrict competition in the relevant sector. In such cases, the FCO can order companies to notify all transactions that meet low national turnover thresholds (€50 million for the acquirer and €500,000 for the target). As with the current rules, such an “automatic” filing obligation will be valid for 3 years. However, under the draft proposal, it may now be extended multiple times. The 15% market share requirement for the buyer has been completely dropped. In the Ministry’s view, these changes will cause the number of notifications following a sector inquiry to double.
  • Second, and significantly more critically, the FCO will be entitled to impose behavioural and even structural measures to address “significant, continuous or repeating disruption of competition”. The FCO can impose such measures even if it has not been able to identify any anticompetitive behaviour in the sector. In practice, this means that companies may be subject to significant remedial actions without having committed any competition infringement. According to the draft bill, the FCO may even order the unbundling of companies.

    Here, the draft bill echoes a previous attempt to provide the FCO with the power to enforce far reaching measures against companies that did not commit any competition infringement. In 2010/2011, the then federal minister and his successor had to abandon these plans due to strong opposition from the legal community, other ministries and the Chancellor. A key reason against the 2010/2011 proposal, stated at the time, still applies to the tools mentioned in the new draft bill: Intensive structural and behavioural measures that do not require prior competition infringement by the addressee constitutes a disproportionate interference with the respective companies’ constitutional right of ownership. Innovative companies should not be punished for their competitive success.

Further, the current draft provides that the new sector powers will apply to investigations that are either ongoing or that were closed one year before the new rules will be in place. This would affect several sectors currently under FCO scrutiny. However, whether such a retroactive application will find its way into the final legislation remains to be seen. In general, retroactive measures with an, at least, de facto punitive effect should be hard to justify, in particular if addressed against otherwise law-abiding entities.

Further enforcement powers

By comparison, the other draft amendments seem less impactful, but follow a similar pattern: 

  • The rules on skimming excess profits from cartel infringements have been streamlined to ease the burden of proof on the FCO. This was considered necessary as the FCO has not been successful in establishing profit skimming in Germany to date. Under the new rules, the FCO can deliver a skimming decision without demonstrating that the addressee committed a competition infringement intentionally or negligently. Further, the draft introduces a new rebuttable presumption that at least 1% of a company’s annual worldwide turnover from the product affected by the infringement has been gained from such infringements. The time limit for the FCO to issue a skimming decision has been extended from five to ten years after the termination of the infringement.
  • Finally, the draft bill seeks to implement the Digital Markets Act’s (DMA) framework for national authorities to enforce its rules. It provides the FCO with powers to investigate potential DMA infringements in Germany and regulates the FCO’s participation in the European Commission’s subsequent enforcement and in national cartel damage actions. 
What’s next?

The draft will be discussed within the German government at the beginning of November before being presented to Parliament. The Ministry intends to fast-track the reform with an aim to enact the new rules by the end of this year. However, this is a highly ambitious goal and leaves little room for the necessary critical debate of the bill’s more controversial aspects. One of the reasons behind the Ministry’s urgency may be that it has already announced that there will be another competition law reform before the end of the current parliamentary term in 2025.