German Competition Law Reform
Significant changes to German competition rules are on the horizon, affecting, among other things, digital markets, merger control and the Federal Cartel Office’s (“FCO”) investigative powers. The draft Act on Digitalisation of German Competition Law (“GWB-Digitalisierungsgesetz”), recently published by the German Ministry of Economics and Energy, proposes a significant overhaul of the competition rules in Germany.
In addition to a further refinement of provisions relating to the abuse of market power, it proposes, among other things, an increase to the second domestic turnover threshold for merger control, from EUR 5 to EUR 10 million, which will significantly reduce the number of merger control filings, codify leniency programme provisions and allow for more interim measures.
The Act on Digitalisation of German Competition Law (“GWB-Digitalisierungsgesetz”) was published on 14 October 2019. It proposes new rules to address digital markets, alongside further significant changes to competition law in Germany.
The main topics of the draft proposal are summarised below. In terms of next steps, the draft proposal will be provided to the German government (Kabinettsvorlage), which may produce a further modified version to be introduced to Parliament. Entry into force is currently expected in the 2nd half of 2020. Further, there are rumours of further changes to the German competition rules to come, even after implementation of the newest draft proposal.
Control of abusive practices adapted to digital ecosystems
New criteria: Intermediary power and paramount significance for competition across markets
Following the mandate of the Government’s Coalition Agreement, of 14 March 2018, to adapt the control of abusive practices to digital ecosystems, as well as several expert studies in this area, the draft extends the FCO’s control over abusive behaviour to companies with “intermediary power”, and to companies with “a paramount significance across markets”.
Intermediary power refers to multi-sided markets, the main playing field for digital platforms. The importance of intermediary services for access to supply and sales markets need to be considered when assessing a platform’s market position. Companies with intermediary power are subject to the standard rules governing abusive practices, but these will now also extend to the refusal of access to essential data networks or other infrastructure. This is in line with a new dominance criterion for all companies in respect of access to data relevant to competition.
A specific provision, relating to abuse by companies with an overarching significance across markets has been introduced to better monitor large digital companies. The FCO must establish a company’s paramount dominant position, following which, it may prohibit, for example, self-preferential measures when providing third parties with access to supply and sales markets, impediments of competitors on markets where companies can easily expand their position, hindrance of competitors by using data collected on a dominated market or practices which restrict data portability. Going forward, the FCO will have several measures at its disposal, including declaratory orders in the event that the abusive conduct is discontinued in ongoing proceedings, as well as interim measures and the acceptance of commitments.
Deletion of SME-reference for abuse of relative market power
The view that relative market power in relation to large companies does not exist in practice is now regarded as outdated. Therefore, the draft extends the scope of protection against abusive practices, from companies with relative market power to all firms which depend on those companies. The provision may be of significance for digital platforms with a "gatekeeper" position for (large) companies. Furthermore, dependency may also arise in respect of access to data controlled by another company. The refusal to grant access to such data may, in certain circumstances, constitute an unfair impediment, even if there is not yet a commercial value attributable to such data. In the case of mutual dependencies, the draft Act clarifies that only companies which are significantly less dependent than their contracting partner(s) (i.e. where there is clear asymmetry) can have relative market power.
Merger control proceedings more focused
The draft Act aims to re-focus merger control rules in light of the very high number of unproblematic notifications, the increasing number of filings submitted to the FCO, as well as the many competitively relevant transactions that are not within the scope of merger control in Germany. As a result, the draft Act will introduce several amendments to the existing merger control rules.
First, the second domestic turnover threshold will be increased from EUR 5 million to EUR 10 million. According to the draft, this will reduce the number of notifications by 20%. Second, the de minimis threshold will be increased from EUR 15 million to EUR 20 million, and the assessment of de minimis markets will not be carried out on a single-market basis, but rather on a combined-market basis. Third, post-completion notices to the FCO will be abolished, and companies will be able to calculate their turnover based on internationally recognised accounting standards such as IFRS. All of these amendments are intended to reduce the costs and burden for companies that deal with merger control proceedings in Germany.
However, the FCO expects to focus its resources on cases of greater economic importance. Hence, the maximum duration of the Phase 2 review period will be extended from four to five months. This will provide the FCO with more time to assess more complex transactions, and in particular the increasing number of economic expert opinions being submitted by parties in such proceedings. However, any additional extensions of the review period, by consent of the parties, will be limited to one month only.
Finally, the requirement for obtaining ministerial approval (Ministererlaubnis) will be modified (please see the latest client alert on the ministerial approval: Zollern / MIBA decision). An application for such approval will require that the FCO’s competitive assessment has been confirmed by a competent court, either on appeal, or in any interim proceedings. The modified requirement will streamline the ministerial approval process significantly, as any discussions regarding the competitive assessment of the FCO can be avoided.
Comfort letter for cooperations between competitors
The draft proposal codifies the possibility for companies or associations of companies to informally consult the FCO regarding cooperation projects with competitors. Companies or associations of companies will be entitled to apply for a decision if they have a substantial legal and economic rationale for their cooperation with competitors. Upon application, the FCO shall decide within six months and may then inform the participating companies by means of a simple letter (Vorsitzendenschreiben), if necessary, that it will refrain from a further examination of such practices. The FCO may set out general administrative principles which may help companies achieve more legal certainty.
Acceleration of proceedings
Several rules have also been introduced to further accelerate FCO proceedings, allow for swifter outcomes and facilitate the right to be heard.
These changes will reduce the requirement for the FCO to order interim measures on its own behalf. Under the proposals, the FCO will be able to impose interim measures if an infringement appears to be predominantly probable, and the interim measure is necessary for the protection of competition, or because of an imminent threat of serious harm to another company. This allows the FCO to implement such measures, even if it is not possible to provide clear evidence relating to irreversible damage to competition. Rather, a summary examination, taking into account the probability of damages and the reasonableness of the interim measure with regard to the affected company, will be sufficient for its implementation. The amendment has been introduced particularly in light of the digital economy, its easily scalable business cases and platform effects, which can lead to irreversible effects if the FCO is not able to intervene quickly. The draft outlines that such interim measures can, for example, be applied to exclusivity clauses or most-favoured-nation clauses (please see the latest client alert for more information on most-favoured-nation clauses for the Booking.com decision) which give rise to impediments of competition, as well as market foreclosure effects.
Further, the draft includes clarification that the FCO can conduct oral hearings to facilitate the right to be heard. However, it remains within the discretion of the FCO whether an oral hearing, written statements, or a hybrid of both, is appropriate for any case. Oral hearings will enable the FCO to conclude proceedings earlier, and with fewer resources.
In addition, the draft sets out new rules in relation to access to file, which largely codify existing rules, and cooperation obligations for the companies involved. Where the companies concerned do not comply with the cooperation obligations, newly introduced assumptions will allow the FCO to proceed with the access to file procedure.
Implementation of EU Directive 2019/1 (“ECN+”)
The aim of ECN+, signed into law in December 2018, is to empower the competition authorities of EU Member States to be more effective enforcers, and to ensure the proper functioning of the internal market. German competition law is essentially already in line with these requirements. However, amendments based on the directive include:
- codifying the FCO’s leniency programme in newly-inserted provisions;
- the extension of the FCO’s powers in requests for information proceedings to cartel investigations;
- the harmonisation of the FCO’s rights in judicial fining proceedings with the corresponding rights of the public prosecutor's office;
- provisions on mutual assistance within the European Competition Network, including the FCO’s authorisation to carry out searches and other fact-finding measures in the name of, and on behalf of, another competition authority in accordance with national law.
Changes relating to cartel damage claims
The draft proposal further implements minor changes to claims for disclosure of information from alleged infringers by potential damages claimants. Such parties can now seek to obtain the competition authority’s decision from the infringer by means of interim measures, even if there is no particular urgency for the request. This is designed to ensure that potentially injured parties are able to assess the existence of potential claims and their probability of success before initiating any civil proceedings.