New Competition Law in Germany - 10th amendment to German Act against Restraints of Competition passed

Yesterday, the 10th amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen – "GWB") entered into force, and with it the most substantial overhaul of German competition law in a long time. The new law contains a number of significant adjustments of the draft that was initially put to vote. This alert provides a quick overview of the new law’s most far-reaching features.

A.    Companies with paramount cross-market significance

A novel regulatory approach targets a limited number of large "gatekeepers and intermediaries" in digital markets (new Section 19a GWB):

I.    Scope

• The German Federal Cartel Office (Bundeskartellamt - "FCO") can issue a declaratory order that a company’s market position is of "paramount cross-market significance" (the order may have a duration of up to five years)
• Determining whether a company holds such a paramount market position involves a holistic assessment of several factors (dominance on several markets, vertical integration, financial strength, access to data or other resources)
• The FCO obtains the power to impose ex-ante prohibitions for a number of specifically listed practices even on markets where the company is not dominant
• The company bears the burden of proof to show that its conduct is objectively justified

II.    List of conduct considered problematic

After several last-minute changes, the types of conduct of such companies with "paramount cross-market significance" that the FCO may now prohibit under Section 19a (2) GWB includes:

• engaging in self-preferencing when providing access to supply and sales markets (in particular with regard to the display of offers and exclusive pre-installation of offers);
• hindering other companies in their business activities on procurement or sales markets, if the undertaking’s own activities are important for access to these markets;
• hindering competitors on markets in which the company could rapidly expand its position (even without being dominant);
• raising barriers to market entry for other companies by using certain data processing strategies;
• impeding the interoperability of products or services or the interoperability of data;
• providing other companies with insufficient information about the services provided or commissioned;
• demanding benefits for the treatment of another company’s offers that are disproportionate to the reason for the demand

III.    Shortened appeal proceedings

The new law also introduces a shortened legal process for disputes against interim measures/orders of the FCO against companies with "paramount cross-market significance" in Section 73(5). According to this last minute provision, the order must be appealed directly to the Federal Court of Justice (Bundesgerichtshof), effectively bypassing the Higher Regional Court in Dusseldorf.

B.    Refining the classical approach for unilateral abuse

The amendment also modifies the established criteria for assessing unilateral conduct:

• Clarification that the extent of a company’s access to data is a factor in the assessment of market power
• Introduction of "intermediation power" as a new form of market power for gatekeepers and digital intermediaries
• Significant changes with regard to the abuse of relative market power: Even large enterprises can claim that they are dependent on other undertakings
• The FCO can intervene against conduct that may lead to "tipping" of markets

C.    New rules for access to data

The new law establishes a basic framework for granting access to competitor data under competition law:

• Clarification that refusal to grant access to data, platforms and interfaces may be an abuse of dominance under the "essential facilities" doctrine
• New access to data rules under the framework of the abuse of relative market power, in particular in the context of existing contractual relationships
• Important issues (e.g., adequate remuneration for data access) will have to be clarified in practice

D.    Acceleration of the administrative proceedings

The administrative proceedings are facilitated and accelerated to be able to address legal violations, in particular in dynamic digital markets, in a more expedited manner. This includes the following provisions:

• Facilitation of ordering of interim measures
• Oral hearings are now possible
• Acceleration of inspection of files by allowing the FCO to assume consent to disclosure in case of lack of cooperation in the identification of business secrets

Further, the new law introduces the possibility for companies that cooperate with competitors, to claim a formal decision from the FCO, that their intended cooperation is in line with competition law and does not hold grounds for action. The FCO shall decide on such claim within 6 months.

E.    Merger control

The new law also introduces far-reaching changes to the prerequisites for the application of the merger control regime, which are inter alia intended to lead to a reduction of notifiable cases:

• While the first limb of the turnover thresholds, i.e., that the parties’ combined worldwide revenues must exceed EUR 500 million, remains unchanged, the second limb relating to the domestic turnover, is increased: (i) one merging party’s turnover in Germany must now exceed EUR 50 million (previously EUR 25 million), and (ii) another party’s turnover in Germany must now exceed EUR 17.5 million (previously EUR 5 million)
• The exemption that transactions do not need to be filed if one of two parties involved has worldwide consolidated revenues of less than EUR 10 million is eliminated
• While these changes will reduce the number of merger filings in Germany significantly, the FCO also obtains new powers to review transactions that it could not investigate previously
•  The amendment introduces a new provision that allows the FCO to capture successive acquisitions of smaller companies. The FCO can order a company to notify all acquisitions in certain sectors (following a previous FCO sector inquiry), provided that the acquirer’s worldwide revenues exceed EUR 500 million and its domestic market share exceeds 15% and provided there are objective reasons to be concerned that the acquisition will significantly impede effective competition in Germany in the sector concerned. The duty to notify only applies to transactions where the target company’s worldwide revenues exceed EUR 2 million and if at least 66% of the target’s worldwide revenues are realized in Germany
• The initial proposal to tighten conditions for the issuance of a Ministerial Authorization for mergers prohibited by the FCO on grounds of competition concerns (inter alia that an exemption can only be applied for after the FCO’s prohibition has been challenged unsuccessfully in court) has been dropped
   

F.    Cartel investigations

The scope of the FCO’s investigative powers are now aligned with the European ECN+ Directive, that aims at facilitating the international cooperation between the competition authorities of the EU Member States and harmonizing the respective different standards applied in the enforcement of competition law. The new law introduces some additional rules for the enterprises subject to an FCO investigation. The new provisions include:

• the restriction of defense rights of the enterprises involved in a cartel (limitation of right to be silent)
• the duty of natural persons to cooperate during searches in addition to the mere obligation to comply with investigative measures
• certain restrictions of the access to the file for third parties, i.e., third parties are required to prove a legitimate interest

NOTE: the duty to cooperate concerns all potential evidence or explanations potentially related to the scope and purpose of the search. This duty can even include facts that might lead to the prosecution for a criminal or regulatory offence. However, such disclosed information must not be used in criminal or regulatory proceedings against the potentially incriminated person.

G.    Fining proceedings

The new law codifies criteria for the calculation of fines (including rules regarding leniency procedures) that are already being applied based on the pertinent FCO notice. However, the new provisions fall short of a mandatory fine calculation methodology so that FCO and appeal courts may still come up with significantly differing fine amounts. Moreover, under the new provisions, significantly higher fines can be imposed for breaches of certain procedural obligations.

• Increasing the range of fines from the current maximum of EUR 100,000 to up to 1% of the previous year’s group-wide turnover for violations of certain duties to provide information.
• Increasing the liability risk for associations of undertakings:
  • If the infringement is related to the activities of the members, in future the fine can amount to up to 10% of the total turnover of the members who were active on the market concerned
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  • Default liability: if the association of undertakings is unable to pay a fine imposed on it, its members will be liable under certain conditions
• The leniency program is now formally incorporated into the new law
• Introduction of non-exhaustive list of fining criteria: type and extent of infringement, post-offence behavior and amount of the turnover affected by the infringement
• antitrust compliance efforts both before and after an infringement can be taken into account for the fine assessment
• Facilitating the enforcement of FCO’s fining decisions by other EU member states and vice versa
• Strengthening the FCO’s procedural role in fining proceedings: FCO remains the competent prosecuting authority also in appeal proceedings against a fining decision and will have the same procedural rights as the Public Prosecutor’s Office

H.    Cartel Damages

In reaction to the Federal Court of Justice’s rejection of prima facie evidence for individual commercial transactions being affected by a cartel (KZR 26/17 - Schienenkartell), the new law introduces a rebuttable presumption that all commercial transactions with a cartel member during a cartel’s active period are affected by the cartel.

The presumption also applies to indirect buyers of affected goods, but does not extend to commercial transactions with cartel outsiders (so-called umbrella effects).

The provision will only apply to claims for damages that have arisen after the new law came into effect.

I.    No enforcement powers with regard to consumer law

Finally, in spite of numerous discussions about this topic, the FCO did not gain any new enforcement powers in the field of consumer protection laws.

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