On January 24, 2020, the German Ministry for Economic Affairs published a draft proposal for the 10th Amendment to the German Act against Restraints of Competition (“Draft Proposal”). Its main objectives are (i) to enable and strengthen the protection of competition in digital markets, (ii) to make German competition law and its enforcement more efficient in general, and (iii) to implement the ECN+ Directive[1].
The Draft Proposal provides for a comprehensive revision of German competition law, including new provisions on abusive unilateral conduct, a raised second domestic turnover threshold in merger control, new criteria for the assessment of fines, and far-reaching changes in procedural law, including in relation to cartel damages claims. We highlight the most relevant proposals below.
Strengthening Enforcement In Digital Markets
New Concept Of Abuse In Relation To Big Tech Companies With Paramount Cross-Market Significance
The Draft Proposal introduces an entirely new concept of abuse, targeting companies with so-called “paramount cross-market significance”. This concept should enable the German Federal Competition Office (“FCO”) to monitor and control large digital players’ activities in a (new) specific market at a very early stage and even when they are not (yet) dominant on that specific market. To assess whether the company holds a paramount position with cross-market significance, the FCO would not only look at one single market, but could look across markets taking into account a broad array of criteria, including the company’s dominance on one or several markets, its financial strength, access to data or other resources, and vertical integration.
If the FCO finds that a company is of paramount significance for competition across markets, it may issue an order to that effect and could then prohibit the company from engaging in a number of practices, including (i) giving preferential treatment to its own products or services to the detriment of those provided by rivals (“self-preferencing”), (ii) hindering competitors on markets in which the company could quickly expand its position if this is likely to significantly impede the competitive process, (iii) using data collected in a dominated market to make market entry to other markets more difficult for other companies, (iv) hampering interoperability or data portability, thereby impeding competition, and (v) making the assessment of service value difficult for commercial customers, for example, by giving insufficient information.
The company would then bear the burden of proof that the behavior in question, which may have both anti- and pro-competitive effects, is objectively justified.
Intermediation Power As A New Market Power Concept
Intermediaries—such as multi-sided digital platforms—have become increasingly important for companies that rely on them for their products or services. Since visibility on such platforms—in particular through “listings” and “rankings”—is crucial for companies’ commercial success, these platforms can largely control access to the market. Against this backdrop, the Draft Proposal suggests to add the new concept of “intermediation power” to the catalogue of criteria for assessing market power in digital markets.
Extension Of The Concept Of Relative Market Power
The Draft Proposal provides that the concept of “relative market power” with respect to small or medium-sized enterprises (as trading partners or competitors)—a special feature of German competition law which may apply below the dominance threshold—should no longer be restricted to dependent small- and medium-sized companies. Instead, all companies that are dependent on their supplier or buyer in such a way that they cannot switch to other companies (because the dependency is not offset by corresponding countervailing market or negotiation power) should be protected against abusive conduct by that supplier or buyer. The same applies to companies that are dependent on platforms with intermediary power if they cannot switch to other platforms.
Abolition Of Strict Causality Requirement In Abuse Cases
The Draft Proposal aims to settle a debate among academics—and more recently the FCO and the Düsseldorf Court of Appeals (“DCA”) in the Facebook case[2]—as to whether the exploitative abuse of a dominant position requires a strict causal link between a company’s dominant position and the ability to determine the contractual terms deemed exploitative. Under the new law, it would be sufficient to show that a company’s conduct proved to be anticompetitive is the result of its dominant position (“normative causality”). This change could significantly broaden the scope of application of the rules of dominance even in cases where there is no (clear) connection between dominance and violation. For example, contractual terms that violate data protection law could be investigated as an exploitative abuse of a dominant position—even if such terms are also used by smaller competitors—because the (unlawful) collection of substantial amounts of data by a dominant company can effectively be considered anticompetitive.
Access To Data, Platforms And Interfaces
In order to strengthen a competition law-based right of access to data, the Draft Proposal introduces two separate instruments.
First, the Draft Proposal rephrases and broadens the provision on the current essential facility doctrine which no longer only applies to access to physical infrastructures. Under the amended essential facility doctrine an abuse might occur if a dominant company refuses to grant another company access to its physical infrastructure or data (or only in exchange for unreasonably high fees), if the facility or the data constitutes an essential facility, i.e., if without access it is impossible for the other company, for legal or practical reasons, to be active on the upstream or downstream market as a competitor of the dominant company. Dominant players could refuse access only if there is an objective justification. However, they may request an adequate consideration for granting access.
Second, in cases of relative market power, non- dominant companies may also be required to grant access to data if a supplier’s or customer’s business model depends on access to this data. This may be the case, for example, in value- creation network or multi-stakeholder scenarios where several companies have contributed to the generation of data. Usually, these companies will find contractual terms to govern the sharing and common use of this data. This may not be the case if such data is owned by the stronger player due to an imbalance in market power and/or bargaining power. The right to access may even include data that so far has only been used internally. Any request for data access will require a balancing of all relevant circumstances in each individual case, including costs, data protection rules, contributions to data collection, etc.
Facilitation Of Interim Measures
As digital markets are very dynamic, the Draft Proposal aims to allow for the possibility to intervene before it is too late. Therefore, it seeks to make it easier for the FCO to order interim measures. Under current law, interim measures can only be imposed to prevent serious and irreparable harm to competition. The Draft Proposal would allow interim measures to be applied when they are necessary to protect competition or prevent immediate and serious harm to a company, thereby significantly lowering the intervention threshold.
Additional Changes To The Procedural Framework
In order to speed up procedures, especially in digital markets, the Draft Proposal allows the FCO to issue oral statements of objections (“SOs”). Preparing written SOs often ties up considerable resources and can take several months, if not years. However, this procedural change may affect the right of companies to be heard in proceedings and could create uncertainty about a particular conduct under investigation.
Half-Hearted Efforts To Streamline Merger Control Procedure
The Draft Proposal intends to reduce the costs of merger control proceedings in Germany for both companies and authorities. The second domestic turnover threshold for notifiable mergers is to be raised from €5 million to €10 million. The FCO expects this to reduce the number of notifications by 20%. The threshold for de minimis markets is to be raised from €15 million to €20 million, while the assessment of de minimis markets will no longer be carried out on a single-market basis, but rather on a combined-market basis. Changes also include the acceptance of annual financial statements prepared in accordance with IFRS standards for calculating a company’s turnover figures.
The Draft Proposal also intends to focus merger control proceedings on cases of greater economic importance. In this respect, the maximum duration of the Phase II review period will be extended from four to five months, while any additional extensions of the review period, by consent of the parties, will be limited to one month only.
Finally, the Draft Proposal modifies the preconditions for obtaining ministerial approvals. In the future, applications for ministerial approval will require that the FCO’s prohibition decision and competitive assessment has been confirmed by a competent court, either on appeal, or in an interim proceeding. Hence, a ministerial approval can only be the last resort, once all other legal avenues have been exhausted.
While the Draft Proposal generally aims at reducing the number of annual notifications by raising the domestic turnover threshold, the Draft Proposal also includes a provision empowering the FCO to examine concentrations below the turnover and transaction value thresholds, if further concentration in the industry concerned might impede competition in Germany. If the FCO sees “indications that future concentrations will impede competition” on a particular market, it can order companies to notify all concentrations in this sector for the following three years. This provision only applies to acquisitions of companies that generate two- thirds of their turnover in Germany and are likely to target regional markets (such as waste management), but could also affect so-called killer acquisitions, i.e., companies buying innovative targets to discontinue the development of their innovative products that may otherwise compete with the acquirer’s own products in the future.
Informal Consultation Regarding Cooperation
The already existing instrument of a so-called “guidance letter”, used to assure companies that the FCO has no objections to their cooperation with a competitor (“no-action decision”), will now be codified in the ARC. The transformation of the guidance letter into a codified instrument will give companies greater legal certainty. Companies will see their legal position further improved as they will be entitled to a no-action decision within six months if they have a substantial legal and economic justification for the cooperation.
Additional Criteria For Assessment Of Fines
The Draft Proposal attempts to reconcile the different approaches to the calculation of fines used by the courts and the FCO. As the courts’ approach regularly results in companies receiving higher fines on appeal than in the FCO decision, many are deterred from appealing in the first place. However, the legislator is prohibited from prescribing a specific calculation method to the courts, as this would compromise their judicial independence. The proposals are therefore limited to additional criteria for setting fines. It remains to be seen whether the courts will take these criteria into account and adapt their approach to that of the FCO.
Implementation Of The ECN+ Directive
The ECN+ Directive was adopted to ensure that national competition authorities in the EU have the instruments, resources and sanctioning powers to apply Articles 101 and 102 TFEU effectively. To transpose the ECN+ Directive into German law, the Draft Proposal sets out the following measures:
Extension of Disclosure Requirements
The Draft Proposal puts forward legislative changes enabling the FCO to request all information from companies and individuals necessary for an investigation. Companies would be required to disclose all relevant and accessible documents available within their economic entity, and the FCO could even require individuals to disclose self-incriminating information, provided that the FCO has undertaken not to pursue the individual. It is unclear whether this obligation can also apply to criminal prosecution. Refusal or failure to disclose information requested by the FCO would be punishable by a fine.
Higher Fines For Trade Associations And Liability Of Members
The Draft Proposal would see fines for trade associations no longer being calculated on the basis of an association’s annual turnover, but based on the combined annual turnover of all the members of the association operating on the market affected by the infringement. This will likely increase the level of fines for trade associations. In addition, associations themselves will be liable for the association’s fine if they were active on the market affected by the infringement and cannot prove that they did not commit the infringement, were unaware of it or distanced themselves from it before the investigation began.
Codification Of FCO’s Leniency Program
The Draft Proposal introduces several new provisions that essentially codify the FCO’s leniency program, which was until now based exclusively on the FCO’s administrative practice and a subordinate administrative regulation. The new provisions do not bring about any significant changes to the leniency system as such, but they do give leniency applicants greater legal certainty.
Facilitating Cartel Damage Claims
The previous amendment to the ARC introduced a rebuttable presumption that cartels cause harm, as required by the EU Cartel Damages Directive[3]. The Draft Proposal introduces a further rebuttable presumption that goods or services are deemed to have been affected by a cartel if they were purchased from a business participating in the cartel during and within the geographic and material scope of the infringement. According to the Government’s reasoning for the Draft Proposal, the presumption is necessary to ensure effective compensation.
Further, the Draft Proposal removes the urgency requirement where the request for access to the competition authority’s decision is made by way of an interim injunction. Moreover, in order to protect confidential information, courts may entrust experts—bound by professional secrecy— with the assessment of the necessary redactions.
Conclusion
The changes proposed in the Draft Proposal affect almost all areas of German competition law and will have a major impact on the FCO’s enforcement practice in the digital sector and on digital companies. In particular, there is a high risk that the changes concerning abusive unilateral conduct could increase the number of investigations, create legal uncertainty throughout the digital industry, and ultimately reduce incentives to innovate.
In general, higher fines for business associations and extended liability for their members, combined with extensive disclosure requirements, may expose companies to an increased risk of being penalized for competition law infringements. Further, the new rebuttable presumption concerning goods and services affected by a cartel infringement may prove useful for companies claiming follow-on damages.
The Draft Proposal still needs to be approved by the German parliament and may yet be subject to changes in the course of parliamentary debates. The final 10th Amendment to the ARC is expected to come into force in the course of 2020.
[1] Directive (EU) 2019/1 of 11 December 2018 to empower the competition authorities of the Member States to be more effective enforcers and to ensure the proper functioning of the internal market.
[2] Facebook (VI-Kart 1/19 (V)), DCA decision of August 26, 2019, only available in German here.
[3] Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union Text with EEA relevance.