On May 26, 2023, the first reading of the Government’s amendment to the draft of the Competition Enforcement Act dated April 5, 2023 (“Government Draft 11th Amendment”) was held in Parliament.  The Competition Enforcement Act will amend the German Act Against Restraints of Competition (“ARC”) for the 11th time.[1]  The Government has proposed further changes to the Federal Ministry for Economic Affairs and Climate Action’s draft published in September 2022 (“Draft 11th Amendment”).[2]  This blog post outlines the changes proposed by the government to the Draft 11th Amendment, following on from an earlier blog post on the Draft 11th Amendment (available here).

Intervention Following Sector Inquiries

The Draft 11th Amendment contained new enforcement powers for the FCO for cases in which, following a sector inquiry, the FCO has found “significant or persistent distortions of competition”.[3]  The Government Draft 11th Amendment made significant efforts to define legal terms and provide conditions for the application of the FCO’s new intervention tools.

The Government Draft 11th Amendment now defines the terms “distortion of competition” and “persistent”, both included in the new provisions allowing the FCO to intervene after a sector inquiry.  The definition of “distortion of competition” now includes comprehensive examples and review criteria such as (1) unilateral supply or demand power; (2) restrictions on entry, exit or capacity of firms or on switching to another supplier or buyer; (3) uniform or coordinated behavior; or (4) in the case of foreclosure of inputs or customers through vertical relationships.[4]  In addition, a “persistent” distortion of competition is now defined as having “existed permanently over a period of three years” or “is recurrent” and at the time of the FCO’s order there is “no indication that the interference is likely to cease within two years”.[5]

With the Government Draft 11th Amendment the legislator intends to make these tools subsidiary to the existing mechanisms. Before using the new intervention tools, the Government Draft 11th Amendment requires the FCO to show — in addition to a persistent distortion of competition — that the other powers of intervention available to them under the ARC are unlikely to “adequately counteract” the distortions identified in the sector inquiry.[6]  

The Draft 11th Amendment proposed the right to order the divestment of shares or assets as a last resort (ultima ratio) which has been intensely debated by commentators.  While the Government Draft 11th Amendment generally welcomes the ability to order the divestment, it introduces additional conditions that need to be met before the FCO can issue such an order:

  • It can be expected that an unbundling will eliminate or substantially reduce the significant or persistent distortion of competition.  
  • The company either holds a dominant market position or has already been determined – by separate order – to be of paramount cross-market significance pursuant to Section 19a ARC.
  • The value of the sale of assets generates at least 50% of the value estimated beforehand.  If the actual sales proceeds exceed this threshold, but are still below the value determined beforehand, the state must compensate the company for the difference.  The introduction of this rule — i.e., requiring the state to compensate any loss in value — is intended to prevent excessive use of the divestment option.
  • If the assets were previously acquired subject to a clearance decision of the FCO or a ministerial authorization, the divestment order can only be issued after more than ten years. [7] 

In addition, the Government Draft 11th Amendment now clarifies that addressees of the intervention orders are only companies “which contribute significantly to the disruption of competition through their conduct”, i.e., “any conduct that is perceptible on the market”.  

Skimming Off Profits From Antitrust Violations

Only minor changes were made in the Government Draft 11th Amendment with regard to the current “skimming off” provisions of the ARC.  The Government Draft 11th Amendment keeps the presumption introduced in the Draft 11th Amendment that an undertaking violating the competition rules has at least obtained a profit of 1% of its domestic turnover with the affected product over the entire duration of the infringement.[8]  The Government Draft 11th Amendment keeps the current provision allowing the FCO to order the skimming off only within a period of up to seven years after the infringement has ended and for a maximum period of five years.  The Draft 11th Amendment initially intended to extend the period from seven to ten years and to drop the limitation of the relevant skimming-off period altogether.  This proposed extension of the skimming-off provision has now been abolished.

The Government Draft 11th Amendment does not lower the bar for companies in rebutting the presumption of generated profits.  New in this regard is that a rebuttal of the above-mentioned presumption can only be considered “if obtaining a benefit can be ruled out due to the special nature of the infringement”.[9] The previous draft only accepted a rebuttal, if the company concerned proves that neither the legal person directly involved in the infringement, nor the company as a whole has made a profit of a corresponding amount in the relevant period.

Conclusion and Key Takeaways

While the Government Draft 11th Amendment does keep many of the proposals put forth in the Draft 11th Amendment, a few provisions have been removed and altered — resulting in a slightly tamer draft than its predecessor.  The proposed amendment will certainly further strengthen the FCO’s intervention powers by widening the scope of some provisions.  If the amendment enters into force as currently proposed, the FCO will have the ability to intervene without having to prove a violation of competition law.

The core piece of the amendment, the FCO’s new powers to order divestments of assets and shares, is now subject to additional restrictions.  The new draft now introduces conditions and financial thresholds that trigger fiscal compensation, which sets the bar for an intervention by the FCO high.  Accordingly, immediately after the cabinet decision, the FCO’s president Andreas Mundt already expressed doubts about the practicability of the new powers for the FCO.[10]

The first reading on May 26, 2023 was an indication that also the less interventionist Government Draft 11th Amendment will be debated controversially in the coming months.  For example, some parties have criticized the rules as too vague and others have even called for the possibility of nationalization of companies after sector inquiries.  

[1]              Draft of the Federal Government for an amendment of the Act against Restrictions of Competition and other laws, Entwurf eines Gesetzes zur Änderung des Gesetzes gegen Wettbewerbsbeschränkungen und anderer Gesetze, as of April 5, 2023, only available in German here.

[2]              Draft of the Federal Ministry of Economics and Climate Protection, Draft Act on the Improvement of Competitive Structures and the Absorption of Benefits from Competition Infringements (“Competition Enforcement Act”), Referentenentwurf des Bundesministeriums für Wirtschaft und Klimaschutz, Entwurf eines Gesetzes zur Verbesserung der Wettbewerbsstrukturen und zur Abschöpfung von Vorteilen aus Wettbewerbsverstößen (Wettbewerbsdurchsetzungsgesetz), as of September 15, 2022, only available in German hereFor a summary of the Draft 11th Amendment see the blog post on the Cleary Antitrust Watch here.

[3]              For more information, please see our Cleary Antitrust Watch blog article, available here.

[4]              Section 32f(5) Government Draft 11th Amendment.

[5]              Section 32f(5) Government Draft 11th Amendment.

[6]              Section 32f(3) Government Draft 11th Amendment. 

[7]              The Draft 11th Amendment still considered a period of five years as sufficiently long.

[8]              Section 34(4) Government Draft 11th Amendment.

[9] Section 34(4) S.6 Government Draft 11th Amendment.

[10]Weitreichende Befugnisse für das Bundeskartellamt: Bundesregierung beschließt umstrittene Kartellrechtsreform“, Legal Tribune Online, 05.04.2023, only available in German, here.