The German government has published a draft bill that will amend
the German Act on Restraints of Competition (Gesetz gegen
Wettbewerbsbeschränkungen, GWB). According to the draft, the
government believes that current version of the GWB has proved
itself effective in practice and only minor modifications are
required. In fact, however, the changes proposed in the draft bill
are significant and will affect all businesses active in
Perhaps the most striking change relates to the standard for prohibiting mergers. Currently, German merger control uses a dominance test. The Federal Cartel Office (Bundeskartellamt, BKartA) must prohibit transactions that are likely to create or strengthen a dominant position. Under the draft bill, the BKartA would prohibit transactions that "significantly impede effective competition" (SIEC). The dominance test will survive only as an example of SIEC.
The new standard would mirror the SIEC test that has been in place under the EU merger regulation since 2004. When the EU itself changed from "dominance" to SIEC, the German government fiercely opposed the change. One of its arguments at the time was that the SIEC test is too difficult to apply in practice, particularly where it requires complex economic analysis. In this draft bill, the government now claims that the BKartA has acquired sufficient economic expertise over the past few years to be able to work with the SIEC test efficiently. The change is also said to be necessary in order for the BKartA to be able to prohibit certain situations which it is not able to prohibit under the current law (such as unilateral effects of oligopolies). As to this alleged "enforcement gap," it remains doubtful whether there are really enough of these relevant transactions to prompt a change in the law.
Additionally, the draft bill takes the position that the change from the dominance to the SIEC test is required to bring German law into line with EU law. While this is plainly wrong (EU law does not make it mandatory for member states to harmonize their merger control systems), it is quite clear that the German "dominance" test has become an oddity in the area of international merger control. Not only the EU, but also a number of member states use SIEC or similar criteria as a test for prohibition. It was only a matter of time until the German Government would feel the need to close that particular gap.
Should the SIEC test become part of German merger control, only the future will tell if the BKartA will use the new test to step up its enforcement level even in situations unrelated to SIEC or whether it will follow the EU's more cautious approach.
Important as it is, the change of the standard for prohibition should not distract from the many other changes the German government is proposing, relating to merger thresholds, enforcement and investigative powers, and private litigation. Most of these changes will make the German law more aggressive.
A German version of the draft bill is available here and a high-level summary of the proposed legislation is available here.
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