On 1 July 2016, the German Federal Ministry of Economic Affairs and Energy published a draft for a proposed Ninth Amendment of the German Act against Restraints of Competition (the "Draft").

The main contents of the Draft are:

  • A new merger control notification threshold based on transaction value
  • Specific criteria for the appraisal of market power in (digital) multi-sided markets
  • Introduction of group liability and a broader successor liability for fines
  • Implementation of the EU directive for cartel damages

Stakeholders have been invited to submit comments until 15 July 2016. The draft shall be adopted by the German Federal Government in early August. It shall become effective – after completing legislative procedure – no later than 27 December 2016.

I. Merger Control: A New Filing Threshold

The Draft introduces a new filing threshold, similar to the size-of-transaction test applied in the USA. Transactions shall require notification even if the so-called second domestic turnover threshold (of 5 million Euro) is not met, but the transaction value exceeds 350 million Euro.

The aim is to close a perceived enforcement gap. The new threshold shall enable the German Federal Cartel Office to review transactions in the digital economy that would not have otherwise required notification. This concerns target companies without significant turnover that are purchased for a high purchase price. A frequently quoted example is Facebook's acquisition of WhatsApp. In the Ministry's view, the Federal Cartel Office should be able to review such transactions given that such a high purchase price may be an indication of the competitive potential of a target company.

Therefore, in Germany, notification of a transaction will be required if:

  • the combined aggregate worldwide turnover of all the undertakings concerned is more than 500 million Euro (worldwide turnover threshold); and
  • the turnover in Germany of one undertaking concerned exceeds 25 million Euro (first domestic turnover threshold); and
  • the turnover in Germany of another undertaking concerned exceeds 5 million Euro (second domestic turnover threshold); or
  • the value of the consideration for the transaction exceeds 350 million Euro (transaction value based threshold) and at least one other undertaking is or will become active in Germany.

The consideration shall include all assets and other payment in kind that the seller receives from the buyer in connection with the transaction. Also, the value of assumed liabilities shall be included.

Besides the undertaking that meets the first domestic turnover threshold, another undertaking must be or become active in Germany. According to the explanatory memorandum, it shall be sufficient if that undertaking engages with customers in Germany or carries out research or development activities in Germany. It appears questionable whether such a broad interpretation satisfies the requirement of appreciable domestic effect (Sec. 130(2) of the German Act against Restraints of Competition, "ARC").

Further, the Draft makes clear that the de minimis exception (Sec. 35(2) ARC) does not apply if the transaction value based threshold is met. Pursuant to this exception, the acquisition of a target does not require notification if the target is not controlled by another company and its worldwide turnover is less than 10 million Euro.

II. Abuse of Dominance and Merger Control: Market Activity and Criteria for the Assessment of Market Power

The Draft supplements the merger control and abuse of dominance provisions of the ARC in order to adapt these instruments to the particular business models of the digital economy. A main focus area is internet platforms and multi-sided markets, i.e., markets on which services are offered to at least two distinct groups of users. The Federal Cartel Office has made this area one of its enforcement priorities. For instance, it has initiated a proceeding against Facebook (see also our Client Information dated 2 March 2016).

1. Markets and Services Free of Charge

The Draft clarifies that services (or goods) provided free of charge, i.e., without payment, may also be considered a market activity (and therefore fall within the scope of the ACR). This clarification seeks to expand the scope of the ACR, in particular to the "free side" of multi-sided markets. An example for such multi-sided markets are internet platforms, which offer their services free of charge to their users on one side of the market and commercialize user data on the other side of the market vis-à-vis advertisers. It is currently not clear whether services provided free of charge constitute a market activity that falls within the scope of the ACR. For instance, the Higher Regional Court of Düsseldorf has denied that free services provided by a hotel booking platform constitute a market activity.

2. Criteria for the Assessment of Market Power

The Draft includes specific criteria for the assessment of market positions of companies on multi-sided or network markets.

These criteria need to be considered when assessing whether a company holds a dominant market position for purposes of the ACR's merger control and abuse of dominance provisions:

  • Direct and indirect network effects
  • Parallel use of networks (multi-homing) by users and switching costs for users
  • Economies of scale in connection with network effects
  • Access to data
  • Innovation-driven competitive pressure (possibility of disruptive changes).

The Federal Cartel Office has already applied some of these criteria in recent proceedings, such as merger control proceedings concerning online real estate and online dating platforms. These transactions were cleared by the Federal Cartel Office. As before, the market position of a company needs to be assessed on the basis of an overall assessment of the relevant circumstances.

III. Group and Successor Liability for Fines

The Draft provides for an adaptation of the EU competition law concept of an "undertaking" or "economic unit" for purposes of the ARC's fining provisions (Sec. 81 ARC) and, as consequence, an adaptation of the EU legal principles of group and successor liability. The aim of this change is to close certain loopholes that permit companies to escape from fines by transferring businesses to another entity. This intended change is particularly controversial because the introduction of such a liability without fault would mean a paradigm shift, which also raises concerns in terms of German constitutional law.

1. Group Liability

The Draft establishes that a fine may be imposed not only on the legal entity committing the infringement, but also on the entities which directly or indirectly controlled the infringing entity at the time of the infringement. Under EU law, the requirements for establishing such a control relationship are relatively low. It is sufficient if it can be established that the parent company exercised a decisive influence on the commercial policy of its subsidiary, based on an overall assessment of all commercial, organizational, and legal links. For parents of wholly-owned subsidiaries, there is a rebuttable presumption that the parent controls the subsidiary.

As before, it is a further requirement that an infringement has been committed by a representative of the company.

2. Successor Liability

Further, a fine may also be imposed on certain legal or economic successors. Economic succession is based on the EU legal principle of economic continuity. According to this principle, a fine may be imposed on the buyer of a business if the original operator of the business ceases to exist legally or economically, and the buyer continues to operate the business. For instance, this principle has been applied to certain asset deal situations in the past.

In case of a succession, the successor shall assume the position of the predecessor in the proceedings. If fines are imposed against several legal entities for the same infringement, these entities are jointly and severally liable.

IV. Cartel Damages

The Draft also seeks to implement the EU directive for cartel damages (2014/104/EU), which aims to facilitate private enforcement actions.

1. Defendant

The Draft does not determine whether parent companies may be named as defendants in addition to the legal entity committing the infringement. It is controversial whether the implementation of the directive also necessitates an adaptation of the EU law concept of an undertaking (and group liability) within the area of actions for cartel damages.

This question has already been the subject of a discussion between several ministries and is also the reason why the Draft, which was initially announced for Spring, has only been finalized now.

The agreed approach is that this question shall be ultimately decided by the courts.

2. Damages and Passing-On

It shall be presumed that cartel infringements cause harm. This presumption can be rebutted, for instance, by showing that the overcharge resulting from the infringement has been passed on (passing-on defence). The burden of proof is on the defendant. Indirect purchasers may claim damages for a passing-on that occurred to them. The burden of proof in this respect is on the indirect purchaser. An indirect purchaser shall be deemed to have proven that a passing-on occurred to it in certain situations, e.g., if it has purchased goods that were the object of an infringement that has resulted in an overcharge. Claimants and defendants may request certain disclosures in this respect.

3. Joint and Several Liability

Members of a cartel shall be jointly and severally liable for the harm caused by the infringement. Among them, the amount of contribution by a cartel member shall be determined in the light of its relative responsibility for the infringement. In particular, its role in causing the infringement shall be relevant. In addition the general rules under the German Civil Code shall apply.

4. Privileged Treatment of Leniency Applicants and SME

Leniency applicants who have been granted immunity from fines, and certain small and medium-sized enterprises ("SME") shall be liable only to their direct and indirect purchasers. A leniency applicant may also be liable to other injured parties where full compensation cannot be obtained from other members of the cartel. Among the cartel members, the amount of contribution by such a leniency applicant or SME shall not exceed the amount of harm it caused to its own direct or indirect purchasers.

SMEs are companies as defined in the EU Commission's recommendation 2003/361/EC, e.g., companies with less than 250 employees and annual revenues of no more than 50 million Euro. A privileged treatment of a SME requires that the SME's market share on the relevant market was less than 5% and that an application of the normal rules of liability would jeopardize its economic viability.

5. Disclosure of Evidence

Claimants and defendants shall have a substantive legal claim for information and disclosure of evidence, unless such disclosure would be disproportionate. In determining whether a disclosure request is proportionate, courts shall consider, among other things, claims for business secrets. Leniency statements and statements concerning settlements must not be disclosed.

A court can decide on a disclosure request by means of an interim decision. If an infringement has been found by a final decision of a competition authority, requests for interim legal protection shall be facilitated.

Specific rules apply to requests for access to a competition authority's file.

6. Further Elements

The Draft provides for numerous further changes. For instance, these concern the effect of settlements on subsequent actions for damages, the duration and commencement of limitation periods, etc.

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