Germany: The Scope Of The Relevant Geographic Market – Germany’s Federal Supreme Court Opens the Border

Last Updated: 24 February 2005

By Dr. Jens Peter Schmidt (Brussels)

With its decision1 of 5 October 2004 the Bundesgerichtshof (Federal Supreme Court) of Germany (the "Court") has abandoned its decisional practice that the scope of a product market due to legal principles is geographically limited to the territory of Germany. In its decision the Court recognizes the concept of market definition based on economic principles and acknowledges that product markets may be transnational.

Background

The definition of the relevant market involves the appraisal of the product market and the geographic market. The determinative criterion for the definition of the geographic market is the substitutability from a demand-side viewpoint. The question is, from where can the customer choose the goods he wishes to buy, be it for instance on a local, national, European- or world-wide basis? Some goods may easily be supplied throughout the Community or even the world, others for technical, legal or practical reasons can only be supplied within a narrower area. Basic demand characteristics like the preference for national brands, language or local presence requirements, and trade flows among countries are only two of a number of criteria that are used to determine the geographic scope of a market.

For many goods the reach of suppliers has been broadened through the completion of the internal market in Europe and through globalization of economies in general. Hence, many markets from an economic point of view are much greater than a national territory. The application of national merger control legislation however is, per definitionem, restricted to the effects of a merger in a national territory.

Previous Court’s Decisions

The apparent tension between the scope of a geographic market and the territorial scope of the Gesetz gegen Wettbewerbsbeschränkungen (German Act against Restraints of Competition) ("ARC") led the Court in previous decisions, notably in the decision of 24 October 1995 (Backofenmarkt)2 to the conclusion that the geographic market could not be greater than the ambit of the ARC.

The Court reasoned that the ARC aims at protecting competition on the domestic market. This aim would define – but also limit – the objective of the substantive merger control provisions. The substantive analysis under the German merger control provisions would only refer to the issue of whether or not a merger is expected to create or strengthen a dominant position in Germany. The argument was that it follows from legal reasons that the geographic scope of the market, on which mergers which create or strengthen a dominant position shall be prohibited, would need to be limited to the territory of Germany.

The Court certainly recognized that from an economic point of view markets would go beyond the territory of Germany. It also acknowledged that within a wider geographic market a strong competitor in one geographic segment would have a chance to enter other geo- graphic segments, and, hence, could restrain the competitive behavior of a market participant in Germany. Systematically, the Court took that into account within the assessment of dominance when evaluating actual or potential competition (that is market entry barriers). The Court therefore postulated a two-step assessment: First, market definition and identification of market shares within the territory of Germany, and second, evaluation of market dominance within the real economic market, including foreign territories.

Another argument the Court put forward to support its view of a normative German market was that the Federal Cartel Office would have only limited resources and powers to investigate market conditions in foreign countries.

The Backofenmarkt decision earned widely-spread criticism, because it lead to an artificial market definition that was often contradictory to economic reality, in particular in light of the Common market. But most important, the question of where to assess dogmatically competition from foreign countries was not an academic issue only. The real drawbacks were the practical consequences: the ARC provides a – rebutable – presumption of single firm dominance once the merging parties reach a market share of one-third. Such presumption of dominance when applying the Backofenmarkt doctrine was fulfilled if the merging parties had a share of one-third in Germany, irrespective of the fact that on the economic market the share was smaller. As such, the merging parties were placed in a defensive role, and it was up to them to demonstrate that they do not hold a dominant position. As a consequence, the parties had to substantiate the relevance of actual or potential competition from third countries.

The Court’s Latest Decision

The latest decision explicitly deviates from the principles of the Backofenmarkt decision. The Court holds that the geographic scope of a given market cannot be defined through legal but only through economic criteria. Since any definition based on legal criteria would not reflect economic reality, it would be artificial and "not satisfactory." The (alleged) difficulties of gathering information with regards to product markets beyond the territory of Germany could not validly be maintained. First, the European network of competition authorities would facilitate the information gathering process. Second, in the past the Federal Cartel Office had to appraise ex officio actual or potential market entries within the assessment of dominance, and so they faced the issue in any event.

The Court states that there is no longer the need to bring in line the geographic market with the ambit of the ARC. If an undertaking has a dominant position on a transnational market, the undertaking has also a dominant position on any segment (for example Germany) of such transnational market.

Conclusion

The decision of the Court deserves applause, because it no longer maintains an artificial definition of a geographic product market, and acknowledges that markets need to be determined by economic criteria. In relation to the presumption of dominance, the practical consequences of the Court’s decision remain to be seen. There seem to be two ways of how to apply the presumption of dominance in light of transnational geographic markets.

First, the presumption continues to be applied to the German territory, but would be readily rebutable if the economic market is greater, and the threshold of one-third in such greater market is not met. This would be the preferred interpretation given that it is (still) the common view that the presumption of dominance relates only to domestic markets. Second, the presumption of dominance test applies to the economic market. The latter way seems to better conform with the recent decision’s principles. However, only future practice will show which method the Federal Cartel Office will adopt.

Endnotes

1 Bundesgerichtshof, KVR 14/03 (Melitta/Schultink), available under www.bundesgerichtshof.de.

2 Bundesgerichtshof, KVR 17/94 (Backofenmarkt), BGHZ 131, 107.

Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mayer Brown is a combination of two limited liability partnerships: one named Mayer Brown LLP, established in Illinois, USA; and one named Mayer Brown International LLP, incorporated in England.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions