Germany: Reform Of German Competition Law: Government Draft Adopted

With our Client Update dated 7 July 2016 we informed on the ministerial draft for a proposed Ninth Amendment of the German Act against Restraints of Competition published by the German Federal Ministry of Economic Affairs and Energy on 1 July 2016 (the "Ministerial Draft").

On 28 September, the German Government adopted the governmental draft (the "Governmental Draft").

The main changes in the Governmental Draft can be summarized as follows:

  • Merger Control: The new notification threshold based on transaction value shall be set at EUR 400 million (instead of EUR 350 million). In addition, the target company must have significant activities in Germany (domestic effects).
  • Abuse of a Market Position: The scope of the prohibition of "tapping" shall be broadened, i.e., a market dominant company must not request other companies to grant it advantages without any objective justification. It shall no longer be required that the company uses its market position for such purposes. For purposes of the prohibition of sales below cost price, the term "cost price" shall be defined.
  • Group and Successor Liability: The Governmental Draft provides for hardly any changes in this respect. However, if an undertaking involved in an infringement is acquired by a third party, the fine shall not be increased for this reason.

The Governmental Draft will now be submitted as an urgent matter to the German Federal Council and Federal Parliament. The EU directive for cartel damages must be transposed into national law no later than 27 December 2016. It remains to be seen whether this period can be met.

I. Merger Control: A New Filing Threshold

Transactions shall require notification even if the so-called second domestic turnover threshold (of EUR 5 million) is not met, but the transaction value exceeds EUR 400 million.

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

  • the combined aggregate worldwide turnover of all the undertakings concerned exceeds EUR 500 million; and
  • the turnover in Germany of one undertaking concerned exceeds EUR 25 million; and
  • the value of the consideration for the transaction exceeds EUR 400 million; and
  • the target company has significant activities in Germany.

The criteria of significant activities in Germany shall exclude only marginal activities. The assessment of whether an activity is significant or only marginal shall be based on the criteria and factors relevant to the particular industry. For traditional industries with monetary compensation and significant turnover the turnover threshold of EUR 5 million can still be seen as benchmark. In other industries, for instance internet services that are free of charge, the number of users may be relevant.

II. Abuse of a Market Position

The Governmental Draft broadens the scope of the tapping prohibition and defines the term "cost price."

1. Prohibition of Tapping

A company with a dominant market position must not invite other companies to grant it advantages without any objective justification. The requirement that such company uses its market position in this respect shall no longer apply. So far, the practical relevance of the tapping prohibition has been limited, in particular for this reason. The invitation itself shall now be abusive. For a justification, it shall be particularly relevant whether the invitation is accompanied by plausible reasons and whether the requested advantage is reasonably proportional to the cause for requesting the advantage.

2. Sales below Cost Price

Also the prohibition of sales below costs price has been of very limited practical relevance to date, as it is deemed too complex to prove a sale below cost price, considering the various discounts and conditions agreed between suppliers and their customers. "Cost price" shall now be defined as the agreed price for a good or service. If the supplier grants general benefits (i.e., not only for a certain product or service) to a customer, such benefits may be counted against the cost price only proportionately and only if they were certain at the time of the offer, unless something different was expressly agreed with respect to a certain product or service.

As before, the prohibition applies, subject to further requirements, to companies with a superior market power in relation to small and medium-sized competitors.

III. Group and Successor Liability for Fines

The Governmental Draft confirms the introduction of a group liability and a broader successor liability for fines. These rules were strongly criticised during the consultation process by industry federations.

The Governmental Draft provides at least for one improvement, also requested during the consultation, relevant for M&A deals and insolvency acquisitions: If the economic circumstances of a group change because the entity committing the infringement has been acquired by another company (not part of the same group), a lower fine as compared to the fine previously appropriate has to be considered. The aim is to prevent a higher fine due to the acquisition by a third party.

IV. Cartel Damages

The Governmental Draft provides only for minor changes in this area. For instance, these changes concern the privileged treatment of small and medium-sized enterprises and the limitation periods.

V. Media Sector

The turnover multiplier for concentrations in the area of television and radio broadcasts will be reduced from 20 to 8. The Governmental Draft confirms the possibility of an exemption from the German law cartel prohibition for certain cooperation between press publishers except for editorial matters.

Please refer also to our prior client information dated 7 July 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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