Germany: Latest Reform Of German Competition Law Brings Clarity

In Short

The Situation: Germany comprehensively revised its antitrust laws (Act Against Restraints of Competition), with the changes expected to enter into force in May 2017 after publication in the official journal.

The Reason: The reform was triggered by the requirement to implement the EU Damages Directive into national law.

The Impact: The updated law facilitates private antitrust damages actions, closes loopholes with respect to cartel damages liability, and introduces a size-of-transaction threshold for merger control.

The German Parliament has adopted the 9th Amendment to the German "Act against Restraints of Competition" ("ARC") or "Gesetz gegen Wettbewerbsbeschränkungen" ("GWB"). The new law will enter into force after publication in the German official journal, presumably in early May 2017.

The reform, triggered by the requirement to implement the EU Damages Directive into national law, covers several important areas:

  • Facilitating private antitrust damages actions
  • Introducing an alternative value-based threshold for merger control
  • Clarifying market definition and market power in light of digitization
  • Closing of loopholes with respect to liability for cartel damages
  • Creating new consumer protection powers for the Federal Cartel Office.

Facilitating Private Antitrust Damages Actions

Even before the reform, German law already contained specific rules to facilitate follow-on actions. For example, German courts were bound by (final) decisions of the EU Commission or any EU national competition authority finding an antitrust infringement. German courts had already ruled on the availability of the passing-on defense and indirect purchaser claims. The reform clarifies and codifies these rules, in particular in relation to the statute of limitation, rules relating to the passing-on defense, the limitation of joint and several liability of cartel members, and disclosure/protection of documents.

New Framework for Disclosure of Evidence in Damages Actions. The disclosure or protection of evidence in damages actions is one of the most controversial aspects of antitrust damages claims in Europe and of great importance for both claimants and defendants. Given that most damages cases in Europe concern follow-on actions, claimants would strongly benefit from access to the evidence collected by competition authorities through leniency applications or investigations or to the evidence held by infringers. Contrary to U.S.-style litigation or to the disclosure available under UK law, it is generally difficult under German law to obtain such evidence.

Following the 9th Amendment, anyone in possession of evidence required to defend against a cartel damages claim must disclose such evidence to the defendant. The defendant can request this disclosure only once a damages claim against him or her is pending.

The 9th Amendment also provides that the claimant has the right to request from anyone, including the (future) defendant, the disclosure of information and evidence required to establish a (potential) damages claim. This right exists even prior to the opening of litigation proceedings and can be enforced through a separate action in court. However, the law requires the requesting party to reasonably specify such evidence, in order to avoid the appearance of a "fishing expedition."

Although not required by the EU Antitrust Damages Directive, the claimant can use interim relief proceedings for disclosure of a final decision by the European Commission or another national competition authority within the European Competition Network. It is not entirely clear whether the infringer may insist on the redaction of confidential information before the disclosure of the decisions.

In line with the Directive, leniency statements (including evidence created during the leniency proceedings, such as minutes of witness hearings) and settlement statements are protected from disclosure at all times (black list). Other documents prepared for administrative proceedings by a party or the authority will not be disclosed until the proceedings are terminated (gray list). All other documents can be disclosed. The scope of disclosure is ordered by the court, which will balance the relevance of documents, proportionality, and the legitimate interest of confidentiality in each individual case.

Extension of the Statute of Limitation from Three to Five Years. The limitation period for bringing cartel damages claims is extended from three to five years. The 9th Amendment also changes the start date of the limitation period: the limitation period does not run until the end of the year in which: (i) the claim arose; (ii) the infringement ceased; and (iii) the claimant knows, or could be reasonably expected to know, the facts of the infringement, that these facts actually amounted to an infringement, and the identity of the infringer.

It should also be noted that the limitation period for the recovery of contributions sought by an infringer against other infringers does not start to run before such infringer has paid damages to the claimant.

Codifying the Passing-On Defense/Indirect Purchaser Claims. The 9th Amendment codifies two presumptions relating to the passing-on of overcharges into German law. Both concern only the occurrence of passing-on, not a particular rate of passing-on.

The new rules affirm the previous case law that the passing-on defense is available to defendants under German law. The defendant bears the burden of proof that the claimant has passed on the whole or part of the overcharge to its customers.

Concerning indirect customers, even before the new law, such customers could bring actions against infringers. This is now codified and supplemented by a presumption that facilitates the action for indirect purchasers. When bringing an action against the cartelist, indirect customers can rely upon a rebuttable presumption that the damages were passed on, if the indirect customer can show that:

  • The defendant committed an infringement of competition law (e.g., through an infringement decision by a competition authority);
  • The infringement resulted in an overcharge for the defendant's direct customer; and
  • The indirect purchaser purchased goods or services that were the object of the infringement, or purchased goods or services derived from obtaining these.

The defendant (infringer) has the burden of proof to rebut this presumption.

Limitations on Joint and Several Liability of Cartel Members. Under the general principles of German tort law, cartelists were already jointly and severally liable for the damage caused. Any claimant could seek full compensation from any of the infringers. It was then up to the infringer to recover (part) of the paid damages from the other infringers. The 9th Amendment provides for three limitations on joint and several liability, in line with the Directive:

  • The liability of immunity recipients is limited to damages caused to their direct or indirect purchasers or suppliers; liability toward all other injured parties will exist only where full compensation cannot be obtained from other companies involved in the infringement.
  • If an infringer has settled with the claimant, the settling infringer will be released from liability for the share of the harm for which it is responsible. An exception to this rule will be made where the other infringers are unable to pay damages, for example in case of an insolvency.
  • Under certain circumstances, infringers that are small or medium-sized enterprises may also benefit from a limitation on their liability for damages caused to their own (direct or indirect) customers.

Merger Control—Introducing an Alternative Value-Based Threshold

The 9th Amendment introduces an additional merger control threshold that takes into consideration the value of the transaction. This change attempts to close a perceived enforcement gap, whereby certain mergers of considerable economic importance are not captured by the current thresholds, which are exclusively based on revenues. This gap is perceived to exist, in particular, in pharmaceutical and IT-related cases. The EU Commission is currently consulting on similar changes to the EU Merger Control Regulation.

The new law introduces a transaction-value-based threshold of €400 million. If the parties meet the combined worldwide turnover threshold (>€500 million), and one party meets the domestic turnover threshold (>€25 million), but neither the target nor any other party meets the second domestic turnover threshold (>€5 million), a transaction is nevertheless notifiable, if the transaction value exceeds €400 million and the target has significant activities in Germany.

The transaction value is to be interpreted broadly and includes the purchase price (including all assets and other monetary payments that the seller receives from the acquirer in connection with the transaction) and the value of any liabilities of the seller assumed by the purchaser. In complex M&A transactions, the calculation of that value may not be straightforward—for example, in purchase agreements involving "earn out-clauses," whereby a portion of the purchase price is made conditional upon the target's future performance. Similar problems arise in applying the "value of the transaction" threshold under the U.S. Hart-Scott-Rodino rules.

According to an explanatory memorandum, whether a target is "active" in Germany is to be established based on the location of the target's customers and, more specifically, the location of the designated use of the products. According to this condition, a target would be "active" in Germany where, for example, users in Germany would benefit from the services offered by the target. More importantly, it is expressly stated that being "active" in Germany does not imply achieving any revenues in Germany.

The explanatory memorandum does not establish how to determine whether the target's activity in Germany is "substantial." The use of any quantitative criterion to describe the "substantial" activity in Germany is rejected. The criteria to be taken into consideration are, for example, the sector or the maturity of the market concerned. Guidance is provided via specific examples. The condition would be met where, for example, the target markets a free software product that is targeted at all consumers and used by more than one million users in Germany. On the other hand, where the target achieves considerable turnover worldwide but not in Germany, the old turnover-based threshold should apply.

It is estimated that a "low single-digit number of cases" per year will be notified under the new threshold.

Clarifying Market Definition and Market Power in Light of Digitization

In the past, the German Federal Cartel Office ("FCO") considered that services provided for free did not qualify as "markets" for the purpose of competition law. However, in view of recent cases, such as the FCO's investigation of Facebook (social networks), the law now establishes that even free services can still qualify as a market. This concerns activities such as search engines, comparison websites, information services, entertainment websites etc., which are often one side of double-sided markets.

The law also clarifies the criteria to be taken into account for the assessment of a company's market power, in particular in two-sided platform markets, namely: (i) direct and indirect network effects; (ii) the extent of users' parallel use of several services (multi-homing) and switching barriers; (iii) scale benefits; (iv) access to data; and (v) innovation-driven competitive pressure.

Closing of Loopholes with Respect to Liability for Cartel Damages

Under the previous law, the FCO could fine the parent company only if it failed to prevent the subsidiary's infringement and thereby violated its own supervisory duty. The 9th Amendment aligns German law with the EU law concept of a single economic undertaking, thereby allowing the fining of both the subsidiary and the parent company, which are jointly and severally liable.

The reform also closes a well-known gap in the current legislation that allowed companies to escape fines through restructuring, mainly regarding certain asset deals or internal split or spin-offs, in particular where the addressee of the fining decision sold its assets and subsequently ceased to exist. This loophole caught public attention in 2015 when members of a German sausage cartel restructured after being subjected to multibillion Euro fines.

The reform solves this problem by introducing the "commercial succession" definition, in view of recovering cartel fines from buyers in asset deal transactions subsequent to which the addressee of the fining decision ceases to exist.

Creating New Consumer Protection Powers for the Federal Cartel Office

The FCO is given new, albeit limited, powers regarding consumer protection. It now has the competence to carry out sector inquiries or inquiries into particular agreements across sectors in case of suspected significant, repeated, and continuous infringements of consumer protection rules that widely affect consumers. However, these are only secondary competences, which can be triggered only if no other federal agency is competent to deal with these cases.

Three Key Takeaways

  • With the updated law, Germany will continue to be a preferred jurisdiction for follow-on private antitrust litigation.
  • The size-of-transaction threshold will expand the scope of German merger control, and might be a precursor to similar changes in the EU.
  • The reform closes a loophole in the current legislation that allowed companies to escape fines through restructuring.

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.

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.

Authors
 
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”

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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.