European Union: Important Amendments To The German Act Against Restraints Of Competition

Germany recently adopted the 9th Amendment to the Act against Restraints of Competition (the "Amendment"). The Amendment implements the EU damages directive, and brings about a number of additional, important changes to German competition law.

1.Merger Control: Introduction of a new, value based notification threshold

Under the former rules, a planned concentration has to be notified to the German Federal Cartel Office if certain turnover thresholds (the "turnover test") are met by the undertakings concerned.  A planned concentration has to be notified if, in the last business year preceding the planned transaction:

1. the combined aggregate worldwide turnover of all the undertakings concerned exceeded € 500 million; and

2. the turnover achieved in Germany by at least one undertaking concerned exceeded € 25 million; and

3. the turnover achieved in Germany by another undertaking concerned exceeded € 5 million.

In addition to this turnover test, which remains applicable, the Amendment has introduced an alternative notification threshold which triggers a pre-merger notification requirement in Germany. Pursuant to the new threshold, if the turnover criteria indicated in points 1 and 2 above are met, but the target company (or business) to be acquired does not meet the € 5 million domestic turnover threshold indicated in point 3 above, a planned concentration still has to be notified in Germany if:

  • the value of the transaction exceeds € 400 million, and
  • the target company (or business) is active in Germany "to a significant extent".

The rationale for this new test is to catch in particular acquisitions of start-up companies which do not (yet) achieve much turnover but which have a significant market presence, such as certain ies in the digital economy. For example, Facebook's 2014 acquisition of WhatsApp was a concentration where the target (WhatsApp) did not meet the turnover threshold of € 5 million in Germany and which therefore was not notifiable in Germany.  This transaction presumably would have required a notification in Germany under the new notification threshold considering to the high transaction value (USD 19 billion) and the fact that WhatsApp has many users in Germany and is therefore likely would have been considered as being active in Germany "to a significant extent".

However, the application of the new test criteria to individual cases is likely to raise questions in practice. According to the Amendment, the transaction value is the value of the consideration which the seller will obtain from the acquirer in connection with the concentration, including the purchase price and any other assets obtained as well as the value of any liabilities taken over by the acquirer. For some transactions, however, the total value of the consideration obtained may not always be easy to determine.

The question whether the target has a "significant activity" in Germany is also subject to interpretation. The German government's explanatory memorandum for the Amendment states that relevant activity in Germany will exist where, by way of example, the target company's services (including services provided free of charge) are used by users in Germany or where the target company carries out research and development activities in Germany.  Such activity will be considered significant, if, for example, the target has developed an "app" that is used by at least one million users in Germany. The explanatory memorandum further states that, where the user targeted by the "app" is more limited, the activity of the target in Germany may be considered significant even if the number of actual users is less than one million.

Considering the lack of legal certainty, it can be expected that in the future more companies will decide to submit precautionary notifications of their planned concentrations to the German Federal Cartel Office, in order to avoid the risk of exposure to fines for failure to notify a notifiable transaction.

2. Legal clarification of relevant criteria for the assessment of markets

The Amendment also adopts certain criteria regarding the definition of relevant markets and the assessment of the market position of undertakings, which are largely already applied in the practice of the German Federal Cartel Office.  It clarifies that a relevant market can also exist where the services on the market are provided free of charge. This is relevant primarily with regard to multilateral markets of the digital economy, such as internet platforms (e.g. hotel booking or real estate sales platforms, whose offers may be accessed free of charge).

As regards the assessment of the market position of undertakings, in particular of a dominant market position, the Amendment stipulates that, especially with regard to multilateral markets, criteria such as direct and indirect network effects, the parallel use of competing services (so-called "multi-homing"), economies of scale related to network effects, an undertaking's access to competitively relevant data and the competitive pressure to innovate can also be taken into account when assessing dominance.

3. Other important changes introduced by the Amendment

1. Extension of liability for competition law infringements to controlling parent company

Under the German competition rules, a legal entity is liable for competition law infringements committed by a natural person – an officer, managing director or other – who acted for the legal entity concerned. On the other hand, a fine could only be imposed on the controlling parent company of the legal entity liable for the infringement if it is established that the controlling parent company knew about the infringing acts of its subsidiary or should have known about these acts.  The Amendment eliminates this knowledge requirement.  It introduces the EU competition law concept whereby the controlling parent company and the entities it controls form a "single economic unit," and provides that the controlling parent company can be held liable and fined for competition law infringements committed by a controlled entity.

2. Liability of successor companies for competition law infringements

The Amendment also closes a legal loophole regarding successor liability for competition law infringements. Under the previous rules, a legal entity that had committed a competition law infringement was sometimes able to avoid a fine through restructuring, as the newly formed company could under certain conditions invoke that it was not the legal successor of the infringer. The Amendment stipulates that an undertaking that has taken over or continues the economic activity of the entity which committed the competition law infringement can be held liable for such an infringement.

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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