Yesterday, Germany's new competition law entered into force. It brings important changes in particular for M&A and Big Tech as well as cartel proceedings in Germany.
The law will alleviate the regulatory burden on many mid and small cap transactions, because approx. 40% of the deals that previously had to be notified will likely no longer require a merger control clearance. The title of the amendment act is "Competition Digitalization Law", because it introduces novel tools for the German competition authority, the Bundeskartellamt (Federal Cartel Office, FCO), to prohibit several potential business practices of digital players and platform operators and regulates the access to data. With this, Germany is the first-mover in regulating the likes of GAFAMs, but the new rules may in principle affect all companies that rely on data-driven business models. This is an overview on the key provisions of the new law:
Merger Control – Much Less Deals Need to be Notified
Turnover Thresholds Raised
Germany had comparatively low merger control thresholds which often meant that the acquisition of targets generating very low domestic turnover in Germany (only above EUR 5m) had to be notified to the FCO. Now, the domestic turnover thresholds have been significantly raised:
- from € 5m to € 17.5m for one party involved in the transaction; and
- from € 25m to € 50m for the other party (collectively the parties still need to meet the threshold of €500m combined worldwide turnover to make the deal notifiable).
This means a lot of the deals (estimates range from 30-50%) that were filed in the past don't need to be notified in Germany in the future anymore.
In addition, the threshold for so-called de minimis markets has been extended and the special thresholds for the print media sector have been doubled.
New Filing Obligation – Order of the FCO to Notify
In some markets, there may be a risk that larger companies gradually buy a number of small competitors that do not fall under the merger control rules, thus, step-by-step increasing their market presence and impeding competition without the FCO being able to step in. In order to avoid this, the FCO can now order – under strict conditions – large companies () €500m turnover) operating in a specific sector it has previously investigated, to file any acquisition of targets generating domestic turnover of at least € 2m.
In terms of planning long-stop dates, its noteworthy that the timeline for Phase II investigations has been extended from 4 to 5 months. That gives the FCO more time to scrutinize complex deals.
Furthermore, the amendment abolishes the need to notify the FCO of the closing of the transaction. This has never been more than a formality for both the FCO and the notifying parties, but nevertheless was another checkbox on the closing list which can now be deleted.
Prohibiting the Abuse of Market Power – Regulating Access to Data & Platform Markets
The new law explicitly aims to adapt German competition law to the needs of the digital economy. Germany is determined to regulate Big Tech in an unprecedented way
Leash on Big Tech
The law now conveys to the FCO the power to declare a company that is active on multi-sided / platform markets to have paramount importance for competition across multiple markets. Once the FCO has given a company this label, it can widely interfere with the company's business practices – even before the company has actually engaged in such practices. Specifically, the FCO may prohibit inter alia:
- self-preferencing (i.e. giving preference to own services/products on its platforms vis-à-vis competitors');
- hindering competitors by actions that e.g. lead to installation of own products only;
- bundling and tying the platform services with one's own unrelated services and products;
- erecting market barriers through data collection, e.g. by forcing users to agree to data sharing;
- impeding or preventing interoperability with other services or portability of data.
Furthermore, the FCO may now actively intervene early before a company reaches a dominant market position in order to avoid a "tipping" of platform markets into a de facto monopoly.
The only legal remedy against the finding of a paramount importance for competition across multiple markets and any ensuing prohibitions is a direct appeal to the Federal Court of Justice – i.e. a uniquely short (one-shot) judicial review.
Easier Access to Data
Dominant companies are traditionally subject to specific rules preventing the abuse of a dominant market position. Now, access to data relevant for competition becomes a criterion in determining market power as well as the role as "intermediary power" on multi-sided markets. Platforms holding such power must comply with the general anti-abuse rules (e.g. not discriminate certain customers or charge excessive prices).Additionally – and that is a new obligation – dominant companies must generally give access to data that is necessary to operate on upstream or downstream markets if otherwise effective competition on those markets is threatened to be eliminated. This may have far-reaching consequences for a number of data-driven business models.
Cartel Proceedings –Limited Right to Silence & Compliance Defense
The new law codifies the FCO's pre-existing leniency procedures and fining guidelines, and provides for increased cooperation with other European competition agencies. It changes the fining of trade associations: fines may be calculated on the basis of their members' turnover, who are active in the market concerned by the cartel and who have not been fined individually or granted immunity (and the members involved may be liable for the association's misconduct).
Limited Right to Silence
The new law also provides for problematic changes to fundamental procedural rights such as the protection from self-incrimination and the right to remain silent. While under the new law a company still cannot be forced to outright confess a cartel infringement, employees must generally answer questions on circumstances of the alleged infringement. The responses obviously may amount to circumstantial evidence of such allegations. In order not to entirely break with one of the most basic fundamental rights of due process (nemo tenetur), the new law at least provides that such evidence must not be used in proceedings against the individual. If the FCO guarantees not to prosecute the individual, the individual cannot invoke the right to remain silent, unless a statement might disclose criminal activity beyond the exclusive jurisdiction of the FCO (e.g. bid-rigging). In any event, these changes significantly restrict the possibilities to defend a company against antitrust allegations.
Introduction of a pre-infringement compliance defense
There is a silver lining in the new rules of cartel enforcement too: when setting the fines, the FCO shall take into account compliance efforts the company made pre- and post-infringement. This puts an end to the FCO's argument that compliance management systems are a given and any infringement proves such system did not work sufficiently to deserve any credit.
Cartel Damages Proceedings – Presumption of Harm / Access to File clarified
Changes to civil damages procedure are very limited. The law introduces a rebuttable presumption that legal transactions with companies involved in the cartel that fall within its scope - in terms of subject matter, timing and geography - are affected by the cartel. This extends to indirect buyers / sellers, but so-called umbrella effects (inflated prices charged by cartel outsiders) are not covered by this statutory presumption. The new law further clarifies the procedures regarding access to file.
More Legal Certainty for Co-operations
When competitors cooperate, there is often uncertainty whether such cooperation is in line with competition law – and the antitrust risks are borne by the companies. To alleviate this burden, the law now allows for companies to request the FCO to confirm the legality of such a cooperation if there is a "significant legal and economic interest" to obtain such certainty. The FCO must decide within 6 months.
January 20 2021
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