Extensive reforms of Germany’s competition law came into force on January 19, 2021 as a result of the 10th ARC-amendment. The innovations of the ARC Digitalisation Act, as it is commonly known, focus on modernising Germany’s antitrust law to take account of rapidly increasing digitalisation of the economy, especially in respect of abuses of dominance by platforms and other digital companies. The amendment also brings about significant changes regarding merger control, cartel damages claims and cartel proceedings, the latter largely implementing requirements of the ECN+ Directive (Directive (EU) 2019/1 of December 11, 2018).
The most important changes can be summarised as follows:
- Strengthening powers to address abuses of dominance by platforms/digital companies with market power, including by: (i) introducing the concept of "intermediation power" (or “intermediary power”) as a relevant factor when determining a dominant position; (ii) redefining the so-called "essential facilities doctrine" with regard to data; (iii) establishing criteria for intervention that enable the Federal Cartel Office to impose special behavioural obligations on large platforms; and (iv) creating a new rule to prevent certain measures that can cause "tipping" of markets.
- Significant increases in the turnover thresholds for merger control notifications expected to reduce the number of notifications by almost a third. This will reduce to the burden of notification on small and medium-sized companies in particular while freeing up Federal Cartel Office resource for more complex cases. At the same time, the 10th ARC amendment also provides for the possibility of transactions falling below the new thresholds to be subject to notification and review under certain conditions, as well as extending the review period in the main examination procedure.
- Changes intended to support plaintiffs in cartel damages proceedings to enforce claims against cartel participants. In particular, there is a new presumption that transactions with cartelists have been impacted by the cartel, with this presumption also applying in respect of indirect sales.
- Simplifying, reorganising and in some cases expanding the law on cartel proceedings and fines. This includes changes recognising that effective compliance programmes and behaviour of companies after an committing an infringement can be taken into account when setting fines, as well as lowering the requirements for use of interim measures.
Further detail on these changes is provided below.
Modernising abuse of dominance rules
The overall goal of the changes in this area is to better control market-dominant digital companies and to take greater account of the increasing importance of data for competition.
For this purpose, so-called "intermediation power", which is independent of any assessment of market share, has been introduced as another relevant consideration to determine whether a company has market power. In particular, this will allow analyses regarding two-sided markets to better take into account the power of platforms as intermediaries to steer users and advertisers towards their own products and services instead of competitor products and services on their platforms (Section 18 (3b) and Section 20 (1) ARC-amendment).
The criteria for assessing the market power of a company under Section 18 (3) ARC-amendment are also supplemented by the addition of "access to competitively relevant data" as well as a prohibition on dominant platforms (or other dominant companies possessing big data) refusing to allow competitors access to their data sets (Section 19 (2) No. 4 ARC-amendment).
In addition to the above-mentioned amendments, there are two other core elements of the changes in this area which are intended to give the Federal Cartel office a much sharper sword than the previously applicable regulations and enable earlier intervention:
- The new centrepiece with regard to action against digital groups in respect of data and platform markets is Section §19a ARC-amendment. This enables the Federal Cartel Office to prohibit dominant companies, among other things, from operating their platform in a way that favours their own offers for goods/services over those of competing goods/services offered by competitors on the platform (Section 19a (2) No. 1 ARC-amendment) or from using data that is relevant to competition and collected from users of the platform to hinder their competitors (Section 19a (2) No. 4 ARC-amendment). The prerequisite for the application of this provision is not "classic" market power, but instead only a finding by the Federal Cartel Office that the company concerned has "overriding importance for competition across markets", which can be determined on the basis of a number of criteria. One of these criteria, under Section 19a (1) no. 5 ARC-amendment, includes the possibility of the company being a “gatekeeper” for access to the relevant market. Also interesting in this context is the shortening of the legal process provided for in Section 73 (5) ARC-amendment with regard to disputes in connection with Section 19a ARC-amendment: the Federal Supreme Court will determine disputes in the first and last instance.
- Section 20 (3a) ARC-amendment introduces a new power to enable intervention at an early stage to prevent the "tipping" of markets into monopoly or highly concentrated markets. Behaviour that could potentially lead to tipping includes, for example, a platform provider preventing or hindering users from switching to a different platform or using several platforms in parallel, so-called "multi-homing".
These reforms are accompanied by a change that would enable competitors to request access to certain data if a refusal of access would be considered to amount to an unreasonable impediment to competition (Section 20 (1a) ARC-amendment). This provision therefore effectively applies where the data is akin to an “essential facility”.
In focus: The ARC amendment recognises the much greater importance of data for business today and seeks to ensure the German competition rules can more easily address new challenges posed by advancing digitalisation. The various reforms will raise a number of interesting questions, not least how they will interact with the Digital Services Act proposed by the European Commission in December 2020.
Re-focusing merger control
At the centre of the amendments regarding merger control are significant increases in the domestic turnover thresholds that trigger a notification obligation in Germany: the first domestic turnover threshold is increased from €25 million to €50 million, and the second is increased from €5 million to €17.5 million. By raising the second domestic turnover threshold, the so-called “connection clause” in Section 35 (2), sentence 1, ARC becomes obsolete.
Another far-reaching and innovative amendment is the introduction of Section 39a of the ARC-amendment. This authorises the Federal Cartel Office, under certain conditions, to order companies to notify any mergers they enter into in the future – regardless of whether the usual thresholds are met. The prerequisite for such an order is that: (i) the addressee has achieved turnover of €500 million worldwide in the last business year; (ii) comprehensive objective indicators show that effective competition in Germany could be significantly impeded in a specific economic sector by future mergers; (iii) the merging companies have a share of at least 15 per cent of supply or demand for relevant goods or services in Germany; and (iv) the Federal Cartel Office has previously conducted a sector inquiry in the economic sector concerned. The aim of this change is to address concerns around so-called "killer acquisitions" avoiding reviews even where they might raise competition issues (i.e. where the acquirer would otherwise avoid the need for a notification because the target’s turnover is below the increased second domestic turnover threshold of €17.5 million). It therefore applies in particular to acquisitions of start-ups.
There are also a number of other changes to note:
- The value threshold for application of the so-called “de minimis market clause” is raised from €15 million to €20 million (Section 36 (1), sentence 2 no. 2, ARC-amendment). In addition, the previous approach of applying the threshold to individual markets will be replaced by a bundled assessment of several relevant (de minimis) markets.
- For transactions in the press sector (but not in the broadcasting sector), the turnover multiplier that is used when applying the thresholds will be reduced from eight times to four times relevant turnover (Section 38 (3) ARC-amendment). The number of merger control proceedings in the press sector is therefore likely to decrease in future as a result of this change.
- Cross-location hospital mergers that are completed before the end of 2027 will be exempt from merger control under certain conditions (Section 186 (9) ARC-amendment).
The changes regarding merger control will reduce the burden on the Federal Cartel Office in terms of the number of merger control notifications it receives. There will also be a similar benefit for business, especially for small and medium-sized business, given a large number of - often unproblematic - smaller transactions that have required notification previously will no longer need to be notified. According to initial estimates, the number of annual merger control notifications in Germany is likely to fall by about 30 per cent.
In reducing the number of notifications received, these changes also aim to enable the Federal Cartel Office to focus its resources to a greater extent on mergers that raise complex competition issues, or that are more complex as a result of increasing globalisation, both in respect of the digital economy as well as traditional economic sectors.
This increased focus on more complex cases is also reflected in the main review procedure being extended from four to five months (Section 40 (2), sentence 2, ARC-amendment).
In focus: The significant increases in the notification thresholds were introduced as the legislative process reached the finishing line, and came as a surprise. The increased thresholds remove the need for notification for numerous transactions. Since German law, unlike merger control at the EU level, takes the date of closing of a transaction as the relevant date for determining jurisdiction and the obligation to notify, this also applies - should the companies involved not reach the new turnover thresholds - to transactions for which the purchase agreement has already been concluded but which have not yet completed.
However, a word of warning to non-EU/EEA investors who want to make an investment in Germany: the changes in the area of German merger control have no effect on German investment control. Investment control requirements therefore continue to apply unchanged.
Cartel damages claims
Changes in the area of cartel damages claims, which were the focus of the last amendment to the ARC in 2017, are much more limited this time. Despite this, there are important changes in this area that will support plaintiffs in bringing claims. In particular:
- Section 33a (2), sentence 4, ARC-amendment introduces a rebuttable presumption that legal transactions have been affected by a cartel if the counterparty to the transaction is a company participating in a cartel.
- Under new Section 33c (3), sentence 2, ARC-amendment, this presumption also extends to indirect buyers regarding the passing-on of a price surcharge. However, the presumption does not extend to the amount of the damage or to umbrella effects (i.e. the ability of victims of a cartel to claim damages for inflated prices paid to non-cartel members).
In focus: With the introduction of a rebuttable presumption, the law has clarified that the burden of proof in cartel proceedings lies with defendants. Also significant is that the presumption of a cartel participant's involvement is not limited to direct suppliers and buyers, but is also extended to indirect buyers. The new regulations come in response to decisions of the Federal Supreme Court regarding the German rail cartel (KZR 26/17 - Schienenkartell I, KZR 75/10 - Schienenkartell II).
Amendments with respect to fines and procedural law
The law on cartel fines and proceedings is comprehensively reorganised as well as partially simplified and to some extent extended by the 10th ARC amendment. The main changes are as follows:
a) Law governing fines
In the area of fines, the previous provisions in Section 81 of the ARC are now set out in Sections 81-81g of the amended ARC, and in some cases considerably expanded.
In particular, under Section 81d (1), sentence 2 no. 4, ARC-amendment, "reasonable and effective precautions taken prior to the infringement to avoid and detect infringements" will be considered as mitigating circumstances in the future calculation of fines. A company’s compliance programme is something that the Federal Cartel Offence and Federal Supreme Court have been willing to take into account in the past when setting fines, but has not been recognised in the ARC before. In addition, behaviour of undertakings after committing an infringement may also be taken into account in the assessment of fines in future (Section 81d (1) sentence 2 no. 5 ARC-amendment). This could mean, for example, that an undertaking’s fine is reduced because it has strengthened its compliance procedures after committing the infringement.
Also important from a rule-of-law perspective is that Germany’s leniency regime is now specifically provided for under the ARC (Sections 81h-81n ARC-amendment). While Germany has an established leniency regime, this was previously only set out in guidelines of the Federal Cartel Office.
b) Procedural law
From a procedural point of view, there are clarifications and partial extensions of the Federal Cartel Office’s powers of investigation, including with regard to rights of seizure and the scope and addressees of requests for information (Sections 57-62 ARC-amendment). It is particularly noteworthy that the unrestricted right to refuse providing information previously set out in Section 59 (5) ARC is abolished. Instead, under Section 59 (3), sentence 3, ARC-amendment, natural persons must disclose facts which may lead to the prosecution of a criminal offence or a misdemeanour if it is otherwise difficult for the Federal Cartel Office to obtain the information. However, to compensate for this, Section 59 (3), sentence 4, of the ARC-amendment provides for a general prohibition on such information being used in evidence for criminal proceedings or proceedings under the ARC or Act on Regulatory Offences against either the person obliged to provide the information or one of their close relatives.
Further reforms concern a company’s rights to inspect the Federal Cartel Office’s case-file in administrative and cartel proceedings (Section 56 (3) to (5) ARC-amendment) and an extension of the authority’s powers in judicial cartel proceedings (Sections 82a (1), 83 (1) ARC-amendment).
Moreover, requirements for use of interim measures have been lowered. Section 32a (1) ARC-amendment will enable the Federal Cartel Office to intervene more quickly and effectively in imposing interim measures in future.
A final change to note is intended to provide greater legal certainty for horizontal cooperation arrangements and represents an exception to the need for self-assessment, which continues to apply in principle. Competitors entering into a horizontal cooperation arrangement will be able to request a decision from the Federal Cartel Office within six months as to whether the Federal Cartel Office sees any cause for action concerning the cooperation. The prerequisite for such a request is that the parties have a substantial legal and economic interest in the arrangement (Section 32c (4) ARC-amendment).
It remains to be seen whether this change will add significant value given it was already possible to seek the Federal Cartel Office’s views on such arrangements, albeit on an informal basis without any specific time limit.
In focus: The ARC amendment helpfully clarifies the law on fines.
Procedural changes also expand the Federal Cartel Office’s powers in the context of cartel investigations and court proceedings. The application of these new provisions will be interesting to see in practice, especially the partial abolition of the right to withhold information and the restriction on how such information can be used.