Federal Cartel Office receives enhanced powers

Draft amendment to Germany’s competition act set to enhance powers of the Federal Cartel Office

On 26 September 2022, the German Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, BMWK) published a draft of an eleventh amendment to the German competition act, the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, ARC), which will be the first major reform of German competition law since January 2021. The BMWK has referred to this draft amendment as the Competition Enforcement Act (Wettbewerbsdurchsetzungsgesetz).

The draft amendment’s stated main purpose is to improve competition for the sake of consumers and the overall economy by breaking stiffened market structures open. To achieve this, the German competition authority, the Federal Cartel Office (Bundeskartellamt, FCO), shall receive new regulatory powers in the aftermath of sector inquiries. In addition, the draft amendment will enable the FCO to skim off profits obtained through competition law violations more easily and it will implement provisions related to EU-Regulation 2022/1925, commonly known as the Digital Markets Act (DMA), in the ARC.

Overhaul of sector inquiries

The German Ministry for Economic Affairs and Climate Action has introduced a draft amendment which will most notably boost the significance of the Federal Cartel Office’s sector inquiries, largely bringing their importance in line with the equivalent market investigations of the UK’s Competition and Markets Authority.

Under the current regime, the FCO may conduct inquiries into economic sectors if the rigidity of prices or other circumstances therein suggest that competition in these sectors is being restricted or distorted. The FCO’s sector inquiries often span multiple years and usually conclude with the publication of a report on the investigation’s results. Remedial measures may only be taken by the FCO after the end of an inquiry if a certain company actually violated competition law which will be determined in separate proceedings. Currently, sector inquiries are a supplementary tool that provide the groundwork for competition investigations after the conclusion of the sector inquiry.

The draft amendment now introduces a new Section 32f to the ARC, which will enable the FCO to impose both behavioural and structural corrective measures when a sector inquiry concludes. In this context, the BMWK cites the market investigations of the UK’s Competition and Markets Authority (CMA) as a model for these powers. The CMA has wide powers to change the behaviour of companies and to impose structural remedies as part of these investigations, which it has utilised, inter alia, in the construction and aviation industries.

The FCO may make use of the new corrective measures if a sector inquiry reveals the presence of significant, continuous and/or repeated impediments to competition on a market or across markets. When examining whether such impediments to competition exist, the FCO can evaluate different factors, eg the number of companies active on a market, market shares, a market’s level of concentration and potential barriers to market access.

In general, the FCO may in the future take up any behavioural or structural corrective measures it deems necessary to eliminate significant impediments to competition it has detected in a sector inquiry. The draft amendment includes a non-exhaustive list of measures that may be particularly taken into consideration, namely:

• Requiring access to data, interfaces, networks or other facilities.
• Obligating supply to other undertakings, also with regard to intellectual property.
• Awarding or revoking official and other comparable approvals or authorisations.
• Adjusting supply relationships between undertakings in the same market or at different market levels.
• Regulating common norms and standards.
• Specifying certain types of contracts or contractual arrangements, including arrangements on information disclosure that need to be put in place.
• Imposing organisational measures to separate business units or divisions.

As a last resort, if no other measure appears equally viable or if such would be more burdening, the FCO may order an unbundling of a company by obligating it to divest parts of its business or assets. The draft amendment’s explanatory notes state that any interference of the FCO in a company’s structure must take heed of the legal principle of proportionality, notably with regard to constitutionally protected property rights. The FCO will not be able to unbundle business parts or assets if the targeted company acquired them in a transaction that was cleared under merger control rules by the FCO or the European Commission (Commission) within the last five years preceding the ordered unbundling.

The FCO may also formally require individual companies to file all future concentrations concerning a certain sector under merger control rules if a related sector inquiry detected objective indications that such concentrations could have a marked negative impact on competition. A similar general filing obligation based on a decision by the FCO was already included in the ARC in 2021, but the draft amendment significantly lowers its application thresholds and broadens the scope of such a filing obligation if imposed on a company: This includes all concentrations involving an acquirer with revenues exceeding EUR 50 million in Germany and a target with total global revenues exceeding EUR 500k. Minimum market shares of the acquirer or certain minimum percentages of German revenues of the target will no longer be preconditions for applying such special filing obligation under the draft amendment. Once imposed on a company, the filing obligation will apply for three years. The FCO may extend the obligation by an additional period of three years so long as the circumstances justifying its imposition still prevail.

Lastly, to speed up the FCO’s operations, future sector inquiries must be completed not later than 18 months after their launch has been announced. The corrective measures described above may only be taken a further 18 months after the publication of the report on the sector inquiry’s findings.

Simplified disgorgement of anti-competitive benefits

The draft amendment revises the ARC’s provisions on the disgorgement of economic benefits obtained by companies violating German or European competition law. In Germany as in most other jurisdictions, companies in breach of the cartel prohibition are typically penalised with monetary fines. Already in 1999, the German legislator introduced a tool that would allow the FCO to specifically target the benefits gained as a result of competition law violations by making companies pay sums corresponding to the value of these benefits. However, due to its high legal hurdles, the FCO never really made use of this tool; only a regional competition authority applied these powers in the area of drinking water supply in a decision in 2015 which is still being contested in court.

The draft amendment facilitates the disgorging of anti-competitive benefits in two ways: Firstly, it will no longer be necessary to demonstrate that a company violated competition law intentionally or negligently. According to the draft amendment’s explanatory notes, disgorging benefits is an administrative tool without a punitive nature that is only intended to limit enrichment by way of cartel law infringements.

Secondly, the draft amendment introduces a presumption that cartel law violations have led to an economic benefit, the amount of which may be estimated by the FCO. A further assumption estimates the economic benefits at 1% of the revenues generated in Germany with the products or services in question over a certain timeframe. The latter assumption is rebuttable but the affected company must prove that it achieved no or less profits reaching that amount in the relevant timeframe. When calculating profits in this context, the entire worldwide profits of the economic unit, ie the wider group of undertakings that includes the affected company are to be considered. In practice, it is to be expected that this change enables the FCO to extract a minimum amount of money from companies violating competition law as anti-competitive benefits in addition to the imposition of fines.

Disgorging benefits will be possible under the draft amendment up to ten years after the termination of a competition law violation instead of the seven year period currently included in the law. Benefits may also be disgorged for as long as the competition violation continued; currently, disgorgements are limited to violations lasting a maximum of five years in time.

Enforcement of the Digital Markets Act

Furthermore, the draft amendment introduces provisions concerning the enforcement of the DMA into the ARC (see here for our recent publication on the DMA). Originally, the BMWK alongside the economic ministries of France and the Netherlands, styling themselves the "Friends of an effective Digital Markets Act", campaigned for a larger role of national competition authorities in the implementation of the DMA (see here for their common position paper of 27 May 2021). However, the final version of the DMA solely empowers the Commission to sanction companies under the DMA.

Nonetheless, the draft amendment enables the FCO to investigate on its own possible breaches of the DMA by the so-called gatekeepers defined in that regulation, ie certain larger tech companies that the Commission has found to exceed specific revenue and/or user thresholds by way of a decision. While the FCO may not enforce the provisions of the DMA by itself, it will be able to present the results of its related investigations to the Commission in a report to persuade the Commission to take action; the FCO may also publish its findings, which may spark private enforcement of such a report .

Further, the draft amendment implements provisions allowing for private enforcement of the DMA by including violations of the DMA as basis for damage claims or injunctive relief under the rules of the ARC. Market participants may claim damages or seek (preliminary) injunctions in court against gatekeepers if they have been affected by violations of the DMA. In the context of such claims and as is the case when privately enforcing competition law violations, decisions of the Commission regarding the gatekeeper status of a company or a gatekeeper’s breach of DMA provisions will have binding effect on the courts hearing such follow-on claims.

Outlook

The draft amendment is set to bring about a paradigm shift in the role of the FCO. Public statements from some industry associations have criticised the draft for granting the FCO market regulating powers and thus for departing from the free market-oriented goals prevailing in German competition law.

Since the FCO may utilise its new regulatory powers up to 18 months after the conclusion of a sector inquiry, the draft amendment could soon have tangible consequences for recent and current sector inquiries of the FCO. Most notable of these is the FCO’s inquiry into the online advertising sector, as part of which the FCO published an interim report in August 2022 (see here for the related press release). Interestingly, this interim report reasons that structural interventions might need to be contemplated in order to offset the observed distortions in the online advertising market effected by the central role of Google therein.

It is expected that the German government will attempt to pass the draft amendment fairly quickly, as the BMWK has already announced its plan of a future twelfth amendment of the ARC. Such twelfth amendment will supposedly facilitate sustainable business cooperation and enhance consumer protection.