Major amendment to Germany’s Competition Act

Major amendment to Germany's competition act finally passed by German parliament

On 6 July 2023, the German parliament passed the newest eleventh amendment to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, "ARC"), which is expected to significantly expand the powers of Germany's competition authority, the Federal Cartel Office (Bundeskartellamt, "FCO"). The version of the amendment passed by the parliamentarians is based on the 5 April 2023 German government draft of the law and only introduced minor changes to it.

The main features of the Competition Enforcement Act

We previously summarised the original 26 September 2022 draft of what its authors from the German Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, "BMWK") dubbed the "Competition Enforcement Act" (Wettbewerbsdurchsetzungsgesetz) here.

The key innovation of the new law has not been changed since the draft which lies in the granting of post-sector inquiry market invention powers to the FCO in the vein of the UK's Competition and Markets Authority. That is, if an inquiry into an economic sector where the FCO suspects competition is being restricted or distorted reveals the existence of certain impediments to competition, the FCO now may take up behavioural and structural corrective measures against relevant companies even if it has not detected any competition law violations. It is the BMWK's expectation that these new powers will allow the FCO to open "stiffened markets" to competition.

Further, the original draft simplified the FCO's disgorging of anti-competitive benefits under the ARC by removing the necessity of demonstrating that the infringing company acted intentionally or negligently and by introducing a legal assumption that the anti-competitive behaviour led to an economic benefit of 1% of the German revenues generated over a certain timeframe with the relevant products or services.

Lastly, the original draft added provisions related to the Digital Markets Act ("DMA") to the ARC. Amongst other things, it enabled the DMA's private enforcement in Germany.

Softening of the market intervention tool

The original draft of the amendment was heavily criticised by industry associations for its departure from current German competition law principles, which was presumably the reason for its market investigation tool being somewhat softened in the governmental draft and the subsequent final version of the law.

• While the original draft required the presence of a significant, continuous or repeated impediment to competition on a market or across markets in a sector for the FCO to be able to use behavioural and structural measures, the final version specifies that the impediment to competition must be significant and continuous, and it must affect either a national market, multiple individual markets or have an impact across markets.
• The FCO's market intervention powers are now nominally subsidiary to its standard competition tools insofar as behavioural and structural measures in the aftermath of a sector inquiry may only be taken if the FCO anticipates that these standard tools will likely not be sufficient to effectively and permanently rectify the impediment to competition it has detected.
• The FCO must now address its finding of a significant and continuous impediment to competition by order to one or multiple specific companies. Only companies that substantially contribute to the impediment to competition may be subject of the FCO's order, and affected companies can challenge it separately, which could significantly delay proceedings.
• The ability of the FCO to order divestments of assets in the aftermath of a sector inquiry has been slightly constrained. Such divestments can now solely be imposed on companies that have been found to be dominant and/or to have paramount significance for competition across markets[1]. Also, to counter objections concerning constitutional rights, affected companies must only divest the assets in question if a proposed sale of them reaches at least 50% of the asset value as determined by an auditor engaged by the FCO. If the sale price is above 50% of this auditor's established value but below 100% of it, the German state will pay the affected company half of the difference between the actual sale price and the established value, ie companies would in practice receive at least 75% of the auditor's value for the asset they have to divest.

Clarification of market intervention concepts

Furthermore, the governmental draft and the final version of the amendment reworked the market intervention tool by slightly altering the exemplary intervention measures and the factors influencing the existence of an impediment to competition. For instance, the FCO may not particularly prohibit relevant companies from unilaterally disclosing information as part of its post-sector inquiry behavioural measures.

The concept of a significant and continuous impediment to competition has also been elucidated through examples and a new legal definition. The impediment is continuous if it has persisted or continuously reappeared over a period of three years and if at the time of the FCO's decision there is no greater likelihood of the impediment disappearing within the next two years. Legally specified examples for such impediments are cases where the following conditions prevail:

• Unilateral supply or buying power;
• restrictions relating to (i) market entry, (ii) market exit, (iii) company capacities or (iv) the switching to other suppliers or buyers;
• uniform or coordinated behaviour; and
• foreclosure of input factors or customers through vertical relations.

Special notification regime revised

The governmental draft of the eleventh ARC amendment underwent minor revisions during the parliamentary procedure, mostly with respect to the special merger filing regime under which the FCO may obligate companies to file all future concentrations concerning a certain sector if a related sector inquiry detected objective indications that such concentrations could have a marked negative impact on competition.

This special filing obligation only applies if the acquirer's turnover exceeded EUR 50 million in the preceding business year and, unlike in the original and governmental drafts, if the target's turnover exceeded EUR 1 million (previously: EUR 500k). This threshold was raised to safeguard the balance between the protection of competition and the FCO's administrative burdens.

The special filing obligation remains in force for a period of three years. Originally, the FCO could indefinitely extend it by an additional three years for as long as the conditions for its imposition prevailed. Now, the final text of the eleventh amendment stipulates that the FCO may only extend the duration of the special filing obligation in this fashion for a total of three times.

Other changes

Apart from modifications of the market intervention tool, the most significant changes to the original version of the eleventh ARC amendment introduced in the governmental draft and retained in the final text relates to the FCO's disgorging of benefits gained through competition law violations.

The new legal assumption that such violations led to an economic benefit estimated at 1% of the German revenues generated with the relevant products or services will not apply if it can be the excluded that a benefit was obtained based on the nature of the competition law violation in question. According to the law's explanatory notes, an example for this can be cases of collusive bidding in which none of the colluding parties actually received the targeted award.

Further, the original draft's proposed extension of the timeframe permitting the disgorgement of benefits up to a period of ten years was not implemented in final amendment. Instead, the current status quo will continue to apply, according to which disgorging benefits is only allowed up to seven years after the end of the competition law violation and may only cover a maximum disgorgement period of five years.

Outlook

The eleventh amendment of the ARC is expected to become operative in the week of 10 July 2023. Whether or not it will effect the much touted "paradigm shift" in German competition law remains to be seen. For its part, the FCO has been cautious not to reveal which sectors it may wish to intervene in with its new powers. The most obvious targets would be the subjects of its latest sector inquiries, namely in the areas of EV charging, online advertising, petroleum, online shopping and residential waste.

[1] These are companies comparable to the gatekeepers defined in the DMA. See in this regard our previous publication on the tenth ARC amendment that introduced this concept into law here.