Of Teeth and Claws: the draft bill of the 11th amendment to the German Act against Restraints of Competition

Following the publication of an initial draft (German version only) by the Federal Ministry of Economic Affairs and Climate Action (BMWK) about an amendment to the German Act against Restraints of Competition (11th ARC amendment) in September of last year, Germany’s Federal Government on April 5, 2023 passed a corresponding government draft bill (German version only) ("ARC-D") to tighten up the German Competition Act. The supporters of the amendment are virtually overflowing with combative metaphors: they speak of of "antitrust law with claws and teeth" or a "competition authority having a punch". We give you an overview of how the lawmaker will sharpen the "teeth" of the German Federal Cartel Office (FCO).

Significant expansion of antitrust authority powers following sector inquiries

At least since the sector inquiry about “refineries and fuel wholesalers”, which the FCO launched in November 2022 in response to the explosion in prices at the gas pumps, the call for further regulatory powers to tame undertakings' alleged profiteering has become unmistakable. This is because under current law, the German antitrust authorities cannot take direct action following a sector inquiry, but must initiate proceedings and identify violations of antitrust regulations.

In the future, it will be possible for the FCO to take different measures directly following a sector inquiry - regardless of whether a legal violation has occurred.

• New regulatory instruments: If after completion of a sector inquiry the FCO determines that there is a "substantial and continuing disturbance of competition" it can, in a second step, impose remedies on the undertakings operating in the affected market pursuant to Sec. 32f (3) ARC-D. This includes, for example, granting access to data networks or other facilities, imposing requirements on business relationships or contractual arrangements, or imposing organizational separation of business areas. In principle, all undertakings operating on the market can be the addressees. However, the primary addressees should be those undertakings "whose conduct contributes significantly to the disruption of competition”. The decisive novelty is that these measures may be issued against market participants who have not violated competition regulations. Illegal conduct of the undertaking concerned is therefore not mandatory. However, the new regulatory instruments are secondary to the other existing powers of the FCO. In case of doubt, the FCO must first take measures against undertakings that have acted in violation of antitrust law before it can apply the new regulatory powers.
• Unbundling orders: As ultima ratio, the new Sec. 32f (4) ARC-D permits a differentiated unbundling order for individual cases. However, the addressees of such an order can only be market-dominant undertakings or undertakings for which the FCO has determined that they are of paramount significance for competition across markets within the meaning of Sec. 19a ARC. Here as well, the prerequisite is that there is a "substantial and continuing disturbance of competition" and that the measure can be expected to eliminate or substantially reduce the disturbance. A violation of competition regulations is also not a prerequisite here. However, undertakings whose concentration has been approved by the authorities within the last 10 years are protected from unbundling orders (Sec. 32f (4) sentence 10 ARC-D). In contrast, the initial draft still provided a protection period of only 5 years. Another new feature compared with the initial draft is that an appeal against unbundling orders has a suspensive effect (Sec. 66 (1) no. 1 ARC-D).
• Notification of future concentrations: If, after completion of a sector inquiry, there are "objectively verifiable indications" that competition will be impeded by future concentrations on the market investigated, undertakings may, according to the new Sec. 32f (2) ARC-D, be required to notify the FCO of any concentration within the meaning of Sec. 37 ARC. The only requirement is that the acquirer must have achieved domestic turnover of 50 million Euro in the previous year and the target company must have achieved domestic turnover of 500,000 Euro in the investigated market. Such an order is limited to 3 years, but can be extended by 3 years at a time. Sec. 32f (2) ARC-D replaces the existing Sec. 39a ARC.

The period between the conclusion and enactment of one of these actions shall in future be 18 months (Sec. 32f (7) ARC-D). The same applies to the period between the initiation and conclusion of the sector inquiry (Sec. 32e (3) ARC-D). This is intended to ensure that the procedure is accelerated and that disruptions to competition can thus be combated quickly. By design, however, this is a "target" deadline. A violation of the standard period therefore has no legal consequences for the FCO.

Making the disgorgement of benefits more effective

Furthermore, the amendment aims to strengthen the instrument of “skimming of benefits” (“Vorteilsabschöpfung”). So far, this has generally failed due to the need to prove that an advantage was gained as a result of the infringement. Now Sec. 34 (4) ARC-D establishes a legal presumption that a violation of certain antitrust provisions and orders of the FCO has resulted in a financial advantage for the company. In terms of amount, an advantage of at least 1 % of the domestic turnover of the affected products or services is assumed, whereby the amount demanded may not exceed the limit of 10 % of the undertaking's total turnover.

The presumption is only disproved if the undertaking can prove that it did not generate a profit of a corresponding amount during the period. In contrast, it is not sufficient to prove that no economic advantage (including not only financial advantages but also other advantages such as an improvement in the market position or an increase in the market value of the company) or only a minor advantage was made.

Whereas the initial draft originally provided for a period of skimming of benefits of 10 years after termination of the infringement, the government draft is based on the current status quo. Accordingly, the FCO can only demand the benefits for a maximum period of 5 years within 7 years after termination of the infringement if the company has acted intentionally or negligently.

Incorporation of the European Digital Markets Act (DMA) into the ARC

With the DMA, which came into force in November 2022, the EU is pursuing the goal of keeping so-called "gatekeepers" on digital markets at bay. "Gatekeepers" are companies that provide core platform services and therefore act as "guardians" for the respective digital market.

A third key point of the amendment is the establishment of the legal basis for the effective enforcement of the DMA in Germany. Although the EU Commission remains the primary prosecuting authority, the FCO will be able to provide support to a limited extent in the future. This includes, in particular, the regulatory control of compliance with obligations of gatekeepers according to Art. 5 to 7 DMA. For example, new investigative powers of the FCO are planned for this purpose (Sec. 32g ARC-D). In addition, the draft provides for improved cooperation between national courts and the EU Commission as well as between the FCO and the EU Commission with regard to violations of the DMA.

Furthermore, the German law bases for claims in the context of private antitrust enforcement (injunction, rectification and liability for damages) will be extended to violations of Art. 5 to 7 DMA. In this context, plaintiffs will also benefit from some of the facilitations that private enforcement provides. If, for example, the EU Commission determines an infringement of the DMA, the German courts are bound by this in private action proceedings (Sec. 33b ARC-D). There is also a concentration of jurisdiction in the cartel appellate bodies of the German Regional Courts (“Landgerichte”). Finally, the FCO can participate in court proceedings at any time as "amicus curiae" and thus contribute its market knowledge and assessments.

Summary

With the 11th ARC amendment, the German lawmaker is introducing an infringement-independent market structure control - a novelty in German antitrust law. In particular, the new regulatory instruments of Sec. 32f ARC-D represent a considerable increase of power of the FCO.

Whether this step was actually necessary to close supposed gaps in the regulatory powers of the antitrust authorities will certainly be the subject of controversial debate for some time to come. Critical voices see, among other things, the danger that the new powers of the FCO could be misused for political purposes. In particular, the fact that from now on internal company growth, efficiency and economic success can be the reason for official authority intervention cannot be emphasized enough in view of the attractiveness of Germany as a business location. This makes it all the more important for the antitrust authorities to use their new powers responsibly.

But the lawmaker will not stop here: The 12th ARC amendment is already in the wings. According to the BMWK's 10-point plan (German version only) for sustainable competition, the German government is planning, among other things, new rules for sustainability cooperation between competitors and stronger consumer protection.

Of course, we will continue to keep you informed.

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