German Federal Government publishes plans on antitrust reform
The German Federal Ministry for Economic Affairs and Climate Action (“BMWK”) has published draft legislation for an amendment to the German competition act (Act Against Restraints of Competition or Gesetz gegen Wettbewerbsbeschränkungen, “GWB”). The bill, entitled the "Competition Enforcement Act", would be the 11th amendment to the GWB since its entry into force in 1958.
The draft essentially provides for three significant changes:
- Sweeping new powers for the German Federal Cartel Office (“FCO”) in connection with sector inquiries;
- Facilitating a disgorgement of economic benefits from undertakings that have infringed competition law;
- Various measures to enable the enforcement of the European Digital Markets Act ("DMA") at the national level.
1) Sector inquiries
Sector inquiries are investigations by the competition authorities into sectors of the economy or into types of agreements across various sectors, when they believe that a market is not working as well as it should. The FCO and authorities from the German Länder have already had the power to carry out sector inquiries since 2005 (Section 32e GWB). However, the BMWK has identified two shortcomings in the current system: sector inquiries sometimes take too much time; and while the competition authorities may publish their findings in a report issued at the end of the inquiry, they have no or few powers to intervene in the market to address potential competition issues. To tackle these shortcomings, the BMWK now proposes the following:
- The bill aims to make the procedure shorter and more transparent. The FCO will be required to publish the initiation of an investigation on its website, and it “should” conclude the investigation within 18 months. It will be possible to exceed the time limit of 18 months; however, the FCO will need to justify a longer duration. Similarly, if the investigation is closed without any results, the FCO will need to publish its reasons for doing so.
- The bill also aims at strengthening merger control in those markets where a sector inquiry reveals competition issues. In future, following a sector inquiry, the FCO may order undertakings to notify all mergers and acquisitions in one or more sectors of the economy. The filing obligation will apply to transactions where the acquirer has a German turnover of more than 50 million euros and the target has a worldwide turnover of more than 500,000 euros. It will apply for a period of three years (commencing upon service of the order), renewable at three year intervals for as long as the conditions that gave rise to the order continue to exist.
- It is proposed that the FCO will be given new powers to impose specific remedial measures at the end of a sector inquiry if it identifies “a significant, persistent or repeated distortion of competition.” Such remedies could be both of a behavioural or a structural nature. In particular, the measures imposed by the FCO may concern any of the following:
- Access to data, interfaces, networks or other facilities;
- Obligations to supply other undertakings, including the licensing of intellectual property rights;
- Administrative or other approvals or authorisations;
- Supply relationships between undertakings in the same market or at different market levels;
- Norms and standards;
- Obligations regarding certain types of contracts or contractual arrangements, including contractual arrangements for the disclosure of information;
- Organisational measures to separate business divisions.
- Finally, if necessary to “eliminate or substantially reduce a significant, continuing or repeated distortion of competition” and if none of the aforementioned measures is sufficiently effective, the FCO may also order an undertaking to divest parts of its business or assets (ownership unbundling).
2) Disgorgement of benefits
The bill also aims to boost a power of the competition authorities that has been largely dormant and never attracted much attention (Section 34 GWB). Already today, the German competition authorities may order the “disgorgement of the economic benefit” that an undertaking gained by breaching competition law, and the undertaking may be ordered to make a payment to the federal budget. This is meant purely as an instrument of administrative law, not as a penalty or criminal fine. Its purpose is to ensure that no economic advantages obtained through a cartel or any other violation of the law remain with the perpetrator. However, this tool has never been applied in practice because of various obstacles, in particular because of the complexities involved in determining the amount of economic benefits to be disgorged. The bill now proposes various changes to facilitate this disgorgement. In particular, it would introduce a rebuttable presumption of a minimum amount of benefits that can be disgorged. This minimum amount is one per cent of the turnover generated in Germany from products or services related to the infringement. Also, contrary to the current law, the competition authorities would no longer would have to prove intent or negligence in order to apply the disgorgement tool.
3) Enforcement of the DMA
The third and final amendment is the adaptation of the provisions in the GWB regarding the DMA in order to enable effective enforcement of the new provisions both at the level of the authorities and at the level of civil law. For example, the FCO will be able to initiate investigations and conduct inquiries in the event of breaches of the obligations under the DMA by central platform operators who have been classified as “Gatekeepers” within the meaning of the DMA. Likewise, private enforcement is to be strengthened by making the rules for cartel damages also applicable to breaches of the DMA. For example, the binding effect of official decisions regarding a breach of the DMA and the suspension of the statute of limitations in investigations also would apply. However, no presumption of damage for breaches of the DMA has been introduced. In addition, the regional courts will have jurisdiction for actions with regard to the DMA.
The bill is most notable for the new powers that it would give the FCO in connection with sector inquiries. Whereas currently the FCO may investigate one or more sectors of the economy and publish its findings in a report with few immediate consequences, the proposals would enable the FCO in the future to make significant interventions and change the structure of competition. The new powers of the FCO would be far-reaching in particular as regards new merger filing obligations, potential access or supply obligations and the option of divestiture orders. What is more, a sector inquiry is, by definition, not limited to a single undertaking. The new powers of the FCO could therefore affect many companies and market players simultaneously. Moreover, unlike today, the FCO could impose remedies without the need to prove an infringement of competition law; in fact, supply obligations or divestitures could be ordered even if it is clear that every player in the market has acted within the boundaries of the law. The new law could therefore bring about a paradigm shift in the application of competition law in Germany.