Competition Law 4.0 – The plans of the future German government

08.02.2018

Yesterday, the parties that currently make up Germany’s ruling coalition and received the most votes in last year’s elections concluded their negotiations on continuing their coalition. One of the measures their coalition agreement includes is to modernise competition law. Although the specific measures and their effects on market players are still not clear, there are indications that the coming months and years will see stricter regulation of digital business (in particular the platform economy). This includes amending competition law and supervising markets more closely, especially in order to safeguard Germany’s competitiveness as a business location and to prevent abuse of market dominance. The sectors affected by this can expect many amendments to laws as well as stricter oversight by supervisory authorities.

What is planned?

Yesterday, after long negotiations, the parties in the current ruling coalition, which are also the coalition parties for the future coalition government, finalised a coalition agreement (only in German) entitled “Ein neuer Aufbruch für Europa. Eine neue Dynamik für Deutschland. Ein neuer Zusammenhalt für unser Land.” [A new start for Europe. A new dynamic for Germany. New unity for our country.]

The agreement includes important statements on the future the (expected) new government envisions for competition law. The ruling parties, the Christian Democratic Union/Christian Social Union (CDU/CSU) and the Social Democratic Party (SPD), intend to modernise competition law related to the digitalisation and globalisation of the business world and to enact amendments for digital business models. The plans include:

    • Accelerating competition law proceedings by means such as strengthening the instrument of injunctive measures by the Federal Cartel Office 
    • Redefining the markets regarding the digital economy
    • Facilitating more effective and active systematic market monitoring
    • Continuing to develop abuse oversight by competition authorities, especially for platform companies
    • Establishing a “Competition Law 4.0” Commission
    • Looking into setting up a Digital Agency to support the federal government in implementing the measures such as platform regulation

According to the coalition agreement, the objectives of these measures include to effectively prevent irreparable damage to competition and to enable the Federal Cartel Office to quickly and effectively stop abuse of market dominance, especially in quickly changing markets. At the same time, consideration is to be given to the development of the platform economy and to fulfilling all prerequisites for new internationally competitive digital corporations to arise in Germany and throughout Europe.

What can be expected?

The discussion surrounding how to adjust competition law to address digitalisation is not new. There have already been extensive debates and numerous studies and initiatives on how to deal with this topic, e.g. in the context of Platform Industry 4.0. The German legislature also made substantial adjustments with the last amendment to the German Act Against Restraints on Competition (Gesetz gegen Wettbewerbsbeschränkungen - GWB) (for more articles on this topic, see this and this).

Under the new government, the digital economy sectors affected, and in particular the platform economy, can expect to be under even stricter special observation, including by competition authorities. The Federal Cartel Office has recently made various statements to the effect that they intend to investigate computer-based pricesetting mechanisms (algorithms) and examine certain sectors of the digital economy. As early as late last year, an inquiry was launched into the comparison website sector (see this and this) and in early February into the online advertising sector (see this and this). The European Commission has also recently turned its eye to digital economy developments (see e.g. the inquiry into the e-commerce sector, here and here).

Specifically, the business world must expect:

    • More sector inquiries for digital economy markets and market segments – there are very likely to be more inquiries, possibly of electronic services, online marketplaces or B2B websites. These inquiries are likely to consist of extensive market investigations and questionnaires involving all market players.
    • Algorithms under scrutiny – in the future, both the legislature and the competition authorities will be focusing more intently than ever on increased use of algorithms for quasi-independent price adjustments (“dynamic pricing”). There have already been a number of cases in which enterprises have used algorithms as a de-facto extension of themselves to act in violation of competition law. However, it will be interesting to see how the legislature and the competition authorities deal with cases in the future that are not quite so unambiguous, such as extremely complex algorithms or algorithms that trigger price adjustments between competitors absent of any agreement or other type of collusion that violates competition law.
    • Investigation of market power – not only Facebook but also other large digital enterprises will probably come under scrutiny by the Federal Cartel Office. It is only logical that more proceedings will be initiated against market players on suspicion of violations of law. In particular, the topic of “big data” will be more closely scrutinised by the Federal Cartel Office. Here, the authorities can be expected to use more injunctive measures in the future if irreparable damage seems imminent without immediate action.
    • Cooperation between competitors – Digitalisation often enables, even as it requires, forms of cooperation, even between competitors, which begs the question of a possible breach of competition law. For example, the collation of data that various enterprises have collected in regard to the same customer can facilitate customer service tailored to the customer’s needs – but it can also close markets to competitors who do not have access to data and be abusive to customers that cannot switch to any other enterprise. The Federal Cartel Office will want to investigate this in more detail.
    • “Competition Law 4.0” and Digital Agency – It is not yet clear what role the planned “Competition Law 4.0” Commission will play. However, it is safe to assume that it will at least set itself the goal of acting very close to the market and working hand in hand with the Federal Cartel Office. The proposed Digital Agency, in turn, could also lead to more red tape for the industry.

What is to be done?

Companies that make or will make extensive use of digitalisation should prepare themselves well for these competition law developments. This means in particular:

    • Companies should carefully follow the legislature’s measures and the competition authorities’ activities in the coming months and years.
    • It would also be advisable to keep an eye on overall developments in digitalisation (for example, see the Industrie 4.0 map on which enterprises can show their progress toward digitalisation and their networked applications). 
    • In light of the impending stricter investigation of digital business sectors and business models, companies should ideally have an competition “sanity check” conducted to identify potential areas of risk and, as the case may be, to take specific steps necessary to ensure compliance.

You can also find the latest news on coalition agreements and legal innovations here and here (only in German).

Any Questions? Please contact: Dr. Sebastian JankaAnna SchwarzmannDr. Alexander Birnstiel
Practice Groups: Antritrust & CompetitionDigital Business