On 26 September 2022, less than two years after the last material changes to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, “GWB”) entered into force, the Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz) published the draft of the new German Antitrust Act (the so-called “11th Amendment to the GWB, or “Competition Enforcement Act”, Wettbewerbsdurchsetzungsgesetz). Although the timetable for the legislative process has not yet been finalised, initial consultations on the draft are set to take place as early as October, meaning that the legislative process is likely to move quickly.
According to the Ministry, the aim of the amendment is to strengthen competition “where the market structure impedes competition [...]” – providing better remedies for significant disruptions of competition that are not based on antitrust violations or abusive practices of a dominant company.
1. Key new provisions of the draft:
Introduction of new British-style intervention mechanisms (sections 32e and 32f of the draft):
New intervention mechanisms will allow the Federal Cartel Office (Bundeskartellamt) to follow up on a sector inquiry by quickly and effectively remedying significant disruptions of competition.
In future, the Bundeskartellamt will be able to impose remedies following sector inquiries in order to enforce effective competition. These remedies will primarily include behavioural or quasi-structural measures, such as obligations regarding access to interfaces or data, the setting of common standards, requirements for certain forms of contracts, including contractual provisions on the disclosure of information as well as obligations regarding the organisational separation of company divisions.
As a measure of last resort, the Bundeskartellamt can even impose a divestiture of parts of the company or its assets – regardless of whether or not a company engaged in anti-competitive practices – to eliminate a significant, ongoing or repeated disruption of competition.
In addition, the Bundeskartellamt will be able to force companies in certain markets to notify practically any merger – regardless of whether or not it meets the relevant thresholds – after a sector inquiry has been completed. This new regime would replace and tighten the existing provisions of section 39a GWB.
Simplified disgorgement of benefits derived from antitrust violations (section 34 of the draft):
Benefits derived by companies from antitrust violations are to be disgorged more easily and effectively in future. The draft introduces a (rebuttable) presumption that a company has obtained a benefit amounting to 1% of its domestic turnover with the product or service relating to the proven antitrust violation. A cap of 10% of the total annual group turnover worldwide in the year prior to the authority’s decision is intended to alleviate hardship. Disgorgement will not require culpability.
Amendment of the procedural provisions for enforcement of the Digital Markets Act (“DMA”):
At the same time, the draft will create the legal basis for the Bundeskartellamt’s support of the European Commission in enforcing the DMA. It also aims at ensuring effective private enforcement of the DMA in German courts.
2. Specifically:
Sector inquiries (section 32e of the draft)
In future, sector inquiries under section 32e of the draft may have more serious repercussions. So far, the Bundeskartellamt’s sector inquiries have largely been without consequences, with most of them merely resulting in final reports (for example, the final reports on the fuel sector (2011), on electricity generation and wholesale markets (2011), on buyer power in the food retail sector (2014) or most recently on hospitals (2021) as well as on the collection of household waste (2021). It was only the sector inquiries into rolled asphalt (2012) and cement and ready-mixed concrete (2017) that led to an extensive unbundling of joint ventures; this was, however, based on administrative proceedings initiated on the basis of the German equivalent to Article 101 TFEU. Under the new provisions, the Bundeskartellamt will be able to intervene on competition concerns without having to prove any specific antitrust violations.
Under section 32e(3) of the draft, sector inquiries are to last a maximum of 18 months. This is intended to strengthen effectiveness and enable intervention in markets before circumstances have changed. Section 32e(4) of the draft will obligate the Bundeskartellamt to publish interim, or at least final, reports (so far only voluntary). These reports may include recommendations to the German Government regarding competition policy. In future, it will also be possible to carry out seizures as part of sector inquiries.
At the heart of the new market structure intervention mechanism – a major change – is the new section 32f of the draft, which grants the Bundeskartellamt far-reaching powers to intervene following publication of a final sector inquiry report.
Under section 32f(3) and (4) of the draft, this power can be exercised if there is “significant, ongoing or repeated disruption of competition in at least one market or across multiple markets”. Section 32f(5) of the draft further provides for a list of definition criteria. Depending on the scenario, they are intended to be considered either in isolation or cumulatively as part of an overall assessment determining whether there is significant disruption of competition. They partially draw upon the same factors as those that are relevant to determine market dominance, but also include market outcomes and behaviours that negatively affect competition in the overall assessment.
Section 32f(3) of the draft provides for the general power to use all necessary behavioural or structural measures in order to remedy the identified disruption of competition. Behavioural remedies will generally take precedence. This creates a new tool for an ongoing control of the market following the imposition of behavioural remedies – which is very different from the preventive intervention on the market structure by merger control.
The ultimate structural measure, i.e. a divestiture of parts of the business (section 32f(4) of the draft), is to be used as a remedy of last resort, i.e. only where the disruption of competition cannot be remedied or significantly reduced by other means.
If a company offers (voluntary) commitments, the Bundeskartellamt may use its discretion and refrain from exercising its powers under section 32f(3) and (4) of the draft.
Section 32f(7) of the draft specifies that remedies under section 32f must be generally ordered within a period of 18 months, in order to ensure swift action by the Bundeskartellamt.
According to the explanatory memorandum, remedies pursuant to section 32f of the draft can also be considered for sector inquiries that are already underway and that are only completed after the new provisions come into force. This could apply, for example, to the current sector inquiry regarding online advertising. As indicated in its recently published interim report, the Bundeskartellamt is already considering the possible need for far-reaching regulatory intervention.
Expanded merger control by way of individual orders
Under the existing rules (section 39a), the Bundeskartellamt can already order companies in specific industries to notify concentrations – even if these fall below the German thresholds – for a period of three years if the respective industries were previously the subject of a sector inquiry.
According to the draft, this only recently introduced provision is to be moved – in a stricter form – to section 32f(2). The key triggers are objectively verifiable indications that competition will be significantly impeded by future concentrations combined with minimum domestic turnover thresholds that have to be met: EUR 50 million for the acquirer and EUR 0.5 million for the target company. As per the current rules, the notification obligation and therefore the prohibition to implement a concentration before clearance is to apply for three years from the date of service of the order and may be extended by three years multiple times.
The 18-month period will also apply to merger control orders based on section 32f(2) of the draft. A relatively easy to overlook provision in section 187(11) of the draft stipulates that the merger control provision of section 32f(2) will have retroactive effect for sector inquiries already completed when the new rules come into force, if the final report was published less than a year before. This is to enable the Bundeskartellamt to launch further sector inquiries before the new draft comes into force and to use these as the basis for merger control orders under the new law.
Simplified disgorgement of benefits
The explanatory memorandum to the draft points out that the current legal hurdles for the disgorgement of benefits are too high and that the relevant provisions are therefore not applied in practice. As things currently stand, the Bundeskartellamt must, for example, carry out complex calculations of the economic benefit and prove that a company acted intentionally or negligently.
According to the new section 34(4) of the draft, culpability is to have no bearing on whether benefits must be disgorged. According to the explanatory memorandum, it is sufficient if the benefit has been derived from an objective violation of antitrust law.
The draft also lays down a blanket presumption that a company has derived a benefit amounting to 1% of its domestic turnover with the product or service relating to the proven antitrust violation over the entire period of the violation. This is, however, capped at 10% of the total annual group turnover worldwide in the year prior to the authority’s decision. The explanatory memorandum refers to the Federal Court of Justice’s rulings on cartel damages actions under civil law as regards the type and extent of such blanket presumptions. The presumption can only be rebutted if the company proves that neither the legal entity directly involved in the violation nor the company as a whole achieved a profit in the relevant amount during the period concerned. The draft does not comment on whether the 1% rule also applies to violations committed before its entry into force, which is likely to lead to some legal uncertainty in this regard.
Finally, section 34(5) of the draft extends the formal deadline for ordering the disgorgement of benefits from seven to ten years from the end of the violation.
Amendment of the procedural provisions relating to the DMA
The amendments relating to the DMA essentially entrust the Bundeskartellamt with the power to start investigations in connection with possible violations of Articles 5, 6 and 7 DMA (see section 32g of the draft). In addition, private enforcement options are to be strengthened. Basically, the provisions for facilitating private enforcement in antitrust proceedings are also declared applicable in the DMA context where appropriate, and some of the simplifications for private antitrust actions are also to apply. In particular, a final decision of the European Commission finding that the obligations pursuant to Articles 5-7 DMA have been violated is to have binding effect in follow-on damages proceedings before German courts. This will considerably strengthen Germany’s position as the place of jurisdiction for such lawsuits.
Also, jurisdiction is to be centralised so that the court divisions responsible for antitrust matters will also have jurisdiction as far as DMA-related disputes are concerned (sections 87, 89(1) of the draft). Finally, the Bundeskartellamt gets the right to take part in court proceedings relating to the DMA.
3. Assessment
The draft significantly bolsters the Bundeskartellamt’s powers by adding new intervention mechanisms. The planned market structure control, which will not be based on violations or abuses, is intended to provide antitrust law with a fourth pillar alongside the prohibition of cartels, abuse control and (preventive) merger control. The proposed amendments reflect the recent debate on competition policy. The intervention powers of the competition authorities are considered insufficient in the case of a disruption of competition that lacks a demonstrable infringement and could have causes related to market structure. In such cases, the Bundeskartellamt will not only be able to prevent negative structural changes (merger control), it will also be able to actively promote what it considers preferable structures. The explanatory memorandum to the draft refers to the ideas developed in the now discarded New Competition Tool of the European Commission and the DMA as well as to the UK practice of sector inquiries. The memorandum does not single out any specific sectors, but the Ministry’s press release refers – by way of example – to the situation at the “petrol stations” and to sectors such as construction materials, airport, transport, finance, and food retail, in which, based on a similar mechanism in the UK, competition has supposedly been boosted by the CMA.
There are conflicting assessments as to whether the described gap in the law actually exists. The debate will be continued in the legislative process. The planned intervention powers signal a paradigm shift for antitrust law: In future, even internal growth, efficiency and economic success in fair competition could be grounds for intervention. Therefore, these new mechanisms will have to be carefully scrutinised from a constitutional law perspective on the basis of Article 12 and Article 14 of the German constitution (Grundgesetz).
The new rules also allow the Bundeskartellamt to further expand preventive merger control below the current thresholds. This is also consistent with parallel developments at European level, as shown by the European Commission’s new stance on referrals under Article 22 EU Merger Regulation, including from Member States that did not have original jurisdiction. This significantly reduces legal certainty for mergers and acquisitions.
The constitutional standards will also have to be carefully re-examined in the case of the simplified disgorgement of benefits. There are currently no provisions governing the relationship with antitrust damage claims or allowing for any privileged treatment of leniency applicants. Amendments in this respect could be useful.
Please note, that the draft is merely intended to implement the first part of the Ministry’s competition policy agenda of February 2022, which sets out ten points for achieving sustainable competition and fleshing out what was agreed in the coalition agreement. Further elements of the ten-point agenda – such as more legal certainty for co-operations between companies aimed at greater sustainability and stronger consumer protection – are to be addressed in the next amendment before the end of this legislative period (i.e. 2025). The Ministry will therefore likely want to implement this current draft as quickly as possible.
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