Only 20 months after the ink dried on Germany’s Competition Digitisation Act, the Federal Ministry for Economic Affairs and Climate Action (BMWK) has presented its draft for another competition law reform. The draft aims to strengthen the German Federal Cartel Office (FCO), particularly by giving it sweeping enforcement powers – even including mandated divestitures – following sector inquiries, and by preparing it for the enforcement of the EU’s upcoming Digital Markets Act (DMA).
In the past, the FCO has undertaken quite a number of sector inquiries as a result of which comprehensive reports about the competition economics of the relevant sector were published. But such reports were not a requisite, and in some instances also not a trigger for subsequent enforcement action in individual cases. The draft not only aims to accelerate proceedings by stipulating a regular length for sector inquiries of 18 months, but also significantly sharpens the FCO’s enforcement powers. Should the FCO, following a sector inquiry, conclude that a significant, continuous or repeated disturbance of competition (i.e., a severe SIEC-like situation) on any given market (not limited to digital ones) exists, the FCO may, inter alia order the following administrative measures:
- obligation to grant access to data, interfaces, networks or other facilities;
- obligation to supply other companies, including granting of rights of use to intellectual property;
- obligation to use common standards, or
- obligation to divest a company or parts thereof.
Notably, while a severe disturbance of competition on the relevant market is required, the draft does not foresee that an infringement of competition law actually occurred as a prerequisite for any of these measures – which is very controversial, particularly for the envisioned power to order de-mergers of companies. To comply with the constitutional principle of proportionality, it is foreseen that a divestiture can only be ordered as a last resort – it is necessary that less invasive measures would fall short and that the disturbance of competition can be assumed to be eliminated or significantly reduced by the divestiture. Prior to the divestiture obligation, the German Monopolies Commission and the competent German regional competition authorities shall be heard – but, remarkably, not the European Commission.
The draft foresees the option to avoid enjoined measures by negotiating remedies with the FCO. Previous acquisitions that have been cleared by the FCO or the European Commission under the merger rules are immune from de-merger for a period of five years.
The draft mentions supposedly well-functioning similar provisions of other states (especially United Kingdom, Greece, Mexico, South Africa or Island), as well as the New Competition Tool (NCT) proposed by the EU Commission in 2020 (see our blog on the proposal here), even though the NCT never became law.
A similar proposal on de-mergers was tabled more than ten years ago by the BMWK but did not get legislative traction at the time. This time, it looks as if there may be enough political support to pass the measure in Germany as well.
Following a sector inquiry, the FCO could also oblige companies to notify all mergers in a specific market if there are indications that future mergers could significantly impede effective competition. While this tool existed previously, the draft lowers the FCO’s intervention thresholds. A prerequisite for the measure is that the acquirer achieved a domestic turnover of more than €50m in the last financial year, and the target company achieved a domestic turnover of more than €500,000 in the last financial year, irrespective of worldwide turnover or market shares.
Digitisation is not left out of the proposed amendments: the FCO, already one of the most active enforcement agencies in the digital space, will gear up for the enforcement of the DMA. In accordance with the DMA, the draft foresees that the FCO will be empowered to conduct investigations into non-compliance with the DMA in German territory. In addition, many provisions concerning private enforcement of competition law will equally be applicable for private enforcement of the DMA.
Facilitated disgorgement of benefits
In line with current political discussions, the draft expands the FCO's powers concerning the disgorgement of benefits stemming from a violation of competition law significantly. Without any further fault requirement within the framework of the disgorgement of benefits, the mere infringement is sufficient to skim off the benefit based thereon. To facilitate enforcement, the draft shifts the burden of proof on the company and introduces two rebuttable presumptions: first, it is presumed that the infringement of competition law has caused an economic advantage. Second, it is presumed that the economic advantage is at least 1 per cent of the infringement-related domestic turnover. However, the benefit disgorged shall in any event not exceed 10 per cent of the total turnover of the undertaking in the financial year preceding the infringement decision. Timewise, the FCO shall be empowered to disgorge profits retroactively for a period of up to 10 years following the infringement.
If you would like to discuss the proposals in more detail please get in touch with any of the authors of this blog or reach out to Alex Schmidtke who heads our Public Affairs practice in Germany and who is following the legislative process closely.