Kai Neuhaus Benedikt Ecker December 20 2012 FCO breaks up joint venture – nothing clear after clearance? CMS Germany | Competition & Antitrust - Germany Kai Neuhaus, Benedikt Ecker Competition & Antitrust FactsLegal appraisalCommentOn November 21 2012 the Federal Cartel Office (FCO)(1) prohibited the continuation of a joint venture which it had cleared in 1996.The prohibition was based not on merger control rules but on Section 1 of the Act against Restraints of Competition, the German equivalent to Article 101 of the Treaty on the Functioning of the European Union.FactsIn 1996 two chemicals distributors created a joint venture which was equally active in chemical distribution. The transaction was notified with the FCO and cleared under German merger control rules. In 2008, following a cartel investigation into the chemicals market, the FCO rediscovered the joint venture and started an investigation which ended with the joint venture being prohibited. The FCO ordered the parent entities to "restructure their activities on the markets for distribution of chemicals in line with competition law" – in other words, to break up the joint venture.Legal appraisal Under EU law, the creation of a joint venture is assessed either under the EU merger control regulation or under Article 101 of the treaty. However, the situation is different in Germany. Under German law, the creation of a joint venture is subject to 'double control' and can be assessed both under merger control rules and under Section 1 of the Act against Restraints of Competition.(2)Since – unlike merger control proceedings – assessment under Section 1 of the act is not subject to any time limits, the FCO can at any time, and even years after the original merger control clearance, still prohibit joint ventures if they restrict competition within the meaning of Section 1. In fact, occasionally the FCO explicitly ends its merger control clearances with a warning that the clearance does not affect the regulator's right to assess the transaction under Section 1.When assessing the present case, the FCO relied on previous case law which stated that situations where the parent companies and the joint venture all operate on the same market raise competitive concerns under Section 1 of the act because the competitors are likely to cooperate with one another via the joint venture.(3) The FCO found that the joint activity in the joint venture resulted in the extensive exchange of information between the parent entities and thus constituted an inadmissible restraint on competition. It ordered the parties to restructure their businesses in line with competition law.CommentThe FCO's decision demonstrates that merger control clearance provides little legal certainty in Germany in cases where competitors intend to create a joint venture, at least if it operates on the same market as one or more of its parent entities. The regulator made it clear that in such cases Section 1 of the Act against Restraints of Competition will be enforced rigorously. Only recently, the FCO expressed serious concerns regarding a number of joint ventures between competitors in its sector enquiry on rolled asphalt and suggested that divestments would be necessary.(4)It will be interesting to see whether the upcoming amendment of the act – which is expected to enter into force early 2013 – will put an end to this lack of legal certainty for companies. Under the merger control rules of the revised act the current dominance test will be replaced by the significant impediment to effective competition test as known from the EU Merger Regulation. Currently, German merger control clearances state only that the transaction will not lead to the "creation or strengthening of a dominant position". A transaction can arguably restrict competition (Section 1) without creating or strengthening dominance (merger control), which seems to allow for merger control and Section 1 decisions to produce different results under the old rules. But can a transaction "restrict competition" if it does not lead to a "significant impediment to effective competition"? Is there still room for diverging decisions under Section 1 and merger control under the revised law?In light of this it is unsurprising that the companies intend to appeal the decision – and possibly clarify this question.For further information on this topic please contact Kai Neuhaus or Benedikt Ecker at CMS Hasche Sigle by telephone (+32 2 6500 420), fax (+32 2 6500 422) or email ([email protected] or [email protected]).Endnotes(1) See also FCO press release November 21 2012.(2) Federal Court of Justice, KVR 6/84, October 1 1986 – Mischwerke.(3) Federal Court of Justice, KVZ 55/07, March 4 2008 – Xella/Nord KS.(4) FCO, B1-33/10, Sektoruntersuchung Walzasphalt, final report September 2012.