Most significant changes
How to treat digital markets
Antitrust damages claims
Liability for competition law violations
On March 9 2017 the Federal Parliament adopted the ninth amendment to the Act Against Restraints of Competition, which entered into force on June 9 2017. The agreed amendments take account of the ongoing digitalisation of the economy and also intend to close legal gaps in the liability for violations of competition law. However, one of the main aims of the proposed reform is to implement the EU Directive on Antitrust Damages Actions (2014/104/EU), increasing the efficiency of competition enforcement.
Directive 2014/104/EU was the catalyst for the reform and the German government appears to have seen the transposition process as an opportunity to further reform German competition law.
The key changes of the agreed reform relate to the following five areas:
- the reform of rules in view of new digital markets, including a rule on how to treat markets with services provided free of charge and introduction of new criteria for assessing market position;
- the reform of merger control rules, including the introduction of a new purchase price threshold;
- the reform of the press sector, which introduces an exemption from the prohibition on restrictive agreements for certain types of press cooperation;
- the reform of antitrust damages claims, which implements Directive 2014/104/EU; and
- the reform of liability for violations of competition law, introducing corporate liability, a rule on liability in cases of legal and economic succession and a rule on liability in periods of transition.
The digital age, with its rapid technological evolution, also poses new challenges for competition policy. The agreed reform seeks to adapt existing rules on how to deal with services provided free of charge to the new digital markets and to introduce new criteria for assessing market positions.
The ninth amendment states that services provided free of charge may constitute a market within the meaning of competition law. On multi-side markets (eg, digital platforms) the services are offered to at least two distinct groups of users. A key characteristic of such markets is the indirect network effects where the use of a digital platform for at least one group of users depends on the presence and size of the other group. While the less dependent group of users often enjoys the services free of charge, the other more dependent group of users receives the services in return for payment. The value of a platform or network generally increases with its number of users. Even though previous case practice has shown that in some cases the free services have in part not been considered as a market, the economic reality is that all services – whether free or in return for payment – could constitute a market.
The ninth amendment introduces new criteria for assessing the market position of platforms and networks. Such criteria include:
- direct and indirect network effects;
- parallel use of several platforms;
- the possibility to switch and the switching costs for users;
- user behaviour;
- economies of scale;
- the extent of access to user data; and
- innovation potential.
The ninth amendment intends to close an enforcement gap in the merger control system with respect to the digital economy. Under existing rules, the Federal Cartel Office must be notified of a planned merger if in the business year preceding the concentration:
- the combined aggregate worldwide turnover of all participating undertakings was more than €500 million;
- the turnover in Germany of at least one participating undertaking was more than €25 million; and
- the turnover in Germany of another participating undertaking was more than €5 million.
Experience has shown that in some cases innovative start-up companies have been acquired by larger, well-established companies without any merger control proceedings being necessary, because start-up companies often have few or no sales. However, their business opportunities have high market potential and a significant economic importance to the buyers, as demonstrated by the Facebook/WhatsApp transaction which did not have to be notified to the European Commission or Federal Cartel Office. As such transactions could potentially lead to an economically undesirable market dominance or a significant impediment to effective competition, the proposed reform extends the merger control rules to cases in which the value of the consideration for the target is over €400 million, even though the company acquired generates no or very little turnover in Germany despite its significant activity in Germany.
Digitalisation is also bringing great changes and competition to the media sector. To ensure that publishing companies can still compete with other media companies, the ninth amendment provides an exception from the prohibition on restrictive agreements (Article 1 of the Act Against Restraints of Competition), thus enabling press cooperation. The aspects of press cooperation which will bring benefits include cooperation in advertising, sales, delivery and newspaper and magazine production. This exception will not apply to editorial cooperation among press companies. The proposed reform is intended to benefit small and medium-sized press companies, allowing them to cooperate with stronger market partners. The publishing companies themselves must assess whether their cooperation falls under the exception. The exception will not apply to the European prohibition on restrictive agreements. Ahead of cooperation, publishing companies can request a Federal Cartel Office decision on whether cooperation is permitted.
The ninth amendment implements Directive 2014/104/EU by expanding the cartel damages provisions of Section 33 of the Act Against Restraints of Competition and further strengthening the position of claimants. The main changes are:
- a statutory presumption that a cartel causes damages;
- a statutory presumption in favour of an indirect purchaser that the damages were passed on to the indirect purchaser, provided that the indirect purchaser proves that:
- the defendant infringed cartel rules;
- the infringement caused the indirect purchaser to be overcharged; and
- the indirect purchaser bought the products affected by the cartel;
- rules on joint and several liability of members of a cartel;
- limitation of liability for small and medium-sized enterprises, as well as for leniency applicants that are generally liable only to their direct and indirect customers or suppliers and not to customers of other cartel members;
- rules on the effect of a settlement, which now entails a restricted overall effect;
- provisions relating to a right to disclosure of evidence with exceptions for leniency applications and settlement submissions, which can be enforced either in a separate proceeding or in the course of damages proceedings and can be brought against the (potential) defendant in (future) damage proceedings, as well as against any third party which is in possession of relevant evidence; and
- extension of the regular limitation period from three to five years.
Liability for competition law violations
Finally, the agreed reform introduces corporate group liability, bringing German law into line with EU competition law with the intention to increase the efficiency of competition enforcement. In the past, businesses increasingly sought to avoid enforcement of the antitrust fines imposed by the Federal Cartel Office by way of property transfers and business restructuring. Unlike EU law, under German law a parent entity has thus far not been automatically liable for the conduct of its subsidiaries. Although some enforcement gaps were closed with the eighth amendment, there was still a legal gap in cases where a company directly involved in an infringement no longer existed as a result of corporate restructuring. In Germany this legal gap is known as the 'sausage gap', after a German sausage maker who escaped multi-million fines by restructuring his company. To close this enforcement gap, the ninth amendment enables the Federal Cartel Office to impose fines on the company which committed the infringement, as well as against the group's parent which directly or indirectly exercised a controlling influence over the company. In the case of legal or economic successions, the fine could also be imposed on the successor (eg, in cases of asset deals). The ninth amendment also secures enforcement in periods of transition (ie, where the infringement was terminated before the ninth amendment entered into force and the fines due to the restructuring measures could not be imposed or enforced against the infringing company). In such cases, the group's parent or the successor will also be responsible.
Finally, the new law strengthens what is referred to in German competition law as the Anzapfverbot, which prohibits dominant undertakings from inducing other undertakings to grant them benefits with no objective justification. The new law also strengthens the prohibition of below-cost pricing, thereby introducing a legal definition of the cost price.
For further information on this topic please contact Harald Kahlenberg or Lena Heim at CMS Hasche Sigle by telephone (+49 40 37 63 00) or email ([email protected] or [email protected]). The CMS Hasche Sigle website can be accessed at www.cms-hs.com.