The German Federal Court of Justice recently published a decision which limits the application of the German merger control regime by broadening the scope of the socalled de minimis market exemption. As a consequence, the number of mergers that are subject to a mandatory filing requirement to the German Federal Cartel Office (FCO) is now likely to decrease.

The filing thresholds of the German merger control regime are relatively low in comparison with other jurisdictions. Except for mergers that fall under the European Merger Control Regulation, a filing to the FCO is required if the aggregate worldwide turnover of all participating companies in the last year preceding the merger exceeded €500 million and at least one participating company had revenues in Germany of more than €25 million. These low thresholds lead to filing requirements for mergers that have only marginal effects on the German market.

The de minimis market clause of German merger control law

Against this background, the exemptions from the filing requirement provided for in German merger control law are important. According to the de minimis market clause, a transaction that affects a market, the volume (turnover-based) of which was less than €15 million in the last year preceding the merger, but which has existed for more than 5 years, does not require FCO approval. However, until now, the scope of this exemption was unclear. It was contested whether, for the purpose of assessing the €15 million market threshold, only the German market had to be taken into account or whether a broader geographic market had to be considered.

In recent decisions, the FCO argued for the latter interpretation by ruling out the de minimis market exemption where a merger affected European or worldwide markets with an overall volume exceeding €15 million (even if the volume of a market in Germany was below €15 million). In Sulzer/Kelmix, the Federal Court of Justice revised this interpretation of the de minimis market clause by the FCO (Federal Court of Justice, decision of September 25, 2007 – KVR 19/07).

Sulzer/Kelmix

The proceedings arose in the context of Swiss Sulzer's takeover of the German companies Kelmix and Werfo in 2005. After initially filing the merger with the FCO, the companies withdrew their notification arguing that the two different affected product markets (for certain adhesive technologies) each had a value of less than €15 million in Germany and therefore should benefit from the de minimis exemption. However, the FCO disagreed and asserted jurisdiction over the transaction. Having determined that the markets in question were European in scope, the FCO argued that the de minimis market assessment (i.e. whether or not the €15 million threshold is met) should be based on this geographic definition of the relevant antitrust market. As the European market for the relevant product had a volume well in excess of €15 million, the transaction would not benefit from the de minimis clause and had to be notified to the FCO.

The FCO proceeded to review the transaction, identified serious substantive concerns and ordered the companies to dissolve the merger.

Federal Court of Justice Decision

Following objections filed by the parties to the transaction, the Düsseldorf Higher Regional Court issued an interim order which has now been approved by the Federal Court of Justice. Accepting that both relevant markets were at least European-wide in scope (and that the turnover on these European markets each exceeded €15 million), the Federal Court nevertheless endorsed the view, based on a normative reading of the applicable legislation, that the de minimis market clause should relate only to domestically generated turnover. The Court based its decision not on the concept of economic market definition normally employed under German competition law when defining the relevant market, but rather on what it determined to be the underlying purpose of the exemption - i.e. to liberate the domestic regulators from the time and expense involved in reviewing transactions that only have a minor or immaterial impact on the domestic economy.

However, parties to a transaction need to analyze carefully the applicability of the exemption clause when several de minimis markets with similar competitive market structures are affected. In Sulzer/Kelmix, the Federal Court stressed that if different relevant product markets are closely related it might be necessary to bundle these markets and add their volumes of sales in Germany when calculating the €15 million threshold. Such an approach – i.e. to consider the overall macroeconomic effects of a transaction in Germany – is necessary in particular where a product market has been artificially separated into different local de-minimis markets within Germany or if the transaction affects a number of geographically neighbouring de-minimis markets with comparable market structures and the merging parties operate on all these markets supported by a nationwide organisation structure. In Deutsche Bahn/KVS Saarlouis, the Federal Court also refused to apply the de minimis market exemption because the parties operated not only on a local (de minimis) market but also on (non-de minimis) upstream and downstream markets (Federal Court of Justice, decision of August 11, 2006 – KVR 28/05).

Going Forward

It should be noted that the decision by the Federal Court of Justice was made in proceedings on interim relief. Nevertheless, given the detailed analysis of the issue by the Court, it seems likely that any further decisions of the courts regarding the interpretation of the de minimis market clause will be in line with this recent ruling.

It thus appears that the Federal Court of Justice has finally settled a long-standing and highly disputed procedural point. As a result, the number of transactions that are subject to a mandatory notification to the FCO is likely to decrease.