On 30 September 2014, the German Federal Cartel Office (FCO -Bundeskartellamt) published new guidelines on the application of German merger control to foreign transactions with a domestic effect in Germany. While the guidelines aim at providing greater clarity for foreign companies and their advisors when assessing a filing requirement in Germany, they at the same time demonstrate that German merger control scrutiny continues to be far reaching.

The guidance document lists typical transaction scenarios in which domestic effects can either be clearly identified or ruled out. For all other cases which do not fall under either scenario, the document provides essential criteria for the necessary case-by-case assessment of domestic effects.

Cases with clear domestic effects

Mergers involving only two parties (i.e. the buyer and the target) always have sufficient domestic effects provided that the turnover thresholds of German merger control are exceeded. For instance, if the buyer's turnover exceeds EUR 25 million in Germany and the target's turnover exceeds the second turnover threshold of EUR 5 million in Germany, and both companies' combined worldwide turnover exceeds EUR 500 million, the merger must be notified in Germany regardless of the location of the parties or the geographic focus of their business.

If a transaction concerns the setting-up of a joint venture or the change in its control structure, the transaction is in any event considered to have domestic effects if the joint venture is active in Germany and exceeds  turnover of EUR 5 million in Germany (while the other turnover thresholds are met by the other companies participating in the transaction). Otherwise, a case-by-case assessment of actual or potential domestic effects of the joint venture is required. This is particularly relevant for newly created joint ventures which have not yet generated any revenues. 

Cases where domestic effects can be ruled out

According to the FCO guidance paper, a joint venture lacks domestic effects if

  • it is neither today nor potentially in the future active in Germany or in a wider geographic market which also covers Germany or parts thereof; and
  • it has no "spill-over effects" in Germany; this is the case if the parent companies (including their affiliates) neither compete in Germany on the product market on which the joint venture is active abroad, nor are active on a domestic upstream or downstream market of the joint venture's market.

Case-by-case assessment in all other cases

All other joint venture scenarios require an individual assessment. Generally, a filing is not required if the joint venture's activities on a domestic market are only marginal. The FCO gives the following guidance in this context:

  • If the joint venture's market share on a domestic market exceeds the threshold of 5%, the merger will qualify as having domestic effects. However, if the joint venture's domestic market share is below 5%, its business activity is not automatically regarded as marginal if there are other competitively relevant implications of the transaction, e.g. if a party gains access to valuable know-how.
  • The transfer of significant resources from the parent companies to the joint venture which are relevant for the joint venture's market position, such as intellectual property rights and know-how, can also serve as indication that a market position is more than "marginal".
  • Even if the joint venture's activities on a domestic market are only marginal, domestic effects can still occur as a consequence of possible spill-over effects between the parent companies. However, where the parent companies' combined market shares on the relevant markets do not exceed 20%, possible spill-over effects are deemed to be not sufficiently important to trigger a notification requirement in Germany.

Assessment and conclusion

The FCO provides helpful guidance in relation to the domestic effects test which often is a critical part of a multi-jurisdictional filing analysis. However, the safe harbors are narrow. In particular, joint ventures with only limited links to Germany continue to require a careful case-by-case assessment, e.g. in relation to the market definition approach on which the assessment of domestic effects shall be based, or the question if the joint venture parents can be considered to be potential competitors. 

The FCO, as other competition authorities, takes a vigorous stance regarding infringements of merger control filing requirements. For instance, in the EMC/Cisco case (2011) the FCO opened a post-closing investigation into the formation of a joint venture which only operated in the US and was not notified to the FCO. The FCO concluded that the joint venture had an impact on the German market as both parent companies were active in Germany and that the parties violated German law by closing the transaction without its prior approval.

The FCO explicitly invites the parties to informally and confidentially discuss  any questions on possible domestic effects of an envisaged transaction in advance of a formal notification. Alternatively − and not surprisingly − the FCO recommends that parties notify  transactions which should not raise any competition concerns immediately and leave the question of potential domestic effects open. This is indeed advisable in cases where pre-notification discussions with the FCO on domestic effects of a transaction are likely to be more complex and time-consuming than a notification. German merger filings are normally straight-forward in cases where the effects of a transaction in Germany are limited.