Today, the German parliament passed the “Digital Competition Act” which is the 10th amendment to the Act against Restraints of Competition (ARC).

The amended law – which will very likely enter into force January 2021 – will bring about significant changes to the German competition law landscape. In particular, the Digital Competition Act will:

  • substantially increase the relevant thresholds of the German merger control regime;
  • introduce new tools for the Federal Cartel Office (FCO) targeted at digital gatekeepers;
  • implement changes required by the ECN+ Directive aimed at a more effective investigation of anti-competitive behaviour; and
  • bring about changes to the rules governing fines for antitrust infringements (including the regulation of the German leniency program).

This briefing focusses on the most important changes with relevance for M&A activity and the digital sector.

Changes which impact M&A

For the M&A practice, the following significant merger control related revisions are of key importance:

Increased revenue thresholds

Under German law, transactions require merger control clearance if certain turnover thresholds are exceeded. The ARC 2021 leaves this basic principle unchanged. However, the revenue thresholds that trigger a filing requirement have been substantially increased. This was a last minute change in the legislative process.

A notification will now be required if:

  • the parties’ combined worldwide revenues exceed EUR 500m (unchanged),
  • one party to the transaction achieves revenues of more than EUR 50m in Germany (previously 25m), and
  • another party to the transaction achieves revenues of more than EUR 17.5m (previously EUR 5m).

Since 2017, German law has featured a – US-like – “size of transaction”-test. The value for the size of the transaction has not been changed by the legislator and remains at EUR 400m. Additionally, the size of transaction-test requires that acquirer (or another undertaking but not the target) achieves revenue in Germany. For consistency reasons with the purely turnover based filing threshold (see above) – this revenue threshold has now been raised to EUR 50m.

De-minimis

Another peculiarity of German competition law has been changed as well: Transactions involving a de-minimis market need to be notified in the future. However, the German FCO has discretion not to prohibit a transaction even if the transaction would significantly impede competition on a de-minimis market.

Previously the de-minimis rule applied to markets which (i) had existed for at least five years and (ii) generated a total annual revenue of less than EUR 15m in Germany ("de-minimis market"). This ‘de-minimis’ revenue threshold has now been increased to EUR 20m.

Successive acquisition strategies

There is another amendment to the German merger control regime, which might likely be of significant importance for M&A:

Under the ARC 2021, the FCO will be able to impose a general notification obligation on (i) particular companies (ii) for all future acquisitions (iii) that take place in a sector specified. In addition, the target needs to have a revenue of at least EUR 2m at last two-third of which is generated in Germany.

While this amendment has primarily been proposed as a reaction to successive acquisition strategies in regional waste management markets, it goes without saying that it might also be of relevance in the digital world.

A further push towards "digital house rules"

The Digital Competition Act is – as its name suggests – the next step to adapt German competition law to the digital world. The previous amendment – which was enacted in 2017 – already brought certain changes with a view to reacting to new competition law issues arising from the ongoing digitalization. However, the current revision is a “bang” featuring far reaching amendments.

Abuse of dominance – a new proactive toolkit

One of the novelties which – throughout the entire legislative process – attracted most attention (and which was subject to some last minute changes), is the FCO’s new enforcement power conferred by Sect. 19a ARC 2021. This allows the FCO to prohibit certain types of behaviour by companies that are – to a significant extent – active on multisided markets.

To this end, the FCO must first establish that a particular company is of paramount significance for competition across markets (Sect. 19(a)(1) ARC 2021). In determining this, the FCO has to take particular account of several factors, including inter alia access of the company to data relevant for competition, dominant market position, or vertical integration.

Once paramount significance has been established (and absent any objective justification for the conduct), the FCO will be able to prohibit such an undertaking from, inter alia,

  • giving preference to its own offer on its public websites;
  • pre-installing its own offers on devices or otherwise integrating them into the undertaking's offers;
  • preventing other companies from advertising their own offers or selling to customers through channels other than the accesses provided by the undertaking;
  • making the use of services conditional on users consenting to the processing of data from other services of the undertaking, without giving users sufficient choice.

Relative market power – widening the scope of be beneficiaries

A notable peculiarity of the existing German abuse of dominance regime is that it does not only address cases of dominance, but – under certain circumstances – also scenarios where a company holds a superior market position vis-à-vis certain other competitors, customers or suppliers (relative market power).

For example, section 20(1) ARC prevents undertakings with relative market power from using that position to the disadvantage of small or medium-sized customers or suppliers. Relative market power is assumed if suppliers or customers depend on an undertaking in such a way that sufficient and reasonable possibilities of turning to alternative customers or suppliers do not exist.

The scope of Sect. 20(1) ARC has now been expanded so that all undertakings are beneficiaries of this provision and not only small and medium-sized enterprises. The amendment provision is meant to take into account that large undertakings may also be in a position of dependence, for example where dealing with a “gatekeeper” platform.

Data access

In addition, the ARC 2021 features (i) a “clarification” of the essential facility doctrine as well as (ii) the introduction of a right of access to data if access to such data has particular relevance for competition (section 20(1a) ARC 2021).

Under the revised rules, the refusal to give access to such data may constitute an abuse of relative market power (in the sense of undue hindrance pursuant section 20(1) ARC).

Outlook

It remains to be seen how these new rules will play out in practice.

The increase of the revenue thresholds will most likely decrease the number M&A transactions that need to be notified in Germany. This should be widely welcomed by all stakeholders (the FCO in terms of less workload, as well as companies in terms of, in some cases, quicker and more certain M&A processes).

What will be more complex to anticipate is the impact of the digital changes:

  • For the FCO’s new intervention toolkit, it will be particularly interesting to see how this fits with the European Commission’s proposed Digital Markets Act (DMA) (our summary of the DMA is here). Obvious questions are: How will the DMA – once enacted – interact with the new set of German rules? Will the DMA’s dealing with gatekeepers render Sect. 19a ARC 2021 inapplicable (i.e. would the EU provision prevail over its German forerunner)?
  • Likewise, it can be expected that the new data access provisions will raise practical questions. For example: Does the new provision cover existing data only or can the regulator request the data owner to “create” specific data based on the datapool?
  • In practice, how will the right of data access be brought in line with data privacy restrictions? According to the legislator at least, the release of data under the new competition provisions must still comply with data protection law.