On June 5, 2013, a committee of the two Houses of the German Parliament reached a longawaited compromise on the reform of the German competition law. The 8th Amendment Bill of the German Act against Restraints of Competition (ARC) is now expected to be formally adopted and enter into force in the month of July this year.
Far-reaching changes concern specific industry sectors, in particular health insurance and the written press, as well as undertakings operated under German public law. Key aspects of the reform that are of general application include (i) further aligning the German with the European Union’s (EU) competition law, in particular by adopting the EU’s “significant impediment to effective competition” or “SIEC” test instead of the “dominance test” in German substantive merger assessment; (ii) simplifying certain provisions, especially those on unilateral behavior/abuse of dominance; (iii) closing certain enforcement gaps, notably by holding legal successor entities liable for cartel infringements committed by predecessor entities that are dissolved before the imposition of a fine; and (iv) broadening the standing of industry and consumer associations to bring private enforcement actions.
These are important changes that will improve the operation of the German competition law. However, they do not require international companies to significantly adjust their approach towards competition law compliance in Germany. Similarly, mergers and acquisitions are not expected to generally become more easy or difficult to pass the scrutiny of the German merger control authorities as a result of the reform.
We summarize below the main aspects of the Amendment Bill as well as some of the major remaining differences between EU and German competition law. A more detailed German language overview of the 8th Amendment Bill is available here.
Introduction of the SIEC test. In the future, Germany’s competition authority, the Federal Cartel Office (FCO) will review mergers and acquisitions within its jurisdiction under the “SIEC” test, asking whether the transaction is likely to significantly impede effective competition. The SIEC test, which in practice is similar to the “substantial lessening of competition” or “SLC” test used in U.S. merger control, was an international legislative novelty created by the 2004 amendments to the EU Merger Regulation and has since been introduced in the national merger control laws of several EU Member States. Germany’s current dominance test, asking whether the transaction will create or strengthen a dominant position, will not become irrelevant but continue to feature in the law as the prime example of how a transaction can significantly impede effective competition. This mirrors the current wording of the EU test. Accordingly, the significant body of existing precedent as well as the FCO’s recently published guidelines interpreting the dominance test will remain applicable. Therefore, it is generally expected that the adoption of the SIEC test will not fundamentally change merger assessment in Germany.
However, the SIEC test is conceptually better suited to capture the relatively rare situations in which a merger negatively impacts competition arguably without creating or strengthening a dominant position. Moreover, it is likely that the SIEC test will create a favorable basis for an increased use of economic reasoning and evidence in German merger assessment. Finally, it can be expected that parties and complainants will even more often than in the past argue German cases with reference to EU precedent under the SIEC test.
Legal presumptions of dominance. Unlike the EU Merger Regulation, the ARC contains market share-based presumptions suggesting (albeit with the possibility of rebuttal) when firms hold a dominant position. The triggering threshold for presumed dominance by a single firm will be increased from one-third (33.3 percent) to 40 percent. The thresholds for presumed collective dominance remain unchanged: a combined market share of 50 percent held by three companies, or a combined share of two-thirds (66.6 percent) held by five companies.
Transactions affecting de minimis markets. The current ARC exempts transactions affecting so-called de minimis markets from German merger control. In the future, such transactions have to be notified to the FCO, but the FCO cannot prohibit a transaction for anticompetitive effects occurring on a de minimis market. As before, a de minims market is defined as a market that has existed in Germany for at least five years with total demand from German customers not exceeding EUR 15 million in the last calendar year. A separate exemption from German merger control remains unchanged: a notification is not required if one of the parties is an undertaking that is not controlled by another undertaking and has worldwide revenues of less than EUR 10 million.
Procedural reforms. The Amendment Bill adopts several features of the EU merger procedure: (i) the general mandatory waiting period requiring firms not to implement the transaction before having obtained merger clearance from the FCO will no longer apply in the case of public takeover bids or other acquisitions of shares traded on stock exchanges, provided that the acquirer notifies the transaction to the FCO without delay and limits the exercise of voting rights before obtaining clearance; (ii) two or more acquisitions of parts of a company which take place within a two-year period between the same persons or undertakings will be treated as a single transaction, with the effect that the revenue thresholds may be triggered by the later transaction if the revenues involved in the prior transaction are added; and (iii) the FCO will obtain an additional one-month period to assess a merger if the parties offer remedies, and the review period will be suspended if parties do not timely submit information requested by the FCO. Finally, the ARC creates greater legal certainty for transactions that were initially implemented in violation of the mandatory waiting period but later reviewed by the FCO upon request of the parties and found not to be anticompetitive.
Important remaining differences between EU and German merger control. Importantly, significant differences between the German and the EU merger rules will persist: (i) the German merger control rules apply to a significantly broader range of corporate transactions, such as the creation of pure production, purchasing or other joint ventures that are not “full-function” as well as acquisitions of non-controlling minority shareholdings of at least 25 percent (or even less if the acquirer can exercise competitively significant influence on the target); (ii) the German turnover thresholds continue to be low by international comparison;1 (iii) in the case of joint ventures, the FCO retains discretion to clear the joint venture under the merger rules and subsequently conduct a review under Article 101 AEUV and its German equivalent for possible coordination effects that the joint venture will cause;2 (iv) merger-related efficiencies are not explicitly recognized in the revised ARC or the legislative materials; (v) the FCO can clear a merger that produces anticompetitive effects if these effects are outweighed by positive effects on the competitive conditions in the same market or in another market; (vi) finally, the German Minister of Economics and Technology retains the power to authorize an anticompetitive merger prohibited by the FCO for specific reasons not related to competition law.
Successor liability for cartel fines. The German rules governing liability for monetary fines for cartel infringements significantly differ from the EU rules in that German fines can only be imposed (and enforced) against the legal entity whose employees committed the cartel infringement. In the case of corporate groups, this means that there is no automatic liability of the ultimate parent entity or other group companies that were not involved in the infringement.3 This enables corporate groups to avoid cartel fines by relatively simple measures of corporate restructuring: for example, the FCO typically loses the ability to impose a fine if the subsidiary implicated in the infringement is merged into another subsidiary within the same corporate group. Under German corporate law, this operation leads to the dissolution of the implicated subsidiary, and the law currently does not provide a basis for imposing the fine on the legal successor (the entity resulting from the merger of the two subsidiaries).4
Closing this enforcement gap was an important goal of the 8th Amendment Bill. In the future, a fine can be imposed on a legal entity that is the full (“universal”) or partial legal successor of a legal entity that committed the cartel infringement and that ceases to exist pursuant to the provisions of German corporate law.5 By contrast, successor liability will not arise if the legal entity implicated in the infringement does not cease to exist.
No specific rules on access to leniency documents. The 8th Amendment Bill does not introduce provisions concerning the possibility of (potential) private plaintiffs to obtain access to leniency documents that a cartel participant submitted to the FCO under the leniency program. Whether cartel victims can access leniency documents is subject to a European-wide debate. In its Pfleiderer judgment,6 the Court of Justice of the European Union (CJEU) held that the EU Member States should decide the question within the limits set by EU law, which, however, currently does not contain specific provisions on the issue.7 In Germany, the courts up to now have decided to largely protect the leniency documents and thus to exclude access to them.8 In light of these judgments, the German legislature has decided not to introduce specific rules on the issue, but the EU Commission is currently considering doing so.
New procedural powers for the FCO. The FCO gains the power to oblige companies to submit information that the FCO needs to calculate the amount of a fine. Moreover, the revised ARC will include a specific provision empowering the FCO to impose so-called structural measures when ordering companies to stop an antitrust infringement, which may, for example, include the break-up of a vertically integrated company. Importantly, however, the Amendment Bill does not significantly improve the cumbersome procedural rules that apply in court proceedings relating to antitrust fines, notably when companies appeal against a fine imposed on them. In this regard, the need for reform persists.
UNILATERAL CONDUCT/ABUSE OF DOMINANCE
The ARC’s provisions prohibiting abuses of a dominant position and certain other types of unilateral conduct will be completely re-organized and largely rephrased, but with only limited substantive changes. As regards abuses of dominance, the main change is the above-mentioned increase to 40 percent market share at which a firm will be presumed to hold a dominant position. Besides the prohibition of abuses of dominance, the revised ARC will continue to include prohibitions of certain unilateral behavior of companies that do not hold a dominant position but a position of superior market power vis-à-vis small and medium-sized customers, suppliers or competitors. In essence, companies holding such a position of “relative” or “superior” market power are prohibited from engaging in conduct that would tend to unfairly exclude such customers, suppliers or competitors or discriminate against specific customers or suppliers.
The ARC’s specific examples of how a company with superior market power can exclude rivals in this sense remain in force: (i) selling food below cost (this example will expire in 2017); (ii) selling any kind of goods or services below cost other than on an occasional basis; and (iii) selling, by a vertically integrated firm, of an input to downstream competitors at prices that are higher than the prices at which the integrated firm sells to customers on the downstream market, leading to a margin squeeze to the detriment of the downstream rivals. Finally, some prohibitions of unilateral conduct apply irrespective of the company’s market power, for example the prohibition of enticing other companies not to supply or buy from specific individual third parties (socalled “boycott”).
In the area of private enforcement, the amendments broaden the standing of consumer and industry associations to bring certain types of private actions against companies involved in a competition infringement. This notably includes actions for cease-and-desist orders and restitution orders. However, these associations will not obtain standing to bring actions for damages, although they can request that cartel members transfer any financial gains obtained from the illegal conduct to the Federal Budget.
The 8th Amendment Bill also contains a number of specific rules for certain industry sectors, notably the written press, the statutory health insurance funds and the energy and water industries.
The 8th Amendment Bill introduces a number of useful changes to achieve greater alignment with EU competition law and to simplify and facilitate the application of several important provisions of the ARC. However, none of these amendments constitute fundamental game changers, and many of the important differences between German and EU competition law will persist. Of significant importance is the introduction of successor liability for cartel infringements, but only few companies will be affected by this in practice. Some areas posing significant difficulties in practice, notably the court rules of procedure in the context of fining decisions, have not been sufficiently addressed by the amendments, so that there is a continued need for additional reform.