The 9th reform of the German Competition Act is due to take effect on 9 June 2017. It primarily transposes the EU Cartel Damages Directive into German law. On top, it brings a number of other amendments. Here is a summary of the reform’s highlights.
5:00 New rules for enforcing cartel damage claims
It is the reform’s aim to facilitate the enforcement of cartel damage claims. A whole number of changes, most of which are based on the EU Cartel Damages Directive, is meant to serve that purpose.
4:45 Where there’s a cartel there’s a damage …
The new law brings a legal resumption that cartels cause damage. The presumption covers both the existence of damage as such as well as the antitrust infringement as its cause.
To rebut the presumption, the cartel overcharge may in particular be demonstrated to have been passed on to downstream market levels. Alternatively, an economic expert analysis might serve as evidence of lack of a cartel overcharge.
… but which?
It remains up to the individual company to demonstrate that it suffered damage itself. That can be difficult, depending on whether the case involves direct purchases from cartelists, indirect purchases via distributors (that may have passed on a cartel overcharge) or purchases from third parties (allegedly at an excessive price level due to the cartel, the so called “umbrella effect”). Likewise, the company claiming damages must demonstrate the amount of the alleged damage. The legal presumption will therefore likely be of (merely) partial help to the claimant.
… and at the expense of whom?
Cartelists facing damage claims can defend themselves arguing that the claimant passed on the overcharge to its own customers (so called “passing-on defence”).
This is not new, but had already been made clear by the Federal Supreme Court in “ORWI”. While however the conditions set up by the court were very difficult to satisfy for defendant cartelists, it seems now easier to bring a successful passing-on defence under the new rules.
Even better off are now indirect purchasers. They are entitled to damages if the cartel overcharge was passed on to them. This is now easier for them to demonstrate as the new law brings a legal rebuttable presumption in their favour, presuming that the cartel overcharge was passed on to them. The presumption does not cover the amount of the pass-on. Cartelists may not rely on this assumption.
3:55 Help me out, and I’ll protect you
Cartelists that were rewarded with immunity from fines for their cooperation in a cartel investigation are privileged in the context of follow-on damage claims. They only owe instant and full compensation damages to their own (direct and indirect) customers. All other claimants only have subsidiary claims against them and must therefore turn to the other cartelists first. In relation to the other cartelists, the immunity applicant’s liability in the context of contribution claims is limited accordingly.
3:35 Tell me what you know
Under the new rules, claimants for damages cartelists can claim from each other and from third parties access to information and disclosure of evidence relevant for bringing or defending a claim. Beyond what the EU Cartel Damages Directive requires, the new German law provides that access to information can not only be claimed as an annex in the context of damages proceedings, but also on a stand-alone basis.
As before, the requested evidence needs to be described sufficiently clearly; it will now however suffice to describe categories of evidence by type, subject, production date or other criteria. Leniency applications are generally exempt from disclosure.
3:20 More time!
Practically useful is the extension of the limitation period for cartel damage claims from three to five years applicable to cases where the claimant has knowledge of the circumstances relevant for the claim. In cases following official proceedings, the limitation period is now suspended for a full year. Important note to cartelists: Their contribution claim against co-cartelists does not start to expire before damages have been paid to the original claimant.
3:05 Parental liability for siblings
In European competition law, parent companies have long been fined for their subsidiaries’ cartel infringements. The new law brings such joint liability to German law in cases where the two concerned companies formed an “economic unit” at the time of the infringement. That is the case at least where one company has sole control over the other. It can also be the case in joint control situations.
2:45 All sixes and sausages.
2011 case law from the Federal Supreme Court had made clear that companies could use specific restructurings to let the fined company disappear legally and economically. In those cases, the decision imposing the fine missed its target. One meat processing company in particular used this possibility to avert a fine through restructuring, which is why the legal loophole became known as the “sausage gap”.
The new law is meant to make such specific restructurings of groups of companies aiming at fine evasion more difficult in the future. The meanwhile introduced liability for fines in cases of universal succession is extended to cases of partial succession through split-up. Moreover, the merely “economic” successor becomes liable as well.
2:05 Extended merger notification obligations
So far, mergers require German merger clearance if at least two involved companies have sufficient German turnover. The new law modifies that rule: Even if only one involved company has German turnover over € 25 m, a merger event needs now to be notified if (a) the “value of consideration for the transaction exceeds € 400 m and (b) the acquired company is “substantially active” in Germany.
The change is meant to allow the Federal Cartel Office to review the competitive effects of mergers where one involved company, despite its very low or lacking turnover is valued highly and achieves a high purchase price (as in the Facebook / WhatsApp merger).
The new rule is not easy to apply. The “value of consideration” at the time of the merger will often be hard to determine (e.g. in respect of earn out agreements with no clearly identifiable value). Similarly, one may question what it takes to assume “substantial activity” in Germany. Possibly even fairly small research and development or distribution activities in Germany could suffice for that.
0:55 New rules for digital markets
Competition authorities have for a while taken the view that for the purpose of competition law a “market” could not only exist where services are rendered against payment. Residual doubts however remained. The reform now clarifies that “markets” can exist also where goods or services are rendered free of charge. Accordingly, competition authorities may now also examine markets in merger or dominance cases even if there is no financial consideration.
In this context another newly-arrived provision comes into play: Companies’ market position on multiple-sided markets (in particular platform markets) is no longer to be assessed only on the basis of “classic” dominance criteria (like market shares). Rather, network effects, customers’ costs for switching between services, access to competitively relevant data and innovation-driven competition pressure are to be taken into account, amongst other factors.