On June 7, 2013, the German parliament finally gave its consent for the 8th Amendment of the German Act against Restraints of Competition ("ARC"). The procedure involved a concept paper and a first draft in the second half of 2011, followed by a lengthy legislative process whereby the application of the ARC to health insurers, press companies and water utilities was disputed fiercely. The new law has now passed all parliamentary hurdles and will enter into force one day after its publication in the Federal Gazette, which is expected to happen in the course of next week. The aim behind the new law is to render the application of competition law in Germany more dynamic, bringing it in line with EU competition law and increasing the efficiency of competition enforcement.

The reform is of particular importance for companies with business activities in Germany since German merger control is frequently triggered by M&A transactions, and its antitrust provisions therefore must always be taken into consideration when considering antitrust compliance programs for the German market.

The most significant changes of the reform relate to the current merger control regime and to those provisions of the law that deal with abuse of market power, which will be discussed below. Further changes concern the application of antitrust laws in the public sector, such as public health insurance and public water supply companies.

I. Revised Merger Control Regime

The ARC reforms in the field of merger control include changes to substantive as well as to procedural provisions of the law.

  1. The new "SIEC" Test
    The former substantive test under German merger control required an assessment of whether the envisaged transaction would result in the creation or strengthening of a dominant market position. The new substantive test by contrast will assess whether a concentration results in a significant impediment on effective competition. This so-called "SIEC-test" lies at the heart of EU merger control and its introduction is an example of the legislator's desire to align domestic antitrust laws with the European regime.
    The old criterion which was based on the establishment or strengthening of a dominant market position has, however, not been entirely abandoned since it will serve under the new regime as an example of a significant impediment of effective competition. If and to what extent the new test will in fact change the outcome of merger control procedures in Germany is, therefore, to a large extent dependent on the future practice of the Federal Cartel Office ("FCO"). The new SIEC-test criterion is expected to facilitate a more flexible approach to merger control especially since the legislator has aimed at situations in which the market is characterized by an oligopoly. Further, potentially problematic unilateral conduct, such as the possibility of market players to unilaterally charge high prices, will be evaluated in a more appropriate manner with the help of the new test. Finally, the SIEC-test is considered by the legislator to be of greater importance in conglomerate and vertical merger situations since such transactions do not directly result in an accumulation of market power.
    All in all, the new test criterion may make it easier to weigh up the positive and negative effects on competition during the assessment of mergers. But it remains to be seen in practice whether there is a real prospect for German merger control to apply a more economic approach.
  2. De Minimis Markets
    Another significant change for substantive merger control concerns the adjustment of the minor market exemption. According to this exemption, concentrations currently do not trigger a notification requirement if the relevant markets have existed for a period of at least five years with a market volume below 15 million €. The ARC transfers this exemption into a substantive quasi de minimis test which means in essence that merging parties need to notify a transaction even if it concerns these minor markets. On the upside, however, uncertainties stemming from market definition and estimations of market volumes do not affect the assessment of a notification requirement in and of itself. This eliminates uncertainties in the timing of the transaction and envisaged closing.
  3. Procedural Changes
    Also on the procedural side, many efforts have been made by the legislator to match the standards set by the European model.
    1. Public Offerings
      The most important changes for potential investors is the introduction of an exemption from the prohibition of closing a transaction prior to merger clearance in the event of public bids or a series of transactions in securities admitted to trading on a stock exchange. This exemption requires that the respective voting rights are not exercised and the transaction is notified without undue delay. The prohibition to close the transaction is, therefore, replaced by a prohibition to exercise relevant voting rights. The aim of this exemption is to facilitate transactions which involve publicly traded companies by way of minimizing legal uncertainty stemming from the merger clearance process.
    2. Remedies
      Other changes concern the clearance of mergers subject to remedies. The new relevant provision has been modeled on its European counterpart and the procedure now foresees an automatic extension of the applicable time period by one additional month in situations where remedies are submitted to the FCO for the first time.
    3. Consecutive Transactions
      Additionally, transactions taking place within a two-year timeframe shall be cumulative for the purpose of merger control if they take place between the same undertakings. This provision aims to preclude circumventions of merger control which could otherwise be achieved if transactions were split in several parts, each of which were to fall below the domestic turnover threshold for Germany.
    4. Acquisition of Minority Stakes
      In addition to the efforts to bring German merger control more in line with the European framework, another particular feature has prevailed. This concerns above all the definition of notifiable concentrations. In this context, German merger control can be distinguished from EU law by the fact that it catches concentrations which do not confer control over the target undertaking. An acquisition of 25% in the share capital is sufficient to establish a relevant concentration. Therefore, Germany is also in the future very likely to be a jurisdiction where, even in the absence of control over a target company, a notification requirement can be triggered.
    5. Media Mergers
      Mergers between media companies benefit from a reduction of the turnover multiplier from 20 to eight for revenues derived from the publication, production and distribution of newspapers and magazines. The reduction of the multiplier will result in a significantly lower number of mergers involving print media triggering the merger notification thresholds.

II. Further Important Changes

In addition to the field of merger control, major changes are also taking place with regard to the rules on unilateral conduct which encompasses behavior such as tying, exclusive arrangements, rebates and predatory pricing.

  1. Unilateral Behavior
    Before the reform, German antitrust law could be distinguished from the European framework in two main ways:
    1. Legal Presumption for Market Dominance
      Firstly, the relevant threshold for market dominance for the presumption of unilateral conduct was a one-third share of the market for any one single undertaking. By contrast and with a few exceptions, a company with a market share of below 40% normally cannot be held to be dominant under EU antitrust rules.
      The new ARC aligns the German threshold for market dominance with that of EU antitrust law and presumes a dominant market position for market shares of 40% and up.
    2. Protection of SMEs
      Secondly, German antitrust law imposes several restrictions on the unilateral behavior of companies which possess market power without being necessarily market dominant (so-called superior market power). This applies above all where small or medium-sized enterprises (SMEs) such as suppliers or purchasers are dependent on such companies in such a way that there are no sufficient nor reasonable prospects of these SMEs switching to other entities. The new ARC will not abandon these special rules. Instead, Germany prefers to continue to exercise its freedom in accordance with Article 3 (2) of the EU procedural Regulation 1/2003 which allows Member States to deviate from unilateral conduct rules. As a consequence, German antitrust law will continue to be influenced by principles of SME protection. Companies which are doing business in Germany should keep this particular feature of German antitrust law in mind since it applies for instance to a wide range of business transactions including sale or purchase contracts, as well as to the licensing of technologies, where there exist requirements of non-discrimination.
    3. Predatory Pricing in the Food Industry
      To further protect SMEs, the new ARC prolongs the prohibition on companies with superior market power from (even occasionally) selling food and animal feed below cost price. This prohibition was inserted into the ARC in 2007 and was supposed to expire at the end of 2012, but will now remain intact for another five years, until the end of 2017.
  2. Private Enforcement / Damage Claims
    Also in the area of private enforcement, the new ARC will introduce a material change. This concerns standing for associations of undertakings in proceedings for antitrust law infringements. The relevant provision is broadened in scope and will in the future apply to all associations of undertakings which are affected by an infringement. Consumer associations are also granted standing and therefore might be able to engage in private antitrust enforcement in future cases.
  3. New Disclosure Obligations
    Another change which is of great importance concerns an obligation for undertakings to reply to requests for information. Undertakings are obliged to report their turnover for purposes of calculating an antitrust fine. The FCO in contrast to the EU Commission has to date lacked the far reaching competences to issue information requests obliging antitrust infringers to provide relevant information. This has resulted in an extensive use of dawn raids in Germany to establish the necessary relevant data. Therefore, the new obligation to disclose such data, although being restricted to the purpose of fine calculation, brings German antitrust law more in line with the enforcement powers under European antitrust law.