After long debate Germany has finally passed the reform of the Act Against Restraints of Competition. The new law entered into force on June 30 2013.
Reform of merger control will include:
- the introduction of the significant impediment to effective competition (SIEC) test;
- the legal presumption of dominance for a 40% market share;
- the de minimis market exemption is no longer decisive for filing requirement;
- a rule on the treatment of multiple transactions between the same companies within two years; and
- changes to the procedure.
Reform of the abuse of dominance will include:
- the reorganisation of existing rules; and
- legal presumption of dominance for a 40% market share.
Reform of enforcement will include:
- the introduction of structural measures as a means of terminating infringements;
- the introduction of an order to repay illegal gain to victims; and
- changes in the liability for fines in cases of legal succession.
Introduction of SIEC test
The Federal Cartel Office will now apply the SIEC test when assessing mergers. At EU level, the SIEC test has been known since its introduction in Article 2(2) of Regulation 139/2004. It asks whether the transaction is likely to impede effective competition substantially. Until now German law has still provided for the dominance test previously known from EU merger control, which asks whether the transaction is likely to create or strengthen a dominant position. Experience from EU law suggests that the change from the dominance test to the SIEC test in Germany is likely to have little impact on the outcome of the vast majority of the cases.
Legal presumption of dominance for 40% market share
Under German law a company was deemed dominant if it held a market share of at least one-third. This threshold has now been increased to 40%. As before, companies reaching such market shares can still rebut the statutory presumption of dominance.
De minimis markets
Until now concentrations affecting exclusively de minimis markets (markets in existence for at least five years with a total annual market volume in Germany of less than €15 million) did not require merger control notification. However, because of the difficulties associated with defining the relevant markets, and as transactions usually affect both de minimis and non-de minimis markets, parties were often uncertain about whether to file. The new law remedies this. Concentrations must be notified irrespective of whether they relate to de minimis markets, but the Federal Cartel Office cannot prohibit a transaction for effects occurring on a de minimis market.
Treatment of multiple transactions between same companies within two years
Under the new law the authority will now consider successive transactions occurring within a two-year period between the same parties as one transaction for the purpose of calculating the relevant thresholds. This rule, comparable to that of Article 5(2)(2) of Regulation 139/2004 at EU level, ensures that parties cannot escape merger control by breaking down one transaction into various transactions of assets which, if looked at separately, would each fail to meet the German merger control thresholds.
Changes to procedure
German law also now explicitly allows for behavioural, as opposed to structural, remedies. However, such behavioural remedies may not result in the regulator being required to monitor constantly the behaviour of the companies involved.
The previously strict procedural deadlines can now vary depending on the case. Failure by the parties to provide information requested by the authority in the second phase can now stop the clock and extend assessment periods. Also, if remedies are offered by the parties, the assessment period of phase two investigations will now be extended by one month.
Transactions which are subject to merger control and which have been implemented without merger control clearance remain invalid. If a transaction is notified only after its implementation, the Federal Cartel Office is expected to initiate a divestment procedure. The law now clarifies that if such divestment procedure is terminated without a divestment order (ie, the transaction is cleared), the transaction will become valid retroactively. However, closing a transaction subject to merger control before receiving clearance remains illegal and can trigger fines.
Differences in EU merger control remain
Various peculiarities of German merger control law regarding EU law remain unchanged, in particular the following:
- The acquisition of non-controlling shareholdings of 25% or more is a concentration;
- Even the acquisition of non-controlling shareholdings of less than 25% constitutes a concentration where such minority shareholding confers a "competitively significant influence" on the acquirer;
- The creation of non full-function joint ventures can constitute a concentration; and
- Joint ventures can be cleared under merger control rules and still be prohibited under Section 1 of the Act against Restraints of Competition (equivalent to Article 101 of the Treaty on the Function of the European Union) at a later stage (for further details please see "FCO breaks up joint venture – nothing clear after clearance?").
Reorganisation of existing rules
While in substance the German rules on abuse of dominance and unilateral conduct remain unchanged, they have been completely reorganised and are now structured in a more user-friendly way.
German rules on unilateral conduct continue to have a much wider scope of application than the dominance rules under EU law. While EU law applies only to dominant companies, under German law companies which are clearly not dominant but which have relative market power regarding smaller competitors, customers and/or suppliers, are prohibited from abusing such relative market power.
Legal presumption of dominance for 40% market share
German law maintains the statutory presumption that companies holding a certain market share are dominant. Single firm dominance is now presumed if a company has a market share of at least 40%. The thresholds for the assumption of joint dominance have not changed. Joint dominance is presumed if up to three companies have a combined market share of at least 50%, or if up to five companies have a combined market share of two-thirds or more.
Structural measures as means to terminate infringement
In the past it was unclear whether, in order to terminate infringements, the Federal Cartel Office could impose structural measures, such as orders to divest parts of the company. The law has now clarified that such structural measures are allowed where they are not more burdensome for the companies and provided that behavioural measures would be less effective.
Order to repay illegal gain to victims
The Federal Cartel Office is now empowered to order companies to repay to the victims of their anti-competitive actions any additional proceeds which result from the infringement. This new provision sits awkwardly in the system of competition rules. Essentially, it means that the authority can order infringers to compensate victims, a process normally left to private enforcement.
Liability for fines in cases of legal succession
Following a 2011 Federal Court of Justice decision, companies could escape liability for fines relatively easily by taking certain restructuring measures. For example, where a company involved in an infringement was later merged into another company which had substantial assets of its own, no fine could be imposed on the successor. Since under German law there is no automatic liability of a parent entity for the conduct of its subsidiaries, this meant that no fine could be imposed. This enforcement gap has now closed, and in most cases legal successors can now be held liable for a fine up to the value of the assets which were ceded. However, in the event of pure asset deals, the acquirer/successor may still not be held liable for an infringement which had been committed by a company previously owning these assets. Unlike EU law, under German law there is still no automatism according to which parent entities can be held liable for the conduct of their subsidiaries.
In the press sector mergers have been facilitated. The turnover thresholds for mergers in the press sector have been substantially increased. In the past, merger control was required when the press turnover, multiplied by 20, reached the statutory filing thresholds. This has now been reduced to a multiplication of eight. Further, the special press distribution system established in Germany has been legalised.
In the water and energy sectors, special rules regarding price control (for excessive pricing) have been extended or introduced respectively. Public companies are partially exempted from these rules. Statutory health insurance funds are exempted from competition law. However, voluntary mergers of statutory health insurance funds are subject to merger control, but the Federal Cartel Office must consult with the bodies supervising the funds.
For further information on this topic please contact Kai Neuhaus at CMS Hasche Sigle by telephone (+32 2 6500 420), fax (+32 2 6500 422) or email (firstname.lastname@example.org).
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