This newsletter summarizes the main developments in German competition law in the first half of 2013 and puts them into perspective. At the legislative level, the reform of the German Act against Restraints of Competition (ARC) finally entered into force. The German Federal Cartel Office (FCO) continued to be very active in the prosecution of hardcore cartels and also adopted a number of noteworthy decisions in the merger area. Moreover, there were several significant court rulings during the review period. In particular, a decision by the Federal Supreme Court prompted a revision of the FCO’s cartel fining guidelines; and in the field of merger control, a judgment rejecting a damage claim against the FCO for the unlawful prohibition of a merger may have far-reaching practical implications.

Legislative Developments

The long-expected 8th amendment of the ARC finally entered into force on July 1, 2013 after a compromise on the applicability of the ARC to statutory health insurers had been reached. In the future, the FCO will have the power to review mergers between such insurance companies but can adopt a prohibition decision only upon consultation with the sector-specific regulatory body. Moreover, the ARC’s ban on cartels will not be applicable to agreements among statutory health insurers in relation to their customers. Other important amendments to the ARC, which had already been agreed upon earlier, include the introduction of the SIEC (“significant impediment of effective competition”) test as a new benchmark for merger review, and the increase of the market share threshold for the rebuttable presumption of single firm dominance from 33% to 40%. Overall, the changes are intended to improve the effectiveness and operability of the ARC and to further align the law with the EU competition rules. However, they are not expected to bring about a major shift in the FCO’s enforcement practice and priorities.1

Merger Control

Regional Court of Cologne rejects damage claim against the FCO. On February 26, 2013, the Regional Court in Cologne handed down an important judgment rejecting a damage claim in the amount of EUR 1.1 billion by the Danish hearing-aid manufacturer GN Store against the FCO. In 2007, the authority had prohibited the acquisition of GN Store’s hearing-aid business by Phonak (2007 renamed to Sonova) based on its conclusion that the merger would lead to the creation or strengthening of a dominant position. On appeal, the decision was upheld by the Higher Regional Court of Düsseldorf but ultimately quashed by the Federal Supreme Court in April 2010 as the judges did not consider the prerequisites of the dominance test to be met. With its subsequent damage action, GN Store sought compensation for the foregone sale proceeds (less the residual value of its hearing-aid business). The Regional Court of Cologne confirmed that the unlawful prohibition amounted to a breach of duty by the FCO officials. However, the court concluded that GN Store had not demonstrated to the requisite standard that the officials had been at fault, i.e., that they had reached the wrong result negligently or even intentionally. An important aspect in this context was the fact that the Higher Regional Court of Düsseldorf had upheld the FCO’s decision — the Cologne court reasoned that the FCO officials cannot be expected to have better knowledge of the law than a specialized panel of judges.

Participation of Asklepios Group in rival Rhön-Klinikum cleared subject to conditions. On March 14, 2013, the FCO approved the acquisition by hospital operator Asklepios Group of a 10.1% share in its competitor Rhön-Klinikum subject to Asklepios’ divestiture of a hospital in a region where the parties had a particularly high combined market share. This case is noteworthy for two reasons.2 First, the FCO confirmed once again that even a low minority shareholding of barely above 10% in a competitor can confer “competitively significant influence” and therefore trigger a merger review. Second, Rhön-Klinikum has lodged an appeal against the FCO’s clearance decision as it takes issue with its main rival’s ability to influence or even block important strategic decisions.

FCO prohibits takeover of Tele Columbus by Kabel Deutschland. On February 22, 2013, the FCO prohibited the acquisition by cable network operator Kabel Deutschland (KDG) of its competitor Tele Columbus. The FCO raised serious concerns that the project would further solidify the oligopolistic market structure in this area, which had recently seen a merger between two other major players, Unitymedia and KabelBW.3 According to the FCO, the relationship between the cable network operators and the TV channels (the “feed-in market”) and the market for the provision of TV signals by so-called “network level 3 operators” to “network level 4 operators” also would have been adversely affected by the merger. Unlike in the Unitymedia/KabelBW case, remedies offered by KDG were not sufficient to alleviate the FCO’s concerns. More specifically, KDG had proposed to divest parts of Tele Columbus’ well-developed broadband network in three cities but this remedy did not address the FCO’s worries regarding several other regions where the parties also operate parallel network structures. In the meantime, KDG has agreed to its acquisition by Vodafone (it is currently unclear whether this transaction will be reviewed by the EC or, upon referral, by the FCO).

FCO clears ice cream merger. Following a second phase investigation, the FCO cleared the acquisition of Roseneis Group by DMK Eis, part of a large German dairy group. Both companies produce ice cream marketed by food retailers under their own private labels. The FCO’s investigation focused on the question of whether private label ice cream and branded ice cream form part of the same product market. The FCO’s market investigation yielded strong indications for the assumption of two separate markets. In particular, the suppliers specialize in the production of either branded ice cream or ice cream for private labels, and retailers apply different product and procurement strategies to the two types of ice cream. However, ultimately the FCO did not have to reach a definite view on product market definition even though there are only four major suppliers of private label ice cream in Germany, including the merging parties. The FCO’s initial concerns were alleviated by its findings that the retailer chains invite new tenders for the production of private label ice cream every year and that they can change suppliers on a shortterm basis as they largely specify the recipes themselves.

FCO fined individual for incomplete merger notification. On January 15, 2013, the FCO imposed a fine of EUR 90,000 on Mr. Clemens Tönnies, the controlling shareholder of the slaughterhouse operator Tönnies Holding, for an incomplete merger notification. In 2011, Tönnies Holding had notified the FCO of its plans to acquire a majority stake in the slaughtering company Tummel. Under the ARC, the notifying parties are required to provide detailed information about the activities of all their affiliates, including the companies or individuals controlling them. However, in its notification, Tönnies Holding had included information only about the structure of the companies that would make the acquisition and not about the participation of Mr. Tönnies in certain other companies active in the meat and sausage industry. The FCO considered these participations as highly relevant for  the assessment of the Tönnies/Tummel merger (which was prohibited in November 2011).4

Higher Regional Court in Düsseldorf provides guidance on turnover calculation. On May 15, 2013, the Higher Regional Court of Düsseldorf upheld a decision by the FCO prohibiting the intended merger between two manufacturers of viscose fibers.5 The parties had argued that the German market for these fibers had a size of less than EUR 15 million and thus was covered by the so-called de minimis exception. If correct, this would have meant that the FCO was not entitled to review, let alone prohibit the merger. At the heart of the matter was the allocation of turnover in the context of a centralized purchasing strategy — in the case at hand, one of the major customers conducted its EU-wide purchase negotiations at its headquarters in Switzerland but then arranged for direct supplies to its local manufacturing facilities in Germany and other EU countries. The court confirmed the FCO’s position that the decisive aspect for purposes of turnover allocation is the place of delivery, rather than the location of the customer or the place of the contract negotiations, as only this approach renders it possible to determine the competitive impact of a transaction on the German market. On this basis, the court concluded, the FCO was correct in denying the applicability of the de minimis exception.

Cartel Enforcement

The first half of 2013 has seen significant cartel enforcement activity as the FCO imposed total fines of EUR 163 million in four cartel proceedings and opened several new investigations. Moreover, there have been a number of significant court rulings in the cartel area.

Federal Supreme Court induces FCO to publish new fining guidelines. On February 26, 2013, the Federal Supreme Court took the opportunity presented to it by appeals in the grey cement cartel case for an eagerly awaited clarification regarding a key fining provision in the ARC. Pursuant to this provision, a fine imposed on a cartelist must not exceed 10% of the group-wide turnover in the preceding business year. In line with the approach under EU competition law, the FCO used to interpret this 10% threshold as a “cap” in the sense that the authority first calculated the fine based on its general guidelines and, if the fine exceeded the 10% threshold, then capped it at that amount. Since the fine calculation used a certain percentage of the turnover achieved with the cartelized product as a starting point, the calculation of fines for small- and medium-sized companies — which generate a large portion of their turnover (or even their entire turnover) with the product involved in the illicit cartel arrangements — often led to a fine that came close or exceeded the 10% threshold. As a result of their small product portfolio, such companies could be hit with a fine of — or close to — 10% of their annual group turnover even if their infringement was not particularly serious.

By contrast, the Federal Supreme Court has now ruled that the 10% threshold is to be read as the absolute upper limit of the fine range, in conformity with the general approach under German criminal law.6 Put differently, the entire fine calculation has to take place below the 10% threshold and a fine of 10% can be imposed only for the worst kind of infringement. It is generally expected that the interpretation put forward by the Federal Supreme Court may result in lower fines for small- and medium-sized companies because they no longer risk being fined 10% of their annual group turnover for purely structural reasons but only for particularly serious infringements.

Large multinational companies, on the other hand, now run the risk of significantly higher fines than before. In the past, fines for large companies with a diversified product portfolio rarely came close to the 10% threshold. As a consequence of the judgment, this may be different: For very serious infringements large companies theoretically face a maximum fine of 10% of their group turnover. This threat already had its first effect. According to the FCO’s case report, Procter & Gamble and Gillette withdrew their appeals against a fine imposed by the FCO for anti-competitive information exchange relating to certain drugstore products in direct reaction to the Federal Supreme Court’s ruling as the companies suddenly would have faced a maximum fine of EUR 6.5 billion (based on a group-wide turnover of EUR 65 billion), a multiple of the total fine of EUR 39 million imposed by the FCO on all cartel participants.

On June 25, 2013, the FCO issued revised guidelines on the setting of fines, which take account of the directions given by the Federal Supreme Court but try to limit the potential impact of this ruling on large companies. The FCO intends to start from 10% of the domestic turnover achieved by a cartelist with the products or services involved in the cartel throughout the duration of the infringement. This amount will then be multiplied by a factor of “x” depending on the size of the company (ranging from a factor of 2-3 for a company with a group-wide turnover of less than EUR 100 million to a factor of more than 6 in case of a group-wide turnover in excess of EUR 100 billion). If, as will normally be the case for large multi-product firms, the resulting amount is below 10% of the group-wide turnover in the business year preceding the FCO’s decision, this amount will constitute the upper fine limit (instead of the statutory 10% threshold foreseen in the ARC). In other words, the FCO will voluntarily impose a limit on its wide fining discretion under the ARC. Within the newly defined fine range, the FCO will then determine the specific fine, taking into account the gravity and duration of the cartel and potential adjustment factors.

Federal Constitutional Court confirms obligation to pay interest on cartel fines. In January 2013, the Federal Constitutional Court published a decision adopted on December 19, 2012. In this ruling, the court confirmed the legality of an ARC provision, according to which fines for competition law infringements imposed by the FCO are subject to interest payments in case of an appeal that is later withdrawn. In the court’s view, the provision in question does not unduly restrict the right to appeal a fining decision of the FCO but is meant only to prevent frivolous claims brought with the sole objective to postpone the payment of the fine. The ruling must be seen against the background that an appeal against a fining decision of the FCO has suspensive effect — in fact, the FCO’s decision then becomes a mere charge sheet, which forms the basis of the court’s own fullblown investigation. In the case at hand, the decision meant that the company involved had to pay interest totaling EUR 1.8 million (in addition to a fine of EUR 6 million).

Higher Regional Court of Düsseldorf specifies criteria for illegal information exchange. In a judgment of October 29, 2012, which was published only in early 2013, the Higher Regional Court of Düsseldorf further broadened the scope of the concept of illicit information exchange between competitors under the ARC, stressing the fundamental need to protect the “secrecy of competition.” The court confirmed the FCO’s finding of a competition law infringement even though the information subject to the exchange had already been provided to the customers and, thus, had been known in the marketplace. The court held that even the exchange of such information was able to reduce the strategic uncertainty in the market, thereby distorting competition on the merits.

Higher Regional Court of Düsseldorf increases fines for liquefied natural gas (LNG) cartel. In a judgment of April 15, 2013, the Higher Regional Court of Düsseldorf significantly increased the fines imposed by the FCO on five members of an LNG cartel. The court reached different conclusions than the FCO regarding the participants’ profits derived from the cartel (at the time of the FCO’s investigation still a central component of the fine calculation), the duration of the cartel and its severity. The five companies now have to pay a total fine of EUR 244 million, compared to EUR 180 million imposed by the FCO. On an individual basis, the fines imposed by the court are even up to 85% higher than those originally charged by the authority. This case highlights once more the fact that an appeal against a fining decision of the FCO triggers a judicial investigation of the relevant facts and legal issues wholly independent from the FCO’s analysis, which can lead to very different conclusions — with significant upside and downside potential for the companies involved. By contrast, while the European courts in theory also have the power to increase a cartel fine imposed by the European Commission (EC), they have used this power in only one case so far.

FCO concludes various cartel proceedings against consumer goods manufacturers. On March 27, 2013, the FCO concluded a series of proceedings against consumer goods manufacturers, which spanned a wide product range including confectionary, hot beverages, pet food and frozen pizzas. The FCO’s investigation focused on illegal information exchange. After the FCO had already imposed fines totaling approx. EUR 38 million on Kraft Foods, Unilever and Dr. Oetker in 2011 based on a settlement,7 the authority’s investigation against Nestlé continued for almost two more years and resulted in a fine of approx. EUR 20 million. The FCO concluded that the companies involved had informed each other about the state of their negotiations with several retailers and, in some cases, also had exchanged information about envisioned price increases. The proceedings had been triggered by an immunity application of Mars.

Mars was also the whistleblower in another case concerning only confectionary goods,8 which the FCO concluded in early 2013 by imposing fines totaling EUR 60 million on 11 companies and several sales representatives. Pursuant to the FCO’s findings, the cartel participants had engaged in price fixing for certain product categories and detailed information exchange about envisioned price increases and the negotiations with major retailers. As the group of participants, as well as the mode and intensity of collusion, varied between the different infringements, the FCO imposed three individual sets of fines to take account of these differences.

On March 18, 2013, the FCO also concluded its cartel proceedings against several manufacturers of drugstore products. Based on an immunity application by Colgate Palmolive, the FCO had already imposed fines totaling EUR 24 million in 2008 and 2011 on nine companies, which had agreed to a settlement. The authority now imposed additional fines of EUR 39 million against six companies, a trademark association and several individuals. The FCO’s investigation revealed that the companies, leading manufacturers of branded goods, had exchanged sensitive information about upcoming price increases and the status of negotiations with retailers, and that the trademark association had acted as facilitator for some of these unlawful discussions.

These three decisions confirm several trends, which had become apparent in the recent past. First, as is also true for several other national competition authorities in the EU, the FCO has identified the consumer goods area as a priority for its cartel enforcement activities. Second, the FCO considers the exchange of competitively sensitive information between competitors as a serious infringement and is determined to impose high fines for such behavior. And third, the FCO does not shy away from “hybrid” cases, in which some cartel participants are willing to settle while others vow to fight the FCO’s allegations. In this last respect, the FCO’s approach differs somewhat from that of the EC, which so far has concluded only one hybrid case since the introduction of the settlement procedure at the EU level in 2008.

FCO concludes proceedings against four flour mills and imposes fines totaling EUR 65 million. On February 19, 2013, the FCO imposed fines totaling EUR 41 million on 22 companies in the milling industry, the association of German mills and several individuals. In October 2011, the FCO had already imposed a fine of EUR 24 million on another cartel participant. According to the FCO’s findings, the companies had agreed on prices, customer allocation and supply volumes for all major customer groups in regular discussions rounds since 2001. Apart from the long duration, this case is noteworthy because the FCO applied two mitigating factors to nearly all companies involved. First, the majority of the cartel participants achieve most or even all of their turnover with one product, flour. As a consequence, these companies would have faced a “capped” fine of 10% of their group-wide turnover (the FCO adopted its decision prior to the ruling of the Federal Supreme Court discussed above, pursuant to which the statutory 10% threshold is to be interpreted as the upper fine limit rather than a cap) so that the duration and gravity of the individual companies’ infringements could not have been properly accounted for. Therefore the FCO exceptionally lowered the general fine level in order to be able to make the necessary differentiations. (As the FCO pointed out, the EC had taken the same approach in its widely discussed Window Mountings decision in mid-2012.) Second, the FCO lowered the fine for some participants due to the fact that they had already been fined by the French and Dutch competition authorities.

ARD/ZDF platform “Germany’s Gold” raises competition concern. On March 11, 2013, the FCO expressed preliminary concerns that the plans by ARD and ZDF, Germany’s two public broadcasting groups, to set up a joint video-on-demand platform dubbed “Germany’s Gold” could facilitate illicit coordination on prices and the availability of video content. In the authority’s view, the financing of media libraries and of the production of content through user fees already tends to impair competition in the video-on-demand market so that any further restrictions of the participants’ commercial freedom cannot be accepted.

According to a press release issued by the FCO, the broadcasting companies have expressed their willingness to offer commitments, and it is rumored that they may try to alleviate the authority’s concerns by abandoning their joint marketing plans, thereby limiting the project to the operation of a purely technical platform. The FCO’s investigation is followed with great interest in the industry also, because the FCO had prohibited a similar project between the private broadcasters ProSieben/Sat.1 and RTL in March 2011 based on concerns about a further strengthening of the existing duopoly between the parties in the TV advertisement market.9

FCO launches several new high-profile cartel investigations. The FCO’s cartel enforcement activities continue with undiminished pace and in a wide range of industries.

  • „„ On February 28, 2013, the FCO carried out inspections at three steel companies on suspicions of illicit arrangements concerning the sale of steel strip and semi-finished products.
  • „„ On March 6, 2013, the authority conducted simultaneous dawn raids at 14 premises of sanitary ware wholesalers, which are suspected to have engaged in price collusion to the detriment of plumbers and installers.
  • „„ On May 7, 2013, the FCO searched nine companies active in the production and distribution of potatoes. Pursuant to press reports, the authority’s initial suspicions relate to unlawful price coordination among the large potato packers not only vis-à-vis the retail chains and the final consumers but also in relation to the seeds sold by the packers at the upstream level to the farmers. The reports furthermore indicate that the investigation was triggered by a tip-off in the framework of an anonymous whistleblower system put in place by the FCO in June 2012.
  • „„ Finally, the FCO announced on May 5, 2013, that it has started an investigation into the electronic cash card payment system in Germany. The authority is concerned about the fact that the bank associations set a standard fee to be paid by all merchants. Instead, the FCO favors a system with different fees determined through individual negotiations between individual merchants and banks. Moreover, the FCO takes issue with the retailers’ current inability to reject business relations with individual banks. This investigation complements several ongoing proceedings at the EU level and in other EU Member States regarding the credit card and banking sector.

Private Enforcement

Voestalpine pays damages of approx. EUR 50 million to Deutsche Bahn. Voestalpine, one of the participants in the train-tracks cartel uncovered by the FCO in 2011, had agreed to pay damages of approx. EUR 50 million to Deutsche Bahn based on an out-of-court settlement. According to newspaper reports, Deutsche Bahn has brought an action against the other cartel participants before the Regional Court in Frankfurt claiming EUR 550 million in damages and additional EUR 300 million in interest.

Innovative procedure to be used to settle private damage claims against members of the fire-fighting vehicles cartel. In May of this year, members of the fire-fighting vehicles cartel and the leading municipal associations have agreed on an unprecedented procedure to settle the cities’ damage claims. Three of the four cartel participants will pay an amount of EUR 6.7 million into a fund (the fourth cartel member has filed for bankruptcy). If a sufficient number of cities and towns “opt in,” the money in the fund will be paid out to them pursuant to a distribution key agreed upon in advance. (In 2011 and 2012, the FCO had imposed fines of approx. EUR 50.5 million on four manufacturers of fire-fighting vehicles and a Swiss accountant for participating in illegal price-fixing, quota and market allocation arrangements.10)