On 9 March 2017, the German Parliament adopted the so-called ‘Ninth Amendment of the Act against Restraints of Competition’ (ARC – Gesetz gegen Wettbewerbsbeschränkungen). The reform entered into force on 9 June 2017. It introduces a number of changes in different areas of competition law. The majority of new provisions implement Directive 2014/104/EU through certain rules concerning private enforcement of cartel damages claims under national law. Other aspects of the Act amend German competition law to address the challenges of digitisation, in particular, by introducing new provisions on market dominance and a ‘size of transaction test’ in merger control.
In addition, the reform provides further detail on the authorisation procedure of a prohibited merger by the Federal Minister for Economic Affairs and Energy. Finally, the amendment contains new provisions regarding the liability of parent companies and successor companies with regard to fines to further harmonise German and EU competition law.
An English translation of the new law will be available at www.bundeskartellamt.de in due course.
2. Main Content of the Amendment
2.1. Adaption to the Challenges of Digitisation
In order to attune German competition law to the increasing digitisation of markets and the distinct characteristics of digital markets, a new merger control threshold has been introduced and the criteria for the finding of market dominance have been specified.
The new threshold introduces a notification obligation to the Federal Cartel Office (Bundeskartellamt) according to the value of consideration (Wert der Gegenleistung). It applies if all of the following requirements are met:
(1) The value of consideration, eg the purchase price, exceeds
(2) the combined aggregate worldwide turnover of all undertakings concerned exceeds 500m Euro;
(3) at least one of the undertakings concerned has a domestic turnover in Germany of more than 25m Euro; and
(4) the target of the acquisition has significant domestic activities (Section 35 (1a) ARC new version).
The purpose of the new threshold is to ensure that German merger control rules oversee acquisitions of (mostly) young companies with innovative business models which are expected to have significant competitive potential in the future but at the time of the transaction have little or no turnover. An example is the takeover of WhatsApp by Facebook in 2004, which was not caught by the German merger control regime. The new threshold test is also clearly inspired by the size of transaction test in the US.
In addition, the reform clarifies that in analysing whether a company may hold a dominant position, the provision of free services does not preclude the finding of a market (Section 18 (2a) ARC new version). This amendment follows the recent practice of the European Commission, as well as the Federal Cartel Office in Germany. Further changes are aimed at markets involving multi-sided internet platforms. In that context, the amendment contains a provision that direct and indirect network effects are, among other additional elements, to be taken into account when determining if a company is dominant (Section 18 (3a) ARC new version).
2.2. New Provisions on Ministerial Authorisation
Under German law, even if the Federal Cartel Office prohibits a transaction, the Federal Minister for Economic Affairs and Energy is vested with the power to override that prohibition and to authorise a merger in two specific circumstances: (i) if the negative effects of the merger on competition are outweighed by benefits to the economy as a whole, or (ii) if the merger is justified by an overriding public interest.
The amended ARC introduces new provisions on certain procedural aspects of a minister’s authorisation, in particular speeding up the procedure and allowing the Ministry of Economic Affairs and Energy to issue guidelines about details of the procedure. The minister should authorise a merger within four months of receiving the application; if a decision is not reached after six months, the application will be deemed rejected (Section 42 (4) ARC new version).
In addition, the reform limits the ability of third parties to appeal against a ministerial decision: Previously, showing an economic impact would suffice; now only individuals or companies that can show an infringement of their own rights will have sufficient legal standing to appeal a decision (Section 63 (2) ARC new version). Since the requirements for such an own right are quite high, it is doubtful whether the option of an appeal against the ministerial decision will retain any practical relevance in the future.
These changes to the law follow the recent case of Edeka/Tengelmann where a merger was authorised by the minister, but then – following appeals lodged by third parties – blocked by the Higher Regional Court of Düsseldorf.
2.3. Introduction of new Sanctions against Companies
To strengthen the enforceability of fines, the amendment introduces new rules on corporate liability.
First, the reform establishes liability for fines for any company that had ‘decisive influence’ over a company found guilty of a cartel infringement (Section 81 (3a) ARC new version). This is likely to capture parent companies in most cases.
The amendment aligns the German liability regime to that of EU competition law. Under EU competition law, the concept of a ‘single economic entity’ already allows the Commission to impose a fine also against the parent company.
Second, the liability of successor companies has been extended. This means that the legal successor (Rechtsnachfolger) of an addressee of a fine can in all cases also be held liable for the addressee’s conduct. In addition, the economic successor (wirtschaftlicher Nachfolger) of the infringing entity shall be liable for the conduct (Section 81 (3b), (3c) ARC new version).
The provision on economic successors specifically aims to address restructuring cases in which the infringing business is transferred by way of an asset deal and the acquirer continues the business following the transaction. Thus, a loophole that was commonly referred to as the ‘sausage gap’ is now closed. This loophole became part of the political agenda after a sausage producer successfully escaped a fine liability through an internal corporate restructuring.
2.4. Extension of Sector Inquiries
The amendment also introduces new powers for the Federal Cartel Office to monitor consumer protection infringements. The Federal Cartel Office may carry out sector inquiries when it has the suspicion of ‘significant, long-lasting or repeated’ infringements against consumer protection provisions such as using invalid terms and conditions (Section 32e (5) ARC new version). However, sector inquiries only serve as instruments for collecting information. The Federal Cartel Office is therefore not allowed to take any direct action, such as adopting orders, against companies. Such powers were discussed during the drafting period of the amendment but were not pursued in the final legislative provisions.
2.5. Sector-specific Regulations
The amendment contains certain specific exemptions for two sectors: press and banks.
The reform is intended to facilitate economic co-operation between press publishers. In this regard, a new exception to the prohibition of cartels has been adopted (Section 30 (2b) ARC new version).
Given the continuous decline of print media and lower revenues from advertisements in the print sector, the new exemption aims to secure the competitiveness of the press in comparison to other forms of media in Germany. The exception shall apply to, for example, co-operation on advertisements, sale and production and distribution of newspapers and magazines. Agreements on content are not covered under the exemption.
To ensure legal certainty, media companies may apply for prior approval with the competent competition authority for their envisaged co-operation (Section 30 (2b) sentence 3 ARC new version).
The exemption for banks relates to merger control law. If the following requirements are met, a concentration between companies within one banking group (kreditwirtschaftliche Verbundgruppe) does not fall under merger control rules:
(1) the undertakings concerned mainly provide services to the companies within their own banking group; and
(2) the undertakings do not have their own separate contractual relations with final customers.
The legislator considers this exemption necessary in light of historically low interest rates and the adverse profit situation in the traditional credit business.
2.6. Implementation of the EU Directive on Cartel Damages
Finally, a large part of the new provisions of the ARC implements the Directive 2014/104/EU into German national law. Particularly noteworthy is that some aspects of the new law extend beyond the specific provisions of the Directive on Cartel Damages, as outlined below:
Presumption of damage
It is now presumed that a cartel infringement leads to damages. However, the cartel defendant has the right to rebut this presumption (Section 33a (2) sentence 1 ARC new version).
It is now expressly stipulated that the defendant (cartel member) may invoke the passing-on defence against (direct) customers (Section 33c (1) sentence 2 ARC new version). For the benefit of any claimant that is an indirect purchaser, there is a rebuttable presumption that the damage was passed on. This presumption shall not apply in favour of any member of the cartel.
Access to evidence (‘discovery’)
For (potential) claimants as well as for defendants, the new law provides tools to require the other party to disclose some of its internal information or documents (Section 33g (1-10) ARC new version). Third parties can also be required to disclose certain evidence. The claim is, however, limited by the principle of proportionality (Section 33g (3) ARC new version). Also, leniency applications and settlement documents are not captured by the disclosure provisions (Section 33g (4) ARC new version). The disclosure claim goes beyond the requirements of the EU Directive insofar as it can be invoked by the claimant that potentially suffered a damage before an action for compensation is lodged, for example to prepare for settlement negotiations. The reform also provides that the disclosing party can demand compensation for the expenses incurred due to the disclosure (Section 33g (7) ARC new version). The intention of this addition to the Directive is to limit excessive disclosure requests. The reform is silent on whether a party demanding further disclosure can make a claim for the costs of disclosure if it later wins the main lawsuit.
Joint and several liability
As is already applicable law, all members of a cartel are jointly and severally liable for the total amount of cartel damages (Section 33d (1) ARC new version). Amongst each other, individual defendants are solely liable for their own damages (whether directly or indirectly caused) (Section 33d (2) ARC new version). Restricted liability of leniency applicants
Whereas leniency applicants thus far only benefitted in relation to the imposition of fines, applicants will now also benefit from restricted civil damages liability. In this regard, they only have to compensate for damages incurred by their direct or indirect purchasers. In relation to other damaged parties, leniency applicants are liable only if these parties cannot obtain full compensation from the other cartel members (Section 33e ARC new version).
The amendment also intends to make settlements more attractive. The settlement of one cartel member with a damaged party will now prevent not only the damaged party from bringing further claims concerning the damage caused, but will also prevent the other cartel members from recourse in terms of their contribution claims regarding damages covered by the settlement (Section 33f (1) sentence 1, (2) ARC new version). Consequently, the liability of the other cartel members is reduced by the damage caused by a settling cartel member (Section 33f (1) sentence 2 ARC new version).
Longer limitation period
The regular limitation period for cartel damages claims is extended from three to five years after the end of the year in which the claim arose and the claimant gained (or could reasonably have gained) knowledge about the infringement (Section 33h (1) ARC new version).
No group liability for cartel damages
The new law does not contain provisions as to whether the group (especially the parent company) is liable from a civil law point of view for the cartel infringement committed by one of its subsidiaries. In contrast to the provisions regarding the liability for cartel fines, there is no corresponding statement, neither in the written provisions nor in the official reasoning of the act.
Reduction of the cost risk of the claimant
In Germany, the losing party generally bears all court costs, including those incurred by the counterparty (‘the winner takes it all’). This approach leads to a relatively high financial risk exposure, given the fact that often participating cartel members join the defendant (third-party intervention in support). Thus, the imminent costs of bringing a claim are often unforeseeable for the claimant. To reduce this risk, the reform introduces a limitation: a claimant is now – broadly speaking – only liable for the cost of one additional intervening third party (Section 89a (3) ARC new version).