Competition Law, Digitization and the German Response – Stricter Supervision of Big Tech and Less Merger Review

The tenth amendment of the Act against Restraints of Competition (ARC) enters into force today 15 months after the first draft bill was published.

The most important changes concern the implementation of new tools to dealing with digital markets and potential market power (surname “Digitization Act"). Furthermore, significant changes to merger control thresholds will potentially affect ongoing M&A transactions.

In addition, the amendment implements Directive (EU) 2019/1 to empower Member States' competition authorities to be more effective in the enforcement of competition rules ("ECN+ Directive").

Fit for the digital age

One of the key aims of the amendment is to strengthen German competition law in order to address the challenges and problems of digitization and the digital platform economy. The new rules can be seen as a bold attempt to limit the market power of large digital companies.

The prerequisite for the Federal Cartel Office’s ("FCO" – Bundeskartellamt) new powers under Section 19a ARC is a finding of "paramount significance for competition across markets" by a company. When making this determination, the FCO takes into account whether, due to network effects, access to data, resources as well as strategic positioning, influence can also be exerted on companies’ business activities in other markets. In addition, the usual criteria of market dominance will be taken into account.

Where the German watchdog finds such a "paramount significance for competition across markets" it has a new set of tools at its disposal that subject such companies to considerably stricter market supervision. For instance, it can prohibit companies from bundling their products and services by means of pre-installation or data usage agreements, or giving preference to their own offerings on their websites.

It remains to be seen in how far the FCO will effectively apply these new rules in practice. The interaction with the Digital Markets Act (DMA) proposed by the European Commission, which has a similar objective and will potentially supersede the German legislation, will also be interesting to follow. However, the DMA is not expected to come into force before the end of next year.

Merger control: Less M&A projects subject to competition review

Significant changes were also made in the area of merger control.

In particular, the domestic turnover thresholds have been raised significantly at the last minute:

As a result, many transactions that were notifiable under the old thresholds due to the rather low turnover thresholds in Germany, will no longer require clearance by the FCO in the future. In particular, this should put an end to the numerous filings of smaller real estate transactions – an entirely welcome development.

The notification requirement may also affect pending M&A transactions. If these should no longer be notifiable under the new thresholds, it may be advisable to withdraw the notification in order to reduce the administrative fee of the FCO.

Further changes regarding merger control

• De minimis markets clause: It will be increased from EUR15 million to EUR20 million, reducing the veto power of the FCO concerning rather small markets.
• Extension of Phase 2 review period: Instead of four months as under the old regime, the review period for the FCO will be five months under the new law.
• Successive acquisition strategies: This will allow the FCO to impose a general notification requirement on certain companies for all future acquisitions that take place in a certain sector, provided that the target company generated sales of at least EUR2 million and at least two-thirds of these sales were generated in Germany.

Fines: Consideration of compliance systems

The new law expressly states that appropriate and effective precautions taken prior to the infringement to prevent and detect infringements (i.e. compliance systems) have to be considered when setting fines for cartel infringements.

In the past the FCO, like the European Commission, did not consider compliance systems as a mitigating factor when setting fines. It usually argued that the compliance system had failed if there was an infringement. In light of the new provision, such a blanket rejection will not be so easy. On the contrary, it is to be expected that compliance systems should result in a reduction of fines if companies can prove that these were generally effective.