On July 6, 2023, the German Parliament passed the 11th amendment to the German Act Against Restrictions of Competition ("ARC"), substantially expanding the Federal Cartel Office's ("FCO") enforcement powers.
The reform targets three main areas:
- Gives the FCO the power to impose behavioral or structural remedies following sector inquiries
- Further facilitates the disgorgement of benefits generated by anticompetitive practices
- Enables the public and private enforcement of the EU Digital Markets Act ("DMA")
Sector inquiries with teeth?
Prior to the reform, German competition law sector inquiries could only be concluded with a public final report, possibly followed by enforcement actions in individual cases, similar to sector inquiries by the European Commission under Regulation 1/2003.
One small but possibly significant change is already noteworthy: If a sector inquiry reveals that future mergers in a sector may lead to a significant impediment of effective competition, the FCO can now require a company active in that sector to notify future transactions over the three years following the end of the sector inquiry, provided that the acquirer in the transaction at issue has domestic revenues of at least EUR 50 million and the target has domestic revenues of at least EUR 1 million.
However, the reform's core aims at enabling the FCO to impose behavioral or structural remedies following the final report in a sector inquiry. Such remedies require additional procedural steps:
- Following the publication of the sector inquiry's final report, the FCO must issue a formal decision finding a "significant and ongoing market disturbance," which is an entirely new concept in German competition law. This decision has to be addressed to any undertaking against which the FCO intends to impose a structural or behavioral remedy.
- The FCO can only impose remedies in a second formal decision after conducting a mandatory public oral hearing. In the case of structural remedies, the FCO has to involve the Monopolies Commission and the regional competition authority concerned. In markets that are subject to sector-specific regulation by the Federal Network Agency (e.g., telecommunications or energy), the FCO must further obtain the regulatory authority's consent prior to imposing any remedies.
- Affected companies can challenge both the declaratory decision finding a significant market disturbance as well as the final remedy decision. Only the judicial challenge against the final remedy decision has a suspensive effect. However, the FCO's president, Andreas Mundt, has already indicated publicly that the FCO intends to await the final judicial confirmation of a challenged market disturbance decision before the FCO proceeds to the remedies stage, due to the legal uncertainties involved with this new regime.
This approach is prudent and commendable—but it also conflicts to some extent with the (non-binding) time limits set in the law: The FCO shall publish its sector inquiry within 18 months of launching its inquiry and then impose remedies within a further 18 month3s after the publication of the report.
Regarding what constitutes a "significant and ongoing market disturbance," the law provides a broad and non-exhaustive list of classical features of problematic market structures (e.g., strong barriers to entry, unilateral demand or supply power, parallel or coordinated conduct) that indicate a "disturbance" of competition. Further, such disturbance needs to be "significant" and "perpetual" and the FCO must find that traditional competition law enforcement measures would not be sufficient to resolve this disturbance (the subsidiarity test). Overall, the law gives the FCO broad leeway to decide issues on a case-by-case basis and the ultimate shape of the provision will only be revealed after the first judicial review decisions.
The FCO can only impose remedies where the disturbance of competition has been ongoing for at least three years and is expected to last for at least another two years. Remedy decisions can only address companies active in the investigated sector that significantly contributed to the market disturbance. Given the broad legal test, it remains to be seen whether case law will quickly provide legal certainty for potentially affected companies.
In terms of possible remedies, the FCO has ample options, and only the divestiture of shares or assets as an ultima ratio is subject to strict and explicit requirements: For one, the undertaking concerned must either hold a dominant market position or be designated as having a position of paramount significance for competition across markets pursuant to section 19a ARC. The divestiture must further be expected to eliminate or significantly reduce the market disturbance and there must be no behavioral measures possible or equally as effective as a divestiture order.
Facilitation of disgorgement of benefits
Disgorging benefits of competition law infringements is not new to the ARC, but the FCO had so far refrained from applying these provisions due to practical difficulties in estimating the size of an economic advantage gained by a competition law infringement. To address these (mainly evidentiary) issues, the reform introduces two legal presumptions: Not only does the law now presume that a violation of competition law results in an economic benefit for the infringing company—but it further presumes that this benefit for the infringing company amounts to at least one percent of the revenues generated with the affected products or services. The affected company bears the burden of proof if it wants to rebut these legal presumptions. The only way to refute the presumption is to prove a lack of involvement in the violation or a lack of profits during the relevant time period.
The third part of the reform enables the FCO to investigate violations of the DMA (Digital Markets Act, Regulation (EU) 2022/1925) utilizing its ordinary investigative powers and obliges it to report its finding to the European Commission as the ultimate and only enforcement authority for DMA matters.
Beyond that, the reform opens up DMA violations to private enforcement by declaring several provisions on private enforcement in cartel matters applicable to DMA matters. These (fairly technical) adjustments include, for example, the inclusion of DMA infringement decisions as binding for national courts and the suspension of limitation periods for private damage claims during the DMA infringement proceedings.
Next steps and practical impact
Several aspects of the 11th amendment faced criticism during the legislative process, which is not particularly surprising as—at least in some respects—it indeed is the "paradigm shift" many commentators called it. The novel sector inquiry provisions in particular appear not to fit easily into the ARC by introducing an entirely new mechanism—more similar to ex-ante regulation than classical competition law enforcement—where the FCO might impose potentially very severe measures on companies that did not as such infringe competition law. An industry association voiced concerns that the amendment may pose a threat to successful businesses behaving lawfully, which indicates a general mistrust towards economic success.
The practical relevance of divestiture measures following sector inquiries will remain to be seen, as particularly high procedural standards need to be met. Tricky and lengthy court challenges seem guaranteed. Overall, the new ex-ante powers are designed as a last resort for isolated cases that the FCO cannot resolve with its ordinary competition law toolbox.
In any case, the amendment introduces new uncertainties, requiring practitioners and possible addressees to wait on how the FCO (and at some point the judicial system) will interpret and handle them; e.g., terms such as "significant and ongoing market disturbances," "significantly contributing" or the provisions on refuting the one percent disgorgement presumption. Although the reform includes some new definitions, it also utilizes blanket clauses, leaving the respective provisions open to being shaped by case law.
The law will enter into force once formally published in the official journal, which is expected to take place in September at the latest.
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