German Competition Act: Draft Bill Would Significantly Expand Federal Cartel Office’s Enforcement Powers

The German government on 5 April 2023 adopted a draft bill on the 11th Amendment to the German Competition Act, which introduces, under certain circumstances, new far-reaching interventional powers for the German Federal Cartel Office.

The revision in this respect is specifically aimed at enabling the German Federal Cartel Office (FCO) to end a substantial and continuing distortion of competition in cases where the FCO cannot prove antitrust infringements—for example, in oligopolistic markets with a small number of suppliers that are prone to tacit collusion.

Following the September 2022 publication by the German Federal Ministry for Economic Affairs and Climate Action of a draft bill on the 11th Amendment to the Competition Act, the German government in April 2023 adopted a revised draft (Draft Bill).

The Draft Bill proposes major changes including (i) the introduction of new interventional powers of the FCO following the conclusion of a sector inquiry, (ii) the reduction of evidence requirements for the disgorgement of cartel benefits by the FCO, and (iii) provisions relating to public and private enforcement of the EU Digital Markets Act.

New FCO Interventional Powers After Sector Inquiry

The Draft Bill is mainly directed at enhancing the FCO’s capability to address competition concerns identified in sector inquiries. Until now, such competition concerns could only be remedied if the FCO found evidence of antitrust infringements, i.e., non-notified reportable concentrations, a cartel, a concrete practice, or the abuse of a dominant position.

Under the Draft Bill, the FCO could remedy competition concerns even if it did not find in a sector inquiry any evidence of antitrust infringements, provided that the FCO, following the conclusion of a sector inquiry, determines by order that there is a “substantial and continuing distortion of competition,” for example, on highly concentrated or oligopolistic markets.

Such distortion of competition may have been caused by factors including acquisitions remaining below the merger control thresholds, market exits, internal growth, common ownership, or significant barriers to market entry.

The proposed amendments relating to sector inquiries and subsequent remedies of an identified distortion of competition include the following:

• Acceleration of proceedings. The Draft Bill proposes that sector inquiries be concluded within 18 months following initiation to allow the FCO to base potential behavioral or structural remedies following the conclusion of a sector inquiry on sufficiently current data.
• Stricter requirements to report below-threshold transactions. The Draft Bill proposes lowering the requirements for the FCO to compel companies that are subject to a sector inquiry to report for three years transactions that do not meet the statutory merger control thresholds. The currently existing requirement relating to a Germany-wide strong market position of the addressee of a respective order by the FCO shall be abandoned. Also, the relevant turnover thresholds shall be lowered to EUR 50 million in Germany for the addressee and EUR 500,000 for the target (in the last financial year).
• Determination by FCO order of substantial and continuing distortion of competition. The Draft Bill proposes authorizing the FCO to determine, by order following the conclusion of a sector inquiry, that there is a “significant and continuing distortion of competition” in the respective sector. Such an order may be addressed to companies that “have substantially contributed to the distortion of competition by their behavior.” On the basis of such an order, the FCO may impose behavioral or structural remedies on addressees of such order even if there is no evidence of any specific antitrust infringement. Alternatively, companies shall be able to offer commitments to remedy a distortion of competition which may be declared binding by the FCO.
• Behavioral and structural remedies (other than divestiture orders). The Draft Bill contains a non-exhaustive list of behavioral and structural remedies (other than divestiture orders, see below) which may be imposed on any addressee of an FCO order determining a significant and continuing distortion of competition following the conclusion of a sector inquiry. These include, for example, (i) access to data, interfaces, networks, or essential facilities, (ii) specific regulation on contractual arrangements and information disclosure, (iii) transparency or non-discrimination obligations, and (iv) organizational separation of divisions or business units.
• Divestiture orders. The Draft Bill proposes as ultima ratio the authorization for the FCO to issue a divestiture order if a significant and continuing distortion of competition in the relevant sector has been confirmed following the conclusion of a sector inquiry. However, unlike the other abovementioned remedies, a divestment order may only be imposed on market-dominant undertakings or undertakings of paramount significance across markets under Section 19a(1) of the Competition Act. Further, a company shall only be obliged to sell assets if the proceeds from such divestiture amount to at least 50% of the value of the divestiture assets determined by an FCO-commissioned auditor. If the actual proceeds from the divestiture are lower than the value of the divestiture assets determined by the auditor, the company concerned shall receive partial compensation of the difference from federal funds.
• Enforcement priorities. To what extent the FCO would make use of an authorization to order divestiture orders remains to be seen. In practice, a focus of enforcement priorities in connection with the proposed new interventional powers could, according to the official explanations to the Draft Bill, be expected to be remedies to address restrictions of market access, market exit, or capacities of undertakings or of switching to another supplier or customer. Such types of distortion of competition are perceived by the explanations to the Draft Bill to be relatively frequent and be, at the same time, usually remediable by intervention measures of low or medium intensity.

Facilitated Disgorgement of Economic Benefits

The Draft Bill proposes lowering the evidence requirements for the FCO to disgorge benefits obtained by companies through anticompetitive cartel behavior. In order to avoid exceedingly complicated economic calculations, the Draft Bill proposes introducing a legal presumption that anticompetitive behavior through cartel infringement always leads to unjustified benefits for the companies concerned.

Further, it shall be legally presumed that the economic benefit amounts to at least 1% of the turnover generated domestically with the products or services affected by the infringement. Rebuttal of the presumption shall only be possible if the undertaking concerned proves that its group has not achieved a corresponding amount of worldwide profit in the relevant period of the infringement.

Enforcement of Digital Markets Act

The Draft Bill shall ensure the effective public and private enforcement of the EU Digital Markets Act in Germany. The Draft Bill proposes authorizing the FCO to take investigative measures with respect to the behavior of gatekeepers pursuant to Articles 5-7 of the Digital Markets Act. The FCO shall also be able to participate in EU Commission proceedings as part of the cooperation between authorities.

With respect to private action, the Draft Bill proposes that plaintiffs alleging infringements of gatekeepers under the Digital Markets Act shall benefit from the rules for private cartel damage actions and the FCO shall be able to participate in court proceedings as amicus curiae.

Outlook

If the Draft Bill enters into force as is, the FCO would gain, in the context of a sector inquiry, unprecedented interventional powers without the need to prove any antitrust infringements of undertakings concerned. This would certainly mark a paradigm shift in German competition law.

The Draft Bill will now enter the legislative procedure and will need to pass the German parliament and the German Federal Council. If and to what extent there will be changes to the Draft Bill in the legislative procedure remains to be seen. In any event, it is expected that the 11th Amendment to the Competition Act is still on course to enter into force this year.