The 10th amendment to the German Act against Restraints of Competition (ARC) entered into force on January 19 (ARC Digitization Act); the act seeks to modernize German antitrust rules and address challenges associated with the increasing digitization of the global economy.
The ARC Digitization Act is based on a draft bill of the German federal government which was first published in early 2020. Since then, extensive discussions among stakeholders resulted in several changes, discussed below.
Overall, the ARC Digitization Act brings major changes with respect to the provisions on abuse control that aim to regulate the market power of digital platforms. It also provides for changes to the German merger control regime, including significantly relaxing the relevant turnover thresholds triggering a merger filing obligation. Further amendments concern the implementation of Directive (EU) 2019/1 (ECN+ Directive) into German law, changes to the antitrust enforcement proceedings including the introduction of a “compliance defense,” and clarifications to the damages claims provisions.
The ARC Digitization Act focuses on modernizing provisions on abuse control, particularly in relation to undertakings active in digital markets. In this respect, the ARC Digitization Act implements the concept of paramount significance for competition across markets, which provides for new, far-reaching powers of intervention of the German Federal Cartel Office (FCO).
Digital companies that, due to network effects or data access, are in a position to also influence other markets (gatekeepers) shall be subject to stricter rules than those that currently apply to companies with market power. In this regard, the ARC Digitization Act provides the FCO with the right to declare formally by order that an undertaking is of paramount significance for competition across markets, including the right to prohibit such undertaking from certain practices listed in the amended ARC. The respective prohibition order may be issued together with the aforementioned formal declaration. The list of these practices has been further amended since the German government’s first draft bill and now includes the FCO’s right to prohibit undertakings of paramount significance for competition across markets from the following:
Such conduct might be objectively justified. However, the ARC Digitization Act shifts the burden of proof for such justification on the undertaking concerned. Interestingly, and atypical under German law, the Federal Supreme Court has jurisdiction to decide on any disputes in this regard as the court of appeal in first and last instance.
The ARC Digitization Act extends the essential facilities doctrine by explicitly declaring unlawful a dominant undertaking’s unjustified refusal to grant access to data, networks, or other infrastructure facilities (including platforms or interfaces) that are necessary to compete on an upstream or downstream market.
Further, the ARC Digitization Act implements the concept of intermediation power on multi-sided markets by introducing a respective criterion for the assessment of an undertaking’s (dominant) market position.
The new law also extends the concept of relative market power. So far, the concept of relative market power provided protection only to small- and medium-sized undertakings, which are, from a competitive point of view, dependent on another undertaking. The ARC Digitization Act extends this protection to all undertakings irrespective of their size that the federal government considers as being particularly beneficial for competition in the digital economy, where allegedly also large undertakings would be dependent on, for example, digital platforms.
The ARC Digitization Act includes a number of noteworthy changes to German merger control law.
First, the ARC Digitization Act introduces significantly higher thresholds to trigger a filing obligation, i.e., (1) combined worldwide revenues of the undertakings to the concentration of more than 500 million euros (unchanged), (2) domestic revenues of at least one undertaking exceeding 50 million euros (previously 25 million euros), and (3) domestic revenues of another undertaking exceeding 17.5 million euros (previously 5 million euros). The relevant domestic revenue thresholds in the transaction value test are amended accordingly. These new thresholds will lead to a significant decrease of the number of merger control filings allowing the FCO to focus its resources on more relevant cases.
The second noteworthy change concerns the introduction of an instrument giving the FCO the right to extend the German merger control regime in certain economic sectors where it has objective indications that further concentrations may have a negative impact on competition. The FCO may (irrespective of the general thresholds laid out above) require individual undertakings with worldwide revenues of more than 500 million euros by individual order to notify any planned acquisition in the given economic sector where the target has sales of more than 2 million euros, of which at least two-thirds were generated in Germany. The FCO’s respective individual orders would be valid for three years but may be appealed by the concerned undertaking. However, and importantly, the FCO can issue such order only after having completed a formal sector inquiry on the specific economic sector. In the past, these sector inquiries have often taken several years to be completed.
Further, the ARC Digitization Act temporarily facilitates certain transactions in the hospital sector. Under certain conditions, cross-site transactions between acute care hospitals that take place until the end of 2027 are exempted from any merger control filing obligations in Germany.
Procedurally, the ARC Digitization Act extends the Phase II review period for the FCO by one month, from three to four months, resulting in an overall review period of five months from the date of notification (subject to any stop-the-clock action).
Finally, the ARC Digitization Act includes a number of new provisions, which have largely been already included in the draft bill. These include, among other things, the implementation of the ECN+ Directive into German law, additional rights of the FCO with respect to antitrust investigations and dawn raids, updated rules for administrative antitrust proceedings including provisions on access to files, the codification of leniency applications, and a specification for the calculation of antitrust fines including the provision to take into account (existing) compliance mechanisms of the undertaking concerned as a mitigating factor.
Also, undertakings now have the right to apply for formal guidance from the FCO on cooperations between competitors under certain circumstances within six months after the submission of a respective application.
Finally, the new law includes minor clarifications regarding antitrust damage claims.
The amendments to the ARC Digitization Act with respect to the abuse control provisions are of particular relevance for companies active in the digital sector, as they significantly increase the FCO's enforcement powers in the digital economy. Against this background, a continuous active enforcement by the FCO can be expected going forward.
Together with passing the ARC Digitization Act, the German parliament (Bundestag) asked the federal government to closely monitor the enforcement of the new digital antitrust provisions as well as their effect on the structure of the digital economy and to provide a respective report after four years. In addition, the parliament asked the federal government to participate actively in the development of the Digital Markets Act, i.e., the current EU legislative initiative to establish a common regulatory framework for the digital platform economy within the European Union, contributing its experience with the ARC Digitization Act.
The introduction of the significantly raised merger control thresholds are apparently the result of successful last-minute lobbying from several industry associations. This change will lead to a significant reduction of merger control filings in Germany. The FCO, which supported an increase of the thresholds in general to allow it to focus its resources on more competitively relevant cases, assumes that under the now effective thresholds a number of allegedly problematic cases may possibly remain under the FCO’s radar. Thus, the discussion on appropriate thresholds may resume soon.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Frankfurt
Michael Masling
Brussels
Izzet Sinan
Christina Renner