New Epoch in German Antitrust Law: Far-reaching New Powers of Intervention for the Federal Cartel Office

Introduction:

On November 7, 2023, the 11th amendment (Amendment) to the Act against Restraints of Competition (ARC) came into force.¹ It broadly introduces three key changes:

• The Amendment provides Germany’s Federal Cartel Office (FCO) with far-reaching new powers of intervention, above all the ability to intervene in markets after conducting a sector inquiry, even if companies are behaving lawfully (i.e. not infringing antitrust laws). The FCO will have new powers to impose behavioral and structural remedies if a sector inquiry identifies competition concerns, and such remedies could even include certain companies being required to divest shareholdings and assets.
• The FCO is also gaining enhanced powers to “skim off” financial advantages (i.e. excess profits) that companies gain as a result of antitrust infringements. The Amendment introduces a new presumption regarding the size of the advantage.
• Finally, the FCO will have new powers to support the European Commission (Commission) in enforcing the newly introduced Digital Markets Act (DMA), with a legal basis for damages claims in Germany regarding breaches of the DMA.²

The Amendment comes only two and a half years after the 10th ARC amendment (ARC Digitization Act) – much earlier than the usual interval between previous ARC amendments – meaning companies operating in Germany must again familiarize themselves with significant changes to Germany’s competition law regimeand prepare for new challenges under the regime. 

With the Amendment, Germany's current coalition government is implementing a project that was already partly laid out in the coalition agreement of 2021³, but which has been accelerated and driven forward by the significant increases in energy prices in 2022. Despite this, the Amendment was preceded by intense debate about its necessity and the proportionality of certain of the FCO’s new powers. The German government has emphasized the importance of both strengthening Germany as a location for investment (particularly to attract start-ups) and more effective protection against unfair competitive practices. By contrast, the opposition have been critical of the state becoming a market participant, i.e. no longer acting solely as a watchdog for compliance with antitrust rules but actively intervening in and regulating markets. 

Key elements of the Amendment

1. Market regulation independent of antitrust law violations

1.1 Introduction. The Amendment gives the FCO new powers to take measures to improve competitive conditions in markets, even absent any suggestion that market participants are infringing antitrust laws. The basis for intervention is by way of a sector inquiry, a well-known instrument for identifying competition problems. Such an investigation was previously permissible if "circumstances suggest" competition being restricted or distorted (Section 32e (1) ARC). However, the Amendment notably introduces new powers for the FCO to impose remedies following sector inquiries. Also, unlike in the past where sector inquiries sometimes extended over several years, the FCO will now have to complete sector inquiries within 18 months (Section 32e (3) ARC).

1.2 Prerequisites. The Amendment provides that to regulate a market without identifying a breach of antitrust laws the FCO must determine by order and on the basis of the results of the sector inquiry "a significant and continuing distortion of competition in at least one nationwide market, several individual markets or across markets" (Section 32f (3) s. 1 ARC). Factors to be taken into account for such a determination, such as (i) a single company having unilateral supply or bargaining power, (ii) restrictions on entering or exiting the market, capacity restrictions or limited possibilities for switching by customers or suppliers, (iii) uniform or coordinated behavior by market participants, or (iv) concerns around input factors or customers being foreclosed by vertical relationships (Section 32f (5) s. 1 ARC) are well known to competition law practitioners.

A continuing distortion of competition exists if it has existed permanently over a period of at least three years or has at least occurred repeatedly and there are no indications at the time of the order that the distortion is likely to cease within two years (Section 32 (5) s. 3 ARC). To regulate a market without any breach of applicable antitrust laws, the FCO must also justify why its established intervention powers (in particular, its powers to prosecute cartels and abuses of dominant position) are not sufficient to effectively and permanently remove the distortion of competition. The wording effective and permanent removal, which was added shortly before the end of the legislative process, is intended to clarify the subsidiary character of the new market inquiry powers compared to the established powers.

1.3 Remedies. If the conditions mentioned above are met, the FCO can impose various behavioral or structural measures to remedy the distortion of competition on the market concerned, under Section 32f (3) s. 6 ARC. Pursuant to Section 32f (3) s. 7 nos. 1-6 ARC, these include:

• granting access to data, interfaces, networks or other facilities;
• imposing conditions on business relationships between companies active in the markets under review and at other market levels;
• requiring companies to establish transparent, non-discriminatory and open standards;
• imposing conditions on certain types of contracts or contractual arrangements, including contractual provisions on the disclosure of information;
• prohibiting unilateral disclosure of information that supports parallel behavior by companies; and
• organizational separation of company or business divisions.

The FCO will also have the power to compel certain companies to divest shares and assets. Specifically, if such measures are not possible, would not be equally effective or would impose a greater burden on the addressee, the FCO can, as a last resort, order companies holding a dominant market position or having paramount significance for competition across markets pursuant to Section 19a (1) ARC to sell company shares or assets if it is expected that doing so will at least substantially reduce the significant and continuing distortion of competition (Section 32f (4) ARC). This is subject to certain procedural requirements. In particular, the Monopolies Commission and the supreme state authorities with responsibility for the relevant company under Section 48 (1) ARC must be consulted. In addition, there are specific requirements regarding the realization of the sales proceeds and their valuation, as well as regarding the grandfathering of assets and shares whose acquisition has been approved by the FCO in the last ten years.

Recognizing that the potential remedies are far-reaching, the Amendment includes rights of appeal. Appeals against orders pursuant to Section 32 (2a) s. 1, Section 32f (3) s. 6, (4) ARC will also have suspensive effect pursuant to Section 61 (1) ARC pending the outcome of the appeal.

1.4 Extended merger control filing obligation. In addition to, or as an alternative to, the remedies mentioned above, under Section 32f (2) ARC, the FCO may require companies to notify all transactions to it for merger control approval for a period of three years if the acquirer achieves revenues in Germany of at least €50 million in its most recent financial year and the company to be acquired achieves German revenues of at least €1 million. The three-year period may also be extended three times by a further three years on each occasion (i.e. extended by nine years in total). This will represent a significant extension of Germany’s merger filing obligations for companies concerned and a further opportunity for the FCO to monitor selected markets more closely. However, to be able to impose this obligation, the FCO must have objectively verifiable evidence that future mergers are likely to significantly impede effective competition in Germany in one or more of the economic sectors examined in the sector inquiry

1.5 Summary. The Amendment gives the FCO significant additional powers of intervention regarding sector inquiries. Within the EU, the FCO is – together with the Greek Competition Authority – one of the first antitrust authorities to have such powers.⁴ Companies operating in a sector targeted by a sector inquiry must therefore be prepared to become addressees of extensive investigations, and potentially far-reaching behavioral and structural measures, which in the worst case could include divestments. It remains to be seen which sectors the FCO might prioritize for use of its new powers, but the FCO's focus on digital and energy markets in recent years suggests these could be natural first candidates.

2. Facilitating benefit skimming

2.1 Introduction. With regard to antitrust enforcement, the Amendment is intended to simplify and improve the effectiveness of the FCO’s so-called skimming of advantages (i.e. its recovery of "excess profits") that companies obtain from infringing antitrust laws. Specifically, the existing framework in Section 34 ARC is reorganized and supplemented by a new statutory presumption that removes the requirement for the FCO to prove the size of benefit that the company has obtained.

2.2 Prerequisite and presumption rule. The FCO may order the skimming of benefits if it has found that a company has committed an antitrust infringement. The maximum period for the skimming of benefits will continue to be five years. However, the key change is a new presumption that the company achieved excess profits amounting to at least 1 per cent of its domestic sales regarding the relevant products or services to which the infringement relates (Section 34 (4) ARC). The estimate of the amount of the benefit is made in accordance with Section 287 of the Code of Civil Procedure, whereby the relevant standard is an overwhelming probability. As with the imposition of a fine for an antitrust infringement, the skimming of benefits is capped at 10 per cent of the company’s sales in the previous year.

2.3 De facto irrefutability of the presumption. The new presumption is de facto irrefutable. Pursuant to Section 34 (4) ARC, in determining the profit of the company, the FCO is not limited to the profit of the legal entity or association directly involved in the infringement but instead will have regard to the worldwide profit of all natural persons, legal entities and associations of persons operating as an economic unit. Since the worldwide group profit of diversified and/or international companies will regularly be at least 1 per cent of the sales generated domestically regarding the products or services related to the infringement, the profit (to be skimmed off) in the aforementioned amount is likely to be inherent in every antitrust infringement. The presumption would only not apply if benefits are excluded due to the special nature of the violation, but it is doubtful that this exception will regularly apply.

2.4 Summary. Facilitating the skimming of benefits provides the FCO with another powerful tool, adding to its stronger sector inquiry powers to intervene in markets irrespective of any antitrust infringement. However, practical use of the FCO’s new powers for benefit skimming remains to be seen, especially as benefit skimming continues to be subsidiary to antitrust damages claims. It is also questionable whether the 1 per cent presumption will be accepted by the German Federal Court of Justice (BGH) which, at least so far, has required proof of actual damages. That said, the introduction of the presumption at least strengthens the threat of the FCO making more frequent use of its benefit skinning powers in future.

3. Enforcement of the DMA in Germany

3.1 Introduction. In addition to the changes mentioned above, the Amendment enables the FCO to assist the Commission in enforcing the DMA. The DMA contains conduct obligations for large platforms designated by the Commission as so-called “gatekeepers”⁵ and is intended to ensure the fairness and competitiveness of digital markets. It supplements EU competition law but does not supersede it (Article 1(6) DMA).

3.2 Enforcement Powers. National competition authorities in the EU do not have their own powers to enforce the DMA, with the Commission being the sole enforcer of the DMA. However, the amendment to Section 32g ARC gives the FCO the authority to assist the Commission in enforcing the obligations set out in the DMA. The FCO may investigate possible non-compliance with Articles 5, 6 and 7 of the DMA, carry out all necessary steps to investigate possible infringements of the DMA and report its findings to the Commission.

3.3 Relationship with Section 19a ARC. Section 19a ARC, which was introduced into the ARC by the 10th amendment in 2021, pursues a similar objective to the DMA. However, Section 19a ARC has a different structure, in particular, a broader group of addressees and obligations are formulated as standard examples, not an exhaustive list. Section 19a ARC is not superseded by the DMA but remains applicable for cases not covered by the DMA, and the FCO considers it to be complementary to the DMA. However, the specific interpretation of both sets of rules and how they co-exist will likely be the subject of court rulings in the foreseeable future.⁶

3.4 Private enforcement. The Amendment also simplifies private enforcement of the DMA in Germany. It is noteworthy that damages claims related to infringements of the DMA will be largely equivalent to antitrust damages claims. In particular, the concept of the binding effect of decisions of the Commission and European courts in antitrust damages proceedings will similarly apply to proceedings related to breaches of conduct obligations in the DMA (Section 32 b) ARC).⁷

3.5 Summary. The Amendment enables the FCO to play an active role in supporting the Commission as the sole enforcer of the DMA.⁸ It can be assumed that the FCO will make use of its new powers as enforcement in the digital economy has been at the top of the FCO's agenda in recent years. Likely to be of even greater relevance in practice will be private enforcement of the DMA, given the Amendment introduces a legal basis for such claims in Germany.

Outlook

The Amendment has been praised and criticized in equal measure from various sides.

Supporters of the Amendment view Section 32f ARC as the long-awaited opportunity to intervene in market segments where competition is distorted.

Criticism has been levelled, in particular, at the fact that the new Section 32f ARC gives the FCO the ability to restrict the freedom of operation of law-abiding companies. Considering that the FCO already has far-reaching and effective powers to prevent markets from "tipping over" under Germany’s merger control regime, which obliges companies to notify transactions if certain conditions are met (unlike in the UK, for example, where merger filings are voluntary), the question arises as to whether these expanded powers are appropriate and necessary. These and other questions regarding the Amendment are likely to be challenged by companies unhappy with remedies imposed against them under the new powers, and therefore subject to judicial clarification.

In practice, it remains to be seen when, against whom and to what extent the FCO will make use of its new powers. In recent months, the FCO has consistently emphasized that it will use its new powers with great responsibility. Companies active in Germany will be watching this with interest.

In addition to the changes discussed above, companies with activities in Germany should also be aware that the 12th ARC amendment is still expected in this legislative period. According to the Federal Ministry of Economics and Climate Protection (BMWK), the 12th amendment will focus on sustainability cooperation agreements and consumer protection.⁹ Further potentially significant changes to the ARC are therefore expected in the near future.

We would like to thank our trainees Alexandra Komorek and Leonard John for valuable support in the preparation of this article.