Effective private enforcement

An overview of the most significant aspects of the 9^th amendment to German competition law

By Dr. Justus Herrlinger and Matthias Klatt

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The principal aim of the amendment is the implementation of the EU Cartel Damages Directive (2014/104/EU), which was adopted to ensure effective private enforcement throughout the EU. Furthermore, the amendment brings significant changes in the area of digital markets and consumer protection. This article provides an overview of the most important aspects of the new legislation, which entered into force on June 1, 2017.

Cartel damages

Anyone who has suffered a loss due to violation of German or European competition rules has the right to claim damages (§ 33a [1] Act against Restraints of Competition, Gesetz gegen Wettbewerbsbeschränkungen [GWB]). The amendment strengthens the procedural and legal position of undertakings that claim damages from one or more members of a cartel.

A significant improvement for the situation of the plaintiff is the statutory rebuttable presumption that a cartel causes damages (§ 33a [2] sentence 1 GWB). The new provision in § 33a [2] sentence 2 GWB is based on the understanding of a cartel under EU law, which means an agreement or concerted practice between two or more competitors aimed at coordinating their competitive behavior on the market or influencing the relevant parameters of competition.

Besides, claimants and defendants now have the right to claim disclosure of specific evidence from the other party and/or third parties by means of an independent action prior to the actual damages claim (§ 33g GWB). However, leniency and settlement submissions are excluded from disclosure.

With regard to the legal consequences of such claims, leniency applicants (“whistleblowers”) and small and medium-sized companies are privileged under the joint and several liability of cartelists (§§ 33e, 33f GWB). They are only liable to their direct and indirect customers. A secondary liability (Ausfallhaftung) to other claimants remains in place, however, where they cannot obtain full compensation from the other cartel members (§§ 33d [3] sentence 2, 33e [1] sentence 2 GWB).

The standard limitation period for damages claims has been extended from three to five years; the ultimate period regardless of any knowledge of the relevant facts by the potential claimant remains 10 years (§ 33h GWB). The limitation periods do not begin before the cartel has ended.

Liability for fines

Apart from the implementation of the EU Cartel Damages Directive, the amended law extends the liability for fines imposed by the German Federal Cartel Office (FCO,  Bundeskartellamt), see §§ 81 (3a-3e) GWB. Accordingly, a parent company can be held liable and fined for cartel infringements of its controlled subsidiaries, even if it did not participate in the infringement itself (group liability). Furthermore, fines can also be imposed on the legal or economic successor of the entity whose representatives violated competition law. By this change of law, a legal loophole has been closed that had allowed a number of cartelists to escape liability by restructuring their business. For infringements that are already subject to a cartel investigation, additional transitional rules for contingent liability of the controlling entities will apply. The new liability rules also need to be closely considered in the context of M&A transactions.

Merger control and the impact of digitalization

The amendment introduces an additional merger-filing threshold based on the transaction value. The new threshold was designed for but is not limited to transactions in the digital economy where, according to the legislator, having low or even no turnover is not an accurate indication of the true company value, e.g., with a view to assets such as customer data. The legislator makes reference in particular to the acquisition of Whats­App by Facebook as a prime example of a high-value deal that did not trigger German merger control due to the target company’s low turnover. Under the amended law, merger control in Germany will also be required if the value of the consideration for the transaction exceeds  1 400 million and the target undertaking is active in Germany to a significant extent (§ 35 [1a] GWB).

With a special focus on the digital economy, the amended law further clarifies that services rendered free of charge may nevertheless constitute a market in terms of competition law (§ 18 [2a] GWB). This is particularly relevant to online platforms such as search engines, comparison websites, hotel booking portals or social networks, which offer their services free of charge to the end customer. The amendment also introduces specific criteria for the assessment of the market power of companies on platform markets, such as direct and indirect network effects and access to competitively sensitive data (§ 18 [3a] GWB).

The new transaction value test is accompanied by a technical provision on the calculation of the consideration. Accordingly, the consideration has to include all assets and other monetary values or services that the seller receives from the acquirer in the context of the transaction (purchase price), and the value of any obligations to be taken over by the acquirer (§ 38 [6a] GWB). The purchase price includes all cash payments, the transfer of voting rights, securities and (in)tangible assets, and option rights. A calculation based on the liquidation value is not allowed.

In terms of the requirement for significant domestic activities, the amended law leaves room for interpretation. In line with the reasons for the legislative proposal, examples could be a customer base or research and development activities in Germany.

In addition, the amendment makes changes to the procedure for ministerial authorization. Under German competition law, in exceptional cases and at the parties’ request, the Federal Minister of Economics can authorize a merger that has been prohibited by the FCO if the restraint of competition is outweighed by advantages to the economy as a whole resulting from the concentration (§ 42 GWB). Such a request will now be deemed rejected if no decision is made within six months (but the applicant may request an extension of this deadline).

Consumer protection

Finally, the amendment provides the FCO with the oversight to conduct inquiries on the suspicion of significant, continuous or repeated violations of consumer protection rules affecting a large number of consumers (§ 32e [5] GWB). This relates in particular to unfair competition practices and unlawful terms and conditions. However, this oversight is subject to the absence of a special responsibility for that particular form of violation held by any other federal authority. In October 2017, the FCO announced their first such inquiry into online comparison portals.

Conclusion

The changes to the GWB bring significant changes for companies, authorities and the courts. Implementing the EU’s initiative, the legal and procedural situation for claimants of antitrust damages has been further improved. In the field of consumer protection, it will be particularly interesting to see how the FCO will make use of its new investigative instruments.

jherrlinger@whitecase.com

mklatt@whitecase.com