On 5 April, 2023, the German cabinet passed the 11th GWB Amendment, the so-called “Competition Enforcement Act”. This government draft was preceded by a heated debate on the bill of the Federal Ministry of Economics and Climate Protection, which was introduced in September 2022.
The key elements of the draft bill remained unchanged, such as the significant expansion of competences in favor of the German Federal Cartel Office (Bundeskartellamt). However, following massive criticism from the industry, the legal profession and academia, these have now been somewhat toned down, while at the same time the procedural and legal defense mechanisms of those affected have been increased. It is expected that the 11th GWB Amendment will bring about a significant tightening of the GWB, however; as before, work on a significant tightening of antitrust law is being carried out to provide “claws and teeth”.
The sector inquiry and new intervention instruments under Section 32e and Section 32f of the draft
Following a sector inquiry, the Bundeskartellamt should in future be able to put a stop to significant and persistent disruptions of competition quickly and effectively. It is envisaged that behavior-oriented and quasi-structural obligations can be enforced, such as obligations regarding access to interfaces or data. It should also be possible, for example, to impose requirements on business relationships between companies in the markets under review and at different market levels, or on certain contractual arrangements, as well as obligations on the organizational separation of business units. The introduction of unbundling, which has been discussed for many years, is to be made possible as an ultima ratio to eliminate a significant, persistent or repeated distortion of competition, whereby abuse is not required. Where a merger has been cleared under merger control procedures, a ten-year period of protection of legitimate expectations will be granted.
In Section 32f (3) of the draft, the wording has been softened compared with the prior draft, but the Bundeskartellamt still has far-reaching new powers. Section 32f (3) 1 of the draft now reads: “The Bundeskartellamt may determine by order that there is a significant and continuing distortion of competition in at least one nationwide market, several individual markets or across markets, to the extent that the application of the powers under Part 1 is not likely to be sufficient, according to the information available to the Bundeskartellamt at the time of the decision, to adequately counteract the identified distortion of competition.”
It is also noteworthy and welcome that the new procedure is now structured in two stages. A company affected by remedial measures can now already seek judicial review of the order determining that there is “significant and continuing anticompetitive interference”. Accordingly, the results of a sector inquiry can also be subject to judicial review. This possibility did not exist in the draft bill. Previously, legal protection was possible against the remedial measures, so that the results of the sector inquiry could at best have been reviewed incidentally.
In addition, Section 32f (3) 3 and 4 of the draft will now also further define the criteria for selecting the addressees, so that the focus will basically only be on those companies that have made a significant causal contribution to the distortion of competition. Their market position will also be taken into account, so that primarily those companies that were assessed to have market power beforehand are likely to be affected by future remedial measures.
Finally, Section 32f (5) 3 of the draft also makes it clear that the anticompetitive effect will only be continuous if it has existed permanently over a period of three years, or has occurred repeatedly, and there are no indications at the time of the order that the effect will in all probability cease within two years.
An infringement-independent unbundling order as the ultima ratio under Section 32f (4) of the draft is now restricted to market-dominant companies. The requirements for proportionality have also been specified. Unbundling will only be possible if it can be guaranteed that the distortion of competition will be eliminated or significantly reduced, if behavior-oriented remedies are not possible or would not be at least equally effective.
With regard to the proceeds of unbundling, Section 32f (4) 7 and 8 of the draft require minimum proceeds of 50% of the value. This provision is flanked by a compensation provision in the event of a shortfall in value. If the actual sale proceeds fall short of the value of the part of the company determined by an auditor commissioned and paid by the Bundeskartellamt, the government must pay half of the difference between the determined value of the part of the company, and the sale proceeds achieved, to the company concerned. This is intended to address the constitutional concerns of unbundling.
Finally, it is envisaged that, following a sector inquiry, companies may be required to report all relevant mergers in certain markets, provided that the acquirer generated sales in Germany of more than €50 million in the last fiscal year and the company to be acquired generated sales of more than €500,000. It is also planned to make the existing Section 39a of the GWB much stricter and broader.
Skimming off advantages from antitrust violations under Section 34 of the draft
In addition, it will be easier and more effective in the future to skim off advantages gained by the companies concerned as a result of antitrust violations. If an infringement of competition law is proven, these excess profits will be skimmed off the companies. A legal presumption is planned, according to which a company will have achieved an advantage of 1% of its domestic sales with the product or service involved in cartel activities or abuse as a result of the proven antitrust violation. Hardships will be avoided by an upper limit of 10% of the previous year’s total sales in relation to the authority’s decision. Rebuttal of this presumption should only be possible under very restrictive criteria.
The Digital Markets Act (DMA) and the adaptation of procedural regulations
In addition, the 11th GWB Amendment is intended to create the legal basis for the Bundeskartellamt to provide the European Commission with appropriate support in enforcing the new Digital Markets Act. The so-called private enforcement, the civil court enforcement of the DMA, is also an objective of the amendment.
It is certain that the powers of the Bundeskartellamt will continue to be strengthened in the future; the new instruments of intervention make this abundantly clear. With the introduction of the planned market structure control procedure independent of infringements and abuse, the German watchdog will receive a new and very sharp sword, and it remains to be seen whether this will be used with the necessary caution.
On the one hand, the approach of extending preventive merger control to cases below the thresholds of the GWB follows developments in the USA, where mergers below the thresholds have already been taken up for many years. On the other hand, the EU Commission is also marching in this direction, for example by encouraging Member States to refer cases under Article 22 of the ECMR, see Illumina/Grail. 50 years after the Continental Can ECJ decision, the ECJ ruled (again) in March 2023 in Towercast (C-449/21) that control of non-notifiable mergers may also take place on the merits detailed under Art. 102 TFEU. This is not conducive to legal certainty, but other regulatory tightening, such as the globally stricter investment control and the newly-introduced control of third-party subsidies at EU level, will also contribute to making planning and legal certainty more difficult in the planning and implementation of corporate transactions.
The new skimming rule, together with the legal presumption of a 1% advantage, will certainly have an impact on antitrust damages cases in Germany. Whether this is intended or will be accepted is unclear. In any case, the rule will lead to a reigniting of the discussion on the introduction of a similar presumption for cartel damages cases as well.