10th amendment of German Competition Law: Important changes enter into force

After long negotiations, the 10th amendment of the German Act against Restraint of Competition (“ARC”) entered into force on January 19, 2021. A number of important changes to the government draft (on which we had already reported here) were adopted. In addition to a complement and clarification of the rules on control of (digital) market power, the turnover thresholds of German merger control were once again significantly increased. Furthermore, compliance measures taken prior to an infringement of law can now also have the effect of reducing fines.

Clarification Of The New Regulations On Digitization

The amendment focuses on adapting the German provisions on the abuse of a dominant market position to digital business models (see our overview of the ministerial draft). The goal is to enable the Federal Cartel Office (“FCO”) to better monitor the major internet companies (GAFA). In future, the FCO will be able to impose certain behavioral obligations on undertakings with paramount cross-market significance for competition (Section 19a ARC). This is where the first major changes come in: The prohibitions of self-preferential treatment (Section 19a (2) no. 1 ARC), the rolling up of new markets (Section 19a (2) no. 3 ARC) and the raising of barriers to market entry through data processing (Section 19a (2) no. 4 ARC), which were already provided for in the government draft, have been specified in terms of content on the basis of standard examples. Besides, two new prohibitions were introduced: the prohibition of hindering other companies in gaining access to procurement and sales markets (Section 19a (2) No. 2 ARC) and the tapping-prohibition (Section 19a (2) No. 7 ARC).

In Detail:

The prohibition of self-preferencing pursuant to Section 19a (2) no. 1 ARC is substantiated by two new standard examples: Preference of own products over those of competitors is given in particular if a) the own products are given preference in the presentation (Google Shopping case) or b) exclusively own offers are preinstalled on devices or integrated into offers in another way (Android case).

A new provision is the prohibition of hindering other undertakings on procurement or sales markets if the activity of the undertaking is important for access to these markets (Section 19a (2) No. 2 ARC). The provision, together with its two standard examples, is similar to the prohibition of self-preferencing, but also applies if there is no intermediary or competitive relationship. In this respect, it is purely a matter of rule-making power: measures are covered which lead to exclusive pre-installation or integration of the powerful undertaking’s offers or which prevent other undertakings from advertising their own offers or reaching customers via access points other than those provided or arranged by the market powerhorse. The latter describes the accusation currently being levelled at iPhone manufacturer Apple, according to which it is alleged to have prohibited app developers from pointing their users to payment methods other than those via the Apple App store.

Under Section 19a (2) No. 3 GWB, the FCO can prohibit the "rolling up" of markets not yet dominated by means of non-performance-based competition. The two standard examples relate to the tying of users to digital ecosystems. This is the case, e.g., if a powerful undertaking links two independent services without giving the user of the first service sufficient choice regarding the use of the second service (No. 3 a)) or if the use of the first service is mandatory for the other offer (No. 3 b)).
The new regulation on duties regarding the processing of data pursuant to Section 19a (2) No. 4 ARC has been slightly amended and clarified on the basis of two standard examples. The prohibition also covers data-related combined exploitative and obstructive abuses and refers in this regard to the decision of the German Federal Court of Justice (“FCJ”) on the Facebook case. The case serves as a blueprint for the first standard example: According to this, the FCO can prohibit the use of a service from being made dependent on the user's consent to the processing of his data generated from another service. The second standard rule, on the other hand, relates to cases in the B2B sector. Model for this standard example was the Amazon case, in which the European Commission investigates allegations that Amazon uses third-party dealer data to push its own products.

The second new provision (Section 19a (2) no. 7 ARC) is linked to the so-called “tapping-prohibition” and prohibits the addressee from demanding unreasonable advantages for the treatment of offers of another undertaking. This is particularly the case if a) the transfer of data or rights is demanded for the presentation of offers which are not absolutely necessary for this and b) if the quality of the presentation of the offers is made dependent on the transfer of data or rights which is disproportionate to this.

The new version of the “ARC Digitization Act” also provides for a time limit of five years for orders pursuant to Section 19a ARC. 

Moreover, the version adopted by the German Bundestag clarifies that an appropriate fee may be demanded for access to data pursuant to Section 20 (1a) ARC.

Exclusive Jurisdiction Of The FCJ In Disputes In Connection with Section 19a ARC

Section 73 (5) ARC marks the premiere of a newly introduced exclusive jurisdiction of the FCJ in disputes in the area of digital abuse control. In order to prevent harmful competitive conditions from becoming entrenched as a result of long lasting proceedings, the FCJ now has jurisdiction in the first and last instance to hear appeals against rulings by the FCO pursuant to Section 19a ARC. The FCJ can obtain an opinion from the German Monopolies Commission. Incidentally, the reason for the delay in the legislative process was the disagreement among the federal ministries on precisely this shortening of the legal process. 

Further Increase Of The Turnover Thresholds In Merger Control

Somewhat surprising is the even further increase of the turnover thresholds for German merger control. The government draft already provided for an increase in the two domestic turnover thresholds from 25 million euros to 30 million euros and from 5 million euros to 10 million euros. Now the first domestic turnover threshold is 50 million euros and the second domestic turnover threshold is 17.5 million euros. A large number of cases that previously required notification in Germany will therefore no longer require clearance in the future. One of the goals of this change in the law is to focus the authorities’ resources on examining potentially more problematic cases.

Important: The new turnover thresholds could become relevant for transactions already in progress (but not yet completed as of the effective date of the new ARC). Transaction participants should therefore reassess the need for a German filing requirement.

The so-called Remondis clause (Section 39a GWB) has not changed compared to the government draft. Accordingly, the FCO can, under strict conditions, oblige an undertaking to notify its mergers with other undertakings in one or more precisely defined economic sectors (for the conditions of Section 39a GWB, see here).

The originally planned amendments on stricter requirements for the ministerial permit were completely cancelled. 

Consideration of compliance measures in the assessment of fines

New to the ARC Digitization Act is a provision that compliance measures implemented prior to the infringement can have a positive effect on the calculation of the fine, provided that the measures are appropriate and effective (Section 81d (1) no. 4 ARC). However, whether and to what extent the compliance measures reduce the fine depends on the circumstances of the individual case. Ideally, the precautions taken by the undertaking lead to the discovery and reporting of the infringement committed. In the case of self-reporting, the FCO can waive the fine altogether under its leniency program. However, the leniency program only applies to cartels, whereas the reduction of sanctions due to compliance efforts under Section 81d (1) No. 4 ARC is also possible in vertical relationships and in cases of abuse of market power. If, on the other hand, the compliance measures do not lead to the detection of the cartel violation, this indicates a deficiency in the undertaking's compliance system and thus against its "effectiveness". If the infringement could have been prevented or at least made considerably more difficult by proper compliance, the undertaking can only be credited for its basic efforts. 
The extent of the necessary compliance precautions depends on a number of factors, i.e. the type, the size and the organization of the undertaking, the nature of the undertaking’s business, the number of employees, the regulations to be complied with and the risk of their violation. If the measures taken are not adequate in this respect, then the reduction of the fine is excluded. Furthermore, a mitigation of sanctions cannot be considered if the management of the undertaking itself is involved in the infringement.

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