On 19 January 2021, the 10th amendment of the German Act against Restraints of Competition (“ARC”), the so-called ARC Digitisation Act (the “ARC-DA”) entered into force. The ARC-DA brings far-reaching amendments to German competition law, containing inter alia
- the introduction of a new framework to intervene in the digital sector and a revision of the rules on abuse of dominance including enhanced rules for access to data;
- significant increases of merger control notification thresholds applicable across industries; and
- a number of further substantial amendments including a codification of the FCO’s leniency program, the implementation of the European Commission’s ECN+ Directive introducing new powers of the Federal Cartel Office (“FCO”) in the context of inspections, and changes concerning cartel damage claims.
In this blog-post we focus on three core developments: (i) novel powers for intervention in digital markets, (ii) the additional basis for data access claims and (iii) the core amendments to the merger control regime.
Novel powers for intervention in the digital sector
The most important amendment concerns the introduction of a new Section 19a ARC-DA, which according to the government, is intended to enable the FCO to more effectively control big digital groups on multi-sided or platform markets and with a paramount significance for competition across markets. This new power will allow the FCO to prohibit certain types of blacklisted conduct without having to establish a dominant position on any particular market. The new provision will complement the existing rules on the abuse of dominance. It provides for a two-prong mechanism:
- In a first step, the FCO has to establish by declaratory order that a company is active to a significant extent on multi-sided or platform markets and has paramount significance for competition across markets (“Paramount Market Position”). This new legal test requires a different assessment than the analysis of dominance; it relies on several non-exhaustive criteria – none of which in itself is a prerequisite for finding a Paramount Market Position – including in particular:
- A dominant position on one or more markets;
- Financial strength or access to other resources;
- Vertical integration and activities on otherwise related markets;
- Access to data relevant for competition;
- Importance of activities for third parties’ access to supply and sales markets and related influence on third parties’ business activities.
A declaratory order will be valid for a maximum of 5 years.
- In a second step, the FCO may (separately or in conjunction with the declaratory order described above) prohibit the following practices:
- Self-preferencing, for example by giving preference to its own product or service offerings or by exclusively pre-installing its own offerings on devices;
- impeding competitors in their activities on upstream and downstream markets, for example through exclusive pre-installation or integration of offerings;
- impeding competitors on a market on which the addressee – even if not dominant – can rapidly expand its position, for example by bundling offers or tying the offer of a service to the use of another service;
- processing and combining competitively sensitive data in order to create barriers to entry (for example by imposing terms and conditions rendering the offering of a service conditional on the users consenting to the processing of data generated by another service or another company);
- refusing or complicating the interoperability of products or services or the portability of data;
- providing other companies with insufficient information about the scope, quality or success of the service provided or commissioned, or otherwise interfering with the ability of others to carry out an assessment of those services;
- requesting advantages for the treatment of another company’s offers that are disproportionate to the reason for the demand, for example by imposing undue conditions with regard to the transfer of data or rights for the display of offers or the way they are displayed.
The addressee of the prohibition order may defend itself based on facts that can objectively justify the prohibited behaviour. However, in this respect, the burden of proof shall be on the addressee. In an attempt to make the overall proceedings faster, any dispute of prohibition decisions has to be brought directly before the German Federal Court of Justice, which becomes the sole source of appeal.
Additional basis for data access claims
- The ARC-DA clarifies that refusal to grant access to data and networks may be an abuse of dominance (Section 19 para. 2 No. 4) under the existing essential facilities doctrine. German dominance rules already applied the provision for granting the right of access to physical infrastructure facilities of a dominant company, if the access is objectively necessary to operate on an upstream or downstream market. The amended provision extends these rights, stating that the refusal to grant access to competitively relevant data or networks (including platforms) against adequate remuneration may qualify as an abuse of a dominant position.
- The ARC-DA also introduced a new paragraph to the existing prohibition of abuse of dominance for companies with “relative market power” (i.e. where an undertaking does not reach the level of market dominance but other companies are dependent on the supply or purchase of goods or services of that undertaking). According to the newly introduced Section 20 para 1a ARC-DA, other companies may now also claim access to data, for an appropriate consideration, from an undertaking with relative market power if they are dependent on such access to conduct their business.
Core amendments to the merger control regime
The German Parliament substantially increased the domestic turnover thresholds triggering notification obligations. In addition, phase II proceedings were prolonged to four months; so, with the one month phase I proceedings, the total duration is now five months.
- Increase of general thresholds: With a last minute change in the legislative process, the revenue thresholds triggering a merger filing requirement have been substantially increased. The new rules in Section 35 ARC-DA trigger a filing obligation where the domestic turnover of one company exceeds EUR 50 million (raised from EUR 25 million) and the domestic turnover of another company exceeds EUR 17.5 million (raised from EUR 5 million); as previously, a combined global turnover of the Parties in excess of EUR 500 million is also required. According to the government’s estimates, this should reduce the number of notifiable transactions in Germany by more than 30%. It should be noted that these new domestic thresholds are also relevant in the context of the transaction value test that captures transactions with a consideration value of at least EUR 400 million.
- Revision of the small-market exemption: Mergers cannot be prohibited if the reasons for prohibition only concern small markets with a total German-wide value of up to EUR 20 million (previously EUR 15 million). Especially in shrinking markets, this shall give medium-sized companies more flexibility for consolidation measures.
- Novel provision addressing consecutive transactions in the same economic sector: The newly introduced Section 39a ARC-DA allows the FCO to impose notification obligations on certain undertakings to notify transactions if the relevant undertaking (i) achieved worldwide revenues of EUR 500 million, (ii) there are “indications” (“Anhaltspunkte”) that “future mergers may restrict competition in the relevant economic sectors in Germany”; and (iii) the relevant undertaking had a share of at least 15% in these relevant economic sectors. After the FCO imposes a notification obligation on a company, notifications will then be triggered for transactions in which the target company achieved worldwide turnover of at least EUR 2 million and at least 2/3 of its worldwide turnover has been generated in Germany. The FCO can only impose such an obligation after having conducted a sector inquiry in the relevant economic sector.
The amendments incorporated by the ARC-DA are far-reaching both for digital markets and for transactions more generally. It is one of the first laws worldwide defining specific rules to address digital market issues.
The special rules for companies with significant market presence in the digital sector, the new provisions on data access (Section 19 para 2 No. 4 ARC-DA), and the new provisions relating relative market power (Section 20 para 1a ARC-DA) leave a lot of room for interpretation and hence could lead to considerable legal uncertainty in the beginning. However, during the legislative process, the German Parliament, made clear that it was a conscious decision to not provide rules that are too specific in order to keep the regulations open for future technological developments and interpretation by the courts. It remains to be seen how these new rules will play out in practice.
It will be particularly interesting to see how the new rules for the digital sector fit with the European Commission’s proposed Digital Markets Act (“DMA”) (see our blogpost as of 17 December 2020). In this respect, it is noteworthy that the German Parliament requested the German government to engage in the legislative process for the DMA at the European level to ensure that (i) national competition rules with respect to platform economy remain in existence, and (ii) national competition authorities are given a role in implementing the European rules.
In its statement, the German Parliament also called directly on the European legislator to retain leeway for national regulations when framing the DMA. It considered an opening clause that allows for appropriate national regulations of the platform economy to be necessary.