Germany proposes law on competition that strengthens the Federal Cartel Office

On 26 September 2022, the Federal Ministry for Economic Affairs and Climate Action (BMWK) presented the draft for the 11th GWB amendment, which is to be called the Law for the Improvement of Competition Structures and for the Skimming of benefits from Competition Law Infringements (or the Competition Enforcement Act). According to the draft, the powers of the German competition authority, the Federal Cartel Office, will be strengthened in three key areas.

Firstly, the authority will be equipped with additional competences to take far-reaching measures to improve competitive conditions on markets following sector inquiries, irrespective of any concrete infringements of competition law. Secondly, the Federal Cartel Office is to be positioned to investigate possible infringements of the Digital Marketing Act (DMA) and use its investigative powers in cases of suspected infringements of competition law. Thirdly, the power of the authorities to skim off benefits is to be strengthened considerably. In addition, the legislature will correct drafting errors in earlier amendments and make changes to public procurement law.

The following provides more information on the three key powers, which the draft law bestows on the Federal Cartel Office.

New intervention options following sector investigations: a "New Competition Tool"

In June, Federal Minister of Economics Robert Habeck announced an antitrust law with "claws and teeth", which resulted in the release of the BMWK's bill with proposals to drastically strengthen the role of sector investigations through the German Act for Restraints against Competition (ARC). These investigations have long been a well-established tool of antitrust authorities, allowing them to gain in-depth insights into competitive conditions in specific markets and sectors. However, this tool has suffered from two limitations:

• Because they entail extensive questions to market players and comprehensive investigations into the functioning of markets, these investigations can take a considerable amount of time.
• Authorities cannot take direct action on the basis of their findings. Hence, in order to intervene in the market and remedy possible abuses, they must initiate individual proceedings and identify violations of antitrust regulations.

The 11th GWB amendment addresses both issues. The technical detail of limiting sector inquiries to 18 months will be solved in practice by creating additional positions at the Federal Cartel Office. A more profound change in the draft law is the extension of the Federal Cartel Office's authority to intervene after sector inquiries (see Section 32f GWB-RefE of the bill), which could represent a revolution in German antitrust law. According to the draft, the Federal Cartel Office will be able to take remedial action against disruptions of competition if they are significant, persistent or repeated, irrespective of a violation of competition law rules.

These measures could encourage far-reaching behavioural or quasi-structural obligations vis-à-vis companies. For example, the scope of the draft law includes the following:

• the granting of access to data, interfaces, networks and other facilities;
• the supply of other companies;
• regulatory or comparable approvals or authorisations;
• supply relationships;
• common norms and standards;
• requirements for certain forms of contracts or contract structures (including regulations on information disclosure); and
• the organisational separation of company or business divisions.

As an ultima ratio, the Federal Cartel Office will be able to order the unbundling of companies irrespective of abuse.

In short, the Federal Cartel Office will have a far-reaching instrument of intervention to be able to "repair" markets even if there is no concrete violation of antitrust law. As the BMWK puts it, the authority will be able to take action where the market structure is inimical to competition. This corresponds to the proposal at the EU level to introduce a "New Competition Tool", which was discarded in 2020 in favour of the Digital Markets Act that is limited to digital markets and gatekeepers. In fact, by virtue of the draft, German antitrust law transport the approach from the digital economy of narrower regulation, independent of concrete violations of antitrust law (Section 19 a GWB, Digital Markets Act) to general antitrust law.

In line with this, the Federal Cartel Office could, according to BMWK proposals, oblige companies to file for merger control over a period of three years if the acquirer achieves EUR 50 million in sales and the target company EUR 0.5 million in sales in Germany, which is below the current threshold of German merger control. This too borrows from digital regulation.

Effective enforcement of the DMA: support of the European Commission by the Federal Cartel Office and private enforcement

In mid-October 2022, the Digital Markets Act (DMA) will be published in the Official Journal of the EU and will go into force 20 days later. The role of national antitrust authorities in enforcing the DMA is relatively limited (the German government was unable to prevail with its demand for more extensive competences), and the main competence lies with the Commission. The DMA, however, allows national authorities to investigate possible non-compliance of gatekeepers regarding the dos and don'ts of the digital act in their territory. In Germany the legal prerequisites for this will be created by the 11th GWB amendment. The Federal Cartel Office will be able to support the Commission in the enforcement of the DMA and, in practice, coordinate the application of German special antitrust laws for the supervision of gatekeepers (Section 19a GWB) and implementation of European law.

In addition, the BMWK proposes extending the scope the 11th GWB amendment for private actions under antitrust law to include violations of the DMA. This would significantly strengthen private enforcement of the DMA in Germany (and make Germany an important court location for DMA cases).

Strengthening authority power for skimming off benefits

Finally, according to the draft law, the instrument for skimming off benefits will be considerably strengthened. To this end, Section 34 of the Act against Restraints of Competition (ARC) is to be amended. The provision essentially dates back to the 7th GWB amendment of 2005, but with a predecessor provision with a somewhat more limited scope of application from the 5th GWB amendment of 1989. Neither of these provisions gained practical significance. They were paper tigers. The claws of these provisions will be sharpened.

The previous requirement of fault on the part of the company or companies concerned is to be dropped. The draft bill justifies this by citing the function of the instrument and the alleged difficulties in determining fault.

The much more dramatic change, however, is the introduction of a presumption of benefit amounting to 1% of the domestic sales related to the infringement. The presumption is to be rebuttable, but only by proving that no worldwide group profit in this amount was achieved. Beyond this, the competition authority may estimate the amount of the advantage (as done in the past), but in the future determining an overwhelming probability will be sufficient. The skimming off of benefits is to be capped at 10% of the previous year's total sales. Currently, only the benefits of the last five years can be skimmed off. This limitation is to be abolished. Furthermore, the time that the competition authority may allow itself with ordering the skimming off of benefits from the termination of the competition law infringement is to be extended to ten years, following a first extension contained in the 9th GWB amendment in 2017.

The proposed amendments have the potential to turn the paper tiger of benefits skimming into a dangerous predator with exceedingly sharp claws. Whether the BMWK took these drastic steps as a result of the criticism of the Federal Audit Authority (Bundesrechnungshof) regarding the non-application of the previous provision is not clear. The only thing that may hold back this predator watchdog is the subsidiarity that has already been provided for in relation to competition damages claims.

In conclusion, despite proposals and the draft law's current form, we must wait and see what will emerge in the legislative process and whether the amended provisions contained in the 11th GWB amendment will stand up to practical tests.

For more information on the 11th GWB amendment and competition law in Germany, contact your CMS client partner or one of the following local CMS experts:

Michael Bauer, Christian Friedrich Haellmigk, Rolf Hempel, Björn Herbers, Harald Kahlenberg Stefan Lehr, Kai Neuhaus, Dietmar Rahlmeyer, Tim Reher, Markus Schöner, Christoff Henrik Soltau.