New German competition law gives Federal Cartel Office more power to intervene in markets

On 7 November 2023, the 11th amendment to the German Act for Restraints against Competition (GWB) went into force after being adopted by the German parliament on 6 July. The legislation follows a draft from the German government from April this year. The recently adopted law is based on this government draft, but includes changes proposed by the economic committee of the German parliament.

The 11th GWB amendment sharpens cartel law by strengthening the powers of the German competition authority, the Federal Cartel Office, in three key areas. 

•    The Federal Cartel Office is 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 (which represents a "New Competition Tool" for the Federal Cartel Office).
•    The Federal Cartel Office is positioned to investigate possible infringements of the Digital Markets Act (DMA) and use its investigative powers in cases of suspected infringements of competition law.
•    The power of the competition authorities to skim off benefits is strengthened. In addition, the legislature corrects drafting errors in earlier amendments and makes changes to public procurement law.

During the final consultation in the legislative process, Federal Minister for Economic Affairs and Climate Action Robert Habeck described the 11th GWB amendment as one of the most comprehensive and far-reaching amendments in recent years. The law contains some differences compared to the government draft in April, which is outlined below.

1. New intervention powers following sector investigations: a "New Competition Tool" for the Federal Cartel Office

One key aspect of the 11th GWB amendment is the extension of the authority`s intervention powers. This concerns the significantly strengthened role of sector inquiries through the revised legislation. 

Sector inquiries have long been a well-established tool of competition authorities, allowing them to gain in-depth insights into competitive conditions in specific markets and sectors. In Germany, however, this tool has suffered from two limitations from the beginning. Firstly, these investigations can take a considerable amount of time as they entail extensive questions to market players and comprehensive investigations into the functioning of markets. Secondly, authorities cannot take direct action based on their findings. Hence, to intervene in the market and remedy possible problems, they must initiate individual proceedings – possibly following the results of sector inquiries – and identify concrete violations of competition regulations.

The 11th GWB amendment addresses both issues. On a more technical level, sector inquiries are limited to 18 months and Federal Cartel Office staff will receive eight additional positions for these inquiries. The additional positions, however, are not part of the current federal budget plan, which is why the Federal Cartel Office cannot count on this additional staff for the present. A more profound change is the extension of the Federal Cartel Office's options to intervene after sector inquiries (Section 32f GWB), which represents a revolution in German competition law. Under the new law, the Federal Cartel Office is able to take remedial action against disruptions of competition if they are significant and persistent, irrespective of a violation of competition law rules. With this move, the German lawmaker followed the model of UK competition law where similar reform had already taken place.

The law includes an important change and restriction compared to the April government draft. According to the final law, a finding of substantial and continuing disruptions of competition is permitted only to the extent that the use of other authority powers likely appear insufficient to remedy the identified disruption of competition. It shows that the Federal Cartel Office`s proceedings contain the element of a prognosis, and its new intervention tools under the new law are only subsidiary.

Measures the Federal Cartel Office can take under its new powers include far-reaching behavioural or quasi-structural obligations for companies. The scope of the law includes the following:

•    the granting of access to data, interfaces, networks and other facilities;
•    requirements for business relations between companies in the investigated markets and at different market levels;
•    the commitment to establish transparent, non-discriminatory and open norms and standards by companies;
•    requirements for certain forms of contracts or contract structures (including regulations on information disclosure);
•    the ban of one-sided disclosure of information that encourages parallel conduct by undertakings; and
•    the accounting or organisational separation of company or business divisions.

As an ultima ratio, the Federal Cartel Office will be able to order – irrespective whether there is an abuse of a dominant position – the unbundling of dominant companies or companies with paramount significance for competition across markets (Section 19a GWB).

In short, the Federal Cartel Office gets a far-reaching power of intervention to "repair" markets even if there is no concrete violation of competition law. As Andreas Mundt, President of the Federal Cartel Office, puts it: the authority will be able to restore competition and innovation to encrusted markets. This is reminiscent of 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 section 32f of the government proposal, German competition law transports the approach from the digital economy of narrower regulation, independent of concrete violations of competition law (Section 19a GWB, Digital Markets Act) to general competition law.

In line with this, the Federal Cartel Office can, according to section 32f paragraph 2 GWB, 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 achieves EUR 1 million in sales in Germany, which is below the current threshold of German merger control. The sales threshold for the acquirer has been doubled compared to the prior government draft to preserve an equilibrium between the protection of competition and the burden for companies concerned and for the Federal Cartel Office. Moreover, section 32f paragraph 2 sentence 4 GWB rules that repeated extensions of the obligation to file for merger control by three years for each are permitted a maximum of three times. Consequently, a new sector inquiry is necessary after the third extension in order to further obligate the company to file for merger control. In fact, this instrument represents additional merger control far below the regular sales thresholds of German merger control. This too borrows from digital regulation. 

With the 11th GWB amendment, section 32f paragraph 9 GWB has been put into law. It obliges the Federal Ministry for Economic Affairs and Climate Action to report to the German Bundestag and the Bundesrat on the experience gained with the provisions of Section 32f GWB after a period of ten years following its entry into force. 

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

Since 2 May 2023, the rules of the DMA apply and from approximately March 2024, the gatekeepers designated by the Commission must follow the law. The role of national competition authorities in enforcing the DMA is relatively limited. (The German government was unable to prevail with its demand for more extensive competences at the EU level). The main competence lies with the Commission and the civil courts of the member states. However, the DMA allows national authorities to investigate possible non-compliance of gatekeepers regarding the regulations of the digital act in their territory. In Germany, the legal prerequisites for this have now been created by the 11th GWB amendment (section 32g GWB). The Federal Cartel Office therefore is able to support the Commission in the enforcement of the DMA and, in practice, coordinate the application of German special competition laws for the supervision of gatekeepers (Section 19a GWB) and the implementation of the DMA.

In addition, the law extends the scope of the special rules for private actions under competition law to violations of the DMA. This significantly strengthens private enforcement of the DMA in Germany (and could make Germany an important jurisdiction for DMA cases).

3. Strengthening authority power for skimming off benefits

Finally, according to section 34 paragraph 4 GWB, the regulatory instrument for skimming off benefits is considerably strengthened. To this end, section 34 of the GWB was amended in several ways. 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.

A drastic change is the introduction of a presumption of benefit amounting to 1% of the domestic sales related to the infringement. The presumption can be rebutted, but only by proving that no (worldwide) group profit in this amount was achieved. Furthermore, the presumption is not applicable when obtaining a benefit is excluded due to the special nature of the infringement. 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. 

Dropping the requirement of fault (section 34 paragraph 1 GWB) on the part of the company or companies concerned is – contrary to prior draft bills – not part of the 11th GWB amendment. Thus, the limitation of the skimming off of benefits to cases of intentional or negligent infringements of competition law remains in place.

The limitation of the skimming off of benefits for the last five years will not be modified by the new legislation. Furthermore, the time allowed to the competition authority to order the skimming off of benefits from the termination of the competition-law infringement remains at seven years from the end of the infringement.

Despite the mitigations in the previously proposed drafts, the adopted bill has the potential to turn the paper tiger of benefits skimming into a dangerous predator with sharp claws. The only thing that may hold back this predator is the subsidiarity that has already been provided for in relation to competition-damages claims.

4. Practice confronted with considerable challenges due to the 11th GWB amendment

As always, when far-reaching amendments of competition law are enacted, we must wait and see whether the new law will stand up to practical tests. Shortly after the adoption of the GWB amendment by the German Bundestag, Federal Cartel Office President Andreas Mundt stated that by applying the new intervention powers, the Federal Cartel is entering new territory with many new legal issues and complex time-intensive proceedings. It remains to be seen how the Federal Cartel Office will wield the sharp sword of its new intervention powers.

While companies and practitioners wait to see the new law in action, the next amendment of German competition law appears on the horizon. On 6 November 2023 the German Federal Ministry for Economic Affairs and Climate Action has initiated consultation proceedings for the 12th amendment to the GWB.

For more information on the 11th GWB amendment, the upcoming 12th GWB amendment and competition law in Germany in general, contact your CMS client partner or one of the local CMS experts.