Germany adopts proposal to give Federal Cartel Office more power to intervene in markets

On 5 April 2023, the German federal government adopted the proposal of the 11th amendment to the German Act for Restraints against Competition (GWB) and started the legislative procedure in the federal parliament. The draft legislation follows a draft from the Federal Ministry for Economic Affairs and Climate Action from September last year. The government proposal leaves unchanged the main features of the original ministerial draft. Specifically, the powers of the German competition authority, the Federal Cartel Office, will be strengthened in three key areas.

• The Federal Cartel Office 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 (which is a kind of "New Competition Tool" for the Federal Cartel Office).
• 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.
• The power of the competition authorities to skim off benefits is to be strengthened. In addition, the legislature will correct drafting errors in earlier amendments and make changes to public procurement law.

The draft bill contains some differences compared to the draft in September, which will be discussed in the article below.

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

In his statement on the government`s adoption of the draft bill, Federal Minister of Justice Marco Buschmann stated that the law would give back the "claws and teeth" to competition law and highlighted the extension of the authority`s intervention powers. This concerns the significantly strengthened role of sector inquiries through the envisaged 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. However, in Germany 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 abuses, 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 will be limited to 18 months and Federal Cartel Office staff will receive eight additional positions for this purpose. A more profound change in the draft bill is the extension of the Federal Cartel Office's options to intervene after sector inquiries (Section 32f of the government proposal), which will lead to a revolution in German competition law. According to the draft bill, the Federal Cartel Office will be 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 will follow the model of UK competition law where similar reform had already taken place.

The draft law includes an important change and restriction compared to last year`s ministerial draft. According to the government proposal, a finding of substantial and continuing disruptions of competition is permitted only to the extent that the use of other authority powers is not likely to sufficiently remedy the identified disruption of competition. Hence, under the revised draft law the new powers of intervention are only subsidiary.

Measures the FCO can take under its new powers include far-reaching behavioural or quasi-structural obligations for companies. The scope of the draft bill 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 organisational separation of company or business divisions.

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

In short, the Federal Cartel Office will get 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 break up encrusted competition structures and enable competition. 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 of the government proposal, 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 500,000 in sales in Germany, which is below the current threshold of German merger control. This too borrows from digital regulation.

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

On 12 October 2022, the Digital Markets Act (DMA) was published in the Official Journal of the EU and went into force 20 days later. From 2 May 2023, the rules of the DMA will apply and from approximately March 2024, the gatekeepers designated by the Commission will have to follow the strict dos and don'ts of 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 on 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 will be created by the 11th GWB amendment (section 32g of the government proposal). The Federal Cartel Office therefore will be 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 implementation of the DMA.

In addition, the draft bill extends the scope of the special rules for private actions under competition law to violations of the DMA. This will significantly strengthen 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 of the government proposal, the regulatory instrument for skimming off benefits will be considerably strengthened. To this end, section 34 of the GWB is to be 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 is to be rebuttable, but only by proving that no (worldwide) group profit in this amount was achieved. Furthermore, the presumption is not applicable when the obtaining of 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. 

Unlike the draft of September, dropping the requirement of fault (section 34 paragraph 1 GWB) on the part of the company or companies concerned is no longer part of the draft bill. Thus, the limitation of the skimming off of benefits to cases of intentional or negligent infringements of competition law is to remain in place.

Currently, only the benefits of the last five years can be skimmed off. Last year's ministerial draft had provided for an abolition of this limitation, but this was abandoned by the government proposal. Furthermore, the time that the competition authority can allow itself to order the skimming off of benefits from the termination of the competition-law infringement will not be extended, but will remain at seven years after the end of the infringement.

Despite the mitigations of the prior proposed amendments, the draft bill has the potential to turn the paper tiger of benefits skimming into a dangerous predator with exceedingly sharp claws. 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.

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

The draft law is expected to pass the German Bundestag by a majority of the votes of the government coalition soon.

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. Immediately after the federal government`s resolution on the adoption of the draft bill, Federal Cartel Office President Mundt stated that legal practice now faces significant challenges and that the new intervention powers for the Federal Cartel Office are in a tense relationship with the aim of more predictable and efficient proceedings. It remains to be seen how the Federal Cartel Office will wield the sharp sword of its new intervention powers.

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