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Germany overview: The seventh amendment and a more economics-based approach

Andreas Weitbrecht and Susanne Zühlke Latham & Watkins

The German Federal Cartel Office continues to pursue an active role direct applicability, ie, abolishing the need for a particular exemp- in the enforcement of German and—under the modernisation prin- tion decision. ciples of Regulation 1/2003—of European Competition Law. This applies in particular to merger control, which is the subject of a sep- Unilateral conduct (article 82 EC) arate chapter. By contrast, as regards article 82, where article 3(2) of Regulation The following will principally focus on: 1/2003 permits stricter national laws, the German provisions of sec- • the seventh amendment to the German Act against Restraints of tions 19 and 20 ARC are being retained with only marginal modifi- Competition, implementing fundamental changes triggered by cations. The prohibition against discrimination between customers Regulation 1/2003; and or suppliers and the prohibition against obstructing a competitor’s • a possible tendency for a more economics-based approach in business will continue to apply well below the threshold of domi- German competition law. nance. In particular, these prohibitions apply to companies on which small and medium-sized companies are dependent as a supplier or Fundamental revamping of German competition law purchaser and companies that have superior market power vis-à-vis More than 45 years ago, on 1 January 1958, both the German Act smaller competitors. against Restraints of Competition (ARC) and the Treaty of Rome came into effect1. At that time EU competition law did not prevail New instruments for the Federal Cartel Office over national competition law except in specific situations and EU The amendment provides the enforcement authorities with new and German competition law existed side by side. As a result, Ger- instruments. They will be able to adopt commitment decisions of the man competition law could and did develop quite independently of kind that article 9 of Regulation 1/2003 empowers the Commission European competition law and has become one of the most well- to take, and they will also be able to decide, as foreseen by article 5 developed national competition laws among EU member states. of Regulation 1/2003, that there is no reason for them to intervene Under Regulation 1/2003, article 81 EC will prevail over national in a given case. competition law in all situations where EC law is applicable. Only with respect to unilateral conduct by companies with market power Increased fines will national competition law be allowed to prevail over article 82 The level of fines for infringements has been harmonised with the EC, in cases where the national law is stricter. EU ceiling of 10 per cent of a company’s global revenues in the last Recognising these prescriptions of EU law, the German legislator, financial year. This change, which was introduced very late during firmly supported by the German Federal Cartel Office and the Ger- the legislative process, very much aligns the German sanctions with man business community, has now completely overhauled the ARC.2 the sanctions under EU law, including the relatively vague ‘gravity and duration of the infringement’ as the only criterion that will Concept of the reform guide the authorities in arriving at the actual fine. The reason for The reform is based on the concept that, in the area of article 81 EC, harmonising the FCO’s fining power with that of the Commission German national law should be identical to EU competition law. This is obvious: if Germany had retained its old very restrictive law solution has the great practical advantage that no determination where fines exceeding Û500,000 could only be assessed if the com- needs to be made whether the particular conduct in question has an panies had derived profits from the infringement, it would have put effect on trade between member states, since the legal rules are iden- Germany at a disadvantage in the case-allocation process within tical in both cases. In addition, there is simply no sound conceptual the network of competition authorities. Whether the provision, basis for subjecting smaller companies, whose business tends not to which gives the FCO discretion to chose within an extremely wide cross borders and whose conduct thus is less likely to be caught by range of fines, will pass muster under the German constitution EU competition laws, to a different standard of competition law than remains to be seen. their larger rivals. As a result, German competition law has had to say good-bye to many time-honoured concepts, such as the concept Private suits and civil damages that vertical restrictions, even if anti-competitive, normally will not The amendment specifically addresses private suits for damages. invalidate the agreement in which they are contained. Companies infringing competition law will be required to pay (sin- gle) damages to those that are the victims of the infringement; the Restrictive agreements (article 81 EC) previous jurisprudence from the Federal Supreme Court limiting Section 1 ARC, which originally applied only to restrictions of com- damage claims has been abolished by legislative fiat. The defence petition between competitors has now been made identical to arti- that the victim was able to pass the inflated purchase price on to its cle 81(1) EC, with the exception, of course, that there need not be downstream customers (passing-on defence) has been specifically an effect on trade between member states. Thus, it will apply to both excluded. Further, final decisions of competition enforcement horizontal and vertical relationships. The old exemption provisions authorities determining that a company participated in a cartel and (sections 2–7) have been replaced by article 2 which is identical to assessing sanctions against the company are to be considered res article 81(3); this provision thereby also implements the principle of judicata on the issue of the existence of an infringement. This effect

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is to be accorded not only to decisions of the FCO but also to deci- measures in situations where a clearance decision from the FCO is sions of the European Commission and other enforcement agencies challenged before the courts. within the EU. This is in part a reaction to the extremely generous jurisprudence developed by the Oberlandesgericht Düsseldorf, which had almost Information exchange in the European Competition Network routinely suspended the effect of clearance decisions upon applica- The amendment introduces provisions legalising cooperation and in tions from competitors, thus preventing the merging parties from particular the exchange of information with other competition consummating the merger pending the resolution of the appeal in authorities of EU member states and the European Commission. This the main proceeding. And as the Federal Ministry of Economics has includes specific rules on the admissibility of evidence collected by recently acknowledged, a harmonisation of the substantive standard foreign competition authorities to prove an infringement, provided of German merger control with the standard of regulation 139/2004, certain rights of defence have been respected in its collection. to which the German Federal Cartel Office currently is opposed, will remain on the agenda. Geographic market The amendment also clarifies that the geographic market can be A more economics-based approach to competition law larger than the territory of the Federal Republic of Germany—this The second major development in German competition law to be revises case law from the Federal Supreme Court of 1995, which had reported is a subject that has not yet received too much attention, maintained that the geographic market could not exceed the terri- but which has potentially far reaching long-term implications for the tory of the Federal Republic of Germany, even if as a matter of eco- development of German competition law. nomics the market was, eg, EU-wide.3 The new law explicitly sets Traditionally, German competition law had been very much out in section 19 paragraph 2 ARC that the relevant geographic mar- influenced by the ideas of the Freiburg School, according to which ket can be larger than Germany. the economic freedom of individuals and companies protected by This reform is likely to have a number of repercussions, in par- competition law is part of the overall protection of fundamental free- ticular in the area of merger control. There are many product mar- doms through the Constitution. During the first decades of the prac- kets that are EU-wide as an economic matter, where the total market tice of the German Federal Cartel Office, the volume in that market in the EU exceeds Û15 million, but where the conduct-structure-performance paradigm championed by the Har- German market volume remains below Û15 million and thus below vard School has been particularly influential and it continues to dom- the de minimis threshold of section 35(2) No. 2 (Bagatellmarkt- inate the practice of the FCO to this day. klausel). Mergers involving such markets in the past clearly did not At the same time, the European Commission, in its more recent need to be notified to the FCO. Under the new law there is a ten- practice has embraced the consumer welfare-oriented approach of dency in the FCO to apply the de minimis threshold to the economic the Chicago School. This approach is very much behind the mod- market and thus to subject such mergers to the jurisdiction of the ernisation of the substantive EU competition law as is evidenced by FCO if the total revenues of all market participants in the geographic the block exemptions and guidelines on horizontal and vertical market exceed Û15 million. At present, however, it would appear that restraints as well as the horizontal merger guidelines. It is also the there is no uniform view on this issue in the FCO. economic theory which informs the Commission’s ongoing work as regards a reform of article 82 EC. Merger control Against this background the German government, in its official Merger control was considered largely outside the focus of the comments on the report by the FCO on its activities during amendment which implemented the changes triggered by 2003/20044 has come out in favour of a gradual movement towards Regulation 1/2003; nevertheless the 7th Amendment addresses a more economics-based approach in German competition law. As merger control in some specific instances. In particular, it contains the government’s commentary recognises, as far as article 81 EC is higher thresholds for the admissibility of applications for interim concerned, the economic concept of EC law will prevail and thus

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German law has no choice but to follow the new approach. The Conclusion report goes on to suggest that this would also apply to article 82 EC The harmonisation between German and European competition law where German law could be stricter, but where, according to the brought about by Regulation 1/2003 has been made complete by the report the Commission’s ‘expected re-evaluation of the concept of German legislator as far as article 81 EC is concerned. Thus the sub- abuse in article 82’ will likely have significant effects on the inter- stantive standard in this area will change. In addition, the amend- pretation of German competition law in sections 19 and 20 ARC. ment brings a large number of changes whose practical effect will Finally, the comments acknowledge that the most significant most likely take a few years to be truly felt. Whether the measures impact of a movement away from an emphasis on market structure introduced by the German legislator to improve the possibilities of is likely to be felt in the area of merger control. While not suggest- bringing damage claims against the participants in a cartel will be ing an abrupt turn-about, the comments state that “more refined eco- sufficient to make Germany a place where such claims are enforced, nomic analysis can contribute to improving the assessment based on remains quite doubtful. In any event, many of the peculiarities of traditional criteria in order to give them a more robust foundation German competition law, which have existed for more than 40 years, and thus to give as realistic as possible a picture of the market and will over time be extinguished. And the more economics-based of the effects of a merger. In individual cases this may mean that the approach, which will take some time to manifest itself, will lead to r-evaluation on the basis of economic criteria will require a modifi- a further harmonisation with EU law. cation of existing practice (of the FCO).” Notes 1 Specific antitrust provisions have been in effect in Germany since 1923. 2 Siebtes Gesetz zur Änderung des Gesetzes gegen Wettbewerbsbeschränkungen, Bundesgesetzblatt 2005 Teil I, Nr. 42 of 12 July 2005 (entry into force 1 July 2005). 3 In fact, prior to the adoption of the law, this jurisprudence had been overruled by the Federal Supreme Court itself; see the Staubsaugerbeutelmarkt-Beschluss, Judgment of 5 October 2004, KVR 14/03. 4 Bundestagsdrucksache 15/5790 of 22 June 2005.

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