Germany introduces value-based merger control threshold and transposes EU Damages Directive

The ​German Parliament has passed an amendment to the German Act against Restraints of Competition to transpose the EU Damages Directive and introduce further amendments such as a value-based merger control threshold.

On 09 March 2017, the Bundestag (the lower house of the German Parliament) passed the 9th amendment of the German Competition Act (GWB). The amendment also passed the Bundesrat (the upper house of the German Parliament) on 31 March 2017. The amendment mainly serves to transpose the Antitrust Damages Directive (2014/104/EU) (EU Damages Directive) but also introduces some Germany-specific changes, such as a new value-based merger control threshold and the legal succession with regard to penalties.

The new law shall come into force once it is promulgated, which may happen in April 2017. An exact date is not yet known. However, the rules transposing the Damages Directive shall come into force retroactively on 27 December 2016.

EU Damages Directive

Even though the existing German law and case law contained rules which were, in principle, in line with the rules of the EU Damages Directive, such as the principle of full compensation, the passing-on defence, and several and joint liability, the amendment law provides for a complete set of new rules to implement the EU Damages Directive.

The details of various legal concepts of the EU Damages Directive are new to the German legal system. This relates in particular to the relationship of several cartelists, to the privileged treatment of small companies and leniency applicants who received immunity with regard to compensation claims, as well as to procedural provisions on the provision of evidence and documents. We will discuss the transposition of the Damages Directive in detail in a separate article.

German merger control regime

One major change relates to the German merger control regime. The amendment introduces a value-based threshold. Such a value-based threshold is introduced due to a perceived gap, for which the Facebook/WhatsApp case is mentioned as an example. Merger Control proceedings should also apply in dynamic markets where the turnover would not justify a filing, as the turnover may not be an indicator of the market presence. Merger Control would apply in such markets to protect innovation, as the high purchase price indicates an innovative business practice. Examples of such cases are data-driven businesses or pharmaceutical and technology markets where the innovative technology has already been developed but a product is not yet on the market.

Concerning the new threshold, a notification shall become necessary if current German merger control thresholds are not met and:

  • the combined worldwide turnover of the participating undertakings is more than €500m
  • one participating undertaking had a turnover of more than €25m in Germany in the last business year prior to the concentration
  • neither the undertaking to be acquired nor another participating undertaking had a turnover of more than €5m in Germany in the last business year prior to the concentration
  • the value of the consideration for the concentration is more than €400m, and
  • the undertaking to be acquired is active to a significant extent in Germany.

The new notification threshold is supplemented by a calculation rule to determine the consideration which shall encompass all payments and other monetary benefits received by the seller from the acquirer in connection with the concentration and the value of the debt assumed by the acquirer.

The new threshold will create some uncertainty for the parties to a transaction, as the consideration may not be clear-cut (eg through earn-out clauses or price adjustment mechanisms in the SPA). Also, the new test introduces, in addition to the general requirement under German law, a local effects requirement for the target. In the absence of further guidance by case law, there will be some uncertainty, as this local effects test is not a bright line test and is not based on quantitative criteria, but rather qualitative criteria (eg the target has a market share of 5% or IP rights covering Germany).

As a result of this change, parties to corporate transactions will have to take additional care when determining the notification requirements based on this new test which raises further questions in need to be clarified by the practice of the German Bundeskartellamt and case law. However, during the legislative process it was estimated that this new threshold would probably only lead to a low one-digit figure of additional filings in Germany.

Furthermore, the amendment introduces changes to the so-called Ministerial Approval, which is a specific German legal instrument that allows the Federal Minister for Economic Affairs to approve a merger or concentration despite a prohibition decision of the Bundeskartellamt. Given the experience with the recent EDEKA/Kaiser’s Tengelmann case, which a Ministerial Approval was applied for, the new law introduces some more detailed procedural provisions that strengthen the position of the German Monopoly Commission and introduce a time frame of a maximum of six months during which the Federal Minister will need to come to a decision, with approval being deemed to be refused otherwise.

Internet economy

In light of recent experiences in particular in the internet or digital economy, the legislator addresses some specific points.

First, the amendment clarifies that the existence of a market cannot be called into question because the products or services are offered free of charge. This clarification has been rendered against the background that in certain German cases the existence of markets was doubted because services were offered for free or without a consideration.

Additionally, the amendment law introduces a set of criteria to determine the market power or the market position of an undertaking in relation to networks and multi-sided markets. These criteria supplement the national provision on dominance and on how to determine a dominant market position. Concerning networks and multi-sided markets, the following points shall be taken into account to determine the market position: direct and indirect network effects, the extent of parallel use of multiple services and switching costs, economies of scale, access of the undertaking to competitively relevant data, and innovation-driven competitive pressure. These criteria are designed to give more guidance in relation to digital markets and are a reaction to the increased importance of multi-sided markets.

Consumer protection

During the legislative process it was discussed whether the Bundeskartellamt should be given additional powers to intervene also in relation to consumer protection provisions and to sanction infringements with fines. However, the legislator opted for a model that does not extend the powers of the Bundeskartellamt to this level, as political consensus could not be reached. Instead, the scope of sector enquiries is extended, and the Bundeskartellamt is given the power to conduct sector enquiries also in relation to the suspicion of significant, repetitive and continuous infringements of consumer protection provisions, unless another federal agency is competent (which can be the case in the telecommunication sector, for example).

Additionally, the Bundeskartellamt is given an amicus curia right for such cases in order to pass on to the court its knowledge on markets or potential infringements known to the Bundeskartellamt.

National penalty proceedings

A further major change in the amendment law relates to German penalty proceedings and succession with regard to fines under competition law. Contrary to the practice under EU law, it was not the parent entity of a group that was deemed the addressee of a fine (unless wrongdoing could be attributed to the parent entity) but rather the group entity that caused or participated in the infringement. Under the current law, succession with regard to a fine was subject to meeting certain requirements. Corporate groups could avoid paying a fine by taking restructuring measures through asset deals in order to liquidate the entity which the fine was imposed on without having a legal successor against which the fine could be enforced. This legal gap is called the “sausage gap”, as it has recently been exploited by the ClemensTönnies Group seeking to avoid a fine of €128 million that was imposed on group companies in the course of a cartel proceeding relating to various sausage manufacturers.

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