Reform of the German Competition Law: Overview of Relevant Changes

[Editor’s Note: The following post is authored by Arnold & Porter LLP]

On June 5, 2013, a committee of the two Houses of the German Parliament reached a long- awaited compromise on the reform of the German competition law. The 8th Amendment Bill of the German Act against Restraints of Competition (ARC) is now expected to be formally adopted and enter into force in the month of July this year.

Far-reaching changes concern specific industry sectors, in particular health insurance and the written press, as well as undertakings operated under German public law. Key aspects of the reform that are of general application include (i) further aligning the German with the European Union’s (EU) competition law, in particular by adopting the EU’s “significant impediment to effective competition” or “SIEC” test instead of the “dominance test” in German substantive merger assessment; (ii) simplifying certain provisions, especially those on unilateral behavior/abuse of dominance; (iii) closing certain enforcement gaps, notably by holding legal successor entities liable for cartel infringements committed by predecessor entities that are dissolved before the imposition of a fine; and (iv) broadening the standing of industry and consumer associations to bring private enforcement actions.

These are important changes that will improve the operation of the German competition law. However, they do not require international companies to significantly adjust their approach towards competition law compliance in Germany. Similarly, mergers and acquisitions are not expected to generally become more easy or difficult to pass the scrutiny of the German merger control authorities as a result of the reform.

We summarize below the main aspects of the Amendment Bill as well as some of the major remaining differences between EU and German competition law. A more detailed German language overview of the 8th Amendment Bill is available here.

MERGER CONTROL
Introduction of the SIEC test. In the future, Germany’s competition authority, the Federal Cartel Office (FCO) will review mergers and acquisitions within its jurisdiction under the “SIEC” test, asking whether the transaction is likely to significantly impede effective competition. The SIEC test, which in practice is similar to the “substantial lessening of competition” or “SLC” test used in U.S. merger control, was an international legislative novelty created by the 2004 amendments to the EU Merger Regulation and has since been introduced in the national merger control laws of several EU Member States. Germany’s current dominance test, asking whether the transaction will create or strengthen a dominant position, will not become irrelevant but continue to feature in the law as the prime example of how a transaction can significantly impede effective competition. This mirrors the current wording of the EU test. Accordingly, the significant body of existing precedent as well as the FCO’s recently published guidelines interpreting the dominance test will remain applicable. Therefore, it is generally expected that the adoption of the SIEC test will not fundamentally change merger assessment in Germany.

However, the SIEC test is conceptually better suited to capture the relatively rare situations in which a merger negatively impacts competition arguably without creating or strengthening a dominant position. Moreover, it is likely that the SIEC test will create a favorable basis for an increased use of economic reasoning and evidence in German merger assessment. Finally, it can be expected that parties and complainants will even more often than in the past argue German cases with reference to EU precedent under the SIEC test.

Legal presumptions of dominance. Unlike the EU Merger Regulation, the ARC contains market share-based presumptions suggesting (albeit with the possibility of rebuttal) when firms hold a dominant position. The triggering threshold for presumed dominance by a single firm will be increased from one-third (33.3 percent) to 40 percent. The thresholds for presumed collective dominance remain unchanged: a combined market share of 50 percent held by three companies, or a combined share of two-thirds (66.6 percent) held by five companies.

Transactions affecting de minimis markets. The current ARC exempts transactions affecting so-called de minimis markets from German merger control. In the future, such transactions have to be notified to the FCO, but the FCO cannot prohibit a transaction for anticompetitive effects occurring on a de minimis market. As before, a de minims market is defined as a market that has existed in Germany for at least five years with total demand from German customers not exceeding EUR 15 million in the last calendar year. A separate exemption from German merger control remains unchanged: a notification is not required if one of the parties is an undertaking that is not controlled by another undertaking and has worldwide revenues of less than EUR 10 million.

Procedural reforms. The Amendment Bill adopts several features of the EU merger procedure: (i) the general mandatory waiting period requiring firms not to implement

the transaction before having obtained merger clearance from the FCO will no longer apply in the case of public takeover bids or other acquisitions of shares traded on stock exchanges, provided that the acquirer notifies the transaction to the FCO without delay and limits the exercise of voting rights before obtaining clearance; (ii) two or more acquisitions of parts of a company which take place within a two-year period between the same persons or undertakings will be treated as a single transaction, with the effect that the revenue thresholds may be triggered by the later transaction if the revenues involved in the prior transaction are added; and (iii) the FCO will obtain an additional one-month period to assess a merger if the parties offer remedies, and the review period will be suspended if parties do not timely submit information requested by the FCO. Finally, the ARC creates greater legal certainty for transactions that were initially implemented in violation of the mandatory waiting period but later reviewed by the FCO upon request of the parties and found not to be anticompetitive.

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