A. New enforcement powers for the FCO with regard to digital platforms
In particular, the Digitalisation Act revises the rules for powerful digital platforms by granting the FCO new enforcement powers with regard to undertakings that have a significant impact on competition across markets. These companies are now subject to stricter regulation in order to mitigate the distorting impact on competition of network effects at an early stage. To this end, the FCO is now entitled to declare a company to be subject to the new rules where the FCO finds the applicable criteria have been met.
Once a company is considered subject to the new rules, it not only has to comply with those rules, which go far beyond the prohibitions applicable to dominant companies, but also the FCO has far-reaching powers to intervene in the company's business activities, where necessary, to protect competition.
The FCO may now, among other things, prohibit companies from favouring their own offerings in preference to those of competitors, prohibit practices that hinder the collection and use of big data, and take measures to prevent the restriction of the interoperability of products or services and the portability of data. The Digitalisation Act also gives the FCO the power to implement interim measures to prevent the tipping of markets – for example, preventing consumers from using, or limiting their ability to use, competing digital platforms in parallel (so-called multi-homing) – at an early stage before competition is harmed.
The FCO is expected to make use of its new powers relatively soon. Companies should therefore prioritise preparing for compliance with the new rules.
In addition, the Digitalisation Act broadens the essential facilities doctrine by giving a right to data access where competition requires a company’s access to such data: dominant undertakings and also non-dominant market players on which other undertakings are dependent may face such data access claims in the future.
B. New rules for transactions
The Digitalisation Act also provides for a substantial increase in the first and second domestic turnover thresholds, increasing:
- the first domestic turnover threshold from €25 million to €50 million; and
- the second domestic turnover threshold from €5 million to €17.5 million.
It is expected that these changes will lead to a significant (30-40 per cent) decrease in merger control filings in Germany, thereby reducing the administrative burden for both the FCO and companies. The threshold applicable to parties with a global turnover in excess of €500 million remain unchanged, as does the size of transaction test.
The Digitalisation Act also provides for an extension of the main review period (so-called phase II) from four to five months, enabling the FCO to examine transactions in greater depth.
Other changes include: (a) an increase in the minor market clause threshold from €15 million to €20 million; (b) the deletion of the de minimis clause in section 35, paragraph 2, sentence 1 ARC; and (c) the removal of the obligation to notify the completion of a merger to the FCO, which will also reduce the administrative burden for the parties to merger control proceedings.
In order to expand the scope of German merger control to potentially critical deals (in particular, staggered takeo-vers), the Digitalisation Act gives the FCO a new enforcement tool: the FCO is now able to impose, by way of an order applicable for a period of three years, an obligation on companies within certain industries to notify mergers, where all of the following requirements are met:
- the acquiring company has a worldwide turnover of more than €500 million;
- the target company achieved a global turnover of more than €2 million in the previous financial year, provided that at least two thirds of the turnover was generated in Germany;
- there are indications that future acquisitions by the acquiring company may significantly impede effective competition in Germany in the relevant sector of industry;
- the acquiring company has a market share of at least 15 per cent in Germany in the affected sector; and
- the FCO has already conducted a formal sector enquiry in the affected sector.
In addition, special rules apply to hospital mergers, with certain types of mergers being exempted from German merger control.
C. Major changes to cartel investigations
One of the major changes to cartel investigations is the extension of the FCO’s investigative powers with regard to information requests. Based on the European model, the Digitalisation Act now includes a duty of private individuals to cooperate in searches, and fines can be imposed for non-compliance. In certain cases, natural persons may even be obliged to provide potentially self-incriminating information; however, the privilege against self-incrimination will continue to exist, and so information may not be used against natural persons in criminal or fining proceedings.
The Digitalisation Act also formally introduces the leniency policy that is already being currently applied by the FCO. The FCO had anticipated this will make leniency applications in the case of cartel infringements more attractive and so reverse the downward trend in the number of leniency applications in recent years.
The Digitalisation Act also sets out a non-exhaustive list of criteria for the assessment of fines, including the turnover associated with the infringement. This is intended to minimize differences in the approach adopted by the FCO and that taken by German courts, as established by case law, when assessing the fines.
Reed Smith’s German Competition & Antitrust team of Reed Smith is happy to help guide companies in relation to the new rules and can assist in revising in-house policies and procedures to ensure compliance, as needed.
Client Alert 2021-023
