Competition Law 4.0: Draft Bill for the 10th Amendment to the ARC

After successful coordination of all ministries involved, the German Federal Ministry for Economic Affairs and Energy (BMWi) has officially presented its draft bill for the 10th amendment to the German Act against Restraints of Competition (ARC) with the title „ARC-Digitization-Act“ on 24 January 2020 (ARC-Draft bill or ARC-D). The core objective of the amendment is, on the one hand, to further develop the digital regulatory framework and, on the other hand, to transpose the European legal provisions of the ECN+-Directive (EU) No. 2019/1 into national antitrust law. In addition, the legal framework for cartel damages will be further developed and the turnover thresholds in merger control will be slightly increased. In the following, we present the main amendments proposed.

Abuse control

In the area of abuse control, the draft bill responds quite comprehensively to the current challenges of the digital economy and platform economy (cf. the report of the Commission “Competition Law 4.0”, the final report on the modernisation of abuse control for companies with market power as well as the much debated Facebook-decision of the Bundeskartellamt):

  • When determining market dominance, Section 18 (3) No. 2 ARC-D adds “access to data relevant for competition” as an additional appraisal criterion. A newly introduced Section 18 (3b) ARC-D establishes the concept of “intermediary power” in order to take appropriate account of the intermediary and steering function of platforms in multi-sided markets – regardless of market shares.
  • Section 19 (1) ARC-D no longer defines abusive conduct as “abusive utilisation of a dominant market position”, but as “abuse of a dominant market position”. The intention is to define the scope of application in a legally certain way, by also covering cases in which market power is reflected in the anticompetitive outcome of the conduct (so-called causality of outcome), but is not at the same time an instrument for achieving this outcome (causal link between market power and conduct). The 9th amendment to the ARC had already partially clarified this for the prohibition to demand unjustified benefits in Section 19 (2) No. 5 ARC. In its Facebook-decision, the Bundeskartellamt had also allowed a causality of outcome to suffice in the case of exploitative abuses pursuant to Section 19 (1) ARC. The Higher Regional Court of Düsseldorf, however, opposed a normative lowering of the causality criterion in its ruling of 26 August 2019
  • The prohibition of refusal of access in Section 19 (2) No. 4 ARC-D will also cover the refusal of access to “data” thereby extending the “essential-facility-doctrine”. Companies, which are absolutely dependent on data sets of market-dominating Big-data companies or platforms for their complementary business model, will have a legal claim to data access for the first time.
  • Section 19a ARC-D brings a new legal basis for authorising action against digital groups in the data and platform markets, for which the Bundeskartellamt has positively determined a “paramount significance for competition across markets” (cf. Section 19a (1) ARC-D); this provision is intended to enable rapid intervention in the light of network effects, data advantages, associated self-strengthening effects and concentration tendencies and to counteract the exploitation of the power position in the relevant market as well as threatening impairments of performance competition in neighbouring markets.
  • The removal of the term “small and medium-sized” enterprises as precondition for an abuse on the basis of relative or superior market power (Section 20 (1) ARC-D) takes into account the fact that not only small and medium-sized enterprises need to be protected from digital groups with market power and that data dependency may exist regardless of the size of the individual enterprise.
  • Finally, Section 20 (1a) ARC-D introduces a right to data access in the area of relative market power and Section 20 (3a) ARC-D creates a new intervention provision in order to be able to prevent the “Tipping” of markets at an early stage; the “Tipping” of a market as such, i.e. the fact that a company with superior market power becomes a monopolist in a performance and competition compliant manner due to network effects, is not generally prohibited; however, it should be abusive if it is based on an deliberate impediment of competitors.

Merger control

  • In merger control, the second domestic turnover threshold pursuant to Section 35 (1) No. 2 ARC-D is raised from EUR 5 million to EUR 10 million. The increase in the turnover threshold is justified by the relief for small and medium-sized enterprises and the focus of the antitrust authorities’ activities on complex merger proceedings.
  • The consequence of the increase is the elimination of the “Bagatellklausel” (currently Section 35 (2) sentence 1 ARC), which exempts mergers with small companies (with worldwide turnover of less than EUR 10 million) from the notification obligation despite the fact that the turnover thresholds have been reached.
  • The de minimis market threshold in Section 36 (1) sentence 2 No. 2 ARC-D is increased by EUR 5 million to a total of EUR 20 million. At the same time, the law stipulates that the total turnover achieved in several markets affected by the merger project must be combined for this assessment. This is the first time that the administrative practice developed for certain case constellations of a bundled consideration of several minor markets has found a legal basis.
  • As a reaction to successive acquisition strategies in regional and waste management markets in which the general turnover thresholds have not been reached, the obligation to notify is extended by a new instrument in Section 39a ARC-D. Accordingly the Bundeskartellamt can impose a general notification obligation on companies with a total worldwide turnover of EUR 250 million by administrative act for all future acquisitions in certain sectors of the economy. Such an obligation to notify is valid for three years from the date on which the acquisition becomes effective.
  • The legislator has not (yet) been able to reach an agreement on a special provision for the systematic acquisition of start-ups and high-growth companies (so-called “killer acquisitions”).

Cartel damage claims

  • A rebuttable presumption regarding the cartel involvement of direct suppliers and customers of a cartel in transactions with companies participating in the cartel is to be included in Section 33a (5) ARC-D. This is the legislator’s reaction to the Federal Supreme Court’s (BGH) “rail cartel” decision of 11 December 2018 (KZR 26/17): The BGH had rejected the “double prima facie evidence” with regard to cartel bias and a causally regarding cartel-induced price increases and significantly strengthened the defendant’s initial procedural situation. The rebuttable presumption is intended to make it easier for claimants to prove that they are biased by the cartel.
  • The new Section 33c (3) sentence 2 ARC-D also extends the rebuttable presumption to indirect customers in the event of a passing-on. A presumption for the quantification of the damage still does not exist. The explanatory reasons also make it clear that the presumption does not encompass umbrella pricing.

Procedural innovations and ECN+

  • In order to provide effective legal protection against companies with market power in fast-moving digital markets, the instruments of interim legal protection will be simplified at antitrust authority level. For example, essential access to interfaces or other essential facilities should also be possible with temporary anticipation of the main proceeding. The high hurdle of proving irreparable damage to the competition process is achieved by reducing it to a “predominant probability” of the infringement in Section 32a (1) ARC-D; even individual companies will be able to benefit of interim measures in case they are able to demonstrate evidence of an imminent, serious impairment and a proportionality test weighing the interests of the company concerned is met.
  • In order to increase legal certainty in the area of cooperation between companies within the framework of horizontal cooperation agreements, Section 32c (3) ARC-D opens up the possibility of a so-called “chairman’s letter” as an exception to the self-assessment principle under antitrust law. Undertakings with a substantial legal and economic interest, are entitled to a negative decision by the Bundeskartellamt within six months, stating that there is no reason for action.
  • The implementation of the ECN+-Directive (EU) No. 2019/1 in Sections 48 et seq. ARC-D is extensive but not very revolutionary. The ECN+-Directive regulates the procedural law in the Member States and is orientated “roughly speaking” on the contents of Regulation (EC) No. 1/2003 as the relevant procedural rules for the European Commission.

Interim conclusion and expected progress

Particularly in the area of abuse control, the draft bill goes courageous but also necessary ways to keep pace with the digital age. While the introduction of Section 18 (3a) ARC as result of the previous 9th amendment to the ARC was already a first indication of these challenges, the current draft bill provides the necessary instruments for official intervention by the Bundeskartellamt. On the other hand, regulations on the Act against Unfair Competition (UWG) and official consumer protection are lacking (with the exception of the first mention of the term “competition on the merits” in Section 20 (3a) of the ARC-D.

The draft bill is to be decided by the federal cabinet soon. Thereafter, it will enter the legislative process as a government draft. In the light of the ongoing regulatory discussions, further changes can be expected. Raue’s antitrust law team will keep you informed about the next steps and would be happy to answer any questions you may have.

(28 January 2020)