GWB amendment: Significant interventions threaten after sector inquiries

On November 7, 2023, the 11th amendment to the Act against Restraints of Competition (GWB), the so-called Competition Enforcement Act, came into force. The legislative reform is a turning point in antitrust law: serious antitrust measures can also be taken against law-abiding companies. For example, the newly introduced Section 32f ARC gives the Federal Cartel Office new and far-reaching powers as a central intervention instrument following a sector inquiry in order to be able to put an end to any distortions of competition identified. As a last resort, this even includes the possibility of an unbundling order, i.e. the break-up of a company.

Up to now, sector inquiries have primarily served the Bundeskartellamt to gain in-depth knowledge of markets and resulted in final reports. It was able to use these findings in proceedings. However, the Office has so far only been able to take measures if companies have violated specific legal requirements or prohibitions. For example, the sector inquiries into “rolled asphalt” and “cement” as well as “ready-mixed concrete” subsequently led to extensive unbundling of joint ventures, which were, however, justified with violations of the ban on cartels (Section 1 GWB).

In addition to new remedies following sector inquiries, the 11th amendment to the ARC grants the Federal Cartel Office extended powers for merger control and benefit skimming. The Federal Cartel Office also gains independent investigative powers to enforce the Digital Markets Act (DMA).

The 11th amendment to the ARC allows direct interventions following sector inquiries for the first time, even against law-abiding companies

Section 32f ARC now gives the Federal Cartel Office the power to intervene directly and to take regulatory action if a sector inquiry reveals that competition has been disturbed. The paradigm shift is that intervention under Section 32f ARC is not dependent on proof of specific breaches of antitrust law. This means that action can also be taken against companies that are actually compliant with the law if, in the opinion of the authority, there is a “significant, persistent or repeated disturbance of competition in at least one market or across markets”. Section 32f ARC specifies exemplary, non-exhaustive factors, some of which are based on the criteria of Section 18 (3) ARC, but also include market results and conduct that are detrimental to competition in the overall assessment.

While both German and European antitrust law previously applied the principle that law-abiding companies do not have to fear sanctions, the 11th amendment to the ARC leads to a departure from this proven principle. The German government used Great Britain as a model. The reason given was that, unlike the UK Competition and Markets Authority (CMA), German antitrust authorities have so far been unable to intervene effectively in cases of primarily market structure-related disruptions to competition.

These remedies are made possible by the ARC amendment

As a rule, the remedial measures envisaged are primarily behavior-oriented or quasi-structural obligations. These include in particular:

• granting access to data, interfaces, networks or other facilities,
• Specifications on business relationships between companies in the markets studied and at different market levels,
• Obligation for companies to establish transparent, non-discriminatory and open
  norms and standards,
• Requirements for certain forms of contracts or contractual arrangements, including contractual arrangements for the disclosure of information,
• the prohibition of unilateral disclosure of information that favors parallel behavior by companies,
• the accounting or organizational separation of company or business divisions.

However, if such measures are not promising, the Federal Cartel Office can order the unbundling of companies as a last resort, taking into account the principle of proportionality. The addressees of this most severe measure can only be market-dominant companies or companies with outstanding cross-market significance for competition (“gatekeepers”). In the case of prior merger control clearance or ministerial approval, however, Section 32f ARC provides for a fundamental protection of legitimate expectations for ten years.

To avert these measures, affected companies have the option of agreeing a commitment with the Federal Cartel Office. In return, the commitment to be declared binding by the Bundeskartellamt binds the Bundeskartellamt not to make use of the aforementioned measures.

Enhanced merger control as a further measure of the sector inquiry

Furthermore, as an additional measure following a sector inquiry, the Bundeskartellamt can now oblige companies to notify relevant mergers for merger control even if the companies involved only generate very low turnover. This is intended to prevent corporate concentration. The prerequisite for this is that the sector inquiry has revealed indications that future mergers would significantly impede competition in the sector concerned and that the acquirer had a domestic turnover of more than EUR 50 million in the last financial year and the target company more than EUR 1 million.

Even under the current legal situation, Section 39a ARC allows for an obligation to notify mergers below the notification thresholds of Section 39 ARC. However, Section 32f ARC significantly tightens the existing regulation, particularly due to the even lower turnover thresholds.

Benefit skimming

The instrument of benefit absorption is also not new. Pursuant to Section 34 ARC, the antitrust authority has also been able to skim off profits to date, provided that any remaining profit has not been offset by fines or compensation payments. In practice, however, this has so far been ineffective due to legal hurdles. The double presumption of the new Section 34 (4) ARC now counteracts this. This assumes that a cartel infringement has firstly caused an economic advantage which secondly amounts to at least 1 percent of the turnover affected by the cartel. Theoretically, the presumption can be rebutted, but in practice a company would have to prove that it did not make a profit of a corresponding amount worldwide. The limit for benefit skimming is 10 percent of the group’s total worldwide annual turnover in the financial year prior to the decision.

Enforcement of the DMA

The amendment also enables the Bundeskartellamt to conduct independent investigations into possible non-compliance with Art. 5, 6 or 7 DMA by gatekeepers. However, the authority of the FCO is limited to supporting the European Commission, which remains solely responsible for determining violations of the DMA.

What is also new is that such a declaratory decision by the Commission is binding for damages proceedings (follow-on) before German courts, which now also have jurisdiction for civil proceedings in connection with the DMA thanks to an amendment to Section 95 GVG.

Conclusion

The 11th amendment to the ARC provides the Federal Cartel Office with far-reaching and intervention-intensive instruments to counteract undesirable market structural developments. What is new is that this can be done entirely without any previous conduct in breach of antitrust law. This development represents a paradigm shift and a departure from the familiar three-pillar model of antitrust law – prohibition of cartels, abuse control and merger control. For companies, sector inquiries are therefore now to be seen as a sign of potential antitrust intervention measures. Companies affected by sector investigations are therefore strongly advised to seek qualified antitrust advice in a timely manner.