Based on the 11th Amendment to the German Competition Act (Gesetz gegen Wettbewerbsbeschränkungen, “GWB”) that was passed by the German parliament (Bundestag) on 6 July 2023, the GWB will undergo significant reform (the “Reform”). Among other Reform amendments, attention has focused on the Federal Cartel Office’s (Bundeskartellamt, “FCO”) new powers in the context of sector inquiries (Sektoruntersuchungen). According to the Federal Ministry for Economic Affairs and Climate Action (Bundesministerium für Wirtschaft und Klimaschutz, “BMWK”), the amendments intend to strengthen business opportunities for competitors, start-ups and small / medium sized entities.
For the first time under German competition law, the FCO will obtain powers to take remedial measures following sector inquiries, even where the addressee has not been found to have engaged in anti-competitive conduct. Under the Reform, the FCO will be able to take measures where it identifies a significant and continuing ‘disruption of competition’ (Störung des Wettbewerbs) in the relevant market. Such measures will include – as ultima ratio – divestment orders (new Section 32f of the GWB).
In this blog-post we: explain the concept of sector inquiries under the GWB in general; and analyse the key amendments to the FCO’s sector inquiry powers, the most significant changes under the Reform.
Sector inquiries: the status quo
Sector inquiries were introduced to investigate and analyse the structures and competitive conditions in specific economic sectors, to give the FCO comprehensive knowledge of the markets under investigation. As such, sector inquiries do not target individual companies, nor do they investigate any suspected breach of competition law. However, the information obtained during a sector inquiry is often used in follow-on antitrust proceedings by the FCO (e.g., merger control, anti-competitive agreements, or the abuse of a dominant position), similarly to how the UK CMA uses its market investigation findings to inform and / or launch subsequent proceedings.
In more detail, the FCO may conduct such an inquiry into a specific economic sector (or across multiple sectors) into a specific type of agreement or practice, where the FCO has reason to suspect that domestic competition may be restricted or distorted (Section 32e of the GWB). As part of its sector inquiry, the FCO can issue requests for information, demand the submission of documents and even carry out inspections at companies’ premises. By way of example, sector inquiries have covered digital sectors (online advertising, comparison websites), energy markets (district heating, fuel, electricity), food markets (milk, food retail) and several other markets (e.g., EV-Infrastructure, hospitals, building materials).
Up to now, sector inquiries have ended with a report by the FCO, setting out whether it has identified a ‘disruption to competition’, i.e., competitive harm. In a number of cases, the FCO’s findings led to further investigations and proceedings; examples include the blocking of the acquisition of petrol stations by Total (following a sector inquiry in the fuels sector), or administrative proceedings against RWE, which resulted in a commitment (following a sector inquiry in the district heating sector).
Sector Inquiries: the future
Post-Reform, the FCO will have the powers to impose various measures to address disruptions of competition identified during a sector inquiry. These resemble the broad market investigation powers of the UK CMA, which can also take remedial action to address any identified adverse effects on competition, including divestment.
While the Reform provides for examples and indicators as to when competition may be ‘disrupted’ (see the new Section 32f(5) of the GWB), the precise scope is currently unclear. Examples of case groups explicitly mentioned by the law (subject to further indicators) include: unilateral supply and demand power, restrictions on market entry or exit, uniform or coordinated behaviour, or the foreclosure of inputs or customers through vertical relationships. In its statement on the government draft of the Reform, the FCO explains that, in particular, (oligopolistic) markets can be targeted if the intensity of competition is significantly reduced by a combination of factors, including imbalances of power, multiple interdependencies between market participants and raising barriers to entry through certain widespread practices (e.g., where typical contract clauses include long minimum terms, exclusivity or best price clauses). The original aim of the legislator and the BMWK was to tackle ‘calcified’ (“verkrustete”) markets’ (i.e., markets in which it is difficult to change competitive dynamics) and (more specifically) to reduce high petrol prices in Germany.
Potential enforcement measures in the Reform include but are not limited to:
- Reduced merger control thresholds – The FCO will be able to order undertakings in a relevant sector to notify any concentration where: (i) there are objectively reasonable grounds to believe that any future mergers may significantly impede effective competition; and (ii) the purchaser generated over EUR 50 million in turnover in Germany over the last financial year and the target company generated more than EUR 1 million in Germany. This new provision will replace the turnover thresholds that have been introduced in 2021 (through Section 39a of the GWB).
- Behavioural measures – The FCO may: (i) require undertakings to grant access to data, interfaces and networks; (ii) impose requirements on business relationships with other businesses on the markets investigated or across different market levels; (iii) order companies to establish transparent and non-discriminatory terms and standards; (iv) impose requirements for certain forms of contract or contractual arrangements; and / or (v) prohibit the unilateral disclosure of information if could induce parallel behaviour.
- Structural measures – The FCO may also order: (i) the accounting or organisational separation of company or business divisions; and (ii) as ultima ratio and only with respect to dominant undertakings, the divestment of shares or assets (termed ‘unbundling’).
The FCO may currently make use of these behavioural and structural measures if it has identified a significant and continuing disruption of competition and its other instruments do not appear to be sufficient to remedy this disruption effectively and permanently. However, under the Reform there is no requirement whatsoever that the addressee of such measures must be found to have infringed any competition laws. This has resulted in lively debate in Germany, with many commentators calling this a paradigm change in German competition law enforcement.
However, compared to the previous drafts of the Reform, legal protection of the undertakings concerned has been strengthened:
- If the FCO identifies a disruption of competition, it must issue a formal decision to this effect and address it to the undertakings it deems to substantially contribute to the disruption. In particular, as long as the exact meaning of the new term ‘disruption of competition’ has not been tested, this allows the addressees to lodge an appeal already at an early stage. While such an appeal will not have suspensive effect, it appears unlikely that the FCO would implement the more radical measures, such as structural unbundling, before a decision finding a disruption has become final.
- If any remedies are to be imposed, this will require a public oral hearing, and any appeals against measures ordered by the FCO will have suspensive effect.
- Further, and very importantly, the Reform now takes into account and protects previously cleared / authorised transactions. The FCO will be prevented from ordering an unbundling in relation to acquisitions of shares and assets for a period of 10 years following a respective merger clearance or ministerial authorisation.
Under the new rules, the FCO shall complete its sector inquiries within 18 months. Any of the above measures shall be imposed within 18 months from the report’s publication. While this rule is designed to speed up the process, the FCO notes in a statement that the actual duration of a sector inquiry in individual cases will strongly depend on the interest in knowledge of the inquiry and its corresponding scope. Further, the FCO also mentions that it will be very difficult to complete the proceedings within this time period due to their complex multi-stage structure.
The Reform has undergone various changes in the course of the legislative process. While one original motive for the Reform was to control rapid price increases at petrol stations, such short-term goals will not be achievable due to the lengthy and complex process. The same issues will be present with inquiries into other sectors. This outlook is in line with a statement from FCO president Andreas Mundt, who said:
“The new competencies to intervene can help restore competition and innovation in [calcified] markets or markets with concentrated power structures. As we apply the new provisions, we are entering uncharted territory, with many novel legal issues to be clarified. It is a very complex type of proceeding that offers the companies concerned comprehensive legal remedies and has very strict requirements of proof. Proceedings will be very time-consuming and probably span several years. We hope we will receive the resources necessary for this task”.
While legal protection of affected businesses has fortunately been strengthened in the process, it remains particularly uncertain what amounts to a ‘disruption of competition’, which sectors the FCO will focus on, and how it will be determined whether other instruments ‘appear sufficient’ thus preventing the use of the measures under the Reform. Businesses and legal advisors alike will need to closely monitor the FCO’s next moves.