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Germany: Bill for Implementation of the EU Damages Directive and Far-Reaching Changes to Sanctions and Merger Control Regimes

  • Germany
  • Competition, EU and Trade - Competition e-briefings

28-07-2016

On 1 July 2016, the German Federal Ministry for Economic Affairs and Energy (“Bundesministerium für Wirtschaft und Energie”, BMWi) published a draft bill to amend the German Act on Restraints to Competition (“Gesetz gegen Wettbewerbsbeschränkungen”, GWB) in order to implement the EU Damages Directive (2014/104/EU) into German law, to fill gaps in the regime of sanctions and fines, and to adapt German competition law to the needs of the digital economy.1 If this bill becomes law, businesses are likely to face significant changes.

Without being exhaustive, we would like to mention the following:

1. The bill will implement the Damages Directive and – allegedly – facilitate private enforcement of competition law by way of damages claims. In relation to disclosure of documents and other evidence, the bill goes beyond the Directive and creates a new discovery-like procedure. The bill leaves open, however, whether parent companies may be liable for the damages imposed for infringements committed by their subsidiaries.

- Cartels will be presumed to have caused damage (§ 33a par. 2 of the new GWB, Art. 17 par. 2 of the Directive). This is in line with case law of several courts. The bill will not provide guidance on how to quantify such damage.

- Immunity recipients and, under some conditions, small and medium-sized businesses within the meaning of Recommendation 2003/361/EC of the European Commission will, in future only be liable for damages to their own direct or indirect customers or providers (§ 33d, Art. 11). They will not be liable for damages to other injured parties unless full compensation cannot be obtained from the other undertakings involved in the cartel.

- Damages claims for competition law infringements will be time-barred after five years (§ 33h, Art. 10); the current limitation period is three years.

- Claimants and defendants may request evidence from the other party, or third parties, in order to substantiate a claim for damages or defend against it, unless such disclosure is disproportionate (§ 33g, Art. 5).

If the defendant has been found to have breached EU or German competition law by a non-appealable decision of the EU Commission, German competition authorities or EU Member States authorities applying Art. 101 or 102 of the TFEU, the claim for production of evidence may also be enforced by way of a simplified preliminary injunction (§ 89b par. 5). Leniency applications and settlement submissions in fining proceedings are excluded from disclosure (§ 33g par. 5).

While the claim for disclosure is labelled “substantive” in the bill, it is arguably a procedural tool for the purpose of damages proceedings and it is therefore likely to apply to infringements of competition law even when they were committed and completed before the GWB as amended will enter into force.

The cause of action for damages will still be worded “Whoever violates …” (“Wer …verstösst …”, § 33a par. 1), so the bill leaves open whether – as of today – only the individual or specific legal entity responsible for the infringement is liable, or whether parent companies will also be liable to pay the damages. It is yet to be seen what the courts make  of the provision, and whether the European Court of Justice will ultimately decide this point.

2. Another goal of the Ministry is to “make tight” the German regime of sanctions against corporate entities. The statutory rules on misdemeanours, which apply to fines for competition law infringements, too, did not foresee fines for legal successors of corporate entities, and the courts were hesitant to close that gap because of the nullum crimen sine lege rule under constitutional law. As a result, businesses have escaped from fines imposed by the BKartA successfully by reorganising their group structure. The last act to amend the GWB failed to fill this gap completely.

- The bill allows for fixed fines against entities which were part of an undertaking and had decisive influence on the responsible entity at the time of the infringement (§ 81 par. 3a). Parent companies may then be fined for breaches committed by “executive persons” of their subsidiaries.

- In addition to legal successors of a legal entity extinct by amalgamation or split-up , entities which continue the responsible undertaking in “economic continuity” (“wirtschaftliche Nachfolge”) may be fined, too (§ 81 par. 3c). This can hit companies which have acquired the responsible entity or its assets.

- Since these rules will not apply to infringements committed before the GWB as amended enters into force, businesses will be subject to “contingent liability” or liability by default (“Ausfallhaftung”) if they have decisive influence on an entity which is responsible for the infringement, which is dissolved or whose assets are transferred (so a fine cannot be fixed or collected), or if they succeed to such a responsible entity, after the entity has been made aware that a procedure for fines has been opened. The liability will amount to the same sum as an appropriate fine (§ 81a).

It is yet to be seen whether the “contingent liability” is constitutional. In the future, even when an acquirer purchases a business by way of an asset deal, it is not shielded against fines for infringements of German competition law committed by the former owner.

3. The bill will also extend German merger control: If the parties to a concentration, in their respective last financial years, exceeded worldwide aggregate turnover of € 500m, one undertaking involved had turnover in Germany in excess of € 25m, and no further undertaking involved had German turnover of more than € 5m, a transaction will nevertheless be subject to German merger control and be reportable if the value of the consideration for the transaction, (i. e. the purchase price) exceeds € 350m (§ 35 par. 1a).

This provision is intended to allow scrutiny of transactions where an acquirer is prepared to pay an exceptionally high price although the target has not realised any appreciable turnover yet; the price may then be an indication that the target business has a high potential, possibly even to compete with the very acquirer in the future.

The proposal has obviously been triggered by cases like the Facebook/WhatsApp merger.2 However, since the new rule will not be limited to start-up targets or specific industries, it will also catch “old economy” transactions where one party has considerable business and turnover (only) outside Germany. Such transactions are likely to be cleared promptly, but the bureaucratic burden may be annoying.

4. Further changes include a clarification that a “market” may be assumed even where supplies or services are free of charge (§ 18 par. 2a). In addition, a framework for analysing multi-sided markets and networks is outlined; in such cases, courts and competition authorities have to take into account direct and indirect network effects, multi-homing, economies of scale, access to data and competitive pressure caused by innovation (§ 18 par. 3a).

This framework of analysis may be considered as an economic truism. The Federal Cartel Office (Bundeskartellamt) has recently published a working paper on “Competition Law and Data”, jointly with the French competition authority,3 and another one on “Market Power of Platforms and Networks”4; the ideas explained in these papers will be further legitimised by the new provision.

5. Finally, proposals to relieve the press from burdens imposed by competition law have become useful when amendments to German competition law are discussed. Publishers are to be exempted from the prohibition of cartels when they cooperate in order to strengthen their economic basis for competing with other media, unless the cooperation pertains to or comprises editorial matters and thereby may affect “plurality of opinions” (§ 30 par. 2b). – If cooperation of publishers may affect trade between Member States of the EU, Art. 101 TFEU will take precedence.

The legal and business communities now have a – short-term – opportunity to comment. The Ministry would like the Cabinet to adopt the bill in August, to have it discussed in Parliament in autumn and voted on by Parliament by December. There is confidence that the amendments to the GWB will not raise substantial controversies. However, the timetable is ambitious and the last two acts to amend the GWB were both considerably delayed. In addition, the outcomes of public and parliamentary debates are still to be seen.

1BMWi, Referentenentwurf, Entwurf eines Neunten Gesetzes zur Änderung des Gesetzes gegen Wettbewerbsbeschränkungen (9. GWB-ÄndG), in the Internet (in German) – All views expressed in this article are personal to the author.

2Decision of the European Commission of 3 October 2014, Case No COMP/M.7217.

3See Press Release of 10 May 2016, under www.bundeskartellamt.de.

4See Press Release of 9 June 2016, under www.bundeskartellamt.de