29.09.2022

New draft German antitrust bill: Will the Federal Cartel Office be vested with new powers to order unbundling on any disfunctional market without having to prove a violation of an-titrust laws?

When seeing steeply rising prices, in particular for the supply of energy of all kinds, many called out for the Federal Cartel Office (FCO) to intervene immediately. Now the Federal Ministry of Economics and Climate has presented a draft bill that is intended to enable the FCO to impose far-reaching measures, including unbundling, without the prerequisite that antitrust laws – be they German or European – have been violated. This is a major shift in German antitrust enforcement history and policy: Companies would no longer be able to ultimately control whether or not they would become the subject of an intervention by the FCO. Rather the authorities far-reaching powers of intervention are based solely on the circumstance that there is a significant and persistent or repeated defunction of competition in a market where these undertakings – who have been acting fully compliant with all antitrust laws – are active. While vesting the FCO with such new intervention powers may have been triggered by the current political and economic situation of an energy shortage, the new intervention powers are by no means limited to the energy sector and the phenomenon of persistently rising prices. In fact, such measures could affect all companies that are active in markets in which the FCO identifies (significant) deficits in the functioning of competition – regardless of whether the companies are dominant companies and regardless of whether there has been an abuse of such dominance.

Background

The draft bill provides for a new section 32 lit. f) to be inserted into the Act against Restrictions of Competition (“GWB”) according to which the FCO may take remedial action if

- the FCO has completed a sector enquiry and published the report on its findings; and

- a "substantial, continuous or repeated disfunction of competition" has been established on at least one market (whereby the requirement of substantiality must be met cumulatively with continuous or repeated and not alternatively).

If these conditions are met, the FCO can take "all measures" to eliminate or reduce such disfunction (sec. 32 lit. f (3) GWB). These remedial measures can be behavioral or structural. The FCO can determine on a case-by case basis which measures it will take, taking into account the principle of proportionality. The (non-exhausive) list of exemplary remedies include

- granting access to data, interfaces and networks

- supplying other companies

- licensing the use to intellectual property

- reallocation of regulatory permits

- the organizational separation of business areas

- specifications for the drafting of contracts

- regulation of supply relationships between companies in the affected markets (including their termination)

- as an ultima ratio, unbundling.

 

Unbundling measures may only be imposed (sec. 32 lit. f) (4)) if they can (at minimum) significantly reduce the disfunction of competition and if behavioral measures would not be equally effective or would be more disadvantageous for the companies concerned. For acquisitions which have been filed and cleared by the competent antitrust authorities, no such measures may be ordered for a grace period of 5 years. However, neither an antitrust violation nor the abuse of market power (nor market power of the companies concerned) has to be proven. Furthermore, legal redress against any such measure imposed does not have suspend a respective order.

The criteria on the basis of which the FCO may establish the status of disfunction of competition are not conclusively enumerated. The term "disfunction" and the threshold of “significance” are not clearly defined. While general clauses which are open to interpretation are not a stranger in the application of antitrust law, the criteria are (even) more vague than for determining market dominance. The criteria to be taken into account by the FCO include those that are typically used to establish a dominant position, in particular market concentration, number, size and financial strength of the companies active on the market, cross-company shareholdings, vertical integration and also barriers to market entry. In addition, there is an explicit reference to market results and patterns of behavior which indicate that relative or superior market power or a dominant position may exist on the market concerned. Said analysis of market results may not only take into account (high) prices and (scarce) offer volumes. Instead, the starting point for the assumption of a disfunction can also be declining quality, a lack of choice and a low degree of innovation (!), as well as the terms and conditions that companies agree on in these markets. This enumeration also shows that the new law concerns do not only relate to the current political and economic situation triggered by the sudden and extreme shortage of raw materials, but can affect a much larger number of markets and companies. 

In addition to a simple order by the cartel authorities, the FCO can also accept commitments from the companies and declare them binding. On the one hand, offering such commitments enables the companies to take influence on the shape and extend of the concrete measures to be implemented. On the other hand it also opens up the possibility for the FCO to implement such measures without proof of neither a "significant disfunction of competition" nor of their suitability and proportionality.

 

 

Conclusion

The proposal for new powers of intervention leads to a considerable lowering of the threshold for an intervention by the authorities. According to the draft, measures as grave as unbundling by the cartel authorities are no longer linked to behavior which a company could decide to stop in order to avoid becoming a target for the authorities. The draft is thus a real paradigm shift. It has not yet been agreed neither in between the ministries (which are directed by ministers of different political parties) nor has it been discussed in parliament yet. We may expect to see controversial discussions which are likely to also touch upon the question whether such far reaching measures with such low thresholds for intervention are in line with the constitution. Against the current political situation it cannot be excluded that it could be passed with the same key features.

Author
Dr Guido Jansen

Dr Guido Jansen
Partner
Dusseldorf
guido.jansen@luther-lawfirm.com
+49 211 5660 24844

Anne Caroline Wegner, LL.M. (European University Institute)

Anne Caroline Wegner, LL.M. (European University Institute)
Partner
Dusseldorf
anne.wegner@luther-lawfirm.com
+49 211 5660 18742

Samira Altdorf

Samira Altdorf
Senior Associate
Dusseldorf
samira.altdorf@luther-lawfirm.com
+49 211 5660 11176