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Germany: New Digital Competition Act Expands Abilities of Competition Authorities to Regulate Abuse of Dominant Market Positions

(Feb. 23, 2021) On January 19, 2021, the Act to Amend the Competition Act to Achieve a Focused, Proactive, and Digital Competition Law 4.0 and Other Provisions (Digital Competition Act) entered into force in Germany. The Digital Competition Act amends the Competition Act ( Gesetz gegen Wettbewerbsbeschränkungen, GWB ) and other laws to implement the requirements of EU Directive 2019/1 and to react to the digitalization of the market. In particular, the Digital Competition Act expands and improves the investigative powers and sanction abilities of the competition authorities, introduces leniency programs for companies and individuals disclosing their involvement in a secret cartel, provides for mutual assistance between competition authorities of the EU member states, and expands the abilities of the competition authorities to regulate abuse of dominant market positions, in particular with regard to large digital platforms.
Content of the Digital Competition Act
Abuse of Dominant Market Positions
The goal of the Digital Competition Act is to “moderately modernize market supervision to better regulate and effectively end the abuse of dominant market power by digital platforms.” ( Explanatory memorandum at 2.) A dominant market position is defined as having a market share of at least 40%. (GWB § 18, para. 4.) For that purpose, the Digital Competition Act inserts a new section 19a into the Competition Act that allows the German Federal Cartel Office (Bundeskartellamt) to designate a company that holds a dominant market position within the meaning of section 18, paragraph 3a as having “paramount significance for competition across markets.” In particular, the following criteria must be taken into consideration:

Its dominant market position on one or several markets
Its financial strength or access to other resources
Its vertical market integration and its activities on otherwise connected markets
Its access to data relevant for competition
The relevance of its services for the access of third parties to supply or sales markets as well as its related influence on the business activities of third parties (§ 19a, para. 2, sentence 1.)

Such a determination will expire after five years. (§ 19a, para. 2, sentence 2.)
If a company has been designated as having “paramount significance for competition across markets,” the Federal Cartel Office is authorized to impose certain restrictions on its activities. It may prohibit the company from

treating its own services and products more favorably than those of its competitors, in particular by favoring them in displays or by pre-installing its services or products on devices or integrating them otherwise in offers of the company;
taking measures that would interfere with other companies’ business activities on supply or sales markets, if such activities are relevant for access to these markets, in particular measures that lead to an exclusive pre-installation or integration of offers of the company or measures that prevent or make it more complicated for other companies to advertise their own services or to reach customers through alternative online services than the ones provided by the company;
directly or indirectly impeding competitors in a market where the company, even without having a dominant market position, may expand its influence quickly, in particular by automatically combining the use of one product of the company with the use of another product which is not necessary for it or by making the use of one product of the company dependent on the use of another product of the company;
limiting or hindering market access noticeably or otherwise impeding other companies by processing data collected by the company that is relevant for competition or by stipulating terms and conditions that allow for such processing;
disallowing or impeding the interoperability of products and services or the portability of data and thereby distorting competition;
providing other companies with inadequate information regarding the scope, quality, or success of provided or requested services or otherwise hindering their ability to evaluate the value of these services; or
requesting benefits for handling offers of other companies that are disproportionate to the service provided, in particular by demanding the transfer of data or rights that are not necessary for the service or by making the quality of the presentation of the offer dependent on the transfer of data or rights that are disproportionate to the service.

Companies that have been designated as having “paramount significance for competition across markets” may file suit directly at the Federal Court of Justice (Bundesgerichtshof, BGH), which is the court of first and last instance. (§ 73, para. 5.) The exclusive competence of the Federal Court of Justice is meant to provide a “speedy and final resolution of the legal questions” and fast legal certainty for the parties involved. ( Explanatory memorandum, amended version at 9, 120 & 122.)
Merger Control
The Digital Competition Act changes the domestic turnover thresholds that determine which mergers must be reported to the Federal Cartel Office. A filing is required if, in the last business year, the combined aggregate worldwide turnover of all the companies involved in the merger was more than 500 million euros (about US$600.9 million), the domestic turnover of at least one company was more than 50 million euros (about US$60.1 million), and the domestic turnover of another company was more than 17.5 million euros (about US$21 million). (GWB § 35, para. 1.) The previous thresholds for domestic turnover were 25 million euros and 5 million euros (about US$30.3 million and $6.1 million), respectively. In addition, there is a transaction threshold for mergers that do not meet the domestic turnover threshold of more than 17.5 million euros. A filing is still required if the size of the transaction is valued in excess of 400 million euros (about US$481 million) and the target company has substantial operations in Germany. (§ 35, para. 1a.) Lastly, transactions which concern markets with total domestic sales of less than 20 million euros (about US$24.2 million) in the last calendar year (previously 15 million euros, about US$18.2 million) do not need to be reported ( de minimis clause). (§ 36, para. 1, no. 2.)
Implementation of EU Directive 2019/1
The Digital Competition Act also introduces several changes to the Competition Act to implement the requirements of EU Directive 2019/1. For that purpose, it expands the investigative powers and sanction abilities of the Federal Cartel Office, in particular with regard to the power to inspect business and other premises, request information, summon persons to appear for an interview, and fine associations of undertakings. (§§ 81b–81d, § 82b.) In addition, the Digital Competition Act introduces leniency programs for individuals and companies disclosing their involvement in a secret cartel (§§ 81h–81n) and provides for mutual assistance between competition authorities of the EU member states (§§ 50a–50f).
European Union Developments
On December 15, 2020, the European Commission published proposals for a Digital Services Act and a Digital Markets Act that would establish new rules for online platforms that wield a lot of market power, among other things. The German Bundestag (parliament) adopted an additional resolution in connection with the Digital Competition Act that requires the federal government to share with EU bodies and member states its experiences with the German Digital Competition Act in order to further the European debate. One year after the Digital Competition Act has entered into force, the federal government must report on the relationship between European and German rules and their respective impact on the digital economy, and propose amendments, if necessary. ( Explanatory memorandum, amended version , at 7–11.)
Pending Case against Facebook
In December 2020 , the German Federal Cartel Office initiated abuse proceedings against Facebook to determine whether linking Oculus, a brand of Facebook Technologies, LLC, that produces virtual reality (VR) headsets, with the Facebook social network constituted market abuse. The use of the latest Oculus VR glasses will require users to register with a Facebook.com account. On January 28, 2021, the Federal Cartel Office announced that it would expand the scope of the proceedings to assess whether the new section 19a of the German Competition Act on abuse of dominant market positions applies to Facebook.

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