Competition Law Update Germany: Same Procedure as every Legislature - The 11th Amendment to the Act against Restraints of Competition (ARC) Passed
Last week, the German Bundestag passed the 11th amendment to the Act against Restraints of Competition (ARC). This significant milestone in Germany's national antitrust law, along with the ARC Digitalization Act (10th amendment), represents the most substantial reform of competition law in recent decades.
Really? Let's delve into the details.
With “claws and teeth” – Empowering the FCO and Enabling Enforcement
In 2022, fuel prices reached unprecedented levels, making it the most expensive year on record. Following the onset of the Ukraine war, fuel prices surged, with diesel briefly exceeding 2.30 euros per liter and gasoline surpassing 2.20 euros per liter. In response to the soaring fuel prices last year and the speculation about breaking up the oil corporations, Federal Minister of Economics Robert Habeck announced an intention to revise the antitrust laws. He deemed the existing law too lenient, stating that the new competition law would be one "with claws and teeth” – a crucial step considering the pressing need for consumer protection amidst record inflation and rising living costs.
The amended law primarily focuses on three key areas: enhancing the authority of the Federal Cartel Office, facilitating the seizure of profits resulting from anti-competitive behavior, and enabling the enforcement of the EU Digital Markets Act (DMA) in Germany. These extensive changes have significant implications for businesses across all sectors, irrespective of their market position or size, even if they are fully compliant with existing regulations.
New Intervention Powers and Challenges
A crucial aspect of ARC11 is the empowerment of the FCO to implement ex ante regulation for specific industry segments based on findings from sector inquiries. However, this approach has faced significant opposition during the legislative process, with critics accusing the legislator of granting the FCO excessive discretion in "designing markets." This perceived paradigm shift in competition law has raised concerns about the extent of regulatory decision-making entrusted to the enforcement agency, a domain some argue should be under the purview of the legislature. It is anticipated that companies affected by post-sector-inquiry measures may challenge the FCO's actions in court, questioning the legality of the FCO's powers under ARC11.
Strengthening Sector Inquiries
Sector inquiries have been an integral part of German law, allowing the FCO to investigate industry segments with suspected restrictions or distortions of competition. However, the existing law did not provide the FCO with specific tools to address the findings from these inquiries. ARC11 changes this landscape by equipping the FCO with new enforcement powers to tackle identified distortions of competition. This process involves two steps: firstly, the FCO must formally identify the distortion of competition through a separate decision directed at individual companies active in the sector. Secondly, the FCO can order behavioral or structural measures, including corporate unbundling, against companies in the relevant sector, even if they have not violated competition law. Additionally, the FCO can require companies active in the affected sector to notify proposed mergers, subject to a significantly decreased notification threshold.
Additionally, the 11th amendment significantly simplifies the confiscation of benefits resulting from cartel law violations for the benefit of the Federal Cartel Office. Previously, high prerequisites and legal hurdles limited the utilization of this instrument. However, the lowered barriers will enable more effective enforcement of antitrust laws and contribute to a fairer business environment. The draft law also establishes the legal foundations for the Federal Cartel Office to support the European Commission in enforcing the Digital Markets Act. Furthermore, it eases private enforcement of the Digital Markets Act, reinforcing the commitment to foster a competitive digital landscape and protect consumers' interests.
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Potential Impact on Business Environment and Concerns
Industry associations have expressed concerns about potential interventions by the FCO, even for law-abiding companies. Critics argue that the amendment lacks clear guidelines, which could lead to behavioral requirements and price fixing that impede business operations. These concerns are particularly pronounced in markets relevant to climate transformation or digitalization.
The implications of these amendments may be far-reaching for businesses operating in Germany. Major trade and industry associations have voiced concerns that the reform weakens the business environment and jeopardizes the country's competitiveness. They believe that the FCO now has the power to take severe measures against economically successful companies, even in the absence of any legal violations. This, coupled with companies' existing concerns about high tax burdens and rising costs of energy, labor, and office space, may accelerate capital outflows from the country.
While the industry remains skeptical the president of the FCO, Andreas Mundt, highlights that these measures should be perceived as a moderate application of regulations rather than a radical shift. Similar instruments have already been employed in other European countries. The FCO will need to clearly prioritize in handling these changes and it will become more crucial for companies to analyze the impact of the amendment on their operations and understand the potential challenges they may face.
Persistent high inflation and a broad political consensus across Europe to protect consumers' purchasing power have continued to impact competition law regulation. The need to safeguard consumer interests has elevated the importance of antitrust as a political tool. As pressure mounts on the cartel office and other competition authorities this is where companies need to have a closer look on regulation and develop a compelling strategy to navigation the political arena as after the novella is before the next novella.
Looking Ahead: The 12th Amendment
While awaiting final approval from the Bundesrat, expected by the end of September, plans are already underway for the 12th amendment to the ARC. A concrete timing at this stage is not clear but this might be an opportunity for the industry to revisit the recently decided points. ARC12 aims to enhance legal certainty regarding sustainability matters for businesses and expand the competences of the FCO in consumer protection which becomes crucial in the light of ESG – but we won′t tick this box at this point.
One thing is for sure – we will keep you posted.