On 20 September 2022, the German government published a draft “Competition Enforcement Act” (11. GWB-Novelle – Wettbewerbsdurchsetzungsgesetz, Draft Act) that aims to substantially expand the enforcement powers of the German Federal Cartel Office (Bundeskartellamt, FCO). The Draft Act is considered an important step towards the implementation of the comprehensive long-term “Competition Policy Agenda until 2025” that the government set up in February 2022. The Ukraine war crisis has accelerated the Draft Act, as it is also seen as an instrument to tackle the crisis in the short to medium term. 

Given that the Draft Act raises several controversial questions of competition policy and law, it seems likely that the Draft Act will undergo certain amendments in the further legislative process. Given the circumstances, it is also likely that the Draft Act will continue to receive expedited treatment so that it could enter into force in late 2022 or early 2023. 

The draft amendments can be summarized as follows: 

National New Competition Tool

The Draft Act revives the concept of a “New Competition Tool” (NCT) that the EU Commission contemplated in 2020 but to date only folded into the Digital Markets Act (DMA). The NCT expands the FCO’s competition law toolbox, by complementing the three existing instruments: merger control, prohibition of anti-competitive agreements (Article 101 TFEU and German equivalent) and prohibition of abuse of dominance (Article 102 TFEU and German equivalent).

Under the NCT, the FCO can, following a sector inquiry, impose remedies in order to address a “considerable continuous or repeated disturbance of competition”, irrespective of merger control or the enforcement of Articles 101 and 102 TFEU and their German equivalents. The remedies can be proposed by the undertaking concerned and, in line with the principle of proportionality, can be behavioral (as preferred) or structural. If no less invasive suitable remedy is available, the FCO will be entitled to order structural divestment (Entflechtung), i.e., the breaking up of companies. 

The proposed NCT raises several important questions, which will likely lead to considerable debate in the coming weeks. For example, the Draft Act does not provide for any compensation for the damage resulting from a forced divestiture, even though this is likely to be required by both the German constitution (in particular the right of ownership under Article 14) and competition policy considerations (in particular incentives to innovate and grow). 

Another fundamental problem is that the term “disturbance of competition” as a pre-condition for enforcement of the NCT is undefined. If not further defined, the NCT could become a quasi-regulatory competence to “design markets”. This would be contrary to the traditional approach to competition policy based on trust on the “invisible hand of the market”. If unchanged, the definition would be up to courts and defining the boundaries of the NCT would likely take a long time.

Tightened merger control for individual undertakings

If the FCO, as a result of a sector inquiry, sees “objectively comprehensible indications” that future acquisitions by certain companies with a German annual turnover exceeding EUR 500 million could significantly impede effective competition, then the FCO can order such companies to notify all their future proposed acquisitions of targets with annual turnover in Germany of at least EUR 0.5 million (which is much lower than the currently applicable merger control thresholds). 

Strengthened sector inquiries

The FCO’s sector inquiry powers, which was created in 2005, will be strengthened. Following the completion of a sector inquiry, the FCO shall have the abovementioned competences to apply the NCT and/or tighten merger control for individual undertakings. To ensure that the FCO takes these decisions based on up-to-date market knowledge, sector inquiries can last a maximum of 18 months, and the FCO must exercise its competences within 18 months following completion of a sector inquiry.

Facilitation of disgorgement of profits

To strengthen the FCO’s existing competence to disgorge profits resulting from illegal anti-competitive behavior, a legal presumption will be introduced according to which such behavior resulted in an economic advantage in the amount of at least 1% of the turnover that the undertaking concerned realized in Germany with the products or services that were subject to the illegal behavior. An undertaking can rebut this presumption only by showing that neither the legal entity directly involved in the illegal behavior nor its entire group has realized a worldwide profit in the said amount. In addition, the requirement that the illegal conduct was based on willful intent or negligence will be dropped. 

National implementation of the DMA

The Draft Act contains several provisions to authorize the FCO as the German national authority in the meaning of Article 38 (7) of the DMA. Thus, the FCO will be entitled to investigate cases of possible non-compliance with Articles 5, 6 and 7 DMA until the EU Commission in its role of “sole enforcer” of the DMA opens its own proceedings with regard to the same case. The Draft Act also contains several provisions that facilitate private enforcement of the DMA before German courts and are similar to existing procedural provisions facilitating cartel follow-on litigation.

If adopted, it seems likely that the FCO would make use of the NCT sooner rather than later. Possible targets include sectors where the FCO has in the past completed sector inquiries and identified competition concerns that it was unable to address with its existing three competition tools (such as car fuels and, most recently, online advertising). 

As to the other competences created by the Draft Act, the FCO will likely strive to use its competences under Article 38 (7) DMA to the fullest and will likely divert further resources away from individual ad-hoc cases and towards sector inquiries. This means that many more companies could be subject to FCO enforcement than in the past.

A more detailed analysis of the Draft Act is available here.

Authors: Dr. Jan Heithecker, Dr. Josef Hainz and Dr. Maren Tamke.