Amendment of German Antitrust Law
08. Juni 2017
The 9th amendment of the German antitrust law (Act against Restraints of Competition, “ARC”), which will enter into force on 9th June 2017 will provide significant changes inter alia in the areas of:
- Merger control: In particular through the introduction of an additional notification threshold and clarification of certain specific assessment criteria regarding unilateral conduct in digital markets
- Cartel damage claims: By transferring the EU Directive into German law
- Cartel sanctions: By extending parental liability and by closing previously existing loopholes of liability in case of legal succession
This article focuses on merger control where a new notification threshold is introduced. It will supplement the existing threshold according to which, subject to certain exemptions, a pre-merger notification is required if in the preceding financial year the following turnover thresholds were met:
- All undertakings concerned combined: > € 500 million worldwide,
- At least one undertaking concerned: > € 25 million in Germany; and
- Another undertaking concerned: > € 5 million in Germany.
So far, transactions where a target company (“Target”) had German revenues of less than EUR 5 million escaped merger control, even if Target had a significant market potential. Under the new law this will change as certain – but not all – transactions will be reportable even if Target had German turnover be-low EUR 5 million: a notification will be required if the following thresholds are met:
- Turnover of all undertakings concerned combined: > € 500 million worldwide;
- Turnover of one undertaking concerned: > € 25 million in Germany ;
- Value of the consideration for the transaction: > € 400 million; and
- Target is active in Germany to a “considerable extent”.
Although the wording does not contain such clarification, the new threshold is not applicable to all trans-actions. In particular, it should not be applied to transactions carried out in industries in which turnover reliably reflects the competitive strength. Rather, targeted transactions are acquisitions of (start-up) companies active in digital or innovative markets. Indicative factors are inter alia:
- (Multisided) Markets with products / services rendered without charge. Note that the amendment contains a new provision clarifying that even where services are offered for free, there is a “market” for antitrust purposes.
- Important R&D activities, e.g. in the pharmaceutical or technology sectors.
The driver for the amendment is the thinking that a disproportionality of a high purchase price (i.e. > EUR 400 million) and low turnover achieved by Target typically reflects the presence of innovative business ideas with high market potential. The amendment aims in particular to address increasing digitalization and networking effects (actual case: acquisition of WhatsApp by Facebook in 2014 which was not reportable in Germany) and to “protect innovation” and create a “safeguard to structural market foreclosure”.
There are many uncertainties around this new threshold, for example where is the delineation between a “traditional” market (where turnover reliably reflects the competitive strength) and innovative markets such as pharmaceutical and technology markets, or when is a Target’s activity in Germany “considerable”? Some commentators suggest there is a safe harbor for innovative markets if R&D efforts have not been carried out in Germany. However, I am not sure how safe this argument will be once scrutinized by the German Federal Cartel Office because the question of where a product has been developed does not seem to have a big influence on the future market potential in Germany.
On a side-note, we notice that Austria is about to put into effect a very similar threshold based on consideration value by the end of this year. The new threshold will cover certain transactions with a consideration value of only EUR 200 million. The FCO and the Austrian competition authority expressed their intention to provide joint guidelines for the interpretation of the new thresholds, probably later this year.