On sausages and Facebook/WhatsApp – Germany reforms its antitrust act (part 1 of 2)

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©Bundeskartellamt


Guest post by Rupprecht Podszun, 
professor of Civil Law, German and European Competition Law at the University of Düsseldorf *

The German legislator currently amends the antitrust act so as to update it for the digital economy. This is a pioneering step. This post will deal with some of the proposed amendments, while the next post (see here) will describe the new rules for the digital economy.

All EU Member States are working on a change of their competition law statutes, and actually should have completed that work by December 27, 2016. They need to implement the EU directive on antitrust damages claims (2014/104/EU) which aims at facilitating damage claims for victims of cartels and other anti-competitive practices that violate Art. 101 and 102 TFEU. At present, a mere handful of Member States has communicated success in amending their laws (see here).

When Germany started the process of integrating the directive into the Gesetz gegen Wettbewerbsbeschränkungen (GWB), the Act against Restraints of Competition (ARC), it looked as if this was just about damages actions. In the meantime, the legislative project has become a ground-breaking reform in all fields of competition law (see here the government’s proposal, in German only).

Easier for the plaintiffs to get evidence

The starting point is the renewed damages law. §§ 33 ff. ARC implement the directive into German law. The government’s proposal goes beyond what is required as minimum harmonisation by the directive in that it implements the directive’s Art. 5 on disclosure of evidence into German law in a more far-reaching manner than is required. According to § 33g and § 89b of the proposal, plaintiffs may bring an action against companies – cartelists, but also others possessing evidence – as a stand-alone action. They do not necessarily need to claim damages with the same action (as is usually required under German law). They can even speed up the whole process by bringing this claim for disclosure in the form of an easy-peasy injunctive relief, thereby cutting short lengthy proceedings. Their adversaries do not have the same privileges although they may have an interest in disclosure as well, e.g. for gathering evidence for the pass-on-defence. Business associations like the BDI (Bundesverband der deutschen Industrie) fear that German companies run the risk of being drawn into settlements on the basis of such “pre-trial-discovery”, likening it to “fishing expeditions”. (In Germany, every allusion to US-style litigation sends shivers down the spine of CEOs)..

No more evasion of sanctions

Business also goes wild about new provisions on sanctioning in § 81 (3a) ARC. The government tries to fix a loophole that enabled companies to restructure their corporate groups in a way that – in the end – no entity was left to pay the fines of the Bundeskartellamt. The phenomenon is known in Germany as the “Wurstlücke”, which means “sausage gap”. (Brits, please be reassured that even in times of vegan Berlin hipsters, important things in Germany are still about sausages.) The corporate group of Clemens Tönnies (who happens to be chairman of football club Schalke 04) was a member of a sausages cartel and cleverly evaded a fine of € 128 million by restructuring. The government now introduces the European notion of undertaking in fining, distancing this from a more traditional German company law approach. Instead of looking at the formally distinct legal personae, the fine now has to be borne by the relevant economic entity.

Before describing the new rules for the digital economy, which will be dealt with in another post, three further aspects of the new Code deserve attention:

Unilateral conducts

Firstly, the legislator strengthens the prohibition of sales below costs (§ 20), and the prohibition of abusing market power by claiming advantages from other undertakings (§ 19 (2 no. 5)). These norms, unloved by the authority, may – in future – be more easily applied, also in private enforcement.

Debate upon the powers of the Minister of Economic Affairs

Secondly, there may be amendments to the procedures for Ministerial Authorisations. In exceptional cases, the German Minister of Economic Affairs may overrule the Bundeskartellamt in merger cases (§ 42 ARC). Each time this was done in the past (and it has only happened in nine cases so far) it ended in a political, legal or economic mess. Thus, the procedure shall be clarified now. (I personally would favour a complete abolition of this instrument.)

Exemption for publishers of newspapers and magazines

Finally, the big sin of this amendment is an exception granted for publishers of newspapers and magazines. § 1 ARC, the central prohibition of restrictive business practices (equivalent to Art. 101 TFEU), shall no longer apply to their agreements. So, the entire sector is exempted from the ban of cartels. With a view to the dramatic decline in readership and advertisements in this sector and its role for democracy, one may shrug shoulders. Yet, the exemption leads to a huge inconsistency with European law (still applicable in all cases where trade between member states is affected) and it incites desires in other branches: TV corporations as well as savings banks have lobbied intensely with politicians to get a similar exemption, and forestries have already got it. Not good, not good at all, if the market economy with its core mechanism of competition is set aside in one sector after another.

This contribution should not end on a bitter note, since the reform, overall, brings some welcome adjustments and a few real novelties that may play out well in the future, as we will see also in the next post, where I will focus on the proposed rules for the digital economy contained in the government’s proposal.

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*Rupprecht Podszun is professor at the University of Düsseldorf and holds the Chair for Civil Law, German and European Competition Law. He is also an Affiliated Research Fellow with the Munich Max Planck Institute for Innovation and Competition. Contact: http://www.jura.hhu.de/en/dozenten/podszun.html or Facebook: Lehrstuhl Podszun

 

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