Draft reform of the Competition Act in Germany approved by the Federal Cabinet - Effects on Austrian companies?
On 5 April 2023, the German Federal Government passed the 11th amendment to the Act against Restraints of Competition (GWB). The draft law of the so-called "Competition Enforcement Act" pursues, by advancing the applicable competition law and by expanding the powers of the Federal Cartel Office, the goal of being able to better stop disruptions of competition in the interest of consumers.
We are currently experiencing a period of high inflation. Large distributors are paying close attention to how much their competitors are charging for their products and are adjusting their own market behaviour accordingly. Up until now, the competition authorities have lacked the means to take legal action against this "parallel behaviour" if they cannot successfully prove that the companies are behaving in an anti-competitive manner (e.g. collusion or direct exchange of information with each other). This problem is emerging in Austria as well as in Germany. In particular, where only a few suppliers exist on the market and the frequent parallels in price developments lead to great disadvantages for consumers, Germany plans intervene with the help of the 11th GWB amendment.
The German Federal Cabinet has already approved the envisaged expansion of the Act against Restraints of Competition presented by the German Federal Ministry of Economics and Climate Protection. Now the Competition Enforcement Act will be forwarded to the German Bundestag and Bundesrat. The government draft can be found on the website of the German Federal Ministry of Economics and Climate Protection.
Overview of the changes by the 11th GWB amendment
Acceleration of sector enquiries (Section 32e GWB)
Between the initiation of a sector enquiry and its conclusion sometimes a lot of time passes, therefore the existing § 32e GWB is supplemented by a standard period of maximum 18 months. This target period is intended to accelerate the procedure and to ensure a sufficiently up-to-date data basis.
The new intervention instrument (Section 32f GWB)
So far, a sector enquiry has only been followed by a report of the Bundeskartellamt (BKartA/FCO). In future, the BKartA will also be able to intervene after a sector enquiry has identified a disturbance of competition, i.e. it will be able to order various measures. For example, it may order that market entry and access are to be facilitated, concentration tendencies to be stopped or, as a last resort, companies to be unbundled. The new provisions are modelled on the market investigation powers of the Competition Authority in the United Kingdom (CMA). The CMA may also take remedial action, including unbundling, following such an investigation. See below for more details.
According to the German government draft, intervention outside of the ban on cartels and control of abusive practices should only be permitted in cases of significant and ongoing disruption of competition on at least a nationwide market, several individual markets or across markets. This is intended to enable the BKartA to use the findings from sector enquiries more effectively. Once a significant and continuing disturbance of competition has been established, measures can now be taken to eliminate or reduce it. The disturbances that can lead to intervention do not necessarily have to be caused by prohibited conduct of companies, but can also lie, for example, in structural features of markets.
Unbundling is envisaged as the ultima ratio of possible measures in the case of market-dominant companies and companies with an overriding cross-market significance for competition. According to the draft, unbundling is limited to cases in which there is a significant and continuing disturbance of competition and if it is to be expected that the identified disturbance of competition can be eliminated or significantly reduced by it.
Companies have the possibility to make commitments which are suitable to eliminate the competition concerns of the FCO; the FCO can declare such commitments binding. This gives the companies concerned the opportunity to propose less drastic measures which nevertheless eliminate the competition concerns.
Skimming Excess Profits (Section 34 GWB)
Furthermore, it will be easier for the BKartA to skim off profits resulting from cartel violations. Although the BKartA can already skim off an economic advantage that has arisen from a cartel violation, this has not yet occurred in practice due to the restrictive application requirements. The draft introduces a new rebuttable presumption that an economic advantage was gained at a fixed minimum rate. This administrative instrument of is intended to ensure that the profits gained through a violation of cartel law do not remain with the infringer. Furthermore, it should lead to an increase in skimming proceedings.
Enforcement of Regulation (EU) No 2022/1925
In addition, the draft law (in implementation of Regulation (EU) No. 2022/1925) expands the investigative powers of the FCO, giving the FCO a new tools to investigate large digital corporations. Furthermore, the private enforcement of the Digital Markets Act is facilitated in the course of this amendment. On this topic, see also the blog post "Introducing the Digital Markets Act (I)" on 14 March 2023.
The Monopolies Commission's opinion on the amendments
The Monopolies Commission, an independent advisory body that advises the German federal government and legislative bodies, has issued a comprehensive statement on the draft.
In its main report of 2022, the Monopolies Commission already commented on the abuse-independent unbundling as the ultima ratio instrument proposed in the 11th GWB amendment, and in fact even recommended it. The Monopolies Commission pointed out that this instrument should be subject to careful consideration and discussion of all relevant aspects. Furthermore, with regard to the primacy of regulatory measures, it points out that with regard to digital markets there does not (yet) seem to be a need for abuse-independent unbundling. In particular, since new regulations for the digital sector have been introduced recently (and not yet tested) and the further case law on Art 102 TFEU should first be awaited.
Parallels with measures in the United Kingdom
In the United Kingdom, regulations similar to those planned in § 32f GWB already exist. The Competition and Markets Authority (CMA) in the UK may take measures in the case of uncovered distortions of competition following market investigations, up to and including unbundling. In the past, this tool has been used in only a few cases: for example, airports and companies active in the cement sector were unbundled. In each case, there were comprehensive investigations of the affected markets, of the distortions of competition that could be identified and of possible alternatives to remedy them. In its evaluation report on the unbundling of the airport sector, an independent consulting firm came to the conclusion that the unbundling had positive effects on competition among airports and was proportionate, taking into account the costs of unbundling and the benefits for consumers to date. However, the interplay with the airport regulation reformed in 2012 must be taken into account, which is why the success cannot be attributed to unbundling alone.
Outlook on possible consequences for Austrian companies
Austrian companies that are active in Germany or are planning to expand to Germany could be affected by the new intervention instrument in the future and as a result refrain from operating in the German market.
The possibility of measures taken based on identified market disturbances by the BKartA without anti-competitive behaviour will make it much more difficult to assess for which types of behaviour a company must expect (which) consequences. The legal uncertainty created by the new instrument of the BKartA will only be alleviated through case law which takes time to be established.
As early as autumn 2022, the Studienvereinigung Kartellrecht (Association for the Study of Cartel Law) pointed out in its statement on the draft of the 11th GWB amendment the negative incentive effects of the new intervention possibilities of the cartel authority. Compliant companies which nevertheless have to expect that a competitive advantage gained might be nullified, will reduce their willingness to invest, be efficient and innovate in Germany as a business location. Similarly, Austrian companies might decide against entering the German market and instead expand to other countries.
Outlook for effects on competition law in Austria
The discussion about the Competition Enforcement Act makes it clear: the legal field of competition law (and the enforcement possibilities of the authorities) is becoming even more important for companies. Looking at Germany, the question is whether such an expansion of enforcement capabilities is also possible or even already planned in Austria.
Also in Austria cases exist which give rise to the authorities' desire for intervention instruments similar to the draft Competition Enforcement Act. For example, the Austrian Competition Authority (BWB) has identified a doubling to tripling of the profit margins of refineries in the summer of 2022, but could not find any court-proof evidence of cartelisation or abuse of market power. Structural or behavioural pro-competitive remedies were therefore not possible - the BWB's hands were tied.
In a "Standard" interview, the interim Director General of the BWB Harsdorf-Borsch described the German draft law as "interesting", but did not want to make a recommendation on the question of whether such instruments should be introduced (also in Austria), as this would be a political decision.
The Austrian Ministry of Economics has also commented on this to the "Standard". The development in Germany is monitored, but there are concerns about EU- and constitutional law and interfering with legally compliant behaviour of companies is seen as a paradigm shift that could lead to legal uncertainty.
The Competition Enforcement Act and the discussions on it show an exciting development of competition law in Germany, which will certainly continue to provide room for discussion and food for thought beyond Germany's borders. If the current version of the draft enters in force, it remains to be seen how and how often the amendments will be applied in practice and what specific provisions will be made by the courts.
Effects on Austria are possible: on the one hand, Austrian companies may be directly affected by the 11th GWB amendment when participating in the German market, and on the other hand, the possibility exists that the German amendments will also be followed on by the Austrian legislator. Especially if it turns out that the measures have positive effects on competition in Germany.
Please note: This blog merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the blog.