Insights

Germany_Passes_First_Tech_Platform_Competition_SO

Germany Adopts New Competition Rules for Tech Platforms

In Short

The Development: The Bundestag, the German legislature, amended Germany's antitrust laws to include special competition rules for digital platform "companies with overwhelming importance for competition across multiple markets." The amendments, known as the GWB Digitization Act or ARC Amendments, also substantially raise Germany's merger control filing thresholds. 

The Background: In recent years, the German Federal Cartel Office ("FCO") launched a number of high profile and hotly debated antitrust investigations into the conduct of digital platform companies such as Facebook. According to the Bundestag, Germany's existing antitrust laws have not allowed regulators and the courts to move fast enough to block alleged abuses of market power in rapidly changing digital markets. 

Looking Ahead: Germany is among the first major jurisdictions to adopt special competition rules for tech platforms. It is not likely to be the last—the European Commission and UK both have new regulations under consideration, as detailed in our prior Commentaries. Given the differences among the proposals, even within the EU, platform companies and companies that do business with them should consider the impact of these different regulatory regimes.

The 10th Amendment to the German Act against Restraints of Competition ("ARC"), also known as the "Gesetz gegen Wettbewerbsbeschränkungen" ("GWB"), introduces a number of new restrictions to the platform economy in the areas of unilateral conduct, new administrative procedures, and expands the powers of antitrust authorities to redress perceived antitrust law violations. The most significant changes are to enforcement rules against the unilateral activities of digital platform companies with an allegedly dominant position. The ARC Amendments went into effect on January 19.

Intermediary Power

Under the ARC, a company is considered dominant if it has no competitors, is not exposed to any substantial competition, or has a "paramount" market position relative to its competition. The ARC includes a number of factors to assess market position, including market share, financial strength, access to supplies and sales, and entry barriers, among others. In practice, market share is the most used factor, and there is a rebuttable presumption of dominance when a company's share in a relevant market exceeds 40%. 

The ARC Amendments expand the concept of a dominant position to include an "intermediary power." When considering whether a company that acts as an intermediary in multi-sided markets has a dominant position, the new rules encourage the FCO and courts to consider "the particular importance of the intermediary services…for access to supply and sales markets," including its "access to data relevant for competition." 

Essential Facilities Doctrine

It is not unlawful, alone, to hold a dominant position in Germany. Rather, the ARC prohibits dominant companies from abusing such a position. The ARC Amendments add to the list of potential abuses by expanding the so-called "essential facilities doctrine." The doctrine prohibits, in some circumstances, a dominant company from refusing access to a network or other infrastructure that is necessary to compete. The ARC Amendments add "access to data" to the list of potential essential facilities. 

Competition Across Multiple Markets

The ARC Amendments add a new provision that permits the FCO to issue a decision declaring that a company is of "overwhelming importance for competition across multiple markets" (termed "super dominant" by commentators). The ARC Amendments limit the FCO's super dominance orders to five years. Under the ARC Amendments, the FCO and courts will consider the following factors. 

  • Dominant position in one or more relevant markets.
  • Financial or other commercial resources. 
  • Vertical integration or activity in other related markets.
  • Access to relevant data. 
  • Relevance for the access of third parties to relevant markets and its influence on the business activities of third parties resulting therefrom. 

If the FCO issues a decision about a company's super dominance, and the court upholds that order, the ARC Amendments authorize FCO to prohibit a super-dominant company from engaging in the conduct listed below. The FCO cannot prohibit conduct that a company can show is "objectively justified." 

  • "Self-preferencing" the company's own products or services when competing with other platform users, which could include exclusive pre-installation or integration of its own products or services on devices.  
  • Expanding a dominant position to a new market by, for example, unnecessarily combining products or services without granting choice, or tying products or services. 
  • Using competitively sensitive data (e.g., collected from platform users) in a way that raises barriers to market entry or on condition that users consent to the platform's use of data across distinct services or for purposes other than those necessary for the platform to provide its services to the company whose data it is using. 
  • Impeding interoperability with other services or data portability that would facilitate multi-homing.
  • Providing commercial company users with insufficient information about the scope, quality, or success of the platform's services to make it difficult for them to evaluate the service. 
  • Demanding advantages from companies to sell their products or services on the platform, e.g., transfer of data or rights, that are unjustified. 

The ARC Amendments also include a new, lower threshold that would allow the FCO to act more quickly to issue "interim measures" to prohibit the activities described above in cases of super dominant companies. Interim measures that can be combined in the same decision finding super dominance are an FCO order, like a preliminary injunction, that prohibit certain conduct before the FCO reaches a final decision in a matter. The FCO cannot issue interim measures if the affected party demonstrates credible facts that the order would result in an unfair hardship that outweighs any public interests. In all cases, companies subject to an FCO order, including interim measures, as well as its decisions related to alleged dominance, super dominance, and abusive conduct, have the right to appeal to the Federal Court of Justice.

Relative Dominance and Tipping

Section 20 of the ARC historically prohibited a company from using its "superior market power," relative to small- or medium-sized competitors, to attempt to become dominant. The ARC Amendments apply this concept to companies that provide intermediary services in multi-sided markets, even if the other company is not a small- or medium-sized business. 

The ARC Amendments also would prohibit companies with superior market power from employing practices that impede a competitor's ability to attain network effects, creating a "serious risk" of a market "tipping" into monopoly. 

German Contribution to the Debate on the EU's Draft Digital Markets Act 

The ARC Amendments coincide with the European Commission's ("EC") sweeping proposals to regulate digital platform markets, as detailed in our January 2021 Commentary. The EC's draft Digital Markets Act ("DMA") proposes rules for online platforms that act as "gatekeepers" in the digital sector to prevent those companies from implementing allegedly unfair conditions on businesses and consumers. If passed, which could take two years, the DMA will set a regulatory floor that will replace any existing regulation in the EU Member States, including the ARC Amendments. Although there are similarities between the DMA and the ARC Amendments, the ARC Amendments are more general than the DMA's provisions. The timing of the ARC Amendments reflects Germany's intent to push the DMA debates in the European Parliament and the Council of the European Union. 

The procedure for appealing a decision of the FCO also reflects a more aggressive approach in the ARC Amendments. The 1st Senate of the Düsseldorf Higher Regional Court normally would be responsible for hearing appeals of FCO orders. The ARC Amendments instead direct appeals to the Federal Court of Justice, which for the first time in its 70-year history, will determine facts, not just questions of law. The FCO has met some resistance in the Düsseldorf Higher Regional Court in its ongoing case against Facebook involving non-traditional theories of antitrust harm like those in the ARC Amendments. In that case, the FCO alleges that Facebook abused its dominance in social networks by collecting, using, and merging user data from Facebook-owned services (e.g., WhatsApp and Instagram) and third-party websites (e.g., with Like or Share buttons).

There is not a global consensus about whether regulatory intervention is necessary, or what regulation is warranted. For example, in a speech in February 2019, the Assistant Attorney General ("AAG") for the U.S. Department of Justice Antitrust Division ("DOJ") cautioned against "misplaced" and "extreme views" that would propose new rules to regulate online platforms and displace the long-standing global consensus "consumer welfare" standard in antitrust reviews. In a nutshell, under the consumer welfare standard, antitrust enforcers intervene in markets or acquisitions only if the conduct harms consumers in a relevant market. 

DOJ noted that digital platforms have grown, in part, because they provide innovative and disruptive services that consumers like. According to DOJ, antitrust enforcement should not concern itself with "how big the platform is, but whether what the platform is doing harms competition." Although DOJ agreed that concerns over privacy, notice, and unauthorized use of data should be discussed, it discouraged the use of the antitrust laws to address policy issues that do not result in collusive or exclusionary conduct. 

Since that speech, the DOJ, FTC, and state attorneys general have filed a number of lawsuits against platform companies, making allegations under the existing antitrust laws. In his final speech this week, the AAG encouraged adoption of a "private/public self-regulatory board consisting of industry and public members with technical and policy expertise with the mission to develop and propose market-based, non-discriminatory rules to promote market integrity" to "minimize the need for direct command-and-control regulation by government." 

Other jurisdictions have weighed in too. As detailed in our October 2019 Update, the Japan Fair Trade Commission published antitrust guidelines for digital platform companies that acquire personal information from consumers. The UK's Competition and Markets Authority has proposed regulations for online platforms funded by digital advertising, detailed in our August 2020 Commentary. The Australian Competition and Consumer Commission established a new Digital Platforms Branch to investigate perceived competition concerns in those markets and Australia also is considering a number of other changes to its competition rules and regulations. 

Merger Control Thresholds Increased

German law requires a merger control filing if the transacting parties meet a combined global sales threshold in addition to domestic sales thresholds for at least two parties to a transaction, and there is no European Union filing. In recent years, low domestic sales thresholds in Germany led to a number of global transactions having to file in Germany, despite little local effect. As shown in the table below, the ARC Amendments increased the two domestic sales thresholds, which should lead to fewer merger control filings in Germany. 

Threshold

Existing Threshold Value

New Threshold Value

Combined worldwide sales

> €500 million

> €500 million (unchanged)

German sales of one party

> €25 million

> €50 million

German sales of at least one other party

> €5 million

> €17.5 million

 

The latest amendments did not substantially alter the alternative value-based threshold introduced in 2017, which was intended to capture high-value acquisitions of targets that have little German revenue. The oft-cited exemplar is Facebook's acquisition of WhatsApp. Under this test, parties must make a German filing if one party has German sales of now €50 million, the transaction consideration exceeds €400 million and the other party is "substantially active" in Germany, even if it does not meet the lower sales threshold (now, €17.5 million). 

The ARC Amendments also changed the de minimis markets rule threshold under which the FCO cannot block a transaction, with some exceptions, even if the deal would otherwise harm competition. The de minimis markets rule applies if a market has existed for at least five years and has a total annual value ofless than €20 million, up from €15 million.

Six Key Takeaways

  1. Germany is among the first major jurisdictions to adopt distinct antitrust rules for digital platform companies. 
  2. The amendments expand the concept of a dominant position to include "intermediary power" and establish a new type of antitrust violation for certain conduct of companies deemed to be of "overwhelming importance for competition across multiple markets."
  3. The amendments establish a new violation for dominant companies that refuse to provide access to data that is necessary to compete. 
  4. The most significant difference between the amendments and the EU's draft Digital Markets Act may be the concentration of appellate review in the German Federal Court of Justice. Federal Cartel Office decisions ordinarily may be appealed to the Düsseldorf Higher Regional Court. However, recent FCO decisions involving unconventional antitrust theories have been met with some resistance in that court.      
  5. Antitrust authorities in a number of countries have considered antitrust policy changes or investigated markets in the digital sector. The divergence in approaches even within the EU between Germany's amendments and the EU's recent draft Digital Markets Act suggest that this discussion has only started. Online platforms or companies that do business with them should consider the impact of these proposed rules given the global nature of many online platforms. In some cases, the "most restrictive" regime may have an outsized and extraterritorial effect.
  6. Germany substantially increased its merger control thresholds, which should lead to fewer filings in Germany, including in a number global transactions with little effect in Germany. 

Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.

 
We use cookies to deliver our online services. Details of the cookies and other tracking technologies we use and instructions on how to disable them are set out in our Cookies Policy. By using this website you consent to our use of cookies.