Upcoming reforms to the German competition law regime
On 28 September 2016, the German Cabinet announced a draft of the revised version of the German Act against Restraints of Competition (“ARC”). According to the European Damages Directive,  the new law should be transposed into national law by 27 December 2016. However, it is anticipated that the amended version of the ARC will not enter into force in Germany before February 2017. The ninth version of the law will contain significant changes to the German competition law regime, in particular with regard to merger control, where there is likely to be a high level of uncertainty as to how and when the revised thresholds will be triggered. Further amendments will also be made to the law regarding cartel damages actions, cartel proceedings and other areas of competition law, including abuses of a dominant position on digital markets.
Reforms to merger control law
New “size of transaction” test
Some of the most far-reaching and potentially most complex amendments relate to the German merger control provisions. In particular, the new ARC will make Germany one of the few jurisdictions worldwide, alongside countries such as Mexico and the USA, where a form of size of transaction threshold will be used to determine whether a deal is notifiable.
Under the current law, concentrations have to be notified to the German Federal Cartel Office (“FCO”) in Germany if: (i) all undertakings together generated €500 million of turnover worldwide in the last financial year; (ii) one undertaking generated €25 million in Germany; and (iii) another undertaking generated €5 million in Germany in the last financial year. Under the revised law, where the second domestic threshold of €5 million is not triggered, a notification will be required if the value of the consideration received from the acquirer exceeds €400 million and the target is active “to an appreciable extent” in Germany. This new threshold is based on the size of transaction test under US merger control law, whereby a transaction tends to be notifiable in the US if its size exceeds US$312.6 million. The German authorities decided upon a higher €400 million threshold in the draft ARC to ensure that only cases where there is a marked difference in the purchase price paid versus the target’s turnover are caught.
The supplementary threshold was proposed following Facebook’s acquisition of WhatsApp for approximately US$19 billion in 2014. Despite concerns about the effects of that transaction on the German market, the FCO did not have jurisdiction to review the deal as WhatsApp’s turnover in Germany was too limited to fulfil the current thresholds. The European Commission also did not have jurisdiction over the deal according to the merger control thresholds set out in the European Merger Control Regulation (“EUMR”) and only reviewed the transaction, and granted merger control clearance, after the parties applied for the case to be referred to the European Commission. The FCO is keen to extend its jurisdiction so that it has the power to review such transactions, in particular in the digital industry, where the target (e.g. a start-up) does not generate sufficient turnover in Germany for the deal to satisfy the thresholds of the current ARC but where the target has extensive innovative capacity, which is reflected in the substantial purchase price paid by the acquirer.
Lack of clarity concerning new threshold
Whilst there are clear advantages to increasing the power of the FCO so that it can maintain its influence, even on today’s modern markets, over deals that are likely to have substantial effects on the competitive landscape in Germany, there is uncertainty about the scope of the new threshold.
The first limb of the additional threshold concerns the value of consideration received from the acquirer. According to the draft law, the “value of consideration” will include all assets and other non-cash benefits, which the seller will receive from the acquirer in exchange for the target. The draft ARC contains a detailed definition of assets, including all cash payments, the transfer of voting rights, securities, fixed and intangible assets as well as consideration that is subject to certain conditions, such as those contained in so-called “earn out” provisions, as well as agreed additional payments to the seller to be made once certain sales and profit targets are reached at a certain point in the future. Payments for a non-compete clause also have to be taken into account. Finally, the relevant consideration value will take account of the value of liabilities that the purchaser will acquire.
Parties notifying a deal to the FCO will basically be free to choose the basis on which they wish to calculate the value of the consideration, as long as it is a recognised method of company valuation based on the assumption that the target is a going concern and not an assessment based on liquidation value.
However, it is not clear exactly how parties will be able to determine if the new threshold is fulfilled in practice. For example, there is a lack of clarity as to whether the relevant value for determining if the new threshold is met will be the enterprise value or the equity value. The draft law also does not stipulate at what point the value of the consideration should be assessed. Clarification on this point will be particularly key as the value is likely to fluctuate substantially during negotiations or an auction process. It is unclear whether, for example, it will be adequate for parties to determine the relevant value in a Letter of Intent or whether purchase agreements will have to include a specific “ARC” clause setting out the relevant value for the purposes of the German merger control assessment.
It is also unclear which liabilities should be taken into account when determining the value of the consideration, for example, the liabilities of the seller or the target, or both. The draft ARC also does not specify which types of liabilities are relevant, for example, interest-bearing, contingent, tax or pension liabilities. There is equally no clarification as to how undefined liabilities should be valued, for example, contamination site risks.
The second limb of the additional threshold, which provides that the target has to be active “to an appreciable extent” in Germany, is also not self-explanatory. The aim of this criterion is to ensure that the FCO has jurisdiction over transactions that are likely to have an effect on the competitive landscape in Germany, even when the second limb of the current threshold is not fulfilled (i.e. the target did not generate €5 million in Germany in the last financial year). However, the point at which a target’s activities are to be considered “appreciable” cannot be assessed on the basis of quantitative thresholds and a case-by-case examination of whether this materiality requirement is met will be necessary. Such an analysis will have to assess the target’s activities at the point of submitting the merger control filing, rather than during the previous year (which is the case for the current turnover thresholds).
The FCO has indicated that it will issue guidelines about the application of the new threshold and these are clearly required. Such guidance will likely also be useful for merger control assessments in other jurisdictions in future. In particular, the European Commission is currently holding a consultation about whether a similar “size of transaction” threshold should be introduced into the EUMR to close a potential gap in the authority’s jurisdiction following the Facebook / WhatsApp case (see above). Meanwhile, the Austrian Competition Authority has recently proposed revised thresholds at national level, which are likely to throw up similar questions to those discussed above with regard to the new ARC.
However, even with additional guidance from the authority, it is very likely that a closer examination of the details will be needed in far more cases in Germany in future.
Reforms to cartel damages actions
A number of reforms will also be made to the relevant national law concerning cartel damages actions. The majority of the changes will simply implement requirements of the European Damages Directive.
For example, the new provisions will introduce a rebuttable presumption that a cartel has resulted in damage, which goes beyond the prima facie evidence on which claimants can currently rely under German law. However, in line with the European Damages Directive neither the level of damage nor the question of whether a particular claimant has been harmed by the cartel are addressed in the legislation. Defendants will be able to rebut the presumption by proving that the cartel has not resulted in an overcharge. If they are unsuccessful they may still be able to rely on the pass-on defence, which requires the defendant to prove that the claimant has not suffered any loss because the claimant has passed on any damages further down the distribution chain (e.g. by increasing sales prices to their own customers). This defence will be formalised in the new legislation – until now the relevant criteria, which defendants have had to satisfy in order to fulfil this defence, have been set out in case-law.
The new law also improves the position of indirect purchasers who want to demonstrate own losses by showing that a pass-on of cartel overcharges from direct purchasers to them had occurred (“pass-on as a sword”). Until now, case-law from the Federal Court of Justice regarded both sides of the pass-on issue as mirror images and held them both to the same evidentiary standards. Whereas defendant cartelists had to provide full proof for pass-on in lawsuits brought by direct purchasers, the same (full) burden of proof fell on indirect purchasers if they instituted legal action against the cartelists. By contrast, the European Damages Directive alleviates the burden of proof for indirect purchasers by introducing defining conditions under which indirect purchasers can be considered to have established prima facie proof of pass-on.
Equally, the German law regarding limitation periods will be amended to reflect the European Damages Directive. Under the revised law, the limitation period of three years for cases where a claimant has knowledge of a defendant’s cartel activities will be increased to five years.
However, there are some provisions contained in the ninth ARC which go beyond or diverge from what is required by the European Damages Directive. Unlike under the discovery system in the US or the disclosure procedure in the UK, the parties to cartel damages actions in Germany have, as yet, had little right to access documents or evidence in the possession of other parties, which may support the formers’ case. The new law will allow claimants to request disclosure in fast-track proceedings that will not need to be part of a lawsuit for cartel damages. This will grant cartel victims access to relevant evidence for use in initial negotiations and settlements out of court. In contrast, defendants will have to wait until a damages action is actually pending before they can take advantage of the new disclosure rules. This differentiated treatment may put defendants at an informational disadvantage, which may result in an imbalance during early settlement discussions. Defendants will be able to file a negative declaratory action but, in those circumstances, the new disclosure rules would only apply if a defendant does not dispute the infringement as such. Further, whilst the European Damages Directive requires access to “specified items of evidence or relevant categories of evidence”, the revised German law covers all kinds of information, meaning that parties will be able to direct questions to their opponents.
One issue notably absent from the new draft is parent company liability. The ninth ARC does not contain any provisions as to whether parent companies are to be held automatically liable for the cartel infringements of their subsidiaries. Whilst the European Damages Directive does not contain any specific provisions on this point, either, there was heated debate in Germany about whether the ambiguous wording of the Directive should allow claimants to pierce the “corporate veil” and hold parent companies liable. This issue will now be left to future case-law.
In contrast, the provisions of the ninth ARC relating to cartel proceedings stipulate that fines for cartels will not only be imposed on legal persons whose directors or employees had been involved in a cartel infringement, but also on parent companies and other members of the corporate group, to the extent that these companies constitute an undertaking under European law. On this basis, the European definition of an undertaking will be adopted under German national law in this context. It is anticipated that the level of cartel fines will increase in future as the turnover of more group entities, and not just that of the entity involved in the infringement, will be taken into account in the calculations.
In certain circumstances, the German authorities will also be able to impose fines on legal successors of entities that have been involved in cartel infringements. Internal restructurings or asset transfers will, therefore, no longer be a feasible method for avoiding cartel fines under German law.
Further, the relevant provisions relating to the abuse of a dominant position will be adapted to the peculiarities of digital markets. This will make it easier for the German authorities to regulate digital players such as internet platforms in future. In particular, it will be possible to define a relevant product market for services rendered without charge. Such an approach is in line with that adopted by the FCO in its investigation into Facebook regarding a suspected abuse of the latter’s market power through an infringement of data protection rules. Interestingly, the Higher Regional Court of Düsseldorf previously ruled in its judgment concerning the admissibility of MFN clauses contained in the contracts between booking platform HRS and its hotel partners that such a market could not be defined.
The draft law also stipulates that additional factors relevant to the digital age should be taken into account when assessing market power and two-sided markets. For example, in future, network effects, switching costs for users, innovation-driven competition and access to competitively relevant data will be considered. An examination of these factors should help the FCO appraise the competitive situation on platform markets more accurately.
Finally, possibilities for cooperation between companies active in the press industry will be introduced. Press enterprises will be able to cooperate more easily with regard to publishing outside of the editorial sphere as certain agreements will be exempt from the cartel prohibition under German law. With this provision, the FCO will recognise the worsening economic conditions and increased competition from online media (e.g. Google and Facebook) faced by newspaper publishers.
The amendments to the ARC and motives behind them are welcome insomuch as they will bring German competition law in line with the requirements of the European Damages Directive, as well as the demands and peculiarities of the digital age. However, it remains to be seen how the new legislation will be applied in practice. There is clearly a need for further guidance from the FCO with regard to the new merger control threshold. Clients should prepare themselves for a period of uncertainty and the need to cater sufficient time into their transactions to address any German merger control issues. Meanwhile, it is unclear what effect the revised provisions will have on future cartel damages litigation in Germany. There are rumours that would-be claimants in some large cases are currently holding back their cases so that they can take full advantage of the new disclosure rules when they enter into force next year.
 Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union Text with EEA relevance (OJ 2014 L349/1, 5.12.2014).
 Ibid., Article 21(1). Section 35(1) ARC (30.6.2013).
 Section 35(1) ARC (30.6.2013).
 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (OJ 2004 L24/1, 29.1.2004). There are two alternative sets of turnover thresholds under Article 1 EUMR. Either: (i) the combined worldwide turnover of all the undertakings concerned exceeds €5,000 million; and (ii) each of at least two of the undertakings concerned has EU-wide turnover of more than €250 million. Or: (i) the combined worldwide turnover of all the undertakings concerned exceeds €2,500 million; (ii) each of at least two of the undertakings concerned has EU-wide turnover of more than €100 million; (iii) the combined national turnover of all the undertakings concerned in at least three of the same Member States is more than €100 million; and (iv) each of at least two of the undertakings concerned has national turnover in at least three of the same Member States of more than €25 million. Even if either of these sets of thresholds is fulfilled, the transaction will not be notifiable if each of the undertakings concerned achieved more than two-thirds of its EU-wide turnover in one and the same Member State. As is the case under German merger control law, a detailed examination is required on a case-by-case basis to determine if the relevant thresholds are satisfied.
 European Commission decision in case M.7217 Facebook / WhatsApp (3.10.2014).
 The transaction fell under the jurisdiction of the relevant authorities in Cyprus, Spain and the UK. The parties filed a reasoned submission (Form RS) under Article 4(5) EUMR requesting that the Commission review the deal under its “one stop shop” principle, rather than the parties being subjected to the burden of three separate merger control reviews at national level.
 Section 38(4a) revised draft ARC. Interestingly, this differs from the size of transaction threshold under US merger control law, which relates to the value received by the acquirer, rather than the value received by the seller.
 Interestingly, this differs from the size of transaction threshold under US merger control law, which relates to the value received by the acquirer, rather than the value received by the seller.
 Enterprise value is the value of the company cash-free and free of any interest-bearing liabilities.
 Equity value is the enterprise value plus cash and minus interest-bearing liabilities. For further details see: http://ec.europa.eu/competition/consultations/2016_merger_control/index_en.html
 For further details see: http://ec.europa.eu/competition/consultations/2016_merger_control/index_en.html
 Currently, transactions are notifiable in Austria if (based on the turnover in the last financial year before the transaction): (i) the worldwide turnover of all undertakings concerned exceeds €300 million; (ii) the combined domestic turnover of all undertakings concerned exceeds €30 million; and (iii) the individual worldwide turnover of at least two of the undertakings concerned exceeds €5 million. Where these thresholds are met, a transaction is still not notifiable if: (i) only one of the undertakings concerned generated domestic annual turnover of more than €5 million; and (ii) the other undertakings concerned generated worldwide annual turnover of no more than €30 million. According to the proposal of the Austrian authorities, transactions would be notifiable in Austria in future if the following thresholds were cumulatively fulfilled: (i) the worldwide turnover of all undertakings concerned exceeded €300 million (i.e. the first limb of the current threshold); (ii) the value of consideration exceeded €350 million; and (iii) owing to a market presence, at least €5 million of that consideration related to Austria. Clarification will be required as to the exact meaning of the terms “value of consideration”, “market presence” and “related to Austria”. It also remains to be seen whether the Austrian authorities will decide to raise the value of consideration threshold to €400 million. The Austrian proposals are based heavily on the revised law in Germany and €350 million was previously suggested during the consultation on the draft ARC, until the German authorities decided to raise the level to ensure that only those transactions with the largest discrepancy between the target’s revenue and the consideration paid will be caught by German merger control law.
See Article 1(1) European Damages Directive: “This Directive sets out certain rules necessary to ensure that anyone who has suffered harm caused by an infringement of competition law by an undertaking or by an association of undertakings can effectively exercise the right to claim full compensation for that harm from that undertaking or association.”
 See FCO press release of 2 March 2016:
 See judgment of the Higher Regional Court Düsseldorf in Case VI-Kart. 1/14 (V) (9 January 2015), available in German at:
 Section 18(3a) revised draft ARC.
 Section 30 revised draft ARC.
 Section 1 ARC (30.6.2013).