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Major Developments in German Competition Law in January-July 2019

Client Information Competition Law - 


Two decisions of the Higher Regional Court of Düsseldorf concerning merger control in the area of ticketing system services are worth mentioning: 

On 5 December 2018, the court confirmed the prohibition decision of the Federal Cartel Office ("FCO") in the CTS/Four Artists case (see our Newsletter 1/2018). This is the first court decision on merger control in multi-sided markets and the corresponding new provision in Section 18 (3a) ARC, which contains some interesting statements specifically on platform markets.

First of all, the court shared the FCO's view that different sides of a multi-sided market should in principle be treated as separate markets. However, interactions, in particular in the form of indirect network effects, have to be taken into account. With regard to the definition of the relevant product market, the court did not consider the conventional SSNIP test adequate to take into account effects between different market sides. Finally, the court found that even after the introduction of the SIEC test, no "significant" strengthening of a dominant position is necessary and that a strengthening may also take place through vertical integration, which permanently secures a certain minimum demand.

In a decision of 3 April 2019, the Higher Regional Court of Düsseldorf dealt, inter alia, with Article 21 para. 1 ECMR, which prevents the European Commission from reviewing concentrations in parallel under merger control provisions and Article 101 TFEU. The court considered the provision to be inapplicable to national merger control proceedings. Under established German case law, the FCO may apply general competition law if the competition problem cannot be fully addressed by a review under the merger control rules only. In the case at hand, this prerequisite was met since the concentration did not meet the thresholds and was, thus, not subject to merger control review in Germany. However, the court explicitly left open the controversial question as to whether Article 102 TFEU and corresponding national laws can be applied in parallel to merger control provisions.

FCO Proceedings

In the first six months of 2019, the FCO did not clear any concentration in phase II. However, during this period there were two prohibitions and four notifications were withdrawn. 
In January, the FCO blocked the creation of a joint venture by Miba and Zollern, which had been already approved in Miba's home jurisdiction of Austria during phase I. Subsequently, the two producers of engine bearings submitted an application for ministerial approval, arguing that the merger would preserve technological know-how and innovation potential in Germany and strengthen their international competitiveness. The deadline for the decision by the Federal Minister for Economic Affairs and Energy, which originally expired in June, was extended. However, anything but a negative decision would be a major surprise in light of the exceptional character of the ministerial approval and the high legal standard regarding the necessary public interest arguments (the Monopolies Commission already spoke out against granting an approval).

In May, the FCO prohibited the takeover of the folding machine maker MBO by Heidelberger Druckmaschinen. As so often, the definition of the relevant product market proved to be the decisive factor. The FCO defined a separate market for folding machines for industrial print, on which the parties had a high combined market share. The FCO did not further divide the market according to different formats and performance levels, which the parties considered to be necessary – otherwise there would have been de minimis markets which are exempted from the FCO's review.
Among the projects abandoned during phase II were Gruner + Jahr's acquisition of the licence for the "National Geographic" magazine in Germany, IBM's acquisition of assets from T-Systems' mainframe business, a merger of hospital operators and Total's takeover of a number of petrol stations in the Trier area. In each of these cases, the notifications were pulled after the FCO had identified serious competition concerns. The reasons can only be speculated about; it seems likely that there were no remedies that would have alleviated the FCO's concerns without jeopardizing the economic rationale of the transactions.

Among the merger projects cleared in the first phase, RWE's acquisition of a minority stake in E.On is particularly noteworthy. This transaction is part of a complex exchange of business activities between the two companies, most of which are subject to EU merger control. However, the acquisition of a shareholding of 16.67% in E.On by RWE did not fall within the Commission's jurisdiction as it does not involve an acquisition of control but only the acquisition of a “significant competitive influence”, which is a peculiarity of German merger control. After the authorities in Bonn and Brussels had cooperated closely in the reviewing the individual parts of the transaction, the FCO cleared the minority acquisition on the same day the Commission gave green light to the acquisition of certain assets of E.On by RWE. The parallel acquisition of RWE's majority stake in Innogy SE by E.ON is currently subject to an in-depth investigation by the Commission.
Competition Policy Considerations

In the FCO's view, the value-of-transaction-based threshold, which was introduced in 2017 and is supposed to catch so-called "killer acquisitions", works well in practice. However, the roughly 30 filings made to date under this provision did not involve any competitively problematic cases. With regard to the high number of notifications in Germany, the FCO advocates for a reduction in the overall number of cases, which would free up resources for a stronger focus on cases with a significant impact on consumers.
Finally, the reporting period saw unusually explicit attempts to bring industrial policy considerations into the merger control process. The debate on "European Champions" was fuelled in particular by the prohibition of Siemens/Alstom. The Federal Minister for Economic Affairs and Energy, Mr. Altmaier, was particularly vocal about this point and at times even supported calls for a kind of ministerial approval at EU level. The debate is continuing, but, as evidenced by a joint position paper of the German, French and Polish competition authorities, the tone is becoming somewhat more conciliatory.

Abuse of Dominance

Facebook

In its eagerly awaited decision of 7 February 2019, the FCO charged Facebook with abusive behavior in the form of unfair and exploitative contract terms and imposed far-reaching restrictions regarding the processing of user data on the company, which will likely necessitate profound changes to its business model. FCO President Mundt called the restrictions an “internal unbundling” of Facebook.
Facebook’s current terms and conditions allow the company to collect data about the users of the company’s own services outside the Facebook platform (in particular WhatsApp, Instagram) and even from third-party website operators (e.g. via “like buttons” or a “Facebook login”) and to merge these data into the Facebook user account. On the basis of an extensive market investigation, the FCO found Facebook to have a dominant position on the market for social networks. As regards an abuse, the FCO predominantly put forward the argument that Facebook’s general terms on the processing of user data were contrary to the fundamental values underlying the EU’s General Data Protection Regulation (“GDPR”). In this context, the authority referred to the Federal Supreme Court’s rulings in the VBL Gegenwert and Pechstein cases, where the court had used the protection of the consumers’ fundamental rights as a yardstick for the interpretation of the abuse of dominance provision in Section 19 para. 1 ARC. In doing so, the FCO disregarded the criticism by Facebook (and a number of commentators) that the enforcement of the GDPR does not fall into the realm of the competition authorities but is rather the exclusive competence of the data protection authorities. Only in passing did the FCO add a competition law driven explanation for its finding of an abuse, pursuant to which Facebook’s inappropriate data processing provided the company with an illicit (i.e. not merit-based) advantage over its competitors and raised the market entry barriers.
Under the FCO’s order, Facebook will be allowed to collect data from the company’s own services outside the Facebook platform and from third-party websites and to merge these data into the Facebook user accounts only in case of the users’ prior and voluntary consent. Facebook was granted a period of twelve months to obtain these consents but this period has been suspended by a complaint filed by the company with the Higher Regional Court of Düsseldorf. A decision by the court is expected before the end of 2019.

Exclusivity Arrangements

In a ruling of 3 April 2019, the Higher Regional Court of Düsseldorf provided clarification on the assessment of exclusivity arrangements as a potential abuse, supplementing the scarce case law in this respect. The court held that exclusivity obligations imposed by dominant companies are not per se abusive and that this holds true irrespective of whether the exclusivity is achieved by means of contractual clauses or on a de facto basis, for example through the granting of loyalty rebates or other discounts. Instead, if the dominant company can cast serious doubt on the allegation that its actions were capable of restricting competition, the claimant has to provide further evidence to the effect that the exclusivity arrangement is capable of dispelling "as efficient" competitors or of foreclosing the market.

New Case on Excessive Prices?

The German Publishers & Booksellers Association has lodged a complaint with the FCO against Deutsche Post’s plans to increase prices for book mailings by up to 60% and to change the format requirements in such a way that around one third of the books sent so far will no longer qualify as book mailings. In addition, Deutsche Post allegedly plans to grant Amazon particularly favorable conditions that will not be available to booksellers. 
In reaction to the complaint, Deutsche Post decided to retain the tariffs and formats for book mailings until the end of 2019. The FCO has not yet commented on the case. In general, the competition authorities are reluctant to take on excessive pricing claims as the legal standards in this field are highly contested and they do not relish the prospect of carrying out permanent price controls. 

Cartels

Court Decisions

In its Silgan ruling of 15 March 2019, the EU’s General Court ("GC") dealt with the division of competences between the national competition authorities and the European Commission in the area of competition enforcement. In 2015, the FCO had initiated an investigation against several companies in the metal packaging industry, including the Silgan Group, which had filed an immunity application. In April 2018, however, the Commission decided to initiate its own proceedings in this area, thereby taking away jurisdiction from the national authorities. According to press reports, this was done at the instigation of the FCO, which wanted to prevent some of the companies involved from avoiding a fine under the ARC through internal restructuring. Silgan had not filed an immunity application at EU level and brought an action against the Commission’s decision before the GC. However, in line with well-established case law the GC held that an action for annulment against procedural acts of a merely preliminary nature was not admissible. In addition, the court stated that the displacement of the FCO’s jurisdiction served to protect the alleged cartelists from parallel prosecution and that this reasoning applied all the more in a case where the national authority had already initiated proceedings. To shelter itself against a possible transfer of responsibility, Silgan could have supplemented its immunity application to the FCO with a parallel application to the Commission. The case is now pending before the ECJ.

In January 2019, the Federal Supreme Court published the detailed grounds of four rulings regarding the liquefied gas cartel, which it had issued back in October 2018. Particularly noteworthy is the statement in Liquid Gas IV that the appeal against a fining decision can be limited to the legal consequences (Rechtsfolgen) and that claims regarding the fine calculation fall within the scope of such a limited appeal. This clarification may be important in view of the considerable time and cost often involved in court proceedings even in cases where the facts are essentially undisputed.
In a judgment of 4 June 2019, the Higher Regional Court of Düsseldorf held that a hotel booking portal (in this case booking.com) may oblige hotel operators not to offer hotel rooms on their own website at a lower price than the price shown on the portal’s webpage. Pursuant to the court, such "narrow best price clauses" are permissible as they provide an adequate protection of the booking portals against a redirection of bookings after customers have gathered information about the hotel (and often learnt about the hotel’s existence) on the portal’s site but then decide to book directly with the hotel (so-called free-rider problem). The court thus sided with most national competition authorities in the EU on this hotly debated issue but flatly contradicted the FCO, which has lodged an appeal against the decision with the Federal Supreme Court. In any event, the new ruling does not affect the validity of the Higher Regional Court’s HRS judgement of 2015 where the court considered so-called "wide best price clauses", which oblige the hotels always to offer the lowest price on the third party portals, as inadmissible.

In April 2019, the Higher Regional Court of Düsseldorf surprisingly discontinued the proceedings concerning fines of EUR 62 million, which the FCO had imposed on the Carlsberg Brewery and one of its managers. In 2014, the authority had discovered a price fixing scheme for draught beer and bottled beer and imposed fines totaling EUR 338 million on eleven companies, an association and managers from the beer industry. According to the court, it was only proven that Carlsberg had participated in the alleged cartel's kick-off meeting in March 2007. Therefore in 2017 the absolute limitation period for cartel infringements of ten years had expired, which necessarily entailed the termination of the proceedings. A court defeat could have been very expensive for Carlsberg – the public prosecutor’s office had demanded that the original fine for the brewery should be quadrupled to EUR 250 million.

FCO Activity

After cartel fines totaling EUR 376 million in 2018, the FCO has so far only imposed fines of less than EUR 20 million in 2019. The bicycle wholesaler ZEG and some employees were fined of EUR 13.4 million because of a vertical price fixing system with 47 bicycle retailers. The proceedings had been triggered by an anonymous tip from a dealer. According to the FCO's findings, the bilateral contracts between ZEG and the retailers had stipulated that the dealers were not to undercut certain minimum retail prices. In addition, the FCO imposed fines of around EUR 3 million on eight providers of magazine lending services for unlawful customer allocation arrangement. The authority's investigation had shown that the companies had committed not to poach existing business customers (restaurants, hairdressing salons and doctors' surgeries) from each other, thereby also preventing price competition. In both proceedings, the companies involved agreed to a settlement, which resulted in sizeable fine reductions.

In April 2019, the FCO published the final report on its sector inquiry into online comparison portals, which it had initiated after the 9th amendment to the ARC had extended the authority’s competencies to cover also consumer protection issues. In the report, the FCO identifies a number of shortcomings. For example, in the insurance and hotel sectors important providers are often not included in the comparisons without this being made sufficiently transparent to the consumers. In addition, the authority found that hotel rankings tend to be influenced by the level of commissions paid by the hotel operators, which is often referred to only in a general and obscure way. The same applies to payments made with regard to the comparison of energy and telecommunications tariffs. When presenting the report, FCO President Mundt stressed that, in addition to its new powers to open investigations, the FCO should also be entitled in a second step to intervene on the basis of the German Fair Trade Practices Act against any shortcomings. Two further sector inquiries with a pure consumer protection background regarding smart TVs and the use of user ratings on digital portals are currently underway. In addition, the FCO also conducts a sector inquiry in the field of online advertising, which looks, however, only into potential competition concerns.

Private Enforcement

The ECJ's Skanska decision of 14 March 2019 drastically changes the liability for cartel damage claims in Germany. The Court confirmed the liability of a parent company for cartel damages caused by its subsidiaries, which are the subject of civil court proceedings. So far such parent liability had been confined under German law to cartel fines imposed by the competition authorities. 
In the first half of 2019, private damage claims continued to keep many courts busy up to and sometimes beyond their capacity limits. To name just one (extreme) example, in a case pending before the District Court of Munich, the claimant, who had been assigned the claims of more than 7,000 customers with a dispute value of around EUR 1.2 billion, delivered a total of 650,000 pages of documents (around three tons of paper) to the defendant’s law firm by truck. 

Bundling of Claims

Several decisions provide important further clarifications regarding the legal framework for such lawsuits in Germany. For instance, some courts have shown expressed increased skepticism vis-à-vis the practice of bundling damage claims. In a ruling of 18 February 2019, the Regional Court of Stuttgart held that a company may not act as a plaintiff with regard to such bundled claims if it does not have the permission required by the professional rules for lawyers and if it violates the Federal Lawyer’s Act by agreeing on contingency fees. Pursuant to the court, the articles of association of such a “special purpose vehicle” are null and void if its sole business purpose consists of the collection of debt. In a ruling of 23 January 2019, the Regional Court of Mannheim decided on a similar fact pattern. In the case at hand, several companies had assigned their damage claims free of charge to a company of which they were the only shareholders. The court rejected that company’s capacity to sue on the grounds that the assertion of the damage claims by the company infringed the professional rules for lawyers and that the assignments were therefore null and void.

Factual Presumptions

As reported previously, in a landmark judgment of December 2018 the Federal Supreme Court had rejected the concept of double prima facie evidence to the effect that a cartel caused damage and that it affected individual orders (see our Newsletter 2/2018). The Court did accept the existence of factual presumptions (i) that orders falling within the scope of a cartel arrangement were indeed affected by the cartel and (ii) that cartels have a price-increasing effect. However, these presumptions are supposed to have only an indicative effect within the framework of a comprehensive assessment of all relevant circumstances of the individual case, which has to be carried out by the judges. During the reporting period, several courts showed a certain reluctance to accept this modified approach.

For instance, in a ruling of 23 January 2019, the Higher Regional Court of Düsseldorf affirmed, in accordance with its existing case law, the two presumptions postulated by the Federal Supreme Court. However, the judges then refrained from carrying out a comprehensive assessment of all relevant circumstances of the individual case and instead merely stated in a postscript that such an overall assessment (probably) would have confirmed the presumptions.

Similarly, in two rulings of 11 February 2019 the Regional Court of Stuttgart used a presumption that the cartel had resulted in supra-competitive prices but then did not examine in detail the specific circumstances of the case. Instead, the court simply referred to the facts set out in the Commission’s fining decision and relied on economic experience that cartel agreements often lead to additional revenues for the participating companies as such agreements regularly aim at suspending price competition.

By contrast, in a judgment of 4 April 2019, the Higher Regional Court of Stuttgart sided with the Federal Supreme Court and emphasized the need to supplement the factual assumptions with an assessment of all relevant circumstances of the individual case. In addition, the court stated explicitly that the factual presumptions do not result in a reversal of the burden of proof in the sense that the defendant has to show an atypical course of events. In the aftermath of this decision, the Regional Court of Stuttgart then also acknowledged the need to carry out a comprehensive assessment in two judgments of 6 June 2019 regarding the truck cartel.

Indirect Purchasers

Several judgments during the reporting period confirmed the peculiar difficulties faced by indirect purchasers in bringing damage claims. Referring to the landmark ORWI ruling of the Federal Supreme Court in 2011, where the Court had set out strict requirements for proving the passing-on of damages to levels further down the value chain, both the Higher Regional Court of Düsseldorf (judgement of 6 March 2019) and the Regional Court of Hannover (judgements of 4 February 2019) dismissed actions brought by indirect customers in the truck cartel. In the opinion of the Düsseldorf court, there is no general presumption to the effect that a price increase on a market downstream from the cartelized market has a causal link to the cartel if the cartelized product was not purchased directly from a cartel member but from an independent intermediary. Given that an indirect customer generally has no insight into the purchase price paid by the direct customer, the information and disclosure claims under Section 33g ARC will continue to be of great practical importance in this field.

Umbrella Pricing

The case law also has established rather high requirements for the proof of damages resulting from allegedly supra-competitive prices charged by cartel outsiders in the wake of a cartel (so-called “umbrella price effect”). In a judgment of 8 May 2019 on the rail cartel, the Higher Regional Court of Düsseldorf confirmed in principle that cartel members can also be held liable for damages stemming from such umbrella pricing. However, the court rejected both the concept of prima facie evidence and a factual presumption regarding the occurrence of inflated prices in this scenario. Instead, the plaintiff has to substantiate his claim with a detailed analysis of the relevant market conditions. Moreover, the judges held that an umbrella pricing effect cannot be assumed simply because the cartel outsider had acquired the product at issue from one of the cartelists prior to selling it on. The courts have shown a similarly skeptical attitude vis-à-vis claims that cartel-inflated prices continue to be charged for some time after termination of the cartel arrangements. For example, in a judgment of 7 June 2019 (regarding the fire-fighting vehicle cartel) the Regional Court of Munich rejected a presumption of a one-year aftereffect.
Thus, overall the German courts have shown a certain tendency towards a more defendant-friendly approach in recent months, which qualifies to some extent the wide-spread belief that Germany is a particularly favorable jurisdiction for bringing damage claims (even though a number of important questions still have to be decided by the higher courts). The successes of the defendants in various damage lawsuits relating to the confectionery cartel underscore that cartel victims should refrain from the hasty pursuit of court proceedings. In these cases, the drugstore operators Rossmann and Müller and the Schlecker insolvency administrator had brought significant damage claims. However, in the course of the proceedings it became apparent that the plaintiffs faced great difficulties in substantiating their alleged damages. In this context, the question of standing after resale of the allegedly cartelized products played an important role. The same issue had already led to the dismissal of damage actions by Müller and Schlecker against members of the drugstore cartel in 2018. Ultimately the plaintiffs in the confectionery lawsuits decided to withdraw their claims before the first court hearing. 

Procedural Issues

Finally, from a procedural point of view a ruling by the Regional Court of Stuttgart of 14 March 2019 regarding the truck cartel is worth mentioning. The court had to deal with the situation that the cartel authority had issued two fining decisions relating to the same cartel but only one of them had entered into legal force. The court held that in this scenario the proceedings may be suspended until the final court verdict on the second decision has been rendered. In any event, a stay of proceedings is called for if the undertaking concerned by the second decision is an intervener. In the case at hand, one of the cartelists had been sued jointly and severally for damages based on a settlement decision by the Commission, which had not been appealed before the EU courts. One year later, the Commission had imposed a further fine on Scania by separate decision, against which the company had brought an action before the GC. Following third party notice against Scania, the Regional Court of Stuttgart suspended the proceedings as a whole (i.e. not only with regard to claims relating to the purchase of Scania trucks). In a similar scenario, in May 2018 the Regional Court of Nuremberg had ruled against members of the confectionery cartel and refused to stay the proceedings. 

This client information contains only a non-binding overview of recent developments in German competition law and is not meant to replace legal advice. In case of comments or questions, please contact:

Silvio Cappellari

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