Major developments in German competition law in the second half of 2022
In line with the motto "after the amendment is before the amendment", the changes proposed by the 11th Amendment to the Act Against Restraints of Competition (ARC) were at the center of the discussion during the reporting period with the 12th Amendment to the ARC already casting its shadow ahead. In addition, there were, among other things, developments in the proceedings under Section 19a ARC, a certain flexibility on the part of the FCO in dealing with cooperations between competitors to address the gas shortage situation, historically low fines in 2022 and a further contouring by the highest court of the law governing cartel damage actions.
I. 11th Amendment to the ARC
In the reporting period, the Federal Ministry of Economics and Climate Protection (BMWK) presented the draft "Competition Enforcement Act", also referred to as the 11th Amendment to the ARC. Importantly, the draft provides for new powers enabling the German Federal Cartel Office (FCO) to put an end to disruptions of competition following a sector inquiry even outside the scope of the ban on cartels or abuse behaviour. In addition, the skimming off of improper gains resulting from infringements will be significantly easier for the authority going forward.
1. ”Sector Inquiry Plus”
Based on the "Market Study Tool" of the British competition authority CMA, the FCO will in future be able to order remedial measures directly if it has identified a "significant, persistent or repeated disruption of competition" in the course of a sector inquiry. Proof of an individual violation will no longer be required. The behavioral and structural intervention options listed by way of example in Section 32 f of the draft are subject to the principle of proportionality and include unbundling of ownership as a last resort. In view of this far-reaching new instrument and the use of vague terminology, there is great concern about the breadth of powers of the FCO. President Mundt, meanwhile, has rightly promised a responsible and prudent approach in applying the new instrument.
2. Skimming Off of Improper Gains
The instrument of skimming off benefits in Section 34 ARC, which was introduced in 1999, is not used in practice due to the high hurdles of proof. The Competition Enforcement Act is now supposed to change this: It introduces a legal presumption according to which a company with a proven antitrust violation has obtained an advantage amounting to 1% of its domestic sales with the products concerned. There will be no maximum time limit; these gains may be siphoned off with regard to the entire period of the infringement.
At the same time, the burden to rebutt this presumption will be high. The company concerned must prove that it did not generate an overall (i.e. including with other products) profit of this amount worldwide during the relevant period. There is reason to doubt whether there is a scenario in which this rebuttal will be sucessful. Finally, the FCO will no longer need to prove the offending undertaking’s fault. It remains to be seen whether, in line with its current announcements, the FCO will only take a moderate approach to the facilitated skimming off of improper gains, or whether this, in addition to fines and private damages, will become a third element of sanctions to reckon with in Germany.
The 11th Amendment to the ARC is subject to an ambitious timetable: once a government draft is available, the BMWK hopes to enter into parliamentary consultation as soon as possible. In addition, the 12th Amendment to the ARC is already in preparation. Its focus is on the strengthening private damages actions and on new powers for the FCO in the area of consumer protection.
II. Merger Control
The number of mergers notified to the FCO was only around 800 in 2022. In addition to the increase of the turnover thresholds in 2021, the cause of this roughly 20% decline is likely to be the macroeconomic developments of the past year, which was characterized by multiple crises.
Eight cases were subject to an in-depth review in 2022: one merger was prohibited (ACO/BIRCO, see Newsletter 1/2022) and two others, the acquisition of OMV service stations by EG Group (Esso) and the combination of Rheinenergie and Westenergie (E.ON), were cleared subject to conditions. Two projects were abandoned and three phase II cases are still pending.
1. FCO Proceedings
During the reporting period, China International Marine Containers (CIMC) abandoned its plan to acquire Denmark's Maersk Container Industry (MCI) during the phase II review process. Both companies offer shipping containers, with MCI specializing in the manufacture of reefer containers. In the reefer box market, the merger would have resulted in a combined global share of 60-70%. In the FCO’s view, the only two remaining suppliers, both Chinese companies, would not have been able to control the new entity's competitive behavior. One of the remaining competitors belongs to COSCO Group, with which CIMC until recently had corporate and personnel links, so that the FCO doubted whether effective competition would arise in this respect. The other competitor had only a small market position and low production capacities.
In September, the FCO approved a strategic merger between Rheinenergie and E.ON subsidiary Westenergie subject to the condition precedent that Rheinenergie sells a substantial part of its heating power business in the Cologne area to a single buyer. The FCO regarded this as the only way to prevent a strengthening of Rheinenergie's dominant position. There were also concerns about the parties' strong market position in certain local markets for the operation of e-charging stations for cars, but in this respect, the FCO forecasted a dynamic market development. In addition, it resorted to the rarely used balancing clause of Section 36 (1) No. 1 ARC, according to which a merger shall not be prohibited if it leads to improvements of the competitive situation that outweigh the merger’s negative effects.
During the reporting period, the FCO approved an increase of Kühne's stake in Lufthansa to 15.01% in phase I. The acquisition was subject to merger control because despite the moderate shareholding Kühne acquired a competitively significant influence. The FCO assumed that Kühne has a de facto blocking minority due to the continuously low presence at Lufthansa's annual general meeting. In term of substance, the review focused on vertical aspects. Although Kühne's subsidiary Kühne+Nagel is one of the largest logistics providers with a significant demand for airfreight transport, the FCO concluded that there are sufficient alternatives available to competitors, especially since the pandemic-related capacity bottlenecks in airfreight have largely been overcome.
Finally, in the second half of 2022, the FCO approved two mergers involving the backward integration of large food retailers. Both cases involved the acquisition of a major manufacturer of private labels by a discounter. In October, the Schwarz Group (including Lidl, Kaufland) received green light to acquire pasta maker Erfurt Pasta. In December, the Office gave the go-ahead for the acquisition of water producer Altmühltaler Mineralbrunnen by ALDI. Although the FCO saw in each case sufficient alternatives in the markets concerned, it announced that it would keep an eye on the competitive impact of the vertical integration of manufacturers in the food retail sector.
2. Higher Regional Court of Düsseldorf on Meta/Kustomer
In December 2021, the FCO determined that Meta's takeover of Kustomer was notifiable under the transaction value threshold (see Newsletter 2/2021) and informally cleared the subsequently notified transaction in phase I in February 2022 (see Newsletter 1/2022). On 23 November 2022, the Higher Regional Court of Düsseldorf ruled on the appeal filed by Meta against both the decision from December 2021 and the costs decision from March 2022.
The appeal against the December 2021 decision failed because due to the clearance of the transaction, the judges did not see a need for legal protection anymore. The Higher Regional Court also denied Meta’s legal interest in a declaratory judgment due to the lack of a risk of repetition.
However, the appeal against the costs order was successful. According to the Higher Regional Court of Düsseldorf, the FCO was wrong to assume that the transaction was notifiable because there was no substantial domestic activity. It held that Kustomer’s processing of data records of German end customers abroad was no domestic activity. In the Higher Regional Court’s view, the only relevant domestic activity was the provision of customer management services to corporate customers located in Germany, which was not substantial.
By focusing on the question, where competition for services takes place, the Higher Regional Court of Düsseldorf drew a parallel between the geographic attribution of turnover and the geographic attribution of the activity. This is convincing. However, due to the fundamental importance of the interpretation of the criterion of substantial domestic activity for the application of Section 35 (1a) ARC, the Higher Regional Court allowed an appeal to the Federal Court of Justice.
III. Abuse of Dominance
1. Section 19a ARC (Amazon)
As previously reported (Newsletter 1/2022), the FCO found that Amazon has a ‘paramount significance for competition across markets’. In July and October 2022, the case report and the long version of the order were published. Amazon, in contrast to the other digital groups affected by Section 19a ARC to date (Alphabet/Google, Apple and Facebook/Meta), appealed against the decision to the Federal Court of Justice. It is the first time that the highest civil court will deal with the issues surrounding the notion of ‘paramount significance for competition across markets’ and the outcome is highly anticipated. This is particularly true in light of the fact that the FCO announced in mid-November 2022 that it would conduct the two pending abuse proceedings against Amazon (price control mechanisms and discrimination against marketplace retailers) by taking into account the principles of Section 19a ARC.
2. Section 19a ARC (Facebook/Meta)
In addition to its previous decisions concerning the applicability of Section 19a ARC, the FCO now recorded its first practical success with the norm in the proceedings concerning the use of the Meta Quest (formerly Oculus) virtual reality headset marketed by Facebook/Meta. The company eliminated the original requirement that users of the headset have to have a Facebook account. In the FCO’s view, this limits the risk of Facebook/Meta further expanding its dominant position in the virtual reality and social media markets. In its November 2022 press release, the Office emphasized that the proceedings against Facebook/Meta had not yet been concluded as the FCO wanted to continue to monitor the merging and processing of user data from the various Facebook/Meta services, among other things.
3. Section 19a ARC (Google/Alphabet)
Shortly before Christmas, the FCO was also able to conclude its proceedings against Google/Alphabet with regard to the online news service "Google News Showcase. This concerned the company's news offering, which gives publishers the opportunity to present publishing content within the framework set by Google. By taking various measures in favor of the publishers (in particular, no integration into the general search engine and uncoupling of the Showcase participation from the search result rankings appearing there), Google was ultimately able to dispel the competition concerns and prevent an injunction from the FCO. The proceedings underscore the practical importance of the provision for large digital players.
4. Abuse Proceedings against Lufthansa
Following the warning letter in February 2022 (Newsletter 1/2022) in August 2022 the FCO ruled that Lufthansa remains obliged to grant its competitor Condor access to Lufthansa feeder flights for Condor’s long-haul passengers in the future. The FCO confirmed its view that Lufthansa, with major German hubs in Frankfurt, Munich and Düsseldorf, is the only airline that can offer a comprehensive and dense feeder network with flights from Europe. If Lufthansa were to deny Condor access to feeder flights, Condor's ability to exert relevant competitive pressure in the long-haul market would be significantly reduced. Whether the decision will stand remains to be seen. Apparently, Lufthansa has filed an appeal.
5. No Price Level Abuse by Coca-Cola against Edeka
In September, the Regional Court of Hamburg rejected a claim for continued supply asserted by an Edeka company against Coca-Cola in preliminary injunction proceedings. The case impressively shows that the civil courts also impose strict requirements for proof when asserting supply claims under Sections 19, 20 ARC (see also Newsletter 1/2021).
The retailer had claimed that Coca-Cola abused its dominant position by demanding an unreasonable price increase. The Regional Court confirmed that Coca-Cola had a dominant position on the market for non-alcoholic carbonated beverages. However, it considered that neither a claim for an injunction to continue supply at the previous conditions nor a reason for the injunction had been plausibly established:
Firstly, the asserted claim for continued supply also related to products outside the market where Coca-Cola had a dominant position without the applicant making sufficient distinctions in this respect. Secondly, in the opinion of the Regional Court of Hamburg, the applicant had also not submitted any suitable comparative standard for determining the hypothetical competition price. The Regional Court did not consider the submission on the price increases of a competitor (presumably Pepsi) to be sufficient in this respect, because this submission also related in part to products outside the dominanted market. Finally, the Regional Court also considered that the reason for the injunction had not been sufficiently substantiated. It held that it would not be too burdensome for Edeka to initially accept the conditions and claim an abuse of pricing power and demand the excessive price back in a regular court proceeding.
IV. Prohibition of Cartels
When it comes to cartel proceedings, the FCO imposed around EUR 24 million in fines on a total of 20 companies and seven natural persons in 2022, including in the bridge expansion joint and industrial construction sectors (see Newsletter 1/2022). The total amount of fines is remarkably low given the figures for previous years of EUR 848 million in 2019 and EUR 358 million in 2020. One reason for this, in addition to the overall decline in leniency applications, is probably that the FCO did not pursue cartel prosecution with its usual intensity during the pandemic in 2020 and 2021.
In 2022, companies filed a total of 13 leniency applications. The FCO conducted twelve independent searches and six more by way of administrative assistance to other national competition authorities. This is the highest number in years, with a further intensification of the FCO's prosecution activities expected in 2023.
1. Focus on Energy and Supply Issues
The prevailing topic of actual and potential energy and supply shortages also preoccupied the FCO during the reporting period.
At the end of August 2022, President Mundt stated that companies can expect the FCO’s assistance in assessing cooperations with competitors addressing the gas shortage.
In a press release of September 2022, the FCO announced that it would not make a planned cooperation between German sugar manufacturers subject to antitrust proceedings. The cooperation concerned joint sugar beet processing in case of actual gas supply shortages. In the FCO’s view, the cooperation was justified in particular because its parties, which were involved in the sugar cartel (2014), had envisaged only a one-off cooperation for a limited period.
In September 2022, the Office gave the go-ahead for the current form of a cooperation between energy companies Uniper, RWE and EnBW/VNG with regard to the construction and operation of LNG terminals in northern Germany, which is limited until spring 2024. According to the press release, the resulting advantages for consumers outweighted potential competitive disadvantages.
At the end of November 2022, the FCO finally published the interim report on the sector inquiry into the refinery and wholesale level for fuels. The inquiry was prompted by the persistent decoupling of service station prices from crude oil price developments since February 2022. Following a detailed analysis of the production- and cost-relevant conditions as well of as price formation mechanisms across market levels, the FCO was unable to identify any indications of price collusion by the mineral oil companies. It announced that, pending completion of the sector inquiry, it would extend its investigations in particular to include competition in the sale of fuels at wholesale level.
2. Practice of the Higher Regional Court of Düsseldorf
In its ruling of 11 November 2022, the Higher Regional Court of Düsseldorf imposed a fine of EUR 21 million on a German subsidiary of the French construction group Bouygues. The case was based on the FCO's antitrust proceedings in the field of technical building equipment, in the course of which eleven companies were accused of illegally colluding in tenders concerning large-volume contracts. The appealing company was originally fined just under EUR 48 million. The reduction in the fine is explained by the fact that the Higher Regional Court assumed that the statute of limitations had expired for four of the seven major projects in question.
On 14 November 2022, the Higher Regional Court of Düsseldorf sentenced the drugstore chain Rossmann to pay a fine of EUR 20 million in the wake of the so-called ‘coffee cartel’. The company was accused of reaching an agreement with a coffee roaster on the retail prices of filter coffee (prohibited vertical price fixing). The starting point for the proceedings were investigations by the FCO in 2010, which resulted in a fine of approx. EUR 5 million in 2015. Following Rossmann's appeal, the Higher Regional Court of Düsseldorf increased the fine six-fold at the beginning of 2018, against which the company successfully defended itself before the Federal Court of Justice. After further procedural quarrels, the judgment in the reporting period now marks the end of the third (!) main hearing in the same case. However, it may not be the last one because the parties can again appeal to the Federal Court of Justice.
The Carlsberg case represents another seemingly endless proceeding. Since November 2022 it is pending again at the Higher Regional Court of Düsseldorf. The epic started with a fine imposed on the beer brewery by the FCO in 2014, which was overturned by the Higher Regional Court of Düsseldorf in spring 2019 and "revived" following an overturning decision by the Federal Court of Justice in summer 2020. A main hearing that had begun in the meantime had to be discontinued due to the illness of a member of the Senate.
3. Final Chapter for Action against FCO for Breach of Official Duties
In September 2021, the Higher Regional Court of Cologne dismissed the liability action for breach of official duties brought against the FCO by the agricultural trade group BayWa for compensation for its fine of almost EUR 70 million in the crop pretection cartel (see Newsletters 2/2020 and 2/2021). With regard to the legal costs incurred, BayWa had challenged the decision of the Higher Regional Court of Cologne by lodging a complaint against the non-admission of the appeal with the Federal Court of Justice (FCJ). The competent senate dismissed this complaint without stating reasons in its decision of 30 June 2022. With the final conclusion of the proceedings, it remains to be seen how Germany's highest civil court will substantively assess the FCO's investigative methods, which are disputed under the rule of law.
V. Cartel Damages
1. Federal Court of Justice on Damages after Information Exchange
According to the established case law of the Federal Court of Justice, cartel-affected customers of price and quota cartels can rely on a factual presumption that the cartel price is on average higher than the counterfactual price without the infringement. In a case brought by the Schlecker insolvency administrator against participants in the drugstore products cartel, the FCJ has now explicitly extended this factual presumption to cases of pure information exchange. Accordingly, this factual presumption also applies if the exchange relates to information concerning the current or planned price-setting behavior vis-à-vis a common customer.
With its ruling, the FCJ revises the judgment of the Higher Regional Court of Frankfurt/M. The latter had also assumed a factual presumption of a cartel-related price surcharge even in the case of a pure exchange of information. However, the Higher Regional Court expressly did not attribute a strong indicative effect to this presumption of a price-increasing effect. Since in the opinion of the Federal Court of Justice, in the case of an exchange of secret information about the individual intentions of a company with regard to its current or future price behavior, the probability is particularly high that a collusive result will occur to the detriment of the affected customer, the presumption should regularly have a strong indicative effect.
Taking into account the legal opinion of the Federal Court of Justice, the Higher Regional Court of Frankfurt/M. will now have to decide whether the strong indicative effect for the occurrence of damage is countervailed by other indications in the overall assessment of all circumstances or whether a damage is to be assumed on the basis of this comprehensive assessment.
2. Ongoing Discussion about Assignment Models
It is still unclear to what extent cartel victims can bundle and jointly file their claims by assigning them to a claims vehicle. Various commentators cite the FCJ’s ruling concerning financialright of June 2022 as evidence for the compatibility of such models with the German Legal Services Act for cartel damage claims. Hower, this judgment dealt with claims for damages due to the emissions scandal, while several regional courts expressly denied the admissibility in the context of cartel damage claims during the reporting period.
For example, in connection with the log cartel, after the Regional Court of Stuttgart (ruling of 20 January 2022), the Regional Court of Mainz (ruling of 7 October 2022) has now also categorically ruled out the compatibility of assignment models with the German Legal Services Act due to the particular complexity of cartel damages actions. The Regional Court of Dortmund also came to the same conclusion in a reference decision of 8 June 2022. However, it takes a differentiating view. While the assignment model in the case of the stand-alone action in dispute was not covered by the collection licence of the claims vehicle due to the particular complexity of the matter, the Regional Court expressly leaves the question of admissibility open in the case of follow-on actions.
In view of rather plaintiff-friendly case law of the Federal Supreme Court in comparable constellations, it is at least doubtful whether this critical attitude of the courts of instance will prevail.
3. Regional Court of Frankfurt/M. on the Statute of Limitations
In August 2022, in a case that is already remarkable for its duration alone, the Regional Court of Frankfurt/M. dismissed as unfounded a lawsuit filed by several companies of the Deutsche Bahn Group against the rail cartel that had been pending since 2012. The Regional Court followed the defendant’s side (represented by SZA, among others) and assumed that the claims asserted were time-barred.
The Regional Court concluded that the plaintiffs should have been aware of the relevant cartel agreements at an early stage, among other things because of the conspicuously constant delivery quotas. In doing so, the Regional Court also relied on the findings in the fining decision issued by the FCO, which in the opinion of the Regional Court were also binding in favor of the defendants.
The Regional Court of Frankfurt/M. found that, due to this grossly negligent ignorance in 2007, the claims were already time-barred when the FCO initiated its investigations in 2011. A suspension of the statute of limitations therefore no longer applied to claims that had arisen up to 2007.
However, the Regional Court also did not allow the plaintiffs' objection of inhibition for claims that arose after 2007. In this respect, the court relied on the general civil law principle of unity of damage. According to this principle, a uniform statute of limitations applies to all claims that were foreseeable with sufficient probability at the time of knowledge or grossly negligent ignorance. The plaintiff’s appeal is now pending before the Higher Regional Court of Frankfurt/M.
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:
ExpertiseAntitrust & Competition Law