German Antitrust Law Amendment Entered into Force: "Digitalization Act" Establishes New Antitrust Rules for the Digital Economy

The 10th amendment to the German Act against Restraints of Competition (ARC)—also called the “Digitalization Act”—became effective on January 19, 2021. In a previous alert, we discussed the key aspects of the Digitalization Act, which focus on the digital economy and related antitrust issues. The most notable changes to the ARC relate to the rules on abuse of dominance by large digital platforms and to merger control:

  • German Parliament has added more specifics on the rules banning anti-competitive practices by large digital platforms.
  • German domestic turnover thresholds for merger control have been increased significantly.

This follow-up note recaps the key points and updates for amendments that were introduced in the parliamentary process.

Abuse of Dominance—Extended List of Banned Practices for Large Digital Platforms

The Digitalization Act introduces several novel provisions intended to address misuse of market power by large digital platforms and tech companies.

The new Section 19a is the key provision of the Digitalization Act. It authorizes Germany’s competition authority, the Federal Cartel Office (FCO), to intervene where it finds that a company with “paramount significance for competition across markets” has engaged in anti-competitive practices.

Compared to the government draft, the Digitalization Act as voted into law includes a more elaborate list of practices by such “gatekeepers” into which the FCO can launch antitrust investigations:

  • Self-preferencing: favoring a firm’s own products over competitors’ products when providing market access to supply or sales markets, e.g., when displaying search results or by preinstalling or otherwise integrating the firm’s own apps or services.
  • Impeding other companies on supply or sales markets, e.g., by preinstalling or otherwise integrating exclusively a firm’s own apps or services, or by preventing other companies from advertising their products or reaching their customers through alternative channels.
  • Impeding competitors on adjacent markets where the company can rapidly expand its position, e.g., by automatically bundling a product with other unrelated products, or making products subject to the use of other unrelated products.
  • Creating barriers to market entry for other companies by processing data or by demanding terms and conditions that, e.g., require users to consent to processing of data from other services of the company or a third party without providing users a sufficient choice regarding whether and how the data is processed.
  • Restricting or refusing interoperability of products or portability of data.
  • Withholding information from other companies about the quality or success of their products and services, thereby preventing companies from evaluating how their products and services perform in a market.
  • Demanding disproportionate benefits from another company, e.g., by requesting a transfer of data or rights in return for displaying the other company’s products or services on a platform, or making the quality of such display subject to a transfer of data or rights.

Under the new law, only the German Federal Court of Justice has jurisdiction for appeals against Section 19a decisions of the FCO, thus bypassing the Düsseldorf Higher Regional Court, usually the first instance for appeals against FCO decisions. This controversial procedural rule, which some have argued does not sufficiently safeguard digital companies’ defense rights, was not initially included in the draft bill. The provision was added by the Committee on Economic Affairs and Energy in the last stages of the parliamentary process. According to the bill’s final statement of reasoning, streamlining appeals against Section 19a decisions is desirable to ensure that remedies are not unduly delayed and to thereby prevent damage to fast-moving digital markets.

Merger Control—Increased Turnover Thresholds

Under the new law, the German domestic turnover thresholds triggering a mandatory merger notification are considerably increased:

The domestic turnover thresholds are increased from €25 million to €50 million (around $57.1 million) for one party and from €5 million to €17.5 million (around $20 million) for the other party. Merger notification to the FCO is mandatory if these revised thresholds are met, and the combined worldwide turnover of the parties was more than €500 million (around $571.1 million) in the last financial year.

As to procedure, the new law extends the review period for a Phase II investigation by one month to five months. This mostly reflects a recognition of reality and the need to extend the previous four-month term; the FCO has frequently used the parties’ consent to extend the Phase II review period, which led to such investigations taking more than five months on average. The one-month Phase I period, during which the vast majority of transactions are cleared, remains unchanged.

Conclusion and Prospects

Germany is at the forefront of the many jurisdictions that have been considering new rules targeted specifically at the digital economy. While the Digitalization Act was voted into law in Germany, the European Commission proposed new rules for digital platforms that operate in the European Union (EU): the Digital Services Act and the Digital Markets Act. Notably, the statement of reasoning for Section 19a, as introduced in the parliamentary process, specifically refers to both the Investigation of Competition in Digital Markets of 2020 (prepared by the U.S. House Judiciary Committee’s Antitrust Subcommittee) and to the EU’s proposed Digital Market Act. With ongoing legislative efforts at national and EU levels and continued aggressive enforcement of existing antitrust rules targeting large platforms and gatekeepers, the digital economy will continue to be a central focus of antitrust regulators.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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