Sector Inquiries
Sector inquiries have always been a valuable tool for the FCO to thoroughly investigate specific economic sectors, to acquire a comprehensive understanding of market structures and the underlying competitive landscape. Since 2005, the FCO has conducted 20 inquiries in diverse sectors such as food retail, district heating, milk, fuel, electricity, gas transmission, messenger and video services, mobile apps and online advertising. Ongoing investigations focus inter alia on charging infrastructure for electric vehicles, as well as non-search online advertising. New sector inquiries have not yet been officially announced after the amendments entered into force but the president of the FCO indicated that parcel services, the event industry or regulated markets may be of particular interest.
The legal threshold to initiate a sector inquiry in Sec. 32e ARC is very low. It is sufficient that circumstances suggest that competition in the sector may be restricted or distorted. Once initiated, the FCO has essentially all investigative powers at its disposal and can even search the premises of involved undertakings.
However, the direct impact of a sector inquiry used to be limited to the administrative burden on involved companies as they were required to produce extensive reports and data. The FCO's ability to act upon its findings was previously restricted to clear violations committed by individual companies, such as abusive practices or anti-competitive agreements, and only after initiating a separate investigation specifically regarding individual companies.
Measures following a sector inquiry
The reform significantly increases the powers of the FCO after a sector inquiry is concluded. The FCO will now be able to introduce various measures to change competitive structures and intervene against a potential malfunctioning of competition even in the absence of any illegal behavior. Inter alia, the FCO will be able to (1) lower the merger control thresholds for individual companies, (2) order any remedy measures to address a “malfunctioning of competition” and – as an ultima ratio measure – (3) also order the unbundling of companies.
1) Merger Control, Sec. 32 f (2) ARC
If the FCO finds that there are objectively reasonable grounds for arguing that future mergers could significantly impede effective competition in Germany in the investigated sector, it can introduce significantly lower merger control thresholds for individual companies, thereby forcing companies to pre-notify almost all transactions: Transactions will then be subject to merger control if, in the previous financial year, the acquirer generated domestic turnover of more than 50 million euros and the target company generated domestic sales of more than one million euros.
2) Remedial measures, Sec. 32f (3) ARC
If the FCO finds a “significant and continuing malfunctioning of competition” in the investigated sector, it may, based on Sec. 32f (3) ARC, order any behavioral or structural remedies which are necessary to eliminate or reduce the “malfunctioning of competition”. A “malfunctioning of competition” is defined very broadly in Sec. 32f (5) ARC and may inter alia stem from unilateral supply or demand power, restrictions on market entry/exit, uniform or coordinated behavior, or foreclosure of input factors or customers through vertical relationships.
While the FCO may indeed impose any behavioral or structural remedies, the law introduces in Sec. 32f (3) No. 1-6 ARC a few examples, which are:
- granting access to data, interfaces, networks or other facilities;
- certain specifications for business relations between companies;
- requirements on certain forms of contracts or contractual arrangements;
- prohibition of unilateral disclosure of information that encourages parallel behavior by companies;
- the accounting or organizational separation of company divisions or business units.
3) Unbundling of companies, Sec. 32f (4) ARC
As an ultima ratio measure, the FCO can force market dominant companies or companies with paramount significance across markets (Sec. 19a ARC) to sell shares or assets (i.e. to unbundle certain business parts). However, the legal requirements for unbundling are significant and any legal battle over the legality of an unbundling decision would likely take years. Also, in certain situations, the government will have to cover for losses of the seller if the achievable sales price was lower than evaluated. We therefore assume that the FCO will use this new power only in extraordinary circumstances.
II. Disgorgement of economic benefits, Sec. 34 ARC
The ARC allows for the disgorgement of economic benefits of an undertaking that had infringed competition law since 2023. However, the clause has hardly played any role in the enforcers’ practice, mainly because of high legal and practical barriers.
Two legal presumptions now in effect in Sec. 34 (4) ARC intend to make the clause more efficient: First, it will be presumed that an infringement of competition law results in economic benefits, and secondly, it will be presumed that the benefits amount to at least 1 % of the sales of the product or service concerned.
Further, the chances to rebut the presumption of 1% benefits are very limited. It cannot be argued against the presumption that no economic advantage or an advantage in only a small amount has been accrued. The presumption can only be rebutted if the company did not generate a profit in the “corresponding amount” (i.e. 1 % of groupwide turnover) in the relevant period. In other words: Only a company whose profit was less than 1% of its entire groupwide turnover in the relevant period stands any reasonable chance to rebut the presumption.
Still, we do not expect to see a disgorgement of benefits in most cartel cases in the future as, based on Sec. 34 (2) ARC, the FCO would have to repay disgorged benefits to the extent that cartel damages have been paid to third parties.
However, the clause can have a major impact inter alia in administrative abuse of dominance proceedings. Companies may have to consider a potential disgorgement of benefits – essentially as a factual 1% administrative fine – when they are discussing potential commitments with the FCO. Companies may face the choice between a potentially overshooting commitment decision, or a termination order following with a disgorgement of benefits.
III. DMA and private enforcement
In addition, the reform assigns to the FCO the role to enforce the European Digital Markets Act (DMA) in Germany. The amendments acknowledge the main role of the Commission in enforcing the DMA. The FCO only has a supporting role in Germany and will have to consult with and inform the European Commission of all investigative steps.
Lastly, the amendments also facilitate private enforcement of violations of the DMA in Germany. The legal basis for antitrust claims in Sec. 33 ARC has been extended to infringements of Art. 5 to 7 DMA. In addition, plaintiffs will also benefit from some of the simplifications that private enforcement brings with it. Based on Sec. 33b ARC, German courts will be bound by the final designation and any infringement decision of the European Commission.
