Submission by the DFV, ASR, and VIR regarding the 11th Amendment to the Act Against Restraints of Competition

The following points have been criticized:

A. The bill brings about a paradigm shift without any proven or apparent necessity.

1. Section 32f(3)-(5) of the Draft Bill marks a paradigm shift in competition policy in Germany. In the future, the Federal Cartel Office will be able to intervene in markets and in the rights of companies without those companies having committed any violation of antitrust law. The existing law “against restrictions on competition” is thus being expanded to include an obligation to compete. This no longer has anything to do with a regulatory framework that is balanced in terms of public policy. It is no longer the restriction of competition, but rather the mere absence of competition that is intended to justify intervention by antitrust authorities.

2. The draft bill posits regulatory gaps that do not actually exist.

• Internal corporate growth is a reflection of successfully managed competition and has been the fundamental principle of competition law to date. Allowing for the breakup of companies despite their compliance with the law undermines the essential incentive function of competition.
• “Tacit collusion” refers to market conduct that falls below the threshold for coordination, as established by consistent judicial practice, which is consistent with the principle of independent conduct under antitrust law. Companies are free to “adapt with keen awareness to the observed or expected behavior of their competitors.” The only thing prohibited is the restriction of competition. There is no comprehensible justification for why this should now be changed.
• The proposed changes are unnecessary, as current antitrust law already provides sufficient tools for controlling market power, as do the changes introduced by the amendment to the GWB10 and the Digital Markets Act at the European level.
• Germany does not have any dangerous concentrations of corporate power. This is evident from the annual reports of the Monopolies Commission. The share of the 100 largest companies in total economic value added has been shrinking for several decades and stood at just 14% in 2020.1 Germany therefore has no need for antitrust law that combats dangerous concentrations of corporate power without any regard for collateral damage.2

B. The bill authorizes the Federal Cartel Office, an executive agency, to engage in “market design.”

3. Democracy and competition are two fundamental principles of social coexistence in Germany. Both depend on the freedom of the democratic and competitive processes, respectively. Both are undermined when individual institutions presume to predict and determine the “good outcomes” of the democratic or competitive process. Section 32f(3)-(5) of the Draft Bill is based on such a presumption of knowledge. In situations where there is no complete market failure, the determination of “good” competitive outcomes is no longer left to the market, but rather to the regulatory-like interventions of a government agency. The state acts as a “better entrepreneur.” It is granted the authority to design the market in accordance with its own vision. This has nothing to do with freedom of competition.

The draft bill describes itself as a law aimed at improving “competitive structures.” The powers of intervention are referred to as “structure-oriented instruments.” Contrary to this, however, Section 32f(3) of the draft bill grants these powers of intervention regardless of whether a structural competitive deficit exists. The provision requires only that there be a “significant, persistent, or repeated distortion of competition.” Intervention is therefore permissible not only in cases of “structural distortions” or “distortions of the competitive structure,” but also, independently of these, in cases of mere behavioral distortions of competition. In other words: In the future, even those who behave in full compliance with antitrust law in a market with intact competitive structures must expect intervention measures if, in the eyes of the antitrust authority, they are not doing enough to ensure that vigorous competition takes place. This has nothing to do with a law “against restrictions on competition.”

4. Section 32f(3)-(5) of the Draft Bill has been transformed into a general clause. Apart from the requirement of a “significant, persistent, or repeated distortion of competition” and the general principle of proportionality, the provision sets forth no further legal requirements for serious interventions such as mandatory access or supply obligations, requirements regarding contract terms, or unbundling. From the antitrust authority’s perspective, such a general clause may offer the greatest possible flexibility. From the perspective of the affected companies that are acting in compliance with antitrust law (!), it primarily means legal uncertainty. In the absence of statutory limits, everything depends on the antitrust authority exercising the intervention powers under § 32f RefE with restraint.

5. Section 32f(3)-(5) of the Draft Bill contains no statutory provisions regarding against whom antitrust enforcement actions may be directed. The selection of the target of such actions is left to the discretion of the Federal Cartel Office—an independent federal authority not subject to instructions from above—and is subject to only limited judicial review. Must the intervention be directed against the party responsible for the distortion of competition? Or, regardless of the extent of their contribution to the distortion, must it be directed against the party best able to effectively remedy the distortion of competition? The text of the law does not even specify that the target must be active in the market that was the subject of the sector inquiry. The absence of a specific addressee leads to a lack of specificity and thus to the unconstitutionality of the legal provision.

6. Section 32f(3)-(5) of the Draft Amendment strengthens the antitrust authorities’ powers of intervention without simultaneously strengthening the legal protections available to the affected companies:

• The initiation of sector inquiries remains unchallengeable in the absence of participation in the proceedings or a complaint.
• The report on the sector inquiry is not an antitrust authority decision. The findings contained therein are not, as such, subject to appeal.
• Although intervention measures based on sector inquiries may be challenged by means of an appeal, such an appeal does not have suspensive effect, even in the case of divestiture orders.

C. The bill grants antitrust authorities powers of intervention that exceed constitutional limits.

7. Section 32f(3)-(5) of the Draft Bill provides for measures that interfere with corporate ownership. Divestitures involving the transfer of ownership constitute expropriation within the meaning of Article 14 of the Basic Law. Contrary to the explanatory memorandum to the draft, such an expropriation also occurs when the divested property is made available by the state to a private third party for the fulfillment of a specific public interest (here: the revitalization of competition).3 The draft also fails to take into account that § 32f(3)-(5) of the RefE does not concern property interests established in contravention of the law, but rather legitimizes encroachments on property interests that a company has lawfully established.

8. Section 32f(3)-(5) of the Draft Bill also conflicts with the principle of specificity. According to the doctrine of materiality developed by the Federal Constitutional Court and established in settled case law, the legislature must legitimize state action in fundamental areas—particularly with regard to powers of intervention—through formal legislation and must make all material decisions itself. Consequently, this results in a prohibition on delegating essential decisions to the executive branch and, correspondingly, an obligation on the part of the legislative branch to make such decisions itself. Section 32f(3)-(5) of the Draft Bill fails to meet these requirements:

• The regulation does not specify when a “significant” distortion of competition exists. It does not even limit the scope of the regulation to structural distortions. The decision regarding the materiality threshold rests solely with the Federal Cartel Office.
• With the exception of the definition of an enterprise, the standard does not specify who may be subject to regulatory measures.
• With the exception of a graduated approach to unbundling and a non-exhaustive list of intervention measures, the law does not specify which types of interventions are still permissible or are no longer permissible.

Section 32f(3)–(5) of the Draft Amendment is not intended here as a last resort; rather, it is conceived as a general clause whose application and scope are not defined by the legislature but are left to the discretion of the antitrust authority. This is not consistent with the materiality principle.

D. The bill is incompatible with higher-ranking EU law.

9. Section 32f(3) of the Draft Bill conflicts with Article 3(2), first sentence, of Regulation 1/2003. Agreements and conduct that are permissible under Article 101(1) TFEU or pursuant to the exemption conditions of Article 101(3) TFEU may not be restricted or prohibited by national antitrust law. Section 32f(3) of the Draft Bill concerns conduct falling below the threshold for agreements and coordination under EU competition law. In accordance with the antitrust principle of autonomy4 and the established case law of the EU courts, such conduct is expressly permitted. Any related intervention by antitrust authorities cannot be reconciled with Article 3(2), first sentence, of Regulation 1/2003.

E. The proposed powers of intervention by antitrust authorities weaken Germany as a business location.

10. Section 32f(3)-(5) of the Draft Bill poses significant risks to Germany as a business location. These risks stem less from individual divestitures or other interventions by antitrust authorities aimed at reviving severely disrupted competition. Rather, the decisive factor is the “collateral damage” that such a law causes even before it is implemented, in particular:

• Section 32f(3)-(5) of the Draft Amendment prevents economies of scale and scope. Efficiencies that, up to the point where competition is eliminated, justify an exemption for agreements restricting competition under § 2 GWB may in the future be grounds for intervention by antitrust authorities due to significant disruption of competition. § 32f(3)-(5) RefE thus runs counter to the assessment set forth in § 2 GWB.
• Section 32f(3)-(5) of the Draft Bill reduces investment incentives. Without adequate compensation, divestiture and other measures carry the risk that companies will refrain from making new investments in Germany as a business location solely because of the existence of such instruments, since in the event of antitrust intervention—even if they have not committed any legal violation—they would not be able to recover the irreversible portion of their investments.
  Furthermore, divestiture and other measures carry the risk that companies will refrain from investing in research and development, as a return on investment is no longer guaranteed due to the threat of antitrust intervention aimed at restoring disrupted competition. There is a risk that precisely the innovations most significant for dynamic markets will no longer be created in Germany, thereby impeding technological progress.

The risk described above—namely, that the regulation may have unintended consequences in the form of a loss of economies of scale and scope, as well as a reduction in incentives for investment and innovation—is all the greater the less clear the legal regulation is regarding its conditions of application (see para. 8 et seq. below).