Antimonopoly & Unilateral Conduct 2017

Last verified on Monday 24th July 2017

Germany

Michael Dietrich and Marcel Nuys
Herbert Smith Freehills

    Overview

  1. 1.

    What is the legal framework governing unilateral conduct by companies with market power?

  2. The abuse of a dominant position is prohibited by sections 19 and 20 of the German Act against Restraints of Competition (ARC). These provisions apply to all "undertakings" (for more details as to the addressees, see question 19) with "market power". As explained below (see question 5), distinct levels of market power exist under the German dominance regime:

    • single dominance (see questions 6 and 18);
    • collective dominance, where two or more companies have joint market power; and
    • a "superior" market position in relation to other competitors, customers or suppliers (relative dominance) (see question 6).

    In addition, article 102 of the Treaty on the Functioning of the European Union (TFEU) is directly applicable in Germany according to article 3(1) of EC Regulation 1/2003 and section 22(3) ARC, though important differences between article 102 TFEU and the German dominance regime remain, in particular, regarding the addressees of the prohibition of abusive unilateral conduct.

  3. 2.

    What body or bodies have the power to investigate and sanction abuses of market power?

  4. The prohibitions of sections 19 and 20 ARC are enforced by the Bundeskartellamt (German Federal Cartel Office (FCO)) and the state cartel offices in each of the federal states in Germany. The FCO is a higher federal authority, which is assigned to the area of responsibility of the Federal Ministry for Economic Affairs and Energy, and which is independent in its decision-making role. The FCO has twelve decision divisions that are mainly organised according to certain industry sectors (with three divisions exclusively dealing with cross-sector cartel prosecution) and is primarily responsible for the enforcement of the ARC in Germany. Only if the effect of an abuse is limited to one federal state (typically in the supply of gas or energy) the respective state cartel office will be responsible for intervention. However, since almost all dominance cases have an effect in more than one federal state, most investigations are dealt with by the FCO (including fines, if any).

    Monopoly power

  5. 3.

    What role does market definition play in market power assessment?

  6. Market definition plays a key role in the assessment of market power. For establishing a dominant market position – as a first step – the relevant product and geographic market has to be defined. Then, as a second step, the undertaking's market position on the relevant market needs to be determined.

  7. 4.

    What is the approach to market definition?

  8. On the supply side, the relevant product market includes all products or services that are substitutable from a demand-side perspective. The relevant geographic market covers the area where the undertaking concerned is active and to which consumers can practically turn for alternative sources of the product or service concerned.

    For determining market power on the demand side, markets need to be determined from a supplier's perspective.

    In light of the increasing importance of platform markets and the digitalisation of the economy, the ARC has been amended on 9 June 2017 to clarify that a market exists even where the sale of products or services does not generate any revenues (see section 18(2a) ARC). Similarly, the non-exhaustive list of factors which come into play for an assessment of dominance (see below question 6) has been adjusted to respond to the need to protect competition on digital markets (often two or multisided markets driven by innovation, Big Data and network effects).

  9. 5.

    How is market power or monopoly power defined?

  10. Generally, in line with widely accepted legal and economic principles, market power is defined as the ability to raise prices profitably above the competitive level. As mentioned above (see question 1), the dominance regime not only addresses cases of single or collective dominance, but – under certain circumstances – also scenarios where a company holds a superior market position vis-à-vis certain competitors, customers or suppliers, referred to as "relative dominance".

  11. 6.

    What is the test for finding of monopoly power?

  12. There is no pre-defined test for finding monopoly power. However, section 18(3) ARC sets out the criteria to be considered for the assessment of dominance. The list is non-exhaustive and includes:

    • market share;
    • financial power;
    • access to suppliers or markets;
    • links with other undertakings;
    • legal or factual barriers to market entry;
    • actual or potential competition;
    • the ability to shift its supply or demand to other goods or services; and
    • the ability of the demand or supply side to switch to other suppliers or purchasers.

    As explained in detail under question 8, in particular the size of the individual market share typically has great practical importance as a starting position for a finding of dominance.

    Specifically for the assessment of digital markets, the most recent revision of the ARC has seen the adoption of the following additional criteria for a finding of monopoly power (see section 18(3a) ARC):

    • direct and indirect network effects;
    • multi-homing practices by users and users' switching costs;
    • economies of scale arising from network effects;
    • access to competitively relevant data; and
    • innovation driven competitive pressure.

    Section 20(1) ARC prevents undertakings with relative market power from wielding their position against small or medium-sized customers or suppliers. According to section 20(1) ARC, relative market power is assumed if such suppliers or purchasers of certain products or services depend on an undertaking in such a way that sufficient and reasonable possibilities of turning to alternative customers or suppliers do not exist. The relative market power test thus requires an assessment of market power in a bilateral relationship (ie, an assessment of outside options for the potentially dependent party). In carrying out this assessment the criteria that are laid down in section 18(3) and (3a) ARC (set out above) should be consulted for guidance.

    Section 20(3) ARC also prevents undertakings with relative market power from wielding their position against small and medium-sized competitors. To demonstrate the existence of that type of market power it is sufficient to show that the dominant undertaking has a "superior" market position in relation to its competitors based on the criteria that are laid down in section 18(3) and (3a) ARC except that the degree of market power is lower than in market dominance cases.

  13. 7.

    Is this test set out in statute or case law?

  14. The test is set out in statutory law (see answers to questions 5 and 6).

  15. 8.

    What role do market shares play in the assessment of monopoly power?

  16. Market shares play – besides other factors listed in response to question 6 – the most important role in determining whether an undertaking holds a dominant position. They often are the starting point for an assessment of market power. However, while market shares are a (strong) factor to determine dominance, they are not self-sufficient as conclusive evidence of dominance. Even if the market share threshold for a presumption of dominance (see question 9) is fulfilled, the FCO needs to carry out a fully fledged legal and economic analysis (question 10).

    In this context and in light of recent case practice of the FCO, it is important to note that the relevance of market shares as an indication for dominance needs to be very carefully considered when it comes to platform or network markets (eg, social networks, hotel booking platforms, food delivery or price comparison websites) in particular. High market shares on two or multisided markets have much less importance compared to traditional markets without network effects. On the one hand, markets with network effects are "tipping markets" if and when a product or a service has reached a critical mass, but this does not mean that these markets are non-contestable despite high market shares. On the other hand, on two or multisided network markets the position and actual strength of a party with high market shares depends on the reaction of the other side. In order to adapt the ARC to the characteristics of platform and network markets, the most recent amendment of the ARC explicitly introduced additional factors to assess whether a platform or network operator is dominant (see question 6).

  17. 9.

    Are there defined market share thresholds for a presumption of monopoly power?

  18. The following thresholds indicate a rebuttable presumption of single or collective dominance exist under the ARC:

    • according to section 18(4) ARC, a single undertaking is presumed to be dominant if it has a market share of at least 40 per cent; and
    • according to section 18(6) ARC, several companies are deemed to be dominant (i) if three or fewer undertakings have a combined market share of at least 50 per cent, or, alternatively, (ii) if five or fewer undertakings have a combined market share of at least two-thirds of the relevant market.
  19. 10.

    How easily are presumptions rebutted?

  20. In practice, the presumption of dominance plays a significant role in dominance cases and is often difficult for the alleged dominant undertaking to rebut. (that is to convince the FCO that the requirements for the existence of a dominant position are nonetheless not fulfilled). As noted above (question 8), however, technically the FCO has to fully investigate all circumstances in dominance cases for the benefit of the defendant notwithstanding a presumption of dominance. Only if the FCO does not find – after making full use of its investigative powers – conclusive evidence either way as to the existence of dominance, it may rely on the presumption.

    With respect to collective dominance, the criteria for a rebuttal of collective dominance are explicitly laid down in section 18(7) ARC. A rebuttal either requires demonstrating that effective competition between the suspected oligopolists exists, or proving that the members of the suspected oligopoly are not immune against action from fringe competition in the market.

  21. 11.

    Are there cases where companies with high shares have been found not to exercise monopoly power?

  22. Yes. For example, a high market share held by a highly specialised small or medium-sized undertaking (eg, suppliers in the automotive industry) does not necessarily indicate a dominant position if barriers to entry are low or where the demand side of the market has the ability to exercise a certain level of countervailing buying power. Also, on bidding markets (ie, markets where assignments for products or services are awarded for a certain period of time) high market shares may have limited importance only. In addition, highly volatile as well as network markets (see question 8) are also indications for a lack of market power despite high market shares.

  23. 12.

    What are the lowest shares with which companies have been found to exercise monopoly power?

  24. The lowest market share based on which a company was found to be dominant to our knowledge was 12 per cent. That case, which was determined in 1982, concerned regional markets for flowers that were highly fragmented on the supply side, and, in addition, the dominant undertaking was found to have superior financial strength as well as access to upstream markets for the supply of these products.

    Normally, however, allegations of dominance have involved a market share threshold of at least 20 per cent.

  25. 13.

    How important are barriers to entry and expansion for the assessment of monopoly power?

  26. Barriers to market entry and expansion are of significant importance for the assessment of dominance.

  27. 14.

    Can the lack of entry barriers negate a finding of monopoly power?

  28. In some cases, low market entry barriers were – among other criteria – considered as an important factor to rebut a dominant position despite market shares of 35–40 per cent.

  29. 15.

    What kind of barriers to entry are typically considered in the analysis?

  30. German courts and the FCO have considered a wide range of legal or de facto (economic) market entry barriers ranging from languages and technical specifications, intellectual property rights, licences and permissions from authorities, vertical integration or long-lasting agreements with customers. Furthermore, there is a lively debate as to how (exclusive) access to data can be regarded as a market entry barrier (see question 18).

  31. 16.

    Can countervailing buyer power negate a finding of monopoly power?

  32. Although countervailing buyer power is not explicitly listed in section 18(3) or 18(3a) ARC, it is clearly a significant argument to rebut an allegation of dominance and has been raised successfully in a number of cases.

  33. 17.

    What if consumers can easily switch between suppliers?

  34. As mentioned in question 6, the absence of lock-in effects on the demand or supply side can be decisive for the degree of market power.

  35. 18.

    Are there any other factors that the regulator considers in its assessment of monopoly power?

  36. Sections 18(3) and 18(3a) ARC set out a non-exhaustive list of criteria for the assessment of dominance (see question 6). Other factors may be, inter alia, the existence of a technological edge over competitors, R&D resources, pipeline products or the strength of a brand. In addition, though at a very early stage, the role of Big Data as a factor of dominance is under discussion. In light of this, “access to competitively relevant data” has been  introduced as an additional factor for the assessment of market power (see question 6). However, despite the most recent legislative changes there is still no clear guidance under which condition data actually may confer market power. In our view, the mere ownership of a “data lake” is not sufficient to confer market power since data is (i) non-rival (ie, can be used by several companies and even in parallel) and (ii) easy to collect (see also question 38). This doesn't mean that data lakes can be a valuable input factor for firms using algorithms or/and artificial intelligence. But ultimately it is a company’s ability to exploit its data lake which is the decisive factor for success in the market. Only in exceptional circumstances, access to data as such may be an issue if and when competitors are unable to build their own data lake. Against this background, a thorough case-by-case analysis is required to determine whether Big Data actually translates into market dominance.

  37. 19.

    Are any entities or sectors exempt from the antimonopoly regime?

  38. Sections 19 and 20 ARC apply to all "undertakings". The definition of an "undertaking" is construed broadly in accordance with the functional approach, which includes all natural persons and legal entities, provided that they are involved in the performance of commercial activities (including state authorities and state-owned companies as far as they perform a commercial activity in a market).

    There are no exemptions for particular sectors from competition law or the dominance regime in particular, except for certain agreements between producers of agricultural products (section 28 ARC). In addition, sector-specific provisions apply to certain regulated industry sectors including the energy, railway, water and telecommunication sectors (see section 29 ARC).

  39. 20.

    Can companies be deemed to hold collective monopoly power?

  40. Yes, see question 9.

  41. 21.

    Can the exercise of joint monopoly power or tacit oligopolistic collusion be treated as an infringement?

  42. The abuse of collective dominance constitutes an infringement by those companies involved in the abuse (notably, an infringement does not require that all of the collectively dominant undertakings are involved). Tacit collusion among members of a dominant oligopoly mainly falls into the scope of the cartel prohibition (section 1 ARC or article 101 TFEU).

  43. 22.

    Has the competition authority published guidance on how it defines markets and assesses market power?

  44. The FCO has not published any guidance specifically dealing with the definition of markets and has published very limited guidance on the assessment of market power (only in relation to the procurement procedures for gas and electricity). However, the FCO has published a "Guidance on substantive merger control", which may be useful also in a dominance context as the same market share presumptions apply in merger control cases with regard to the creation or strengthening of a dominant position.

    Abuse of monopoly power

  45. 23.

    Is there a general definition for what constitutes abusive conduct? What does it entail?

  46. Section 19(1) ARC constitutes a general prohibition of an abuse of a dominant market position. Similar to the position under article 102 TFEU, “abuse” is understood as (i) any practice of a dominant undertaking that relates to a market (not necessarily the market where the dominance exists) on which competition is already weakened due to the presence of the dominant undertaking, and (ii) which is capable – through recourse to methods different from those typically applied in an environment with functioning competition – of restricting the functioning of the remaining (already weakened) competition.

    In addition, there is a lively debate if and to what extent there needs to be an interplay between an undertaking's dominant position and either (i) the (potential) anticompetitive effects of its behaviour, or (ii) its ability to act in an (allegedly) abusive way:

    • According to some views in legal literature, it is sufficient for finding an abuse that the dominant position is causal for (potential) anticompetitive effects of a company's behaviour (“effects based”-approach). Supporters of such 'normative' view basically argue that market dominant undertakings have a market structure responsibility (see insofar also question 28 below) and are, therefore, prohibited from any behaviour which might result in (potential) anti-competitive effects.

    The aforementioned position could have far reaching practical consequences since it would make it much easier to conclude that a dominant undertaking abused its dominant position. Accordingly, a mere breach of rules by a dominant undertaking – for example data protection laws – could be regarded as an abusive conduct (provided that negative effects on competition cannot be excluded) without the slightest trace of evidence that the breach of data protection law is linked to market dominance (ie, even in cases where a non-dominant undertakings would also be able to breach the rules).

    • In our view, this result would be squarely inconsistent with the statutory requirements for finding an abuse since the wording of section 19(1) ARC requires a dominant company to “exploit” its market position. Moreover, a ruling of the German Federal Supreme Court can be read as that the regulator has to prove the existence of a causal link between market power and the ability to breach another set of legal rules (ie, requiring a link between the dominance and the abusive behaviour).

    The aforementioned discussion could be of particular relevance for the FCO's Facebook proceedings (see question 61).

  47. 24.

    What are the general conditions for finding an abuse?

  48. See question 23.

  49. 25.

    Is there a list of categories of abusive or anticompetitive conduct in the applicable legislation?

  50. Section 19(1) ARC serves as a catch-all clause and is complemented by section 19(2) ARC, which provides five types of specific abuses that apply – despite their non-exhaustive character – in almost all dominance cases:

    • according to section 19(2) No. 1 ARC, dominant companies may not directly or indirectly exclude other undertakings in an unfair manner from legitimate business activities, which are usually open to similar undertakings ("unfair hindrance"), nor treat them differently from similar undertakings without any objective justification ("discrimination"). While the prohibition of unfair hindrance mainly protects competitors of dominant undertakings, the prohibition of discrimination ensures that buyers and suppliers are protected compared to their peer groups (see also question 44);
    • pursuant to section 19(2) No. 2 ARC, dominant companies may not charge excessive prices or demand unreasonable terms and conditions. The benchmark for an abuse applied by the FCO is the "comparable (hypothetical) market concept". Accordingly, prices of the dominant undertaking in the market concerned have to be compared with prices that would prevail in markets with effective competition (see also question 43);
    • according to section 19(2) No. 3 ARC, a dominant undertaking abuses its dominant position if it demands less favourable payment or business terms in one market in comparison to those that are applied by the dominant undertaking on other comparable markets from similar customers;
    • pursuant to section 19(2) No. 4 ARC, a dominant undertaking may not refuse access to its own networks and other infrastructure facilities (eg, harbours, cables or other networks constituting natural monopolies) thereby excluding third parties from competition on related up- or downstream markets. The "essential facility" doctrine is described in more detail in question 38; and
    • according to section 19(2) No. 5 ARC, a dominant undertaking must not demand commercial advantages (eg, better purchase prices from its suppliers) by wielding its dominant position without an objective justification. This provision has been amended with the most recent revision of the ARC seeking to clarify the scope of the prohibition and parameters which need to be taken into when assessing the legality of a specific conduct.

    While the aforementioned examples require a dominant position, section 20 ARC prohibits certain types of abusive behaviour even below the level of dominance:

    • according to section 20(1) ARC, unfair hindrance or discrimination practices of relatively dominant undertakings (see questions 1, 5 and 6) against small or medium-sized undertakings that are dependent on the supply of products or services from the dominant undertaking are also prohibited;
    • a relatively dominant undertaking is prohibited from demanding advantages by wielding its position as regards a dependent supplier undertaking (see section 20(2) ARC). This provision plays an important role in the German food retail sector where the FCO is attempting to reactivate the provision in light of an increased level of concentration mainly on the demand side (see question 61); and
    • section 20(3) ARC particularly prevents undertakings with relative market power from wielding their position against small and medium-sized competitors.
  51. 26.

    Is this list open or closed?

  52. The list described in question 25 is open. For example, there is no statutory provision that explicitly addresses margin-squeeze practices (see further question 41). However, it is accepted that these practices are principally dealt with under section 19(2) No. 1 ARC.

  53. 27.

    Has the competition authority published any guidance on what constitutes abusive conduct?

  54. No.

  55. 28.

    Is certain conduct per se abusive (without the need to prove effects) and under what conditions?

  56. The FCO takes the position that with regard to certain categories of conduct, in line with the practice of the EU Courts, a proof of anti-competitive effects is not required. Such concept is applied in the case of conduct that reveals in itself a sufficient degree of harm to competition, such as to render an examination of its actual effects on the market redundant (eg, exclusivity arrangements, behaviour of pricing below average variable costs). For example, in a decision issued in 2015 the FCO found that Deutsche Post AG had abused its position in the market for the provision of postal services. In this case, the FCO referred to the 2014 Intel decision of the EU General Court and took the position that loyalty rebates are a per se abuse where proof of concrete foreclosure effects is not required. The FCO justified the approach on the basis of:

    • the special responsibility of a dominant undertaking not to impair the level of competition in the market (which is already restricted due to the existence of a dominant undertaking); and
    • the loyalty-enhancing effect of exclusive supply conditions in respect of the remaining contestable portion of demand that produces an unacceptable obstacle to access to the market (for potential competitors).

    Outside the aforementioned categories, the FCO has to show that the conduct in question is capable of having restrictive effects on competition. It is, in principle, not necessary to demonstrate that the abuse actually had a concrete effect on the markets concerned.

  57. 29.

    To the extent that anticompetitive effects need to be shown, what is the standard to demonstrate these effects?

  58. The FCO needs to run a fully fledged analysis in order to demonstrate "beyond reasonable doubt" that the conduct is capable of having or likely to have restrictive effects on competition.

  59. 30.

    Does the abusive conduct need to harm consumers?

  60. No. Sections 19 and 20 ARC primarily intend to protect the competitive process in the market and not specific competitors, customers or suppliers. Therefore, evidence that consumers have been harmed by the conduct in question is not required. However, harm to consumers may be a factor taken into account by the FCO when determining the level of fine.

  61. 31.

    What defences are there to allegations of abuses of monopoly power?

  62. There are different defences against allegations of an abuse of a dominant position. The undertaking may provide evidence to rebut the suggested abuse or claim that the alleged abuse is objectively justified (see question 32).

  63. 32.

    Can abusive conduct be objectively justified?

  64. An objective justification of an alleged abuse requires a balancing test that weighs the interests of the dominant undertaking against (potential) negative effects inflicted on competitors and suppliers or customers. The balancing test has to be aligned with the aim of the ARC to ensure effective competition and open markets (see question 30). In sum, interests invoked by the dominant company need to outweigh the (potential) anti-competitive effect caused by the potentially abusive conduct.

  65. 33.

    What objective justifications have been successful?

  66. It is established case practice that the protection of "legitimate commercial interests" might be an objective justification for an abuse. For example, it was found that a dominant undertaking legitimately protected its commercial interests when it refused to supply third parties in order to meet its own captive demand due to existing capacity restraints.

    For the sake of completeness, it should be mentioned that the decisional practice in Germany demonstrates that it is difficult to justify abusive conduct on the basis of the more economic approach in general or the efficiency defence in particular. Further, in light of the 2014 Intel decision of the EU General Court, it is unlikely that the "as efficient competitor test" will have a lot of relevance in the context of allegedly abusive rebate practices. It remains to be seen if and to what extent the as efficient competitor test might be of greater relevance with respect to other exclusionary practices, such as predatory pricing (question 40) or margin squeeze (question 41).

  67. 34.

    How is the burden of proof distributed in an abuse analysis?

  68. There is no established case law as to how the burden of proof is distributed in abuse of dominance proceedings. However, as a general rule, the FCO has to prove that the conditions for an abuse of market dominance are fulfilled. Further, the FCO needs to demonstrate that the conduct is not objectively justified. With regard to specific types of abuses (eg, discriminatory practices or essential facility cases), the burden of proof is partially shifted to the company, which needs to demonstrate an objective justification for its conduct.

  69. 35.

    What are the legal conditions to establish an abusive tie?

  70. An abusive tie cumulatively requires that:

    • an undertaking is dominant with respect to one product;
    • the supply of this product is subject to the condition that this customer also agrees to buy another (separate) product;
    • foreclosure effects are likely; and
    • there is no objective justification for such behaviour.
  71. 36.

    What are the legal conditions to establish a refusal to supply or refusal to license?

  72. In principle, dominant undertakings are free to decide if and under what conditions they are willing to supply products or grant licences to third parties. To establish an obligation to supply or grant to licence, the claimant needs to provide cumulative evidence that:

    • the refusal would significantly harm competition on the downstream market;
    • no viable substitute is available;
    • the refusal is discriminatory; and
    • there is no objective justification for the dominant undertaking's refusal.
  73. 37.

    Do these abuses require an essential facility?

  74. The abuse described under question 36 does not necessarily require an essential facility.

  75. 38.

    What is the test for an essential facility?

  76. A dominant undertaking might be required to grant access to its "essential facility" (eg, infrastructure facilities such as airports, harbours, railway stations or other networks such as electricity, gas, or telecommunication networks).

    Pursuant to section 19(2) No. 4 ARC, the relevant test is whether:

    • a refusal to grant access to its "own infrastructure facility" would make it for legal or factual reasons impossible for third parties to compete on related up- or downstream markets (eg, telecommunications, energy or gas supply, rail or ferry transport); and
    • there is any objective justification for a refusal.

    In the case that access has to be granted, the dominant undertaking is allowed to request an adequate fee for the shared use or access.

    Note that intellectual property rights are not considered infrastructure in the sense of section 19(2) No. 4 ARC. Therefore, the basis for a claim to grant compulsory licences would be section 19(1) or section 19(2) No. 1 ARC.

    It is highly disputed whether a large data lake is caught by the term "own infrastructure facility". There are good reasons to conclude that this is not the case:

    • Data are – in principle – non-rival and easy to obtain (ie, no capacity restraints as a dataset is duplicable or at least substitutable). Consequently, a data lake is usually not "essential" in the sense of section 19(2) No. 4 ARC.
    • Moreover, it is questionable whether a database constitutes an "own" infrastructure facility. To affirm this criterion, the collecting company would need to be legally allowed to share the collected data with third parties. At least with respect to personal data this will often not be the case since usually the user providing information does not give the consent to transfer it to third parties other than the collecting undertaking.
  77. 39.

    What is the test for exclusivity arrangements?

  78. An exclusivity arrangement is considered as abusive where a dominant undertaking – without having an objective justification – either contractually obliges a customer to obtain all or most of its demand of products or services exclusively from that undertaking or induces the customer to do so by economic incentives (eg, by way of loyalty rebates – see question 42) to do so.

    As mentioned (question 28), abusive conduct qualified as an exclusivity arrangement is per se abusive without the need to prove anticompetitive effects.

  79. 40.

    What is the test for predatory pricing?

  80. Undercutting competitors' prices in principle is not prohibited (even if applied by a dominant market participant).

    However, a pricing strategy that a dominant undertaking pursues to force a competitor out of the market and to that end is willing to accept short-term losses is prohibited. In such cases, the following rules apply: First, pricing below average variable cost is presumptively abusive. Second, pricing below average total cost but above average variable cost is abusive if it is shown that this is part of a plan to eliminate a competitor. Third, prices above average total cost are – in principle – not abusive. It is sometimes argued that the aforementioned test in itself constitutes an as efficient competitor test.

  81. 41.

    What is the test for a margin squeeze?

  82. Like under EU law, a margin squeeze involves consideration of the margin between the price charged on the downstream market by a vertically integrated and – at least on the upstream level – dominant undertaking and the price charged on the upstream market. Such conduct is found abusive if the margin is either negative or not sufficient for the dominant company to cover its product-specific costs in the downstream market. In exceptional cases, the competitor's costs might also be considered to reflect, for example, economies of scale or network effects.

  83. 42.

    What is the test for exclusionary discounts?

  84. The test for prohibited exclusionary rebates is whether a financial advantage is granted for the purpose of inducing a customer to obtain also the contestable share of demand from the dominant undertaking. That means that competitors are unable to compete as they normally have to offer extremely low prices to compensate a customer for the loss of additional rebates in the case of switching the contestable share of demand to a competing supplier.

    In accordance with the EU practice, loyalty rebates are per se abusive. The same holds true for retroactive rebates. With respect to other kinds of rebates (for a precedent see question 49) it needs to be assessed on a case-by-case basis whether they have a loyalty enhancing effect.

  85. 43.

    Are exploitative abuses also considered and what is the test for these abuses?

  86. Exploitative abuses by charging excessive prices or demanding unreasonable terms and conditions are prohibited (see section 19(2) No. 2 ARC). The benchmark for an abuse applied by the FCO is the "comparable market concept". Accordingly, prices charged by the dominant undertaking in the market concerned have to be compared with prices that would prevail in structurally comparable markets with effective competition. An abuse can be assumed if the prices charged by the dominant undertaking in the relevant market significantly exceed the prices in comparable markets.

    Before the prices are compared, a three-step procedure applies: First, in order to better reflect the characteristics of the market where the undertaking is dominant, the prices charged on the comparable market need to be adjusted by premiums and discounts. Second, as such adjustments naturally bear a certain amount of inaccuracy, a "safety margin" must be applied which varies from case to case to prevent over-enforcement. Finally, the prices charged by the dominant company in the relevant market need to significantly exceed the prices in the comparable markets (insofar that an additional premium applies to establish an abuse).

    Section 19(2) No. 2 ARC also prohibits that a dominant undertaking charges "unreasonable terms and conditions". For determining whether a company demands excessive terms and conditions in principle the same rules apply as regards excessive pricing. This provision is highly topical since the FCO recently opened an investigation against Facebook, which appears to be based on this rule (see question 61).

  87. 44.

    Is there a concept of abusive discrimination and under what conditions does it raise concerns?

  88. In principle, unlawful discrimination may arise if (i) a dominant undertaking applies different conditions to similar customers for equivalent transactions, provided that (ii) there is no objective justification for such dissimilar treatment, and (iii) some customers are placed at a competitive disadvantage relative to other customers to such a degree that it creates a risk of foreclosing equally efficient competitors.

  89. 45.

    Are only companies with monopoly power subject to special obligations under unilateral conduct rules?

  90. Companies with relative market power may also fall within the scope of certain unilateral conduct rules as described in questions 5 and 25.

  91. 46.

    Must the monopoly power exist in the same market where the effects of the anticompetitive conduct are felt?

  92. No. For example in relation to margin squeeze (see question 41), competition is restricted on a downstream market where the dominant undertaking does not need to have any market power.

    Sanctions and remedies

  93. 47.

    What sanctions can the competition authority impose or recommend?

  94. If the FCO determines that an abuse of a dominant position has occurred, it issues a cease-and-desist order or determines that a certain conduct constituted an abuse if the abusive conduct has been terminated before (the end of) the investigation but where the risk of repetition remains in the future. Companies also have the option to offer commitments to end the conduct under investigation. In clear-cut cases, in particular with regard to per se abusive conduct (see question 28), the FCO may also impose an administrative fine.

  95. 48.

    How are fines calculated for abuses of monopoly power?

  96. The level of the fine that can be imposed is up to €1 million for private individuals.

    In the case of undertakings, in relation to intentional infringements fines may amount up to a maximum of 10 per cent of the worldwide group turnover in the last financial year prior to the decision (5 per cent for negligent infringements) (the "statutory maximum fine").

    For purposes of calculating corporate fines, the FCO has published revised fining guidelines in 2013. According to these guidelines, the authority determines the individual framework marking the upper limit of the payable fine. The upper limit may be the statutory maximum fine or 10 per cent of the turnover generated through the abusive conduct during the infringement period and multiplied by a factor reflecting the companies' total group turnover (the "affected turnover"), as long as the affected turnover does not exceed the statutory maximum fine. If the individual framework for fines exceeds the statutory maximum fine, the latter prevails and constitutes the absolute limit. Once the framework for fines has been determined, the FCO identifies the individual mitigating and aggravating factors and infringement-related criteria (eg, type and effect of the infringement) to set the concrete fine within the individual 10 per cent statutory maximum framework for fines.

    The new guidelines have been adopted, inter alia, to put greater emphasis on the principle of proportionality since in previous cases higher fines have been imposed on one-product companies in comparison to multi-product companies. The reason is that in case of a one-product company, the affected turnover represents the entire turnover whereas in a multi-product company the affected turnover may be only a small share of the overall turnover.

  97. 49.

    What is the highest fine imposed for an abuse of monopoly power?

  98. In 2007, the FCO imposed the highest ever fine in an abuse case totalling to €216 million in a case concerning the abuse of market dominance on the markets for television advertising. Two German private television groups held a combined market share of approximately 80 per cent and offered specific and retroactive rebates to media agencies if they spent a minimum proportion of their advertising budget for commercial air time on these channels. This practice had the effect that the contestable share of advertising budgets of media agencies were enticed away from smaller television companies because they could not afford to compensate losses incurred if media agencies decided to switch. Hence, the high market shares in combination with the rebates effectively foreclosed the television advertising market for smaller competitors.

  99. 50.

    What is the average fine imposed over the past five years?

  100. Over the past five years, the FCO – based on publicly available information – has imposed a fine for abuse of dominance in only one case, namely against SodaStream GmbH (€225,000). In an investigation against EDEKA that started as an administrative fine proceeding, the FCO decided to switch to a pure administrative proceeding and drop any fines due to the novelty and complexity of the legal issues involved. In the Facebook case (see question 61), the FCO decided to initiate administrative proceedings.

  101. 51.

    Can the competition authority impose behavioural remedies?

  102. The FCO may impose all measures that are necessary and appropriate to effectively bring the infringement to an end (ie, structural or behavioural remedies, or both). However, structural measures may only be imposed if there are no behavioural measures sufficiently addressing the abusive conduct or the behavioural remedy already constitutes a heavier burden for the undertaking concerned.

  103. 52.

    Can it impose both negative and positive behavioural obligations?

  104. Yes.

  105. 53.

    Can the competition authority impose structural remedies?

  106. Yes, see question 51.

  107. 54.

    Can companies offer commitments or informal undertakings to settle concerns?

  108. Offering commitments may be a successful way to deal with competition concerns. If the FCO finds that the commitment offered would sufficiently remedy the abusive behaviour, it may declare such commitments to be binding for the addressee of the decision.

  109. 55.

    What proportion of cases have been settled in the past five years?

  110. There is no public data for a reliable assessment. Often, cases are not made public, in particular when the case has been settled.

  111. 56.

    Have there been any successful actions by private claimants?

  112. Section 33(a) ARC allows follow-on actions in order to seek compensation for damages inflicted by an abuse of dominance. Moreover, companies can require dominant undertakings to provide products or services if the legal requirements are fulfilled (see question 38). Also, interim measures are available to an affected party. The respective court may issue a preliminary injunction to protect the claimant in the case of an urgency that requires immediate relief to avoid irreparable damage.

    Appeals

  113. 57.

    Can a company appeal a finding of abuse?

  114. Yes.

  115. 58.

    Which fora have jurisdiction to hear challenges?

  116. Decisions of the FCO can be appealed to the Higher Regional Court in Düsseldorf. In civil litigation against a dominant undertaking, the usual rules of civil procedures apply.

    A further appeal against a decision of the Higher Regional Court in Düsseldorf to the German Federal Supreme Court is only permitted on important or novel questions of law or a successful non-admission complaint to the Federal Supreme Court.

  117. 59.

    What are the grounds for challenge?

  118. A decision by the FCO is subject to full review by the Higher Regional Court in Düsseldorf in fact, in law, or both.

  119. 60.

    How likely are appeals to succeed?

  120. Only a few dominance cases have been appealed to the Higher Regional Court in Düsseldorf (or the former Court of Appeals in Berlin), and only a small percentage has been successful. There is no general rule of thumb. All cases need to be assessed on a case-by-case basis.

    Topical issues

  121. 61.

    Summarise the main abuse cases of the past year in your jurisdiction.

  122. Main abuse cases in the last year include the following:

    • Facebook/FCO: On 2 March 2016, the FCO published a press release stating that it had opened an antitrust investigation to assess whether Facebook has infringed German antitrust law by violating applicable data protection rules. These proceedings are still ongoing but the German regulator is keen to wrap the investigation and present “results” in the course of 2017. Very little information on the investigation is publicly available. With that caveat, the premise on which the FCO has decided to intervene appears to be the following: Facebook "possibly" is dominant in the market for social networks and, prima facie, its terms and conditions for the use of user data appear to be in violation of applicable data protection law because (i) Facebook's users are not sufficiently informed about the type and extent of data that Facebook collects from them, and/or (ii) Facebook's terms on data collection are too difficult for users to understand. If the FCO concludes that (i) Facebook is market dominant and (ii) actually imposing excessive terms and conditions on its users, such conduct could be seen as an exploitative abuse (see above question 43). For this assessment, it is of particular relevance whether a causal link needs to be shown between the exercise of market power and either the (allegedly) abusive behaviour (ie, the imposition of unfair terms and conditions), or only the (potential) anti-competitive effects (see question 23).

    Assuming that the causal link can be established, the FCO has to examine carefully whether a breach of data protection rules might (potentially) result in adverse effects to competition.

    • Deutsche Bahn/FCO: In 2014, the FCO initiated proceedings against Deutsche Bahn AG (DB) because of suspicion of an abuse of a dominant market position relating to the distribution of tickets for rail passenger transport. According to the FCO's preliminary assessment, DB abused its dominant market position and thereby infringed section 19 ARC and article 102 TFEU for the following reasons: (i) Pursuant to section 12(1) of the German General Railway Act (GRA), railway companies are obliged to cooperate in setting tariffs. DB, however, linked the mandatory tariff cooperation obligation with a cooperation regarding the distribution of tickets to customers. Thereby, DB exceeded what is permissible under the framework of the GRA and made it unattractive for competing railway companies to set up own distribution services. (ii) In addition, the FCO raised concerns against the commission fee practice applied by DB. The commission fee DB had to pay for distribution services rendered by competitors was significantly lower than what DB charged when selling tickets for their competitors. In addition, DB charged lower commission fees from associated undertakings compared to what it charged from competitors. (iii) Moreover, the FCO found that DB impeded the access to ticket distribution channels for competitors (eg, through rent contracts for stores in railway stations that included clauses making it almost impossible for third parties to sell DB rail tickets). In order to address the FCO's preliminary concerns, DB offered commitments according to which DB abstains from the aforementioned described conduct. The FCO accepted the proposed commitments and declared them binding until 31 December 2023.
    • German Football Association/FCO: In March 2016, the FCO initiated administrative proceedings against the German Football Association (DFB),which are still ongoing. Subject matter of the proceedings is the DFB's practice to link the ticket purchase for the European Football Championship 2016, the Confederations Cup 2017 and the World Football Championship 2018 with a paid membership in the DFB's fan club ("National Team"). There is only little information publicly available but it seems that the FCO might regard this conduct as an exploitative abuse.
    • Deutsche Funkturm GmbH/FCO: In 2015, the FCO opened administrative proceedings against Deutsche Funkturm GmbH (DFMG) because of suspicion of an abuse of a dominant market position in relation to the lease of high-level mounting surfaces for the VHF antennas. The FCO came to the preliminary conclusion that (i) DFMG is dominant on such market and (ii) certain elements of DFMG's pricing policy for the lease of surface areas constituted an exploitative abuse to the detriment of radio operators being active in densely populated areas. DFMG agreed to change is pricing policy following which the FCO closed the file in December 2016.
    • Deutsche Post AG/FCO: According to press coverage as of February 2017, the FCO started to investigate a possible abuse of dominance by Deutsche Post AG (DPAG) in relation to distributions deals with newspaper publishers (eg, Bertelsmann). The FCO reportedly suspects that DPAG has squeezed competitors out of the market by applying an excessively low pricing model and exclusivity arrangement with customers.
    • McDonald's/FCO: In April 2017, several (unknown) undertakings alleged that McDonald's has abused its market dominant position by offering products in its own restaurants at lower prices compared to franchisee's restaurants. According to press coverage dated June 2017, the FCO dismissed the complaints and declined to open formal proceedings in the absence of any indication for abusive conduct.
    • Innogy, Danpower and others/FCO: In February 2017, the FCO has closed proceedings against district heating providers after the firms have agreed to compensate customers for charging excessive prices. Proceedings had been kicked off as a result of a 2012 sector inquiry.
    • EDEKA/FCO: After several years of investigation, the FCO rendered, in July 2014, a decision on the alleged abuse of buyer power by EDEKA following the acquisition of Plus, a rival retailer, in 2009. In its decision, the FCO found that EDEKA had abused its buyer power on the procurement market for sparkling wine by demanding excessive and unjustified rebates from its suppliers. At the heart of the proceedings was the question what is required for the FCO to find that a retailer has a superior market position and what constitutes an abuse of that position (see question 25). The Higher Regional Court in Düsseldorf reversed the FCO's decision and dismissed the allegations as unfounded. The FCO lodged an appeal against the refusal to grant leave to appeal the court's decision to the Federal Supreme Court. The Federal Supreme Court has granted the FCO the partial right to appeal in November 2016. The legal issues raised by the FCO in the authorised appeal are currently under review by the competition law senate of the Federal Supreme Court.
  123. 62.

    What is the hot topic in unilateral conduct cases that antitrust lawyers are excited about in your jurisdiction?

  124. Highly topical remains the FCO's ongoing investigation into Facebook. The FCO is keen to wrap up the investigation before the end of 2017 (question 61). It is understood that the FCO is using the investigation into whether Facebook's terms and conditions for data usage constitute an abuse of dominance under German or EU competition law as a 'test case' to develop a framework for the application of German and EU antitrust law to data protection and/or 'Big Data'. If the FCO were to issue an infringement decision against Facebook this could be viewed as a precedent on which the FCO, and possibly other antitrust authorities including the European Commission, would seek to rely in applying EU and/or national antitrust laws in relation to the collection and use of personal date in the future.

    In addition, there is the FCO's landmark decision on the alleged abuse of buyer power (see question 61). The decision is based on several novel concepts aiming at large retailers' alleged buyer power in Germany. If ultimately confirmed upon appeal by the Federal Supreme Court (the Higher Regional Court in Düsseldorf dismissed the allegations as unfounded), the FCO's decision would have a far-reaching impact on the retail sector and other industries (eg, automotive). In parallel to the pending court proceedings, an amendment of the provisions dealing with an abuse of a superior market position to extract artificially favourable commercial advantages from suppliers or customers (section 19(2) No. 5 and 20(2) ARC) has entered into force with the most recent amendment of the ARC, which seeks to clarify the scope of the prohibition and parameters relevant for the assessment.

  125. 63.

    Are there any sectors that the competition authority is keeping a close eye on?

  126. The FCO continues to keep a close eye on the food retail industry. In particular, the FCO published a guidance note on the prohibition of vertical price fixing in the food retail sector. Although not explicitly referring to abuse of dominance, it includes general indications that are helpful to assess market conduct against the background of potentially abusive practices.

  127. 64.

    What future developments can we expect?

  128. Dominance cases have steadily moved up on the enforcement agenda of the FCO over the past few years. The FCO has initiated a number of new proceedings in important industrial areas (eg, food retail, e-publishing, postal services – see question 61). In addition, the Working Group on Competition Law met at the invitation of the FCO in October 2015 to discuss “Internet platforms in the digital economy: competition law, privacy and consumer protection”. The working group not only addressed merger control aspects but also dominance issues. In June 2016, the FCO published its “Working Paper on Market Power of Platforms and Networks” and, in May 2016, – together with the French Competition Authority – its Working paper “Competition Law and Data'. In March 2017, Germany's Economic Ministry published a White Paper on “Digital Platforms”, which, inter alia, addresses the impact of the increasing digitalisation of the economy and the potential need for an intervention on the basis of market characteristics indicating dominance by a new market authority. It can thus be expected that dominance in the digital industry in general (including markets with network effects – see questions 8 and 11) and Big Data related conduct in particular will be subject to close scrutiny in the future.

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Questions

    Overview

  1. 1.

    What is the legal framework governing unilateral conduct by companies with market power?


  2. 2.

    What body or bodies have the power to investigate and sanction abuses of market power?


  3. Monopoly power

  4. 3.

    What role does market definition play in market power assessment?


  5. 4.

    What is the approach to market definition?


  6. 5.

    How is market power or monopoly power defined?


  7. 6.

    What is the test for finding of monopoly power?


  8. 7.

    Is this test set out in statute or case law?


  9. 8.

    What role do market shares play in the assessment of monopoly power?


  10. 9.

    Are there defined market share thresholds for a presumption of monopoly power?


  11. 10.

    How easily are presumptions rebutted?


  12. 11.

    Are there cases where companies with high shares have been found not to exercise monopoly power?


  13. 12.

    What are the lowest shares with which companies have been found to exercise monopoly power?


  14. 13.

    How important are barriers to entry and expansion for the assessment of monopoly power?


  15. 14.

    Can the lack of entry barriers negate a finding of monopoly power?


  16. 15.

    What kind of barriers to entry are typically considered in the analysis?


  17. 16.

    Can countervailing buyer power negate a finding of monopoly power?


  18. 17.

    What if consumers can easily switch between suppliers?


  19. 18.

    Are there any other factors that the regulator considers in its assessment of monopoly power?


  20. 19.

    Are any entities or sectors exempt from the antimonopoly regime?


  21. 20.

    Can companies be deemed to hold collective monopoly power?


  22. 21.

    Can the exercise of joint monopoly power or tacit oligopolistic collusion be treated as an infringement?


  23. 22.

    Has the competition authority published guidance on how it defines markets and assesses market power?


  24. Abuse of monopoly power

  25. 23.

    Is there a general definition for what constitutes abusive conduct? What does it entail?


  26. 24.

    What are the general conditions for finding an abuse?


  27. 25.

    Is there a list of categories of abusive or anticompetitive conduct in the applicable legislation?


  28. 26.

    Is this list open or closed?


  29. 27.

    Has the competition authority published any guidance on what constitutes abusive conduct?


  30. 28.

    Is certain conduct per se abusive (without the need to prove effects) and under what conditions?


  31. 29.

    To the extent that anticompetitive effects need to be shown, what is the standard to demonstrate these effects?


  32. 30.

    Does the abusive conduct need to harm consumers?


  33. 31.

    What defences are there to allegations of abuses of monopoly power?


  34. 32.

    Can abusive conduct be objectively justified?


  35. 33.

    What objective justifications have been successful?


  36. 34.

    How is the burden of proof distributed in an abuse analysis?


  37. 35.

    What are the legal conditions to establish an abusive tie?


  38. 36.

    What are the legal conditions to establish a refusal to supply or refusal to license?


  39. 37.

    Do these abuses require an essential facility?


  40. 38.

    What is the test for an essential facility?


  41. 39.

    What is the test for exclusivity arrangements?


  42. 40.

    What is the test for predatory pricing?


  43. 41.

    What is the test for a margin squeeze?


  44. 42.

    What is the test for exclusionary discounts?


  45. 43.

    Are exploitative abuses also considered and what is the test for these abuses?


  46. 44.

    Is there a concept of abusive discrimination and under what conditions does it raise concerns?


  47. 45.

    Are only companies with monopoly power subject to special obligations under unilateral conduct rules?


  48. 46.

    Must the monopoly power exist in the same market where the effects of the anticompetitive conduct are felt?


  49. Sanctions and remedies

  50. 47.

    What sanctions can the competition authority impose or recommend?


  51. 48.

    How are fines calculated for abuses of monopoly power?


  52. 49.

    What is the highest fine imposed for an abuse of monopoly power?


  53. 50.

    What is the average fine imposed over the past five years?


  54. 51.

    Can the competition authority impose behavioural remedies?


  55. 52.

    Can it impose both negative and positive behavioural obligations?


  56. 53.

    Can the competition authority impose structural remedies?


  57. 54.

    Can companies offer commitments or informal undertakings to settle concerns?


  58. 55.

    What proportion of cases have been settled in the past five years?


  59. 56.

    Have there been any successful actions by private claimants?


  60. Appeals

  61. 57.

    Can a company appeal a finding of abuse?


  62. 58.

    Which fora have jurisdiction to hear challenges?


  63. 59.

    What are the grounds for challenge?


  64. 60.

    How likely are appeals to succeed?


  65. Topical issues

  66. 61.

    Summarise the main abuse cases of the past year in your jurisdiction.


  67. 62.

    What is the hot topic in unilateral conduct cases that antitrust lawyers are excited about in your jurisdiction?


  68. 63.

    Are there any sectors that the competition authority is keeping a close eye on?


  69. 64.

    What future developments can we expect?