Germany: FCO at the forefront in the digital era
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Competition is the driving force of the economy, and the Federal Cartel Office (FCO) always takes a stand for its protection. In all sectors, the FCO ensures that competition is not hindered or slowed down. We prosecute illegal cartels, prevent the abuse of market power and preserve variety on markets through resolute merger control. The digital economy remains a key focus as we forcefully apply our new instruments, particularly with regard to large digital companies. Besides strong enforcement action, protecting competition also means helping companies that are looking for guidance and orientation.
- Protecting competition in times of crisis
- Enforcing new instruments against Big Tech
- Sustainability and competition go hand in hand
- Never letting up on prosecuting harmful cartels
- Stringent merger control – more important than ever
- Adapting to change and looking ahead
Referenced in this article
- The 10th amendment to the German Competition Act (GWB)
- Sector inquiry into messenger and video services, interim report
- Joint paper of the heads of the national competition authorities of the European Union: How national competition agencies can strengthen the DMA
- Digital Markets Act: Perspectives in (inter)national competition law, Background Paper to the 2021 Meeting of the Bundeskartellamt’s Working Group on Competition Law
- Joint statement on merger control by the ACCC, the CMA and the FCO
The competitive system can only function if our competition rules are respected by everyone. Since its foundation more than 60 years ago, the Federal Cartel Office (Bundeskartellamt, FCO) has been a guardian of competition. We enforce the German Competition Act (GWB) to keep markets open, ensure competition and prevent consumers from harm. Protecting competition in all areas for the benefit of consumers is what we have always done and what we will continue to do in the future. Looking back today, we have successfully evolved and constantly adapted to rapidly changing economic conditions while always keeping our DNA as an independent competition authority. Our most important priorities include cartel prosecution and preventing the abuse of market power. We took up these tasks in 1958, the year in which the FCO was founded. In merger control, which is equally important and has been in place since 1973, we take special care that acquisitions do not harm competition. Throughout the years, our competences have grown steadily. In 1999, we received competences in the area of public procurement law. Each year, the public sector awards contracts worth hundreds of billions to private companies, making it a significant economic factor. From year to year, we regularly review over 100 award proceedings and make sure that public contracts are awarded under competitive conditions. Since 2017, the FCO has also been authorised to carry out sector inquiries into consumer protection issues. Since then, we have already completed in-depth examinations of comparison platforms, smart TVs, online user reviews as well as mobile apps and have uncovered many violations of consumer rights. An inquiry into messaging and video services is currently ongoing and we have just initiated an examination into (credit) scoring in the online retail sector. The past year has seen two important milestones. First, the fully digitised Competition Register for Public Procurement went into operation. It enables contracting authorities to check in a single nationwide electronic search whether a company has committed relevant violations of law and might be excluded from award procedures for public contracts or concessions. The register has already become an important element in fighting economic crime. And second, based on our substantial experience in dealing with antitrust issues in the digital economy, the German legislator has entrusted us with more explicit intervention competences with regard to big tech companies. While dealing with all these new competences, we always need to be able to respond to the questions of our time.
Protecting competition in times of crisis
The past two years have seen fundamental changes to the economy and competition. The pandemic has left a lasting mark on many economic sectors and has taught us how fragile markets can be if they cannot run smoothly. And yet, the crisis has also shown us that the self-healing powers of the markets still function. Bottlenecks and closures were followed by a resumption of supply chains. Innovative solutions to tackle the impact of the crisis were found, from the production of masks to the development of a vaccine here in Germany.
The FCO took on the challenges deriving from these changes, responded to companies in need while strictly enforcing the law against illegal activities. It pays off that we have rapidly advanced our own digital transformation. Now our processes are flexible and fully digital. With regard to cooperations, we answered a large number of requests for informal guidance on covid-19 related coordination and took into account the extraordinary circumstances in many sectors of the economy. We were available for guidance on ways to establish crisis-related cooperations that comply with competition law, for example in the automotive industry. In the past year, we informally cleared plans to establish an Emergency Platform for Vaccination Equipment as well as a cooperation between ADAC and Fraunhofer for mobile and rapid covid-19 tests. In addition, we published guidelines on the application of competition law during the crisis, together with other competition authorities within the European Competition Network (ECN) and the International Competition Network (ICN).
At this pivotal moment in history, the war in Ukraine caused by the Russian invasion is overshadowing everything. It marks a turning point. The ICN reacted quickly and suspended Russia’s competition authority from the network. In the ECN, once again, we assured the markets that competition law is flexible in the face of extraordinary circumstances and that we as competition agencies are available to provide guidance on necessary and temporary cooperation.
In Germany and in other countries, energy prices have increased sharply. For many years, the FCO has monitored the development of fuel prices continuously and very attentively. Since the end of 2013, we have been operating the Market Transparency Unit for Fuels. The unit collects data on every change in fuel prices from around 15,000 petrol stations in Germany. The data are collected and transferred to various privately owned information services and apps. This enables millions of consumers to easily access real-time data on fuel prices at petrol stations to save money and promote competition. During the crisis, we observed that crude oil prices fell and petrol station prices as well as refinery sales prices did not follow this trend as expected. Consequently, we took an even closer look at all relevant market levels: from the crude oil market to refineries and wholesalers to petrol station operators. In April, we initiated an ad hoc sector inquiry with a clear focus on the refinery and wholesale level to shed a light on the reasons for the recent price and market developments. At the same time, the government has adopted plans to strengthen the Market Transparency Unit, in particular with regard to our ability to monitor the quantities of fuels sold and the supply chain (eg, refineries).
This sends a clear signal that competition law is effective and functional during the crisis. As a competition authority, we do not have a mandate to tackle higher prices at our discretion. But we will always watch out for illegal activities and intervene consistently whenever necessary. Looking at the markets today, we see signs of recovery. But in order to overcome the crisis, we will need the thrust of competition. Competition encourages companies to develop new products or ease shortages. As we want to become more energy-independent, more sustainable and promote ecological growth, we also need to limit the market power of individual players, keep markets open and ensure variety. That is why protecting competition is just as important in exceptional times as it is in normal times.
Enforcing new instruments against big tech
Most recently, the development of the digital economy has been pushed ahead in two directions: First, covid-19 has boosted the benefits of the digital transformation: working from home, video conferences and online shopping. There is more awareness of how important digitalisation has become and more awareness of its necessity. However, covid-19 has also boosted the drawbacks: big tech companies have become even bigger and more influential. Competitors of big tech companies in the business community have growing concerns about the future. As some of the digital giants have become so powerful that they can dictate their own rules, and complaints have become even louder. We live in times in which the slightest change to an algorithm by a big tech company can have a major impact on competition.
The FCO has kept a close eye on the digital economy for years. There are several examples of successful cases: In 2012, we successfully intervened against price parity clauses of certain internet platforms: Amazon abolished such a clause with respect to its Marketplace platform in 2013 with EU-wide effect due to our proceeding. In 2015, we achieved a ban on wide most-favoured nation (MFN) clauses against the hotel booking platform HRS. Just recently, the Federal Court of Justice has issued a landmark ruling and confirmed our prohibition of narrow price parity clauses in the 2015 Booking.com case. In 2019, we achieved worldwide improvements for sellers active on Amazon Marketplace, for example, in the areas of returns, cancellation of accounts and court of jurisdiction. Smaller sellers are now able to resolve conflicts with Amazon before German courts, which previously was not possible. Also, in 2019, we concluded our pioneering Facebook case. It was the first time that abuse control was enforced against the collection and use of personalised data. In our view, Facebook, as a dominant company, failed to give its users a real choice as to how their data are collected, used and combined. Consequently, we ordered Facebook to refrain from combining user data from different sources without the users’ consent. The Federal Court of Justice has sided with us in preliminary proceedings. We are now awaiting a decision by the European Court of Justice centred around important questions regarding European data protection rules that the Düsseldorf Higher Regional Court has raised in the main proceeding.
In dealing with the digital economy, competition authorities around the world have already achieved a great deal. To name just a few international examples: the UK’s CMA has recently examined Google’s privacy sandbox, resulting in commitments to address competition concerns. Google has stated that it is planning to implement the changes worldwide. In France, the Autorité da la Concurrence fined Google for self-preferencing its own services in ad tech, resulting in changes in Google’s behaviour worldwide. And in Brussels, the Commission is conducting ongoing proceedings against almost all big tech companies after successfully concluding its prominent cases against Google and Microsoft in the past.
While we see robust enforcement action around the world, there is also a crucial conviction that is shared by many: the digital economy demands fast and effective intervention, which poses a challenge to conventional antitrust law. Most cases in the digital economy deal with new questions and new businesses. We started without any legal precedent. Tackling those issues is the ‘Mount Everest’ of competition law. Our 2019 Facebook case is still being discussed before the courts today. The Commission’s Google Shopping case was finally resolved by the EU’s General Court last year. It had been initiated more than 10 years ago. As competition authorities, we have similar problems and are all in the same boat. With all our cases and so much in-depth knowledge gathered over the years, we clearly see that companies grow to become operators of what we sometimes call ‘digital ecosystems’, particularly through network effects and data-driven processes. This can go beyond traditional market-related dominance as we are facing integrated and conglomerate structures across markets. And as we have seen, traditional abuse control can entail a lengthy process. This is why many believe that we need a certain level of regulation and a stricter application of competition law in particular to prevent markets from ‘tipping’. The common goal is to make digital markets more contestable and to limit the harmful impact of the strong positions of big established players. Consequently, we started a debate about the right approach and the right framework for dealing with the digital economy several years ago and the discussion is still ongoing today.
In that respect, the German lawmaker has taken on a pioneering role. The GWB is one of the most modern competition laws in the world. In significant ways, the law was already adapted to the digital economy in 2017, for example with regard to explicitly including network effects, access to data or multi-homing in the assessment of market power of multisided platforms or networks. In 2021, abuse control was further modernised and the FCO received new tools for tackling large, digital companies with the 10th amendment to the GWB (referred to as the GWB Digitalisation Act). A new provision, section 19a, was introduced, which extends abuse control and enables us to intervene earlier and more effectively against practices like self-preferencing, data-related abusive conduct, envelopment strategies and the hindering of interoperability or data-portability even on markets where a company is not yet dominant. Under the new rules, we will also benefit from a shortened judicial review process in the future. There will be only one judicial body before which decisions based on section 19a can be challenged – the Federal Court of Justice. In some other member states within the EU, the introduction of similar rules has been suggested: section 19a has been considered a model for competition law provisions, for example in Italy, and others, such as Greece, are planning to introduce national rules for ecosystems.
Immediately after the new German law came into force, we initiated new proceedings against Amazon, Apple, Google and Meta (formerly Facebook). In these proceedings, the first step is to examine whether a company is of paramount significance for competition across markets and therefore designated under section 19a. In the case of Google/Alphabet, this examination was completed at the end of 2021, establishing Google’s paramount significance in a decision that was not contested. In a second step, the FCO can prohibit companies that are of paramount significance for competition across markets from engaging in anticompetitive practices. We already initiated an examination into Google’s data processing terms on this basis in May 2021. A key question in this context is whether consumers wishing to use Google’s services have sufficient choice as to how Google will use their data. In June 2021, we also initiated an examination into Google News Showcase, a Google service that offers the possibility to present news content from publishers in a prominent and more detailed way. Triggered by a complaint from a copyright collecting society, Corint Media, the examination focuses, among other things, on possible discrimination of individual publishers and possible self-preferencing of Google’s own services. In this context, we have conducted consultations on Google’s proposals for dispelling competition concerns.
Regarding Facebook/Meta, the FCO has extended the scope of its examination into the linkage between Oculus’ virtual reality products and the Facebook platform according to section 19a. We have established that Meta is a company of paramount significance for competition across markets in May 2022 and therefore falls under the new provision. The decision was not contested. Regarding Amazon, there are two conventional antitrust proceedings ongoing besides a designation proceeding under section 19a. In the first proceeding, the FCO is examining a possible restriction of the freedom of Amazon Marketplace sellers to set their prices. In the second proceeding, we are looking at possible disadvantages faced by Marketplace sellers caused by Amazon’s cooperation with brand manufacturers. We are also examining whether Apple falls under section 19a and have already received complaints relating to potentially anticompetitive practices. These include the exclusive pre-installation of the company’s own applications as a possible type of self-preferencing prohibited under section 19a, the mandatory use of Apple’s own in-app purchase system (IAP) and the 30 per cent commission rate associated with this or other marketing restrictions imposed on app developers in Apple’s app store. In this regard, the FCO stays in contact with other competition authorities that have focused on some of the complaints, in particular the European Commission. So far, we have not decided on initiating a further proceeding.
While we rigorously apply our new tools, we welcome the fact that a political agreement on the EU’s Digital Markets Act (DMA) has been achieved. The DMA is an important building block in taking more effective and, above all, faster action against large digital companies in the future. The DMA will apply to gatekeepers, which are large platform companies that sometimes control entire ecosystems made up of different platform services, such as online marketplaces, operating systems, cloud services or online search engines, and can create bottlenecks between businesses and customers. The DMA subjects these gatekeepers to a number of defined obligations, for example, with respect to personalised advertising, interoperability of services, data portability or access to data generated by third parties. Gatekeepers are also subject to certain prohibitions: they may not prevent users from switching to another platform or favour their own services in a ranking. The rules and obligations set forth in the DMA have been profoundly informed by previous cases in the digital economy from competition authorities all across Europe. In that respect, the FCO has consulted with various stakeholders both on a national and international level as part of our general policy work. Discussing the DMA was the main focus of the last meeting of the FCO’s Working Group on Competition Law in 2021, hosting more than 150 competition experts. In the context of this event, the FCO published a comprehensive background paper titled ‘Digital Markets Act: Perspectives in (inter)national competition law’. On the international stage, the heads of the national competition authorities (NCA) organised in the ECN have adopted a joint paper on the role of the NCAs in enforcing the DMA. We have resolutely argued that national competition authorities should continue to play a key role in enforcement activities against large digital platforms. However, there was no political majority to give the NCAs a greater role in enforcing the DMA, so the Commission will be the sole enforcer. Nevertheless, the NCAs can still continue their competition law proceedings and also apply national rules regarding large digital companies, as for example section 19a in Germany. This is crucial since it means that we can continue our important proceedings and the successful work within the ECN. We have cases that are specific to certain countries; we are able to tackle types of anticompetitive behaviours not covered by the DMA; and there might also be cases regarding companies that cannot be addressed under the DMA. This also means that the competition community can maintain and further promote the competition of ideas and mutual learning with respect to different approaches to tackling the problems posed by the digital economy. The adoption of the DMA provides new momentum for working together. We have done this with much success in the past and want to build on it in the future.
The FCO and other competition authorities around the world increasingly receive requests from companies wishing to cooperate in order to become more sustainable. In the case of the FCO, we have dealt with such initiatives for several years and our case practice is growing.
The main goal of sustainable production is to maintain social and ecological standards throughout the supply chain from the purchase of raw materials and manufacturing to the distribution of the product. Sustainability is a genuine competitive factor for companies because they can use sustainable products to distinguish themselves from their competitors. However, new sustainability initiatives can be expensive and risky for companies. The aims of such initiatives are often meant to be achieved through agreements between as many companies as possible.
As the sustainable use of resources is of key importance for society as a whole, it is important to note that competition law does generally not stand in the way of sustainability-related cooperation agreements. On the contrary, effective competition is part of the solution. Only competition can generate the innovation needed to achieve a more sustainable use of the resources available to us.
Against this background, the FCO has always been ready to provide informal advice to companies regarding the competition law criteria that have to be observed when cooperating with others. In recent months, the FCO examined an initiative on living wages in the banana sector, an expansion of the animal welfare initiative ‘Initiative Tierwohl’, the initiative ‘Agrardialog Milch’ which proposed a financing concept in favour of raw milk producers, as well as the QM+ programme promoting animal welfare in milk production.
With regard to the living wages initiative, the FCO did not have any competition concerns. The core objective of the initiative is to introduce responsible procurement practices and to develop processes to monitor transparent wages. It neither includes any minimum prices or surcharges in the supply chain, nor does it involve the problematic exchange of information on prices, costs, volumes or margins.
The ‘Initiaitve Tierwohl’ has already introduced an agreement between agricultural producers and the food retailing sector for pork and poultry. Now it is extended to cattle. The objective is to reward livestock owners with a standard premium for improving the conditions in which animals are kept. In the past, the FCO had already provided guidance to the initiative to ensure that the agreement complied with competition law. This included an identification and labelling-system specifying meat produced in line with animal welfare criteria, which allows consumers to make an informed choice when shopping for food. As a standard premium can be problematic, the FCO now has requested the initiative to develop a more competitive model over the next years.
With regard to ‘Agrardialog Milch’, we concluded that the proposed model was not acceptable under competition law. Essentially, the representatives of milk producers from the initiative proposed to agree on surcharges, which would have been passed along the supply chain right down to the milk shelf. Sustainability goals were not pursued with the initiative. In our assessment, public interest objectives such as sustainability are legitimate aims. But the economic interest in a higher level of income per se cannot justify the exemption of such an agreement from competition law rules, especially when sustainability does not play a role in the agreement.
The QM+-programme, an industry initiative that wants to increase animal welfare in milk production, did not raise any serious competition concerns. The programme aims at financing the additional costs incurred through an animal welfare surcharge payable to farmers by food retailers (indirectly through dairies). It also includes labels that indicate to consumers that products fulfil the agreed animal welfare standards. Especially when it comes to milk, there are many different competing labels and vigorous competition between the different brands. Participation in the programme is voluntary and only some of the dairies will participate in the QM+ programme. The FCO will reassess the programme after the first phase of its introduction in 2024.
While the FCO welcomes and encourages sustainability cooperations and agricultural producers wishing to strengthen their position by means of cooperation, we also point out the limits of competition law. As our case practice is growing, we send a clear signal that cooperation is possible in many ways. The draft of the European Commission’s Horizontal Guidelines, which is currently being consulted, will provide even more legal certainty in the future.
Never letting up on prosecuting harmful cartels
The consistent prosecution of illegal cartels will always be one of the FCO’s top priorities. This task is never easy, but has proved exceptionally difficult during the pandemic. Hearing witnesses or conducting dawn raids under covid-19 restrictions are very challenging tasks. However, we have not let up on cartel prosecution despite all difficulties.
In the past year, we imposed fines on special steel producers and steel forging companies and for vertical price-fixing agreements for musical instruments, school bags and consumer electronics. Cartel prosecution has also been boosted through the recent reform of the German Competition Act and the implementation of the ECN+ Directive. We are now even more effective enforcers. In line with the system in place at EU level, companies and their employees are required to cooperate to a certain extent in establishing the facts of a case. Furthermore, we are now in a stronger position in judicial proceedings: even after an appeal has been filed against a decision imposing a fine, we still remain the competent enforcement authority (not the general prosecutor’s office as it has previously been the case). This means that we have the same rights in these proceedings as the public prosecutor’s office. Furthermore, our leniency programme has now been enshrined in law.
As the FCO’s leniency programme is very effective, we are concerned about the decline in leniency applications that we are currently observing just like many other competition authorities around the world. There is much to suggest that this trend follows the rise in private damages claims. Still, in 2021, 10 companies made use of our leniency programme and informed us about infringements in their sector.
Therefore, we will have to discuss openly whether granting more privileges to leniency applicants could be a way to reverse the trend. At the same time, we will further strengthen the ex officio proceedings that always have been an important pillar of our enforcement activities. We are exploring innovative investigation methods, such as market screening. And we are following up on tip-offs, for example from our digital anonymous whistle-blowing system, which has proved very valuable over the years. Cartel enforcement will always be at the core of what we do. We will continue to invest many resources in this area and will vigorously work to detect and sanction these illegal activities.
Stringent merger control – more important than ever
Consequent intervention is equally crucial in the area of merger control. We have to prevent too much market power falling into the hands of just a few companies. Each year, the FCO examines more than 1,000 mergers, which, in 2021, included 14 difficult in-depth reviews concerning, for example, food retailing, newspapers or petrol stations. Proceedings of this kind are highly complex and we rely on advanced analytical tools, such as using loyalty card data to define geographic markets. Decisions are based on careful analyses and the assessment of all relevant competitive effects.
In 2021, one merger was cleared with obligations, so the food retailer EDEKA was not allowed to take over all of the Real stores it had planned to acquire. And, with respect to the supply side, we requested not to leave medium-sized competitors empty handed. Three notifications were withdrawn by the participating undertakings during the ongoing examination after we had voiced competition concerns. Funke Media group’s intended takeover of the newspaper Ostthüringer Zeitung was prohibited. In early 2022, EG Group’s (Esso) acquisition of OMV’s petrol station network was only cleared under the condition that 48 service stations be sold to third companies.
While stringent merger control is indispensable in all sectors, the digital economy warrants special attention. Even without mergers, there are strong tendencies towards concentration in this sector, for example, due to network effects and the collection and use of data. Takeovers and mergers can even further facilitate market tipping. They can also contribute to strengthening or expanding existing ecosystems that are almost incontestable for competitors. After merger control, the only tool we are left with are difficult abuse proceedings. However, they are more about curing acute symptoms of a high level of market concentration, even with the new section 19a in Germany. It is therefore better to prevent market power in the first place than to curb it later.
Applying merger control in the digital economy poses two challenges: the first is to identify problematic mergers. In recent years, there has been some impetus for reform in merger control. In Germany, we introduced the transaction value threshold in 2017, which helps to catch certain types of mergers.
The other challenge is that you have to be able to intervene when necessary. In the past, we rather focused on the risk of false prohibition decisions. Looking at big tech companies, the focus has shifted more to the risk of false clearances. Merger assessments should concentrate on the long-term consequences of a merger and should not unduly emphasise short-term market features or shy away from uncertainty. Much is at stake because the potential harmful effects of mergers in the digital economy can be very large if problematic transactions are cleared. Of course, whenever we prohibit a merger, the standard of proof (ie, establishing a significant impediment to effective competition (SIEC)) has to be met in every case, which can be very difficult. Against this background, we welcome discussions about the future of merger control, which include proposals such as shifting the burden of proof, reducing the standard of proof or dealing better with uncertainty, especially in scenarios that are moderately likely to occur but would lead to large harm. We also should discuss whether merger control should be stricter for companies that hold particularly strong positions of power, for example for companies that have been designated under section 19a here in Germany or under the DMA. More generally, we should also look into new theories of harm to better grasp conglomerate effects of mergers, like ecosystems extending to adjacent innovative markets.
In April 2021, we published a joint statement on merger control together with our colleagues from the Australian Competition and Consumer Commission and the Competition and Markets Authority, assuring of our commitment to merger control as our most effective tool to proactively keep markets open and preserve diversity. We share the view that structural remedies are clearly preferable to conditions that subject the behaviour of the undertakings involved to continued control. In Germany, such behavioural conditions are not even allowed by law. We see the problems that occur when problematic deals are cleared and there is not much that can be done afterwards to reverse the loss of competition, especially in dynamic markets where timely enforcement is so critical. And we share the belief that uncertainty in merger control should not necessarily mean that a potentially problematic merger is cleared just because of that uncertainty. Merging companies are often advised and represented by law firms and economists that strongly advocate for their views of the market. On the opposite side, competitors, customers or consumers are often under-represented. As competition authorities, we need to be strong advocates of competition and ensure that the interests of consumers are favoured over the profits of the merging firms.
Adapting to change and looking ahead
Adapting to change has always been one of the FCO’s biggest strengths. We have adapted to a changing economy and to new tasks while staying true to our core: protecting competition. This also means that we have managed to deal with entirely new competences and quickly put them to work. Looking back can give us much confidence for the tasks that lie ahead. We have new tools for tackling the digital economy and have used them from the outset. In consumer protection, we already help consumers navigate the internet more safely. It is promising that the new German government wants to strengthen our role, for example, when it comes to effectively enforcing consumer rights and our ability to monitor the fuel sector. We have successfully set up the competition register – one of the first fully digital registers in Germany. Our sector inquiries help us to identify competition problems we might need to take on in the future. In the past year, we published inquiries into hospitals and the waste management sector. Current investigations into publicly accessible charging infrastructure for electric vehicles and into online advertising are underway, and a new investigation into the mineral oil sector has just been launched.
We will enforce our new powers. While the digital economy will remain one of our key priorities, we will also pay very close attention to all other sectors. And we will always seek to fulfil our role as a guardian of competition.