Germany: Federal Cartel Office
The ideas that prompted the former Minister for Economics, Ludwig Erhard, to introduce the German Competition Act (Act against Restraints of Competition; the GWB) and to establish the Bundeskartellamt (Federal Cartel Office) in 1958, are more relevant today than ever. According to Erhard, it is not the state nor cartels but the consumer who decides who shall succeed in the market. Erhard described the GWB as the ‘basic law of the social market economy’.
For more than 60 years the Federal Cartel Office has enforced the GWB and pursued the ambitious aim to maintaining effective competition across all sectors of the economy. To do so, the authority has undergone constant change, progressively refining its toolbox to protect competition. In 1958, the Federal Cartel Office took up the prosecution of cartels and abuse of market power. Since 1973, it has also examined mergers. In 1999, it gained competence in the area of public procurement law. Since 2017, the authority can also carry out sector inquiries into consumer protection issues. The Federal Cartel Office has always proved able to overcome even great changes.
This agility and spirit has helped us to deal with the challenges we face today and in the coming years. Digitalisation and globalisation are triggering an enormous transformation process. The digital economy has long become a cross-cutting issue for all the divisions of the Federal Cartel Office. Nevertheless, cases relating to the internet and platforms continue to raise new issues. For example, traditional cartel and abuse proceedings often deal with price-fixing agreements or excessive prices. In the digital economy, it is often not money but data that are traded like currency. In addition, increasing attention is being paid to the terms and conditions under which users of platforms are obliged to agree to the use of their personal or business data by these platforms. We have to come up with new concepts for these new business models and business relationships.
That is the reason why our Facebook proceeding is one of the most important cases we have worked on in the past years. In February 2019, we completed this proceeding and imposed on Facebook far-reaching restrictions in the processing of user data. In our view, it is clear that where access to the personal data of users is essential for the market position of a company, the question of how that company handles the personal data is relevant not only for data protection authorities but also for competition authorities.
According to Facebook’s terms and conditions, users have so far only been able to use the social network under the precondition that Facebook can collect user data also outside of the Facebook website in the internet or on smartphone apps and assign this data to the user’s Facebook account. With regard to Facebook’s future data processing policy, we are carrying out what can be seen as an internal divestiture of Facebook’s data. In future, Facebook may no longer force its users to agree to the practically unrestricted collection and assigning of non-Facebook data to their Facebook user accounts. The combination of data sources substantially contributed to the fact that Facebook was able to build a unique database for each individual user and thus to gain market power.
The Federal Cartel Office’s decision is not yet final. Facebook has appealed the decision to the Düsseldorf Higher Regional Court.
Facebook is not our only important case in the digital area, however. For example, in 2018 we also initiated a proceeding against Amazon to examine its terms of business and practices towards sellers. Many platforms such as Amazon offer their own products and services. At the same time, other traders can use these platforms to offer their products and services. This leads to a situation where a digital platform offers its infrastructure to third parties of which it is also a competitor. With the increasing market power of the platform, this can result in conflicts of interest and abusive business practices. Due to the many complaints we have received, we are examining whether Amazon is abusing its market position to the detriment of sellers active on its marketplace. Our proceeding focuses on Amazon’s terms of business and practices towards sellers. It complements the investigations by the European Commission into Amazon’s European marketplaces and Amazon’s collection and use of transaction data.
Another important step towards gaining a better understanding of the complex mechanism of the digital economy and the competition issues that it raises is a sector inquiry into online advertising, which the Federal Cartel Office launched in 2018. Today, online advertising is a complex system of very different forms of advertising and is highly technical. One example of this is the fully automated real-time trade in advertising space. At the same time, large companies with considerable market relevance like Google or Facebook have emerged that have, in the view of some market players, been able to set up closed ‘walled gardens’ systems. The issue of access to and the processing of data is also highly relevant from a competition point of view.
Our Facebook and Amazon proceedings and the sector inquiry into online advertising are only three examples of the many cases and initiatives the Federal Cartel Office has in the digital area. We have also concluded proceedings in cases concerning best price clauses that were used by Amazon Marketplace and hotel booking platforms like HRS and Booking.com. In our ASICS decision, we took a closer look at the prohibition of price comparison engines, sales via third-party platforms and the use of brand names. Another major case was an abuse proceeding against the ticket retailer CTS Eventim, in which we prohibited exclusive contracts between CTS Eventim and event organisers and advance booking offices.
An important issue on our agenda is the further improvement of our technical understanding. For example, of price algorithms and their impact on competition. For this purpose, the Federal Cartel Office is recruiting data scientists and data analysts to work on current issues and aspects of the digital economy. Moreover, we are working together with the French competition authority on a joint project on algorithms and their effects on competition. The project mainly aims at analysing the challenges raised by algorithms for competition authorities and at identifying conceptual approaches to meet them.
Our cases in the digital area give the companies indications of what is allowed under competition law and what is not. Moreover, it is very helpful that in the summer of 2017 legislation already clarified several important questions regarding the digital economy with the ninth amendment to the GWB. Network effects can lead to large companies becoming bigger and bigger. Access to data also plays a key role. Multi- and single-homing are also an important issue. All these parameters go far beyond former criteria developed for traditional offline markets. These parameters are now incorporated into German law and casework. The amendment also clarified that a market may also be assumed where no monetary payments occur. This conclusion – especially in two-sided markets – had already been adopted in the competition authority’s practice but until now had not been explicitly provided for in the German competition law. In merger control, a new transaction value threshold has been introduced into German competition law.
First, discussions have already begun on the possible content of a 10th amendment to the GWB. The primary reason for this can be seen in the need to transpose the ECN+ Directive into German law by 4 February 2021.
However, in addition, the German Ministry for Economic Affairs and Energy has commissioned a study to assess different options to modernise the law on the abuse of market power and to better address the challenges posed by the digital economy. The ideas discussed include broadening the rules on the abuse of relative market power, with a threshold below actual dominance coming into play. Dependencies on large platforms acting as ‘gatekeepers’ are not restricted to small and medium-sized enterprises but can also be a concern for larger firms. In this context, it is also being considered to further emphasise the role of platforms acting as intermediaries when assessing market power. Some of these platforms can act as gatekeepers with regard to the other market side. Not being represented on such a platform can amount to losing a crucial distribution channel for some companies. The significant role of this intermediation power could be included in the criteria for assessing market power contained in the GWB. Finally, there are also discussions on how to better address certain types of behaviour at an early stage (ie, when a company with particular, unique resources enters a certain market and can be expected to become dominant in the foreseeable future). In this context, possibilities to speed up proceedings are being assessed as well (eg, by refining the rules on interim measures). These are all aspects that we need to discuss.
With our new investigative powers in the area of consumer protection, our authority also aims to provide valuable assistance where the well-established private enforcement of consumer protection reaches its limits. In April 2019, the Federal Cartel Office presented the final report on its inquiry into comparison websites. Comparison websites help consumers find their way around the internet and get better and cheaper results. However, we also detected consumer-unfriendly tricks employed by some of the comparison websites. Consumers should look at how rankings are attained and check whether they are based on a large number of offers.
Although the Federal Cartel Office can carry out investigations in the area of consumer protection, it does not yet have the power to eliminate the violations of rights it detects by official decree. In our view, civil lawsuits and regulation alone are not an effective remedy for the problems that we see in the area of comparison websites. Due to difficulties of proof and the lack of a broad impact, the opportunities to enforce consumer protection under civil law are limited. Selectively enhancing the Federal Cartel Office’s competencies would enable the authority to enforce existing consumer protection legislation in a quick and targeted manner. This topic is being discussed in the context of the next amendment of the GWB.
Another huge task for the Federal Cartel Office is to establish a ‘competition register’. In summer 2017, the Act on the Establishment of a Competition Register for Public Procurement at the Federal Cartel Office entered into force. The idea is that companies that commit serious economic offences should not benefit from public contracts and concessions. The Competition Register will enable contracting authorities to check in a single nationwide electronic search whether a company has committed relevant violations of law. The register could therefore play an important role in combatting economic crime and competition law violations. With this new transparency, the competition register should significantly increase the preventive effect of criminal and competition law. The act envisages the electronic register to be operational in 2020.
In addition to these new tasks, the Federal Cartel Office has continued and intensified its work in its traditional areas (ie, cartel prosecution, merger control, the control of abusive practices and public procurement). In recent years, the modernisation of its investigation methods, the integration of complex economic and econometric analysis in its case work and structural reforms have further improved the effectiveness of the authority’s work.
For example, in 2018 the Federal Cartel Office imposed fines of around €376 million on 22 companies or trade associations and 20 individuals in eight cartel cases. The sectors concerned included special steel manufacturers, potato and onion packaging companies, newspaper publishers and producers of rolled asphalt. The authority received 21 applications for leniency and numerous other indications of possible infringements of competition law. It carried out seven dawn raids at a total of 51 companies.
The increase in fines is mainly due to the fact that, in the middle of 2017, a legal loophole was finally closed. Before this, companies could escape liability for their competition law violations by carrying out restructuring measures. After the amendment of the law, the Federal Cartel Office took up a number of new important cases and has already concluded some of them.
In 2018, the Federal Cartel Office also continued its track record of swift, consistent and effective merger control. Four mergers were abandoned after the Federal Cartel Office detailed its competition concerns in statements of objections and one merger was cleared subject to remedies. At the same time, 99 per cent of the notified mergers were cleared in Phase I in less than a month and without pre-notification discussions.
Last, but not least, the Federal Cartel Office concluded its administrative proceeding against the German Olympic Sports Confederation (DOSB) and the International Olympic Committee (IOC) in early 2019. In a preliminary assessment, the Federal Cartel Office suspected that the advertising rules of DOSB and IOC are too restrictive and that this can constitute an abuse of the dominant positions of DOSB and IOC. In response to these concerns, DOSB and IOC have made amendments to their rules that now offer more leeway for individual advertising.
All in all, the Federal Cartel Office has always proved to be a very agile authority that is able to tackle even great changes. These days, the digital economy raises many new competition law issues. In numerous cases relating to the internet and platforms, the Federal Cartel Office has set new guiding principles of competition law and has thus assumed a pioneer role in developing international standards. With its new investigative powers for consumer protection, the Federal Cartel Office is very active in this area as well. Despite all these changes, our aim will always stay the same: to protect fair competition for the well-being of consumers and the economy.