Germany: Federal Cartel Office
Competition law entrusts competition authorities with keeping markets open to competition and ensuring contestability. It aims at limiting the economic power of individual companies and ensuring choice for consumers. The Federal Cartel Office (Bundeskartellamt) enforces competition law to prevent the concentration of markets, the abuse of market power and to protect consumers from harm. With regard to the digital economy, the authority has done pioneering work. Accounting for factors such as network effects and access to data, especially in connection with large platforms, has become an integral part of the authority’s enforcement practice. It evaluates and refines existing approaches to continue to successfully deal with new questions and new markets. This all has helped to fully maintain our availability and to fulfil our tasks in the face of the covid-19 crisis.
- Keeping markets open: more important than ever
- Core assignment: breaking up cartels, merger control, preventing abuse
- Useful cooperations: guidance instead of blocking
- Proceedings in the spotlight: Amazon and Facebook
- German law: changing legislation
Referenced in this article
- German Competition Act (GWB), 9th Amendment
- German Competition Act (GWB), draft bill for 10th Amendment
- Bundeskartellamt: Facebook Decision B6-22/16; Amazon Case B2-88/18
- Working Papers on Algorithms and Competition (2019) and The Market Power of Platforms and Networks (2016)
- Paper on Competition Law and Data (2016)
- Guidance on Transaction Value Thresholds for Mandatory Pre-merger Notification (2018)
The Federal Cartel Office (Bundeskartellamt) was founded more than 60 years ago. Since the beginning, fulfilling our task of safeguarding competition and keeping markets open has always proved to be a cornerstone of the social market economy. In 1958, the Bundeskartellamt took up the work of prosecuting cartels and the abuse of market power. Since 1973, it has also examined mergers. In 1999, it was given competences in the area of public procurement law. Since 2017, the authority has been authorised also to carry out sector inquiries into consumer protection issues, and in the same year it was decided that a Competition Register for Public Procurement would be established at the Bundeskartellamt.
Although the Bundeskartellamt benefits from all these new competences, the core task of our authority remains the safeguarding of functioning markets in all sectors by way of cartel prosecution, merger control and the control of abusive practices. The Bundeskartellamt has continued to develop its work in these areas. In recent years, the modernisation of our investigation methods, the integration of complex economic and econometric analyses in our case work and structural reforms have further improved the effectiveness of our work. With regard to merger control, the number of cases registered per year is well in the four-digit range. We conduct these proceedings, some of which are highly complex, very accurately and efficiently by using advanced analytical tools. Merger control is hugely important both at the European level and in the member states because it is the only preventive tool at our disposal to limit market concentration. Merger control makes it possible for competition authorities to ensure that customers and consumers can still choose between different suppliers in the future. In antitrust, particularly focusing on the digital economy, we find answers to many new legal and economic issues. Our proceedings against Amazon and Facebook very prominently show the significant importance and impact of our work.
The prosecution and punishment of cartels has always been a major priority for the Bundeskartellamt as cartels greatly harm consumers and other stakeholders. We invest many resources in uncovering cartels, carrying out dawn raids, evaluating what is now mostly electronic evidence, hearing witnesses, assessing the facts of the case and often extensively conducting subsequent court proceedings. In the recent past, the sectors concerned included bicycle wholesale, building service providers, magazines, industrial batteries, purchase of steel for the automotive industry, steel production and wholesale of plant protection products. The Bundeskartellamt receives many tip-offs relating to violations of competition law from sources that come forward using our leniency programme (key witness programme) and via the anonymous whistle-blower systems on our website.
While the Bundeskartellamt rigorously prosecutes and punishes cartels, it also helps to enable useful cooperations. We frequently provide informal guidance to companies seeking to cooperate, for example via digital platforms. These types of cooperations focus on platforms in the industrial sector that are designed to improve the digital connectivity of market participants (eg, in relation to the Internet of Things). This can concern business-to-business activities or endeavours to automate supply and distribution relations with suppliers and customers. The Bundeskartellamt generally supports cooperations that aim to improve products and production processes, and offers to help cooperating partners to design their cooperative relationship in such a way that it does not violate antitrust law. In assessing a cooperation project, the Bundeskartellamt focuses on a number of key issues. These projects may not lead to the restriction of competition with regard to the relevant competitive factors in the affected markets, such as prices, terms and conditions or quality, they should be non-discriminatory and they should not create excessive transparency. A particular focus thus always lies on the type and extent of the information exchanged, the creation of effective ‘Chinese walls’ between the platform users, the publication of market statistics and the disclosure of the trading partners’ identities. For example, the Bundeskartellamt has provided guidance with regard to the launch of the industrial Internet of Things platform Adamos, for XOM Materials, a digital platform for steel products, and with regard to the start of unamera, an agricultural trading platform. Another example of a cooperation project closely supervised by the Bundeskartellamt is the project relating to the joint deployment of fibre-optic cables by Deutsche Telekom and EWE. The companies have made binding commitments to the Bundeskartellamt to extensively deploy cables, also covering rural areas, and to grant other companies access to their network in the future. Under these conditions, the cooperation ensures that the networks are quickly expanded, a competitive environment is preserved and the access of households to high bandwidth internet connections is improved.
The Bundeskartellamt’s principles in assessing cooperations combined with a fast and flexible response are proving to be particularly valuable in the coronavirus crisis. In these times, companies might need to cooperate to maintain the availability of especially needed products at competitive prices. Cooperation might also be necessary to restart production in sectors with vastly interdependent production chains. As competition authorities, we must be vigilant and keep a sense of proportion. Rigorous action must be taken in the event that cartels try to exploit this crisis or if we detect that positions of dominance are abused, such as through excessive pricing. At the same time, competition authorities have to be available for consultation on useful cooperations and apply the built-in flexibilities of our competition rules. Since the beginning of the outbreak, the Bundeskartellamt has had to adapt its workflows and has managed to fully maintain its availability and to fulfil its tasks in the face of the crisis. We have responded to a large number of requests for informal guidance on covid-19-related coordination between competitors or within the supply chain and have issued several comfort letters. We acknowledge that companies are struggling to cope with the covid-19 crisis and therefore require a high level of legal certainty – often at short notice – to facilitate their self-assessment. Considering the global scale of the crisis, close coordination with other competition authorities across the world is essential. The Bundeskartellamt has actively supported joint European efforts, as part of the European Competition Network, and global efforts, as part of the International Competition Network, to help and inform companies seeking guidance on competition rules in view of the social and economic effects of the covid-19 outbreak.
The Bundeskartellamt has always proved able to adapt to even great changes. This also holds true in the digital era. Digital technology is transforming much of the global economy. The combination of big data, computing power and cloud-based systems has generated new services and is rapidly changing existing industries. In the digital economy, a trend towards size is visible almost everywhere. This is closely connected with peculiarities frequently observed in the internet context: network effects can result in the concentration of a large number of users on individual platforms. Access to relevant data can create significant competitive advantages for some companies. As competition authorities, we have to ensure that markets are kept open and newcomers have a chance. For example, we took action against the best price clauses used by Amazon Marketplace and the hotel booking platforms HRS and Booking.com, which essentially imply minimum prices and prevent innovative platforms from offering lower prices. 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 important case was an abuse proceeding against the leading German online ticketing platform CTS Eventim, in which we prohibited exclusive contracts between CTS Eventim and event organisers and advance booking offices. In 2017, we also prohibited a merger between CTS Eventim and the event agency Four Artists. These cases in the digital area give the companies some indication of what is and what is not allowed under competition law.
If there is a tendency towards concentration in the digital economy, abuse control will become a more important tool than ever before. If a dominant company acts as a digital gatekeeper and abuses its power, competition authorities should intervene to protect competition and consumers.
For the Bundeskartellamt, the digital economy has long been relevant for all divisions of the organisation. Cases relating to the internet and platforms continue to raise new issues. Whereas in traditional cartel and abuse proceedings we frequently deal with price-fixing agreements or excessive prices, in the digital economy we often come across free-of-charge services offered at a zero price, which, in some cases, involve the collection of certain valuable data. In addition, attention is paid increasingly to terms and conditions regarding the use of personal or business data to which platform users have to agree in order to use these platforms. Quality, sometimes including issues such as privacy, gains additional relevance as a non-price parameter of competition. We encounter new business models and business relationships in the digital world and have to find ways for these to take into account competition law requirements.
Our proceeding against Facebook has received worldwide attention. For the first time, we have explored in-depth the relationship between free-of-charge internet services, personal data and market power.
At the beginning of 2019, the Bundeskartellamt decided to impose far-reaching restrictions on Facebook relating to the processing of user data. With 23 million daily active users (representing a market share of 95 per cent) and 32 million monthly active users (amounting to a market share of 80 per cent), the company has a dominant position in the German social networks market. Many users are not aware that Facebook collects and processes an almost unlimited amount of any type of user data from third-party sources. In this context, third-party sources are Facebook-owned services such as Instagram or WhatsApp, but also third-party websites that include components provided by Facebook, such as the ‘Like’ or ‘Share’ buttons. When these visible components are embedded in websites and apps, the data flow to Facebook will start as soon as they are opened or visited. Even if no Facebook icon is visible to users of a website, user data will be transmitted to Facebook if, for example, the website uses the Facebook Analytics service in the background to carry out user analyses. Millions of these Facebook components can be encountered on German websites and apps. According to Facebook’s terms and conditions, users had so far only been able to use the social network under the condition that Facebook is allowed also to collect user data outside the Facebook website on the internet or on smartphone apps and allocate these data to a user’s Facebook account. In other words, the only choice users had was either to accept the comprehensive combination of data or to refrain from using the social network. Apart from that, combining these data sources has enabled Facebook to build a unique data set for each individual user, substantially contributing to its market power.
In the Bundeskartellamt’s view, Facebook is subject to special obligations under competition law as it is a dominant company. Facebook’s terms of service and the manner in and the extent to which it collects and uses data are, in our view, in violation of the European data protection rules to the detriment of users. In our assessment, this conduct represents above all an exploitative abuse. This approach based on competition law is not a new one, but corresponds to the established jurisprudence of the German Federal Court of Justice under which not only excessive prices but also inappropriate contractual terms and conditions could constitute exploitative abuse (ie, exploitative business terms). The exploitative practice also impedes competitors that are not able to amass an equivalent amount of data.
With regard to its future data processing policy, we want to ensure that Facebook can no longer force its users to agree to the practically unrestricted collection of non-Facebook data and the subsequent allocation to their Facebook accounts. Therefore, our decision covers different data sources: Facebook-owned services such as WhatsApp and Instagram can continue to collect data. However, allocating all the data to Facebook user accounts should only be possible subject to the users’ voluntary consent. Furthermore, collecting data from third-party websites and assigning them to a Facebook user account should also be possible only if users give their voluntary consent.
Facebook appealed our decision and the Düsseldorf Higher Regional Court suspended it in a preliminary ruling. The Court assessed key legal issues differently. These issues are highly significant for the future state of competition in the digital economy. In our view, data are a decisive factor in competition. It is precisely the area of data collection and data use where Facebook, as a dominant company, must take into account that Facebook users practically cannot switch to other social networks, and it has to comply with the rules and laws applicable in Germany and Europe. For this reason, the Bundeskartellamt has appealed the preliminary ruling to the German Federal Court of Justice for further clarification.
Facebook is not our only important recent case in the digital area. The Bundeskartellamt has dealt with several ‘digital’ cases, ranging from mergers to antitrust issues, which have led to informal consultations about new business models or envisaged cooperation. A particular issue we focus on is the role of hybrid platforms in e-commerce. Platforms such as Amazon Marketplace enable third-party sellers to reach potential customers to offer their products and services. At the same time, these platforms offer their own products and services. In other words, platform providers make their infrastructure available to third parties that are also their competitors. Given the increasing market power of some of these hybrid platforms, this can result in conflicts of interest and abusive business practices. In 2019, the Bundeskartellamt achieved far-reaching improvements for sellers active on Amazon marketplaces worldwide. In response to our competition concerns, Amazon amended its business terms for sellers. The amendments address numerous complaints about Amazon that the Bundeskartellamt received from sellers. They concern the unilateral exclusion of liability to Amazon’s benefit, the termination and blocking of sellers’ accounts, the place of jurisdiction in the event of a dispute, the handling of product information and many other issues. As a result of these amendments, we were able to terminate the proceeding. In a parallel case, the European Commission is currently investigating Amazon’s collection and use of transaction data.
Another important step towards gaining a better understanding of the complex mechanisms underlying the digital economy and the competition issues that arise in this area is the sector inquiry into the online advertising sector, which the Bundeskartellamt launched in 2018. Today, online advertising is a complex system of very different forms of advertising and is of a highly technical nature. One example is fully automated real-time bidding for digital advertising space. At the same time, large companies with considerable market relevance, such as Google or Facebook, have emerged, which – in the view of some market players – have been able to set up closed ‘walled garden’ systems. The issue of access to and the processing of data seems also highly relevant from a competition point of view.
Digital technology is not only transforming the global economy but also our work at the Bundeskartellamt. One important project that we are implementing as part of our digital strategy is setting up a competition register, which is to function completely electronically. The Act on the Establishment of a Competition Register for Public Procurement at the Bundeskartellamt entered into force in summer 2017. The idea behind this register is to prevent companies that have committed serious economic offences to benefit from public contracts and concessions. The register will enable contracting authorities to check in a single nationwide electronic database whether a company has committed relevant violations of the law. Therefore, the register can play an important part in combating economic crime and competition law violations. Offering this new level of transparency based on digital technology, the competition register should significantly increase the preventive effect of criminal and competition law.
Since digitalisation concerns many different proceedings, the Bundeskartellamt is also continuously finding answers to various new legal and economic issues as part of its conceptual work. At a relatively early stage, we launched an Internet Think Tank with a strong focus on the market power of platforms and networks. In 2016, we established an interdisciplinary team dealing with digital matters within the General Policy Division. In the course of restructuring the Policy Division, a dedicated Digital Economy Unit was created, which focuses on conceptual projects and supports our Decision Divisions in handling cases. We have reinforced our IT Forensics and Data Science Unit and our data scientists and work closely with our Digital Economy Unit. On the conceptual level, we have to keep pace with digital markets and their underlying technology. For example, in 2016 we presented our paper on big data and competition, together with the French competition authority.
In 2019, we published a joint study on algorithms and competition – again together with our French colleagues. In fact, besides the combination of big data, computing power and cloud-based systems, algorithms are among the most important technological drivers of the continuing digitalisation process. They are becoming more and more important, enabling firms to be more innovative and efficient. However, a debate has arisen on whether and to what extent algorithms might also have detrimental effects on the competitive functioning of markets. Therefore, in our joint project, we studied potential competitive risks that might be associated with algorithms. We elaborated on the concept of algorithms as well as on different types and fields of application. We focused in particular on pricing algorithms and collusion, but also considered potential interdependencies between algorithms and the market power of the companies using them, and on practical challenges when investigating algorithms. The insights and conceptual considerations the Bundeskartellamt gained from this will continue to inform its work in the future.
Having gained such a deep understanding of the digital economy from its practical and conceptual work, the Bundeskartellamt also contributes to legislative change. Our authority has an active role in sharing practical experiences with government and legislators, commenting on and suggesting political proposals and preparing for the prospect of acquiring new competences. Legislation has already clarified several important questions regarding the digital economy in the ninth amendment to the German Competition Act (GWB) in summer 2017. Parameters such as network effects and access to data have been incorporated into German law. The amendment clarified, moreover, that a market can also be assumed to exist if no monetary payments occur. Furthermore, it implemented a new transaction value threshold for merger filings. Consequently, the Bundeskartellamt can now examine acquisitions of companies that only achieve a marginal turnover but for which a relatively high purchase price was paid. For example, this can be the case with start-ups and other innovative assets. In these types of acquisitions, the high purchase price is often indicative of an innovative business idea with a high competitive potential. In 2018, the Bundeskartellamt and the Austrian competition authority published a joint guidance paper on how these new legal provisions are to be interpreted.
With the amendment to the GWB in 2017, the Bundeskartellamt also gained new competences in the area of consumer protection. As the ways to enforce consumer protection under civil law are limited, the Bundeskartellamt’s new investigative powers for consumer protection aim to provide valuable assistance. Although the Bundeskartellamt does not yet have the power to enforce compliance with consumer protection legislation in a quick and targeted manner, we can nevertheless conduct sector inquiries if we suspect that certain violations of consumer law are likely to harm a large number of consumers. We immediately set up a division dedicated to this new task and have initiated three sector inquires since then.
The sector inquiry into comparison websites was concluded in 2019 and focused on the travel, energy, insurances, telecommunications and finance sectors. We examined the question as to how objectively and transparently these websites operate. The problematic areas investigated were cooperations between the various websites, market coverage of the websites, the way in which rankings are formed, other factors influencing consumers’ choice and the handling of user ratings. While comparison websites help consumers to find their way around the internet, with better and cheaper results, we also detected consumer-unfriendly behaviour on the part of some comparison websites. For example, there are only a few websites that transparently inform the user about providers that are not included in the comparison (eg, by providing a negative list). When it comes to hotel rankings, consumers may find it misleading that the amount of commission paid by the different hotels is one of the factors influencing a hotel’s position in the ranking. When comparing energy and telecommunications tariffs, consumers are, in some cases, not informed about the fact that offers displayed above the actual ranking (ie, position 0) are in fact advertisements.
In our final report, and in a video specifically created for consumers, we compiled valuable advice for dealing with comparison websites and for helping consumers make better decisions. For example, we suggest that consumers should look at how rankings are achieved and check whether they are based on a large number of offers. Furthermore, consumers should not allow themselves to be put under pressure by allegedly short supplies or exclusive offers that might not turn out to be short or exclusive after all but simply raise false expectations.
Currently, we are pushing ahead with our sector inquiries into online user reviews and the use of data collected by smart televisions. Smart televisions are merely one example of the ever-growing connectivity of things in private life and the issue of knowingly and unknowingly disclosing personal data. For the purposes of our inquiry, we have deliberately chosen an everyday item that is also used by people who are not very knowledgeable about technology. Using our competence, we aim to shed some light on how producers of smart televisions handle user data, especially with regard to contractual terms. As for online user reviews, they are one of the most important criteria influencing consumers in their online purchases. However, there are indications that user reviews are frequently manipulated or often fake. The primary aim of our sector inquiry into this area, therefore, is to ascertain the review systems that are particularly prone to manipulation or falsification and the extent to which consumer law might be violated.
Besides these new competences, there is new legislative change on the horizon that will have a significant effect on the Bundeskartellamt’s enforcement practice in many areas. At the beginning of 2020, the draft 10th amendment to the GWB was published by the German Ministry for Economic Affairs and Energy. This reform was triggered by, among other factors, the obligation to transpose the Directive to empower the competition authorities of the member states to be more effective enforcers (known as the ECN+ Directive) into German law by 4 February 2021. The draft bill also provides for changes in the area of merger thresholds and procedure and intends to strengthen the possibilities of undertakings to receive guidance from the competition authority. However, a key focus of the amendment lies on modernising the law on the abuse of market power and on better addressing the challenges posed by the digital economy. The objective is to offer more effective tools to tackle anticompetitive practices by large platform companies. Most significantly, it proposes a new provision applicable to undertakings that are of ‘paramount significance for competition across markets’. This provision would enable the Bundeskartellamt to issue a decision stipulating that a company is of such significance. On this basis, we would then be able to prohibit certain kinds of behaviour, such as self-preferencing, envelopment strategies, establishing barriers to market entry through the use of data, hindering interoperability or data portability even in markets where the respective company has not (yet) reached a dominant position. The underlying idea of these proposals is not unique as similar proposals have been made in several jurisdictions and in various expert reports, for example in the United Kingdom, the Netherlands, the United States and Australia. One of the main challenges consists in striking the right balance between risks of potentially chilling effects and the desirable pro-competitive effect on digital markets.
Striking the right balance is also important in other areas. In the digital economy, seemingly small actions taken by large players can immediately cause significant effects. Therefore, timely interventions are key to prevent irreparable harm to markets. However, there is a natural tension between speed and thorough legal and economic assessment. It is not easy to strike the right balance in complex market environments, particularly when facing moving targets driven by technological developments. If we conduct our proceedings too slowly, our decisions could be too late; for example, a dominant company could have already forced its competitors out of the market. So we have to find the right balance between procedural efficiency and thoroughness. One option could be interim measures. The draft bill of the 10th amendment to the GWB aims at reducing the intervention thresholds to some extent, so that it would be easier to prove that the conditions for intervention are met. The Bundeskartellamt is closely following the developments regarding the current proposal and is preparing for possible changes to its enforcement practice.
The Bundeskartellamt has built up strong expertise and has successfully kept up with current changes. In the digital economy, numerous cases relating to internet platforms and business models lay the ground for the knowledge and competence the Bundeskartellamt is continuously expanding. This is also translated into successful advocacy. By exploring highly relevant topics and turning the results into fruitful discussions, the Bundeskartellamt is expanding its expertise, setting the agenda and contributing to shaping opinions, as is frequently demonstrated.
Protecting competition is the core task of the Bundeskartellamt. Competition creates better and cheaper products and leads to innovation. But it is also about ensuring choice and diversity and preventing the concentration of too much power in the hands of the few. Competition thus has many positive effects that extend beyond a purely economic benefit. That is why the Bundeskartellamt will continue its efforts to understand the developments of digital markets and services and to enforce competition law, so that we can help to keep markets open, especially with regard to digital gatekeepers.