Dear readers, this month we are highlighting Germany's reform of its competition law, which came into force on 19 January. Enjoy your reading!

Germany equips its Competition Authority for the challenges of the digital age

On January 19, 2021, the tenth amendment to the Act against Restraints of Competition (ARC) came into force equipping the German Federal Cartel Office (FCO) with far reaching powers vis-à-vis digital platforms.

A. New supervision tool

At the core of the amendment is a new ex-ante regulation. The new instrument’s aim is to give the German Federal Cartel Office (“FCO”) strict oversight of companies with “paramount significance for competition across markets”.

Addressees are large digital platforms that are able to play their financial strength and access to data together with network effects to lever market power. While the FCO had already initiated investigations against these digital platforms, the reform now provides the FCO with a new tool to continue on this track. Moreover, the FCO has already announced on 28 January to broaden the scope of its currently ongoing Facebook/Oculus case to assess whether Facebook is also subject to this new rule.

The new instrument is set up in two steps: First, the FCO will determine individual companies to fall into this category. Based on this determination, the FCO may then take measures against the company based on the new provision.

The amendment identifies inter alia the following specific behavior that can be found to be abusive: 

• giving preferential treatment to own products and services through special integration;
• demanding unreasonable advantages, including demanding data not necessary for a service, or making the quality of a service dependent on whether such data is provided; 
• preventing or impairing another company’s ability to advertise its own products or services or reach customers;
• “tipping” markets into monopolies.

B. Relevance of Data and Digitalization

While the newly introduced ex-ante supervision was certainly the most headline-catching rule, the reform also introduced farreaching data access requirements on companies with relative market power. Provisions regarding an abuse of a dominant position have been modernized and strengthened, specifically to reflect the relevance of data and digitalization in modern businesses. Access to data is explicitly included as potentially leading to a market power and “intermediary power” and “gatekeeper” are introduced as new terms.

Moreover, under certain circumstances the amendment effectively creates a right to data access. This is because dependency on data access is now specifically acknowledged as leading to a “superior or relative market power” (a category similar to a dominant position) and the unjust denial of access to such data can now explicitly denote an abuse of such a position. What more, the category of “superior or relative market power,” which in the past only protected small and medium-sized companies, can now be invoked by companies of any size, including large multinationals. In essence, it is now possible that a small tech firm is required to grant a large multinational company access to its data.

C. Other amendments

The reform also encompassed a significant increase in the merger control thresholds from EUR 25 million and EUR 5 million to EUR 50 million and EUR 17.5 million respectively (all in regard to turnover in Germany) which are expected to decrease the annual number of notifications up to 40%.

On the other hand, the amendment conferred the FCO the power to order certain companies to notify every acquisition of companies with an annual turnover in excess of EUR 2 million in Germany in a specific sector if it had previously conduced a sector inquiry into this sector.

Amongst the other procedural and substantive changes and clarifications the explicit inclusion of (effective) compliance measures implemented before the infringement as a mitigating factor when calculation the fine was probably the least expected but most welcome.

Lego France makes commitments to remedy a dual-rebate system disadvantaging online distributors

This procedure follows the complaint lodge by Cdiscount and EMC Distribution (Casino group’s referencing body) to the French Competition Authority in 2015, criticizing the implementation by Lego of an artificial and discriminatory pricing policy towards resellers specialized in online selling (“pure players”).

In 2013, Lego created a “functional discount” of up to 13% to compensate for the increase in price of its products. It was based on award criteria that, according to the French Competition Authority, effectively excluded pure players (such as in-store recruitment capacity, immediate availability of products in store etc.). In practice, these criteria led to a gap in rebates from 9% to 13% between pure players and other resellers.

Following an investigation by the German Competition Authority, Lego modified its rebate policy at European level at the end of 2016 and introduced new criteria applicable to online selling. Despite these changes, the complainants, specialized in online selling, considered that they were still disadvantaged by this rebate system.

The Authority considered that this mechanism constitutes price differentiation between the different categories of resellers, which was likely to reduce the competitive pressure that pure players could have exercised on the others. In its decision, the Authority considered that this practice does not constitute a hardcore restriction or restriction by object and is different from the dual-pricing practice raised by the claimants (consisting in practicing different prices towards the same distributor, depending on whether its products are resold on line or in a physical store). However, it can constitute an anticompetitive practice on the double condition that (i) the extent of the price difference can limit the competitive pressure of pure players on traditional trade and (ii) this difference is not based on any objective justification.

In response to the competition concerns expressed by the Authority, Lego proposed a certain number of commitments that were significantly revised following a consultation and the observations presented in reply to a market test. After discussions with the Authority, Lego finally made the commitment, from March 2, 2021, for a term of five years, to: (I) revise the award criteria of the functional discount to make them accessible to all its resellers and (ii) improve the transparency of its system of discount and its timetable. Lego further committed to submit every year a report on the performance of these commitments to the investigating services.

This case could fuel future discussions on dual pricing as part of the reform of the European block exemption regulation on vertical agreements.

On January 27, 2021, the French Competition Authority published a detailed study on professional organizations to prepare for the coming hardening of the regime applicable to them

This study falls within the coming transposition into French law of Directive No. 2019/1, known as ECN+, which will result in exposing trade unions and professional bodies to heavier sanctions by removing the cap that existed until now for these organizations and which limited the financial risk in case of breach of competition law rules - provisions which we will present in further detail in a future article.

Until now, the fine inflicted could not exceed €3 million. From now on, fines may represent up to 10% of the aggregate global turnover of each of the members of the professional organization.

In essence, in its study, the Authority goes over these organizations’ missions, the application of competition law to their activity, as well as the main practices to which they are exposed and that present a risk from a competition law point of view (contribution to the implementation of a cartel, boycott practices, broadcasting price information and exchanges of commercially sensitive information, as well as certain certification and standardization practices, or the relations that these organizations have with public authorities, etc.). This study also notes the decision-making practice in this field, and recalls the tools available to the Authority to sanction these professional organizations.

The Authority’s study purports to be a practical tool intended to help professional organizations, particularly those exposed to competition risks, to prepare for and prevent wrongdoing. To do so, the Authority has also made available to professional organizations six topic sheets presenting practical advice and summarizing the “good behavior” to adopt as well as the behavior to avoid, in the form of dos and don’ts.