As reported previously, German competition law was recently amended. The amendments included with the introduction of a “size of transaction”-threshold a notable change with respect to German merger control. The following is a reminder of five important features of German merger control which you should be aware of:

The jurisdictional thresholds of German merger control are easily triggered

German merger control applies if the parties to a transaction (usually the acquirer and the target) exceeded, in the last financial year, certain turnover thresholds. In an interna­tional context, these thresholds are relatively low and easily triggered:

  • Joint worldwide turnover of all parties > € 500 million, and
  • German turnover of at least one party > € 25 million, and
  • German turnover of another party > € 5 million.

There is a new “size of transaction”-threshold

Since June 2017, German merger control can also be triggered if a newly introduced “size of transaction”-threshold is exceeded:

  • Joint worldwide turnover of all parties > € 500 million, and
  • German turnover of at least one party > € 25 million, and
  • “value of compensation” > € 400 million, and
  • The target company has “significant business activities” in Germany (which may be activities with revenues < € 5 million).

The “value of compensation” includes the purchase price and all other assets and non-cash benefits, as well as liabilities assumed by the purchaser.

Acquisition of minority shareholdings may be notifiable

Similar to the HSR Act, but different to European Union merger control and most European jurisdictions, German merger control is not limited to the “acquisition of control”. Additional triggering events are

  • The acquisition of 25% or more of the shares in a company, and
  • The acquisition of a shareholding below 25% if this, combined with other factors (e.g. the right to appoint one out of five members of the board), may have an im­pact on competition (“acquisition of ability to exercise competitively significant influ­ence”).

Review of joint venture situations

German merger control may apply in joint venture situations that are often not covered by other merger control laws:

  •  German merger control may apply to the setting up of a joint venture company, even if the joint venture will have no activities in Germany. The jurisdictional thresholds may be satisfied by the parent companies alone. While there is an exemption for transactions with “no effect in Germany”, it is interpreted very narrowly and applies only in exceptional circumstances.
  • German merger control applies to all joint venture situations where two or more par­ties acquire or continue to hold a shareholding of 25% or more. Examples:
    – A and B set up a 50/50 production joint venture.
    – A acquires sole control and a 70% shareholding, and B acquires a non-control­ling 30% shareholding.
    – A sells 75% of a fully owned subsidiary to B, and retains only a 25% minority shareholding.
    – A, B and C each own 1/3 in a joint venture company. C divests his share­holding to A and B.

In each of these examples, the turnover of both A and B (and possibly the tar­get/joint venture company) will have to be taken into account for assessing the juris­dictional thresholds.

The bright side: The process is usually quick, efficient and relatively inexpensive

The number of transactions requiring a merger control notification to the German Federal Cartel Office (“FCO”) is, compared to most other jurisdictions, relatively high. On the plus side, the notification process is, in most cases, quick, efficient and, in cases without true com­petition issues, relatively inexpensive.

  • The large majority of transactions notified to the FCO are cleared in Phase 1.
  • The maximum duration of Phase 1 is one month; fairly often, the FCO clears trans­actions within two or three weeks after notification.
  • In straightforward cases, the amount of formal information that needs to be pro­vided is limited, and the notification can be drafted relatively quickly.
  • The fee imposed by the FCO in non-complex matters usually ranges between € 5,000 and € 15,000.

On 7 September 2017, the European Court of Justice issued a decision (Decision) on the interpretation of the European Union Merger Regulation (EUMR). The Decision clarifies the conditions under which the EUMR applies to the setting-up of joint venture companies.

WHAT HAPPENED:

  • 3(4) of the EUMR stipulates that the “creation” of joint ventures requires a notification only if the joint venture “performs the functions of an autonomous economic entity” (Full-Function JV).
  • Companies with management dedicated to its day-to-day operations, as well as access to sufficient resources including staff, finance and assets usually qualify as Full-Function JV. If the joint venture has only one specific function for the parent companies (e.g. supplying input products or services), and has no or only very limited own resources, it is unlikely to be considered a Full-Function JV.
  • There has been considerable uncertainty whether Art. 3(4) EUMR applies only to the creation of a new company (greenfield operation), or whether it also applies if joint control is acquired over an existing company.
  • The European Commission significantly contributed to this uncertainty by repeatedly taking inconsistent and contradictory positions. In a fairly unusually move, the ECJ’s Advocate General chastised the European Commission, calling it “extremely regrettable” that the European Commission did notcommit to a clear and uniform approach and then apply it consistently”.
  • The ECJ’s Decision comes at the request of an Austrian court. The Austrian court had to decide whether the acquisition of joint control over a small asphalt plant–which does not qualify as Full-Function JV–requires notification and clearance under the EUMR by the European Commission.
  • The ECJ has now held that the change of sole control to joint control only requires a notification under the EUMR if the newly created joint venture qualifies as a Full-Function JV.

WHAT THIS MEANS:

  • The Decision brings much-awaited clarity to a key issue of European Union merger control.
  • If two or more companies create a joint venture company, it will be subject to the EUMR only if it qualifies as s Full-Function JV. This applies both to greenfield operations, where a new company is created, and the change from sole to joint control over an existing company. Whether a notification to the European Commission is actually required, will depend on whether the jurisdictional turnover thresholds under the EUMR are met.
  • The creation of joint ventures which do not qualify as Full-Function JV does not require notification to and clearance by the European Commission. However, these joint ventures may still be subject to merger control in one or several EU Member States.
  • The European Commission required and accepted in the past the notification of transactions which involved the creation of joint ventures not qualifying as Full-Function JV. Following today’s decision by the ECJ, it appears that the European Commission did not have jurisdiction. An interesting question to be explored in the coming weeks and months is therefore whether the Decision somehow affects the legality of these transactions.

According to Advocate General Nils Wahl’s opinion, delivered on July 26, in the Court of Justice of the European Union’s (CJEU) case Coty Germany GmbH v Parfümerie Akzente GmbH (case C-230/16), suppliers of luxury goods may prohibit their authorized retailers from selling their goods via third-party internet platforms. Such bans do not necessarily infringe Article 101(1) of the Treaty of Functioning of the European Union (TFEU) (which prohibits anticompetitive agreements).

Background of the Case

On July 16, 2016, the Higher Regional Court of Frankfurt lodged a request for a preliminary ruling with the CJEU asking whether selective distribution systems that serve to ensure a “luxury image” for the goods constitute an aspect of competition that is compatible with Article 101(1) TFEU and, whether bans on sales via third-party internet platforms constitute a restriction “by object” and should be viewed as “hardcore restrictions” under the Commission’s Vertical Agreements Block Exemption Regulation (VBER).

The initial dispute arose when Coty, a supplier of luxury cosmetics in Germany, brought an action against one of its authorized retailers, Parfümerie Akzente, for having infringed a provision in Coty’s selective distribution agreement that prohibited the retailers from distributing the luxury products via third-party platforms, such as Amazon, in order to preserve the brand image. The agreement provided that the authorized retailers could only sell the products online through an “electronic store window,” provided that the luxury character of the products was preserved. Continue Reading Advocate General Wahl Delivers Opinion on Legality of Bans on Online Sales via Third-Party Platforms in Selective Distribution Systems

On 12 July 2017, the German Federal Cartel Office (FCO) published a guidance paper (Guidance Paper) on the prohibition of resale price maintenance (RPM). The Guidance Paper has a particular focus on the food retail sector. At the same time, it offers good insights into the FCO’s current overall thinking on RPM. The FCO reiterates that companies engaging in RPM may be subject to severe fines. In addition, it is evident from the Guidance Paper that the FCO has a very broad understanding as to what may be considered as RPM.

WHAT HAPPENED:

  • RPM describes a situation where a supplier and a retailer agree that the retailer will not resell the supplier’s products below a certain (minimum) price.
  • While RPM falls under the rule of reason under US Federal antitrust law, it is considered as a hardcore antitrust restriction in most European jurisdictions, as well as under some US State antitrust laws (cf. Maryland’s Attorney General’ recent challenge of RPM).
  • The FCO is arguably the most active antitrust authority in terms of RPM. In recent years, it imposed fines for alleged RPM in a number of proceedings across various industries, including cosmetics, furniture, mattresses, tools and toys. In December 2016, the FCO imposed fines totaling € 260.5 million on 27 food retailers and food manufacturers.
  • A number of authorities provided in the past guidance on RPM. For example, the European Commission addresses RPM in its Guidelines on Vertical Restraints, and in the United Kingdom, the CMA published in June 2017 a one-pager on RPM. The FCO’s Guidance Paper now offers very comprehensive and specific guidance on RPM, in particular, but not exclusively, with respect to the retail sector.

Continue Reading THE LATEST: German Antitrust Authority Issues Guidelines on Resale Price Maintenance

A number of amendments to the German competition law (Amendment) entered into force on 9 June 2017. The key changes are:

  • Merger control: Introduction of a new “size of transaction”-threshold
  • Sanctions for antitrust law infringements: Rules of liability aligned to EU concept, in particular with respect to “parental liability”
  • Private enforcement: Implementation of EU Cartel Damage Claims Directive.

Continue Reading Reform of German Competition Law

It is difficult for General Counsel and their teams to monitor all new developments adequately. With the growth of the Internet and the daily updates to EU competition rules, everyone receives and has access to masses of information, but it is difficult to select that which is really relevant to one’s business.

McDermott’s EU Competition team across Brussels, France, Germany and Italy has authored the EU Competition Annual Review 2016 to help General Counsel and their teams to focus on the essential updates that they should be aware of.

This Special Report summarizes recent developments in EU competition rules during the year 2016 where several new regulations, notices and guidelines were issued by the European Commission and many interesting cases were decided by the General Court and the EU Court of Justice.

All these new rules and judicial decisions can be relevant for international companies operating in the EU. Indeed, in addition to the daily update, this booklet provides an overview of the main recent developments in EU competition rules and can be kept as a ready reference when dealing with complex issues of EU competition law.

Read the full report.

On 9 June 2016, the UK’s Competition and Markets Authority (CMA) issued a statement of objections (SO) to Ping Europe Limited (Ping), a golf equipment manufacturer, alleging that Ping had breached EU and UK competition law by banning the sale of its golf clubs online.

Continue Reading Online Sales Restrictions Remain a Hot Topic: UK CMA Issues Statement of Objections

The first European citizen to be extradited from Europe to the United States for criminal antitrust conduct recently succeeded in having a Berlin court refer the matter of his extradition to the Court of Justice of the European Union (CJEU) in the context of his damages action with regard to his extradition, after a series of multiple setbacks and a 24-month period of imprisonment.

Continue Reading CJEU to Rule on Extradition of EU Citizens in Criminal Antitrust Proceedings

As many dealmakers doing business in Europe have realized, German and Austrian merger filing requirements are sometimes a bit tricky, and in some respects different from the rules in place at EU level and in other EU member states. For instance, it may be that a transaction has to be notified in one of these two countries although the transaction leads to a mere minority shareholding or one of the undertakings involved achieved (almost) no local turnover.

In this context, it should be noted that companies violating a filing obligation are subject to appreciable fines and run the risk that the closing acts of the transaction are null and void under civil law. Particularly after the recent Spar decision of the Austrian Supreme Cartel Court, which led to a tenfold increase of the fine originally imposed by the Austrian Cartel Court, it can be expected that the amount of fines for competition law breaches will generally increase in Austria. Against this background, it is worth noting some existing peculiarities and some new developments regarding the filing thresholds:

Continue Reading Update: Peculiarities of the Merger Filing Requirements in Germany and Austria

In May 2015, the European Commission launched a two-year, industry-wide inquiry into the e-commerce sector to gather data on the functioning of e-commerce markets, so as to identify possible competition concerns. This sector inquiry focuses particularly on potential barriers erected by companies to cross-border online trade in goods and services where e-commerce is most widespread (e.g. electronics, clothing and shoes), as well as in digital content.

While the European Commission intends to provide specific guidance on European e-commerce issues when it publishes its final report in 2017, early insights can be found in national competition authorities’ recent decisions, particularly in France and Germany.

In France, the French Competition Authority (FCA) announced on 18 November 2015 the closure of an investigation into the contractual practices of the sporting goods manufacturer Adidas, as a result of Adidas’ change in its online sales policy.

This FCA investigation, which had been carried out in coordination with the German Bundeskartellamt (BKA), centered on the company’s restriction of online sales for its selective distributors. The conditions for online sales, which were introduced in 2012, included restrictions on retailers from selling via large online platforms such as eBay and Amazon Marketplace.

Continue Reading E-Commerce: National Competitions Authorities Weigh In on Sales Restrictions Regarding Online Marketplaces