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Focus on Regulation

Green Book regarding the Amendment of German Competition Law and FCO Paper on “Market Power of Platforms and Networks”: Preparing Competition Law for Digital Markets

The Green Book for digital platforms recommends changes to the German Act against Restraints of Competition. In particular, thresholds for merger control proceedings shall be adapted so that even companies with small turnover figures would be subject to German merger control as long as a certain transaction value will be met. Furthermore, even though a platform use is free it can still constitute a market under competition law terms.

The German Federal Ministry for Economic Affairs and Energy published a Green Book for digital platforms on 30th May 2016. The Green Book identifies, defines and structures legal and regulatory issues of digitalization. It initiates an open dialogue so that a White Book can be presented at the beginning of 2017. The consultation process is accessible via http://de.digital/gruenbuch.

What is a digital platform?

In the Green Book, digital platforms are often referred to as intermediaries. They use the internet to enable interaction and transactions between two or more distinct groups of users. Compared to traditional markets, they have some specific characteristics: They are mostly free of charge, show network effects and concentration processes and lead to an unwillingness of consumers to switch the platform.

Does antitrust law need to adapt?

Existing law struggles with digital economy especially when it comes to market definitions and the identification of significant market power. Therefore, digital platforms may raise a number of currently unresolved issues in merger control proceedings as well as in abuse proceedings. This is why the Green Book proposes four significant changes:

1. Existence of markets despite a lack of financial return

Many bilateral platforms do not demand a fee for their services. However, traditional tests to define markets refer to the consumers’ reactions on price increases. This is why these tests do not lead to useable results in digital cases. The Green Book proposes to make it clear that even though a service is offered for free it can still constitute a market.

2. Evaluation of a company’s market position

Online platforms need to be assessed differently than traditional companies. The relevant factors for the evaluation of a company’s market position should therefore be amended. These factors should comprise network effects especially on the basis of concentration tendencies, the relevance of big data, economies of scale, user behavior, the possibility to switch a platform and the potential for innovation. The German Federal Cartel Office has most recently published a working paper which deals with the assessment of “Market Power of Platforms and Networks”. This working paper presents the first results of the “Think Tank Internet” (an English summary is accessible here).

3. Cooperation with data protection officers

On the basis of the relevance of data, the Federal Cartel Office should be authorized to cooperate with the data protection officers.

4. Merger control proceedings due to a high transaction value

A significant change will affect merger control proceedings. An acquisition must currently be notified to the German Federal Cartel office only if the parties meet certain turnover thresholds. Due to the turnover based thresholds, innovative companies like start-ups with a high transaction value fall through the cracks (we discussed this issue in a previous blog post). Now, the notification requirement of a high transaction value could fill the gap. According to the Green Book, this transaction value will be 350 million EUR. This threshold would create a notification requirement for acquisitions where the target company generates only a small turnover, but where for example the buyer paid a high purchase price. For instance, the Green Book names the takeover of WhatsApp by Facebook. This takeover did not trigger the thresholds due to WhatsApp’s small turnover, although Facebook paid about 19 billion USD for WhatsApp. Also, the proposed changes would send a strong signal to Brussels where the EU merger control law does not (so far) have the notification requirement of a certain transaction value.

When will the amendment come into effect?

According to the Green Book, the 9th amendment to the Act against Restraints of Competition will come into effect before the end of the year 2016. The driving force seems to be the directive on actions for damages for infringement of competition law (directive 2014/104/EU), which should be implemented in national law until 27th December 2016. However, a draft bill of the 9th amendment is not available yet. Therefore, the amendment will probably not be negotiated in the German Parliament and in the Federal Council until after the summer break. The aforementioned deadline will most likely not be met.