Germany updates competition rules to deal with digital markets

The “Digital Strategy 2025”, adopted by the German Federal Government on March 1, 2016, aims to ensure that Germany remains a growing, modern and significant financial marketplace in an increasingly digitalized environment. Measures proposed under the Digital Strategy 2025 include the further development of Germany’s regulatory landscape, in particular in the areas of competition and consumer rights.

On March 20, 2017, the German Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie) published the White Paper ‘Digital Platforms‘. The white paper stresses the need to further develop competition and antitrust policy in Germany to facilitate a level playing field for both digital and analog businesses.

In recent years, the German competition regime has been widely perceived as inadequate in addressing digital platforms, for instance, when assessing their market power; traditional turnover-based concepts have proved incapable of capturing their position for competition, in particular in the light of big data. The growing relevance of big data, with consumers nowadays “paying” for the services digital platforms provide “free” of charge, has created the need to refine the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, ARC) in addition to strengthening consumer rights.

The ARC is currently going through its ninth amendment, which is expected to enter into force shortly. On March 31, 2017, the German Federal Council (Bundesrat) consented to the legislative changes which had already been approved by the German Federal Parliament (Bundestag) earlier this year. The ninth amendment introduces alternative and more effective concepts into German competition policy that apply to the specific features of digital platforms:

  • Under the new law, the existence of a relevant market will no longer depend on the generation of turnover, and so social platforms, search engines and information sites will no longer slip under the radar of competition regulation only because they offer their services to consumers for free.
  • The amendment further incorporates numerous criteria into the assessment of two- or multi-sided markets (in which digital platforms are typically active) such as the interdependencies of the different market sides (so-called direct and indirect network effects), whether users only engage one or several competing services (i.e., engage in single- versus multi-homing), the existence of so-called lock-in effects (e.g., losing access to contacts when leaving a social network), economies of scale relating to network effects, access to relevant data, and the potential constraints on competition due to innovation.
  • The amendment introduces a size-of-transaction test into German merger control with the intention of catching transactions with a deal value of €400 million where the target company does not generate turnover in Germany or its turnover in Germany is below the €5 million threshold. This will ensure effective merger control in cases where the target’s economic relevance in Germany is not adequately reflected in its domestic turnover. Supplementing the existing turnover-based threshold test with an alternative size-of-transaction test is also being discussed at the EU level. The acquisition of WhatsApp by Facebook in 2014 prompted this change under the ninth amendment – the transaction was caught under neither German nor (initially) EU merger control although the acquisition’s relevance in the market was significant (Facebook paid approximately US$19 billion for the acquisition).

The anticipated changes to the assessment of the competitiveness of digital platforms do not necessarily introduce entirely new concepts and approaches but rather help to synchronize the law with concepts already established in the approach to decisions taken by the German Federal Cartel Office (Bundeskartellamt, FCO) and German courts. In contrast, the introduction of the size-of-transaction test into German merger controls will close a perceived enforcement gap. It remains to be seen to what extent this will lead to an increase in burdens and bureaucracy for both companies and the FCO, in particular since the size-of-transaction test will apply to transactions across all sectors and not just digital markets. This test is, therefore, also likely to increase the volume of cases before the FCO relating to mergers which are not potentially anti-competitive. Furthermore, the additional criterion introduced into the test, which requires the target to be domestically active “to a significant extent”, may lack sufficient legal certainty when determining whether or not a transaction is notifiable.

Independent Health Care Providers Beware – FTC Actions Against Group Contracting Efforts Continue

The Federal Trade Commission (“FTC”) recently charged a Puerto Rico ophthalmologist cooperative with organizing a group boycott of a health plan in violation of section 5 of the FTC Act.  This action demonstrates the need for providers to be heedful of the antitrust laws when engaging in group contracting efforts.  While agreements among independent providers on the prices or payors they will deal with are usually per se illegal, there are exceptions for financially or clinically integrated provider joint ventures. To read more click here.

Private Equity Firm Held Responsible for Portfolio Company’s Antitrust Violations

In January of 2017 a private equity firm, Bencis, was found liable for a portfolio company’s involvement as one of 14 cartelists producing flour in the Netherlands, Belgium, and Germany. The Authority for Consumers and Markets (ACM) ruled that while company was a member of Bencis’s portfolio, Bencis was accountable for their antitrust violations.  This case demonstrates the need for private equity firms to ensure that companies they invest in are in full compliance with competition rules.  To read more about parental liability click here

2017 Expectations of the U.S. CFTC Enforcement Agenda

The U.S. Commodity Futures Trading Commission is undergoing a transformation with the new Trump administration while staying on course with its statutory mission of protecting US commodities and derivatives markets.  Some of CFTC’s priorities under new Republican Administration will certainly change as articulated by the new Congress, several executive orders from the White House, and the recent statements of Acting Chairman Giancarlo.  However, it is likely that we will see in 2017 a combination of both the enforcement trends that emerged after the Dodd Frank Act was implemented as well as the new trends under the new leadership.  This client alert provides insights into how the existing CFTC’s authorities will be used in 2017 in enforcement area.

 

Iran Missile Test Leads to New Sanctions

On February 2nd the Office of Foreign Assets Control (“OFAC”) imposed new sanctions on 13 individuals and 12 entities that were believed to be “involved in procuring technology and/or materials to support Iran’s ballistic missile program, as well as for acting for or on behalf of, or providing support to, Iran’s Islamic Revolutionary Guard Corps-Qods Force.”  According to White House Press Secretary Sean Spicer, a missile test conducted on January 29, 2017 by Iran was a driving force behind the new sanctions.  This could be just the beginning as the Trump administration promises to “aggressively target Iran’s ballistic missile program and terrorism related activities.”  To read more click here.

Overview of 2016 French Financial Regulations

The ACPR and AMF, French financial regulators, focused on anti-money laundering and anti-terrorism, internal control procedures, conflicts of interest and market abuse infringements in 2016.  While the focus may have shifted, financial sanctions made up 90% of the penalties in 2016.  In fact, financial regulators’ powers of sanction have drastically broadened over the last decade and have made sanctions a more effective deterrent.  To read more about the 2016 French financial regulation click here.

The FTC and DOJ Update the Antitrust Guidelines for the Licensing of Intellectual Property

The Federal Trade Commission and Department of Justice have made their first amendments to the Antitrust Guidelines for the Licensing of Intellectual Property since their origin in 1995.  The guidelines were updated in light of the fundamental changes in statutory and case law, agency enforcement, and policy work. The updates support innovation while incorporating the intervening changes in law that are advantageous to intellectual property owners and licensors. To read more about the updated guidelines click here.

Duke Energy Forced to Pay Large Fine in HSR Gun Jumping Settlement

Duke Energy Corporation (Duke) agreed to pay $600,000 to settle a DOJ claim that it violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) by failing to comply with the HSR waiting period requirement.  The complaint from the DOJ originated from Duke’s acquisition of the Osprey natural gas power plant from Calpine Corporation, which was reportable under the HSR Act.  Duke allegedly took control of the Osprey plant before filing the required HSR notification and report form and prior to the expiration of the applicable waiting period. To learn more about settlement click here.

Antitrust Update: 2017 HSR Thresholds

On January 19, 2017, the Federal Trade Commission (FTC) announced the revised thresholds for determining whether companies are required to notify federal antitrust authorities about a transaction under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act).  The new minimum filing threshold will be $80.8 million. All of the revised thresholds are higher than the current amounts.  To read more about the adjusted HSR Thresholds please click here.

Individual Investors Pay Civil Penalties for Failing to Report Acquisitions of Voting Securities to the Federal Trade Commission

The Hart-Scott-Rodino Act (“HSR Act”) requires companies and individuals to report large transactions above certain thresholds to the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”), and then to observe a 30-day waiting period before closing their transactions. In two recent cases, investors resolved FTC allegations that they failed to observe these requirements by paying hundreds of thousands of dollars in civil penalties.

According to a complaint filed by the FTC and the DOJ in the U.S. District Court for the District of Columbia, hedge fund founder Ahmet H. Okumus failed to file with the FTC when he acquired voting securities in Web.com through his hedge fund on June 27, 2016, despite the fact that his acquisition exceeded the filing threshold. The complaint further alleges that Okumus was in violation of the HSR Act until July 14, 2016, when he sold 33,200 voting securities of Web.com, which put him below the HSR Act threshold. Okumus asserted that his HSR violation was inadvertent, but the FTC nevertheless sought penalties because Okumus had previously violated the HSR Act by failing to file upon a prior acquisition of voting securities in Web.com in 2014. To resolve the FTC’s current allegations, Okumus agreed to pay $180,000 in civil penalties.

In a separate matter, the FTC alleged that entrepreneur Michael P. Rales violated the HSR act by failing to file as required when his wife acquired voting securities above the filing threshold in Colfax. According to a complaint filed by the FTC and the DOJ in the U.S. District Court for the District of Columbia, Rales was in violation of the HSR Act from October 31, 2011, when he acquired the voting securities, through March 28, 2016, when the waiting period on a corrective filing made by Rales expired. Like Okumus, Rales contended that his HSR violation was inadvertent, but Rales had also previously violated the HSR Act; in 1991, he paid civil penalties to resolve an earlier enforcement action alleging that he failed to file as required by the HSR Act. Rales agreed to pay $720,000 to settle the FTC’s current allegations.

These agency enforcement actions demonstrate the importance of understanding and complying with the HSR Act’s requirements, particularly the filing thresholds, which are updated annually. To discuss how these requirements might impact any transactions that you or your business undertake, please contact the authors.

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