New Section 19a ARC proceedings initiated by the Federal Cartel Office in digital markets or: German antitrust law versus the DMA

Europe

On 20 January 2021, extensive amendments to German competition law came into force, tightening in particular provisions dealing with the abuse resulting from a dominant position in the digital economy. Probably the most important element of the reform is Section 19a of the German Act against Restraints of Competition (ARC), a new intervention option for the German Federal Cartel Office for cases where competition is put at risk by large digital groups. Under these new rules the Federal Cartel Office can prohibit, even as a preventive measure, “companies of  paramount significance for competition across markets” from carrying out certain actions (e.g. giving preference to the group's own services or obstructing access to the market by third parties by withholding certain data)

Shortly after, on 28 January, the Federal Cartel Office made for the first time use of its new tools and extended the scope of its ongoing abuse proceedings against Facebook due to the linkage between Oculus and the Facebook network and started examining whether Facebook is subject to the new rules for “companies of  paramount significance”. According to the Federal Cartel Office Facebook may be in such position due to Facebook’s strong market presence with its social network, WhatsApp and Instagram. If the Federal Cartel Office were to find that Facebook qualifies as “undertaking of paramount significance”, it could in a second step prohibit the company certain conduct individually listed in Section § 19a (2) ARC.

Now came the second strike. On 18 May the FCO opened an investigation into whether Amazon constituted “undertaking of paramount significance”. In its press release the FCO pointed out that an ecosystem which extends across various markets and thus constitutes an almost unchallengeable position of economic power is particularly characteristic in this respect. According to the FCO, this could apply to Amazon with its online marketplaces and many other, above all digital offers. Again, if the FCO concluded that Amazon was an “undertaking of paramount significance”, it could prohibit Amazon the conduct listed in Section § 19a (2) ARC. The FCO called into mind in this context that it also currently conducting two proceedings against Amazon based on the general abuse control rules. According to the FCO it is examining in one of the proceedings to what extent Amazon is influencing the pricing of sellers on Amazon Marketplace by means of price control mechanisms and algorithms. In a second proceeding it is examining to what extent agreements between Amazon and brand manufacturers, including Apple, which exclude third-party sellers from selling brand products on Amazon Marketplace constitute a violation of competition rules.

Although competition authorities around the world are engaged in the antitrust review of digital markets and there is generally a sense of urgency, this accumulation of Section 19a ARC by the Federal Cartel Office cases is very remarkable against the background of the ongoing legislative process for the European Commission’s proposed Digital Markets Act DMA). The DMA proposal aims at fairness and contestability of digital markets and for this purpose stipulates regulatory obligations for so-called gatekeepers, “do’s” and “don’ts” which incorporate experience from antitrust enforcement gatekeepers must comply with in their daily operations.

According to the DMA proposal, the competency for the enforcement of these gatekeeper rules will mainly lay with the Commission. While member states push for stronger involvement, the DMA is without prejudice to competition law rules (Art. 101 TFEU, Art 102 TFEU and national rules regarding unilateral behaviour), but according to the proposal “should not affect the obligations imposed on gatekeepers” and “their uniform and effective application in the internal market”. This leads to the legal and practical question: in addition to the DMA, how much room is there for national competition authorities and their application of antitrust law in digital markets? The Federal Cartel Office is not likely to be willing to give up its existing pioneering role in the digital markets and appears now to be playing out its 'first-mover' advantage with Section 19a ARC.

Against this background, it is worth comparing the functions and main rules of Section 19a ARC and the DMA proposal:

1. Scope of application

DMA proposal

  • Company is designated a “gatekeeper”
  • Significant impact on internal market
  • Operation of a core platform service
  • Enjoys an entrenched and durable position / it is foreseeable that it will enjoy such position
  • Quantitative presumptions

Section 19a ARC

  • Company has “paramount significance for competition across markets”
  • Case-by-case assessment by the FCO taking into account in particular:
    • Position on markets
    • Financial strength, resources, vertical or other integration
    • Access to data
    • Importance of activities for third parties' market access

2. Obligations for large digital players

DMA proposal

  • “Do’s and don’ts”
  • (Directly applicable) obligations, Article 5 DMA
  • (Directly applicable) obligations, susceptible of being further specified, Article 6 DMA

Section 19a ARC

  • Possibility for FCO to prohibit certain conduct
  • List of possible prohibitions (requiring a decision by the FCO), Section 19a (2) ARC

Obligations for gatekeepers, Article 5 DMA proposal

a): Refrain from combination of personal data from core platform with other services

b): Allow businesses to offer products/services through third party platforms/at different prices, conditions

c): Allow businesses to promote offers to end users acquired via the platform service

d): Refrain from preventing business from complaining to authorities

e): Refrain from requiring to use, offer or operate with the identification service of the gate keeper

f): Refrain from requiring customers/end users to subscribe/register with another platform service to access the platform service

g): Provide information to advertising customers with information on price paid for ads and advertising services

Obligations for gatekeepers susceptible of being further specified, Article 6 (1) DMA proposal

a): Refrain from usage of not publicly available data in competition

b): Allow to uninstall pre-installed software

c): Allow installation and use of third-party software

d): Refrain from preferring own services/products in rankings; apply fair/non-discriminatory conditions

e): Refrain from technical restrictions of end users to switch

f): Allow interoperability

g): Provide free of charge access to performance measuring tools

h): Provide effective data portability, including continuous and real time access

i): Provide business users with effective, high-quality, continuous and real time access that is generated by their use of the services

j): Provide access to ranking, query, click and view data in relation to free and paid searches

k): Apply fair and non-discriminatory general conditions of access to an app store

Possible prohibitions to be imposed by FCO, Section 19a (2) ARC

1. Discrimination of competitors against own offers for access to markets

  1. Preferential presentation
  2. Preinstallation/integration

2. Measures that obstruct other companies

  1. Preinstallation/integration
  2. Obstruction of promotion of competitor products, access to customers

3. Impediment of competitors that is likely to obstruct the competitive process

  1. Automatic bundling
  2. Tying

4. Establishment of market entry barriers in connection with data

  1. Demanding excessive data access rights without the possibility to avoid
  2. Use of data for other purposes than the provision of service

5. Refusal/obstruction of interoperability

6. Inadequate information about the scope, quality or success of the performance of services

7. Demanding unjustified advantages

  1. Request of data/rights that is not necessary
  2. Linking quality of services with request of data/rights that is not necessary

A comparison of the individual provisions in the DMA proposal and Section 19a (2) ARC shows that in principle all conduct addressed by the more abstract German law has a corresponding rule in the DMA, which is intended to be self-executing and therefore more detailed. Moreover, the DMA covers further conduct.

3. Procedure

The Do’s and Don’ts in the DMA proposal are self-executing, meaning they apply automatically to any company designated a gatekeeper. For the rules in Article 6 of the DMA proposal, which are susceptible to being further specified, the proposal foresees a regulatory dialogue between gatekeeper and the Commission. The DMA generally does not accept an efficiency defence, but the Commission may under exceptional circumstances (i.e. economic viability is threatened) suspend an obligation or grant an exemption for overriding reasons of public interest.

Section 19a ARC provides for a two-step procedure: first, the FCO must verify whether the company qualifies as a company with “paramount significance for competition across markets” and, if it does, the FCO will issue a respective order. In the second step, the FCO can then issue a specific prohibition order. The company, however, can prove that the conduct is justified.

4. Remedies

Both the DMA proposal and Section 19a ARC (in connection with other provision in the ARC) provide for behavioural and structural remedies, mandatory fines, and monetary penalties.

The comparison shows that the DMA and Section 19a ARC seek to control similar behaviours and ultimately rely on similar means. However, they choose completely different conceptual approaches and procedural arrangements. The future relationship between the two concepts is still unresolved. While the DMA proposal is still a law in the making, Section 19a ARC benefits from the first-mover advantage and has already entered the practical phase. The new procedure against Amazon shows that the FCO apparently wants to use this advantage as much as possible.

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