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Rules for the digital economy
Extended abuse control (Section 19a GWB)
In 2021 the 10th amendment to the German Competition Act (GWB) modernised and extended the control of abusive practices. The Bundeskartellamt can now intervene more quickly and effectively against anti-competitive practices by large digital companies. It can prohibit companies which are of “paramount significance for competition across markets” from engaging in certain practices that are damaging to competition. Interventions are also possible in markets in which the companies are not (yet) dominant. This is a significant change from previous abuse control and enables the Bundeskartellamt to also intervene at an early stage in order to keep markets open, promote innovation and protect consumer choice.
Companies of paramount significance for competition across markets
Companies of “paramount significance for competition across markets” are a particularly serious potential threat to competition. Such a situation arises when companies have a position of economic power across markets which affords them a scope of action that is not sufficiently controlled by competition. The potential threat arises from the fact that operators of cross-market digital ecosystems can expand their market position across several markets or secure their unassailability.
When determining whether a company is of paramount significance for competition across markets the following factors can be particularly relevant:
- the company’s market position,
- its financial strength or its access to other resources,
- the question whether the company is active on several markets or in several areas and how these are related,
- the company’s access to data relevant for competition,
- the relevance of its activities for access to the market and its related influence on the business activities of third parties.
What can the Bundeskartellamt prohibit?
After the Bundeskartellamt has established that a company is of paramount significance for competition across markets, it can activate the prohibitions under Section 19a GWB. The authority can, for example, prohibit such a company from engaging in the following practices:
- favouring its own offers over the offers of its competitors,
- “penetrating” new markets,
- impeding competitors in cases where the company can rapidly expand its own position in the markets affected by using tying or bundling strategies,
- exploiting the power it has gained based on data,
- creating or raising barriers to market entry by processing data relevant for competition that have been collected by the company,
- refusing the interoperability of products or services or data portability or making this more difficult.
Reversal of the burden of proof
It is only possible to prohibit a specific conduct by a company of paramount significance for competition across markets pursuant to Section 19a GWB if this conduct is not objectively justified. However, whether this practice is objectively justified must be proven by the company concerned in each individual case. This involves a reversal of the burden of proof, which does not exist in this form in the traditional abuse control system and which can help to improve the efficiency of proceedings.
Shorter legal process
Shortening the legal process contributes to expediting proceedings. Company appeals against decisions rendered by the Bundeskartellamt based on Section 19a GWB are brought directly before the Federal Court of Justice and not, as is usually the case, before the Düsseldorf Higher Regional Court as the court of first instance. In this exceptional case the Federal Court of Justice also assesses the facts of the case. In the event of a dispute, this shortening can result in a final court decision being reached more quickly, possibly many months or even years earlier.
Amendments to the GWB: keeping pace with the digital transformation
In addition to introducing Section 19a GWB, the 10th amendment to the GWB extended and specified in more detail the provisions for the traditional control of abusive practices (for example, the intermediation power of intermediaries bringing together different sides of the market is now taken into account). With regard to the platform economy, the rules on what practices are prohibited for companies with relative market power were adjusted (for example with regard to market tipping). Under certain conditions it can be ordered that dependent companies must be given access to data in return for reasonable compensation.
With regard to the digital economy, important adjustments had already been made in 2017. It was clarified in the GWB that markets on which services are provided free of charge can nevertheless be defined as markets, because in the digital economy users often do not have to pay for the services they use. In addition, factors have been included for the assessment of market power that may have to be taken into account in particular when analysing multi-sided markets and networks. These include, for example, network effects, the parallel use of several services (multi-homing) and access to data relevant for competition.
The Digital Markets Act as an important European legal instrument
In the context of the European Commission’s agenda for shaping Europe’s digital future and the Commission’s data strategy, several legal instruments have meanwhile been introduced at European level. Apart from the Digital Services Act these include the Data Governance Act, the Data Act and, in particular, the Digital Markets Act (DMA). The DMA entered into force in November 2022 and has been in effect since May 2023. The Regulation allows the European Commission to designate companies as so-called gatekeepers and impose on them certain obligations. The DMA complements German and European competition law. In Germany, the rules governing the control of abusive practices by digital companies (Section 19a GWB, in particular) remain applicable, at least to the extent that they apply to companies which have not yet been designated as gatekeepers by the European Commission or to the extent that they impose additional obligations on companies which have already been designated as gatekeepers. This also includes new practices that might emerge in the future. Competition law will thus continue to play a significant role in the digital economy, and the Bundeskartellamt will continue to cooperate closely with the European Commission and other authorities.
More details on the DMA can be found on the European Commission’s website.
What kind of companies are subject to the DMA?
The EU Regulation applies to companies that have been designated by the EU Commission as gatekeepers. This requires, among other things, that the companies provide at least one of the so-called core platform services mentioned in the Regulation’s exhaustive list. Such services include online intermediary services, search engines or social networking services. Another requirement is that the concrete core platform service acts as a gateway between business users and end users.
Based on the DMA the EU Commission designated seven gatekeepers so far: Alphabet, Amazon, Apple, ByteDance, Meta, Microsoft and Booking. A total of 24 core platform services provided by gatekeepers were listed. In the case of Alphabet, these are: Google Search, Google advertising services, Google Maps, Google Play, Google Shopping, Google Android, Chrome and YouTube. In the case of Amazon: Amazon Marketplace and Amazon advertising services. For Apple: the App Store, Safari, iOS and iPadOS. For ByteDance: TikTok. In the case of Meta: Facebook, Instagram, WhatsApp, Messenger, Meta Marketplace and Meta’s advertising services. For Microsoft: Windows PC OS and LinkedIn. For Booking: Booking.com.
What rules apply under the DMA?
Once a company has been designated as a gatekeeper, it is subject to directly applicable obligations under the Regulation. These obligations refer to online advertising, the preinstallation of services, certain types of interoperability and data portability, for example. Furthermore, gatekeepers must grant access to certain information and data generated while using the gatekeeper platform. They may not prevent users from switching to another platform or favour their own services in a ranking.
Who enforces the DMA?
The DMA is centrally enforced by the European Commission. However, it allows the Member States to grant national authorities powers to conduct their own investigations into possible violations of the DMA. This could be particularly relevant in cases where it is not possible to immediately determine whether a gatekeeper’s practice could fall under the DMA, competition rules or both. The Bundeskartellamt was granted the relevant powers in the 11th amendment to the GWB. Furthermore, the amendment extended some of the rules on private competition law enforcement in Germany to also cover violations of the DMA.
What are the similarities between the DMA and Section 19a?
Most of the DMA’s provisions are based on experiences gained in previous competition law proceedings at the European and national level. These also include the Bundeskartellamt’s proceedings against Facebook and Booking.com (see: Proceedings against large digital companies). The DMA and Section 19a GWB also have certain features in common: both sets of rules are applicable to large digital companies. There are also overlaps with regard to the types of conduct covered. Self-preferencing of a group’s own services, for example, is generally covered by both provisions under certain conditions.
Important differences between the DMA and Section 19a
To assess companies the DMA uses presumption rules based on turnover figures, user numbers and market capitalisation and generally focuses on individual, central platform services. Section 19a GWB is based more strongly on a cross-service and cross-market perspective. With regard to the practices covered, the DMA includes a more specific list of rules and prohibitions, which apply directly to the services listed for each gatekeeper. In contrast to this, Section 19a GWB provides for a case-by-case examination of practices, which includes the possibility for companies to provide an objective justification for their conduct. Section 19a GWB can be applied more flexibly as a part of German competition law because it can generally also cover other or new practices that might raise competition problems in the future.