The New German Competition Law: What’s in It for Start-ups and VC?

Since the middle of January, Germany has had a new competition law designed to take account of the increasing digitalisation of the economy. For start-ups, this new competition law means simpler access to data, greater protection against digital giants and less bureaucracy for investments and exits.

Taming of Digital Giants

The high-profile core of the 10^th Amendment of the German Act Against Restraints of Competition are the special rules of conduct for companies with “paramount significance for competition across markets.” Those that the Federal Cartel Office categorises as being of paramount significance for competition will be subject to intensified supervision to prevent market abuse. Legislators clearly have large digital platform operators in their sights.

The Federal Cartel Office can prohibit leading online platforms from engaging in a broad range of conduct that threatens competition. This includes giving preference to the companies' own services in search results, the exclusive pre-installation of their own apps and the coupling of various offers. They are also prohibited from impeding competitors when it comes to interoperability and data portability.

This gives the Federal Cartel Office a tool with which it can tame the digital giants. Distortions of competition can be combatted simpler and quicker in the future. Even the legal recourse against decisions of the Federal Cartel Office has been shortened to achieve this goal.

The main winners of these new rules are start-ups that operate in the “kill zone” surrounding “GAFA” (Google, Amazon, Facebook and Apple). Their risk of being driven out by unfair competition is reduced. Of course, this will only be the case if the Federal Cartel Office makes ample use of the new instrument.

Less Merger Control for Investments and Exits

To allow the Federal Cartel Office to focus on such cases, the merger control burden has been eased. The turnover thresholds, which dictate whether or not a transaction needs to be notified to the Federal Cartel Office, have been increased significantly. The new thresholds are: (i) total worldwide turnover of all parties exceeds EUR 500 million, (ii) the German turnover of one of the parties (e.g. the acquirer) exceeds EUR 50 million, and (iii) the German turnover of a further party (e.g. the start-up that is being sold) exceeds EUR 17.5 million.

The requirement to notify certain transactions where the consideration exceeds EUR 400 million remains. This requirement had been introduced by a previous amendment in reaction to the fact that there was no obligation for Facebook to notify its acquisition of WhatsApp.

In addition, a totally new provision imposes a notification requirement on certain mergers upon the request of the Federal Cartel Office. Such a request requires, inter alia, that a sector inquiry has previously been conducted into the sector. For this reason alone, the new notification requirement will not affect many deals.

As a result, in the future, only large exits will require prior notification to the Federal Cartel Office. In contrast, the simultaneous or gradual transfer of large share packages to various investors will still be subject to the pitfalls of merger control. For example, the involvement of a large strategic investor and a large financial investor means that a transaction easily exceeds the turnover thresholds for merger control.

Better Access to Large Companies' Data

Further innovations introduced by the amendment are rights to access data under competition law. Companies with a dominant market position must provide data “when the grant of access is objectively necessary to be active on an upstream or downstream market and the refusal to grant access threatens to eliminate effective competition on this market.” Even if a company does not have a dominant market position, it must provide access to the data if another company is dependent on that data for its activities and that other company would otherwise be unfairly impeded.

In both cases, access must even be given to data that has never been utilised before. In any case, the interests of the data owner must also be taken into account: It can put forward objective reasons to justify its refusal to provide access – such as with respect to personal data under the GDPR. And it can require compensation for access to the data.

The new data access rights might be a real game-changer for some start-ups. Innovative, data-driven business models could tap into unused data reservoirs or combine various external data sources.

But let’s be realistic: Start-ups will still have to overcome some difficult obstacles before they can enforce their rights. Many large companies will not be willing to grant access to their data. Until the courts have provided clear guidelines, only start-ups that have a significant financial buffer will have a real chance of getting access to data under competition law. Rights of access under specific laws, such as those under PSD2 (Payment Services Directive 2015/2366) for FinTechs, therefore remain important.

Christoph Heinrich

Cathleen Laitenberger