Germany is a Western European country surrounded by forests, rivers, mountain ranges, and North Sea beaches. With over two thousand years of history, Germany boasts vibrant art, nightlife scenes, and landmarks like the Brandenburg Gate from WWII.
Germany has taken the lead in the fight against Big Tech. Still, others are joining this antitrust initiative.
How Germany became Europe’s leading Big Tech trustbuster
European regulators are gradually enacting their own antitrust rules, but Germany is taking the lead and setting the law. This can be seen in Section 19a of the German Competition Act – touted as one of Europe’s most antitrust-friendly pieces of legislation ever to enter EU books. While this section boasts many useful features, one particularly noteworthy one is its capacity to provide guidance when regulating Big Pornos Tech companies.
One of its most outstanding achievements is its capacity to identify which companies fall within its regulatory purview and then apply the most antitrust-friendly regulatory tool: an ex-post penalty based on customer value. This can fundamentally change how the competition plays out in today’s digital age, especially for smaller firms seeking to challenge established market leaders.
Berlin has long been known for its tech sector innovations, from e-commerce booze snoopers to luxurious gadgets. But what sets Berlin’s tech scene apart is its unique government policies. From new regulators to high-flying tycoons, Berlin is influential in encouraging European competition and innovation.
The German Competition Act
Germany achieved historic leadership in Europe’s Big Tech trust-busting movement when its government passed the German Competition Act (ARC), also known as Gesetz gegen Restraints of Competition), in 2017. This law introduced several changes designed to give Germany’s antitrust enforcer more tools to curb anti-competitive behavior by digital platforms.
On January 19th, 2021, the German antitrust agencies adopted several significant and well-founded innovations to better prepare them for dealing with the unique challenges that digital markets and firms present. These modifications are especially relevant to companies providing advertising services or offering zero-priced services to consumers.
For instance, the new law empowers the Federal Cartel Office to take proactive measures against companies with “paramount cross-market significance” under Section 19a of the ARC, so they can impose remedies even before abusing their dominant market position. This represents a radical departure from current practice where competition authorities only act against abusive market positions once they become established.
Furthermore, the law plugs a longstanding loophole in existing legislation that permits companies to avoid fines through restructuring. This has drawn public criticism, especially after members of a German sausage cartel restructured without paying their fines.
Another significant provision in the new law gives the FCO authority to impose remedies, such as divestitures, against “significant persistent or repeated disruptions to competition” after a sector inquiry by the FCO has been completed. This provision, the “fourth pillar” of German antitrust law alongside traditional prohibition rules on cartels, abuse control, and merger control, seeks to fill an enforcement gap when harm to competition cannot be attributed directly to anti-competitive conduct but rather arises due to non-competitive market structure.
The German government hopes the new tools will allow it to more effectively address anti-competitive behavior by digital platform companies than other competition authorities worldwide, giving it leverage in discussions regarding EU Digital Market Act reforms. On the other hand, Germany is worried that EU regulations might conflict with its own national laws.
The European Union’s antitrust “arms race”
One reason for the “arms race” is that European regulators are increasingly scrutinizing vertical mergers and asking whether they could stifle competition. Furthermore, they appear more open to behavioral remedies like divestitures and injunctions – which has been observed by agencies like the FTC and DOJ in the US.
To this end, the Commission has released a series of guidance documents to assist parties in recognizing potentially problematic deals that would not otherwise have been investigated, such as those below traditional revenue thresholds. Generally speaking, these transactions can be cleared without further investigation after an initial routine review.
Despite this approach’s success, several challenges remain that need to be addressed. These include access to SEP Youporn licenses for everyone, what constitutes a reasonable royalty rate, limited SME involvement in standards development activities, and disputes over FRAND rates and terms.
In response to these issues, implementers and SEP holders suggested that more prescriptive guidance be provided on the FRAND commitment. This could be achieved by creating a specialist tribunal or board to make public determinations on FRAND rates and terms on a case-by-case basis.
SEP holders and implementers also noted a need for more transparency regarding FRAND rates and conditions, which could result in excessive royalties being charged by SEP owners or refusals to license. They suggested these issues be addressed by providing SEP holders with disclosure requirements such as disclosing comparable FRAND licenses partially redacted or setting upper limits for FRAND rates.
Finally, respondents generally worried that SEP holders were breaching their voluntary FRAND commitments, leading to more licensing disputes. They cited the recent Huawei v ZTE case as evidence that courts in England and Wales will only grant an injunction if a SEP holder first provides an implementer with a license under FRAND terms.
In addition to these worries, some respondents highlighted the many SEP holders charging excessive royalties. It was suggested that this indicates a blockage in progress as SEP holders use their market power to pressure implementers into accepting non-FRAND licenses.
The future of regulation
The new German law will significantly develop the European Union’s antitrust “arms race” against large tech platforms. It aims to limit the power of social media giants and other tech platforms to manipulate online markets and suppress competition.
The DMA’s focus on “gatekeeper” platform providers such as Facebook, Twitter, and Google creates a distinct class of companies subject to more regulation than other players. It could be an example for regulators worldwide.
Additionally, it opens the door for more data collection and regulation by EU member states and the Commission. These agencies can inspect these firms’ records to identify which algorithms they employ and how they engage in competitive practices.
But there is also the potential that the law could harm smaller tech companies that need more resources to meet their new obligations. For instance, messaging services would need to provide their most basic version of apps for EU users and remove features they offer elsewhere.
Economists refer to this phenomenon as market failure.
This explains why politicians often grant regulatory independence to guarantee the long-term viability of sectors.
Additionally, a cost-benefit analysis of regulations can be an effective tool for assessing their efficiency. It asks whether the benefits of following the rules outweigh any associated costs.
Regulations can be complex to calculate, and there is much controversy about their effectiveness. Some believe they can be, while others suggest they should be avoided altogether.
Generally speaking, two main types of regulations exist those with market-based effects and those without. Those with market-based products can be beneficial as they stimulate economic growth and reduce unemployment rates.
Conversely, regulations with market-based effects can be effective as they stifle competition or raise the prices of goods and services. These types of rules are known as non-market-based regulations. They include limits on environmental pollution, laws against child labor or other employment regulations, minimum wages, food safety rules, and zoning & development approval rules.