JOINT COMMENTS OF THE AMERICAN BAR ASSOCIATION SECTION OF
ANTITRUST LAW AND SECTION OF INTERNATIONAL LAW ON THE
FIRST DRAFT BILL OF THE GERMAN MINISTRY OF ECONOMICS AND
ENERGY FOR THE 9TH AMENDMENT OF THE ACT AGAINST
RESTRAINTS OF COMPETITION
August 15, 2016
The American Bar Association Sections of Antitrust Law and of International
Law (together “the Sections”) appreciate the opportunity to submit these comments on
the first draft bill of the German Ministry of Economics and Energy for the 9th
amendment of the Act against restraints of competition (the “draft bill”). These
comments reflect the Sections’ collective experience and expertise with respect to the
application of antitrust and merger review laws in the United States, the European Union,
Germany, and other jurisdictions and with important related international best practice,
notably the International Competition Network’s Recommended Practices for Merger
Notification and Review Procedures1 (“ICN Recommended Practices”) and the
Organization of Economic Cooperation and Development’s Recommendation on Merger
Review (“OECD Recommendation”).2 The Sections offer these comments to share our
experience and provide suggestions to enhance the effectiveness of the proposed
legislation and its conformity with international best practice.
The views expressed herein are presented on behalf of the Sections of Antitrust
Law and International Law. They have not been approved by the House of Delegates or
the Board of Governors of the American Bar Association and, accordingly, should not be
construed as representing the position of the Association.
Executive Summary
The Sections offer comments on two aspects of the draft bill: (i) the alternative
merger notification threshold and (ii) the assessment of potential market power with
respect to products or services offered without charge.
Alternative merger notification threshold
The Sections appreciate the draft bill’s objective to ensure that the German
merger control system is able to address the acquisition of undertakings with limited sales
in Germany but that potentially raise competitive concerns regarding innovation or
foreclosure. However, the Sections are concerned that the proposed alternative threshold
may require the notification and review of a significant number of transactions with no
material nexus to Germany, particularly given that the proposed “activity in Germany”
1
International Competition Network, Recommended Practices for Merger Notification Procedures (2002),
http://www.internationalcompetitionnetwork.org/uploads/library/doc588.pdf (“ICN Recommended
Practices”).
2
OECD, Council Recommendation on Merger Review (2005),
http://www.oecd.org/daf/competition/mergers/40537528.pdf (“OECD Recommendation”).
1
standard is not based on objectively quantifiable criteria. The Sections believe that these
limitations will result in costs and burdens on merging parties and the Bundeskartellamt
without countervailing benefit to the effectiveness of the German competition law
regime.
The Sections acknowledge the potential utility of a merger review threshold based
on transaction value, but believe that, to comport with international best practice as well
as the goals of the 2009 amendments to the German merger notification thresholds,3 this
needs to be coupled with thresholds that ensure a material local nexus to the jurisdiction.4
In addition, any proposed local nexus test should be clear, understandable, and based on
objectively quantifiable criteria such as assets and sales (turnover).5 However, the
Sections believe that the proposed alternative threshold provision in the draft bill, which
requires that an entity has or is expected to start activities in Germany, does not meet
these standards.
To meet the draft bill’s aim of conformity with international best practice, the
Sections suggest that the Ministry consider alternative approaches. First, the Sections
recommend that the Ministry consider revising the “activities in Germany” test to base
notification on objective criteria to determine the materiality of the local nexus, such as
the target’s assets in Germany. Alternatively, the Sections propose that the Ministry
retain the current notification thresholds but empower the Bundeskartellamt to review
proposed mergers of concern that are not subject to notification, as the United States
antitrust enforcement agencies are able to do. Bifurcating jurisdiction from reportability
would enable the Bundeskartellamt to review these transactions without requiring
notification of a potentially broad swath of transactions that are unlikely to raise
competitive concerns in Germany.
Analysis of potential market power of zero priced goods and services
The Sections support the draft bill’s objective to establish that offering goods and
services without charge6 can constitute a market activity that is subject to the competition
law. The Sections believe that the Ministry has appropriately identified some factors that
could be considered in assessing whether a company has or could exercise market power
in connection with a zero priced product or service.
At the same time, the Sections respectfully submit that the question of whether a
firm can exercise market power in connection with a product offered for a zero price
“Drittes Gesetz zum Abbau bürokratischer Hemmnisse insbesondere in der mittelständischen Wirtschaft
(Drittes Mittelstandsentlastungsgesetz)”, dated 17 March 2009, BGBI, 2009, Part 1 No. 15, 550,
http://www.bgbl.de/xaver/bgbl/start.xav?startbk=Bundesanzeiger_BGBl&start=//*%255B@attr_id='bgbl10
9s0550.pdf'%255D#__bgbl__%2F%2F*%5B%40attr_id%3D%27bgbl109s0550.pdf%27%5D__14698128
97258 (in German).
4
ICN Recommended Practices, supra n.1, at I.B; OECD Recommendation, supra n.2, at I.A.1.2.
5
ICN Recommended Practices, supra n.1, at II.A-B; OECD Recommendation, supra n.2, at I.A.1.2.
6 Zero priced products and services have become commonplace with the advent of the Internet and include
creative content, software, search functions, social media platforms, mobile applications, travel booking,
navigation and mapping systems, and many other goods and services that are distributed at zero prices.
3
2
presents complex issues.7 In two-sided markets, assessing market power may require
considering both the products or services that are offered for a zero price and the products
or services that have a positive price. Analyzing the nature and competitive effects of the
conduct, possibly including non-price effects, may be much more productive than
attempting to assess market power as a threshold question. It is also important to
consider the competitive impact of possible competition between platforms along with
the possibility that network effects that generate substantial efficiencies might also create
market power. In addition, whether the possession of data supports a finding of
dominance depends on a careful assessment of consumer protection rules and the
intellectual property rights regime as well as the nature, extent, and use of the data itself.
I.
The Proposed Alternative Merger Threshold
A.
The Proposed Transaction Value Threshold is Likely to Require
Notification of a Significant Number of Non-Problematic Transactions
The Sections recognize that a transaction value threshold can be an appropriate
merger notification threshold as it is based on objective and quantifiable information that
is readily accessible to the parties. However, this test alone “is unsuitable to determine
whether a transaction will have an impact on a specific jurisdiction.”8 Other
jurisdictions, including the United States, that use a transaction value criterion couple it
with additional tests and exemptions to ensure an appropriate local nexus.9 A significant
local nexus threshold is particularly important when the transaction value test is based on
worldwide value and thus is likely to capture a significant number of transactions.
The Ministry’s Explanatory Note suggests that, based on an examination of
transaction values of German start-up firms, the proposed €350 million threshold will
capture a very limited number of transactions. However, the Sections’ experience
coupled with data provided by the United States antitrust agencies (the “Agencies”) on
the reportability of transactions under the U.S. Hart-Scott-Rodino pre-merger notification
rules, suggest that it could encompass a significant number of transactions. According to
the Agencies’ Hart-Scott-Rodino annual report for fiscal year 2015 (“HSR Report”), 830
transactions notified that year had a value in excess of $300 million.10 Agency staff
previously reported that “[o]ver the past three years, the percentage of reportable merger
7
See, e.g., Michal Gal & Daniel Rubinfeld, The Hidden Costs of Free Goods: Implications for Antitrust
Enforcement, 80 ANTITRUST L.J. 521, 522-23 (2016) (“Gal & Rubinfeld”); David S. Evans & Richard
Schmalensee, The Antitrust Analysis of Multi-Sided Platform Businesses, NBER Working Paper No. 18783
(Feb. 2013) (“Evans & Schmalensee”), http://www.nber.org/papers/w18783.pdf.
8
Background Paper by the Secretariat, Working Party No. 3 on Cooperation and Enforcement, OECD
Competition Committee, Local Nexus and Jurisdictional Thresholds in Merger Control, (“OECD
Background Paper”), at ¶ 53, DAF/COMP/WP3(2016)4 (Mar. 10, 2016),
https://one.oecd.org/document/DAF/COMP/WP3(2016)4/REV1/en/pdf.
9
Id. at ¶ 54. See Section I.B, infra, for a discussion of the criteria and exemptions coupled with the U.S.
transaction value threshold to establish local nexus.
10
Federal Trade Commission Bureau of Competition & Department of Justice Antitrust Division, HartScott-Rodino Annual Report Fiscal Year 2015 (“HSR Report”), at Exhibit A Table 1,
https://www.ftc.gov/system/files/documents/reports/federal-trade-commission-bureau-competitiondepartment-justice-antitrust-division-hart-scott-rodino/160801hsrreport.pdf.
3
transactions valued at more than $500 million has steadily increased.”11 Based on this
United States experience, the Sections anticipate that the proposed alternative transaction
value test would likely capture a significant number of transactions.
Moreover, based on data in the HSR Report, it appears that the Ministry’s
proposed additional combined worldwide sales criterion would not significantly limit the
number of transactions subject to notification under the alternative threshold test.
According to the HSR Report, over one thousand transactions notified to the Agencies in
fiscal year 2015 involved acquiring entities with sales in excess of $500 million.12 This
suggests that a significant number of transactions would meet the combined worldwide
sales threshold of €500 million and that a material local nexus test is necessary to ensure
that the proposed alternative thresholds are appropriately targeted at the limited number
of transactions of potential concern to the Ministry.
B.
The Proposed Size of Transaction Threshold Does Not Ensure a Material
Local Nexus Based on Clear, Objective, and Quantifiable Criteria
The draft bill’s proposed alternative threshold requires one undertaking to have
domestic turnover over €25 million and at least one other undertaking to have activities
or expect to start activities in Germany.13 In its Explanatory Note, the Ministry
recognized that it is important for a local nexus test to conform to “the internationally
accepted principle according to which a state should only assert jurisdiction ... if the
merger has a sufficient local dimension….”14 The Sections support benchmarking
thresholds against international standards – particularly those established by the ICN and
OECD – and commend the Ministry for its efforts to bring its proposal in line with these
norms. However, the Sections believe that the proposed amendment does not adequately
provide for a material local nexus requirement based on objective and clear criteria
consistent with the ICN and OECD recommendations.
The ICN Recommended Practices recognize the need for a clear, objective local
nexus requirement to ensure that only transactions with a material impact on the
jurisdiction are subject to merger notification. In its comments on proposed merger
thresholds, the Sections consistently emphasize the importance of this principle.15
11
Federal Trade Commission Blog, Notable trends in merger review: inside the HSR Annual Report (Aug.
12, 2015), https://www.ftc.gov/news-events/blogs/competition-matters/2015/08/notable-trends-mergerreview-inside-hsr-annual-report.
12
HSR Report, supra n.9, at Exhibit A Table VII (1,145 notified transactions involved sales of acquiring
persons in excess of $500 million).
13
First draft bill of the German Ministry of Economics and Energy for the 9th amendment of the Act
against restraints of competition (July 1, 2016).
14
Explanatory Note, § 35 No. 4, 77 et seq.
15
See, e.g., Comments of the American Bar Association Section of Antitrust Law on the Draft Bill
Amending the Competition Act Issued by the Republic of Chile (May 15, 2015),
http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/at_comments_20150515_chile.a
uthcheckdam.pdf; Joint Comments of the American Bar Association Sections of Antitrust Law and
International Law to the Superintendency of Industry and Commerce on the Draft Legislative Proposal of
the Congress of Colombia Regarding the Enactment and Modification of Rules and Regulations Regarding
4
As identified by the ICN, the OECD, and others, merger control regimes that lack
clear thresholds to ensure that notifiable transactions have a material impact on the
reviewing jurisdiction impose considerable costs on parties and agencies. These include
the burden of interpreting unclear notification requirements and determining whether
filing is required, the time and expense of notifying transactions that do not appreciably
affect a jurisdiction, and expenditure of agencies’ resources to review mergers that do not
appreciably affect the jurisdiction.16 Thresholds that incorporate an appreciable domestic
nexus benefit both parties and regulators by “limit[ing] the expenditure of public and
private resources by avoiding notification and review of mergers that are unlikely to raise
any competition concerns”17 and help prevent “unnecessary transaction costs and
commitment of competition agency resources without any corresponding enforcement
benefit.”18
The first of the ICN’s thirteen Recommended Practices provides that merger
notification thresholds should “incorporate appropriate standards of materiality as to the
level of ‘local nexus’ required, such as material sales or asset levels within the territory of
the jurisdiction concerned.”19 The Sections are concerned, however, that the proposed
alternative threshold will require the notification of transactions that are unlikely to affect
German consumers because it is based on a vague local nexus standard that appears likely
to capture transactions with extremely limited or speculative connections to Germany and
lead to over-notification by uncertain parties that seek to ensure compliance with the
law.20
According to the Explanatory Note, the alternative threshold’s local nexus test for
a second undertaking (apparently referring to the target) is met “if users in Germany
make use of products or services offered by the undertaking.”21 By not specifying, for
the Protection of Competition (Oct. 21, 2015),
http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/at_comments_salsil_20151021.a
uthcheckdam.pdf; Comments of the ABA Section of Antitrust Law and Section of International Law in
Response to the Israel Antitrust Authority’s Draft Revisions to the Israel Merger Control Regime (May
2015),
http://www.americanbar.org/content/dam/aba/administrative/antitrust_law/at_comments_salsil_201505.aut
hcheckdam.pdf.
16
ICN Recommended Practices, supra n.1; OECD Background Paper, supra n.7, at ¶ 1.
17
OECD Background Paper, supra n.7, at ¶ 7.
18
ICN Recommended Practices, supra n.1.
19
Id.
20
The Explanatory Note identifies that the general provisions of the “domestic effects clause” apply to the
proposed alternative threshold. (Explanatory Note, § 35 No. 4, 77 et seq.) However, as recently noted by
Germany in its submission to the OECD, “[t]he assessment of a concentration’s domestic effects sometimes
raises more complex questions than the assessment of its competitive concerns.” (Note by Germany,
Working Party No. 3 on Cooperation and Enforcement, OECD Competition Committee, Jurisdictional
Nexus in Merger Control Regimes (June 2016), at ¶ 35,
http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WP3/WD(2016)16
&docLanguage=En.). The Sections believe that this will be the case as regards matters implicating the
proposed activities test, such that the domestic effects clause will not serve to effectively limit notification
of a significant number of transactions captured under the proposed threshold.
21
Explanatory Note, § 35 No. 4, 77 et seq. Whereas the Explanatory Note suggests that this test is to apply
to the target, the Sections believe that clarification of this point in the legislative proposal and the
Explanatory Memo would help to further sharpen the application of the proposed threshold.
5
example, how many customers in Germany are sufficient to establish jurisdiction or even
that the number of customers must be significant, this test is vulnerable to an extension of
German jurisdiction over mergers with a trivial impact on Germany. Similarly, the
Explanatory Note suggests that the local nexus requirement could be met by an
undertaking that “carries out research and development work in Germany.”22 Without a
more concrete materiality threshold, relatively minor R&D activities may be sufficient to
establish jurisdiction over a transaction that otherwise does not have a significant impact
in Germany.
The proposed local nexus test is also speculative insofar as it is intended to cover
transactions involving target firms that do not currently have any sales or assets in
Germany but that may have German sales or assets within the next three to five years.23It
is unclear what evidence would be sufficient agency to determine that this test is met.
The Sections’ experience suggests that parties would tend to err on the side of caution
and notify transactions with extremely limited or speculative connection to Germany
based on the alternative threshold. The Sections are concerned that notification of such
transactions would impose unreasonable costs on companies, including companies with
no or minimal presence in Germany, while review of these notifications would divert the
Bundeskartellamt’s resources from more tangible and important concerns.
In its Explanatory Note, the Ministry suggests that it is adopting an approach to
notification thresholds similar to that employed in the United States. The Ministry
focuses on the size-of-transaction test found in the Hart-Scott-Rodino Antitrust
Improvements Act (“HSR Act”) as the tool employed in the United States to specify
which transactions must be notified under the pre-merger review regime. However, the
note makes only a passing reference to the additional tests in the HSR Act that ensure that
notifiable transactions have a sufficient nexus to the United States. The HSR Act’s sizeof-transaction test applies to transactions that are valued in excess of $78.2 million.24 For
the large number of transactions valued between $78.2 million and $312.6 million, the
parties also must meet a “size of person” test, which requires one party to have annual
sales or assets of at least $156.3 million and the other party to have annual sales or assets
of at least $15.6 million. Regardless of the size of the transaction, acquisitions of foreign
companies that do not have $78.2 million in local assets or local sales are exempt from
reporting.25 These provisions provide clear rules for parties and practitioners to
determine whether an otherwise reportable transaction is exempt for lack of a material
local nexus. The provisions also ensure that the Agencies do not spend time reviewing
22
Explanatory Note, § 35 No. 4, 77 et seq.
In its 2002 report, the ICN noted that a threshold based solely on the acquirer’s presence in the
jurisdiction “will impose unnecessary transaction costs on a much larger number of transactions that do not
pose any appreciable risk of competitive harm.” The ICN therefore recommended that such thresholds be
used only if the competition agency would otherwise be deprived of jurisdiction, that the thresholds be set
at a “very high level,” and that the jurisdictions potentially use “other objectively-based limiting filters….”
The current proposal contains only a modest local nexus requirement for the acquirer of €25 million and
does not have any tangible nexus requirement for the target. This is insufficient to screen out the large
number of transactions that meet the size-of-transaction test that will not have an appreciable effect on
Germany. See ICN Recommended Practices, supra n.1.
24
The monetary levels under the HSR Act are indexed to the annual change in the U.S. GDP.
25
16 C.F.R §§802.50-802.51.
23
6
transactions that are unlikely to have significant competitive effects in the United
States.26 As the OECD has noted, the size-of-transaction test “is unsuitable to determine
whether a transaction will have an impact on a specific jurisdiction.”27 For that reason,
the United States (and Mexico) does not apply the size-of-transaction test on its own, but
rather “couple … [it] with additional notification criteria better suited to establish local
nexus.”28
The ICN Recommended Practices contain several provisions to ensure that parties
and practitioners are readily able to determine their merger notification obligations. First,
they provide that thresholds “should be based exclusively on objectively quantifiable
criteria” such as assets and sales (or turnover).29 Second, the threshold should “identify
the measurement tool,” “identify the scope of the geographic area,” and “specify a time
component.”30 Third, the criteria “should be defined in clear and understandable terms”
and should be similar to criteria required in other jurisdictions “[t]o facilitate the merging
parties’ ability to gather multi-jurisdictional data on a consistent basis.”31 Finally, the
information used to determine whether thresholds are met “should normally be of the
type that is available to the parties in the ordinary course of business.”32 The ICN and
OECD both suggest that asset and sales (or turnover) are appropriate criteria.33
The alternative threshold’s local nexus requirement does not provide objectively
quantifiable criteria to determine whether a transaction that meets the size-of-transaction
test has a sufficient local nexus to require notification. Rather, parties would need to
make a subjective judgment as to whether they have “activities” or are expecting to “start
activities” in Germany. While the Explanatory Note provides some potential measures,
such as location of customers and research and development activities, these standards
are vague and not quantified and will therefore lead to uncertainty for parties. Moreover,
parties will need to engage in a unique inquiry specific to Germany to determine their
merger filing obligations. As the Sections noted in their 2014 comments to the
Bundeskartellamt, “to the extent that there is any uncertainty as to whether a filing
obligation is triggered, parties contemplating a transaction where the (low) filing
thresholds are met often may decide to make a filing even where there are no apparent
domestic effects.”34 That would result in unnecessary costs for both merger parties and
26
The U.S. antitrust agencies also retain jurisdiction to review non-reportable transactions at any time,
including after consummation. Such residual jurisdiction is discussed in more detail in the next section of
this comment.
27
OECD Background Paper, supra n.7, at ¶ 53.
28
Id. at ¶ 54.
29
ICN Recommended Practices, supra n.1, at II.B.
30
Id. at comment 2.
31
Id. at comment 3.
32
ICN Recommended Practices, supra n.1, at II.C.
33
See ICN Recommended Practices, supra n.1, at 2B; OECD Background Paper, supra n.7, at ¶ 32.
34
Joint Comments of the American Bar Association’s Section of Antitrust Law and Section of International
Law on the German Federal Cartel Office’s Public Consultation on Domestic Effects in Merger Control, 5
(Feb. 4, 2014),
http://www.americanbar.org/content/dam/aba/uncategorized/international_law/comments_sal_sil_german_
consultation_final_2_4_2014.authcheckdam.pdf.
7
the Bundeskartellamt and would detract from the efficiency of the German merger review
regime.
C.
Alternative approaches to consider
The Sections understand the Ministry’s objective to capture large transactions
involving targets with limited sales or assets but that have the potential to raise
competitive concerns in Germany. To address the concerns raised above with respect to
the proposed alternative threshold, the Sections recommend that the Ministry consider
more targeted approaches to capturing the transactions of potential concern. First, the
Sections suggest establishing a material local nexus test based on clear and objective
criteria as part of the alternative threshold. Alternatively, and recognizing that this may
involve a more substantial change to the Act, the Sections suggest that the Ministry
consider enabling the Bundeskartellamt to review the limited subset of mergers that
would not meet the existing notification thresholds but may raise local competition
concerns.
To ensure that the alternative threshold requires an appreciable local nexus based
on objectively quantifiable criteria, the Ministry could consider establishing an objective
criterion based on something other than sales. This could be based, for example, on the
value of the target’s or of each of the acquirer’s and the target’s assets, as is the case in
several other jurisdictions.35 The Ministry also could consider other objectively
quantifiable criteria to measure activity in the German economy. Commentators have
provided examples of criteria such as a threshold amount of spending on research and
development or, in the case of a merger in the technology sector, the number of users in
the jurisdiction, active users, or number of clicks or page views from IP addresses in the
jurisdiction.36 The Sections caution, however, that it may be challenging to develop and
apply such unique thresholds in a manner that would ensure that they would meet
international norms of objectivity and materiality. For example, such an alternative
threshold should be based on objective data that are readily accessible to the merging
parties and are easily quantifiable – e.g., a minimum number or amount of the metric
rather than a percentage of the market. The threshold should also be sufficiently specific
as to the definition and measurement of the information and its applicability across
industries. Finally, the Ministry would have to carefully consider the level of the
threshold so that it appropriately captures significant transactions but is not overinclusive. In making these determinations, the Sections note that thresholds based on
market share or potential effects on competition are not objectively quantifiable and are
better evaluated further into the merger review process.37 The Sections further note that
35
E.g., Canada, COMESA, India, Indonesia, Mexico, Namibia, Pakistan, South Africa, South Korea,
Ukraine, and the United States. Information on these and other jurisdictions relying on asset-based merger
thresholds can be found in Getting the Deal Through: Merger Control 2016.
36
See e.g., Speaking notes of Jean-Yves Arts, Associate General Counsel, Microsoft Corp., Working Party
No. 3 on Cooperation and Enforcement, OECD Competition Committee, Roundtable on Local Nexus and
Jurisdictional Thresholds in Merger Control, http://www.slideshare.net/OECD-DAF/jurisdictional-nexusin-merger-control-regimes-speaking-points-by-jeanyves-art-microsoft-june-2016-oecd-discussion.
37
ICN Recommended Practices, supra n.1, at II.B.1, (“Market share-based tests and other criteria that are
more judgmental may be appropriate for later stages of the merger control process (such as determinations
8
any such threshold can be benchmarked and revised to achieve an optimal balance
between capturing transactions of potential concern and burdening non-problematic
transactions.
Alternatively, the Ministry could consider extending the Bundeskartellamt’s
merger review jurisdiction beyond notifiable transactions for the limited subset of
transactions of potential concern. One possibility would be to couple this with a
voluntary notification system that would enable parties to mergers that pose antitrust risk
to obtain legal certainty while bringing potentially problematic transactions to the
attention of the enforcement agency. Many countries’ notification regimes provide the
competition agency with such residual jurisdiction, voluntary notification, or both. For
example,
o The Canadian Commissioner of Competition may review any merger,
regardless of whether it exceeds the relevant thresholds, for up to one year
after closing.38 In the 2015-16 reporting year, the Competition Bureau
initiated 23 examinations of non-notified merger-related matters.39
o The Irish Competition and Consumer Protection Commission may request
a voluntary notification when, in its view, the merger raises competition
issues. If the parties do not submit a voluntary notification, the
Commission may initiate a preliminary inquiry followed by an
investigation. The Commission also may investigate a non-notified
implemented transaction and, in appropriate cases, obtain a remedy.40
o The United States Agencies can investigate non-notifiable mergers at any
time. Over the past five years, the Federal Trade Commission and the
Department of Justice each conducted in-depth reviews of 28 transactions
that were not notifiable under the HSR rules.41
o The Japan Fair Trade Commission may review any merger, including
those that do not trigger a notification obligation in Japan, at any
relating to the amount of information required in the parties' notification and to the ultimate legality of the
transaction), but such tests are not appropriate for use in making the initial determination as to whether a
transaction is notifiable.”).
38
Competition Act (Canada), R.S.C. 1985, c. 19 (2nd Supp.), s. 19, § 97.
39
Canadian Competition Bureau, Competition Bureau Quarterly Statistics Report for the period ending
March 31, 2016, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03973.html.
40
Ireland Competition and Consumer Protection Commission, Notice in respect of the review of nonnotifiable mergers and acquisitions (Oct. 31, 2014) §§ 1.6–1.8,
http://ccpc.ie/sites/default/files/CCPC%20Mergers%20Non%20Notifiable%20Mergers.pdf
41
Note by the United States, Working Party No. 3 on Cooperation and Enforcement, OECD Competition
Committee, Jurisdictional Nexus in Merger Control Regimes (June 2016),
http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WP3/WD(2016)22
&docLanguage=En.
9
time. Parties to non-notifiable mergers subject to investigation may
consult with and obtain clearance from the JFTC before closing.42
Although a residual jurisdiction system has several benefits, if the Ministry adopts
this approach, the Sections recommend that the relevant amendments provide explicit
guidance on the types of transactions that will be subject to residual jurisdiction. In
addition, the Sections suggest that residual jurisdiction be available for only a limited
duration after the merger; the OECD notes that most jurisdictions can challenge mergers
for up to one year following the completion of a transaction.43 Finally, the Sections
suggest that the Ministry consider including a provision for voluntary notification, as is
the case in many jurisdictions, including Canada, Ireland, and Japan,44 to allow merging
parties to seek comfort from the reviewing authority when they have identified potential
competition concerns.
The Sections anticipate that this more targeted approach to capturing the limited
category of transactions of potential concern could increase efficiency and reduce costs to
both merging parties and the Bundeskartellamt. Under a residual jurisdiction approach,
the Bundeskartellamt can preserve resources by initiating an inquiry only in those limited
cases where it has reason to believe that the transaction will have an adverse effect on
competition or where a transaction demonstrates an adverse effect so long as the effects
occurred within the relevant residual period. Similarly, parties would avoid expending
resources on competition review for transactions that fall below the existing thresholds
and do not raise potential competitive concern, while parties that identify a potential risk
of a post-closing challenge could seek certainty through voluntary notification.
The Sections recognize Germany’s important role as an international leader in
advocating for and implementing the ICN Recommended Practices, including through its
introduction in 2009 of the second domestic turnover criterion to its merger reporting
thresholds. Adoption of the proposed threshold, as drafted, however, would represent a
serious departure from ICN and OECD best practices, and would likely detract from the
Bundeskartellamt’s influence, as ICN Chair, on the implementation of ICN practices as
well as other ICN standards. To maintain Germany’s international leadership on these
issues, the Sections recommend that the proposed alternative merger threshold be revised
to ensure continued conformity of the German merger review system with these
international best practice standards.
42
ICN Merger Notification and Procedures Template: Japan Fair Trade Commission (Oct. 2014) Section
4.F,
http://www.jftc.go.jp/en/policy_enforcement/mergers/ICNmerger.files/ICN_Merger_Template_Japan_201
4.pdf.
43
OECD Background Paper, supra n.7, at ¶ 64.
44
See, e.g., Canadian Competition Bureau, Procedures Guide for Notifiable Transactions and Advance
Ruling Certificates Under the Competition Act, § 3.4; Ireland Competition and Consumer Protection
Commission, Notice in respect of the review of non-notifiable mergers and acquisitions, supra n.39; JFTC
Merger Template, supra n. 41.
10
II.
The Proposed Assessment of Market Power of Zero Priced Products or
Services
The Sections commend the Ministry for its proposals to recognize that a firm’s
commercial activity is subject to the competition laws even though it offers a product or
service for free. Accordingly, the Sections support the effort of the Ministry to rectify the
2015 decision by the Higher Regional Court of Dusseldorf that found that free services
provided by an online hotel booking platform do not constitute a market activity. The
Sections also agree that the Ministry has appropriately identified some of the factors that
could be considered in deciding whether a company has or could exercise market power
in connection with a zero priced product or service.
The Sections respectfully submit that the question of whether a firm can exercise
market power in connection with a product offered for a zero price raises complex
issues.45 For example:
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In two-sided markets, an assessment of market power may require consideration
of both “sides” of the market, including both products or services that are offered
for a zero price and products or services that have a positive price.
Analyzing the nature and competitive effects of the conduct may be far more
productive than attempting to assess market power as a threshold question.
Non-price effects such as changes in quality may be relevant to assessing
competitive effects.
Platform competition and dynamic effects may outweigh network effects in
assessing whether a firm can exercise market power.
Whether the possession of data supports a finding of dominance depends on a
careful assessment of the interplay of consumer protections and intellectual
property rights as well as the nature of the data itself.
The Sections agree that offering a product or service at a zero price does not
preclude the existence of a cognizable market or the possibility that the firm could be
found to hold a dominant position.46 The Ministry may wish to focus on matters such
as bundling of zero price plus paid items as a salient example of where ostensibly
zero priced products can still be associated with market power.47
A.
Two-Sided Markets
Ostensibly free products or services are often one side of a two-sided market. In
these cases, an assessment of market power will depend on examining both sides of the
market. For example, firms may be able to provide search engines or instant messaging
45
See, e.g., Gal & Rubinfeld, supra n.6, at 521, 522-23; Evans & Schmalensee, supra n.6, passim.
European Union decisions have found markets to exist based on such products in spite of zero pricing.
See, e.g., Commission Decision of Non-Opposition at ¶¶ 20-33, 47, Case No. COMP/M.7217 –
Facebook/WhatsApp, C(2014) 7239 final (Oct. 3, 2014) (“Commission Decision – Facebook/WhatsApp”).
47
See Gal & Rubinfeld, supra n.6, at 549-550, 554. A good discussion of bundling involving offering zero
cost products in one market as part of a bundle to foreclose competition in another market, using the
Microsoft case in the United States as an example, can be found at id. at 541-42.
46
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services for free because they derive revenues from Internet advertising.48 The Sections
suggest that the Ministry consider further elaborating its discussion of two-sided markets
to examine questions such as how product substitutability following a price increase in
the positive priced side of the market could affect the assessment of market power.49
B.
Non-Price Dimensions of Competition
Firms may offer a product for free to introduce it to consumers and generate
interest, to serve as a gateway to priced products, or to create network effects.50 However,
while competition for zero priced products may not, at least initially, involve price, it can
involve competition involving non-price aspects such as service and quality. It may be
appropriate to examine these non-price dimensions of competition to assess
substitutability and competitive effects.51
C.
Assessing Network Effects, Platform Competition, and Dynamic Effects
The Ministry’s proposed amendments and explanatory notes recognize that
network effects may enable a firm to achieve market power over a zero priced product.
However, as courts and antitrust authorities also have found, platform competition and
rapid technology changes can serve as a competitive constraint on a company’s ability to
achieve or maintain market power. Consequently, the Sections recommend that the
Ministry consider recognizing the potential for platform competition as well as dynamic
effects to serve not only as a catalyst for network effects that may lead to dominance but
also as a constraint on market power.52
D.
Assessing the Nature and Competitive Effects of the Conduct
Assessing network effects and market power in connection with zero priced
products and services can be a complex exercise that involves consideration of the
benefits of such products and services for consumers as well as the potential for exclusion
or lock-in. As part of the analysis, the Ministry may wish to encourage considering
whether a zero priced product is being offered as part of an exclusionary strategy. If a
See, e.g., Commission Decision – Facebook/WhatsApp, supra n.45, at ¶ 47.
See Gal & Rubinfeld, supra n.6, at 542-44.
50
See, e.g., Commission Decision – Facebook/WhatsApp, supra n.45, at ¶ 90.
51
See Gal & Rubinfeld, supra n.6, at 551, 553; cf. Commission Decision – Facebook/WhatsApp, supra
n.45, at ¶¶ 55-56, 61, 96. The Supreme People’s Court of China made a similar point in 2014 in assessing
whether a company that provided instant messaging products to users for free nonetheless had a dominant
market position. The Supreme People’s Court of the People’s Republic of China, Paper of Civil Judgment,
3-6, GLOBAL ECONOMICS GROUP, https://www.competitionpolicyinternational.com/assets/
DecisionTranslation.pdf (“Paper of Civil Judgment”). For a fuller discussion of this decision, and of the
civil law backdrop against which this decision was rendered, see Emilio Varanini & Feng Jiang, The
Decision of the Supreme People’s Court in Qihoo v. Tencent and the Rule of Law in China: Seeking Truth
from Facts, 25 COMPETITION 230 (Spring 2016).
52
See Commission Decision – Facebook/WhatsApp, supra n.45, at ¶¶ 85-91, 104-126, 130-135; European
Commission Press Release at 1-2, Mergers: Commission Approves Acquisition of WhatsApp by Facebook
(Oct. 3, 2014); Paper of Civil Judgment, supra n.48, at 21, 24-28; Statement of the Federal Trade
Commission Concerning Google/Ad Mob at 2, FTC File No. 101-0031 (May 21, 2010),
https://www.ftc.gov/news-events/press-releases/2010/05/ftc-closes-its-investigation-google-admob-deal.
48
49
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court or an enforcement agency can determine at the outset that the conduct is not
exclusionary, there may be no need to consider market power or dominance.53 Some
courts have already suggested adopting such an approach.54 Finally, in carrying out its
analysis, we recommend proceeding cautiously given the limitations of economic
analysis of platform markets.55
E.
Assessing Market Power Based on Control of Data
The proposed amendments discuss how a firm’s control of data may support a
finding of market power over a zero priced product. The collection and use of data is
sometimes an important feature in the offering and improvement of zero priced products,
and firms can be said to compete with respect to the collection and use of data, for
example by restricting the ways in which they use data to protect consumers’ privacy
interests.56
However, the collection and use of data as part of the offering of a zero priced
product is also governed or influenced by consumer protection laws. In a jurisdiction
with strong consumer protection safeguards that prevent involuntary collection and use of
consumer data, and where consumers provide their data freely and knowingly, it may be
inappropriate to conclude that the company that possesses that data thereby holds a
dominant position.
Moreover, the Sections respectfully submit that the possession of such data could
be indicative of dominance only if, at the very least, the data were necessary to compete
and served as an effective barrier to entry because other companies could not develop
comparable data resources in a timely manner. In many countries, data generally cannot
be protected under intellectual property laws57 and may be readily replicated or
53
If conduct were found at the threshold not to be exclusionary or predatory, e.g., the offering of a zero
priced product were part of a legitimate integrated product offering with benefits for the consumer—see,
e.g., Paper of Civil Judgment, supra n.50, at 33-34— that would obviate what can be a complex assessment
of market power and of ambiguous effects. A company’s intent in offering such a zero priced product can
play a role in assessing such effects as part of a first cut in determining whether abuse of dominance has
taken place. See, e.g., McWane, Inc. v. FTC, 783 F.3d 814, 840 (11th Cir. 2015). It was telling, for
example, in the Microsoft case in the United States that Microsoft’s strategy in offering a zero priced
product apparently was to amplify its exclusionary strategy to bar its competitors’ browsers from the
market. See Gal & Rubinfeld, supra n.6, at 542-43 (citing Microsoft to support the point that intent
evidence can be probative as to otherwise ambiguous effects from offering zero priced products in
complementary markets); id. at 548 (suggesting analysis of motivation or intent as part of a first cut at
whether the offering of zero priced products constitutes an abuse of dominance).
54
See Case 170/13, Judgment, Huawei Technologies Corp. v. ZTE Corp. et al. (E.C.J. July 16, 2015),
http://curia.europa.eu/juris/document/document.jsf?doclang=EN&text=&pageIndex=1&part=1&mode=lst
&docid=165911&occ=first&dir=&cid=3858; Paper of Civil Judgment, supra n.50, at 30, 33.
55
See, e.g., Evans & Schmalensee, supra n.6, at 37 (“[C]orrect economic analyses of multi-sided platforms
are more complicated than correct analyses of single-sided firms. Moreover, the relevant theory, at least in
its current stage of development, yields fewer clear predictions, and there is relatively little empirical work
from which one can draw general lessons. Thus it does not now seem possible to come up with many
guidelines that can be used to structure rule of reason inquiries, let alone sharp lines that would justify per
se rules.”).
56
See, e.g., Commission Decision – Facebook/WhatsApp, supra n.45, at ¶¶ 174, 184-186.
57
See, e.g., Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340 (1991).
13
duplicated by other companies. In addition, care should be taken to consider whether
data in any given situation would constitute a properly-defined market, or whether,
instead, data would be only one of many inputs that affect the quality of product or
service. Since undertakings often generate or collect data internally and then also use it
internally, rather than selling or trading it, it can be difficult to define a market involving
data or to identify how such internal use would cause anticompetitive harm. Consumer
data may be particularly difficult for any one company to monopolize due to the fact that
for many products and services, consumers “multi-home” (use more than one provider).
Cases where the mere ownership of data creates a genuine competition concern are
expected to be rare.
The Sections recognize that in Germany, methods of storing and using data may
be protected by intellectual property rights and that this can facilitate the creation or
maintenance of dominance.58 However, the Sections respectfully note that the potential
for protected data to serve as a barrier to entry may be better addressed at its source by
considering whether such data structures or methods deserve intellectual property
protection in the first instance.
In sum, whether a company’s data resources could support a finding of
dominance requires consideration of the nature, scope, and intellectual property
protections over the data, the importance of the data to enter or compete effectively in the
relevant market, how the data are obtained from users, and whether a reasonably efficient
competitor could successfully accumulating equivalent data.59
Conclusion
The Sections appreciate the opportunity to comment on the draft bill. The
Sections would be pleased to respond to any questions that the Ministry may have
regarding these comments or to provide any additional comments or information that may
assist the Ministry in finalizing the proposed amendments.
58
See IMS Health GmBH & Co. v. NDC Health GmBH & Co., 2004 E.C.R. C 418/01, 4 C.M.L.R. 28
(E.C.J. Apr. 29, 2004).
59
See Commission Decision – Facebook/WhatsApp, supra n.45, at ¶¶ 184-190; European Commission
Press Release at 2, Mergers: Commission Approves Acquisition of WhatsApp by Facebook (Oct. 3, 2014);
compare, e.g., Statement of the Federal Trade Commission Concerning Google/Double-Click at 12, FTC
File No. 071-0170) (Dec. 20, 2007), https://www.ftc.gov/public-statements/2007/12/statement-federaltrade-commission-concerning-googledoubleclick (data collected by company being acquired belongs to
third party customers, involves little pricing data, and may be of limited utility in allowing Google to
generate leads) with, e.g., Dissenting Statement of Commissioner Harbour Concerning Google/DoubleClick at 4, 6-9, (Dec. 20, 2007), https://www.ftc.gov/public-statements/2007/12/dissenting-statementcommissioner-harbour-matter-googledoubleclick (asserting that the merger of two companies with “their
vast droves of data” about consumer behavior on the Internet warranted closer scrutiny).
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