Antitrust

8 2 RECENT EXPERT PROPOSALS FOR LEGISLATIVE CHANGES The expert report makes the following main recommendations: AMENDING THE SUBSTANTIVE TEST IN GERMAN MERGER CONTROL WITH A VIEW TO ACQUISITIONS OF START-UP COMPANIES. Germany last year introduced a supplementary new transaction-value- based reporting threshold, which however does not apply if the target is not active in Germany "on a significant scale." According to guidelines published by the BKartA in 2018, there is no significance of domestic activities of the target "if the target company [in the last fiscal year] generated a turnover below €5 million in Germany and if this turnover adequately reflects its market position and competitive potential. This is likely to be the case if the company's products generate significant turnover abroad but not in Germany, for instance, because the company has not (yet) established a sales structure in Germany." (Paragraph 82 of the guidelines; emphasis added). A company will in any event normally generate significant turnover, albeit not necessarily in Germany, if it is active in "mature markets that are characterized by turnover generation" (cf. paragraph 65 of the guidelines). Following up on the new reporting threshold, the expert report proposes a supplementary amendment to the substantive test in German merger control with a view to acquisitions, in particular by large digital firms, of relatively small innovative start-up companies. The report notes that such acquisitions can have anti-competitive effects, in particular if firms that are already dominant succeed to systematically identify and acquire potential future rivals at an early stage. On the other hand, the BKartA may currently not be in a position to block such transactions under the existing substantive test, which requires, just like on the European level, that a concentration would significantly impede effective competition, in particular because it can be expected to create or strengthen a dominant position (§ 36(1) GWB). According to the report, the relevant acquisition strategies typically concern transactions at an early stage where the start-up is still active in a niche market and there is typically no horizontal overlap with the acquirer. The substantive assessment gets particularly complicated where an acquisition strategy relates very broadly to innovative internet companies whose innovations and business models do not yet have a clear relationship with the core market of the acquirer but may turn into threats in the course of the dynamic development of technologies and markets that are difficult to predict. The report notes that harm to competition by the individual transaction can in such cases often not be established with the sufficient degree of probability through the established theories of harm and within typical prognosis periods of approximately three years. COMPLIANCE 15 I T M A Y B E A N I N D I C A T I O N F O R S U C H F U T U R E C O M P E T I T I O N T H A T T H E T A R G E T I S A C T I V E I N A M A R K E T T H A T A D D R E S S E S T H E S A M E B A S I C N E E D S A S T H E A C Q U I R E R Germany: Modernizing the Law on Abuse of Market Power for the Digital Economy

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