11 February 2016

President of German Federal Cartel Office on the fight against monopolies in online markets

The President of the German Federal Cartel Office (FCO), Andreas Mundt, has commented on the FCO’s strategy and assessment of online markets in an interview with German newspaper Süddeutsche Zeitung, stressing that current competition rules do not align with how online companies run their businesses.

Mundt explained that the FCO is placing particular focus on online markets as they tend to create monopolies due to network effects. To increase its effectiveness, the German competition authority has set up an internet-taskforce to propose changes to competition law that address the recent developments in this sector.

The FCO has already asked that certain amendments are made to current German competition law, in particular merger notification thresholds. These are currently solely based on the turnover of the companies concerned. Mundt suggested that, in some cases, the value of the transaction would also be a relevant consideration, as revenue is not always the ultimate indicator of power in dynamic and developing online markets. As an example, Mundt mentioned the acquisition of WhatsApp by Facebook which did not meet merger thresholds in many countries because WhatsApp did not generate significant revenues at that time. Therefore, the transaction nearly avoided any merger control scrutiny despite the fact that Facebook paid USD 19 billion for the messaging app. This proposal is in line with calls for similar powers from the European Commission (Commission) and other national competition authorities.

Mundt has also called for further clarification from the legislator in relation to digital markets where customers pay with data rather than money (i.e. no turnover is per se generated). In such markets, he pointed out that, in addition to turnover, it is necessary to take into account factors such as the strategic importance of the deal, the number of product users and the data concerned to review these transactions properly. This demand is also in line with recent developments at a European Union level where Competition Commissioner Margarethe Vestager announced earlier this month that the Commission will look at data concerns more closely in the future.

This approach has been criticised by some observers who state that it creates two different standards for online and offline markets. However, Mundt pointed out that the FCO already takes such considerations into account as part of its general practice when assessing matters referred to it and he accepted that certain FCO assessments of such developing markets may well be annulled if contested in court.
Interestingly, although perhaps unsurprisingly, Mundt kept silent when asked which online sectors will next face scrutiny from the FCO but promised that it would surprise many.

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