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Developments in German Law on Competition
1 January 1998 – 31 December 1999

Jan Kaestner

Introductory note: This text was published in the Revue Internationale de la Concurrence (RIC), No. 196, 3.2001, S. 12 ff. as part of the international study “Les règles de concurrence dans le monde - Evolution récente 1er janvier 1998 - 31 décembre 1999”.

Table of contents

  1. Unfair Competition Law
    1. Legislation
    2. Jurisdiction
  2. Cartel Law
    1. Legislation
    2. Jurisdiction

1. Unfair Competition Law

a) Legislation

There have been only a few changes in legislation in 1998 and 1999. On 7 September 1998, the Medical Care Advertising Act (Heilmittelwerbegesetz) has been amended and now includes in its sec. 4 the obligation to insert the clause „Zu Risiken und Nebenwirkungen lesen Sie die Packungsbeilage und fragen Sie Ihren Arzt oder Apotheker“ in all advertisements in print media. In addition, the exact name of the medication as well as legally required instructions for use have to be included. As of 11 December 1998 the German Medical Preparations Act (Arzneimittelgesetz) in sec. 43 prohibits the distribution by mail order of those pharmaceutical products which may only be sold in pharmacies, even if the mail ordering is processed or supervised by a pharmacy.

b) Jurisdiction

Recent jurisdiction has brought about some extensions and clarifications as well as some substantive changes to German Unfair Competition Law.

aa) Comprehensive Clause, Section 1 German Unfair Competition Act

- Cold Calling, Unsolicited Fax and Unsolicited Email

The regional courts of Traunstein, Berlin and Ellwangen have extended the jurisdiction on unsolicited advertisements by mail and fax to unsolicited email advertising (spam). Thus, in Germany email advertisements are held illicit if they are sent without prior express or implied consent by the recipient. It remains to be seen how the recipient can consent to receiving email advertisements. Merely visiting a website will most likely not be regarded as prior business contact which allows for the sending of email messages.

Written consent may be disputed in certain cases. The highest German civil court (Bundesgerichtshof, hereinafter BGH) held that written consent to cold calling is invalid if it was given when a bank account was opened although the respective form had been presented separately from other general terms and conditions.

- Disguised Advertisement

The BGH has confirmed a number of higher regional courts that the publication of edited articles which excessively contain advertising comments infringes sec. 1 Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb). The same applies to editorial articles citing only a commercial source of information without identifying it.

- Excessive Enticement

The BGH seems to have raised the requirements for illicit excessive enticement (i.e. the claim must have such a strong impact on consumers that they decide to buy a product or service for reasons that are not related to the product or service involved). As acceptable advertising measures it regarded for instance sales promotion with the free assembly of bindings on skies, with a gratuitous jewellery set, with an “environmental bonus” of 500 Euro for the installation of a natural gas heating system, or with a mobile phone for 0 Euro if the telephone contract had to be concluded at the same time. With regard to advertising for link offers the BGH confirmed that such an advertisement is only illicit if the price of the link offer is reduced to a point which does not allow for a reasonable economical analysis any more.

- Emotional Advertising

According to a judgement of the BGH of 22 April 1999, emotional advertising only infringes sec. 1 Unfair Competition Act if it has such a deep emotional effect on the addressee that the emotion supersedes economical considerations. An advertisement for a dietary product may, therefore, mention diseases, such as diseases of the pancreas, in which the respective diet might be recommended (WRP 1999, p. 915).

If the advertising implies an emotional reward for buying a certain product, however, the courts tend to judge emotional advertising more strictly. This is the case, for instance, if advertisements contain environmental or social appeals. The higher regional court of Stuttgart held on 18 September 1998 that advertising for a chocolate infringes sec. 1 German Unfair Competition Act if the producer emphasises an association with the World Wildlife Fund (WWF) and announces an initiative to protect endangered species under the heading “choc for life” (WRP 1999, p. 456).

- Restraint of Competition

In the above-mentioned environmental bonus decision the BGH also elaborated on the use of a monopoly position by public authorities, as the bonus was offered by the town’s department of works. The court held that public authorities may participate in a competitive market if such participation is reasonable from an economic point of view. This is inter alias the case if the measure is suitable to serve the public interest.

- Protection of Selective Distribution Systems

The BGH had to decide on the question whether the removal of a production number constitutes a breach of the Unfair Competition Law. It held that the use of production numbers is a legitimate measure to control distribution in a selective distribution system if such a system is based on valid contracts between the producer and the distributors. Therefore, the removal is deemed a breach of competition, even if the distribution system is not complete and in practice contains loopholes.

- Comparative Advertising

In what was probably the most influential decision of 1998, the BGH reversed its jurisdiction on comparative advertising. Surprisingly, the court directly applied the EU Directive 97/55/EC before it was transformed into national law (judgement of 5 February 1998, BGHZ 138, p. 155). It held that comparative advertising must per se be considered admissible if it observes the requirements enumerated in art. 3 a para. 1 lit. a to h of the EU Directive. This landmark decision was a starting point for further jurisdiction such as a decision of 15 October 1998 (BGHZ 139, p. 378). The court in that case deemed the request to compare the prices with those in another manufacturer’s catalogue permissible. The judgements are not only remarkable for their reversal of jurisdiction, but also because the national court applied a standard set in an EU directive before its implementation.

- Breach of Law

According to German jurisdiction not every breach of law is deemed unfair competitive conduct because according to sec. 1 German Unfair Competition Act a right to forbearance or a claim for damages requires an infringement of bonos mores. If the infringed provision has no direct connection to unfair competition law, the courts as a rule regarded the infringement as unfair competitive conduct if the provision comprised a moral value. In contrast, if a morally neutral provision is infringed, the complete competitive conduct must be evaluated to determine whether the breach of law impairs public morals. However, in a judgement on 3 December 1998 (BGHZ 140, p. 134) the BGH held that a breach of moral provisions cannot be judged under unfair competition law if there is only “little danger” of an infringement of interests protected by sec. 1 German Unfair Competition Act. In these cases (as in cases where only neutral provisions are infringed) the complete competitive conduct and especially its occasion, purpose and the means used must be evaluated.

In a number of cases regarding the Decree on Price disclosure (Preisangabenverordnung) the BGH held that advertisements for free mobile phones only comply with legal requirements if the additional costs for the telephone contract and the calculations basis for the call charge are clearly indicated.

The courts had to decide in a number of cases concerning the breach of professional rules and regulations. Lawyers are allowed to objectively advertise their services which includes mentioning special qualifications and up to three main fields of activity. The BGH deemed inappropriate the indication of twenty years of experience on the job and an assorted list of main fields of activity. Tax consultants also may participate in a trade exhibition and display their firms’ brochures. Physicians, however, are not allowed to advertise for their practice. Sending out informational material about cancer therapy to potential patients therefore constitutes a breach of Unfair Competition Law.

- Exploitation of Another’s Accomplishments

The BGH extends its jurisdiction regarding the imitation of certain criteria of design in a judgement on 5 March 1998 (BGHZ 138, p. 143) by stating that such imitation may constitute a breach of Unfair Competition Law, even if the criteria of design have been imitated by a large number of other competitors before.

bb) Misleading Advertising, Section 3 German Unfair Competition Act

The years 1998 and 1999 brought about an important change in the definition of a consumer used to evaluate the misleadingness of advertisements following the ECJ decision of 16 July 1998 (C 210/96, Gut Springenheide). The BGH now also seems to use the model of consumers who are reasonably well-informed, observant and circumspect. The court applies the ECJ’s definition more or less openly but in a judgement of 19 August 1999 (WRP 1999, p. 1155) expressly referred to an observant consumer.

In a number of cases the BGH supplements its jurisdiction on misleading by omission. The advertiser is not obliged to mention all the negative characteristics of a product or service. However, the consumer must be informed if he has a legitimate interest in knowing the disadvantages of an offer, for instance if a product with a reasonable price is tied to a more expensive service the price of which is not clearly distinguishable. A duty to inform also arises if a product is offered the production of which has expired and if it’s successor is already sold on the market. The court also held advertisements to be misleading if the advertised product is not available in stores for a reasonable amount of time, if a car is advertised as brand new when in fact the car is imported from another EU country and this results in a reduction of the guarantee period, and if computer programmes on a CD-ROM are advertised without indicating that most programmes are demonstration versions (shareware).

cc) Special Sales and Clearance Sales, Section 7 German Unfair Competition Act

In Germany, anniversary sales are only admissible if the number of years of the firm’s existence is divisible by 25. However, the BGH ruled in a number of cases that an advertisement with an anniversary not divisible by 25 does not constitute a special sale if the advertisement contains the same amount of single special bargains as if usual in the firm’s advertisements or if a promotional booklet contains only a single anniversary offer.

The higher regional court of Berlin (Kammergericht) held on 13 November 1998 that so-called “happy hours” must be regarded as special sales (WRP 1999, p. 342). A happy hour is therefore only licit if can be regarded as common trade practice, such as a happy hour in cocktail bars. The court held that a happy hour of an optician during which a discount of 25 % on all products is offered to customers could not be regarded as common trade practice and therefore infringed sec. 1 German Unfair Competition Act.

dd) Gifts and Premiums

According to the German Decree on Premiums/Gifts (Zugabeverordnung) it is not allowed to offer a free additional product or the free performance of an additional service with another (main) product or service. Therefore, the BGH held that the lifelong guarantee on clothes of Land’s End, which was not related to the quality of the product, and the offering of gratuitous bonus miles for payments with the credit card must be considered illicit in Germany.

ee) Discounts

The German Act on Discounts (Rabattgesetz) in general does not allow for discounts of more than 3 % if goods for everyday use are sold to consumers. The BGH did not accept the revision in two cases concerning the distribution of coupons offering a price reduction of up to 50 %. The court also deemed the offer to assemble any two CDs and sell the set for less than the price of one of these CDs as illicit rebate.

2. Cartel law

a) Legislation

The years 1998 and 1999 were marked by re-enactment of the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen, GWB) becoming effective 1 January 1999.

aa) Horizontal cartels

In sec. 1 Act against Restraints of Competition the civil law approach that a horizontal cartel is deemed “invalid” has been replaced by a clear prohibition of agreements between competing undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition. The exemptions from sec. 1 have been restructured. Agreements whose subject matter is merely the uniform application of standards or general terms and conditions, agreements with regard to the rationalisation of certain economic proceedings through specialisation, with regard to the adaptation to a structural crisis and, as a comprehensive clause, other arrangements which may be advantageous for consumers and do not at the same time lead to the creation or strengthening of a dominant position may be exempted by the cartel authorities. The stipulation requiring such arrangements to be in written form (the former sec. 34) has been eliminated.

bb) Abuse of a Dominant Position

The definition of a dominant position on the market was left unchanged by the re-enactment. In contrast, the concept of abuse was greatly aggravated by replacing the mere administrative control of abusive practices by an immediately applicable prohibition. The examples of an abuse of a dominant position enumerated in sec. 19 para. 4 Act against Restraints of Competition have been amended and now include the abuse by preventing access to essential facilities such as networks and infrastructural facilities.

Due to the very narrow jurisdictional interpretation of the regulation on discrimination by market-dominating enterprises by sale of goods below cost price, sec. 20 para. 4 Act against Restraints of Competition has been amended. The sale of goods below cost price now constitutes an inequitable restraint of competition if it does not occur merely occasionally and if it is not objectively justified.

cc) Merger Control

The most notable change in merger control by the re-enactment occurred in the registration procedure. While before the re-enactment the authorities could be notified in some cases after the merger occurred, now each merger falling under sec. 37 and 35 Act against Restraints of Competition must be registered with the Federal Cartel Office.

b) Jurisdiction

While legislation has undergone major revision, there are only a few new developments in recent jurisdiction.

aa) Horizontal Agreements

In the case “carpartner” (NJW 1998, p. 2825) the BGH confirmed earlier decisions that the restraint of competition has to be assessed not only by evaluating the written agreement between the competitors, but also by taking into consideration the manifested intent of the contracting partners. In the same decision the court held that a horizontal agreement only infringes sec. 1 Act against Restraints of Competition if it has a noticeable effect on competition.

In a number of cases the higher regional courts had to decide on the exemption for purchasing pools or purchasing co-operations according to sec. 4 para. 2 Act against Restraints of Competition (the former sec. 5 lit. c). The courts restricted the accumulation of demand by local communities, for instance when communities jointly sought to buy fire-fighting equipment.

With regard to the abolition of the requirement of the written form for exempted horizontal agreements, the BGH clarified that an agreement which was deemed invalid before the re-enactment became valid only if the restraining clause has been expressly confirmed by the contracting partners after 1 January 1999.

bb) Abuse of a Dominant Position

The Federal Cartel Authority already had to decide on a number of cases concerning the access to essential facilities. They applied sec. 19 para. 4 no. 4 German Act against Restraints of Competition not only to “traditional” transportation facilities such as ports or railways, but also to other infrastructural facilities such as telephone wires and gas and water pipes. However, the cartel authorities have not decided on the question if “virtual” facilities such as internet shopping platforms or online directories may also constitute essential facilities. In a decision of 12 May 1998 the BGH decided on the legal consequences of an abuse of a dominant position according to art. 85 ECC (WRP 1999, p. 203). The court held that art. 85 ECC prohibited discriminatory practices in selective distribution systems, but that it did not contain a duty to deliver. The legal consequence of a breach of art. 85 ECC could therefore only be a fine but not the obligation to supply goods or to offer services. Two higher regional courts had to decide on the delimitation of licit information about a product and illicit calls to boycott a product. The courts ruled that the legitimate interest to justify the publication of information which may lead to a boycott must be interpreted narrowly. Members of an organisation may therefore be informed about irregularities of an examination procedure or admission procedure, if these regularities have been certified by independent studies. However, such information may not contain the direct request to favour certain competitors which offer the same examination or admission services.

cc) Merger Control

The BGH confirmed the Federal Cartel Authorities’ interpretation that the relevant market for merger control can only be the territory of the Federal Republic of Germany. But actual or potential competition from other countries must be considered, according to the BGH, if it influences the German market situation. This trend to take note of the international competitive situation has been taken up by the Federal Cartel Authorities.

For the first time, the Federal Cartel Authorities evaluated a vertical merger. The German publishing house Axel Springer Verlag purchased 24 % of a company trading with books and journals. The purchase was considered to be a merger according to sec. 23 para. 2 no. 6 German Act against Restraints of Competition (sec. 37 para. 1 no. 4 German Act against Restraints of Competition after the re-enactment), because the minority participation allowed Springer to actively promote and control the sale of its own products to the trading house.

As in the years before, one of the main fields of activity for the Federal Cartel Authorities was the control of the merger of local and regional energy suppliers.

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© Dr. Jan Kaestner
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