In recent months, there have been several significant developments in German case law concerning the transaction-value based threshold under section 35 (1a) of the German Act against Restraints of Competition (ARC). After several decisions by the Higher Regional Court of Düsseldorf as the court of first instance, now the Federal Court of Justice (BGH) has issued its first decision on the scope of the transaction-value based threshold in the Meta/Kustomer case (Case KVR 77/22), thereby overruling the decision of the previous instance, the Higher Regional Court of Düsseldorf.

The Higher Regional Court of Düsseldorf had rejected the obligation to notify Meta’s acquisition of Kustomer on the grounds that there were no significant domestic activities and therefore classified the administrative costs the Federal Cartel Office (FCO) imposed on Meta as unlawful. In contrast, the BGH now clarified that a low threshold applies to assume significant domestic activity, thus expanding the FCO’s powers for preventive merger control. 

Practical implications

With its decision in Meta/Kustomer, the BGH has again expanded the application of German merger control in dynamic, data-driven markets after the Higher Regional Court of Düsseldorf applied a narrower understanding. The BGH has now set the threshold for ‘significant domestic activity’ very low, as initially enforced by the FCO, emphasising the importance of the generally recognised effects doctrine and non-financial parameters such as data access and innovation potential, in determining whether the transaction-value based threshold applies.

Nonetheless, since the legislator has refrained from specifying objective, quantifiable criteria for determining significant domestic activity, a certain degree of legal uncertainty remains in relation to the criterion of ‘significant domestic activity’ under section 35 (1a) No. 4 ARC even after the decision. Considering the BGH’s interpretation of section 35 (1a) ARC and the low threshold for assuming ‘significant domestic activity’, companies will need to adopt a more cautious and thorough approach in their merger assessment. 

The BGH highlighted that traditional turnover figures are not suitable indicators of competitive potential in all cases – particularly in data-driven business models. Instead, quantitative indicators such as the number of monthly active users or website visitors may be relevant for determining ‘significant domestic activity’ but may vary from case to case. 

The BGH’s reasoning in relation to mature markets, that is, that the application of the transaction-value based thresholds is not automatically precluded, is also a strong indication that it might overturn the decision of the Higher Regional Court of Düsseldorf in the Adobe cases (see our recent briefing here) further underlining the broad scope of the transaction-value based threshold.

Conditions for application of the transaction-value based threshold

§ 35 (1a) ARC sets out five conditions for the application of the transaction-value based threshold:

1. The combined turnover of all parties involved exceeds €500 million;
2. The domestic turnover of at least one party involved exceeds €50 million;
3. The domestic turnover of none of the other parties involved exceeds €17.5 million;
4. The transaction value exceeds €400 million; and
5. The target has “significant domestic activity“.

Significant domestic activity

A central aspect of the decision concerns the interpretation of the criterion of ‘significant domestic activity’ (section 35 (1a) No. 4 ARC). In line with the local nexus provision in section 185 (2) ARC, the BGH clarified that when assessing domestic activity, the effects of an action must always be considered (the ’effects doctrine’). The BGH held that it is sufficient that the target engages in economically noticeable activity with a domestic nexus that can give rise to competitive concerns at the time of notification. The processing of German end customer data by Kustomer for its business customers was classified as domestic activity as such – even if there are no direct contractual relationships with German end customers. The decisive factor was that this data processing on behalf of a controller could open up a competitively relevant potential for the acquirer (Meta) on the domestic advertising market, even if Meta cannot currently access the data due to legal restrictions.

The BGH clarified that the argument whereby domestic turnover alone reflects the competitive potential of the target in mature markets is only valid in exceptional cases. If the domestic turnover threshold is not met, but the transaction-value based threshold is met, the BGH presumes that turnover itself may not adequately capture that target’s market significance, particularly in data-driven business models. In such cases, the transaction-value based threshold serves as a necessary supplementary tool to ensure that competitively relevant acquisitions do not escape German merger control solely due to low current revenues. The BGH emphasised the supplementary function by stating that the transaction-value based threshold is secondary to the turnover threshold.

According to the BGH’s interpretation of the legislative intent to apply the transaction-value based threshold broadly, the threshold for significance should be set low. A noticeable impact is sufficient, and only marginal activities should be excluded from the scope of German merger control.