German competition authority imposes high fine for 'gun-jumping'

Today the Bundeskartellamt ("FCO") has fined a US-based company EUR 4.5 million for 'gun-jumping' in Germany. This is the highest fine ever imposed by the FCO for implementing a transaction before clearance and as such appears to be in line with the tougher stance competition authorities in Europe are prepared to take for infringements of procedural law.

Pursuant to Section 41(1) of the Act Against Restraints of Competition ("ARC"), concentrations which meet the turnover thresholds laid down in Section 35 ARC, and which are thus subject to the notification requirement under Section 39 ARC, may not be implemented prior to the approval of the FCO. Thus, the German notification requirement, like the US HSR requirement, is "suspensory", and effecting control over the target before the approval of the FCO constitutes gun jumping. According to Section 81(2) para. 1 ARC, such gun jumping is subject to a fine of up to 10% of a company's annual turnover.

In this recent case, following the end of the US HSR waiting period, the US-based company acquired the majority of the target's voting securities, providing it with control over the target's worldwide assets including production facilities and IP-rights. With a view to the ongoing merger control proceeding in Germany, the acquiring company transferred the distribution rights for the target's products in Germany to a third party. Accordingly, the FCO concluded that the company had intentionally violated the obligation under German competition law not to exercise control over the target prior to FCO approval. In setting the fine, the FCO also took account of the fact that the company cooperated during the gun-jumping investigation and divested relevant IP-rights covering the German market as well as granting a license to a third party.

This is the first time that the FCO based a fine for gun-jumping on its "guidelines on the setting of fines" of 15 September 2006. This conduct shows clearly that the FCO is determined to take a tough position even regarding minor acquisitions if the relevant parties deliberately violate the stand still obligation, at least if the transaction is likely to raise substantive competition issues.

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