Facebook/Kustomer – Germany’s attack on the EU’s One-Stop-Shop principle in merger control?

The German Federal Cartel Office (FCO) has initiated new proceedings against Facebook. It was already investigating Facebook under the new rules in relation to online platform companies. It is now assessing whether Facebook’s plans to acquire the start-up Kustomer fall under the scope of German merger control. 

Interestingly, the transaction is already currently under merger control review by the European Commission (EC). Normally the “One-Stop-Shop principle” for merger control in the EU would not allow the national authority of a Member State to open parallel proceedings. So why is the FCO looking into this?

What happened so far?

The Facebook/Kustomer transaction was referred to the EC under Article 22 EUMR for EU merger control review in April by the Austrian authority (to which the transaction was notified) who was joined by nine other Member States. 

U.S-based Kustomer was founded in 2015 and is a software as a service (SaaS) CRM platform. Kustomer specialises in offering chatbots, i.e. customer service agents for business customers to manage communications with consumers in an automated process. 

The EC accepted the referral noting that the transaction might affect competition in the markets for CRM software and online display advertising services. On 2 August 2021 the EC opened in-depth investigations into the transaction. The EC in particular is concerned that the transaction could further strengthen Facebook's market position in the online display advertising market by increasing the already significant amount of data available to Facebook for personalisation of the ads it displays.

Germany was not one of the nine referring Member States and although it is on one of the top five jurisdictions asking for or joining referrals under Article 22 EUMR it has so far not decided to do so in respect of Facebook/Kustomer. Why?

FCO approach vs. Article 22 EUMR Guidance

In its press release the FCO refers to its “general practice” that a referral requires a transaction to be subject to notification based on national merger control rules, which in the present case “still must be clarified”. 

Because the Facebook/Kustomer deal does not meet standard German turnover thresholds, the FCO is exercising a rarely used option to examine in ex officio proceedings a filing obligation under the transaction value threshold. 

To do so the parties’ combined worldwide turnover must exceed € 500 million, one party must have generated more than € 50 million in Germany, the value of the transaction must exceed € 400 million and the target must have “substantial operations” in Germany. This last requirement of “substantial operations” triggered the FCO’s official information request.

The German watchdog’s approach is surprising as only recently the EC issued new guidance on Article 22 EUMR referrals which clarified that the EU accepts referrals in cases where the referring Member State does not have initial jurisdiction over the case.

It highlighted that referrals are important to capture transactions in the digital economy as well as in the pharmaceutical and other innovative sectors with strong competitive potential, but less turnover – where there is potential for transactions to fly under the competition authorities’ radars (see here for further information).

The FCO is flexing its muscles

The FCO easily could have relied on the new guidance and joined the EU referral without examining its own competence to review the case.

But apparently the FCO – once again – is going its own way. Its president Andreas Mundt has stated that Facebook will have to submit the relevant documents for examination immediately if it turns out that the transaction falls within the scope of German merger control.

But one important question remains: How does this fit with the EU’s One-Stop-Shop principle?

Although the EC is entitled to assess the Facebook/Kustomer case on the basis of the referral, it can only look into competitive effects in those jurisdictions which originally referred the case – which in this case was Austria. This clearly follows from the 2005 EC Notice on Case Referrals in respect of concentrations (para. 50, footnote 45). Therefore, the FCO is in fact entitled to open parallel proceedings.

What’s happening next?

As surprising as it may seem, in theory, the FCO could issue a separate decision for Germany, even contradicting the EC’s decision. However, this seems unlikely here as the markets in question are global .  

The FCO’s move nevertheless shows that the authority wants to be on the forefront in relation to digital markets. It is also possible that the FCO intends to get some further insights into Facebook’s activities in Germany for its ongoing “gatekeeper” proceedings. The FCO has not reacted yet to the EC's decision to closely review the transaction.