Future substantial domestic operations in German Merger Control?

One of the major topics of merger control will continue to be so-called killer acquisitions. This term describes cases in which an incumbent company acquires an innovative and still developing target. Due to a lack of relevant turnover of the target, these mergers are often below the respective turnover thresholds and are therefore not subject to merger control. Nevertheless, innovative targets may have great current or future impact on competition. The question therefore arises as to how such acquisitions should be captured for review. Since the European Commission can no longer review below-threshold-transactions following the Illumina/Grail ruling of the European Court of Justice (ECJ), the big question is: Should and, if so, how should killer acquisitions be captured by merger control in the future?

The discussion currently focuses on two options: Call-in powers and a modification of transaction value thresholds. Following the Towercast-judgement of the ECJ, reviewing transactions ex-post via the cartel prohibition or abuse of dominance rules might also be an option, but will not be discussed in this post.

Call-in powers

Call-in powers are intended to allow competition authorities to call-in certain mergers that would not be notifiable under their respective turnover thresholds. Among others Denmark, Ireland and Italy already have such call-in powers (in some cases with additional conditions).

The Italian competition authority recently used this to call-in the planned acquisition of Run:ai by Nvidia. It then referred the case to the EU Commission pursuant to Art. 22 EUMR. Although the Commission cleared the merger without conditions in December 2024, Nvidia has now challenged the Commission’s acceptance of the referral before the General Court (proceeding T-15/25).

Call-in powers appear to be an effective and flexible solution for reviewing killer acquisitions under merger control law. Margrete Vestager, at that time Executive Vice President and Commissioner for Competition, emphasised the importance of call-in options in the statement she made in response to the ECJ’s Illumina/Grail ruling.

However, they are not undisputed. The main point of criticism is the legal uncertainty for companies as to whether a merger is still subject to notification even if it does not meet the merger control thresholds. Such legal uncertainty can lead to an increase of preventive notifications and thus also hinder antitrust authorities. One critic of call-in powers is Andreas Mundt, President of the German Federal Cartel Office (FCO). He points out that call-in powers lead to legal uncertainty and lack of predictability (– “the opposite Leitmotif of the ICN recommended practices and the OECD Recommendations”).

Consideration of future substantial domestic operations

In a speech in December 2024, Mundt supported the inclusion of “future substantial operations” in Germany in the transaction value threshold.

This view also relates to Microsoft/Inflection AI. The transaction is known as a so-called ‘acqui-hire’ case (we blogged about it here). The FCO has qualified the acquisition of key personnel (together with other factors) as a merger under German merger control laws. Nevertheless, the FCO was not competent to review the transaction as Inflection AI did not have substantial operations in Germany. Inflection AI provides a Chatbot and the current number of users in Germany was deemed too low to be considered a substantial domestic operation. However, the FCO assumes that Inflection AI would be significantly active in Germany in the future.

Substantial domestic operations

So far, a merger must be notified to the FCO in accordance with the transaction value threshold in Germany if, among other conditions, the target has substantial operations in Germany.

Together with the Austrian Federal Competition Authority, the FCO has published guidelines for the transaction value threshold. According to these guidelines, the principles for a substantial domestic operation are basically the following:

• A substantial domestic operation is generally not linked to domestic turnover. However, an exception applies if the market is a mature market characterised by turnover.
• The substantial domestic operation should be linked to indicators of the respective industry. In the digital sector, these could be user numbers (monthly or daily active users) or the frequency of website access.
• The substantial domestic operation has to be a current activity. The relevant timing is the completion of the merger.

Future legal certainty provided by case practice?

The (possible) introduction of “future substantial domestic operations” might be compared with the introduction of the concept of “material competitive influence”, another special feature of German merger control. Over the years, the authorities and courts have specified the understanding of “material competitive influence” and developed a case practice helping to create legal certainty to a certain extent.

The same may also be the case for “future substantial domestic operations” – even if it takes some time until sufficient case practice has developed to provide legal certainty The case law on the term “current substantial domestic operations”, which was introduced in 2017 is, however, still rather limited.

Including future operations is not a new idea

Considering not only the current but also the “future substantial domestic operations” of companies is not a new idea of the FCO. In fact, when the transaction threshold was introduced in 2017, the Federal Ministry of Economic Affairs already proposed taking into account whether a company ‘is or is likely to become active in Germany’. In terms of time, the forecast period should have been 3 to 5 years. However, this approach was not adopted when the transaction value threshold was introduced.

In its 2022 Biennial Report, the German Monopolies Commission also recommended including “future domestic operations” (or even deleting the requirement of substantial operations entirely). Considering “future domestic operations” was deemed appropriate since the transaction value threshold is aimed at cases in which the activity or markets are still young and developing. The Monopolies Commission reiterated this advice in its recent recommendations for the new German government (see our post here).

Thorsten Käseberg, Head of Competition Policy at the Federal Ministry of Economic Affairs, recently described the limitation of the transaction value threshold to current domestic operations as a “weakness” and stated that the Ministry is continuing to work towards resolving this shortcoming.

Against this background, it does not seem unlikely that “future substantial domestic operations” in Germany will soon be included in the transaction value threshold.

Conclusions

The discussion leaves me with three conclusions:

• From the perspective of regulators, adjusting the notification criteria for mergers in times when activities and markets are changing and becoming more dynamic seems reasonable.
• However, any adjustments should not lead to more legal uncertainty. The FCO and, above all, the courts should ensure that the framework provides legal certainty.
•  In terms of legal certainty including a company’s “future substantial domestic operations” at least seems like the better choice compared to call-in powers.

Photo by Justin Ha on Unsplash