The German Federal Supreme Court ruled that the purchase of a licence for publishing the German edition of “National Geographic” did not constitute a concentration within the meaning of the Act against Restraints of Competition (ARC)

26 March 2007

Shiraz H. Kutar

The German Federal Cartel Office (FCO) considered the acquisition of the licence of the German Edition of “National Geographic” by the Gruner + Jahr AG & Co. KG (G+J) to be a concentration and prohibited it retroactively as it resulted in the strengthening of a dominant market position. In 1999 G+J had established a joint venture with the Spanish enterprise RBA Publicaciones Internaticionales, S.A. (RBA). G+J published the German Edition together with this joint venture.

According to the FCO, G+J had failed to notify the purchase of the licence as G+J had acquired control over parts of another undertaking within the meaning of Sec. 37 para.1 No. 2 Sentence 2 a) ARC.

This acquisition of control was thus the result of purchasing a substantial part of the assets of the seller. It was not considered relevant that no turnover had yet been achieved with the German edition. The FCO reasoned that G+J did not have to introduce a new title into the market but instead profited from the high profile and market potential of the already available English Edition. The new German Edition therefore received more attention than another new magazine would have. The FCO saw a confirmation of its argument in the fact that G+J would not have agreed to a ten year licence agreement with high royalties if it had not expected to step into an existing market position. Accordingly, the purchase had led to a dominant position for G+J in the market for popular science magazines in Germany owing to the market potential of the licence.

The regional high court of Düsseldorf overruled this decision and argued that in this particular case, the purchase of the licence had not constituted a concentration within the meaning of Sec. 37 para. 1 ARC and therefore did not fall under the German merger control rules. It established that the purchase of this particular licence did not constitute an acquisition of a substantial part of an asset. For the determination of the element of a “substantial part” the Court referred to former case law and stated that a part is substantial if it is quantitatively sufficiently high in relation to the total assets of the seller or if it is, independent of the question of the quantity, qualitatively of significance. The Düsseldorf Court stated that for the case on hand the question of quantity was not to be considered. It rather asserted that for the qualitative assessment it was decisive that the asset part in question provided for the abstract ability to change the position of the purchaser on the relevant market in which he was already acting. This was the case when the purchaser could step into an existing market position and therefore strengthened his position.

According to the Düsseldorf court this condition had not been fulfilled. By purchasing the licence G+J had got merely the possibility to gain a market position, but could not step into an existing market position as a German Edition of “National Geographic” had not yet been published. Even though the English Edition was very well known, this did not suffice for there to be existing market position in the relevant German market.

The Düsseldorf Court also overruled the FCO’s decision that it would be possible to circumvent merger control if one required an existing market position of the seller, as the seller could licence its intellectual property right to a third party. The Court ruled that it was sufficient that either the seller or an authorised third person had acted in the relevant market prior to the purchase.
Finally, the Court also referred to the Commission Notice on the concept of concentration under the EU Merger Control Regulation. It quoted that “the assets in question, which could be brands or licences, must constitute a business to which a market turnover can be clearly attributed”.

This decision was upheld by the German Federal Supreme Court upon appeal on 10 October 2006. The Federal Supreme Court reasoned, in line with the Düsseldorf Court, that the purchase of the licence did not constitute a concentration within the meaning of the ARC.

According to a first public statement of the Federal Supreme Court it also referred to the definition of an existing market position; obtaining merely the possibility to acquire such a position does not suffice, according to the Federal Supreme Court.
This decision shows that even the mere purchase of a licence can fall under the provision of German merger control. Even though the Federal Supreme Court ruled that the purchase did not constitute a concentration, it has to be remembered that this was due to the fact that G+J did not step into an existing market position because no turnover was attained prior to the purchase. In other cases where intellectual property rights have already been used to attain a turnover, either by the owner of the intellectual property or an authorised third person, then a market position exists and the purchaser of such a licence should be aware that the purchase could fall within German merger control rules. These rules provide for a mandatory pre-merger notification requirement which, if not observed, may result in null and void agreements and administrative fines.

Source: http://www.bundesgerichtshof.de