Germany had its second and, for the moment, last round of hearings concerning a designation by the Bundeskartellamt under Sec. 19a para. 1 GWB! A lot of what was discussed seemed like a déjà-vu for those who have followed Amazon’s line of arguments back in April 2024. But the hardware icon Apple has also tried out some new ways to convince the German judges of the competition law senate that it is different from the other Big Tech firms. We have summarized some of the gems of the hearing for you, before the final ruling on the 18th of March.
By the SCiDA Team
While the eyes of the EU competition bubble were set on Luxembourg and the hearing in the landmark Google Android case, a small fraction of the German competition law bubble gathered in front of the German Federal Court of Justice (Bundesgerichtshof – BGH) in Karlsruhe on an early morning in January. Press, Big Tech and Anti-Big Tech representatives were keen to hear how the Apple would attempt to escape designation by the Bundeskartellamt under Sec. 19a of the German Act against Competition Restraints (Gesetz gegen Wettbewerbsbeschränkungen – GWB) after Amazon had been unsuccessful almost a year ago. They were not disappointed – the almost 4-hour long hearing provided a number of insights into areas of agreement and disagreement, strategies and weak-points regarding designation under Sec. 19a para. 1 GWB.
The Who is Who
The Court was headed again by chief justice Prof. Dr. Wolfgang Kirchhoff who led through the hearing with stoic patience, accompanied his senate colleagues Dr. Roloff, Dr. Picker, Dr. Holzinger and Dr. Kochendörfer.
Apple’s front row was assembled with the BGH lawyer Dr. Thomas Winter, and Gleiss Lutz lawyers, Dr. Ines Bodenstein (reportedly nominated to join the ranks of BGH lawyer herself) and Dr. von Köckritz. The Bundeskartellamt was present with its well-tried equipe and frontman Jörg Nothdurft, head of the litigation division who presented the Bundeskartellamt’s findings once again with his illustrative rhetorics that left his audience with the gut feeling that there is only one right answer to the question whether Apple is of paramount significance for competition across markets.
The Background
Subject of the case was Apple’s paramount significance for competition across markets under Sec. 19a GWB. The German provision is a modified abuse control law introduced to the German Competition Act in 2021 to capture the specific anticompetitive potential of digital platforms and place them under stricter control. For this purpose, Sec. 19a GWB requires two steps from the Bundeskartellamt: First, to designate digital platforms as undertakings of paramount significance for competition across markets based on the criteria listed in Sec. 19a para. 1 No. 1-5 GWB. Second, to investigate and eventually remedy any infringements of the list prohibitions contained in Sec. 19a para. 2 GWB.
So far, the Bundeskartellamt has designated Alphabet, Amazon, Meta, Microsoft and Apple as undertakings of paramount significance for competition across markets. Besides Amazon, only Apple appealed its designation in which the Bundeskartellamt found every criteria for designation listed in Sec. 19a para. 1 GWB to be met. To accelerate judicial review, the German legislator decided that the BGH should be the first and last instance to rule on Sec. 19a GWB cases.
The Cornerstones of Apple’s Appeal
At the beginning of the hearing, the court briefly summarized what everyone is well aware of: Apple is among the most valuable companies in the world, in particular looking at its brand value. The (formely) walled garden of the Apple ecosystem consists of numerous Apple products and services, including its hardware, operating systems and software. A couple of impressive turnover and other numbers followed. Thus far, it sounded like a straightforward case to designate an undertaking of paramount significance for competition across markets under Sec. 19a para. 1 GWB. The Court shared its preliminary views: green light for the Bundeskartellamt, except for some misconceptions concerning market dominance and switching barriers findings. Whether the BGH’s views have prevailed after hearing the parties’ arguments is, however, unclear.
The criteria in no. 2 and 3 of Sec. 19a para. 1 GWB to establish paramount significance for competition across markets seemed rather unproblematic for all sides: The Bundeskartellamt referred to the criterion in no. 3 (vertical integration and otherwise related markets) as the “ecosystem criterion” which transforms a platform to an ecosystem, whereas the criterion in no. 2 (financial strength and access to other resources) would serve as an ecosystem amplifier that can transform the ecosystem into an undertaking of paramount significance for competition across markets. For everything else, however, Apple fired a cascade of objections from its ammunition box against its designation under Sec. 19a para. 1 GWB …
The relation between DMA and Sec. 19a – Really an act clair?
The request for a preliminary ruling on the question whether Sec. 19a GWB qualifies as national competition law under Art. 1(6) DMA instead of national regulation with the same objectives as the DMA pursuant to Sec. 1(5) DMA was dismissed by the BGH as an act clair in its decision on the Amazon appeal. Apple urged the court to reconsider its decision. After all, the abbreviated (Apple: “monopolized”) judicial review of Sec. 19a-designations of only one instance puts the BGH itself into a gatekeeper position, controlling access to Art. 267 TFEU, Apple argued. Not entirely precise, as there is room for an appeal to the constitutional court in such a situation.
The arguments Apple brought forward were heavily based on a number of publications, above all Mario Draghi who called out uncertainties introduced by Art. 1(6) DMA – and on the DMA legislative history which is, according to Apple, everything else but clear.
Surprisingly, the Bundeskartellamt seemed generally open for the idea of a request for a preliminary hearing in Sec. 19a para. 2 cases – but not in relation to designations under Sec. 19a para. 1 GWB. What should the Court of Justice of the European Union (CJEU) decide on in the case at hand, the Bundeskartellamt asked? After all, a request for a preliminary ruling must concern the interpretation of EU law, not national law. And it is the interpretation of Sec. 19a GWB which is decisive and should be interpreted in accordance with Union law. Apple disagreed, whether a provision should be considered national competition law would be a question which must be clarified from an EU law perspective, to avoid divergencies across member states.
The BGH had initially waved away Apple’s claim to request a preliminary ruling by simply referring to its Amazon decision. Giving up its resistance and involving the CJEU, reversing its own course (and listening to other authorities like Mario Draghi) seems therefore still like an unlikely option for the BGH.
Apple’s DMA designation and obligations preclude an application of Sec. 19a GWB
Apple’s claim that its designation and obligations under the DMA are a significant change of factual circumstances was considered irrelevant by the BGH for designation under Sec. 19a GWB. Apple argues that its designation of iOS, App Store and Safari as core platform services under the DMA leaves no more room for Bundeskartellamt investigations under Sec. 19a para. 2 GWB. In light of the ongoing Sec. 19a para. 2 GWB proceeding concerning its App-Tracking-Transparency-Framework, this seemed more like a wild arm-waving exercise of the appellant instead of a solid argument. The BGH goes even further to argue that DMA-designations do not matter for 19a-desginations: The fact that Apple had to make numerous changes to its business model under the DMA did not reveal that market participants were benefitting of these changes to a significant extent, according to the BGH. The court referred to the Android operating system, where, for example, the option to download an alternative app store did not change Alphabet’s market share of 90% for its Play Store. The court also mentioned Apple’s warning screens that would deter users from making use of Apple’s alternative app distribution which now allows sideloading of apps from the web and alternative app stores on Apple devices. The court applied the same rationale to new options for app developers under the DMA: Web apps are no alternatives to the App Store, according to the court as the actual usage of such alternatives not the technical capabilities are decisive. According to the court, the DMA-induced changes would only matter if users would capitalize on them to a significant extent. This seems like a rather stunning finding and leaves us with the question: Is the BGH assessing effective compliance under the DMA?
Apple’s proposed benchmarks for designation under Sec. 19a GWB
Apple’s straightforward critique of the BGH’s shortcomings in its Amazon decision was not limited to the court’s refusal to request a preliminary ruling. It also lamented that the BGH only
clarified what is not required to establish paramount significance for competition across market under Sec. 19a para. 1 GWB. The Amazon decision would, however, lack clear benchmarks for what is required for designation. Apple took this opportunity to propose its own two-step test: First, for designation under Sec. 19a para. 1 GWB, the Bundeskartellamt must demonstrate robust facts that the criteria established for paramount significance for competition across markets are met. Second, the Bundeskartellamt would need to provide an evidence-based prediction of an abstract threat to competition. Of course, Apple found the Bundeskartellamt to fail both prongs of the test.
Apple’s chance of success to increase the standard of proof for the Bundeskartellamt in this matter seems limited. The BGH has introduced its preliminary views by confirming its standpoint that designation under Sec. 19a GWB does not require proof of a threat to competition.
Apple is different – and not a norm addressee of Sec. 19a GWB
Just like Amazon, Apple made a rather bold move and tried to argue that it is not really a digital platform. “Apple is different”, Apple’s lawyers implored: First, Apple is primarily a hardware provider. Unlike digital infrastructure providers, hardware is not scalable but has limited resources. This argument is Amazon-inspired. The e-commerce giant (emphasis on “e”) also argued that it distributes mainly physical goods and is active in logistics, pretending to be just your local shop-and-delivery store. Second, Apple does not operate a multisided market, i.e. a platform, as required by Sec. 19a para. 1, Sec. 18 para. 3a GWB. In fact, the Apple operating system iOS is not the operating system, the German legislator had in mind when it drafted “operating systems” as specific examples into the legislative materials. “That was meant for Microsoft”, Apple’s lawyers insisted.
The BGH judges seemed confused rather than convinced, as follow-up questions showed. Apple had the chance to explain its Microsoft-theory in more detail: As Apple’s hardware is exclusively tied to its proprietary operating system, the market where developers and end users meet is not the operating system but the App Store. For other business users that depend on access to the operating system such as mobile operators or complementary hardware providers (e.g., of earphones), Apple only operates on one-sided markets characterized by bilateral relationships, without any intermediation by Apple. For everyone who found this not intuitive (which includes the BGH), Apple went a step further: Also the criterion in Sec. 19a no. 5 (relevance of activities for third-party access to supply and sales markets and related influence on the business activities of third parties)requires a multi-sided market and intermediation. Such intermediation is limited to transactional intermediation, technical intermediation is not sufficient and thus, excludes Apple’s iOS, Apple argued.
Also in this matter, the BGH seemed unlikely to buy this rather wobbly construct of arguments. It made clear at the beginning of the hearing, that the court, does not consider no. 5 of Sec. 19a para. 1 GWB to require that specific transactions are intermediated. A significant relevance of Apple’s activities for third parties to offer their products should be decisive instead. And this is the case for app developers, advertisers and complementary hardware providers, according to the court.
Market dominance nowhere to be seen?
Most disagreement between the Bundeskartellamt, the court and Apple seemed to be on the first criterion in Sec. 19a para. 1 GWB: market dominance on one or several markets.
In its designation decision, the Bundeskartellamt considered Apple to be dominant – or alternatively in a strong market position – on the markets for smartphones and tablets, smartwatches, mobile operating systems, and app stores. In much detail, it considered Apple’s vertical integration as primary and secondary markets. The BGH focused only on the smartphone market during the hearing instead. It seemed to dismiss Apple’s claim that sales numbers not turnover numbers should be decisive to assess market shares on the smartphone market. The court acknowledged, however, that the smartphone market would be characterized by high innovation pressure. The Bundeskartellamt, in a slightly meandering line of arguments, tried to rebut the idea of intensive competition on smartphone markets: Lock-in effects and switching barriers are significant, Apple has the power to nudge users to buy new hardware by discontinuing iOS updates for older devices and 90% of iPhone users keep buying iPhones. Also, from an app developer perspective, competition among digital platform ecosystems is not a thing, according to the Bundeskartellamt: Only for developers that can afford to forego iPhone 30 million users developing for only for the Android operating system would be an option, which is certainly not the case for most apps. This would also put multihoming of app developers into a new perspective: If it multihoming is not based on a voluntary decision, it is not capable to mitigate market power.
The nuances of access to data relevant to competition
The criteria in no. 4 of sec. 19a para. 1 GWB, access to data relevant for competition, received a comparatively high level of attention during the hearing. For two reasons: First, Apple regularly presents itself as a patron of data protection. Second, a closer look at what “access to data” actually means was taken and whether it includes so-called on-device data which does not leave the users’ device. Apple argued that its self-restrictions to refrain from using personal data constitutes an essential part of its brand image and contradicts the finding of access to data.
The BGH seems to take a different perspective. First of all, the court clarified that (1) access to data does not require the actual use or storage of data, (2) voluntary self-restrictions do not hinder access to data and (3) only potential access to data is not sufficient to establish access for the purpose of the provision. In the case of Apple, the court considered these requirements to be met given significant access to device data, contact data, browser history and transaction data.
A difficult case for assessment of access to data relevant for competition seemed to be on-device data. This concerns data aggregated on a personal Apple device which does not leave the device, i.e. is not used by Apple outside of the device. The Bundeskartellamt saw this as a case of access to data relevant for competition. It argued that devices are designed to collect data through sensors, browser history etc. Even if this kind of data does not leave the device, Apple would be able to access and use the data for own functionalities or applications on the same device, such as a fitness apps. Third-party fitness apps, on the other hand, would not be able to access and use the same data. The BGH was not entirely convinced of this theory which it seemed to be confronted with for the first time and suggested that this would only be a case of potential access to data.
Procedural issues – Sloppy Bundeskartellamt?
In terms of procedure, Apple made some sharp allegations related to the Bundeskartellamt’s file keeping. Describing it as a “worrying overall tendency”, Apple counted a number of recent proceedings where the Bundeskartellamt was found to keep incomplete files, missing some relevant file notes. Apple urged the court to give a clear signal to call the German competition watchdog to order in its pending decision. The real stake at issue here, however, seemed to be Appel’s discontent with the Bundeskartellamt’s approach of anonymization and randomization of questionnaires and responses to prevent Apple to draw conclusions on the identity of the questioned market participants. Apple complained about the randomization of the response order which would limit its ability to reproduce cross-references made in the responses. The BGH did not seem to agree as its stated that the approach taken by the Bundeskartellamt was necessary to protect business secrets, including the identity of market participants. Not without reason, as Apple has shown in the past that it does not hesitate to lash out against adversaries when it banned Epic Games from its App Store.
Outlook
The hearing on Apple’s designation as undertaking of paramount significance for competition across markets was not all old wine in new bottles. But it was striking that again Apple considered its strongest claim to be to convince the court that it must request a preliminary ruling to clarify whether there is room for an application of Sec. 19a GWB next to the DMA. This would of course prolong the proceeding significantly. And maybe the European institutions would indeed be more sceptical about Sec. 19a GWB and its place within digital regulation within the EU than the German BGH. As Apple put it: the DMA does not allow application by the Bundeskartellamt, so it seems that the authority is clinging to its own Mini-DMA. The faces of the Bundeskartellamt spoke for themselves during the hearing when they heard this punch below the belt. The Bundeskartellamt is well aware of the limits the DMA sets for Sec. 19a GWB investigations in Art. 1(6) DMA.
While the BGH suggested in its preliminary findings that – despite some disagreements on the Bundeskartellamt’s market dominance findings – it leans towards a confirmation of Apple’s designation of paramount significance for competition across markets, it seemed less certain towards the end of the hearing. The announcement of the decision, already scheduled in the late afternoon at the same time, was postponed to 18 March 2025. The BGH justified this delay by having been faced with new nuances, potentially leading to novel considerations – which, after all, does not sound like 180 degree-change-of-course.
