GERMANY TRENDS AND DEVELOPMENTS Contributed by: Daniel Möritz, Jan Bonhage, Hendrik Bockenheimer, Carl-Philipp Eberlein, Markus Ernst, Matthias Rothkopf, Christoph Wilken and Alexander Rang, Hengeler Mueller
medical devices and diagnostics for highly contagious diseases. It is likely that the case groups introduced during the COVID-19 pandemic will remain in force to address potential health emergencies in the future. Extended FDI clearance requirement and related updates Following the revision of FDI screening in the health sector, Germany continued to expand its FDI screen - ing. The key pillar of this reform was a wider clear - ance requirement for strategic targets. FDI clearance is required for non-EU/non-EFTA acquisitions of Ger - man companies in the areas of critical infrastructures (energy, water, nutrition, IT/telecommunications tech - nology (TC), finance and insurance, health, transport and traffic) and certain sector-specific software, Ger - man media companies with broad reach, and critical services for public communications infrastructure, in addition to the above-mentioned health sector targets. The mandatory filing and clearance requirement is complemented by criminally sanctioned gun-jumping prohibitions. As long as no FDI clearance has been obtained, the seller is neither allowed to exercise vot - ing rights nor to disclose sensitive information on the target and its infrastructure to the acquirer. Since 2021, certain stock exchange transactions are exempted from the requirement to obtain clearance prior to execution but still have a mandatory post- closing clearance requirement. Although the cross-border M&A market is used to establish clean teams and other arrangements to protect competitively sensitive information (eg, in the merger law context), the FDI gun-jumping rules on the sharing of sensitive information pose a chal - lenge. Whereas the transaction parties are typically well versed in the assessment of sensitive commer - cial information, this might be less true as regards the sensitivity of information in view of public order and security considerations. Since the 2020 reform, the screening periods are fixed in a parliamentary act (the Foreign Trade Act). The screening periods are set uniformly for the defence
sector and other sectors. The deadline for the initial FDI review (Phase I) is two months from signing and the MoE gaining knowledge of the transaction. The deadline for the in-depth screening (Phase II) is four months from submission of the information requested by the MoE at the opening of Phase II. The MoE opens Phase II if the involved authorities have security-relat - ed concerns or require further information to assess security aspects. Depending on the circumstances, the MoE may extend Phase II by three months or – in the defence sector – by four months. The periods are suspended in the event of an information request by the MoE or negotiation of a mitigation agreement. All deadlines are extendable with the buyer’s and seller’s consent. FDI litigation in recent years underlined that the MoE may no longer use certain FDI powers if applicable deadlines are not met. Heightened scrutiny regarding critical technologies and technological sovereignty The legal test remains the “likely effect” on “public order and security”, not any industrial strategy or pol - icy consideration. The German government considers this test to include threats to Germany’s technological sovereignty, know-how, and security of supply. Digital sovereignty has been a political leitmotif of the German government in recent years. By way of exam - ple, the MoE formulated a concept of technological sovereignty in its Industrial Strategy 2030. The 2024 National Security and Defence Strategy of the German government identified various sectors (such as AI or naval shipbuilding) and key technologies (eg, quantum technologies or missile defence) as crucial factors in the FDI screening. Furthermore, the EU FDI Screen - ing Regulation (Regulation (EU) 2019/452) (the “EU Screening Regulation”) refers to critical technologies as a relevant factor that can be taken into account in FDI screenings. In this context, the German government extended the scope of mandatory notifications and clearance requirements in relation to hi-tech areas in 2021. The listed sensitive areas triggering a mandatory filing include certain AI and quantum mechanics-based goods, autonomous motor/aerial vehicles, semicon - ductors, industrial robots, 5G-related goods, and additive manufacturing technologies.
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