Category: Austria

Austria’s lawyers are keeping busy these days, with work primarily driven by an active M&A market, restructuring, litigation, and regulatory changes, while those changes are putting increasing pressure on small businesses, according to Act Legal Partner Roman Hager.

“We are having a very busy end of 2022 due to everybody looking to wrap up their financial year,” Hager begins. “The corporate and M&A markets are very active, despite a general hesitation on the part of investors to seek out new ventures.”

Additionally, Hager reports that there is an uptick in restructuring and refinancing work. “Restructuring is coming up more and more, both for small and mid-sized companies and larger enterprises as well,” he says. “I expect that this will flow over into 2023, meaning that it will impact overall levels of business activity. It remains to be seen how investments fair, in light of this, but I do expect to see trends of recovery as winter ends,” he shares. Moreover, Hager reports a strong trend of litigation. “The climate is quite confrontational, and there are a lot of disputes going on,” he says.

Turning to regulatory matters, a trend stands out, Hager says, with small and medium-sized companies facing a regulatory storm. “ESG has spurred a number of important regulatory changes this year – not just in Austria, but in all neighboring countries – especially when it comes to due diligence work and overall compliance,” he explains. “These changes are beginning to impact smaller companies, ones not used to facing a heavy regulatory burden, which are now facing issues across the board. Many transformation questions and issues are sure to present themselves in many industrial sectors – and not only on account of the ESG changes – but also due to technical developments and digitalization trends,” he says. “Companies will have to start rethinking their business models.”

In addition to ESG-driven regulation, Hager also reports that there have been mortgage restrictions put in place that are affecting businesses. “The banks are now more restrictive in giving out mortgages, which is impacting real estate businesses that are faced with troubles with selling apartments. The borrowers are now required to rely on their own capital,” he says. Hager explains that the “banks were quite aggressive in their behavior, which led them to a position of having to limit their mortgage exposure. The banks and the regulator are currently in negotiations to see if these restrictions could be changed to be more flexible, which would allow the banks to bring in new money,” he reports.

Finally, the changes to the whistleblowing legislation are also impacting the market. “The EU directive demands small and mid-sized companies to establish whistleblowing tools. However, with the implementation of national law being postponed – this area was not taken as seriously. Once it does enter into force – likely in January – there will be an onslaught of work to make everything compliant over the course of a few months. Regardless, we are already assisting clients in reviewing their internal policies and implementing whistleblowing solutions so as to be prepared and compliant,” Hager stresses. “This is just a first step; changes to supply chain due diligence are next – there is no doubt that smaller companies will be faced with higher regulation costs in the near future,” he concludes.

The amendment to the Austrian Copyright Act introduces a whole range of new provisions on copyright contract law, strengthening the position of authors and performers. In our first Legal Insight (“Austria: The (new) Copyright Contract Law”) we provided some background information and an overview. In our second and third Legal Insights, we introduced the new remuneration provisions (“Austria: The (new) copyright remuneration rules for authors and performers”) and the transparency obligation (“Austria: The (new) copyright transparency obligation”), which are based on the DSM Directive.

Now we want to have a look at the provisions adopted from the German Copyright Act, in this edition the transfer of rights by the purpose of the contract (Sec 31 para 5 German Copyright Act; Sec 24c para 1 Austrian Copyright Act).

Introduction
Interpreting copyright contracts based on their purpose is not new in Austria. After all, this teleological interpretation is an essential part of every contract analysis and the theory of transfer by purpose developed in Germany has always been an integral part of Austrian jurisprudence. Accordingly, the extent of rights granted does not, in case of doubt, go beyond what is necessary for the practical purpose of the intended use of the work.

Moreover, the person commissioning a work is in any case implicitly granted the rights to use the work for the purpose for which the work was commissioned. If the commission to use the work would only make sense if the commissioner alone is entitled to use the work, the rights granted are exclusive.

While the provision merely codifies existing case law in this respect, the new law goes beyond this previous case law.

Content of the provision

• Specification obligation (Sec 24c para 1 first sentence)

For all contracts on the granting of rights of use, the provision provides for a kind of obligation on the part of the acquirer of the rights to expressly and individually designate the forms of exploitation covered by the licence. If such forms of exploitation are not expressly and individually designated, the purpose of the contract as understood by both parties will determine which forms of exploitation it covers. This is not a rule of doubt. Even if it is clear that the parties wanted to cover all forms of exploitation, the scope of the licence is restricted according to the purpose of the contract, if the forms of exploitation are not expressly and individually designated.

However, this does not relate to a specification of exploitation rights like the right of reproduction, distribution right, communication to the public, etc.), but the forms of exploitation. A form of exploitation describes the scope and “field of use” of exploitation rights.

There is no formal requirement for the specification; the forms of exploitation can therefore also be individually and expressly designated orally.

• General rule of doubt (Sec 24c para 1 second sentence)

In addition, the law stipulates that (in case of doubt) it should be determined on the basis of the purpose of the contract whether exclusive or non-exclusive rights have been granted, how far the rights granted extend and what restrictions they are subject to. This is what Austrian courts have previously done anyway.

According to the legislator, the adoption of the provision is justified by the guiding principle of the author’s participation in the economic exploitation of his or her work to the greatest possible extent. The provision is intended to protect the author as the generally weaker party to the contract and to prevent an excessive granting of exploitation rights through comprehensive grants of rights to the exploiter (copyright buyout). This is to ensure that the acquirer is not granted more rights than necessary without a clearly recognisable intention on the part of the parties.

The purpose of the contract
If the forms of exploitation are not expressly designated, the purpose of the contract will determine the forms of exploitation to which the grant of rights extends. Furthermore, in case of doubt, it should be determined based on the purpose of the contract whether exclusive or non-exclusive rights have been granted, how far the rights granted extend and what restrictions they are subject to.

It is therefore generally advisable to state the purpose of the contract explicitly and clearly in the contract.

When determining the purpose of the contract, the industry practice might also be considered, but also preliminary negotiations, accompanying circumstances, similar contractual relationships, usual activity, business structure and the usual course of business of the parties involved, insofar as they allow conclusions to be drawn about the purpose of the contract.

In order to achieve a comprehensive granting or transfer of rights – which is often desired or even required in practice, especially in relation to works made for hire and commissioned works – giving the acquirer of the rights a position similar to that of an owner, it is advisable to clarify that this is precisely the purpose of the contract.

Who is subject to this provision?
The provision applies not only to contracts between authors and first exploiters but to all contracts on the granting of rights of use. It is only applicable to contracts concluded after the amendment came into force, i.e. on 1 January 2022.

Furthermore, the following are excluded from the provision:

• Works created within the scope of an employment relationship

The law leaves open what constitutes an employment relationship. In the absence of European law requirements, this will be determined by Austrian labour law. However, the purpose – although it is an exception – argues against an overly restrictive interpretation, so that persons similar to employees and freelancers may also be covered.

• Subordinated contributions

These are works that represent a not significant contribution in relation to the overall work. However, it depends on the individual case, taking into account copyright and economic aspects.

• Computer programs
• Cinematographic works

For cinematographic works a different rule of doubt applies, i.e. authors who undertake to participate in the production of a film thereby grant the producer the exclusive right to use the cinematographic work as well as translations and other cinematographic adaptations or transformations of the work for all forms of exploitation.

In case of such exceptions, blanket grants of rights without listing the forms of exploitation are permissible and implied grants of rights beyond the purpose of the contract are possible.

The purpose transfer principle is not mandatory and can therefore be waived. Also in case of such a waiver a comprehensive grant of rights is possible without listing the forms of exploitation.

Practical advice
Generally, it is advisable to state the purpose of the contract, for example in a preamble of the contract. Furthermore, the forms of exploitation should be explicitly stated where possible (and in particular in case they go beyond the purpose of the contract). If comprehensive rights to a work are granted in order to create an “owner-like” position for the acquirer, this should be stated as the purpose of the contract. It is also advisable to explicitly list all exploitation rights that should be covered by a grant of rights.

By Dominik Hofmarcher, Partner, Roland Vesenmayer, Associate,  Schoenherr

Fellner Wratzfeld & Partner has advised Soravia on its acquisition of Austrian hotel group Loisium Holding. 

The transaction was completed on December 2, 2022.

Soravia is a real estate developer in Austria and Germany. According to FWP, “Soravia supplements its core business with service companies in the areas of facility, property, and asset management, as well as investment management. In addition, Soravia holds stakes in the internationally renowned auction house Dorotheum, the rapidly expanding hotel group Ruby Hotels, and Loisium.”

According to the firm, “Soravia and mDrei are pooling their know-how and hospitality activities in Xenios Hospitality Holding with the goal of enhancing the development of the renowned Loisium brand and investing in more locations.”

Previously, FWP advised Soravia on its ac­quis­i­tion of a stake in Hos­piz am Arl­berg (as reported by CEE Legal Matters on March 8, 2022) and on its acquisition of Immo-Contract from the Volksbanken Group (as reported by CEE Legal Matters on July 6, 2021).

FWP’s team included Partners Markus Fellner and Lukas Flener, Attorney Peter Blaschke, and Associate Christoph Haberhauer.

FWP did not respond to our inquiry on the matter.

On 28 November 2022, the Council of the European Union gave its final approval to the Regulation on Foreign Subsidies distorting the Internal Market (FSR) following the adoption of the regulation by the European Parliament on 10 November 2022.

In a ground-breaking attempt to protect the level playing field in the EU and tackle distortions caused by foreign subsidies in the internal market, an unprecedented legislative tool for the control of foreign subsidies has made landfall. After being published in the Official Journal, which is expected later this year or at the beginning of next year, the FSR is bound to apply as of mid-2023.

The FSR as a means to level the playing field
The FSR will play an important role in mergers, acquisitions and public tenders within the EU. It will act in parallel to pre-existing EU and national merger control regimes, as well as EU state aid regulation and national foreign direct investment (FDI) screening rules. The enforcement of the FSR will be centralised at the European Commission (EC) level, while foreseeing an advisory function for the national governments of the Member States. The impact of the FSR is difficult to gauge. However, the EC’s ambitious plan of staffing about 145 people for FSR enforcement (amounting to almost twice the expected headcount for DMA enforcement) indicates that the FSR will all but dwindle into a paper tiger.

Substantively, the FSR combines elements of EU merger control, state aid and public procurement rules. It aims to close a gap in the EU’s regulatory toolbox to tackle subsidies granted by third countries, which distort the internal market. Whilst the EU has already been screening state aid granted by Member States, third-country subsidies have so far remained mostly outside effective control. Hence, the tool’s proclaimed goal is to level the playing field in the internal market between those entities which are subsidised by third countries and those which are not.

A closer look at the EC’s new tool
At its core, the FSR tries to identify whether a distortion of the internal market has occurred or may occur as a result of a foreign subsidy being granted. It captures all economic operators (including public undertakings) active in the internal market, receiving subsidies from third countries. As such, the scope of the regulation is agnostic to the nationality of the business, which means that EU businesses are captured by the FSR if subsidised by third countries.

The central constitutive concepts of the regulation comprise the following:

• Foreign subsidies

As its name suggests, the FSR targets foreign subsidies. A foreign subsidy in the context of the FSR is essentially understood as a selective financial contribution by a third country which confers a benefit to an undertaking engaging in economic activities in the internal market.

Its first defining element – financial contribution – is broadly construed. A financial contribution can include

• the transfer of funds or liabilities, such as capital injections, grants, loans, loan guarantees, fiscal incentives, the setting off of operating losses, compensation for financial burdens imposed by public authorities, debt forgiveness, debt to equity swaps or rescheduling;
• the foregoing of revenue that is otherwise due, such as tax exemptions or the granting of special or exclusive rights without adequate remuneration; or
• the provision or purchase of goods or services.

The contribution must confer a benefit, e.g. a loan by a third country with interest rates below market standards. The existence of such a benefit should be determined based on comparative benchmarks, such as the investment practice of private investors, financing rates obtainable on the market, a comparable tax treatment, or the adequate remuneration for a given good or service.

The financial contribution can be granted by public authorities/entities but also private entities if attributable to the third country.

• Distortion of competition

Once the existence of a foreign subsidy is established, the EC will assess whether it distorts competition on the internal market. Such a distortion is deemed to exist where a foreign subsidy is liable to improve the competitive position of an undertaking in the internal market and, in so doing, actually or potentially negatively affects competition on the internal market.

Certain foreign subsidies are presumed to distort competition, including:

• subsidies granted to an ailing undertaking without a viable restructuring plan that foresees a significant own contribution by the undertaking;
• unlimited guarantee for the debts or liabilities of the undertaking;
• export financing measures that are not in line with the OECD Arrangement on officially supported export credits;
• a foreign subsidy directly facilitating a concentration;
• a foreign subsidy enabling an undertaking to submit an unduly advantageous tender.

The FSR mandates the EC to provide further guidance via soft law instruments on the concept of a distortion of competition.

• Balancing test

Once a distortion has been identified, the negative and positive effects of the foreign subsidy will need to be balanced (balancing test). Given the relatively vague elaboration on the EC’s balancing test in the legislative provisions, the EC is obligated under the FSR to publish and update appropriate guidelines on its application of the balancing test.

If the negative impact outweighs the positive effects, the EC has the power to apply redressive measures aiming to remedy the distortion. These remedies include the repayment of subsidies, the sale of certain assets, the waiver of certain investments, the dissolution of mergers of participating companies, the granting of access to infrastructure or the licensing of assets acquired through the distortive subsidies, the publication of research and development results, the prohibition of certain market behaviour or, as a last resort, the prohibition of the transactions concerned.

• Commission tools

The FSR rests on three building blocks (or tools).

M&A notification tool
The first FSR tool will apply to mergers, acquisitions and the formation of joint ventures. Transactions must be notified for prior approval by the EC where either the target company, at least one of the merging parties or the joint venture generate an EU turnover exceeding EUR 500m, and where the undertakings involved received combined aggregate financial contributions from third countries that exceed EUR 50m in the preceding three years.

In addition, the EC can call-in transactions that remain below the applicable thresholds. The parties cannot proceed with the transaction until the EC’s approval has been obtained. The process envisaged by the FSR mirrors the EU Merger Regulation (EUMR) by dividing the proceedings into two phases, with Phase 1 taking up to 25 working days and Phase 2 being initiated only if an in-depth investigation is required.

Public procurement notification tool
The second tool under the FSR focuses on public procurement procedures. If the estimated total value of procurement exceeds EUR 250m, the supplier and its main subcontractors competing in the tender must review – and notify – any financial contributions received from third countries exceeding EUR 4m per third country in the preceding three years. The procurement contract can only be awarded to the subsidised bidder once approved by the EC.

Where the aforementioned thresholds in a tender procedure are met, the recipients are required to notify all foreign financial contributions received. In all other cases, tender participants must confirm via a declaration submitted together with the tender that all foreign financial contributions received are not notifiable under the FSR. Like the M&A notification tool, the proceedings will again be divided into two phases. Again, the FSR enables the EC to call-in tenders that are below the EUR 250m threshold.

General investigation tool
Finally, the FSR also includes a general “catch all” market investigation tool, covering all other market situations. The EC may initiate proceedings ex officio to review ex post mergers and acquisitions, investments or any other form of market activity where it suspects a distortive effect caused by a foreign subsidy (including completed transactions or public procurements). There is a soft safe harbour for subsidies below EUR 4m (presumption of non-distortion) and a hard safe harbour for subsidies below EUR 200,000 (cannot be distortive).

The EC can preliminarily review the subsidy (without a time limit) and initiate in-depth investigations, which should not take longer than 18 months. It may then adopt a decision imposing redressive measures on the recipient of the subsidy.

Member States, undertakings and other interested parties will be encouraged to provide the EC with information on alleged foreign subsidies distorting the internal market, which can prove a valuable source of potential ex officio proceedings.

Far-reaching investigative and enforcement powers
The EC will dispose of a wide range of powers well known to competition lawyers, including interviews, information requests and dawn raids both within and outside the EU. These measures are complemented by fines, which the EC can impose in cases of gun jumping or failure to notify, and which might amount to up to 10 % of the annual turnover in the preceding business year.

Outlook
The FSR is the new kid on the block in a series of instruments that seek to protect the “Open Strategic Autonomy” of the EU. The thrust of the FSR is to protect the internal market. It is a potent instrument but adds red tape for businesses. Monitoring of financial contributions by third countries will be vital for companies to assess whether they fall within one of the FSR tools. This becomes relevant immediately, as the review of foreign subsidies in investigations will apply retrospectively. In fact (and with exceptions), the tool empowers the EC to investigate foreign subsidies up to five years prior to the entry into force of the regulation, where such subsidies distort the internal market after the FSR’s entry into force.

The EC’s enthusiasm about the FSR, and the expected staffing intended for the FSR agenda, both hint at the fact that FSR enforcement will be strong from the get-go. Implementing robust internal practices regarding financial contributions and subsidies will therefore be all the more essential for effective compliance.

By Volker Weiss, Partner, Jan Kupcík, Attorney at law,  Schoenherr

E+H, working with Paris-based Sekri Valentin Zerrouk, has advised the Valtus Group on its acquisition of Management Factory Corporate Advisory. KPMG Law advised the sellers.

The Valtus Group is a French company providing business consulting and services.

Management Factory Corporate Advisory GmbH is a Vienna-based company providing financial advisory services to companies in need of restructuring.

“In acquiring Management Factory, Valtus adds an important Austrian player to its range of consulting services in the field of corporate restructuring,” E+H reported. “The acquisition should bring new insight to Valtus so they can further strengthen their market position and expand their portfolio. Consulting services are an integral part of the day-to-day management of companies on both the public and private sides. The scope and depth of these advisory services require customized and efficient solutions provided by the best professionals, which is Valtus’s specialty.”

The E+H team included Partners Judith Feldner, Natalie Hahn, Laurenz Liedermann, and Philipp Schrader, Attorney-at-Law Steve Jeitler, and Associates Titus Kahr, Florian Vidreis, and Adrian Walser.

The KPMG Law team included Partners Wendelin Ettmayer and Elisabeth Wasinger and Associate Anna Schneglberger.

Did You Know that, according to the Activity Rankings function of the CEELMDirect website, Dorda Partner Stefan Artner has worked on 14 reported Austrian Real Estate deals over the past five years – more than any other lawyer?

Schoenherr Managing Partner Michael Lagler, who has worked on nine reported Real Estate deals since 2017, is in second place, and Cerha Hempel Partner Mark Krenn is in third place with seven. E+H Partner Alric Ofenheimer is in fourth place with six, and Wolf Theiss Partner Peter Oberlechner, who has worked on five reported Real Estate deals over the past half decade, rounds out the top five.

Want to see which deals they’ve worked on in that period, or which other partners have been active in Austrian Real Estate over the past few years? Visit CEELMDirect.com, the world’s only truly dynamic legal directory, and find out!

Cerha Hempel has advised ARE Austrian Real Estate on its acquisition of Vienna’s Green Worx office complex from the UniImmo Deutschland real estate mutual fund managed by Union Investment. Schoenherr reportedly advised the sellers.

According to Cerha Hempel, “Green Worx, which consists of four interconnected buildings and is located at Walcherstrasse 6 / Lassallestrasse 7A in the Leopoldstadt area of Vienna, was completed in 2012 and is LEED Platinum certified. With a lettable area of approximately 17,000 square meters, the property is almost fully let.”

ARE Austrian Real Estate specializes in office, residential, and development properties. Its portfolio comprises around 583 existing properties and around 35 projects under development.

Cerha Hempel’s team included Partners Mark Krenn and Heinrich Foglar-Deinhardstein, Counsel Jakob Hartig, Senior Associate Marko Vladic, and Associate Johanna Kaschubek.

Former Freshfields Bruckhaus Deringer Senior Associate Ricardo Gardini de Andrade has joined DLA Piper’s Vienna office as a Partner to work in the firm’s Litigation & Regulatory practice.

Specializing in international arbitration and litigation and corporate and M&A, Gardini de Andrade previously spent over 13 years with Freshfields in Milan and Vienna, having first joined the firm in 2009. Earlier, he was an Associate with SJ Berwin, between 2008 and 2009, and with Frignani e Associati Studio Legale in 2007.

“We are thrilled to have Ricardo join our international team,” DLA Piper Vienna office Managing Partner Christoph Mager commented. “He has excellent client relationships and, with Vienna being a hub for Brazilian multinational groups, he will undoubtedly add real value to our globally active clients.”

“I am very much looking forward to starting a new chapter of my professional career with DLA Piper,” Gardini de Andrade added. “The firm’s global platform will undoubtedly assist many of my Brazilian-based clients on their high-profile business activities around the globe.”

Cerha Hempel has advised CA Immo on the sale of a building complex consisting of the Hotel Savoyen and an office building to German real estate agency Horn Grundbesitz.

According to Cerha Hempel, “located in the third district of Vienna in close proximity to the Belvedere Palace, the property has a total lettable area of approximately 38,150 square meters and is fully let. Tenants of the office complex include, among others, the current corporate headquarters of CA Immobilien Anlagen AG and the fashion company Peek & Cloppenburg KG, which is based in Vienna. Closing is expected to take place in the first quarter of 2023.”

Cerha Hempel’s team included Partner Mark Krenn, Senior Associate Marko Vladic, and Associate Johanna Kaschubek.

Cerha Hempel did not respond to our inquiry on the matter.

Late last year, the European Commission (“EC”) adopted a legislative package on hydrogen and decarbonised gas, which includes a proposal for a Directive on Common Rules for Internal Markets in Renewable and Natural Gases and in Hydrogen (“Draft Gas Directive”). On 9 September 2022, the EC published a revised version of this directive, the key objective of which is to regulate hydrogen as an independent energy carrier.

The proposed regulation comes along with very bad news for vertically integrated natural gas undertakings that are about to repurpose their existing natural gas pipelines for the transport of pure hydrogen: one year after the expiration of the deadline to transpose the Draft Gas Directive, hydrogen network operators will no longer be allowed to be vertically integrated and will need to comply with the strict rules of ownership unbundling as established for gas transmission operators in the Gas Directive.

This means that the owners of vertically integrated network companies would need to give up and transfer their shareholder rights to third parties. The Draft Gas Directive therefore results in the most severe encroachment on existing rights (expropriation). And, upon thorough legal analysis, it can be concluded that the Draft Gas Directive is in clear breach of the Treaty on the Functioning of the European Union and the European Charter of Fundamental Rights. We therefore believe that a further revision of the Draft Gas Directive is necessary, not only for legal reasons, but chiefly to avoid stalling the ramp-up of the European hydrogen market.

Why has the EC voted for such strict unbundling rules?
The EC argues that the potential conflicts of interest between supply and network operation, as experienced in the natural gas and electricity sectors, can be effectively prevented only by introducing ownership unbundling. However, this reasoning is obviously flawed, since it is widely recognised that there are alternative unbundling models that are just as effective as the ownership unbundling model. The EC itself explicitly confirmed that the ITO model, as provided for in the Gas Directive, is equal to the ownership unbundling model.

Breach of the EU Constitution
Since it is evident that the ITO model interferes significantly less with existing rights of network operators than the ownership unbundling model, the EC’s proposal is in breach of the Constitution of the European Union and violates the fundamental rights of vertically integrated gas undertakings.

The principles of subsidiarity and proportionality enshrined in EU constitutional law (Art 5 paras 3 and 4 TFEU) prescribe a limitation of the legislative and regulatory competence of the EU. They essentially say that the EU may only adopt laws and regulations if an EU-wide harmonisation is deemed necessary to achieve the Union’s policy goals. The principle of subsidiarity is violated if the EU restricts the scope of legal decision-making of EU Member States, although, from a policy perspective, there is no strict need for such restriction. The proposed unbundling model is not in line with the principle of subsidiarity, since it requires Member States to implement the ownership unbundling model and does not grant them any discretion regarding alternative unbundling models, such as the ITO model, which is available, successfully tested, and just as effective as the ownership unbundling model.

There is no reason to assume that the unbundling goals for the hydrogen sector cannot be achieved by the ITO model. On the contrary, although the potential for conflicts of interest in the established electricity and natural gas markets was considerably higher than in the nascent hydrogen sector, it has been proven and confirmed by the EC that the ITO model is equally effective and therefore perfectly suitable to achieve the unbundling goals. Against this background, there is no objective reason to restrict the Member States’ right to implement the ITO model for hydrogen.

Furthermore, EU legislative bodies are obliged to design regulations in adherence to the principle of proportionality. They need to allow for regulatory options which interfere significantly less with existing rights of network operators, especially when these options are equally suitable to achieve the policy goals pursued. The EC’s proposal disregards the possibility of introducing the ITO model as an alternative to the unbundling model for the hydrogen sector, although it has been confirmed that it is just as effective as the ownership unbundling model and causes significantly less interference with existing (fundamental) rights of network operators. The principle of proportionality is therefore violated.

The proposed unbundling model also violates the fundamental right to freedom to conduct a business and the fundamental right to property, as provided and granted under the European Charter of Fundamental Rights. The encroachment on these fundamental rights is not justified since it is not proportionate, especially as there are other means to achieve the unbundling goals. Those other means, such as the alternative ITO unbundling model, would interfere significantly less with the fundamental right to conduct a business than the proposed ownership unbundling.

Finally, the planned unbundling model violates the principle of equality before the law, since only private gas transmission system operators need to comply with the ownership unbundling rules, while state-owned gas transmission system operators would only need to implement state government unbundling (by establishing separate ministries for supply and network operation). There is no objective reason to favour state-owned gas transmission system operators.

Concluding remarks
If the planned ownership unbundling model were to enter into force, it would be at risk of legal challenge on various levels. On the one hand, the individual Member States can claim infringement of the principles of subsidiarity and proportionality before the European Court of Justice. They can attack the proposed new Gas Directive by means of an appeal for annulment. Contrastingly, gas transmission system operators and their owners would be able (and economically compelled) to appeal against the unbundling rules after their transposition into national law. We believe that the chances of success for such appeals are high. In any case, until a court decision is reached, the natural gas and (nascent) hydrogen market will face legal uncertainty, which would undermine the objective of quickly developing a European hydrogen network infrastructure. At the same time, the risk of such a delay could simply be prevented by applying the unbundling rules which have been established and successfully implemented for the natural gas and electricity sectors.

By Bernd Rajal, Partner, Schoenherr, and Oliver Elbling from Wagner, Elbling & Company.