by Becket McGrath, Partner
On 25 April, the UK Government finally introduced its long-awaited Digital Markets, Competition and Consumers Bill (the ‘Bill’) into the House of Commons. Although the Bill’s introduction of a brand new regulatory regime for large technology companies has attracted the most media attention, it will also implement a radical re-shaping of the UK consumer protection regime, as well as making a number of detailed amendments to UK competition law. As far as the latter are concerned, the UK’s antitrust, merger control, market investigation and competition litigation regimes will all be affected. As a result, hardly any aspect of the UK competition landscape will remain untouched once the Bill becomes law.
After the birth of its first modern competition regime in 2000, with the entry into force of the Competition Act 1998 (‘CA98’), the UK experienced major competition law reforms roughly every ten years, with the Enterprise Act 2002 (which modernised the merger control and markets regimes) being followed by the Enterprise and Regulatory Reform Act 2013 (which, among other things, merged the OFT and Competition Commission to create the Competition and Markets Authority (‘CMA’)). The pace of change has increased in recent years, due primarily to the need to reshape the UK regime to reflect its decoupling from the EU’s competition law ecosystem following Brexit, which led to significant changes to the CA98 taking effect at the end of the transition period on 31 December 2020. Running to 317 sections and 26 schedules, over 388 pages of text, with 228 pages of explanatory notes, the new Bill amounts to the largest and potentially most significant single package of reforms to the UK competition law regime to date.
While it is beyond the scope of this briefing to cover all of the measures to be implemented by the Bill, its main points are as follows:
Digital markets
The origins of the Bill’s new tech regulatory regime go back over four years, to the March 2019 report on ‘Unlocking digital competition’ produced by a Digital Competition Expert Panel. This was appointed by the then Chancellor of the Exchequer George Osborne in 2018 to consider changes to the UK competition regime to respond to the challenge posed by digital markets. (As this panel was headed by US economist Professor Jason Furman, it is generally referred to as the Furman Review.) At that time, the UK was one of the first jurisdictions to undertake a detailed consideration of this topic and the work of the Panel generated significant interest on a global basis.
Despite this, and the broad consensus on the need for action to regulate ‘big tech’, the speed of implementation of the measures recommended by the Panel was glacial. Indeed, at one point the initiative appeared at risk of abandonment altogether. Although the Furman report was followed in 2020 by a detailed set of policy recommendations from the CMA which created the blueprint for the new regulatory regime, nothing happened until July 2021. At this point, the Government simultaneously initiated consultations on its plans to proceed with implementing a new ‘pro-competition regime for digital markets’ and to implement a wide range of reforms to the competition and consumer regimes to ‘drive growth’ and (in the favoured phrase of then Government) ‘build back better’. Reflecting wider turmoil in UK politics over the last two years, which played havoc with the legislative programme, as well as the length and complexity of the Bill and the political sensitivity of at least some of the proposals, it is perhaps unsurprising that it took almost two more years for those consultations finally to produce this Bill.
As originally proposed by the Furman Review and by the CMA in its advice to Government, the Bill creates a new regulatory regime under which the CMA’s new Digital Markets Unit will be able to designate a large technology company as having significant market status (or ‘SMS’) with respect to a specified digital activity if: (i) it has “substantial and entrenched market power” that is likely to persist for at least five years; (ii) it holds a position of “strategic market significance”; (iii) the specified activity has a sufficient link to the UK; and (iv) the undertaking has annual global revenues of more than £25 billion or UK revenues of more than £1 billion. In order to designate a company as having SMS, the CMA must undertake a investigation and consult on its findings.
Once a company has been designated as having SMS, the designation lasts for five years. The CMA will have broad regulatory powers to impose ‘conduct requirements’ on designated undertakings to promote ‘fair dealing’, ‘open choices’ and ‘trust and transparency’ with respect to their relevant digital activities. The CMA will also have powers to make more targeted pro-competition interventions to remedy specific adverse effects on competition arising from the behaviour of an SDS company, in a process modelled on the current market investigation regime. The CMA will have powers to fine a designated undertaking up to 10% of its global revenues for non-compliance, with decisions being reviewable by the Competition Appeals Tribunal (‘CAT’) on judicial review grounds. In addition, third parties will have the right to bring proceedings before the general courts or CAT for damages of other relief for breach of duty by a designated undertaking. In a departure from the standard UK voluntary filing regime for mergers, designated companies will also be obliged to notify acquisitions and minority investments with a value of more than £25 million to give the CMA the opportunity to call in the transaction for an in-depth review.
Competition regime changes
While the wider competition regime changes are very wide-ranging and lack a specific focus, overall they enhance the CMA’s powers in a number of respects. In particular, the CMA will acquire more powers to require production of documents and punish those who frustrate investigations. The Bill will also streamline aspects of the market investigation and merger control regimes. As well as updating the merger control jurisdictional threshold based on the target’s UK revenues from £70m to £100m, the Bill introduces a completely new merger control threshold, under which a transaction will be reviewable by the CMA if the acquirer has a UK share of supply of at least 33% and UK turnover of at least £350m, provided that the target has a minimum nexus with the UK. Although the separate, and much criticised, 25% share of supply test will remain, it will become subject to a new de minimis safe harbour, under which a transaction will be reviewable on the basis of share of supply only if the target has UK turnover of more than £10m. While feedback on the Government’s proposal to add further complexity to what is already a challenging set of jurisdictional thresholds was not positive, introduction of the new threshold may at least reduce the incentive for the CMA to find ever more creative ways of applying the share of supply threshold.
The Bill also remedies various shortcomings of the current competition regime, including those revealed by recent appeals. As well as expanding the CMA’s antitrust jurisdiction beyond anticompetitive agreements implemented in the UK to include agreements implemented outside the UK that are likely to have an immediate, substantial and foreseeable effect on UK trade; the Bill will also remove the CMA’s obligation to reach certain market investigation decisions within six months of its initial market study notice (which tripped it up in the mobile ecosystems case) and will give the CMA the power to require the production of documents and information from undertakings located outside of the UK, provided that they have a sufficient UK connection (thereby addressing the issue that arose in the recent BMW appeal). The Bill will also expand the powers of the CAT, by enabling it to give declaratory relief as well as damages, while limiting its ability to award exemplary damages.
Consumer regime changes
Last but by no means least, the Bill will introduce a new consumer protection regime for the UK. Indeed, the consumer measures account for over half of the Bill’s length and may prove more far-reaching in practice than other aspects. As expected, the main change in this area is to give the CMA direct powers to enforce consumer protection law, rather than having to bring court proceedings to combat breaches as is currently the case. Consistent with this objective, the CMA is set to be given wide-ranging powers to launch enforcement investigations for suspected breaches of consumer protection law and impose penalties of up to £300,000, or 10% of a company’s global turnover if higher. Although it will be possible to appeal against a CMA decision to the CAT, the permitted grounds for appeal set out in the Bill (error of fact or law, unreasonableness, that the decision was ‘wrong’) suggest a standard that will be closer to a judicial review than a full merits review. In addition, the CMA and local trading standards authorities will retain the ability to seek enforcement orders from the courts to require compliance with consumer law. Certain unfair commercial practices will amount to criminal offences, punishable by up to two years in prison.
While the Bill introduces new provisions governing specific commercial practices, including the operation of savings schemes and ‘inertia selling’, the substantive aspects of the new regime are largely unchanged from the EU consumer protection regime, on which the existing UK regime is based. This is welcome, given the potential of a move away from the EU regime to lead to a dilution in consumer rights.
Next steps
The Bill will now proceed through the standard legislative stages. Although the date for second Commons reading had not been confirmed at the time of writing, a relatively smooth passage can be expected. This is largely due to the fact that (unlike much recent legislation put forward by the Government) the Bill is a thoughtful, non-ideological and well-crafted piece of legislation. The length and technical complexity of the Bill’s provisions also make it less likely that opposition in the Commons or Lords will crystalise around a contested issue. In the unlikely event that resistance is encountered, the Government’s substantial parliamentary majority will ultimately ensure a smooth passage. Given this context, the Government will be hoping to push through the legislation before the end of the current session of Parliament, which is due to last until the Autumn.
While the process for designating an undertaking as having SMS is similar to that specified under the EU’s Digital Markets Act for defining a gatekeeper, the UK tests are more subjective in a number of respects and are specifically designed to capture only the very largest global technology companies (expected to be Apple, Google, Meta, Amazon and Microsoft). Crucially, the UK regime will also enable the CMA to tailor codes of conduct for each designated undertaking, reflecting its particular market position and business model, rather than imposing a rigid ‘one size fits all’ list of prohibited practices, as the DMA does. In this respect, the Bill is set to implement a regulatory regime for tech platforms that is materially better than the one introduced across the EU. The fact that the EU’s regime entered into force earlier this month, and will cover 27 countries, whereas the new UK regime is still some way off being in place and of necessity only applies in one country, may well limit those benefits in practice.