On 25 April 2023, the Government published and introduced to Parliament the long-awaited Digital Markets, Competition and Consumers Bill. The Bill’s scope is wide and covers three broad areas: the introduction of a new regulatory framework for large digital platforms, the first material reform to UK competition law in a decade and an overhaul of UK consumer protection law. This update provides an overview of the headlines regarding digital markets and competition - consumer protection is covered separately in our update.
What are the headlines?
A new regulatory framework for firms with ‘Strategic Market status’ (SMS).
The Bill largely follows the UK Government’s Spring 2022 proposals, subject to a couple of points highlighted below:
- A new regulator? The Bill was expected to put the Digital Markets Unit (DMU), a unit of the CMA which has been operating in shadow form since April 2021, on a statutory footing. The Bill is however silent on this point and refers throughout to the CMA – which may mean the Government ultimately decided to leave matters of internal reorganisation to the CMA.
- Scope of the SMS regime. The CMA and Government have previously emphasised that the new regime will only apply to a handful of firms, which the policy summary published alongside the Bill confirms. As expected, SMS firms will include those with ‘substantial and entrenched market power’ and holding a ‘position of strategic significance’ in respect of one or more digital activities. The CMA will make this assessment based on a list of qualitative criteria, which do give it scope for discretion.
The Bill clarifies that:
- The CMA will be able to designate a firm as having SMS in relation to one or more ‘digital activities’. The May 2022 proposals promised a list of digital activities under the Bill. Unlike the EU Digital Markets Act (DMA) which lists 10 ‘core platform services’ within its scope (e.g. web browsers, search engines etc.), the Bill has broadly defined three types of digital activities: (i) the provision of a service via the internet, (ii) the provision of digital content (in both cases whether for consideration or not), and (iii) any other activity carried out for the purposes of the previous two. This approach means that ‘digital activities’ will not narrow the scope of the CMA’s powers to designate SMS firms and limits the need for future proofing of the Bill’s scope, at least in this respect.
- Consistent with the Government’s response to the CMA’s proposals, the Bill introduces a revenue-based safe harbour below which firms will not have SMS (if less than £1 billion UK turnover or less than £25 billion worldwide).
- New tools for the CMA. As trailed in the run up to it, the Bill introduces two main tools for the CMA to police the new regime:
- Conduct requirements tailored to each SMS firm to mitigate the effect of market power, based on three overarching principles of ‘fair dealing’, ‘open choices’ and ‘trust and transparency’; and
- Pro-competitive interventions (PCIs) to address the sources of SMS firms’ market power. As expected, these mirror the CMA’s powers following a market investigation reference, which as we know are broad and include structural remedies or divestments. These would however be imposed following a comparatively short investigation period (9 months under PCIs compared to 18 months under a market investigation).
These are perhaps the most distinctive features of the new UK regime as compared to the DMA, which has opted for a list of generally applicable obligations and prohibitions. The CMA has powers to fully tailor and fine-tune requirements for each SMS firm. PCIs also enable the CMA to tackle what it regards as the root cause of market power and futureproof its enforcement activities. The possible remedies the CMA has previously trailed include mandating interoperability and opening up data to rivals, in addition to requirements similar to the DMA, such as allowing access to alternative app stores.
- Robust enforcement powers. In addition to fines of up to 10% of global turnover for breaches of requirements, the Bill introduces personal responsibility of senior managers and directors: senior managers will be responsible for compliance with information requests and directors will face possible disqualification for breaches of conduct requirements or PCIs. This is a potentially drastic consequence for breaches of requirements which may be untested and unprecedented.
The Bill also specifically introduces the possibility for the CMA to enforce conduct requirements through a final offer mechanism, a tool that has been used in other jurisdictions such as Australia and has proved effective in drawing parties to the negotiating table.
Merger control reform
Two points are most noteworthy here:
- The addition of a new alternative jurisdictional threshold: this is the flagship merger control change. Mergers will be caught if (i) either party has at least a 33% share of supply or purchases of goods/services in the UK or substantial part of the UK; and (ii) that party has more than £350m of turnover in the UK; and (iii) a UK nexus test is met. This applies to mergers in all industries, not just digital.
The aim of this change is to capture, in a clear-cut way, so-called “vertical” mergers (i.e. where parties are at a different level of distribution) or other kinds of mergers which the CMA may want to investigate (e.g. where the target is a potential competitor without turnover, or certain mergers between companies in adjacent markets). In recent years the CMA has stretched its existing “horizontal” share of supply test to try to bring some of these mergers within scope; now it won’t have to, and this represents a significant expansion to UK merger control.
- A mandatory merger reporting regime for SMS firms and their groups. They must report, prior to completion, all acquisitions worth at least £25m where they go through an equity or voting right gateway of 15%, 25% or 50%. Joint ventures are also caught.
The aim of this is to make the CMA aware of digital mergers that it may want to investigate in time to decide whether to do so. It is a key part of the new digital regulatory regime. Its actual jurisdiction to do so will be based on its wider jurisdictional thresholds, crucially supplemented by the one just mentioned (which is likely to capture SMS firms).
Other competition law reform
The Bill is the first time the Government is making substantial changes to UK competition law since 2013. One particular point to note is a change to the CMA's powers in dawn raids, which now include the power for the CMA to "seize and sift" documents, including information stored in electronic form, obtained under warrant during a dawn raid at the homes of company employees. The CMA was seeking this power in the wake of the pandemic which saw an increase in homeworking. The Bill also provides for increased obligations on employees to assist the CMA in dawn raids at both business and residential properties.
Next steps
The Bill has today been introduced to Parliament and will work its way through the parliamentary process. It will come into effect as soon as possible following parliamentary approval, subject to secondary legislation and the publication of guidance. This could mean it comes into force in the Autumn of 2023, at the earliest. If that is the case, conduct requirements would kick in Q2 2024 at the earliest – meaning the UK may not ultimately lag the DMA too much. This may have driven the timing of the Bill’s introduction, which had been trailed as possibly being this Autumn. But equally this is likely to be an ambitious timetable for the Bill and secondary legislation to be brought into effect - 2025 is perhaps more realistic.
In a series of updates over the coming weeks, we will be publishing analysis on specific topics introduced by the Bill.
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