The UK government has finally introduced a law establishing a new regulatory regime to tackle dominant technology companies and give the country’s competition authority bolstered investigative and enforcement powers.
The government published the Digital Markets, Competition and Consumer Bill today, which will give the Competition and Markets Authority’s newly-established Digital Markets Unit the power to subject online companies to tailored codes of conduct, while also amending the country’s merger regime and widening the CMA’s investigatory powers.
Under the new digital regulatory regime, the DMU can designate a company as having “strategic market status”, which would allow the agency to prohibit online platforms from implementing certain conduct or force them to undertake certain behaviour.
The DMU will only be able to designate a company if it has a global turnover above £25 billion or UK turnover above £1 billion, and after a forward-looking assessment of at least five years to determine what would likely occur without intervention.
In merger control, meanwhile, notification thresholds will go up while a new “acquirer threshold” will give the CMA wider review scope alongside its beefed-up investigatory powers.
The new law also empowers the CMA to make a more targeted “pro-competition intervention” to remedy specific problematic conduct in digital markets.
Parliament must now approve the legislation, which a spokesperson for the Department of Business and Trade said should come within 12 months. “The government has worked closely with the CMA as we have prepared the bill being introduced today,” they added.
Kevin Hollinrake, the minister for business and trade, said in a statement today that the legislation aims to take action against a small number of the most powerful tech companies “that force businesses and consumers to sign up to unfair terms and pay inflated prices”.
The new “pro-competition regime” is flexible and “principles-based” rather than following the EU’s Digital Markets Act, which imposes a “blanket set of obligations on all ‘gatekeepers’” and “risks creating unnecessary regulatory burdens for firms”, he added.
The UK regime has been much anticipated after the government established the DMU in April 2021 but delayed introducing the required legislation. As a result, the unit has operated in shadow form, leading some senior CMA officials to express frustrations about its lack of teeth.
Outgoing chief executive Andrea Coscelli told GCR in November that the bill’s delay was “a bit depressing” but noted it was down to “the post-Brexit, covid and the energy crisis legislative backlog”.
Sarah Cardell, the agency’s current chief executive, said in a statement today that the CMA “welcomes the flagship bill”, which could be “a watershed moment in the way we protect consumers in the UK”.
The bill is “a legal framework for the digital age” that will establish “a tailored, evidenced-based and proportionate approach to regulating the largest and most powerful digital firms to ensure effective competition that benefits everyone,” she added.
Last week, a CMA official said during a conference that the government has approved additional funding for the agency to build up a workforce of nearly 200 employees working mainly within the DMU.
The government first proposed the reforms in 2020, at which time it opened a consultation seeking feedback from stakeholders.
Strategic market importance
To designate a company under the new rules, the DMU will have to determine if a business that meets the turnover thresholds carries out a “digital activity” linked to the UK, has “substantial and entrenched market power” and holds a position of strategic significance.
The agency will deem a company holds a position of strategic significance if the business has reached notable size or scale in an online market, a significant number of other companies rely on its services, and if its position in one market would allow the company to extend its power to other sectors.
The CMA must inform a company if it decides to initiate an SMS probe and state the grounds and scope of the investigation, and must conduct a public consultation on any potential decision arising from such an inquiry.
After making an SMS designation, the authority can impose a “conduct requirement” on a platform, which could include fair dealing, open choice and transparency orders.
The CMA could also require a company to trade on fair and reasonable terms or preventing a platform from certain conduct, including applying discriminatory terms, using data to favour its own products, tying or leveraging market power across other sectors.
Additionally, the agency could make a “pro-competition intervention” to remedy specific platform conduct or impose temporary requirements on a trial basis to see how effective they are.
Companies will face fines of up to 10% of their global turnover for noncompliance, while directors also face disqualification.
Merger amendments and CMA investigative powers
The new bill raises UK turnover thresholds from £70 million to £100 million, while creating a safe harbour for transactions involving parties that have a UK turnover of less than £10 million.
The government has also introduced a new acquirer threshold that allows the agency to review a tie-up if the buyer has at least a one-third share of the relevant good or service supplied or acquired in the UK and a turnover above £350 million.
Meanwhile, the agency can now fast-track the consideration of Phase II commitments and temporarily pause the timetable for in-depth probes.
When investigating anticompetitive agreements or suspected cartel violations, the new law empowers the CMA to probe agreements implemented outside of the country, depending on the effects of the conduct within the UK.
The government has granted the agency wider information and evidence-gathering tools, including the power to collect evidence stored in cloud services and the ability to interview any individual and not just those connected to a company under investigation.
The Competition Appeal Tribunal will also have the power to grant declaratory relief in private damages cases and award exemplary damages that go beyond compensating a victim for the loss they have suffered.
These awards were previously available in competition cases before the enactment of the Consumer Rights Act 2015 but the government said it intends to return the power to the CAT and UK courts following the country’s departure from the EU.
“Exemplary damages could be awarded as an exceptional remedy aiming to deter and to punish the defendant for particularly egregious conduct, rather than the more usual claim which is to remedy a loss to the claimant,” the government said in an impact assessment paper.
But the mechanism will not be available for collective actions, the government said.
‘More flexible regime’
Linklaters counsel Verity Egerton-Doyle in London said these developments are not surprising as the reforms have “obviously been trailed for many years and broadly consulted on”.
When the government first proposed the new regime in 2020, the UK looked set to become the global leader – but now the proposed changes trail behind new German legislation and, “even more critically”, the DMA, she said.
“The largest tech companies are currently extremely focused on DMA implementation and are working closely with the European Commission to understand precisely how the obligations in the DMA will apply to their businesses,” Egerton-Doyle said.
“While in practice many of the obligations will likely mirror the DMA’s, the UK regime will be significantly more flexible and we fully expect that aspects of the UK regime will go beyond the DMA interventions,” she added.
However, even if the UK bill is a top legislative priority, Egerton-Doyle said it is very difficult to see how it could come into force before the second half of 2024. The rules are therefore unlikely to apply until early 2025 after the six-month designation process, though the DMU may well look to “speed up” that procedure through the CMA’s market study work and antitrust investigations, she said.
Egerton-Doyle also noted that the precise content of the codes of conduct will not be finalised until the time of designation, so tech companies will be well into DMA compliance by the time the UK obligations bite.
Stijn Huijts, a partner at Geradin Partners and former CMA official, said the bill is not seeking to hinder innovation by Big Tech companies. Rather, it is to ensure other businesses can also thrive in the modern economy where access to their customers is controlled by the large operators of app stores, search engines and e-commerce platforms, he said.
Addleshaw Goddard partner Rona Bar-Isaac in London praised the CMA for “working away on this bill for years”.
“It has carried out a huge amount of preparatory work, including detailed market studies, all of which leaves it well-placed to have a view on which issues it wants to tackle and how best to do this,” she said.
Eversheds Sutherland partner Peter Harper said the government will be keen for the CMA to be seen using these new powers and noted the agency has actively built up the DMU so it can hit the ground running.
“However, a key question will be the extent to which the bill and the DMU becomes a forum for complaints,” he questioned.
