Government consults on new competition regime for digital markets

26th July 2021

On 20 July 2021, the UK Government published proposals for a new competition regime for digital markets “to make it fairer for smaller businesses, entrepreneurs, and the British public”. These proposals include significant new powers for the Digital Markets Unit (DMU) which was recently established within the CMA and an enforceable code of conduct for firms with so-called Strategic Market Status (SMS). The Government is also considering new merger control rules for firms with SMS. The proposals are now open for public consultation until 1 October 2021.

Background

Large digital players have faced considerable scrutiny from competition authorities around the world in recent years, with Facebook, Amazon, Apple and Google all subject to multiple investigations. The market position of a small number of global firms is seen as creating unique issues in the sector, which many jurisdictions have sought to tackle by introducing or proposing new laws or regulatory frameworks.

In the UK, the Government established in 2018 a Digital Competition Expert Panel chaired by Professor Jason Furman to report on the state of competition in digital markets and make recommendations as to how competition policy reform could help unlock the opportunities of the digital economy. As reported previously (see here) the panel made various proposals in March 2019 and in March 2020, the Competition and Markets Authority (the CMA) was asked by the Government to lead a Digital Markets Taskforce, to provide advice to the Government on the design and implementation of a pro-competition regime for digital markets. The Digital Markets Taskforce, composed of officials from the CMA, the Office of Communications (Ofcom) and the Information Commissioner’s Office (ICO), published its advice in December 2020. A “shadow” non-statutory DMU was established within the CMA in April 2021.

The proposals

The key elements of the Government’s proposals are:

1. The creation of a statutory DMU within the CMA, with a legal duty to promote competition (including competitive outcomes) in digital markets for the benefit of consumers.
2. A new power for the DMU to designate firms with SMS. To be designated with SMS, the Government proposes that a firm must have substantial and entrenched market power in at least one activity, and this market power must provide the firm with a strategic position.
3. An enforceable code of conduct which would apply to firms with SMS and which would be overseen by the DMU. The code of conduct would seek to promote fair trading, open choices and trust and transparency and would comprise legally-binding principles and accompanying guidance. Most of the principles (for example, “to provide clear, relevant, accurate and accessible information to users”) would only apply in the activity in which the firm is designated as having SMS but the Government proposes that the entire firm should be subject to the principle not to make changes to non-designated activities that might further entrench the firm’s position in its designated activity/activities, unless that change can be shown to deliver significant benefits.
4. Powers for the DMU to make so-called pro-competitive interventions (PCIs) designed to open up digital markets to greater competition. Where the DMU can establish an “adverse effect on competition” (a concept taken from the CMA’s market investigation regime), the Government proposes that it should have broad discretion to implement a wide range of PCIs, such as mandating interoperability, third-party access to data and measures that increase consumer control over data. It is considering whether this should include the power to impose ownership separation on firms, including divestment or transfer of assets or technology.
5. The power for the DMU to fine firms up to 10% of their worldwide group turnover for breaches of the code of conduct or a PCI. The Government is also considering other enforcement mechanisms, including enabling the DMU to hold senior managers of firms with SMS liable for compliance with the regime and empowering it to require redress to those who have suffered loss from a breach. The Government does not intend for the regime to prioritise private follow-on claims initially but expects to re-visit whether to enable the DMU to facilitate such actions in due course.
6. A bespoke merger control regime for firms with SMS. This would involve:

• A new requirement on firms designated with SMS to inform the CMA of all mergers in which they are involved;
• A broader and clearer jurisdiction for the CMA to review SMS mergers, through the introduction of a transaction value threshold (in the region of £100 or £200 million) alongside a UK nexus test;
• A mandatory merger review prior to completion for larger transactions by firms with SMS – these would be identified by way of a higher transaction value threshold and a UK nexus test; and
• Changing the threshold at which the CMA can intervene in a merger involving a firm with SMS, by allowing it to take action at the end of a Phase 2 investigation when there is a ‘realistic prospect’ of the transaction giving rise to a substantial lessening of competition (rather than having to establish that one is ‘more likely than not’ to arise, which is the standard threshold).

Consultation

The consultation offers an opportunity for businesses to provide their views on these important proposals.  The Government says it is particularly interested in hearing from entities including:

• start-ups, charities and small businesses; especially those that rely on firms with potential SMS,
• large and small technology companies, advertisers, publishers and representative organisations, and
• investors in technology companies.

The consultation document is available here and the consultation closes at 11.45pm on 1 October 2021.

The Walker Morris Technology & Digital Group is considering submitting a response to the consultation; do get in touch if you would like to discuss how the proposals may affect your business.

Contact

Our Technology & Digital Group is a multi-disciplinary group which acts for suppliers and customers throughout the sector. The team enjoys national recognition and is also ranked in the top tier by leading independent guides to the legal profession. If you have any questions about this briefing, please contact us.