The Digital Markets, Competition and Consumers (“DMCC”) Act is finally now law in the UK. The King signed his assent today (although his views on conflicts of interest in the ad tech stack are still unknown).
The legislation was passed in the “wash-up” process on the final day of this Parliament and the country is now in election mode for the next six weeks. Some of us competition lawyers know a lot more about the intricacies of parliamentary processes than we used to. Following an important piece of legislation through Parliament has been fascinating. It has been a highlight of my career to work on its inception five years ago in the CMA’s market studies and Digital Markets Taskforce right the way through to its hurried passage this week.
There were times when it seemed unlikely that the Bill would ever be introduced, especially during the short-lived premiership of Liz Truss. But, shortly after Rishi Sunak took over, he appointed Jeremy Hunt as the Chancellor of the Exchequer and the November 2022 Autumn Statement revealed that the Bill was back on the agenda. It was formally introduced to Parliament in April 2023 and made its way through the process in just over a year.
Of course, there have been dozens of amendments tabled and debated. Some of them would arguably have improved the Bill, but they stop being relevant at this stage. This blog post therefore picks out some key talking points for the new DMCC community.
1. The digital markets regime in a nutshell
The regime gives the CMA the ability to designate the activities of certain firms as having strategic market status (“SMS”), which is defined as having substantial and entrenched market power for a digital activity linked to the UK, and a position of strategic significance. There is a safe harbour for companies with global turnover under £25 billion and UK turnover under £1 billion.
Once designated, the CMA must write bespoke conduct requirements for each firm, to pursue the objectives of fair dealing, open choices and trust and transparency. There is a broadly drafted list of permitted types of conduct requirements. The CMA may also make pro-competitive interventions where it finds an adverse effect on competition. The SMS firms must notify more of their mergers to the CMA for investigation. In short, the CMA is tasked with levelling the playing field in digital markets so that firms with gatekeeping positions in the modern economy cannot stifle competition.
The CMA has wide-ranging information gathering powers, including the explicit ability to get hold of information held abroad, to interrogate algorithms, and to require remedy testing to be undertaken by the SMS firm. It has efficient interim measures powers and final order-making powers. It can impose large fines on companies and sanctions on individuals. It can revise the rules as often as it needs to (subject to public law principles).
News publishers in particular welcome the CMA’s ability to require an SMS firm (and the firms with whom they are in dispute) to submit to the ‘final offer mechanism’ process to resolve price-related disputes where the SMS firm is subject to a “fair and reasonable” requirement.
The DMCC Act also reforms the competition law and consumer law regimes, for example amending the merger control thresholds, introducing large fines for breaches of consumer law for the first time, and enabling consumers to exit their subscriptions more easily. The CMA will consult on its guidance ahead of presenting it to the (new) Secretary of State after the summer. There are also still four statutory instruments to be written on minor issues.
2. The legislation has emerged unscathed
The legislation that has now been passed is almost exactly what was proposed by the CMA’s Digital Markets Taskforce in 2020 (and therefore also in line with the 2019 Furman Report and the 2020 market study into online platforms and digital advertising). The main issue that was dropped was the CMA’s proposal to lower the standard of proof in merger cases so that it could intervene in Big Tech mergers that merely raised the “realistic prospect” of harm rather than needing to prove the harm on the balance of probabilities. The decision to reject the CMA’s request now seems wise after the aggressive interventionism of the CMA over the last four years under the existing standard.
The DMCC Bill was a good advertisement for evidence-driven public policy. Many difficult questions were raised in the Public Bill Committee and the Lords Digital Select Committee, and in private meetings with ministers and special advisors. It helped to have thousands of pages of CMA analysis to point to. It also helped that respected regulators and legislators in diverse jurisdictions (e.g. the EU, Australia, Germany, India, Korea, Japan, and Brazil) were assessing the same issues and coming to similar conclusions. Politicians could also see the wide-ranging litigation in the US being brought by the Department of Justice, the Federal Trade Commission, the State Attorneys General and private litigants.
3. The CMA has the regime it needs
Critics of the regime have pointed out the wide-ranging powers that are being handed to the CMA. The CMA will write the rules, enforce the rules and update the rules. The critics are of course right, although they have often shown a limited understanding of UK public law and its ability to hold regulators to account.
The regime was designed to enable the regulator to level the playing field in digital markets, and to do so quickly. The existing competition law regime had failed in its objectives partly because it took so long, it was backward looking, and piecemeal. If the CMA was to improve on its historic performance, it would need a regime that allowed it to move quickly and decisively. The SMS test has therefore been drafted with broad concepts and significant CMA discretion. The categories of possible conduct requirements are again broad. The test for pro-competitive interventions can always be met as long as the CMA can explain its findings sensibly and with sufficient evidence.
This does not mean that the CMA has an easy job. It will need to prioritise between competing issues. It will need to balance competition objectives with other policy objectives that sometimes conflict, such as privacy, security, and economic efficiency. Its 200 staff will need to go toe-to-toe with powerful companies that have billion-dollar legal budgets and an incentive to obstruct and delay. It will need to write rules that correctly anticipate how a sector is developing and which do not dampen innovation. It will be subject to very tight statutory deadlines.
In short, the hard work is about to start.
4. Now is the time to engage with the CMA
Anyone who advertises, buys or sells online should be interested in this Act – news media companies, broadcasters, app developers, gaming companies, social media companies, telecoms companies, advertisers, ad tech companies, e-commerce sellers, brand owners, search engines, browsers, and many others.
At this point, these companies are pleased that the legislation has been passed. But, they will soon find that the CMA is moving more slowly than they had hoped, and the rules it writes will be more considerate towards the SMS firms’ business models than they expected. They will only have themselves to blame if they find their sector at the back of a very long queue and they haven’t made the effort to explain to the CMA, with supporting evidence, why their sector deserves prioritisation.
5. It will be a slow burn
The CMA has been quick off the mark in publishing its procedural and substantive guidance document today. The consultation process will continue over the summer ahead of the formal commencement date in November. The Secretary of State will need to approve the guidance document once it is finalised. Fortunately, the challenger firms succeeded in persuading the Government to include a 30-working-day deadline for the Secretary of State to do so.
In the Autumn, the CMA will start its first SMS designation investigations. These will last nine months, and the CMA will work on its first conduct requirements in parallel. Assuming some or all of the SMS firms appeal the CMA’s decisions, the regime will not be in full force before Q3 2025.
The CMA has said that it will only open three or four SMS investigations in the first year, and that it will focus on the sectors it has already investigated (meaning search advertising, display advertising, social media, mobile operating systems, browsers, and app stores). We do not yet know how widely these investigations will be scoped, and whether several activities can be grouped together. This would certainly make sense on an analytical and project management basis, but the tight statutory deadlines may nudge the CMA to scope its cases narrowly. In any case, an e-commerce company with issues relating to Amazon’s market power may be waiting several years for any protection.
6. The courts will scrutinise the CMA’s decision in detail
The central focus of the lobbying campaigns throughout the political process was the appropriate appeal standard. The CMA originally proposed, and the parliamentary counsel drafted, a judicial review appeal standard in line with most UK regulatory processes. The Government conceded a limited carve-out at the end of the first Commons debate whereby fining decisions would be subject to full merits reviews, but all the other decisions would be subject to judicial review. That compromise survived many attempts to change it.
The nature of the political process led both sides to caricature the judicial review and full merits appeal standards. It is easy to paint judicial review in superficial terms as focusing only on the process for making the decision and not touching the substance of the decision. Having fought many judicial reviews, I can confidently say that the court process has never felt like that. The Competition Appeal Tribunal (“CAT”) is a specialist court and it is asked to assess whether the CMA has acted rationally. It must now bear in mind the recent Court of Appeal judgment in Cérélia v CMA which says that it should make a “deep dive into the evidence” in order to “make an informed judgement as to whether the decision under challenge was properly justified by the evidence”. The Court of Appeal casts doubt over the degree of deference to be shown to the CMA’s expert judgment.
We should expect the CAT to scrutinise the CMA’s decisions in detail. Parliament did not sign a blank cheque for the CMA.
7. It is clear where the early battlegrounds will be
Having closely watched the early days of the EU’s Digital Markets Act and cases in the UK, the US, the Netherlands, Korea and other jurisdictions, it is clear that the SMS firms will make strong arguments that their conduct is required in order to safeguard users’ security and privacy. They will also argue that their conduct brings great benefits to users and helps the digital economy to operate efficiently.
The truth is that their arguments will have some merit. For example, it is not possible to increase interoperability in messaging services without reducing their security. The political stage of this regime has now ended and all players need to grapple sensibly with these trade-offs. The fact that these arguments tend to be significantly overstated by the SMS firms (as explained in painful detail by the CMA in its mobile ecosystems market study report, for example) does not mean they have no merit at all.
Taking a step back, the regulator will surely be mindful that it is competition that drives innovation, not monopoly.
8. Predictions for the regime’s weaknesses
Some potential weaknesses were identified and rectified during the political process. For example, the original draft provided little room for non-SMS firms to contribute to the CMA’s investigations until after the CMA had provisionally decided how to proceed. The CMA rightly said that it would operate transparently and that everyone would be able to provide their views, but it was only the relevant SMS firm who would receive the full details of an investigation at its outset. In the final version, the CMA will be required to publish more information at the start of investigations. Disclosure and consultation will still be contentious issues – they always are in competition law – but it is not obvious to me that the legislation should have done anything differently.
In my view, the bigger problem will be the scope of the regime and of each SMS designation. The UK’s approach means that the CMA will designate specific activities rather than whole firms. This has been done to ensure a targeted regime that does not hinder firms’ freedom unnecessarily. However, it also means that the precise definition of a designated activity will be vitally important. If it is over-inclusive, the aggrieved firm will have a strong appeal ground that the evidence does not support the outer reaches of the defined activity, and/or the CMA will be regulating conduct that it has no justification for regulating. If it is under-inclusive, the CMA will find it difficult to write rules that cover all the conduct it needs to cover, and it will be failing to regulate conduct that should be regulated. We should also bear in mind the difficulty of defining activities in the digital sector where product categories change quickly, and the relevant firms operate sprawling ecosystems of interrelated products.
Once the CMA has found the right definition for the SMS activity, it can only regulate conduct outside the scope of that definition by using the leveraging principle in section 20(3)(c). This provision allows the CMA to prevent the firm from “carrying on activities other than the relevant digital activity in a way that is likely to materially increase the undertaking’s market power, or materially strengthen its position of strategic significance, in relation to the relevant digital activity”. It would therefore only apply to a narrow set of circumstances. This is one aspect of the Bill that the challenger firms never managed to change throughout the political process.
This issue was always a delicate balance – an SMS firm’s market power does not neatly stop at the edge of a designated activity, but it is also true that it would be bad public policy to disincentivise an SMS firm from providing competition in new markets. The CMA has no justification for regulating conduct where it cannot satisfy the SMS test. However, as a result, the CMA will encounter the “whac-a-mole” problem that the European Commission is currently dealing with. For example, if it restricts Apple’s ability to charge excessive fees in its App Store, it may find that Apple introduces new fees that arguably apply to non-SMS activities. The CMA can only address these new fees if they increase the App Store’s market power, which may not be the case. Unlike the Commission, the CMA can more easily make new designations and revise its rules, but these take time and will be subject to their own arguments about their scope.
As every lawyer knows, nothing matters more than definitions.
9. Legislation is never the easy option
I was always of the view that the CMA had sufficient powers under its market investigation tool (and indeed its competition enforcement tool) to put in place any of the remedies we are currently expecting to see in the conduct requirements. If the CMA had undertaken a market investigation off the back of the 2020 market study, the outcome would have been subject to a statutory deadline and would have been under the CMA’s control. The remedies that were – and are – urgently needed in the digital advertising sector would now have been in place for a couple of years. There would have been a c.3 year advantage and the rules could have been transitioned into the new legislative regime when and if it emerged. Similarly, the mobile ecosystems market investigation would have been finished by now.
The CMA leadership took the view that such a wide-ranging set of interventions needed political buy-in. I am not saying that’s the wrong judgment, but it has been hard work to get the regime over the line, and the CMA is lucky that the legal framework has emerged unscathed. In nearly all cases, the CMA should take matters into its own hands.
10. Competition policy is now more political
In the Enterprise Act 2002, the Blair Government took competition policy out of the political arena and gave it to technical experts. Various factors have made competition policy more political again over the last few years – stalling economic growth, the repatriation of decisions post-Brexit, the CMA’s increased interventionism, and even concerns about inequality and the free market model. The Microsoft/Activision saga seemed at times ready to jeopardise the CMA’s independence irretrievably.
Politicians have just spent a couple of years debating competition policy for the digital era. Leading news publishers now have journalists who focus on competition issues. Decisions under the DMCC regime will directly impact British citizens’ lives and will likely displease some powerful companies (on both sides of the debate). We should expect the relevant parliamentary committees to take a close interest in CMA decisions, and we should expect the news media to continue to cover these issues.
Competition policy will therefore not be allowed to disappear back up its ivory tower. Today’s CMA seems likely to welcome this. For example, it has chosen to take on politically controversial topics such as housebuilding, grocery pricing, infant formula, and hand sanitiser prices during the pandemic.
