On 17 November, the Chancellor announced in his Autumn Statement that the Digital Markets, Competition and Consumer Bill will be introduced into parliament in the 3rd session. That is of course welcome news for those who consider that ex ante regulation needs to complement competition law in digital markets.
In this context, I am delighted that Sarah Cardell, CEO of the Competition and Markets Authority (“CMA”) has accepted to be interviewed for this blog and share her insights about the forthcoming DMU regime.
Sarah, before we turn to our core subject, could you please tell us a bit about yourself. How did you become a competition lawyer and now an agency leader?
I actually first became interested in competition law when I was an undergraduate student studying PPE (philosophy, politics and economics). I decided then that I was particularly interested in the intersection of law, economics and competition policy which led me to a law conversion course and subsequently to qualify as a lawyer in the competition group at Slaughter and May. Although I enjoyed private practice, I was always particularly interested in the policy and public enforcement angle. In fact, as an associate, I spent 9 months on secondment at the OFT which gave me a fascinating insight into being “on the other side”. And so, when the opportunity came up to be the CMA’s first General Counsel back in 2013, it was a dream job. 9 years on, the same can be said about the opportunity to take the helm as CEO, particularly at such an important time for the CMA.
As you know, regulation has a bad reputation in some circles as it is said that it ossifies an industry and hinders innovation. In this context, it may impede economic growth. Why do you think the DMU regime will be different? How will it benefit the UK economy?
The CMA is staunchly pro-innovation. One of our key aims is to ensure dynamic competition in digital markets to create an attractive ecosystem for investment and innovation. The foundational purpose of the CMA’s work in digital, as in other markets, is to promote competitive markets and tackle unfair behaviour, and in doing so we want to ensure innovative firms can compete effectively and attract investment. We recognise the contribution powerful digital firms have made in providing valuable new products and services for consumers. But in some cases there are other digital firms – including UK start- ups – who could bring valuable innovations to consumers and cannot do so because of the market power of the digital giants.
We would argue that where digital markets are dominated by one or two very large firms, that can hinder innovation. These firms are extremely powerful and hold strategic positions meaning their competitors often depend on them. For incumbents, this lack of competition can result in reduced incentives to innovate, improve quality, and keep prices low. For innovative businesses, this significant and entrenched market power creates the risk that their new ideas may be quashed before they can get to market; that they may be unable to compete on a level playing field; that big firms may replicate their ideas; or that they may be forced to accept unreasonable terms to reach their customers. For the economy as a whole, it creates a risk that investment and innovation are lower than they otherwise could be over the longer term, potentially holding back growth at a time when it is sorely needed.
The proposed DMU regime will only apply to the most powerful tech firms – those that are found as having Strategic Market Status, or SMS. This is intended to be a high bar. It will not impose new regulatory burdens on other firms. In fact, it will benefit innovative challengers – it will allow them to access services from SMS firms on fair and reasonable terms, and level the playing field so they can compete with the big incumbents. For example, the DMU might promote greater interoperability between platforms; impose new choice screens to encourage consumers to make active choices about the services they use; or require that different business units within the designated firms are operated at arm’s length from each other.
And of course none of this diminishes the opportunities for the most established digital firms to continue to invest and innovate too, driven by conditions of effective competition from others.
How do you see the CMA’s role as the Digital Markets, Competition and Consumer Bill makes its way through the legislative process?
The government has committed to introducing this legislation in the third session of this Parliament. Before legislation is enacted, the Bill must receive the parliamentary scrutiny it needs and we are supporting this process by helping government to prepare the legislation. We will continue to support when the law is being considered by parliament.
In the meantime, we will continue to use our existing powers to address digital markets concerns. For example, for businesses: we are working with Google to ensure that its replacement for third-party cookies doesn’t disadvantage publishers and advertisers who rely on Google’s services. We are investigating how Amazon collects and uses third-party seller data, including whether this gives Amazon an unfair advantage in relation to business decisions made by its retail arm. For consumers: we have required Instagram to ensure that influencers better disclose when they are being paid to advertise a product – tackling hidden advertising, which can mislead consumers and is illegal in the UK. We have also launched an investigation into whether Amazon and Google are doing enough to protect consumers against fake online reviews.
While the DMU is being implemented, and in its early years of operation, how will the DMU decide what issues to focus on? What are your priorities?
The core purpose of the CMA’s work in digital, as in other markets, is to help people, businesses and the UK economy by promoting competitive markets and tackle unfair behaviour. In doing so, we are motivated by 3 strategic outcomes:
- first, we want people to be protected from harms and be able to select the products and services best suited to their needs
- second, we want businesses to have fair access to markets as both customers and competitors
- third, we want dynamic competition in digital markets to create an attractive ecosystem for investment and innovation
We already have a busy workload in digital markets under our existing tools. Take for example, our recently launched market investigation into cloud gaming and mobile browsers which follows on from our
mobile ecosystems market study. We have also done a digital advertising market study and have a busy competition enforcement caseload. All of this work helps to build the DMU’s understanding of digital markets and where the biggest problems are – while also delivering benefits for businesses and consumers now.
Over the coming months we will develop our plans for the prioritisation of designation assessments and related work. And indeed, the government has said it intends to require the DMU to publish guidance on the way it will prioritise its assessments – so this is something that we expect to provide further information on in due course.
Innovative companies who feel they will benefit from the opening up of SMS firms’ ecosystems frequently voice concerns about the end-to-end timetable for the implementation of the new regime, which could conceivably see the new regime coming into force around 2027 following the designation processes and appeals. Are you able to assuage their fears? Will you be able to run various processes in parallel to reduce the delays? For example, you could perhaps run the first designation processes in parallel with the consultations on the Conduct Requirements. Also, to what extent will you be able to rely on the evidence in the CMA market studies rather than having to re-run those detailed analyses?
As previously mentioned, the Government announced its intention to introduce the DMU Bill in the third session of Parliament. We hope that this would mean the DMU regime will be in force well before 2027, although the timing of the legislation is for the government to decide.
We will of course want to make progress as quickly as possible once we have the powers, balanced against the need to base our decisions on robust analysis. As you suggest, our expectation is that we would develop Conduct Requirements alongside the designation process to ensure the rules can take effect once a firm is designated.
As a matter of principle, we will look to gather fresh evidence as part of our designation assessments. However, where we have carried out market studies – in particular in online platforms and digital advertising, and mobile ecosystems – we would expect to use that analysis as the starting point for SMS designation assessments and conduct requirements. We would of course need to assess the impacts of market developments since carrying out those studies, but would be building on the existing analysis rather than needing to start from scratch.
The CMA has currently six antitrust investigations into the Big Tech players. You also now have an ongoing market investigation into cloud gaming and mobile browsers. The CMA has very wide remedy powers in cases such as these. Are you able to explain how such remedies would interrelate with the DMU regime?
It is too early to say exactly how this would work as it depends in part on the detail of the DMU legislation. However, it is something that we are very conscious of, and are taking into account when we think about possible remedies in our existing cases.
It’s worth noting the boundaries of the DMU Regime. The rules under the DMU Regime will only apply to firms designated with SMS and to their digital activities where they have substantial and entrenched market power. We obviously cannot confirm at this stage who will be designated under the regime – we will have to do analysis to reach that decision once the powers are in place.
Ultimately the DMU regime will be different to our existing tools, with different legal tests and approaches to addressing harms. And obviously there are limits to what we can achieve through our existing tools. That’s why we need the DMU powers to get to grips with the biggest problems in digital markets, with the power to make rules before the harm occurs and enforce against breaches of those rules quickly and effectively.
But in the meantime, we will keep pushing forward the existing cases to deliver for consumers as fully as we can within the existing legislative frameworks, trying to tackle the specific targeted issues we have identified in our live cases. The added benefit of these cases is that they enable us to greatly improve our understanding of the harms in digital markets, which could potentially shape the DMU’s approach once the powers are in place.
As you know, the UK initially led the way on these issues to some extent when the Furman Report was published back in early 2019. The CMA then published its widely praised market study reports on the digital sector, and launched various digital cases, but the key legislative process seemed stalled. There was a concern voiced by your predecessor, Andrea Coscelli, that the UK could fall behind the EU and therefore become a “rule taker”. Given where we are now, do you think the UK can catch up and resume its place amongst the global leaders on these issues? If so, can you please explain how you see the UK and EU processes matching up?
It is correct that other jurisdictions around the world are also taking steps to introduce similar rules in digital markets – from the EU to South Korea to Australia. The US administration has also signalled its desire to get to grips with big tech, and there are several major legislative proposals under consideration. As I have mentioned already, the timing of the legislation is a matter for government to decide, and this will determine how the timing of our regime interacts with those international developments.
Nevertheless, I firmly believe that the UK continues to act as a global leader on these issues. For example, we set up a specialist Data, Technology and Analytics Unit in 2019. The team has data scientists, data engineers, technology insight advisors and behavioural insight advisors who work closely with colleagues across the CMA on digital cases and projects. And as you noted, we have published market studies in Mobile Ecosystems and Digital Advertising, which along with our ongoing casework, provides a significant contribution to tackling these important issues in digital markets.
Of course, many of the issues we see in digital markets are global ones, with competition authorities around the world grappling with similar concerns, and so it is clear that we need to strive towards a joined- up and coherent approach to tackling them. We plan to continue to work closely with the European Commission as well as our other international counterparts in the future, and this cooperation can, and indeed should, take many forms. For example, we launched a case considering Meta’s use of data in parallel with the European Commission.
What this means, though, is that we need to think about coherence with regulations in other jurisdictions and cooperation with international counterparts is more important than ever. Not just with our colleagues in the EU, but across the globe. We’re therefore watching international developments carefully and we will of course take account of them, and it is important that we do so in a way that helps to shape a coherent regulatory landscape that supports innovation and benefits consumers. We will also continue to build and maximise relationships between competition authorities to exchange knowledge and inform our views and approaches. For instance, as part of the UK’s G7 Presidency in 2021, the CMA with G7 colleagues and guests published a Compendium of approaches to improving competition in digital markets which provides an overview of how different authorities are working to promote competition in digital markets. This was updated in November last year by the German Bundeskartellamt as part of their G7 Presidency.
Conduct Requirements and other regulatory interventions will only be as good as their implementation. How will you ensure that large digital platforms, which are insensitive to fines, comply?
A core objective of the DMU is to pursue a participative approach to regulation. The aim is to enable the DMU to engage constructively with SMS firms and other affected parties to resolve concerns quickly and effectively, without the need for a formal investigation (albeit the option to pursue an investigation would always be open if the participative approach fails). This means we’ll be able to work with dominant platforms to set conduct requirements to ensure they don’t exploit UK businesses or exclude innovative UK competitors.
However, if we do need to impose fines, the UK Government has proposed that the DMU will be able to impose a maximum fine of 10% of global turnover for the most serious offences, with further daily penalties of up to 5% of daily worldwide turnover for continued breaches. The DMU will, of course, adopt penalties which are proportionate to the breach it has found, which is comparable to other regulators that have used fines against big businesses when necessary. However, the size of the potential fines reflects the scale of the companies in scope, so they would not be immune.
What will be the role of UK competition law in the digital sector once the DMU regime is in place? Do you anticipate fewer such cases in future?
The aim of the DMU regime is to address the market power of the big tech firms in a more holistic, flexible and forward-looking way than is possible under existing competition law. Given this, we would naturally expect that many of the cases currently being investigated under competition law would in future be more effectively tackled through SMS designation, conduct requirements and pro-competitive interventions.
However, there is still likely to be an important role for competition law as a complement to DMU powers. For example, there may be types of anticompetitive conduct that do not fall naturally within the SMS regime, such as agreements between firms. There may be cases where firms do not have SMS under the DMU regime but nevertheless could be found to have abused a dominant position in a particular market which could be addressed under competition law. And our broader markets powers would continue to be available to us and may be appropriate as a way of investigating and addressing issues which go beyond the specific market power concerns of the SMS firms; a good example here might be our recent market study of music streaming.
In recent years, the CMA has acquired a reputation for being probably the fiercest authority worldwide in merger control. For example, it was the only authority to block the Meta/Giphy merger and it blocked the Cargotec/Konecranes merger after the EU had cleared it with remedies. Indeed, the CMA has blocked or imposed remedies in more than three-quarters of its recent Phase 2 mergers. Can we expect the CMA’s current merger policies to continue over the coming years?
Our standards are clearly set out: for the CMA to block a merger or impose remedies, it has to find that it is ‘more likely than not’ that the merger would lead to a substantial lessening of competition. In the past year (2021/22), the CMA looked at more than 800 mergers as a result of its expanded role post- Brexit but only referred 10 mergers for a Phase 2 review, with no increase in the proportion of mergers being blocked. Out of the hundreds of deals done by big tech firms, Meta/Giphy is the first one in which the CMA has intervened. Others have either gone through without the need for an investigation or have been cleared following an investigation, such as Microsoft/Nuance and Facebook/Kustomer.
The government’s updated SMS merger proposals do not change the legal frameworks or tests for when or how the CMA intervenes in mergers. The proposal requires that a subset of the SMS firm’s larger acquisitions are reported to the CMA before they occur. This applies only to those mergers which give them a more than 15% share in the target business, where their stake is worth more than £25m, and where the target has a UK connection. Therefore, there will be no change in our underlying approach in relation to mergers – we will just have earlier visibility and greater certainty that we will be able to spot and if necessary investigate mergers that could harm competition.
Regulating digital markets will require technical expertise. What is your plan for the CMA to be in a position to recruit people with the right set of skills?
Ensuring that we have access to the skills and experience necessary to address issues in digital markets is a priority area of focus as we build the DMU. We have a strong foundation of legal, economics, and policy specialists in the CMA, and we have established a specialist Data, Technology and Analytics Unit which provides technical expertise to support our detailed casework.
As the legislation to establish the DMU progresses, we plan to further expand our teams to ensure that we are able to effectively deliver the new regime and build-up our existing expertise. Our experience of recruitment campaigns to date has shown that we can attract high-calibre candidates for digital roles in the CMA. We offer interesting and impactful work in a world-leading competition authority, with a clear commitment to flexibility and staff wellbeing. We believe that this offer will be attractive to individuals with the skills and expertise that we need, who are keen to make a real-world difference on important issues.
We are also looking to tap into talent across the UK, not just in London. The Digital Markets Unit will have a hub in Manchester – a natural location for our digital work. We are working to establish links with local universities and businesses, with the aim of tapping into a diverse and well-skilled field. Anyone reading this who is interested in working with the Digital Markets Unit can register their interest through the link in this blog.
Recruitment is one route through which the DMU will develop as a centre of expertise; we are also investing in training and development, and are in the process of appointing external experts to advise on digital matters. These experts have experience and understanding in different aspects of digital markets, ranging from competition and regulation issues, industry knowledge on digital firms’ strategic priorities and decision-making processes, and technical expertise relating to digital technologies (e.g. algorithmic processing and AI). They will provide input across these areas to our current digital casework, advise on future areas of focus, and provide insight into the operation and effective governance of regulatory bodies.
We also work closely with other regulators who are thinking about digital issues through the Digital Regulatory Cooperation Forum (DRCF) so that we can pool and enhance our shared expertise, including through joint research and horizon scanning projects
Finally, which piece of advice would you give to aspiring competition lawyers.
What I loved about competition law as a junior associate – and continue to enjoy even as CEO – is the range of work you can get involved in and the opportunity to learn about so many different industries, applying complex legal and economic analytical frameworks to real world scenarios. So I would say – make the most of every opportunity to broaden your learning and experience. And of course, as part of that, spending a few years working at the CMA is a great option!