In November last year, the UK Competition and Markets Authority (CMA) started a market investigation into the supply of web browsers and browser engines on mobile devices, and the distribution of cloud gaming services through app stores on mobile devices. However, Apple appealed the CMA’s decision to make a market investigation reference (MIR) in the Competition Appeal Tribunal (CAT).
On Friday 31 March, the CAT issued its judgment, calling a premature halt to the much needed investigation. We have posted previously about the MIR (here), about the CMA’s concerns with respect to mobile browsers (here) and about Apple’s restrictions on cloud gaming (here). Damien and I have also written a detailed article on cloud gaming, an early version of which is available on SSRN, and the final version of which is forthcoming in IELR.
In this post, we look at the CAT’s judgment and the next steps open to the CMA.
Quick recap on the law and relevant facts
A MIR kicks off an 18-month in-depth market investigation at the end of which the CMA has the power to impose remedies to deal with any competition issues it identifies in the market investigated. The CMA can make a MIR in two ways: it can first carry out a 12-month market study and make the MIR in relation to issues uncovered in that study, or it can make the MIR on a stand-alone basis without first doing a market study.
The CMA’s most recent MIR before the present one was made on a stand-alone basis, and an appeal by Motorola against the CMA’s decision to make that MIR failed. With respect to issues in Apple and Google’s mobile ecosystems, the CMA however decided first to carry out a market study.
A market study begins with what is known as a market study notice. When it issues such a notice, sections 131A and 131B of the UK’s Enterprise Act 2002 require the CMA do one of the following within six months from issuing the market study notice:
- If the CMA proposes to make a MIR or if representations have been made to the CMA that it should make a MIR, but the CMA is proposing not to make one, the CMA must publish its proposed decision (proposal to make a MIR or proposal not to make a MIR, as the case may be) and consult relevant stakeholders. The consultation does not need to complete within the 6-month period.
- Where the CMA does not propose to make a MIR and no representation has been made saying that it should, the CMA must publish notice of the decision not to make a reference and no consultation is required.
In addition, the CMA must make any reference within one year of the market study notice being issued.
From December 2020, it became clear that the UK would introduce its own digital markets regulation, which would create a Digital Markets Unit (DMU) to regulate tech firms with strategic significance in digital markets (known as the DMU regime). As a result, the CMA’s strategy with respect to these markets became more focussed on the future DMU regime.
In June 2021, the CMA launched a market study into Apple and Google’s mobile ecosystems by issuing a market study notice. In the first six months of the study, the CMA identified many issues in relation to the way Apple and Google run their mobile ecosystems, as set out in its interim report of December 2021. However, in line with its focus on the future DMU regime, the CMA also decided that it would not make a MIR. Instead, the DMU regime would be the appropriate way to deal with the myriad concerns the CMA had identified in the interim report.
Stakeholders who had voiced concerns over Apple and Google’s practices were of course aware of the UK Government’s plans and therefore also focussed their submissions to the CMA on the remedies they would like the future DMU to adopt, rather than making representations that the CMA should make a MIR.
Therefore, the situation was that the CMA was not proposing to make a MIR itself, and it had not received representations that it should make one. In line with the law, the CMA published a notice of its decision not to make a MIR when it issued its interim report in the market study in December 2021.
However, the adoption of that DMU regime was delayed when the UK Government decided that it would not be included in legislation announced in the Queen’s Speech of May 2022. Following this, the CMA, while continuing to support the DMU regime, also said it would make strong use of the full extent of its existing toolkit to address issues identified in its market studies.
Within that context, the CMA decided in June 2022, i.e., at the end of the market study, that it should reverse course and make a MIR into the supply of web browsers and browser engines on mobile devices, and the distribution of cloud gaming services through app stores on mobile devices. Following a consultation, the CMA launched the MIR on 22 November 2022, kicking off an 18-month investigation (extendable by six months for special reasons) which could be followed by remedies imposed on Apple and/or Google.
The judgment
In its appeal, Apple’s only ground of appeal was that the CMA’s decision to make the MIR in November 2022 was unlawful, because it was made outside the time limits set out in the sections 131A and 131B of the Enterprise Act 2002.
In the CMA’s view, however, there is a general power in section 131 of the Enterprise Act 2002 to make a stand-alone MIR so that, although it had decided in December 2021 not to make a MIR, it was open to the CMA to reverse course and consult on making a MIR in June 2022. The fact that there is also a power to make a MIR when a market study notice has been issued for which specific deadlines apply is immaterial to the general power to make a MIR, according to the CMA.
In its judgment, the CAT agreed with Apple, and quashed the CMA’s decision. According to the CAT, when the CMA launches a market study, specific rules apply to the its ability to make a MIR, which – at least temporarily – close off the stand-alone MIR route. The CMA’s only option in making a MIR with respect to issues identified in the market study is to do so within the time limits set out in section 131B of the Enterprise Act 2002, meaning the CMA has to consult on making the MIR within 6 months from the date of the market study notice, and has to make the MIR within 12 months from the market study notice.
The judgment also sets out what the CAT considers to be “the way out of this situation”. In this respect, the CAT explains that the problem is created mainly by the December 2021 decision not to make a MIR. According to the CAT, the CMA should instead in December 2021 have proposed to make a MIR unless by the end of the consultation period and before publication of its Final Report it had become clear that the DMU legislation would be forthcoming in good time. According to the CAT, such a decision would have been unimpeachable.
Instead, the CMA had effectively found that the test for making a reference was met (it clearly had significant concerns about Apple and Google’s practices), but it had chosen not to make a reference in anticipation of the DMU legislation. In addition, it had reserved the power to revisit its decision not to make a reference if the DMU legislation was delayed. According to the CAT, this course of action was not open to the CMA under the Enterprise Act 2002.
The CAT pointed out that the December 2021 decision not to make a reference was “plainly liable to attack on other public law grounds”, because although the CMA had concluded that the test for a MIR was met, it had not made one because it expected to receive new powers to intervene (an expectation that was ultimately mistaken). According to the CAT, “it might well be said that the CMA erred in law and/or took into account immaterial considerations, such as future powers that might potentially accrue to it”. The CMA also “failed to consider the importance of a proposed [MIR]”.
The CAT ends with a somewhat cryptic final paragraph, saying that although it is for the CMA to decide its course, “the course outlined in the foregoing paragraphs is not one that a responsible authority has eschewed in the past”, referring to the CTS Eventim AG v Competition Commission case of 2010.
In that case, in which the current President of the CAT was one of the judges, the Competition Commission (one of the two predecessor bodies of the CMA) had cleared the Ticketmaster/Live Nation merger, but Eventim, a third party, had appealed that decision to the CAT, alleging that the Commission had denied Eventim its right to a fair hearing by depriving it of the chance to comment on the Commission’s provisional findings on the merger. Rather than fighting the appeal, the Commission agreed with Eventim that the CAT should quash the Commission’s decision to clear the merger and refer the matter back to the Commission.
Therefore, it seems that the CAT’s proposed “way out of this situation” involves the CMA retracting the December 2021 decision in some way, either on its own initiative or following an order from the CAT.
The power of the CAT to quash the decision and refer the matter back to the CMA would only exist if a “person aggrieved by the decision” applies to the CAT for a review (Enterprise Act 2002, section 179(1)). Clearly, Apple would have no incentive to do so. A third party would be at significant risk of seeing its application dismissed because it is well known that the time limit for filing for judicial review is “(a) promptly and (b) in any event not later than 3 months after the grounds to make the claim first arose”.
Perhaps the CAT’s reference to Eventim should not be taken so literally, and it is instead proposing that the CMA unilaterally withdraws the December 2021 decision not to make a MIR, on the basis that it was unlawful. This course of action seems fraught with danger for the CMA too, as it would be an unprecedented step. If Apple then challenged the withdrawal, the CMA would moreover be in the unusual position where it would have to argue that its decision was unlawful, and Apple arguing that it was lawful.
Whatever the case may be, it seems we are in uncharted waters as to what the CMA can do next, assuming that it does not wish to simply let the matter rest.
Uncharted waters
After the judgment was published, the CMA said that it was “disappointed” in the judgment and that it was considering its options “including seeking permission to appeal”. When considering its options, it seems to us that there are three realistic options open to the CMA: appealing the judgment, following the CAT’s “way out of this mess situation”, and waiting for the DMU regime (or potentially a combination of these).
Appeal
An appeal would have to be on the basis that the specific regime that applies to MIRs in case of a market study does not “switch off” the general power for the CMA to make a MIR, particularly in circumstances where a new development occurs after the decision not to make a MIR (here: the May 2022 delay in the DMU regime). The CAT’s position that the stand-alone MIR route is not open to the CMA in these circumstances means that we are in a situation where the CMA is out of options if it considers it necessary to reverse course.
To be fair, the CAT states that it does not want the judgment to be read as unduly constraining the CMA in cases of mistake of fact, misrepresentation and/or change of circumstance, as this “do[es] not arise on the facts of this case”. However, it seems to us that the CMA did consider that developments in May 2022 were a change in circumstances that required a different approach. It just felt it could take that different approach by making a stand-alone MIR, rather than having to rely on the change of circumstance doctrine.
There are other arguments the CMA could advance, particularly around the weight the CAT placed on the December 2021 decision not to make a MIR, and its view that this decision is liable to attack on public law grounds. It is not immediately clear to us that the CMA was not entitled to take into account future legislation that had been properly announced by the Government when deciding whether or not to exercise its discretion to make a MIR. The CAT’s judgment with respect to the decision that Apple actually appealed, i.e., the decision to make a MIR in November 2022, appears to have been influenced by its views on the merits of the December 2021 decision.
If on appeal the CAT’s judgment is upheld because the Court of Appeal is of the view that this is the only way the Enterprise Act 2002 can be interpreted, then that Act appears to us to be flawed and provision should be made for situations such as the present one (particularly bearing in mind that the decision essentially needs to be made about four months into its market study, given the need to go through the CMA governance process and write a report by the six-month mark).
Try to address the flaws in the proposed decision not to make a MIR
The CMA could also try to follow the Eventim precedent, though unlike that case, it is highly unlikely that the appellant (Apple) will cooperate with such an approach. Another distinguishing factor when compared to that case is that the decision that the CAT considers creates a problem for the CMA, the December 2021 decision, is not the decision under review in the present case.
Because Apple is unlikely to cooperate, the CMA would be setting itself up for a fight if it sought in some way to revisit or retract the December 2021 decision. For this reason alone, it may be necessary to appeal the CAT’s decision in parallel to ensure that the Court of Appeal confirms that the CAT was right in law, leaving this as the only option open to the CMA (save for letting the matter rest).
Wait for the DMU regime
The third option is to essentially do what the December 2021 decision said the CMA would do and wait for the DMU legislation to be enacted. The CAT’s judgment should give impetus to Government to move ahead with the legislation, and the matters that were at the heart of the MIR could be prioritised as one of the first issues the CMA takes forward.
There is no doubt that the CMA faces some really difficult decisions after this judgment. Stepping away from the immediate issues of mobile browsers and cloud gaming, the mobile ecosystems market study is now the second market study in which the CMA decided to wait for the DMU regime, but we are still waiting for a draft Bill to be published. The same happened in the Online platforms and digital advertising market study.
Those observers who are keen for the UK to take meaningful action against entrenched dominant positions in digital markets may have to wait even longer to see real-world changes.
Stijn Huijts is a competition law partner at Geradin Partners. Photo by Laurenz Heymann on Unsplash
