As readers of this blog will know, the UK’s Digital Markets, Competition and Consumers (“DMCC”) Bill seeks to create a brand-new ex ante regulatory framework for firms with ‘strategic market status’ (“SMS”), defined as firms that hold substantial and entrenched market power in a digital activity, that provides them with a position of strategic significance. When this becomes law, the Digital Markets Unit (“DMU”), housed within the Competition and Markets Authority (“CMA”), will have the power to designate tech firms such as Google and Apple as having SMS status for certain activities and will be able to impose wide-ranging conduct requirements. The DMU will also have the power to make pro-competitive interventions to reduce SMS firms’ market power and to review more of their mergers.
These are powerful tools. The UK authority will be able to make significant changes to the SMS firms’ business models with the objective of opening up their ecosystems and levelling the playing field for challenger firms. So, how should the DMU’s actions be kept in check?
Appeal standards in the UK
Judicial review (“JR”) is the standard that applies generally to appeals against decisions by public authorities in the UK, although there are some exceptions as regards certain decisions by sectoral regulators.
In the version of the DMCC Bill that has been laid before Parliament, parties that are aggrieved by a DMU decision can appeal to the Competition Appeal Tribunal (“CAT”). The standard of review that applies to DMU decisions is the JR standard generally used for regulators that make forward-looking assessments, rather than the “merits” standard used for competition law enforcement decisions by the CMA under the Competition Act 1998 (“CA98”). This means that aggrieved parties will be able to apply to the CAT to review the legality of the DMU’s decisions under the established heads of JR – irrationality, illegality and procedural impropriety – but will not be permitted to re-run the substantive issues of the decision or ask the CAT to substitute its views for the DMU’s. JR appeals are more streamlined than merits appeals, generally involving hearings that last a matter of days instead of weeks, and generally not involving extensive witness testimony.
The potential SMS firms and their advocates oppose the adoption of the JR standard. They understandably want to ensure there are sufficient checks and balances to oversee a powerful new regulator’s decisions, especially as the DMU can both write its own rules and enforce them, potentially issuing fines in the billions of pounds or separating the operations of an SMS firm. However, it is also the case that someone wishing to obstruct or delay the new regime would be well-advised to argue for an appeal process that incorporates a consideration of the merits of the case. The CMA’s experience in defending its competition law enforcement decisions under the CA98 has been that merits appeals tend to take more than twice as long as JR appeals. In addition, merits appeals often result in better outcomes for appellants because they can refine their arguments second time around and introduce new evidence (whereas the regulator must simply defend the decision it has taken). The SMS firms may believe they are more likely to receive an advantageous outcome from a merits appeal in front of a judge who has no remit to achieve overall digital policy aims.
What is the right standard in these circumstances?
My colleague David Gallagher and I have written a legal paper arguing that the JR standard is appropriate for the DMCC regime and consistent with the wider regulatory landscape, for the following main reasons:
- Consistency with analogous CMA regimes: The existing regime that is most analogous to the DMU regime is the CMA’s market investigation tool. It even shares an identical legal test with the pro-competitive interventions tool in the DMCC Bill (an “adverse effect on competition”). Market investigations are subject to JR appeals.
- Forward-looking assessments: JR is the standard that is most suitable for forward-looking assessments of the sort the DMU will be asked to make. The DMU will assess whether a firm is likely to hold its SMS position for the next five years and, if so, to craft conduct requirements that will apply for that time period. As well as the CMA tools discussed above, the JR standard applies to Ofcom’s substantial market power and price control regimes, which are other similar regimes involving forward-looking decisions in fast-moving markets.
- Reaching a prompt final outcome: One of the core justifications for the DMCC regime is the failure of the existing competition law regime to deal promptly enough with the unique competition issues arising in digital markets. Both sides (and consumers generally) benefit from a prompt decision even if one of them is often going to be disappointed by the outcome. Our paper shows that “merits” appeals under the CA98 tend to take twice as long as JR appeals.
- Expert decisions: The DMU will be the best-placed body to make the complex decisions required under the DMCC regime. The DMU will be staffed by digital sector experts, including data scientists, who have already built up unmatched expertise through two market study reports consisting of nearly 3,000 pages of analysis, and other investigations, before the regime is in force. The DMU will have robust checks and balances, including an Office of the General Counsel and an Office of the Chief Economist, oversight from its Board, and accountability to Parliament.
- Expert recommendations: The Digital Markets Taskforce was commissioned by the British Government to give advice on the framework for the DMCC regime. This taskforce advised that DMU decisions should be appealable on ordinary JR principles.
- Consistency across jurisdictions: The European Commission is likely to be running similar cases to the DMU under the EU’s Digital Markets Act (“DMA”). Both regimes aim to tackle the same issues. The standard of appeal for the DMA is arguably closer to JR than merits. The same can be said for the new section 19a regime for digital gatekeepers in Germany.
- Consistency with human rights law: JR appeals allow courts to meet their obligations, including in relation to the right to a fair trial, under the European Convention on Human Rights.
Overall, the requirement for the DMU to set out its reasoning in full and provide the full opportunity for interested parties to respond to the case against them, means that it has nowhere to hide in JR appeals that can overturn a decision on grounds such as irrationality or a lack of due process.
Conclusion
The Government has proposed the DMCC Bill following years of authoritative reports that highlight the competition issues arising in digital markets whereby a small number of digital gatekeepers hold unique levels of market power that threaten to dampen competition and innovation from other firms. The DMCC Bill aims to promote growth, dynamism and productivity in the digital economy. Unless one disagrees with that aim, the new regime must avoid a situation where an overly burdensome system of review leaves the DMU mired in unwieldy trials such that it cannot implement its policy goals in a timely fashion. The DMU could also fall behind its EU and German counterparts in implementing changes that would level the playing field in digital markets.
Traditional JR principles allow for thorough judicial oversight of the DMU. DMU decisions must be explained in great detail in written reports, and underlying data will be disclosed to interested parties to allow them to point out errors. Decisions taken irrationally, unlawfully or without a fair process can be quashed and parties can challenge decisions that impact them. Both sides benefit from a prompt resolution of issues even if one side will often, by definition, be disappointed by the outcome. The reduced uncertainty over the trading conditions they will face may also help firms impacted by DMU decisions to plan their businesses.
