The UK’s Digital Markets, Competition and Consumer Bill establishes a new digital competition regime to be overseen by the Digital Markets Unit (DMU). This unit has been operational since 2021 and is located within the Competition and Markets Authority (CMA). The bill will give the unit the statutory powers to tackle the challenges in digital markets using a ‘proportionate approach’. It is expected to be implemented by spring 2024.
The bill designates applicable firms as having ‘strategic market status’ (SMS). These firms will be subject to:
- A range of tailored remedies to ensure fair dealing, open choices and trust and transparency, designed to manage the effects of market power and ensure markets are open to competition and innovation
- Potential pro-competitive interventions to address the root cause of the firms’ market power
- A requirement to report all mergers and acquisitions above a certain threshold to the CMA
- A new ‘final offer mechanism’ which enables the DMU, as a last resort, to address unfair payment terms and resolve disputes between SMS firms and third parties.
Strategic market status
The new regime for digital markets will give the DMU the opportunity to intervene pro-actively. Firms with ‘substantial and entrenched market power’ leading to a strategic position in at least one digital activity will be designated with SMS and will be subject to the new regime. The designation can be made by the CMA following an investigation. It includes the following criteria:
- The digital activity (defined generally as the provision of a service via the internet or the provision of digital content) is linked to the UK
- The undertaking meets the conditions of substantial and entrenched market power (to assess this the CMA must carry out a forward-looking assessment of a period of at least five years) and occupies a position of strategic significance in respect of the digital activity
- The firm’s UK turnover in the relevant 12-month period is reasonably estimated to exceed £1 billion or its global turnover in the relevant period exceed £25 billion. Only one of these thresholds needs to be met. If the firm is part of a group, then the turnover of the whole group should be considered.
The designation period is for five years. It is anticipated that firms which have already been the subject of the CMA’s investigations and market inquiries are likely to be the first to be designated with strategic market status.
The code of conduct suggested in the previous draft of the bill has now become ‘conduct requirements’. Firms with SMS will have to comply with specific requirements that set out how they should or should not behave in respect of their digital activities. (This differs from the EU’s Digital Markets Act, which provides for blanket prohibitions and conduct requirements.) These relate to how firms with SMS interact with other businesses and consumers.
Obligations imposed on SMS firms should be based on the three principles of fair dealing, open choices, and trust and transparency. Each category is framed broadly, enabling the CMA to tailor the requirements for each firm. ‘Permitted’ conduct requirements fall into two categories:
- Obligations. These oblige a firm to:
- Trade on fair and reasonable terms
- Have effective processes for handing complaints and disputes
- Provide clear, relevant, accurate and accessible information
- Give advance notice and explanations of material changes in relation to the digital activity
- Provide options or default settings in a way that enables users to take informed and effective decisions.
- Prevention. These prevent a firm from:
- Applying discriminatory terms, conditions or policies to different users or types of users
- Using its own position in relation to the relevant digital activity to treat its own products more favourably than those of other undertakings
- Carrying out activities in any part of an SMS firm’s business that could materially enhance its market power or bolster the strategic significance of its position in relation to the relevant digital activity
- Engaging in tying/bundling practices
- Restricting interoperability
- Restricting the use of and access to the digital activity
- Using data unfairly
- Restricting the use of other undertakings’ products.
It is possible for an SMS firm to justify its conduct if it can show net benefits for users and that its conduct is indispensable and proportionate to attaining those benefits.
In addition to the tailored remedies and conduct requirements above, the CMA will also have additional powers to address the root cause of the firms’ market power. Where the CMA finds that a factor relating to a digital activity has an adverse effect on competition, the threshold for intervention will be met. In deciding whether to make a pro-competitive intervention the CMA can consider any benefits to UK users or customers that could result from the factors having an adverse effect on competition. A pro-competitive intervention can take the form of an order, a non-binding recommendation made by the CMA or a commitment made by a designated undertaking. Additionally, the CMA can impose behavioural or structural remedies on any part of a firm’s business.
Mergers: mandatory reporting
SMS firms will be subject to a mandatory merger reporting requirement prior to closing, especially where:
- The SMS firm acquires at least 15 per cent of the shares or voting rights in a company conducting activities or supplying goods or services in the UK, with further reports required if its stake passes 25 or 50 per cent.
- The value of the SMS firm’s total holding is at least £25 million.
Unless the CMA consents, the transaction cannot close until five working days after the CMA has accepted the notification. This is designed to give the CMA enough information and time to decide whether to open an investigation under the merger control regime and is a move away from the UK’s non-suspensory merger control regime. Additionally, and more generally, UK merger control turnover thresholds will increase from £70 million to £100 million for the UK turnover of the target entity.
There will also be a new threshold for merger review designed to capture so-called ‘killer acquisitions’
There will also be a new threshold for merger review designed to capture so-called ‘killer acquisitions’, where an acquirer of the merging enterprises has at least 33 per cent share of supply of goods or services in the UK and a UK turnover of greater than £350 million. There is a safe harbour for transactions where all of the merging parties has a turnover below £10 million.
Enforcement, penalties and appeals
A variety of new investigatory powers will be granted to the CMA, including standard information gathering powers similar to competition law. The CMA can impose penalties of up to 10 per cent of worldwide turnover and up to 5 per cent of daily worldwide turnover in the case of breaches of orders or commitments for each day a breach continues. The CMA may impose a fixed penalty of up to 1 per cent of a firm’s worldwide turnover, or a daily penalty of up to 5 per cent of daily worldwide turnover for each day non-compliance continues, or both. The CMA can impose a fixed penalty on an individual of up to £30,000, or a daily penalty of £15,000, or both. Within those limits, the level of penalty will be an amount that the CMA considers appropriate given the circumstances of the case. The CMA can also impose civil and criminal sanctions. A director involved in an infringement can be disqualified for up to 15 years. Firms can appeal CMA decisions under the new digital markets regime to the Competition Appeal Tribunal (CAT) on a judicial review basis, rather than on the merits. Challenges can be brought by any party with sufficient interest, including third parties. It is also possible for third parties to bring private actions for damages against firms in respect of certain breaches.
Comparison with the EU Digital Markets Act
Below are set out some of the key differences between the DMA and the new UK SMS regime.
|Status||Platforms acting as ‘gatekeepers’:|
• have a significant impact on the internal market
• serve as an important gateway for business users to reach their customers, and
• enjoy, or will foreseeably enjoy, an entrenched and durable position.
There is rebuttable presumption of gatekeeper status if three quantitative criteria are met (Article 3(2) of the DMA).
1. The company will have a significant impact on the EU:
– if the undertaking achieves an annual turnover in the EU of ≥ € 7.5 billion in each of the last three financial years; or
– if the undertaking’s average market capitalisation or its equivalent fair market value amounted to ≥ € 75 billion in the last financial year, and
– it provides the same Core Platform Service (‘CPS’) in at least three member states.
2. The CPS will be an important gateway if it has at least:
– 45 million monthly active end users established or located in the EU, and
– 10,000 yearly active business users established in the EU in the last financial year.
3. It will be entrenched and durable if the requirements in (2) above are met in each of the last 3 years.
If all three quantitative criteria are not met, the Commission may designate a company as a gatekeeper based on a qualitative assessment following a market investigation.
The European Commission has recently designated Alphabet, Amazon, Apple, ByteDance, Meta and Miscrosoft as ‘gatekeepers’ in a range of core platform services.
|Strategic market status (SMS): |
– a substantial, entrenched market power (non-transitory) in at least one digital activity, and
– which provides the firm with a strategic position.
Assessment and designation undertaken by the DMU.
The CMA may designate an undertaking as having SMS where:
– the digital activity is linked to the UK and the company meets the SMS conditions in respect of the digital activity
– the turnover condition (of > £25 billion globally or > £1 billion in the UK) is satisfied
– the CMA has carried out an SMS investigation.
|Scope/ Activities||Core platform services include: |
– online intermediation services
– online search enginesonline
– social networking services
– video-sharing platform services
– number-independent interpersonal communication services
– operating systems
– web browsers
– virtual assistants
– cloud computing services
– online advertising services.
(Article 2(2) of the DMA.)
|‘Digital activities’ are defined in section 3 of the bill and consist of: |
– a service provided via the internet (paid or otherwise)
– the provision of digital content (paid or otherwise); or
– any other activity carried out for the purposes of providing an online service or digital content.
|Rules||General list of dos and don’ts which ‘gatekeepers’ will need to comply with (not tailored).|
Must be complied with six months after one or more of the core platform services they provide have been identified as fulfilling the thresholds of the proposed regulation (Article 3(8) of the DMA).
|The CMA will have the power to impose conduct requirements on designated SMS firms. Conduct requirements may be imposed in pursuit of certain objectives: |
– the fair dealing objective
– the open choices objective
– the trust and transparency objective.
The DMU will develop specific tailored requirements for each SMS firm.
The CMA can issue enforcement orders and interim enforcement orders to address breaches.
Pro-competition interventions (PCIs).
|Merger control||An obligation for designated gatekeepers to inform the Commission of any proposed concentration within the meaning of the EU Merger Regulation (EUMR) involving another core platform service provider or any other service provided in the digital sector, regardless of whether it is notifiable under merger control at the European or national level (Article 12 of the DMA). |
New guidance regarding Article 22 of the EUMR, allowing the Commission to encourage and accept referrals in cases where the referring Member State does not have initial jurisdiction over the case (but where the criteria of Article 22 are met).
|New SMS mandatory notification regime for transactions that meet new thresholds. Designated SMS firms will be required to report acquisitions of shares or voting rights which increase the SMS firm’s holding: |
– from less than 15% to 15% or more
– from 25% or less to more than 25%
– from 50% or less to more than 50%.
Under general competition law merger thresholds (and not specifically SMS), the turnover threshold will be increased to £100 million and there will be a safe harbour for mergers between small businesses (with UK turnover below £10 million). A new threshold to enable the CMA to investigate mergers where at least one party has a UK share of supply of 33% and has UK turnover of more than £350 million will also be introduced to tackle so called ‘killer acquisitions’.
|Regulator||European Commission but national competition authorities will assist.||DMU, within the CMA, which has been operational since April 2021.|
|Fines||10% of worldwide turnover (although can be increased to 20% of worldwide turnover for repeated infringement). Additional fines for failing to comply with information requests and other procedural infringements.||10% of worldwide turnover. Additional fines for failing to comply with information requests and other procedural infringements.|
|Breakup||Yes — remedy of last resort for systemic breaches.||Yes — where appropriate and other remedies are insufficient (although the UK already has such powers under the existing market investigation regime).|
|Private enforcement||No specific rules on private actions.||No specific rules on private actions. However, consumers will have the ‘right to redress’ under the bill and may bring a civil claim where a trader has engaged in a ‘prohibited practice’.|