Government Consults On New Competition Regime For Digital Markets – Anti-trust/Competition Law

On 20 July 2021, the UK Government published proposals for a new
competition regime for digital markets “to make it fairer for
smaller businesses, entrepreneurs, and the British public”.
These proposals include significant new powers for the Digital
Markets Unit (DMU) which was recently established
within the CMA and an enforceable code of conduct for firms with
so-called Strategic Market Status (SMS). The
Government is also considering new merger control rules for firms
with SMS. The proposals are now open for public consultation until
1 October 2021.

Background

Large digital players have faced considerable scrutiny from
competition authorities around the world in recent years, with
Facebook, Amazon, Apple and Google all subject to multiple
investigations. The market position of a small number of global
firms is seen as creating unique issues in the sector, which many
jurisdictions have sought to tackle by introducing or proposing new
laws or regulatory frameworks.

In the UK, the Government established in 2018 a Digital
Competition Expert Panel chaired by Professor Jason Furman to
report on the state of competition in digital markets and make
recommendations as to how competition policy reform could help
unlock the opportunities of the digital economy. As reported
previously (see here) the panel made various proposals in
March 2019 and in March 2020, the Competition and Markets Authority
(the CMA) was asked by the Government to lead a
Digital Markets Taskforce, to provide advice to the Government on
the design and implementation of a pro-competition regime for
digital markets. The Digital Markets Taskforce, composed of
officials from the CMA, the Office of Communications
(Ofcom) and the Information Commissioner’s
Office (ICO), published its advice in December
2020. A “shadow” non-statutory DMU was established within
the CMA in April 2021.

The proposals

The key elements of the Government’s proposals are:

1. The creation of a statutory DMU within the CMA, with a legal
   duty to promote competition (including competitive outcomes) in
   digital markets for the benefit of consumers.




2. A new power for the DMU to designate firms with SMS. To be
   designated with SMS, the Government proposes that a firm must have
   substantial and entrenched market
   power in at least one activity, and this market power must provide
   the firm with a strategic position.




3. An enforceable code of conduct which would
   apply to firms with SMS and which would be overseen by the DMU. The
   code of conduct would seek to promote fair trading, open choices
   and trust and transparency and would comprise legally-binding
   principles and accompanying guidance. Most of the principles (for
   example, “to provide clear, relevant, accurate and accessible
   information to users”) would only apply in the activity in
   which the firm is designated as having SMS but the Government
   proposes that the entire firm should be subject to the principle
   not to make changes to non-designated activities that might further
   entrench the firm’s position in its designated
   activity/activities, unless that change can be shown to deliver
   significant benefits.




4. Powers for the DMU to make so-called pro-competitive
   interventions (PCIs) designed to open up
   digital markets to greater competition. Where the DMU can establish
   an “adverse effect on competition” (a concept taken from
   the CMA’s market investigation regime), the Government proposes
   that it should have broad discretion to implement a wide range of
   PCIs, such as mandating interoperability, third-party access to
   data and measures that increase consumer control over data. It is
   considering whether this should include the power to impose
   ownership separation on firms, including divestment or transfer of
   assets or technology.




5. The power for the DMU to fine firms up to 10% of their
   worldwide group turnover for breaches of the code of
   conduct or a PCI. The Government is also considering other
   enforcement mechanisms, including enabling the DMU to hold senior
   managers of firms with SMS liable for compliance with the regime
   and empowering it to require redress to those who have suffered
   loss from a breach. The Government does not intend for the regime
   to prioritise private follow-on claims initially but expects to
   re-visit whether to enable the DMU to facilitate such actions in
   due course.




6. A bespoke merger control regime for firms with
   SMS. This would involve:

• A new requirement on firms designated with SMS to inform the
  CMA of all mergers in which they are involved;




• A broader and clearer jurisdiction for the CMA to review SMS
  mergers, through the introduction of a transaction value threshold
  (in the region of £100 or £200 million) alongside a UK
  nexus test;




• A mandatory merger review prior to completion for larger
  transactions by firms with SMS – these would be identified by way
  of a higher transaction value threshold and a UK nexus test;
  and




• Changing the threshold at which the CMA can intervene in a
  merger involving a firm with SMS, by allowing it to take action at
  the end of a Phase 2 investigation when there is a ‘realistic
  prospect’ of the transaction giving rise to a substantial
  lessening of competition (rather than having to establish that one
  is ‘more likely than not’ to arise, which is the standard
  threshold).

Consultation

The consultation offers an opportunity for businesses to provide
their views on these important proposals. The Government says it is
particularly interested in hearing from entities including:

• start-ups, charities and small businesses; especially those
  that rely on firms with potential SMS,




• large and small technology companies, advertisers, publishers
  and representative organisations, and




• investors in technology companies.

The consultation document is available here and the consultation closes at 11.45pm on
1 October 2021.

The Walker Morris Technology & Digital Group is considering
submitting a response to the consultation; do get in touch if you
would like to discuss how the proposals may affect your
business.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.