• The UK’s long-awaited Digital Markets, Competition and Consumers Bill, published this week, brings in a new antitrust regime for Big Tech in the UK.
• The Bill provides statutory footing and powers for a new body, the Digital Markets Unit (“DMU”), to oversee and enforce the new regime.
• The DMU has nine months to designate companies with "Strategic Market Status" ("SMS") after opening an “SMS investigation”, and is expected to impose “conduct requirements” on SMS firms at the time of designation.
• Unless the DMU enters into a close dialogue with, and takes into account the commercial reality of SMS firms, the DMU’s far-reaching powers could cause substantial uncertainty over the applicable regulatory framework in the UK for SMS firms..
• The DMU will also be able to make “pro-competition interventions” and fine SMS firms up to 10% of their annual global turnover for certain non-compliance. Further, the Bill introduces mandatory reporting of certain mergers involving SMS firms.
• The Bill also revises the UK’s existing merger control regime and introduces a new set of thresholds to cover vertical and conglomerate mergers.

The eagerly and long-awaited Digital Markets, Competition and Consumers Bill (the “DMCC Bill” or the “Bill”) was published this week. This triggered the start of the legislative process in the UK to introduce a new regulatory regime for Big Tech, the UK being the next in line after Germany and the EU, and to reform/bolster competition and consumer law in the UK. The Bill has the purpose of boosting competition in digital markets and supporting economic growth, investment and innovation. It is currently expected that the Bill will enter into force in Spring 2024.

The four parts of the DMCC Bill

The Bill comprises four main parts:

• Part 1 (Digital Markets): provides statutory footing and powers for a new body within the CMA, the Digital Markets Unit (“DMU”) (which has been operating on a non-statutory footing since April 2021), to oversee and enforce the new regulatory regime for the largest technology firms, i.e., firms with Strategic Market Status (“SMS”).
• Part 2 (Competition): features a series of reforms to enhance the CMA’s competition powers and, where relevant, sectoral regulators (such as Ofcom or the Financial Conduct Authority) in exercising their concurrent powers.
• Part 3 (Enforcement of Consumer Protection Law): toughens enforcement against breaches of consumer protection law.
• Part 4 (Consumer Rights and Disputes): includes new rules designed to tackle fake reviews and subscription traps, and improves alternative dispute resolution services to support redress for consumers without the need for litigation.

We focus below on Parts 1 and 2.

Part 1 - SMS Regime

There are three pillars to the SMS regime: (i) legally enforceable conduct requirements in relation to the relevant “digital activity” in which a firm holds SMS - which unlike the EU’s Digital Markets Act (“DMA”) will be individually prescribed for each SMS firm; (ii) pro-competition interventions (“PCIs”), designed and implemented by the DMU where a factor relating to a relevant digital activity is considered to have an adverse effect on competition (“AEC”) akin to market studies and investigations; and (iii) mandatory reporting of certain mergers to the CMA (there is currently no such mandatory reporting requirement).

SMS Designation

The SMS regime applies to companies that carry out a digital activity linked to the UK and have substantial and entrenched market power and a position of strategic significance. These concepts, which are broad and qualitative in nature, afford the DMU considerable discretion in its determination of which firms to designate. For example, the Bill’s definition of “digital activity” covers:

a) the provision of services by means of the internet;
b) the provision of digital content; or
c) any other activity carried out for the purpose of those activities.

The digital activity is “linked” to the UK if it the activity has a “significant number of UK users,” “it carries on business in the UK in relation to the digital activity,” or the digital activity “is likely to have an immediate, substantial and foreseeable effect on trade in the UK.” The DMU will assess whether a firm has “substantial and entrenched market power” based on a forward-looking assessment of a period of at least five years. A firm has a position of “strategic significance” if it has, for example, “a position of significant size or scale in respect of the digital activity,” or “its position in the digital activity allows if to extend market power to other activities.” SMS designation also requires that the firm’s: (i) global turnover exceeds £25 billion; or (ii) UK turnover exceeds £1 billion.

Conduct Requirements

The CMA may impose conduct requirements on an SMS firm’s digital activity if they are of a “permitted type” (see further below) and promote three specified objectives that are not dissimilar from the EU’s DMA and section 19a of the German Competition Act:

a) “fair dealing objective”: treating users (or potential users) fairly and allowing them to interact on reasonable terms;
b) “open choices objective”: enabling users to choose freely and easily between services or content provided by the undertaking and other firms; or
c) “trust and transparency objective”: promoting trust and transparency by giving users the information to understand the services or content, including the terms on which they are provided, and to be able to make properly informed decisions.

The Bill includes a list of “permitted types” of conduct requirements, including an obligation on the SMS firm to trade on “fair and reasonable terms” or preventing the SMS firm from, for example:

a) applying discriminatory terms, conditions or policies;
b) using its position in the digital activity, including access to data, to treat its own products more favourably than those of others;
c) carrying on activities other than the digital activity in a way that increases the undertakings’ market power materially, or bolsters the strategic significance of its position, in relation to the digital activity;
d) requiring users to use the SMS firm’s other products alongside the digital activity;
e) restricting interoperability with products offered by other undertakings;
f) restricting the use of the digital activity;
g) using data unfairly; or
h) restricting the ability of users to use products of other undertakings.

In contrast to the DMA, which is limited to certain types of conduct (self-preferencing, bundling, etc.) that apply to all designated gatekeepers, the Bill’s conduct requirements will be tailored to each SMS firm. However, the Bill’s range of potential obligations and requirements is open ended. For example, the obligation to trade on fair and reasonable terms, restricting the use of the digital activity, and using data unfairly could mean anything. While it leaves the DMU with flexibility to adapt to changes in the digital sector and impose requirements that are more appropriate, SMS firms are left in an uncertain legal position, at least until the DMU has finalised the conduct requirements. Unless the DMU applies its powers with great care, the legal uncertainty may continue after the adoption of the conduct requirements as it can opt to remove or amend requirements once imposed with much greater ease than the process involved for the EU to change the obligations in the DMA.

The approach adopted by Germany in section 19a of the German Competition Act, in listing seven detailed types of prohibitions that the Bundeskartellamt/Federal Cartel Office (“FCO”) may impose, sits between the Bill and the DMA. Notably, whilst there is overlap between the types of restrictions that can be imposed under section 19a and the Bill, the respective wording is distinct. In contrast to both the DMA and the Bill, firms are designated but not in relation to a specified “core platform service” or “digital activity.” This affords the FCO discretion to prohibit conduct across the firm’s business rather than exclusively in relation to a designated service or activity.

The CMA is expected to adopt conduct requirements tailored to the SMS firm at the same time as making its designation decision.

Pro-competitive Interventions

The CMA can impose a PCI on an SMS firm - either a “pro-competition order” or recommendations to a public body – if it considers that: (i) a factor relating to a digital activity is having an AEC; and (ii) making the PCI would contribute to remedying, mitigating or preventing the AEC. The CMA has a short timeframe to issue a PCI decision: nine months to provide a notice of the PCI decision followed by a four-month period to implement the PCI (extendable by two months).¹

A pro-competition order may include a wide range of measures, including prohibition of an agreement or certain clauses, such as price discrimination, bundling or refusal to supply; and ordering the divestment of a business.² As with conduct requirements, the CMA may accept commitments to avoid a pro-competition order being made.

Merger Reporting

As noted above, there is a new requirement for SMS firms to report all proposed transactions to the CMA where: (i) it acquires shares or voting rights exceeding 15%, 25% or 50% in a “UK-connected body corporate”; and (ii) the consideration is at least £25 million. A similar provision applies to joint ventures. A UK-connected body means any body corporate which carries on activities in the UK or supplies goods or services (whether for consideration or otherwise) to a person(s) in the UK. The CMA has five working days to assess whether a report is sufficient, followed by a five-working day “waiting period.” Transactions cannot complete until the waiting period has expired. Currently, the merger control regime does not have suspensory effect.

Penalties

Severe penalties are being introduced: if an SMS firm fails to comply with a regulatory requirement, including for merger reporting, without reasonable excuse, the CMA can impose penalties of up to 10% of worldwide turnover.³

Part 2 - Merger Control

The Bill amends the CMA’s existing jurisdictional thresholds to review mergers as follows:⁴

a) increases the target UK turnover threshold from £70 million to £100 million (in line with inflation);
b) introduces a new threshold designed to capture vertical and conglomerate merger (including so-called “killer acquisitions”) i.e., where:

(i) the acquirer has a share of supply (either supplied by or to it) of goods or services of any description in the UK, or a substantial part of the UK, of 33% in connection with the target’s business or any other enterprise with which the target is under common ownership or control, i.e., no overlap in activities is required as is currently the case;
(ii) the acquirer’s UK turnover exceeds £350 million; and
(iii) the target is carried on by a UK business or body, at least part of its activities are in the UK, or it supplies goods or services in the UK;

c) introduces a small business exemption which applies where neither merging enterprise has a UK turnover of more than £10 million.

It remains the case that the regime is “voluntary” and “non-suspensory” such that there is no requirement to notify a transaction for review prior to closing.

The Bill also enables the CMA to fast-track a merger to an in-depth Phase 2 investigation if it receives such a request from the parties.⁵ This aims at streamlining merger review procedures and timelines by removing certain statutory duties on the CMA that currently limit the benefits and use of the existing, non-statutory fast-track procedure.