UK: UK's Digital Markets, Competition And Consumers Bill: Increased Oversight Especially For Digital Companies

On 25 April 2023, the UK government published the Digital Markets, Competition and Consumers Bill ("Bill"). Before the Bill becomes law, both Houses of Parliament will need to approve it and amendments are likely. The Competition and Markets Authority ("CMA"), the UK's antitrust watchdog, has described the Bill as a "flagship bill which provides the CMA with new powers" and said that the Bill "has the potential to be a watershed moment in the way we protect consumers in the UK and the way we ensure digital markets work." The Bill would also bring important and more generally applicable changes to UK merger control and other antitrust laws.

In many ways, the Bill resembles the European Union's Digital Markets Act ("DMA"), which imposes enhanced regulatory obligations on certain big tech companies.¹ For instance, the Bill enables the CMA's Digital Markets Unit ("DMU") to subject companies to tailored codes of conduct. But the 388-page Bill goes further than the DMA and amends the UK's merger control regime and consumer protection law and widens the CMA's investigatory powers. This alert summarises: (i) the Bill's new digital markets regime; (ii) its merger control and other antitrust reforms; and, in brief, (iii) its consumer protection reforms.

I. New Regulatory Regime for Digital Companies

The CMA established the DMU in 2021. The Bill gives this group of digital-focused experts statutory recognition and provides for a new statutory regime aimed at promoting competition. Like the DMA, the Bill will target a small number of companies identified as having "Strategic Market Status" ("SMS").

1. SMS Designation and Conduct Requirements

The CMA may deem a firm as having SMS if it has substantial and entrenched market power and strategic significance regarding a particular digital activity in the UK. In addition, the firm must have a "nexus" to the UK (such as business relationships or a significant number of users) and meet revenue-based thresholds (at least £1 billion in the UK or £25 billion globally). The DMU must investigate, inform the targeted company and initiate a public consultation on any proposed SMS designation. If designated an SMS, the company will be subject to legislative requirements. Those should pursue three overarching objectives:

The Bill includes an exhaustive list of requirements that the DMU is authorised to impose. Many of these are open to interpretation and may lead to uncertainty, such as "using data unfairly", "trade on fair and reasonable terms" and "applying discriminatory terms". Firms with SMS will be required to provide the CMA with detailed compliance reports.

Unlike the EU's DMA, the Bill recognises potential efficiency defences. It includes a potential exemption for practices that benefit consumers provided they are proportionate and do not eliminate or prevent effective competition. This is welcome and should foster innovation and avoid false positives.

2. Pro-Competition Interventions

The DMU can also carry out "pro-competition interventions" ("PCI") against firms with SMS to remedy "adverse effects on competition". The DMU must investigate and establish that adverse effects on competition exist before imposing a "pro-competition order" or recommending further action to government or regulators. When taking a decision, the CMA may consider any benefits to UK users and UK customers.

The potential remedies could be far-reaching, including (i) prohibiting combining user data collected from different activities, (ii) imposing a duty to make services interoperable with competitors' platforms, (iii) imposing a duty to supply a competitor with user data, and (iv) imposing divestures.

3. Penalties and Extraterritorial Presumption

In addition to behavioural and structural remedies, the CMA can impose financial penalties. These may be up to 10% of global turnover and daily fines up to 5% of global turnover for continuing infringement. In response to a recent UK Competition Appeal Tribunal ruling that limited extraterritorial application of CMA discovery orders when Parliament had not specified extraterritorial application, the Bill expressly provides that it will apply to companies outside the UK.

II. Merger Control and Antitrust

The Bill will increase red tape. For digital companies with SMS, it will also require more merger notifications to the CMA.

1. Stricter Antitrust Enforcement Procedures

Anticompetitive agreements that have an immediate, substantial and foreseeable effect on trade in the UK will now be caught by UK law. There will not be a requirement that any illegal conduct occurred in the UK. Moreover, the Bill provides for higher fines for violations.

2. Merger Control Thresholds and "Killer" Acquisitions and Vertical Transactions

The Bill modifies the thresholds for CMA jurisdiction over M&A transactions. It provides for:

• A Higher Threshold: the CMA will have jurisdiction if the target generated £100 million in the UK—this threshold is currently £70 million.
• A More Encompassing Alternative Threshold: the Bill introduces an alternative threshold which is triggered if one of the merging parties has a (i) share of supply of at least 33% in the UK or a substantial part of the UK and (ii) UK turnover exceeding £350 million. This threshold does not require that the parties to the transaction compete in the UK. This threshold therefore would capture certain vertical transactions and possible "killer" transactions where an established supplier is buying an incipient competitor that may not yet have significant UK revenues.
• A Safe Harbour: it introduces a safe harbour from notification where each of the merging parties has UK turnover below £10 million, even where there is an overlap in the parties' business activities (and the share of supply test is therefore triggered).

In addition, and in a departure from the UK's current wholly voluntary merger control regime, the Bill imposes a duty on firms with SMS to report certain transactions and observe a waiting period before they are consummated. This duty may apply if (i) the firm with SMS acquires 15% or more of another company's shares or voting rights, (ii) the transaction is valued at £25 million or more, and (iii) the transaction has a nexus to the UK.

III. New CMA Consumer Protection Powers

Under the Bill, the CMA can itself determine that a firm has breached consumer rules (e.g. prohibitions on false advertising) and is no longer required to bring consumer protection cases in court. Also, the CMA will be able to impose fines of up to 10% of a firm's global annual turnover for breaches of consumer law. The Bill also contains a new set of substantive consumer law rules. These include, for example, rules regarding fake online reviews, new requirements to send reminder notices before consumers are charged for a product or service (e.g. at the end of a free trial), and rules regarding cancelling subscriptions.

Contact

WilmerHale has extensive experience advising clients in the tech sector and a detailed understanding of the political drivers and sensitivities in this area. We also have insights into the kinds of remedies that the CMA may impose. Our attorneys have worked on numerous cases before the CMA and UK courts and have detailed knowledge relating to the substantive issues raised by the Bill, including UK antitrust and merger control laws, digital regulatory laws and related litigation, and data protection law. We also often advise digital companies on their compliance with EU regulations. For further information, please contact a member of our UK or EU team in this area.

Footnote

1. See WilmerHale webinar, Navigating EU Antitrust Issues in the Digital Space, 3 June 2021.

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.