Overview
The UK Digital Markets, Competition and Consumers Act (DMCCA) received Royal Assent on May 24, 2024, after a series of amendments ping-ponged back and forth between the House of Commons and The House of Lords. It is a major piece of legislation for businesses and consumers and reflects the most significant changes to the powers of the Competition and Markets Authority (CMA) since its creation. These changes are not confined to the digital arena. With the imminent advent of the General Election, the CMA rushed out its Consultation on proposed Guidance to the DMCCA (3 hours before the period of prior election ‘purdah’ imposed for such consultations). Responses to the Consultation should be made by July 12, 2024. It will likely come into force in October 2024 and this blog considers some of the implications for business.
1. Context
The advent of the DMCCA puts the UK in the vanguard of jurisdictions which are legislating to take on powers to regulate and supervise the power of ‘big Tech’. The EU has already adopted the Digital Markets Act (DMA), the Digital Services Act, and, soon, additional AI legislation. It joins Germany and Japan, each with their own national dedicated digital measures; and other countries are likely to follow (such as Australia, Brazil, India and Turkey). It is already a crowded space into which the UK is carving out a special regime focused on creating bespoke conduct rules for large digital platforms. As will be seen, the UK intends its regime to be more individual, tailored, and flexible in a way which may be attractive for other countries to follow.
It is open to debate whether this new digital regime is necessary, given the extensive powers the CMA already enjoys, to conduct market sector inquiries and impose administrative remedies without going through the courts. The new legislation creates challenges for businesses that trade across the UK and Europe – both for digital players who might be potential targets of the legislation and for those users interested in the obligations which might be imposed. There are notable differences between the UK and EU regimes, which are considered below.
2. A New Regime for Digital Markets
Under the DMCCA, the Digital Markets Unit (DMU) which sits within the CMA, will designate certain tech companies as having ‘strategic market status’ (SMS). Once designated, an SMS company will be subject to (i) a code of conduct which will be bespoke to it and which is enforceable; (ii) the possibility of so-called ‘pro-competitive interventions’; and (iii) a merger reporting obligation for investments as low as 15% in a target which has a UK nexus. The CMA has indicated that it intends to launch 3-4 SMS investigations as soon as the law comes into force. There is a mandatory 9-month investigation period, and if, as expected, the CMA chooses sectors where it already has experience, the DMU could announce SMS decisions as early as the Summer of 2025. These sectors under consideration include cloud computing, mobile browsing, ecosystems and app stores, digital platforms and online advertising (many of which have strong echoes with existing CMA reviews and the EU experience, and some of which could be combined into single reviews where, for example, the package of remedies could overlap).
So far as a comparison between the UK’s DMCCA and the EU’s DMA is concerned, both are aimed at designating undertakings with significant market power. However, there are some notable differences:
- The DMA designation is determined by the regulation, under which there is a presumption of being a ‘gatekeeper’ once certain user numbers and turnover thresholds are met. By contrast, under the DMCCA, designation is intended to be based on a discretionary assessment. The DMU will examine the company’s digital activity, whether it has ‘substantial and entrenched’ market power, its ‘strategic significance’ in relation to the digital activity, its UK and global turnover and its UK nexus. Each of these will be addressed in the CMA’s Guidance to the DMCCA.
- The DMA sets out a list of mandatory duties which apply to all gatekeepers across the board, regardless of their particular circumstances and activities. On the other hand, the UK regime is intended to be more collaborative between the company and the DMU. After a bi-lateral dialogue, the code of conduct to be adopted by the DMU will be bespoke to that identified SMS.
- There is no exemption under the DMA. In contrast, there is a possibility of an exemption in the UK, where a company can demonstrate that there are net consumer benefits that both outweigh any negative consequences and also where it can demonstrate that the conduct in question is indispensable and proportionate to achieve those benefits.
- In terms of penalties, both the DMA and the DMCCA provide for substantial financial penalties (up to 10% of gross worldwide turnover). The UK has two additional enforcement tools: director disqualification orders (which already exist) and a new civil financial penalties remedy that can be imposed on named senior managers.
3. Merger Control Changes
Quite apart from the new regulatory regime for SMSs, the DMCCA has introduced changes to the UK’s merger regime (which remains a voluntary regime):
- The turnover threshold has been raised from £70M to £100M.
- There is a safe harbor from merger review for transactions where each party’s UK turnover is less than £10M.
- A new jurisdictional test is introduced to allow reviews where one party has a significant UK presence with a share of supply of at least 33% and UK turnover of £350M and the other party has a UK nexus (with at least some activities in the UK). This allows the CMA to examine transactions which are ‘acquirer-focused’ with no overlap between the two businesses required (as currently required in the share of supply test).
- SMSs will have to report mergers where they acquire a share in the target of 15% equity or voting rights, the SMS holding is greater than £25M and there is a UK nexus. In these circumstances there is a 5-day ‘waiting period’ to close, after notifying the CMA.
These changes broaden the CMA’s jurisdiction to review mergers under certain circumstances and businesses, especially private equity and investment vehicles, will need to be aware of these new jurisdictional thresholds, even though the regime remains a voluntary one.
4. Investigation and Enforcement Powers
The CMA’s existing enforcement powers have been enhanced in a number of important respects:
- Witnesses can be called for interview (even if unconnected with parties under investigation).
- Companies can be required to produce documents that may be stored remotely and have a duty to preserve relevant documents, even where the CMA has not called for them
- Under certain circumstances the CMA can investigate arrangements which have been implemented outside the UK.
- The CMA will have powers to gather information in the UK on behalf of foreign authorities.
- The CMA will have new fining powers with respect to companies which do not comply with investigative measures or remedies.
The introduction of turnover-based penalties (which echo those exercised by the European Commission) is intended to incentivize businesses to comply. It should be an impetus for reviewing compliance procedures and ensuring appropriate responses to the CMA’s requests for information.
5. Consumer Laws Strengthened
Lastly, it is worth noting that, unlike some regimes, the CMA wears two hats: competition law enforcement and consumer protection. The DMCCA includes significant enhancements to the CMA’s powers to enforce consumer protection laws. Currently, the CMA is required to make applications to the courts to establish breaches of consumer rules. Under the DMCCA, this will no longer be the case. The CMA will be able by administrative decision, to determine whether a company has breached consumer laws and will be able to impose fines of up to 10% of worldwide turnover for breaches. Its information gathering powers will echo those it has for investigations of competition law breaches and include fines of up to 1% of worldwide turnover for failure to comply with investigative requirements. Further, new rules are introduced requiring companies offering certain types of contracts to consumers, to include, for example, mandatory pre-contract information.
6. Next Steps
The CMA invites comments from interested parties before July 12, 2024. Businesses should assess the impact on them of the changes introduced by the DMCCA and consider the extent to which the Guidance provides sufficient clarity to be able to predict how the CMA will approach interpretation of the scope of powers it has been granted.
