New Bill to boost competition in digital markets and improve consumer protection published by the UK Government
The Government’s Digital Markets Competition and Consumer Bill aims to update the UK’s competition and consumer rules to reflect modern consumer habits and business dynamics in the UK’s highly digitised economy.
This significant piece of legislation seeks to do this this in three ways:
- A new pro-competition regime for Digital Markets: by putting on a statutory footing the Digital Markets Unit (DMU), a specialist unit within the Competition and Markets Authority (CMA) that will seek to boost competition and increase consumer choice in concentrated digital markets.
- Reforms to the Competition and Markets Authority: by reforming the processes of the CMA to speed up market investigations and enforcement of the existing competition rules and raising the threshold for mergers meaning smaller mergers and acquisitions can take place more quickly.
- Updates to consumer law: the Bill will reform consumer policy to increase consumer protection, make it easier for consumers to manage subscription contracts and work with the tech sector to tackle the practice of fake reviews.
Overall, the Bill is a welcome initiative that has the opportunity to boost competition and consumer choice. In particular techUK welcomes that the Bill will finally take action to put the Digital Markets Unit on a statutory footing ensuring UK law can keep pace with other similar initiatives such as the EU’s Digital Markets Act (DMA).
This is a significant piece of legislation and there will be ongoing questions about how the proposals will work in practice and whether new regimes in both competition and consumer policy can strike the right balance between supporting increased consumer choice, competition and innovation.
Below techUK provides a summary of the key proposals for techUK members contained within the Bill.
Summary of proposals:
Pro-competition Regime for digital markets:
techUK has welcomed proposals to enact a new pro-competition regime for digital markets by putting the Digital Markets Unit on a statutory footing. The regime offers the opportunity to boost competition in digital markets through behavioural changes to create more consumer choice as well as via evidence-based interventions to address the root causes of significant market dominance.
Ahead of the Bill being published techUK set out four principles we wanted to see the Bill fulfil. The published Bill meets many of the tests techUK members wanted to see from the regime, such as ensuring the DMU takes a lead in designing competition remedies, that there are clear consultation and evidence gathering requirements and that the Bill sets out clearly the structures and processes of the regime will work in practice.
Some techUK members however will remain concerned however over the checks and balances included within the regime and that in setting out its preferred appeals standard the Government is not taking steps to speed up court processes.
techUK will continue to engage with the Government on the pro-competition regime, and you can find a summary of the key features below.
Strategic Market Status:
The new pro-competition regime for digital markets grants power to the DMU to boost competition by changing the behaviours of the largest and most dominate firms in digital markets.
This regime hinges upon a specific designation process for firms labelled as having “Strategic Market Status” (SMS) with respect to certain digital activities. The regime then subjects those firms to a system of regulated behaviour regarding those digital activities in the form of “conduct requirements.”
The bar for being labelled as SMS in a digital activity is high, a threshold of £1 billion UK or £25 billion global yearly turnover, a test of sufficient connection to UK markets or consumers must be met, and a position of significant or entrenched market power must be demonstrated. To do this the DMU will have to look ahead over the next five years to assess how entrenched market power is. This could prove complex in new and novel digital activities as well as in areas where the market dynamics are fast changing.
Conduct Requirements:
Conduct requirements must aim to promote fair dealing, open choices, and/or trust and transparency in digital markets, and they can take the form of obligations or restrictions on a firm’s behaviour. Behaviours these conduct requirements will require could include.
- Obliging a designated firm to trade on fair and reasonable terms, including maintaining users’ legal or proprietary rights and ensuring prices are not unfairly high or low.
- Preventing a designated firm from incentivising or requiring the use of its broader services or products alongside the use of the relevant service or digital content in the designated digital activity (known as bundling).
- Preventing a designated firm from carrying out activities in non-designated areas of its business in a way that is likely to materially enhance the firm’s market power or strategic position in the relevant digital activity.
The full list of potential conduct requirements can be found in Part 1, Chapter 3, Schedule 20 of the Bill.
There exists a “Countervailing Benefits Exemption” mechanism that provides a defence to a firm this accused of a conduct breach. Firms can settle a breach using this exemption if it can show its actions provides a strong consumer benefit. This exemption however is set to a high test.
Further if SMS firms are investigated for a breach of a conduct requirement, they can engage work with the CMA to make a voluntary commitment to change their behaviour to prevent the finding of a breach. This commitment must be accepted by the CMA and can head off a potential enforcement order that would compel a company to change its behaviour.
Pro-Competition Interventions:
The DMU will have a further ability to conduct “Pro-Competition Interventions” (PCIs) to remedy adverse effects on competition that the DMU can identify in the market. These may occur as:
- General restrictions on conduct
- Obligations to be performed
- Changes to acquisitions or divisions
- The supply and publication of information
A PCI will seek to address an adverse effect on competition but can also aim to remedy or minimise any related detrimental effects on UK markets and consumers. The DMU will have the power to launch formal investigations on one or more designated firms and activities. The DMU will have to publish a description of the grounds for suspicion and the purpose and scope of the investigation. There is also a requirement for the DMU to consult on PCIs.
PCIs have significant powers and could result in fundamental changes to systems, requiring interoperability or structural remedies. PCIs are designed to operate in a graduated and iterative way and may where appropriate be subject to trailing and testing before being applied.
Similar to conduct requirements a SMS firm can make a voluntary commitment to resolve a PCI before it is put into effect.
Final offer mechanism:
The DMU has been given power use a “Final Offer Mechanism” (FoM). This can only be used if the designated firm has been issued a conduct requirement to agree to fair and reasonable payment terms and is found to be in breach of the requirement.
Further the DMU must set out why it cannot satisfactorily resolve the breach within a reasonable time period by exercising any of its other functions under the regime.
The final offer mechanism is an arbitration process that will require the two parties, the SMS firm and the complainant, to submit their view of what a fair and reasonable price would be in relation to a dispute. The complainant can be a coalition of entities and does not have to be just one single organisation.
Appeals:
Appeals on a decision made by the DMU will be taken to the “Competition Authority Tribunal” (CAT), where the challenge will be decided upon the basis of Judicial Review.
In the explanatory notes the Government has cited a potential basis in case law for appeals on whether an error of law was made, whether there was a material procedural error, that a material error as to the facts has been made or that there was some other material illegality (such as unreasonableness or lack of proportionality). Appeals on civil penalties, fines and issues relating private property rights may also draw on other aspects of UK law.
Appeals can be made by the designed SMS firm or by a party with a ‘sufficient interest’, for example another firm affected by a decision made by the DMU. An appeal can be made on any decision made by the DMU from the application of conduct requirements and PCIs to fines.
Reforms to the Competition and Markets Authority:
The DMCC Bill’s reforms to the CMA aim to support speed of investigations and decisions, as well as the maintenance of existing rules.
Anti-trust:
A notable component of the anti-trust reform is the expansion of territorial reach and scope for the CMA’s consideration. The introduction of a “Qualified Effects Test” expands reach to include agreements, practices, and decisions that may affect trade in the UK, but these effects have to be shown to be immediate, substantial, and foreseeable. Additionally, the CAT receives power to grant declaratory relief and can offer exemplary damages to affected parties, which would be used as a means of punishing particularly egregious behaviour.
Mergers:
Several threshold changes for mergers under scope of CMA review are also included. The turnover test is increased from £70million to £100million, and a “safe harbour” of under £10million for each party is also included to reduce burden on mergers for small and micro businesses. Additionally, both parties and the CAT will be able to mutually agree to extend time limits on a review or fast-track investigations.
Market investigations:
For market investigations by the CMA, the Bill introduces changes to the scope and time-limits. Prior to an investigation, the CMA will have to decide and publish whether it will investigate an entire market or just specific features of it, although it will maintain the right to change those decisions with given reasoning.
The CMA will also be able to review and/or vary remedies before settling on a final remedy package from an investigation and can do the same to remedies that are found to be ineffective in solving the original problem. Such action must occur after a “cooling off period” of 2 years and before a “long stop” of 10 years.
Updates to consumer law:
The DMCC Bill introduces a range of new powers for the CMA to protect consumers against bad practices. For technology companies, the most relevant provisions are those relating to fake reviews and subscription services.
Fake reviews:
To address consumer concerns around fake reviews and help them to make informed decisions, the Bill introduces new laws that will penalise:
- Commissioning someone to write or submit a fake review;
- Posting consumer reviews without taking reasonable steps to check they are genuine; and
- Offering or advertising to submit, commission or facilitate fake reviews
techUK has been actively engaged with the Department for Business and Trade to highlight the work that our members are already doing to address fake reviews through their content policies and integrity teams, intelligent fraud detection software, and creating avenues for users to flag suspicious content.
We believe that these new powers can be effective tools that will help to build consumer confidence within the digital economy, and we look forward to working with the CMA on secondary legislation / guidance to ensure that key terms within the legislation are clearly defined and that the framework is sufficiently flexible to account for the different ways that review platforms operate. This will be vital to enable regulators to respond effectively to changing technologies and patterns of criminal behavior across a range of services.
Subscription services:
The draft Bill also introduces new requirements on companies that provide subscription services to consumers, including:
- Providing clearer information to consumers before they enter a subscription contract;
- Mandatory reminders to consumers that a free trial or low-cost introductory offer is coming to an end, and a reminder before a contract auto-renews onto a new term; and
- Providing consumers a straightforward, cost-effective and timely way to exit subscription contracts.
From our initial reading of the draft Bill, we’re confident that the government has sought to strike the right balance between business costs and consumer benefit, and that the Bill has moved away from some initial proposals that we considered excessive such as requirement for ‘double opt-ins’ by consumers.
The draft Bill avoids regulatory misalignment by referencing key existing consumer protection enactments such as the Consumer Rights Act 2015, and therefore maintains differentiation between types of services (eg. digital content vs. physical goods). It also avoids overlap by exempting sectors that are already subject to higher rules in relation to subscription contracts (including services regulated by Ofcom).
techUK will be seeking further clarification on the ways in which companies can demonstrate compliance with the pre-contractual information requirements, and supporting members in raising questions about how these new rules would apply to specific scenarios and business models.
Next steps:
The DMCC Bill will now progress through Parliament in the usual way.
techUK will continue to work with MPs, Lords and the Department for Business and Trade and Department for Science Innovation and Technology as the Bill progresses.
techUK members wishing to be involved in this work should reach out to Bobby Brooks to find out more about techUK’s work on the new pro-competition regime for digital markets and competition policy reforms and to Lewis Walmesley-Browne for techUK’s work on consumer policy.
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Neil Ross
As Associate Director for Policy Neil leads on techUK's public policy work in the UK. In this role he regularly engages with UK and Devolved Government Ministers, senior civil servants and members of the UK’s Parliaments aiming to make the UK the best place to start, scale and develop a tech business.
Lewis Walmesley-Browne
Lewis' programmes cover a range of policy areas within Market Access (international trade regulation, sanctions and export controls, technical standards and product compliance, supply chains) and Consumer Tech (media and broadcast policy, consumer electronics, and connected home technology).
