It has been just over a year since the Digital Markets Competition and Consumers Bill ("DMCC Bill" now, the "DMCC Act") was introduced into the UK House of Commons, and on 23 May 2024, it received Royal Assent. The DMCC Bill was accelerated through Parliament under the "wash-up" procedure following the UK Government's announcement on 22 May 2024 of a general election. The "wash-up" process takes place during the short period between the calling of a general election and the dissolution of Parliament and involves the Government prioritising certain bills it wants to pass before Parliament is dissolved.
We previously provided an overview of the changes the DMCC Bill was expected to bring to digital markets and the key implications for competition law. Now that the DMCC Act has received Royal Assent, we summarise the key changes it will bring to digital markets in the UK, and we reflect on the EU's experience of introducing a similar regime. This article will also provide an insight into key implications of the DMCC Act for competition law more generally that businesses need to be aware of, in particular in relation to merger control.
A new age for Digital Markets
The DMCC Act brings into focus the pro-competition regime for digital markets under which the Competition and Markets Authority ("CMA") will have at its disposal a range of new tools to assist it in addressing the challenges to competition in digital markets. The new regime will be overseen by the Digital Markets Unit ("DMU"), which was established within the CMA in 2021.
The CMA will designate certain firms with "strategic market status" ("SMS") where they are found to have substantial and entrenched market power, a position of strategic significance in respect of a digital activity linked to the UK and where they meet the turnover condition (UK turnover exceeding £1 billion or global turnover exceeding £25 billion). Each SMS-designated firm will be subject to tailored 'conduct requirements' designed by the CMA (and subject to public consultation) to achieve certain objectives in relation to fair dealing, open choices, and trust and transparency, over and above existing competition and consumer protection laws. The purpose of these objectives is to ensure that users (or potential users) of the relevant digital activity are treated fairly, are able to choose freely and easily between services and content, and have the information they need to be able to understand the services provided and make properly informed decisions about how they interact with that SMS firm. The CMA is also required to keep these conduct requirements under review. This framework is designed to ensure that the DMU can regulate each SMS firm's behaviour specifically, bearing in mind the digital activities of each firm concerned, and adapt its approach to meet the fast-changing environment if rules are not proving effective. The DMU will also have enforcement powers to address non-compliance with these rules, including by imposing fines of up to 10% of the total value of the firm's global turnover (or where the firm is part of a group, the group's global turnover).
It is expected that only a handful of the most powerful tech companies will be designated with SMS. Whilst the current timeframe for SMS designation is unclear given the upcoming general election, the EU's similar regime under the Digital Markets Act ("DMA") may offer some insight into which companies may find themselves designated as having SMS. Under the DMA, tech giants including Apple (for their 'AppStore', 'iOS' and 'Safari' services), Meta (for their 'Facebook Marketplace', 'Facebook', 'Instagram', 'WhatsApp', 'Facebook Messenger' and 'Meta Ads' services), and Microsoft (for their 'LinkedIn' and 'Window PC OS' services), have been designated as 'gatekeepers', a designation which is the broad equivalent of SMS. Under the DMA, 'gatekeepers' are subject to a standard set of prescribed obligations, in contrast with the tailored conduct requirements under the DMCC Act. This means that SMS firms have less certainty about the obligations that they will be faced with, while the CMA will have greater flexibility to tailor requirements appropriately.
Apple, ByteDance (TikTok) and Meta have appealed the European Commission's designation of them as gatekeepers. Whilst ByteDance has appealed its gatekeeper designation, Apple and Meta have appealed broadly on the basis that certain of their services do not fall within the relevant threshold definitions. The appeals remain pending before the EU's General Court. In February, ByteDance's request for suspension of its designation, pending determination of its appeal, was rejected by the EU's General Court, meaning it has to comply with the DMA rules that were brought into effect in March this year. Substantive appeal rights do not exist under the DMCC Act; however, a firm designated with SMS will be able to apply to the Competition Appeal Tribunal for judicial review of the designation, including challenging whether the DMU acted lawfully and within its powers, applied proper reasoning, followed due process and whether its decision was proportionate.
Whilst only a small number of tech companies will likely be designated with SMS and subject to the applicable new rules and conduct requirements, any business that deals with these firms should be aware of the changes and potential implications for their commercial relationships.
The DMCC Act's changes to UK competition law
UK's merger control regime
In addition to the introduction of the SMS regime, there are some important changes being introduced to UK's merger control regime that are relevant to both sellers and buyers:
- The existing target UK turnover threshold of £70 million will increase to £100 million.
- A new 'safe harbour' provision which provides that the CMA will not have jurisdiction to review a deal where each party's UK turnover is less than £10 million.
- There is a new threshold capturing so-called 'killer acquisitions' and other mergers that do not involve direct competitors (such as vertical mergers). The new threshold means that the CMA will have jurisdiction to review a merger if one of the parties to the transaction has a UK turnover exceeding £350 million and supplies at least 33% of goods or services in the UK. The other business will need to be a UK business carrying on part of its business, or supplies goods or services, in the UK.
- While the voluntary nature of notification remains for most businesses, firms designated with SMS will need to report to the CMA all merger activity with a transaction value of at least £25 million and involving the acquisition of at least a 15% interest in a company connected with the UK. Such notification needs to be provided at least 5 working days ahead of closing, after which the CMA may refer the deal for investigation in the usual way.
Extra-territorial reach
Under the Competition Act 1998, agreements, concerted practices and decisions that restrict, distort or prevent competition or trade within the UK are prohibited. The DMCC Act expands this prohibition so that it applies to agreements, concerted practices and decisions where they are likely to have an immediate, substantial and foreseeable effect on trade within the UK, even if they are implemented outside of the UK.
The aim of the expansion of this prohibition is to ensure that UK trade and businesses and consumers based in the UK are protected from detrimental effects of anticompetitive conduct, regardless of the jurisdiction in which that conduct takes place.
Increased powers of investigation and seizure for the CMA
The CMA will also see its evidence gathering powers strengthened. The CMA will be granted powers to interview and question any individual who has information relevant to a digital markets investigation and not only individuals with a connection to the business being investigated. Businesses will also be subject to a duty to preserve documents where a person knows or suspects that an investigation is being, or is likely to be, carried out by the CMA.
The CMA's powers of seizure in dawn raids will also be expanded to include domestic premises. This expansion of powers is to account for changes in working practices following the increase in employees working from home post-Covid. Although the CMA has been able to conduct dawn raids on domestic premises, the DMCC Act will give the CMA powers to seize personal devices from these premises, matching its existing powers relating to business premises.
In addition to changes to competition law, businesses should be aware that the DMCC Act will bring changes to consumer protection law relating to, amongst other areas, subscription contracts and fake reviews. The CMA will also be granted powers to directly enforce consumer laws.
Next steps
Whilst the DMCC Act is expected to come into force in autumn of this year, this timeframe as well as any secondary legislation bringing the Act into force will be guided by the next government's priorities.
The CMA has already published draft versions of its 'Digital markets competition regime guidance' and 'Guidance on the merger reporting requirement for firms with SMS' and invites comments on both by 12 July 2024.