Introduced in April this year, the Digital Markets, Competition and Consumers bill (DMCC) is currently making its way through UK Parliament, having now reached the committee stage in the House of Commons.
Highly anticipated by the industry, the bill aims to provide a regulatory framework for competition in digital markets, amend the Competition Act of 1998 and the Enterprise Act of 2002, as well as introduce provisions relating to the protection of consumer rights in the digital space.
The primary objective of the bill is to curb the market influence wielded by a select few tech giants, as well as implement a variety of safeguards for consumers. Particularly key are the new enforcement powers bestowed on the UK Competition and Markets Authority (CMA) to level the playing field and enable innovation and growth.
The DMCC bears resemblance to the EU Digital Markets Act. “Many countries are concerned about the market power of Big Tech and, in that respect, the Bill is in keeping with a global trend towards greater regulation,” said Louisa Chambers, partner in the technology and commercial transactions department at Travers Smith.
For Max von Thun, director at the Open Markets Institute, the ambitious bill puts CMA at the forefront of global efforts to tackle tech giants. “The most significant part of the bill is the new standalone regulatory regime it creates for big tech," he said. "This will enable the CMA to impose 'conduct requirements' on dominant platforms to stamp out anti-competitive practices, and use pro-competition interventions to make digital markets more competitive,” he said.
Strategic market status and merger control thresholds
Under the proposed bill, the CMA's Digital Markets Unit (DMU) will have the power to designate companies as having "strategic market status" (SMS) given their significant market power and influence in digital activities.
SMS applies to digital companies that have a global turnover exceeding £25 billion or a UK turnover exceeding £1 billion. SMS-designated companies will also be subjected to dedicated codes of conduct in relation to digital activities.
Companies will be obligated to notify the DMU in advance of any acquisitions that meet the criteria of a "qualifying acquisition" involving targets with UK operations.
The DMCC seeks to capture transactions that are currently not covered by the merger control system, while also reducing the capacity to assess specific small transactions, thereby providing more assurance to certain businesses.
In addition, the bill enhances the criteria used to determine the applicability of UK merger control. Under the updated provisions, a transaction will fall under the regime if an acquirer has both an existing share of the supply of goods or services of 33% in the UK substantial part of the UK and as a UK turnover of £350 million.
“Big tech firms should be prepared for much tougher scrutiny of takeovers moving forward, in the UK and other jurisdictions, particularly when it comes to emerging technologies such as AI and virtual reality,” said von Thun.
Enforcement powers
To ensure compliance, the CMA will have legislative power to hold companies accountable to their requirements.
“Enforcement is one of the key transformative changes that the bill, if passed into law, will introduce," said Raj Shah, senior associate in Collyer Bristow's commercial team. "Currently, the CMA is relatively toothless in regulating breaches of consumer law.”
The bill will allow the CMA itself to decide whether consumer law has been violated, as opposed to the current system of having to bring cases to court.
Failure to comply with these regulations could expose businesses to various consequences, including:
● Substantial financial penalties when breaching consumer protection laws: fining traders up to £300,000 or 10% of global turnover, whichever is higher;
● In the event of non-compliance without a valid justification, an instruction provided by or to the CMA may result in a fixed penalty of a maximum of £150,000 or 5% of global turnover, whichever is higher;
● For each day that non-compliance persists, an additional daily penalty of up to £15,000 or 5% of the trader's daily global turnover, whichever is higher, may be imposed.
● If a trader fails to adhere to an information notice issued by the CMA or knowingly provides materially inaccurate or deceptive information relating to a direct enforcement function of the CMA, penalties may be imposed, amounting to a maximum of £30,000 or 1% of the trader's global turnover, whichever is greater;
● In cases of persistent non-compliance with information notices, an additional daily penalty of up to £15,000 per day or 5% of the trader's daily global turnover, whichever is higher, will be enforced.
Consumer protection
The bill will also allow the CMA to play a more active role in consumer protection. A key objective is to equip authorities with the necessary tools to tackle fraudulent reviews.
The CMA previously stated that over half of UK adults (54%) utilise online reviews, highlighting the influence reviews hold over our buying choices, and this has been exploited by unscrupulous traders.
Thus, the government will acquire the authority to modify and expand the list of commercial practices that are automatically prohibited under the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). However, it's important to note that the bill itself does not explicitly mention any specific prohibitions or controls regarding fraudulent reviews.
The DMCC will also tackle various concerns regarding subscription agreements, such as auto-renewals, which the government estimates are costing consumers £1.6 billion annually.
Under the DMCC, businesses will be obligated to send reminder notices to consumers when a subscription contract is set to auto-renew or transition from a free trial to a higher-priced subscription.
Crucial contract particulars like minimum subscription duration are to be presented separately from the comprehensive terms and conditions. Moreover, if consumers engage in an online subscription agreement, they must have the option to terminate it online, with easily accessible instructions for the process.
Market support
Market players including civil society groups, consumer rights advocates, small businesses and MPs, have been broadly supportive of the bill.
However, a minority of actors are seeking to water down the legislation by softening its provisions and creating loopholes, including making it easier for big tech to appeal decisions by the CMA, according to von Thun.
“Other industry concerns revolve around the conduct requirements proposals, which deviate from a less prescriptive and more reciprocal code of conduct which had been trailed previously,” said Bart Myners, associate at Global Counsel.
Nonetheless, the government is unlikely to budge as it has already rebuffed these lobbying efforts before publication of the Bill, and businesses will need to make considerable efforts to abide by the law.
“Good governance, the role of boards and senior management is crucial," said Konstantinos Adamos, in-house counsel at Revolut. "Firms will need to do gap analysis, implement processes to remedy gaps identified and also assign senior management responsibility for these outcomes.”
What’s next?
The DMCC has entered the initial phase of the legislative process, requiring approval from both Houses of Parliament to become law.
Although the bill should be enacted in the first half of 2024, full implementation may take longer. In particular, before it can act against big tech firms, the CMA will first need to designate them as SMS firms. This may mean that we may not see any enforcement under the new digital regime until 2025.
