Hold the Queen’s Virtual Horses: An opportunity to look in more detail at the UK’s new rules for digital businesses and their place in the wider reform puzzle?
Following Tuesday’s Queen’s Speech, it appears that broader reforms to UK competition and consumer law (see here) and the new digital markets regime will be consolidated and consulted together in a single bill on digital markets, competition and consumption.
The government’s decision to consolidate and delay the implementation of these proposals, following the publication of its response to the digital reform consultation last week (the Answer), opens the door to a deeper examination of the overall impact of the three competition, consumer and digital strands of its proposals, in particular on business, innovation and the future economic prosperity of the UK.
As only a Bill is expected in the short term, with formal legislation not expected to be introduced in the 2022-2023 parliamentary session, any changes to the UK competition and consumer law regimes – whether for digital or other marketplaces – will now most likely take effect after the EU Digital Markets Act (AMD) came into forceand after the German Federal Cartel Office (FCO) has also made significant progress in using his newfound powers in the German law against restraints of competition (GWB10). We explore below what this will mean for the interaction and consistency between these different regimes.
More generally, with regard to the CMA’s existing competition and consumer law powers, its public statements have sent mixed messages: on the one hand, the CMA complains that its existing (broad) powers are insufficient to address issues raised in digital markets; and on the other hand the CMA has declared that it will use these powers “to maximum effect”, with companies in many quarters having already seen the effects of the AMC’s increasingly broad enforcement stance. What is certain is that the UK seems ready to continue to impose a testing regulatory landscape for all businesses, regardless of size or sector.
1. Consolidation of two broad sets of reforms
The previously separate competition, consumer and digital reform proposals are expected to form part of a consolidated bill that will be out for consultation over the coming year.
The consolidation of proposed new rules for certain digital businesses, as well as broader changes to competition and consumer law that will apply to all businesses, including these same digital players, will require the government to take into account the combined impact of its proposed changes in the cycle.
As a starting point, the focus now on consumer benefits across the board is welcome, including the response’s proposal for an exemption for businesses that will be regulated by the new Digital Markets Unit (MISP)to comply with any code of conduct or pro-competitive intervention (PCI) imposed by the DMU, where the business concerned can demonstrate that its behavior brings net benefits to the consumer. Indeed, this already contrasts sharply with the EU DMA.
The delay in granting proposals ‘legislative teeth’ – and indeed their consultation once introduced – does, however, offer a wider opportunity to harmonize the UK’s proposed reform package in a way that finds the right balance, especially in the reported context of unduly cool calls state intervention in the economy.
In this context, at least the following issues could benefit from further consideration when the draft law is presented for consultation:
- reinforced powers of intervention – how the complex and intrusive DMU-governed PCIs proposed in the response (such as interoperability and ownership unbundling remedies) will work (or be justified) alongside broader proposals for that the CMA enforces some consumer protection laws directly (rather than through the courts, as it is required to do today);
- lowering the calling standard – to what extent is the planned departure from a full substantive review appeals standard for decisions made under the new digital regime necessary alongside parallel proposals to reduce the appeals standard for interim measures imposed by the CMA under its broader competition law powers;
- information gathering and sharing – along with the new powers proposed by the CMA to share information with international partners and obtain information on behalf of foreign authorities, the response refers to the provision of information stored abroad and the application of measures against conduct occurring abroad, which leaves open a number of questions regarding the adequacy of safeguards relating to cooperation mechanisms and information gateways between the CMA and other regulators around the world; and
- remedy trial – the response suggests giving the DMU the ability to require companies to perform field testing and specified A/B testing to assess the impact of new innovations and processes. Given the mix of reform proposals, it is unclear to what extent a similar approach might fit across the remit of the CMA’s redress toolkit (i.e. not just confined to SMS companies), particularly in the context of parallel proposals to create more flexibility in the AMC’s market investigation regime, including the testing of remedies and powers corrective action changes.
2. Timing and interaction with other regulatory regimes
The implementation of the new UK regime is expected to lag behind other regulatory regimes, including the DMA and the GWB10.
The scheme will be implemented by legislation “when parliamentary time permits”, with formal legislation not expected to be on the UK parliamentary agenda for the coming year.
Given the subsequent nine-month designation process for companies with so-called “strategic market status” (SMS) (extendable for three months), the scheme is likely to lag significantly behind the EU DMA (expected to come into effect from April 2023) and FCO GWB10 powers (which are already in into force and used in a number of ongoing investigations against companies that the FCO has determined to be of “primary importance to competition between markets”).
Given that there is expected to be significant overlap in designated companies under the UK, EU and German schemes, it is unclear how the future UK scheme will interact with other more established EU schemes at the time of the entry into force of its legal powers, and to what extent the DMU will deliberately seek to impose different requirements on designated companies when assessing similar matters.
An observable difference between the designation criteria for EU DMA and those being considered by the UK government is that the UK does not plan to adopt quantitative criteria for SMS designation based on the number of end users. and professional users. Instead (and in response to ongoing stakeholder feedback calling for clarity), the government is now proposing to adopt a minimum income threshold (yet to be determined) and provide a comprehensive list of criteria in legislation to assess the SGS designation. .
3. Mergers and Transaction Certainty
The UK government is proposing a new compulsory and suspensive regime which will require SMS companies to notify all transactions that exceed certain (low) thresholds.
The Response proposes to limit the mandatory notification requirement to transactions in which: (i) the SMS Company acquires an interest or voting stock greater than 15%; (ii) the value of the SMS business interest exceeds £25 million; and (iii) the transaction meets a UK link test (to be determined).
This is in addition to a parallel proposal to include a new jurisdictional threshold to combat “killful acquisitions”, which would apply to all companies (see here).
Given the very low thresholds envisaged on both fronts, these proposals are among the most controversial, particularly in the context of the CMA’s already very broad use of its jurisdictional “share of supply” test, on which the CMA has not hesitated even when a link to the UK of the agreement is not clear.
Against this backdrop, it remains to be seen whether either (and certainly whether both) of these merger reform proposals are warranted, particularly given their potential for acute – and far-reaching – impact. on companies in many sectors.
One thing is clear – especially following feedback from stakeholders (including our own), the government decided to reject one of the other most criticized aspects of its initial merger reform proposals, namely a proposal to lower the threshold for action in phase 2 investigations from “more likely than unlikely” to a “realistic prospect” of a substantial lessening of competition as a result of the merger.
For more on these and other antitrust developments, also see our Global antitrust in 2022: 10 reports on key topics. Our Antitrust, Competition and Trade team is also available to discuss each of these points in more detail.