The UK government recently published the highly anticipated Digital Markets, Competition and Consumers Bill, creating a new ex-ante regime for digital markets through proposed changes to UK competition law and enhanced consumer protection. The April 25, 2023 Bill is the UK equivalent of the European Commission’s Digital Markets Act and, once implemented, is poised to regulate the conduct of the largest technology firms.

STRATEGIC MARKET STATUS

The regime will be overseen by the new Digital Markets Unit (DMU) of the Competition and Markets Authority (CMA).

The DMU will be empowered to designate firms that have substantial and entrenched market power and a position of strategic significance in at least one digital activity with Strategic Market Status (SMS). In order to be SMS-designated, an undertaking must also meet one of the following turnover thresholds:

• The total value of the global turnover of the undertaking (or, where it is part of a group, the global turnover of that group) exceeds £25 billion.
• The total value of the UK turnover of the undertaking (or, where it is part of a group, the UK turnover of that group) exceeds £1 billion.

CONDUCT REQUIREMENTS

Once an undertaking is designated with SMS, the CMA will set out how it is expected to behave in respect of the activities for which it is designated through tailored, binding conduct requirements. The conduct requirements are subject to the overarching objectives of fair trading, open choices, trust, and transparency.

Permitted types of conduct requirements generally relate to trading on fair and reasonable terms, having effective complaints and dispute resolution processes, and providing clear and accessible information.

PRO-COMPETITIVE INTERVENTIONS

Pro-competition interventions (PCIs) will exist alongside the conduct requirements. They will enable the CMA to implement measures that address the root causes of an undertaking’s entrenched market power in cases where the DMU considers that there is an “adverse effect on competition” resulting from a firm’s entrenched market power in digital markets.

A PCI may include a provision for the “remedying, mitigating or preventing [of] any detrimental effect on UK users or UK customers” stemming from the adverse competitive effect, similar to the provisions further to a CMA market investigation, and can include a range of structural and behavioral remedies. A PCI can take the form of an order or a recommendation to an SMS firm at the DMU’s discretion.

INVESTIGATORY POWERS AND ENFORCEMENT

The DMU will be able to carry out investigations in a similar manner as under the Competition Act 1998 (CA98), while its powers are similar to those under CA98, including the ability to require information, search company and domestic premises (dawn raids), issue information preservation orders, and require individuals to attend interviews.

Where an undertaking is in breach of a conduct requirement, a PCI order, or a commitment, the DMU has the power to issue a fine of up to 10% of the group’s worldwide turnover, while directors who are involved in a breach of a conduct requirement or a PCI may face director disqualifications of up to 15 years.

COMPETITION LAW

The Bill expands the CMA’s investigation powers, including by extending the territorial scope of the Chapter I prohibition under the CA98. In addition to the power to investigate agreements implemented in the UK, the CMA will be explicitly empowered to investigate agreements implemented, or intended to be implemented, outside the UK but having an effect in the UK.

The Bill also increases the CMA’s evidence-gathering powers to allow an extension of the duty to preserve evidence, wider powers to interview individuals as part of investigations under CA98, and more flexible dawn raid powers for domestic premises (including “seize and sift” powers) and the production of information stored off premises.

The proposals also include granting the CMA enhanced extraterritorial powers to issue notices ordering document production as well as the ability to act as a “specified prosecutor” to enhance criminal cartel enforcement.

MARKET STUDIES AND INVESTIGATIONS

The Bill sets out a number of reforms, including

• providing the CMA with greater flexibility to define the scope of a market investigation,
• enabling the CMA to accept binding undertakings at any stage during a market study or investigation,
• removing the requirement to consult on a market investigation reference within the first six months of a market study,
• enabling the CMA to pilot remedies in order to determine the final format of certain remedies,
• enhancing the CMA’s ability to amend remedies in a 10-year period following the finding of an adverse effect on competition further to a market investigation, and
• introducing the possibility of civil penalties of up to 5% for companies that breach market investigation orders and directions.

MERGER CONTROL

The Bill modifies the jurisdictional thresholds under the UK merger control regime as follows:

• The turnover threshold relating to the target is increased from £70 million to £100 million.
• A new threshold is introduced where at least one of the merging parties has (i) a share of supply of at least 33% in the UK or a substantial part of the UK, (ii) UK turnover exceeding £350 million, and (iii) a UK nexus. This threshold is intended to capture certain vertical transactions and possible “killer” acquisitions.
• A “safe harbour” exempting parties where each merging party’s UK turnover is below £10 million.

The Bill in its current form also proposes a number of procedural changes to UK merger control, including allowing merging parties to request a fast-track referral to a Phase 2 investigation at any stage of prenotification discussions or Phase 1. Where the CMA accepts such a request, it will have the ability to extend the statutory timetable by 11 weeks. The Bill also provides for a mechanism to extend the timetable in Phase 2 investigations if mutually agreed.

MANDATORY DUTY TO REPORT A TRANSACTION

A, prior to completion, for the most significant transactions by undertakings designated with SMS status. This will apply where a transaction will result in an SMS firm obtaining “qualifying status” in the shares or voting rights in relation to a UK-connected body and the value of all the consideration provided by the SMS firm is at least £25 million.

Qualifying status arises where a transaction gives rise to an increase in shares or voting rights from less than 15% to 15% or more, from 25% or less to more than 25%, or from 50% or less to more than 50%.

NEXT STEPS

The Bill was introduced to the House of Commons on April 25, 2023 and will be subject to debate and scrutiny in the House of Commons and the House of Lords before it receives Royal Assent. It is currently expected that the Bill will become law around the second half of 2024. Digital markets were highlighted in the CMA’s 2023/2024 Annual Plan as an area of focus for the CMA, and it is expected that the CMA will make full use of its new tools when the Bill enters into force.

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