On April 25, 2023, the Government of United Kingdom ("UK") published the Digital Markets, Competition and Consumers Bill ("Bill"). The Bill is undoubtedly the most important legal reform made to the competition and the consumer law regime in the UK since the setting up of the Competition and Markets Authority ("CMA") in 2014. The Bill aims to boost competition in digital markets which are currently dominated by a few global giants and also aims to help consumers by cracking down on unfair business practices.
The Bill significantly strengthens the powers of the CMA in relation to the regulation of competition in digital markets and enforcement of consumer law. The new rules permit the CMA to decide when a consumer law is breached without taking the matter to the court. The Bill also permits the CMA to impose monetary sanctions on businesses which are found to be in breach of the law.
Some of the key takeaways from the Bill are as follows:
- The Bill empowers the Digital Markets Unit ("DMU") within the CMA to designate certain companies with "strategic market status" ("SMS") in relation to particular digital activities. A discretionary power is vested with the DMA to determine whether a particular company has SMS in relation to a given digital activity. This classification is made on the basis of factors like (i) whether the company has "substantial and entrenched" market power, which is to be determined basis a forward-looking assessment carried out by the CMA for a period of at least 5 (five) years, (ii) the company's "strategic significance" in relation to the digital activity, (iii) the company's global and UK turnover (where the threshold is met if the global turnover of the group in the relevant period exceeds 25 (twenty five) billion pounds or if the UK turnover of the group in the relevant period exceeds 1 (one) billion pounds), and (iv) whether the activity has a UK nexus.
- A company identified as having an SMS ("SMS Company") will be subjected to an enforceable code of conduct tailor-made for that particular company which is designed to address the harms associated with the activities of that particular SMS Company. The Bill sets out an exhaustive list of conduct requirements that the CMA can impose on an SMS Company, which includes requiring the SMS Company to trade on fair and reasonable terms, to present to the users/ potential users with options or default settings in relation to a relevant digital activity in such a way that it allows the users to make informed and effective decisions in their own best interests, to ensure fair usage of the data available to the company, or to enable the users to use products of other undertakings.
- The Bill also empowers the CMA to make targeted "pro-competition intervention" ("PCI") in the functioning of an undertaking if the CMA has reasonable grounds to consider that a factor or combination of factors relating to a relevant digital activity may be having an adverse effect on competition. PCI aims to address the market dominance of the SMS Companies. The scope of PCI is so wide that the CMA can make a PCI for the purposes of remedying, mitigating or preventing any detrimental effect on UK users that the CMA considers has resulted, or may be expected to result, from the adverse effect on competition.
- In addition to this, the Bill also prescribes stricter compliance norms for the SMS Companies which includes a mandatory requirement to report certain transactions to the CMA prior to completion. The aim is to monitor any possible mergers which may have an adverse effect on the UK consumers and businesses. Once the transaction is reported, the same will be assessed by the CMA before accepting the report and a transaction cannot be completed until the CMA has accepted the report.
- Another significant feature of the Bill is the strengthening of the enforcement powers of the CMA. The Bill empowers the CMA to impose orders to comply, provide for monetary sanctions for breach of law (up to a tune of 10% (ten per cent) of the company's annual turnover globally) and for failure to comply with investigations, to disqualify the directors for instances of serious breaches etc. The enforcement decisions of the CMA will be subject to an appeal only based on the judicial review principles. This limits the judicial intervention and will provide greater autonomy, independence and discretion to the CMA in its decision making.
- The Bill also seeks to protect consumers' collective interests. The Bill empowers the CMA to enforce the consumer laws directly through the administrative proceedings without the intervention of courts. Further, the CMA will be able to intervene in cases of new age consumer harms such as fake reviews, subscription contracts etc.
The reforms proposed to the UK's competition and consumer law regime will have a profound impact across all the businesses carried out in UK. To a large extent, these proposals follow a legislative intent similar to that of the EU Digital Markets Act ("EU DMA") which will come into force within the European Union from May 2, 2023. However, the Bill provides much greater flexibility in its approach than the EU DMA. The EU DMA follows a legislation driven approach wherein the legislation identifies certain enterprises as "gatekeepers" basis their size and once this classification is made, those enterprises shall comply with the legislated code of conduct. On the other hand, the Bill provides greater regulatory discretion wherein the regulator (CMA) determines if an enterprise has SMS and if so, will provide tailor specific remedies to that particular SMS Company. The risk of such distinction in the approaches of different regulators is that it may create parallel and overlapping obligations which can lead to conflicting outcomes which may in turn result in a disruptive environment for both the enterprises and the consumers. Nevertheless, it is an undeniable fact that the EU DMA and the proposed Bill will have a first mover advantage in the regulatory marketspace and the policies adopted by these legislations will pave way for setting up the international standards for other countries to follow.
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