The discussion about the need to complement the traditional ex-post competition policy apparatus with a more proactive, asymmetric pro-enforcer set of rules had started in the EU and UK simultaneously. The normative underpinning and the overall ethos of the new regime is identical in both jurisdictions. However, the legal mechanisms adopted in the UK and EU are characterised by several important differences. Some are rather cosmetic. Others may well become significant. Such a situation offers a very fertile soil for a comparative analysis – and the aim of our project is to engage in such a comparison.
While dealing with very similar set of objectives and while developing very similar regulatory mechanisms, the UK regime uses different terminology. For example, undertakings known in the DMA parlance as “gatekeepers” are called under the UK regime “undertakings with strategic market status” (or uSMSs), and gatekeepers’ obligations are called “conduct requirements”.
Who is regulated by the DMCCA
The DMCCA regulates undertakings that have been designated with a ‘strategic market status’ (or SMS). To determine if an undertaking should be designated, there are substantive and geographical criteria.
Substantively, Sec 2 DMCCA provides two SMS criteria: a) they have durable and entrenched market power; and b) they have a position of strategic significance in respect of the digital activity. According to Sec 3(1), digital activities means the provision of a service through the internet, the provision of digital content, or any other activity carried out in relation to those activities. The scope of digital activities is very broad. It thus hinges on whether the undertaking is considered to meet the first two criteria.
For substantial and entrenched market power, Sec 5 DMCCA requires the CMA to carry out a forward-looking assessment of a period of at least 5 years, taking into accounts any expected or foreseeable developments if the CMA did not designate the undertaking, and that may affect the undertaking’s conduct in carrying out the digital activity.
The position of strategic significance is determined – as laid down in Sec 6 DMCCA by looking at whether the undertaking has achieved a position of significant size or scale; if there are a significant number of other undertakings that use the digital activity offered by the undertaking in question; if the undertaking’s position in the digital activity would allow it to expand across another range of activities; or [sic! not “and” – the condition is not cumulative – any of those will surfice] if the undertaking’s position allows it to substantially influence the way other undertakings conduct themselves. Section 7 DMCCA supplements this investigation with a minimum quantitative thresholds: an undertaking cannot be designated with SMS unless it has a global turnover of < £25 billion, or if they have a turnover of < £1 billion in the UK.
Geographically, there must be a link between the undertaking and the UK to be designated. This means that they either offer their services to a significant number of UK users, if the undertaking carriers out other activities than the digital activity in the UK, or if there is an immediate or foreseeable effect on UK trade as a result of the digital activity.
For undertakings that meet these criteria, the CMA may initiate an investigation (Sec 9 DMCCA). The designation procedure is laid down in Secs 9-14 DMCCA, describing it from start to finish. Sec 15 and 16 DMCCA explain what notices must be given to impose or revoke a designation. Following Sec 18 DMCCA, any designated undertaking is so for a period of 5 years.
What are the objectives of the DMCCA?
The purpose of the DMCCA should be considered polycentric and is not discussed in great detail in the legal text. Practically, the aim of the DMCCA seems to be to create effective cross-economy competition and well-functioning markets, which in turn protect the interests of consumers. For some parts of the DMA, fairness is considered to be the main objective. Understanding the actual set of objectives pursued by the DMCCA requires additional in-depth research, so the discussion on the objectives pursued by the DMCCA here is limited.
Irrespective of what its primary goal, in order to achieve the sum of its policy objectives, the DMCCA introduces stronger enforcement against anti-competitive conduct and a series of enhancements to the CMA’s investigative and enforcement powers, a rebalanced merger control system, new penalty powers for the CMA and civil courts for consumer laws, and other measures to enhance consumer choice. Overall, the DMCCA is aimed at creating fair digital markets where undertakings with a certain size and position cannot unduly influence competition. The law itself is less specific about the objectives it pursues when compared to the DMA, which perhaps allows for more flexibility in motivating interventions.
What are the substantive rules laid down in the DMCCA?
Once an undertaking is designated, the CMA may impose rules and obligations on it. However, the DMCCA does not operate on a rules-based approach but a principles-based approach, so there is no set of rules that applies immediately after being designated. Instead, the CMA may use conduct requirements or pro-competition interventions.
Conduct requirements
Sec 19 DMCCA gives the CMA the power to impose conduct requirements. Following Sec 19(5) DMCCA, the CMA can do so in relation to several objectives: fair dealing, open choices, as well as trust and transparency. Sec 20 DMCCA sets out which types of conduct requirements are permitted in subsections (2) & (3).
These include the imposition of positive conduct requirements, which make it mandatory for the undertaking to ensure: trade on fair and reasonable terms, effective processes for complaint handling; providing information to users and potential users, giving explanations to users before making changes to digital activities, and presenting users with options on default settings (Sec 20(2) DMCCA).
The CMA may also impose negative conduct requirements on designated undertakings, making it mandatory to refrain from: applying discriminatory terms or conditions to users; using its position in an upstream market to self-preference its downstream activities; conducting activities that are likely to materially increase their market power or strengthen their strategic position; requiring or incentivizing users to make use of the undertaking’s additional products related to the SMS-activity restricting interoperability; restricting whether or how users or potential users can use the digital activity; using data unfairly; or restricting the ability of users to use the products of other undertakings.
The enforcement of conduct requirements
Sec 26 DMCCA and onwards lay down the procedures for enforcing the DMCCA’s conduct requirements. The CMA may begin an investigation where it believes the undertaking has infringed on a conduct requirement. When it begins this investigation, it will notify the undertaking in question.
The CMA may conclude that there is no breach, allowing them to end the investigation. They may also find that there are countervailing benefits that justify the behaviour, which would mean that no enforcement is required or warranted. If it does find there to be a possible infringement, it will submit a notice of findings to the undertaking. They must issue such a notice of findings within 6 months of starting the investigation.
Nota bene a fundamentally different approach in contrast to the DMA envisaging no efficiency defence.
After the CMA has explained why they believe there is an infringement in the notice of findings, Sec 31 DMCCA gives the CMA the power to impose enforcement orders. These orders allow the CMA to impose remedies to ensure that the breach is stopped, not prevented, and that damages caused by the breach are addressed. Where needed, the CMA may also impose interim enforcement orders that are in place while they investigate. This is limited for situations where it is necessary to prevent significant damage to a particular person or category of persons; to prevent conduct which could reduce the effectiveness of other steps the CMA might take in relation to the conduct requirements; or to protect public interests (Sec 32 DMCCA). Orders – including interim orders – will generally stay into effect until revoked (or in the case of interim orders, until the case is closed). Sec 35 DMCCA imposes an obligation on the CMA to keep their orders under review, ensuring their effectiveness and necessity.
Besides enforcement orders, the CMA may also rely on commitment decisions. They can accept appropriate commitments from the undertaking, meaning that the commitments are sufficient that an investigation is no longer necessary. This would prevent the CMA from issuing a notice of findings on the basis of that investigation, but new investigations may always be opened if the commitments appear not to be effective in addressing the harms to competition (Sec 36 DMCCA). These commitments must also be kept under review (Sec 37 DMCCA).
Pro-competition interventions
In addition to the power to impose conduct requirements, the CMA has also a power to introduce pro-competition interventions (PCIs). The PCI is characterised by a different procedure, stipulated in Chapter 4 Part I DMCCA. Contrary to the original intentions, the PCI procedure does not necessarily have to follow the conduct requirement one. They co-exist par in parem.
Under Sec 46 DMCCA, the CMA may also impose pro-competition interventions. If it is not the conduct of an undertaking, but rather a combination of factors that creates an anti-competitive outcome, the CMA can use the PCI to remedy these effects.
In considering the PCIs, the CMA may [sic! may – not must. It looks that contrary Chapter 3, the competences of the CMA under Chapter 4 are much more discretionary] have regard to any benefits to UK users or UK customers that may result from the introducing this PCI in resolving the harms to competition. The PIC may take the form of a pro-competition order, which imposes the undertaking rules on their behaviour, or in the form of a recommendation to any person exercising functions of a public nature about which steps they ought to take to improve the situation. PCIs may be used to remedy detrimental effects, or to prevent harms to competition where they are expected.
Enforcement of PCIs
The enforcement procedures for PCIs are laid down in Secs 47- 56. The CMA can make use of pro-competition orders, commitments, or recommendations to address undesired effects related to the strategic market status of the digital activity. The CMA will first give the designated entity a PCI decision within 9 months of starting the investigation, where they explain what they believe the cause of the anti-competitive issues is and how it has come to its decision. After the decision, they can give pro-competition orders to resolve these effects. These Orders may be replaced with further or different orders if it is believed that this will increase the effectiveness of the Order in resolving competitive issues. These Orders stay in place for the duration determined by the CMA or until revoked.
The CMA can again rely on commitments from the undertaking(s). This would again prevent the CMA to take a PCI Decision in this investigation. However, if the commitments are believed to be ineffective the CMA can again open a new investigation into the behaviour or related behaviours.
Mergers
The DMCCA also introduces a number of changes to merger control related to designated entities. Here, the DMCCA explains the thresholds for a ‘reporting event’, where the merger must be notified. In Articles 57 to 64, the DMCCA explains who these merger rules apply to, what constitutes a qualifying event, and what reporting obligations apply. Overall, these rules result in an adjusted merger threshold for regulated entities, which have to report if their voting rights – as a result of acquiring share – change from under 15% to over 15%, under 25% to over 25%, or under 50% to over 50%.
Investigative powers
For the DMCCA, the CMA holds the same investigative powers as it does for competition law enforcement. These are laid down in Secs 69-82 DMCCA and include the power to enter premises, take statements, access communications and request other types of information. Chapter 7 lays down which types of sanctions can be given for which types of offenses or infringements. Secs 85-92 give the CMA the power to impose behavioural remedies (art. 85), fines of up to 10% of the total turnover of the undertaking in the preceding financial year, or daily periodic penalty payments of up to 5% of the daily total turnover of the undertaking. The CMA also has the power to impose sanctions on (natural) persons under Sec 87 DMCCA. Secs 93-98 lay out further offenses including providing false or misleading information or obstructing an officer, and Sec 99 DMCCA allows for Director disqualification. Further articles and chapters in the DMCCA set out rights to appeal and administrative functions, as well as other miscellaneous functions.
Comparing the DMCCA and the DMA
At first glance, the process of designation is similar to the DMA: the undertaking is expected to have sufficient link to the UK, it should possess substantial and entrenched market power and have a position of strategic significance. To be designated it also have to meet the minimum turnover threshold and have sufficient business users, the criteria of designation are also qualitative and quantitative. Yet despite these prima facie similarities, there are some really remarkable differences between the two regimes.
The first significant difference concerns the requirement for a designated undertaking to engage in a digital activity. Contrary to the DMA regime delineating very carefully core platform services, the UK approach is much broader and all-inclusive. An undertaking can be designated as long as it engages in a digital activity. The definition of the digital activity is wide and indeed unlimited. Under Section 3(1) DMCCA digital activities concern “(a) the provision of a service by means of the internet, whether for consideration or otherwise; (b) the provision of one or more pieces of digital content, whether for consideration or otherwise; (c) any other activity carried out for the purposes of an activity within paragraph (a) or (b)”. Knowing how much het has been generated in discussing which of digital services should and should not be included in the DMA core platform services, what precisely each core platform service means and how each designated gatekeeper meets or does not meet the legally binding – and indeed quite restrictive – definition, the solution offered by the DMCCA appears by far more pro-enforcement.
Another important difference in designation parameters is on the contrary making the EU regime by far more promising. It concerns the provisions of Section 5 DMCCA – the need for the CMA to demonstrate the presence of “Substantial and entrenched market power”. On one hand, the rationale of this requirement is self-evident, but the way the law introduces this requirement appears to be very problematic. Under this provision, “In order to assess whether an undertaking has substantial and entrenched market power in respect of a digital activity […] the CMA must carry out a forward-looking assessment of a period of at least 5 years, taking into account developments that— (a) would be expected or foreseeable if the CMA did not designate the undertaking as having SMS in respect of the digital activity, and (b) may affect the undertaking’s conduct in carrying out the digital activity”. The requirement for the CMA to undertake a 5-year forward looking investigation appears to be problematic (i) from the perspective of semantics of designation; (ii) from the perspective of feasibility the action and finally (iii) from the perspective of implications for the enforceability of the regime. It appears very counterintuitive for demonstrating the entrenched market power to look forward. The entrenched market status should be evaluated by looking backward, not forward. If it is entrenched, it is entrenched. It would even make sense to expect it to be entrenched for 5 years. It is hard to understand the rationale for looking 5 years forward to confirm that the market power is already entrenched. Secondly, digital reality is changing very quickly and having an accurate prediction of the situation in these markets is simply impossible – nota bene, the discussion is yet at the level of designation, not imposition of obligations. Finally, if the forward-looking analysis proves to be done inaccurately – i.e., if in five-year time the designated undertaking would demonstrate how far from reality the crystal ball gazing of the CMA was, it is very likely to expect that such incorrectly designated undertaking would challenge their designation at the Competition Appeal Tribunal. This problem with Section 5 has been raised by several commentators and indeed Members of the House of Lords – yet in the course of the legislative process it has not yet been addressed sufficiently.
Another important difference – and again indicating an advantage of the DMA concerns the presence in the regime a mandatory efficiency defence. Under Section 29(1) DMCCA, “the CMA must close a conduct investigation under Section 28 where representations made by the undertaking to which the investigation relates lead the CMA to consider that the countervailing benefits exemption applies”. The presence of the mandatory efficiency defence disarms a significant part of the CMA discretionary competences. We will be examining these provisions in more detail – suffices to refer the readership to a recent piece by a co-contributor to the blog Oles Andriychuk offering 10 reasons why the provision of Section 29 is harmful for the entire regime.
Outlook
The DMCCA is not yet adopted, and is currently still the Digital Markets, Competition and Consumers Bill. As the form and content of this legislation may still change, we will update this entry at a later time. If you want to keep up to date on the changes in the legislative drafts and the final version, please subscribe to our newsletter.