Last week the government published the long-awaited DMCC Bill, which had its first reading in Parliament on 25 April. While there is some way to go before the Bill obtains royal assent, we have picked out 10 things that we have found particularly interesting about the Bill, and which could change the shape of UK enforcement for many years to come.
The CMA acquires significant new powers in relation to companies with strategic market status (SMS) in respect of digital market activities. As with the EU Digital Markets Act (DMA), the CMA’s new powers start with an initial designation stage. However, the next stage is rather different. The obligations that will apply to companies designated as having SMS are not spelled out in detail in the Bill; rather, bespoke conduct requirements (s.19) will be drawn up in line with three key objectives: fair dealing; open choices; and trust and transparency. Conduct requirements will be subject to consultation and may be adapted over time (in principle building in a measure of future-proofing).
- There are other specific rules for companies with SMS status, including a mandatory reporting requirement for their most significant mergers
Pro-competition interventions. Companies with SMS status may also be subject to so-called pro-competition interventions (PCIs). If the CMA considers there to be a combination of factors giving rise to an ‘adverse effect on competition’ and a PCI would likely remedy, mitigate or prevent the adverse effect, then the CMA can issue a PCI following a public consultation (ss.44-47). This mirrors the current test for market investigations. A PCI can be either a Pro-competition Order imposing requirements on how the company must behave in relation to a relevant digital activity (s.44(3)(a)); or a recommendation to any person exercising public functions about the steps the CMA considers the person ought to be taking (s.44(3)(b)).
Mergers. A company with SMS status is obliged to report any merger that has ‘qualifying status’ and the value of consideration provided by the SMS company is at least £25 million (s.55). ‘Qualifying status’ is defined in s.56 as an event that results in the company increasing its 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%. Qualifying status can also arise in relation to a joint venture which results in the SMS company holding at least 15% of the shares or voting rights and the value of the joint venture is at least £25 million. Asset acquisitions are not caught by the definition of qualifying status. If the merger meets the above conditions, the CMA will carry out an initial assessment to determine whether the transaction warrants further investigation before it can be completed.
The CMA obtains significant powers to investigate and to enforce the new digital market rules. These powers largely match the CMA’s existing powers in relation to competition law investigations, with powers to carry out investigations (Part 1, Chapter 6), including dawn raids (s.73), obligations to preserve information in a range of situations, including where a SMS designation investigation is underway (s.78) and fines for non-compliance with procedural requirements (s.85). Substantive non-compliance also carries risks of penalties of up to 10% of group worldwide turnover (s.83), and rules on director disqualification are extended to encompass breaches of conduct requirements or PCIs (s.97). Companies may also offer commitments to resolve non-compliance investigations. Interestingly, the legislation makes no reference to a separate “Digital Markets Unit”: all powers are simply extended to the CMA.
Private enforcement in relation to breaches of the new digital market rules is expressly provided for. Requirements under Part 1 of the Act (including commitments) are treated as duties owed to persons who may be affected by breach; those persons may bring civil proceedings for loss and damage (s.99). Breach decisions are binding on courts and the Competition Appeal Tribunal (CAT), once final.
Other regulators retain a role. The CMA is required to consult with the FCA, Ofcom and the ICO (among other regulators) in relation to digital markets matters that interact with the relevant regulatory regimes (s.106). The FCA and Ofcom may make recommendations to the CMA where they believe that the CMA should exercise a digital markets regulatory function (s.107).
The territorial scope of the Chapter I prohibition is extended and the CMA obtains stronger powers to investigate anti-competitive conduct. For the purposes of the Chapter I prohibition, the CMA can currently only investigate agreements that are ‘implemented’ in the UK, which the government views as “too restrictive in a digital age”. Under the new rules, the CMA will be able to investigate both (i) agreements implemented or intended to be implemented in the UK which may affect trade in the UK and (ii) agreements not implemented in the UK that are likely to have an immediate, substantial and foreseeable effect on trade within the UK (s.116) — perhaps ironically this codifies the approach taken under EU case law for the equivalent issue. The Bill also strengthens the CMA’s evidence-gathering powers in Competition Act investigations. These include a new duty to preserve evidence and powers to interview a broader range of individuals and obtain information stored remotely when executing a warrant (ss. 70, 117 and 118). With a view to avoiding the kind of problems that arose in the CMA’s Volkswagen/BMW investigation (see here), the Bill also provides for the extraterritorial application of notices given by the CMA to persons outside the UK, and in relation to production of documents or information held outside the UK (ss.110 and 137, Schedule 11).
- Changes to merger control thresholds and a new fast-track procedure. There are three significant changes to the jurisdictional thresholds for mergers:
- The turnover threshold relating to the target of a merger will be raised from the current £70 million to £100 million (Schedule 4, para 2(2)).
- The introduction of a ‘safe harbour’ for small mergers, exempting transactions from review if each party’s UK turnover does not exceed £10 million (Schedule 4, para 3). This change is aimed at reducing the regulatory burden for small businesses.
- The creation of a new ‘acquirer-focused’ merger control threshold under which the CMA will have jurisdiction if (i) one of the parties has an existing share of supply of goods or services in the UK (or a substantial part of the UK) of at least 33% and a UK turnover of more than £350 million; and (ii) the other party is a UK business, carries on at least part of its activities in the UK, or supplies goods and services in the UK (Schedule 4, para 5). This new threshold will be in addition to the current share of supply test (which will continue to apply) and is particularly aimed at capturing ‘killer acquisitions’ which may affect dynamic competition and risk the development of new products or services.
The Bill also introduces the possibility of a ‘fast-track’ route for merging parties, allowing them to request a fast-track referral to Phase 2 at any stage of pre-notification or in Phase 1 (Schedule 5). The CMA will have discretion on whether or not to accept the fast-track request.
Exemplary damages are now a possibility. The Bill gives the CAT and the High Court the discretion to award exemplary damages in private competition law claims, with the aim of increasing deterrence (s.122). Significantly, however, exemplary damages will not be available in collective proceedings.
New judicial review standard for appeals against interim measures decisions under the Competition Act. An interesting example of a measure aimed at enhancing the ‘efficiency’ of Competition Act investigations, s.120 of the Bill provides that appeals against interim measures decisions will in future be determined by reference to principles of judicial review, rather than the current ‘full merits’ appeal standard. Recent CMA successes in withstanding review of merger decisions (e.g. Facebook/Giphy) suggest that this standard is challenging for appellants to meet. Having made submissions in the consultation on the importance of the full merits standard in Competition Act appeals, we are pleased that the new bill does not seek to water down appellants’ rights in those cases.
- The CMA is to play a more active role in enforcing the consumer protection regime. The Bill strengthens the CMA’s consumer law enforcement powers, aligning them more closely with the authority’s Competition Act powers. In particular, rather than having to apply to the courts for an enforcement order against firms in breach of consumer protection legislation, the CMA will have new powers to investigate suspected infringements (s.172), to issue infringement notices (ss.189-190) and to impose fines of up to 10% of worldwide turnover for infringing undertakings (s.174).
If passed, the DMCC Bill will introduce wide-ranging reforms to UK competition and consumer law. The CMA chief executive Sarah Cardell has stated that the CMA “stand[s] ready to use these new powers once approved by Parliament”, so businesses should start engaging with the DMCC Bill now to ensure compliance.