UK lawmakers tell CMA to get tougher on tech

The UK House of Lords’ Communications and Digital Committee (the Committee) published two letters on Friday urging the Minister of State for Tech and the Digital Economy (the Minister) to prioritise legislation to place the Digital Markets Unit on a statutory footing and, in the meantime, to encourage the Competition and Markets Authority (CMA) to make more robust use of its existing enforcement powers. The Committee heard evidence from CMA officials and others earlier this month, and has now followed up to push for action to avoid the risk, as it sees it, that the UK falls behind other regimes for regulating digital markets, notably in the EU.

The spotlight is on tech companies and continued regulatory scrutiny is inevitable as they await the new regime. 

9 months of the Digital Markets Unit (DMU)

The DMU has been operating within the CMA since April 2021 and, until the legislation on the proposed new regime for digital markets becomes law, the CMA has said that it is doing all it can within its existing powers, including for example anticipating that activities of tech companies like Google and Apple would be designated as ‘strategic market status’ in relation to each of the activities captured by the scope of its Mobile Ecosystems Market Study. But the CMA cannot actually make those designations until the proposed legislation enters into force and, therefore, is largely toothless until then.

The letter to the Minister - proposals are just proposals

In the first letter to the Minister, the Committee expresses concern that the UK proposals for a new pro-competition regime for digital markets, while world-leading, are still proposals. This means that, in addition to potential harm to consumers and businesses, the UK risks falling behind other jurisdictions that may develop legislation to regulate tech ahead of the UK, notably the EU with its proposed Digital Markets Act (DMA), which is currently in advanced stages of legislative negotiations in Brussels. 

The Committee states that the Government must prioritise legislation to place the DMU on a statutory footing to give it powers to enforce the new regime. They also highlight the need to ensure the legislation is aligned with the evolving work across the digital regulation space, including areas identified in the Online Advertising Programme.

On the content of the proposals, the Committee expresses support for the Government’s suggestion that the DMU should have the power to impose fines of up to 10% of global turnover on companies that breach the proposed code. In addition, they recommend that the DMU should be able to hold senior managers in tech companies with ‘strategic market status’ personally liable for compliance. 

The Committee also supports the funding of the DMU via an industry levy (as occurs in e.g telecommunications with Ofcom and financial regulation with the FCA), and flags potential issues highlighted by the CMA with recruiting staff in “some very hot commercial markets” meaning ability to attract talent to the DMU is “the biggest delivery risk” for the new regime.

The letter to the CMA - important that CMA action is not deferred indefinitely

The second letter is addressed to the outgoing CEO of the CMA, Dr Andrea Coscelli, and refers to evidence given by Dr Coscelli and the head of the DMU, Will Hayter, which it says made it clear that the lack of new legislation is hampering the CMA’s “ability to take action against unfair practices”. While acknowledging this, the Committee says that it is important that action from CMA is “not deferred indefinitely whilst awaiting the new legislation”. They point to existing powers already used by the CMA in relation to its Google Privacy Sandbox case and say that while they accept these powers may be limited, “we are not convinced that an overly cautious attitude is warranted”.

The Committee says that the new legislation could take a significant amount of time to come into force. They urge the CMA to take a more robust approach to enforcement in the meantime, using existing powers. But such an aggressive approach under the current regime has two potential downsides for the CMA: (i) it risks being defeated in the courts (also noting the grounds of appeal are broader than the narrow proposed scope for appeal of decisions under the DMU regime); and (ii) it could also reduce political pressure to implement the DMU regime.

EU likely to stay ahead

The Government consulted on the new pro-competition regime for digital markets between July and October 2021 and said that “government aims to legislate to give the DMU its new powers as soon as parliamentary time allows”. However, the comments from the Committee indicate that that is not imminent. As they have also pointed out, this means that the EU’s DMA will likely become law ahead of its UK counterpart, meaning that companies may well focus their compliance efforts on the EU regulatory environment, as the DMU regime may become irrelevant if the DMA is more aggressive and tech companies do not wish to pursue different policies in the EU and UK.

So what’s next for the DMU?

As regards the suggestion that the CMA should use its existing powers to get tougher on enforcement while it awaits the enactment of legislation for the new regime, this will be surprising to many in the industry, given the level of scrutiny and intervention under the current competition regime. 

The CMA has a number of active investigations into Big Tech (Google, Apple), is running several market studies in the digital arena (e.g. mobile ecosystems, music streaming) and has also shown its appetite to intervene in on the merger control side (see e.g. Facebook/Giphy, the CMA’s first prohibition of a Big Tech acquisition). Whether the CMA steps it up another notch remains to be seen not least given a change of leadership at the top of the CMA (with both the Chair and CEO roles being recruited for) but with competition amongst global competition agencies in relation to big tech regulation increasing, significant ongoing scrutiny is inevitable.