After a summer “holiday”, the UK’s Digital Markets, Competition & Consumers (DMCC) Bill is now back before Parliament. The Bill gives huge, quasi-legislative, power and enormous discretion to the CMA’s Digital Markets Unit (DMU) which will administer the new Strategic Market Status (SMS) regime for the biggest tech companies.
A heated debate over the “holiday” has focused on how to keep the DMU accountable – both to the courts, and to Parliament. Last Tuesday, an 87-page amendment paper was tabled, including amendments from the Government and a number of individual MPs. The opposition Labour Party has also proposed a set of amendments.
In this TechInsight, we take a look at some key proposed amendments to the UK's competition regime governing tech firms, and what they will mean for firms designated as SMS, as well as those seeking to rely on the new regime – assuming they become law. In short, while the DMU will still have enormous discretion, the changes add welcome rigour and oversight.
Regulating the regulator: transparency and accountability
The most controversial issue in the DMCC debate has been what standard should be applied to appeals of DMU decisions. The original DMCC introduced judicial review (JR) as the standard of review for all DMU decisions (with the exception of certain procedural penalties). Many from the legal profession, as well as a number of tech firms, raised concerns about the limited oversight this would bring.
The government amendments do not change JR as the primary standard for DMU appeals, but provide for an appeal on the merits in relation to fines. This is a sensible amendment that should reduce the need for litigation on this point (which would have been inevitable given case law on the ECHR).
However, the fact that other decisions remain subject to JR means – as we have written previously – judicial oversight of many of the DMU’s most consequential decisions (e.g. to designate a firm as SMS and impose conduct requirements) will remain limited, both in itself and by comparison to comparable regimes.
The amendments include a number of other changes on the theme of transparency and accountability:
- A new requirement for the reasoning behind decisions on conduct requirements (but not pro-competition interventions (PCIs)) to be published. The DMU will need to state its reasons in writing, including the objective and likely effects – thus creating more grounds for appeal.
- Significant curtailing of the the ability of the CMA Board to delegate its powers under the DMCC to individual Board members or DMU staff, with decisions relating to making enforcement orders (other than interim enforcement orders), accepting commitments, the final offer mechanism and penalties all requiring Board-level decisions.
- Guidance will play a key role in providing legal certainty and accountability of the CMA given how so much is unsaid in the Bill about how exactly the regime will operationalise its vast new powers in practice. The amendments fetter the DMU’s ability to determine its own guidance by requiring guidance to be approved by the Secretary of State (in addition to existing consultation requirements).
Overall, therefore, while the DMU retains enormous discretion, it will be subject to incrementally more public and Parliamentary scrutiny than on the DMCC's original text.
Another significant amendment introduced by the government is that conduct requirements and PCIs must be “proportionate”. In the case of conduct requirements, the CMA must assess proportionality by reference to the objective(s) the CMA is able to pursue (fair dealing, open choices and transparency). In the case of a PCI, it must be proportionate to remedy or mitigate the adverse effect on competition.
Given other constitutional paradigms and obligations (e.g. under the ECHR), it was probably inevitable that even without this amendment a requirement that the DMU acts proportionately would be “litigated in” to the legislation.
However, the case law is clear that in interpreting what is proportionate the text of the legislation matters, and the courts will look to evidence of Parliament’s intention in construing legislation, so the explicit reference to proportionality is likely to lead to more scrutiny being applied to assessing the proportionality question.
Countervailing benefits exemption
Another controversial area in the public debate has been the “countervailing benefits exemption”, which provides that the CMA will not find a conduct breach where the benefits to users or potential users of the digital activity outweigh any harm from the putative conduct breach.
Challengers have argued this exemption should be narrowed or removed, while potential SMS firms have argued that the exemption analysis should take place before conduct requirements are imposed rather than only at the time of enforcement against a putative breach.
The original text of the Bill provided this exemption would only be available where the conduct was “indispensable” to the realisation of the relevant benefits. A Government amendment removes the indispensability criterion and requires instead that the benefits "could not be realised without the conduct”.
This is arguably a lower threshold to meet and sidesteps some difficult case law on the meaning of indispensability, likely making it marginally easier for SMS firms to avail themselves of the exemption.
Where to now?
The legislative process rumbles on – the amendments put forward last week will be debated in the Commons before the Bill heads to the Lords, where there could be yet further amendments. The current expectation remains for the Bill to be passed in this session of Parliament and in force by this time next year.
In parallel, preparatory work at the DMU is well underway and there remains a lot to play for in the guidance, which will add flesh to the bare legislative bones of the regime.
The Government’s amendments to the proposed digital markets legislation provide a welcome enhancement to the oversight and accountability of the new tech enforcement unit.