UK Digital Markets, Competition and Consumers Bill: One step closer to becoming law
17 January 2024
17 January 2024
On 21 November 2023, the Digital Markets, Competition and Consumers Bill passed its third reading in the House of Commons. Consideration of the Bill has now moved to the House of Lords, which held its second debate on the Bill on 5 December 2023 before the Lords' Committee stage scheduled for late January 2024.
In our second update on the Bill, we provide an overview of the key areas of debate and the most significant amendments made since the Bill was introduced in April 2023 (see our April 2023 update and December 2023 podcast episode).
On 11 January 2024, in response to a request from Ministers, the CMA published an overview of its provisional approach to implementing the new Digital Markets regime, explaining how it will carry out its Digital Markets functions, including: its operational readiness, how it will engage with potential SMS firms and other stakeholders, how it will be held to account, and its indicative timing for the implementation of the new regime.
The DMCC Bill has three main parts:
For a detailed overview of the Bill as introduced, please see our April 2023 update. This article considers the key debates and amendments made to the Bill since its introduction in the House of Commons earlier this year.
The Bill will give the CMA significant power to regulate the digital activities of tech companies and impose very significant fines for non-compliance. However, concerns have been expressed that the original proposals would give the CMA too much discretion and that there were insufficient checks and balances on its powers.
To alleviate these concerns, the Bill has been amended to include a number of additional checks and balances, including:
It is unlikely that the key provisions of the Bill will be amended significantly. In particular, it is notable that the Chair of the House of Lords Communications and Digital Committee has previously indicated broad support for the Bill.
However, it is anticipated that the Lords will focus on the issues that have already considered in the House of Commons: most notably, the standard of review on appeal and whether designated undertakings can challenge SMS designation decisions or decisions to impose (potentially onerous) conduct requirements on the merits. During the second reading in the House of Lords, concern was expressed that the amendments passed by the Commons had "watered down" the Bill. This area is expected to be the subject of extensive scrutiny during the Committee stage.
The Lords may also seek to clarify the interaction between the collective submission process as part of the Final-Offer Mechanism and the Chapter 1 prohibition in the Competition Act 1998 to ensure that the collective submission process is capable of being used effectively by third parties.
Driven in part by concerns expressed by both Houses of Parliament about how the CMA would implement the new regime and its capability and readiness to do so, Ministers asked the CMA on 4 January 2024 to provide a roadmap setting out its plans and proposed timelines.
On 11 January 2024, the CMA published an overview of its provisional approach. Key points to note include:
The CMA has also outlined four principles which it expects to apply when setting conduct requirements:
As outlined in our April 2023 update, the Bill proposes sweeping changes to consumer law enforcement in the UK, in particular by giving the CMA the powers to directly enforce consumer law and to issue fines of up to 10% of worldwide turnover, as well as potentially awarding compensation to consumers. Other consumer law enforcers will also be able to seek the same penalties by applying to the courts.
As these enforcement changes have broad cross-party support, much of the debate in the House of Commons centred around whether the government should be taking the opportunity to supplement substantive consumer law protections in the Bill. In particular, MPs proposed amendments reflecting calls from consumer groups for new practices to be added to the list of unfair trading practices in the Bill, which restates the existing law on unfair commercial practices.
There has been extensive debate about whether new practices should be added in relation to fake reviews, misleading green claims, drip pricing and additional protections against the sale of fake or counterfeit products online.
Although these proposals have not been included in the Bill at this stage, it is expected that these issues will be debated further in the House of Lords. A number of speeches during the second reading in the House of Lords focused on proposals to supplement the substantive consumer law changes under the Bill. At the time of writing, several amendments have been put forward for consideration, including in relation to drip pricing and greenwashing.
The government is also separately consulting on whether legislative changes may be required in respect of a number of these issues (in particular fake reviews, drip pricing and online product safety) so it is likely that the government may look to make use of the new power under the Bill to amend the list of unfair practices using secondary legislation, even if new laws are not introduced in the Bill itself.
Another area to keep an eye on is a proposal to extend the "opt-out" collective action regime in the Competition Appeal Tribunal (CAT) to include claims based on consumer protection law. An amendment was put forward during the Commons debate, but not accepted. However, the issue has been raised again during the second reading in the House of Lords and is likely to be reconsidered during the Lords' Committee stage.
Although the new digital markets and consumer law enforcement powers have been the main focus of debate and attention, the Bill also introduces a raft of reforms affecting the UK's existing competition law regime, including merger control, market studies and investigations and competition enforcement powers. The government has also taken the opportunity, including in recent amendments, to address perceived issues that have arisen as a result of recent court decisions.
The Bill includes significant amendments to the enforcement of market investigation orders and gives the CMA the ability to impose penalties of up to 5% of global turnover for failure to comply with orders imposed (or undertakings accepted) at the end of a market investigation.
This was introduced to respond to concerns that the CMA does not have sufficient powers to ensure compliance with these orders. However, a key question that remains unresolved is whether the fines will be imposed for breaches of existing orders or only for breaches of orders adopted following future investigations.
Industry concerns have been raised about the potential for these amendments to have retrospective impact. Given the potential (market-wide) scope and technical nature of such orders, there is potentially huge scope for firms to incur fines for technical or minor breaches of undertakings agreed or orders imposed years ago at a time when the orders did not envisage, and were not drafted to be consistent with, a penalties regime.
Earlier this year, the UK Supreme Court held that funding arrangements entered into by two proposed class representatives in collective actions against the Trucks cartelists are void and unenforceable as they are "damages-based agreements" as defined in section 58AA of the Courts and Legal Services Act 1990 and did not comply with the requirements of the Damages-Based Agreement Regulations 2013 (see our July 2023 update).
The amendments aim to unwind the court's decision in respect of opt-out collective actions to allow litigation funders to fund opt-out collective actions where they receive payment based on a percentage of the award. The amendments are retrospective in order to mitigate the impact of the Supreme Court's decision. While there is some uncertainty as to whether the amendments achieve this goal, there has also been criticism that the amendments are too narrow in scope and do not apply to opt-in collective proceedings and funding arrangements for other types of claims. Funding arrangements for these claims will need to either comply with the DBA Regulations or be based on an alternative return mechanism, such as the percentage of cost incurred.
The Bill also includes amendments which confirm that the CMA's compulsory information gathering powers are extra-territorial in nature. This amendment arose from the CAT's decision earlier in the year finding that the CMA cannot compel companies without a UK nexus to produce material to it (see our February 2023 update). The CMA appealed the CAT's decision and a decision is pending following hearings earlier in November 2023. However, the amendments were not unexpected as the CMA indicated that the inability to obtain information from companies outside the UK significantly hampers its investigatory powers.
Additional amendments have been introduced to give the CMA more flexibility to make a market investigation reference after issuing a market study notice.
The amendments allow the CMA to make a reference: (i) two years or more after the publication of the market study report; or (ii) if there has been a material change in circumstance.
This amendment arose from another CAT decision regarding the CMA's mobile ecosystem market study, where it held that the CMA could not make a market investigation reference using its standalone powers in relation to the same subject matter of a market study outside of the time limits prescribed in the market study (i.e. 12 months).
Interestingly, in a judgment published after the Bill had passed to the House of Lords, the Court of Appeal overturned the CAT's decision and confirmed that the CMA's standalone power to make a market investigation reference (outside the market study process) is not time-limited simply because the same matter was considered as part of a market study. As long as the statutory conditions to use the standalone power are met and the power is exercised for a proper purpose, the CMA is capable making of making a market investigation reference.
The House of Commons introduced amendments which set out a bespoke regime to allow the CMA to require companies involved in the distribution, supply or retail of motor fuel to provide information. The CMA's new powers will allow it to assess competition and to make proposals to the Secretary of State on actions designed to increase competition or benefit consumers for the next five years. The Bill also includes the possibility of penalties (of up to 1% of total value of global turnover or 5% of daily global turnover) for companies which fail to comply with these information requests.
The Bill will now move to detailed consideration during the House of Lords' Committee stage with the Committee scheduled to sit on 22, 24, 29 and 31 January to consider the Bill. The exact timing of the Bill's passage through the Lords will invariably depend on the Lords' views on the Bill and whether further amendments are required. In that case, the Bill would need to go back to the House of Commons for further consideration. The current expectation is that the Bill will receive Royal Assent in Spring 2024, with the new digital markets and consumer law enforcement regimes expected to come into force in Autumn 2024.
Ultimately, we are not expecting the Lords to make significant changes to the Bill, however, it will be subject to extensive scrutiny and it is likely that many of the issues considered in the Commons will be the subject of further debate.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.