The new Digital Markets, Competition and Consumers Act

The Digital Markets, Competition and Consumers Act 2024 (the “DMCCA”) was enacted in May 2024. It is a landmark piece of legislation introducing a specific competition regulatory regime for digital activities, so as to provide a specific remedies regime in the digital sector, where competition law was considered not to be sufficient. The DMCCA enables the Competition and Markets Authority (“CMA”) to impose and enforce specific competition-related conduct requirements on undertakings which are designated as having strategic market status (“SMS”).  It is likely to be applied to the very large tech companies.  The regime will be administered and enforced by the Digital Markets Unit of the CMA.

The DMCCA also introduces a range of important changes to competition law and significantly strengthens consumer protection law. This article explains the new SMS regime concerning digital activities and the changes to competition law under the DMCCA. The consumer protection law reforms are explained in a separate article which can be found here.

The new regime for undertakings having SMS in a digital activity

SMS designations:  In order to bring an undertaking within the SMS regime under the DMCCA, the CMA must, first, following investigation, designate the undertaking as having SMS in respect of a digital activity linked to the UK.  Digital activities are the provision of a service by means of the internet (or a combination of the internet and an electronic communications service), the provision of digital content, or any other activity carried out for such purposes.

The CMA will be able to designate an undertaking as having SMS in such a digital activity where it has substantial and entrenched market power, assessed looking forward over a period of at least five years, and a position of strategic significance.  An undertaking has a position of strategic significance where it has achieved a position of significant size or scale in respect to the digital activity, or a significant number of other undertakings use the digital activity in question, or the undertaking’s position in respect of the digital activity would allow it to extend its market power to other activities, or the undertaking’s position allows it to substantially influence the ways in which other undertakings conduct themselves.

In addition, to be designated as having SMS, the undertaking in question must meet a turnover criterion of £25 billion globally or £1 billion in the United Kingdom, to be assessed on a group basis where the undertaking is part of a group.

Conduct requirements on SMS undertakings:  After an undertaking has been designated as having SMS, the CMA will be able to impose a range of conduct requirements to fulfil the objectives of fair dealing, open choices, or trust and transparency, in relation to users and potential users.  The specific types of conduct requirements that can be imposed include positive obligations to: trade on fair and reasonable terms; and/or provide clear, relevant, accurate and accessible information about the relevant digital activity.

The CMA can impose negative obligations on an undertaking designated as having SMS, i.e. requirements preventing a designated undertaking from: applying discriminatory terms, conditions or policies; using its position in relation to the relevant digital activity (including its access to data) to give preferential treatment to its own products; carrying on other activities in a way likely to materially increase the undertaking’s market power; requiring or incentivising users or potential users to use another product of the undertaking alongside services or content comprised in the relevant digital activity; restricting interoperability between the relevant service or digital content and other undertakings’ products; restricting the ability of users or potential users to use the relevant digital activity or other undertakings’ products; and using data unfairly.

The CMA will be able to impose significant penalties on undertakings for breach of the requirements imposed pursuant to the SMS regime under the DMCCA.  The maximum amount of such penalties is 10 per cent of the global turnover of the undertaking (or, where it is part of a group, the group’s turnover), and/or 5 per cent of the global daily turnover of the undertaking (or its group where applicable).  The CMA will also be able to impose penalties for failure to comply with investigative requirements under the regime, of up to 1 per cent of the undertaking’s (or its group’s) global turnover and/or up to 5 per cent of its (or its group’s) global daily turnover.  The CMA will also be able to impose fines on relevant senior managers (or nominated officers) of undertakings for failure to comply with investigatory requirements, of maximum amounts of £30,000 and/or £15,000 per day.  The CMA will also be able to disqualify individuals from serving as directors for non-compliance with the SMS regime.

Pro competition interventions: the CMA will be able to make a pro competition intervention (a “PCI”) in relation to a designated undertaking, i.e. a conduct order or recommendations in relation to the relevant digital activity, where, following a PCI investigation, the CMA considers that a factor or combination of factors relating to a digital activity is having an adverse effect on competition, and that a PCI is proportionate for purposes of remedying or preventing such adverse effect.  The CMA will have to comply with specific time periods and consultation requirements in conducting a PCI investigation.  The resulting orders that it can impose may include any provision that can be ordered or enforced under the market investigation provisions of the Enterprise Act 2002.

Duty to report mergers:  An undertaking designated as having SMS will have a duty under the DMCCA to report any mergers or joint ventures to the CMA where it acquires shares or voting rights or forms a joint venture concerning a company active in or supplying in the UK, where such undertaking pays or contributes more than £25 million. More specifically, this reporting duty will apply where the SMS entity increases its shareholding or voting rights from less than 15% to 15% or more, or from 25% or less to over 25%, or from 50% or less to over 50%. The CMA must give notice confirming whether or not it accepts the report within five working days, and the SMS entity must delay any such merger or joint venture until five working days after such acceptance by the CMA.

These provisions serve to avoid certain mergers or acquisitions of small-scale or developing entities engaged in digital activities, especially those which may be innovative and/or potentially significant, falling under the radar.  There is generally no requirement to pre-notify mergers to the CMA, but this reporting requirement creates a new obligation to do so for undertakings having SMS in a digital activity.  It serves to reduce the likelihood of so-called “killer acquisitions” in the digital sector evading competition law scrutiny.

Competition law reforms

The DMCCA introduces a range of reforms to both anti-trust law under the Competition Act 1998 and merger control under the Enterprise Act 2002.  In both areas, the CMA is now given express powers to require the provision of information located outside the UK.  The new Act also provides for stronger penalties for failure to comply with investigative requirements, with maximum fines increasing from £30,000 (and/or £5,000 daily) to 1 per cent of global turnover and/or 5 per cent of global daily turnover. It also provides for fines of up to 5 per cent of global turnover and/or 5 per cent of global daily turnover for breaches of undertakings, directions, commitments and orders.

The main further changes are as follows.

Competition Act 1998 – anti-trust:  The main prohibition on restrictive agreements, in Chapter I of the 1998 Act, is now extended to agreements implemented outside as opposed to within the UK, provided that such agreements implemented outside the UK are likely to have an immediate, substantial and foreseeable effect on trade in the UK.

The powers of the CMA to obtain information located in business premises or domestic premises on a competition law inspection, are now strengthened to allow the CMA to access and obtain electronically-stored information. The CMA’s powers are extended to cover information accessible from, and not just located in, the relevant premises, and the CMA will now be able to operate equipment on the premises to produce information and require any person on the premises to give reasonable assistance for such purposes.

Merger control:  The DMCCA revises the CMA’s jurisdiction in relation to mergers in three main ways.

• The UK turnover criterion (of the target enterprise) for the CMA’s power to investigate a merger is increased from £70 million turnover to £100 million.
• Mergers are excluded from investigation by the CMA where each party’s UK turnover is not more than £10 million.
• A new set of criteria for CMA jurisdiction is introduced, whereby the CMA will be able to investigate a merger where one of the enterprises concerned has at least a 33 per cent share of supplies of a specific type of goods or services in the UK (or a substantial part of the UK) and has a UK turnover of over £350 million, provided that at least one other enterprise concerned was formed in the UK or is active in the UK. This provision is also intended to prevent “killer acquisitions” in the digital sector evading scrutiny.

The DMCCA also introduces procedural changes improving possibilities to fast-track a merger case from phase 1 to phase 2 investigation and enabling a phase 2 investigation period to be extended by consent of the parties.

Conclusion

The provisions of the DMCCA are expected to be brought into force in the autumn of 2024. The changes introduced are very significant for the digital sector and have been contemplated for several years since the Furman review of 2019. The CMA is given broad powers to impose conduct requirements on tech companies having SMS, backed up by strong enforcement powers against undertakings and also relevant individuals.  In the merger control area, the new set of criteria for CMA investigation is significant, as is the new duty on SMS undertakings to pre-report mergers or acquisitions to the CMA.  The DMCCA’s amendments to the Competition Act 1998 are also very significant, including in relation to digitally stored information.