The Digital Markets, Competition and Consumers Act

Answer

Over the past few decades, the digital market has grown exponentially and continues to do so. For instance, in 2016, it was reported that the tech industry was expanding more than two and a half times faster than the rest of the UK economy. More recently, the growth in demand for technology heightened because of the covid-19 pandemic, which entrenched the use of technology in both business operations and our personal lives.

Notably, the digital market has also seen the growth of Big Tech firms, such as Google, Amazon, Microsoft and Apple. In a report published by the Competition and Markets Authority (CMA) in 2022, it was reported that tech markets were becoming more concentrated, with a smaller number of large firms dominating. These firms have also been able to sustain their dominant positions through a combination of strategic acquisitions and an expansion of product offerings. For example, Google acquired Android and YouTube in 2005 and 2006, respectively, and Google has also taken advantage of certain trends, such as the rise of the cloud, AI and 5G networks by introducing its 5G Mobile Edge Strategy.

While digital revolution has brought profound benefits to consumers, businesses and the economy, there have been calls to strengthen regulation to unlock further benefits and protect consumers. For instance, the CMA has stated that increasing competition within the digital market is imperative as this puts pressure on firms to innovate, operate efficiently, keep quality high and prices low. In addition, traditional competition and consumer laws have been unable to address the unique challenges posed by the digital market, particularly its fast-paced and dynamic nature.

It's against this backdrop that steps have been taken to strengthen regulation and enforcement within the digital market, both domestically and on a global scale. For instance, at the European Union level, the Digital Markets Act was enacted in 2022, with aims to ensure a fair and open digital market. Further, in the UK, a Digital Markets Unit was established within the CMA in 2021, which is tasked with promoting competition by addressing market power and the economic harms that result. More recently, the Digital Markets, Competition and Consumers Bill (now the DMCC Act) became law after receiving royal assent on 24 May 2024. The key provisions of the DMCC Act, together with its impacts on law firms and clients, will be the focus of this article.

Key provisions of the DMCC Act

The DMCC Act has been described as the most significant reform to competition and consumer protection laws in more than 20 years, introducing large-scale reforms to the existing UK digital markets, competition law and consumer law regimes. Key provisions of the DMCC Act are set out below.

1. UK digital markets – introducing the Strategic Market Status regime

The DMCC Act empowers the CMA to designate entities as having Strategic Market Status if they have "substantial and entrenched market power" and "a position of strategic significance" in relation to digital activities linked to the UK. Digital activities are described as the provision of a service by means of the internet or the provision of digital content. In connection with this, the CMA is empowered to conduct investigations and impose certain requirements on such designated entities.

Firstly, the CMA may regulate the conduct of designated entities by imposing conduct requirements. These requirements may include positive obligations, such as requiring designated entities to provide clear, accurate and accessible information to consumers, or may restrict designated entities from undertaking certain actions, such as using data unfairly. These conduct requirements seek to ensure that consumers are treated fairly, can choose freely between products, and have the information they require to make informed decisions. In the event of a breach, the CMA has broad powers to conduct investigations and impose enforcement orders to either address the damage caused by the breach or prevent the breach from continuing or reoccurring.

Secondly, the DMCC Act imposes an ex-ante duty on designated entities to report possible mergers to the CMA if they’re worth at least £25 million and will result in the designated entity having ‘qualifying status’ (which is where shares or voting rights cross 15%, 25% or 50% thresholds).

2. Competition law – reforming the existing competition law regime

The DMCC Act effects changes to the UK’s existing competition law and merger control regimes by amending the Enterprise Act 2002 and Competition Act 1998. Most notably, the CMA has been given new powers to gather evidence, which could be used extraterritorially, and powers to sanction companies that fail to cooperate. In addition, a new merger control threshold has been introduced, which will give the CMA jurisdiction where one merging entity has an existing share of supply of goods or services of 33% in the UK and a UK turnover of at least £350 million. This test is broad and will cover merger situations that don’t involve direct competitors.

3. Consumer law – enhancing consumer protection law and consumer rights

The DMCC Act includes provisions to further consumer protection and enhance consumer rights, which have the potential to apply more generally to all consumer-facing businesses with a digital presence. Firstly, the DMCC Act introduces rules relating to subscriptions, which are defined as contracts that automatically recur for an indefinite or fixed period. For instance, businesses must provide consumers with certain pre-contract information, such as the amount of notice that a consumer must give to terminate a contract and must arrange for consumers to end subscriptions in a straightforward way.

Secondly, the DMCC Act seeks to prevent ‘drip pricing’, which is where consumers are shown an initial price, and additional fees are revealed later in the checkout process. To target this practice, the DMCC Act will now require firms to set out the total price of a product, including any fees and taxes, in any invitation to purchase. Where prices and taxes cannot be calculated, the firm must disclose how they’ll be calculated.

Thirdly, Schedule 19 of the DMCC Act includes a list of banned practices that are automatically deemed unfair, which extends to fake reviews. For example, the new rules prohibit companies from submitting or commissioning a fake review or concealing the fact that a consumer review has been incentivised.

With regards to consumer protection, the CMA is given wide-ranging powers to directly investigate suspected breaches and provide infringement notices, which may require a firm to comply with requirements or pay a monetary penalty. For instance, the CMA may impose fines of up to £300,000 or, if higher, 10% of the global turnover of the target and its group.

The impact on law firms and clients

The DMCC Act will bring about changes that will impact all businesses with a digital presence that have a connection to the UK. As such, it’s important for both businesses and law firms to grasp these changes before the reforms come into force in autumn 2024.

For businesses, the impact of the DMCC Act is broadly two-fold. Firstly, businesses may need to adapt their existing practices to comply with certain conduct requirements, such as the handling of data, and may need to update their internal compliance programs to ensure adherence to these new provisions. Secondly, businesses considering or involved in mergers must be mindful of the new reporting requirements and merger thresholds.

For law firms, investing in training will ensure that teams understand how these changes will impact their clients, which is especially relevant to M&A and antitrust/competition law teams. Firms will likely see a rise in demand for advisory services, where clients may seek advice on compliance in terms of their current activities and future merger ambitions. Lastly, with enhanced enforcement powers given to the CMA, law firms may see an increase in litigation. This is especially the case if clients exercise their right of appeal or request a review of a CMA decision.

Conclusion

Digital transformation has reshaped our lives significantly and will continue to do so. As such, regulation is evolving to address the challenges posed by the digital market so that benefits to businesses, consumers and the economy are maximised and consumers are protected. While the pro-competitive reform introduced by the DMCC Act marks a step in this direction, only time will tell how its provisions will impact the UK operations of consumer-facing firms and in particular, Big Tech firms. In the meantime, it’s important that businesses and law firms take proactive steps to navigate the impacts of the DMCC Act and keep an eye out for draft guidance that the CMA is due to issue in the coming months.

Rona Kamand is a trainee solicitor in the capital markets team at White & Case LLP.

Any views expressed in this publication are strictly those of the authors and should not be attributed to White & Case LLP.