Yesterday, the CMA successfully overturned the Competition Appeal Tribunal’s (CAT) ruling that the CMA’s market investigation reference (MIR) into mobile browsers and cloud gaming was out of time and therefore unlawful. This opens the door to the CMA reopening the MIR which could lead to significant remedies being imposed against Apple.
Background
The CMA’s MIR followed its market study, which ran from June 2021 to June 2022, into mobile ecosystems – i.e. operating systems, app stores and web browsers. As many of you will know, the CMA concluded in its market study that there are significant downsides to Apple’s and Google’s duopoly in these ecosystems, meaning that consumers and businesses are likely to miss out on new innovations, have less choice, and ultimately face higher prices.
During its market study, the CMA had the option of making an MIR, which would allow the CMA – where it identifies a competition problem – to adopt a wide range of legally enforceable remedies (including behavioural and structural remedies). However, at that time, the CMA determined not to make an MIR because it considered its concerns would be better addressed through its new powers under the Digital Markets, Competition and Consumers Bill (the DMCC bill). That decision was seemingly predicated on the DMCC bill becoming law relatively swiftly. In fact, the DMCC bill has been delayed, although it is expected to become law next year. In November 2022, the CMA therefore decided, following public consultation, to bring an MIR in relation to two specific areas of Google and Apple’s ecosystems, mobile browsers and cloud gaming.
As has been covered on this blog in posts about cloud gaming and about mobile browsers and by Stijn and Damien elsewhere, the CMA market study concluded that, for mobile browsers, “[a]bsent intervention, Apple and Google are highly likely to retain this market power within their respective ecosystems for the foreseeable future, raising developers’ costs and hindering innovation” and that in relation to cloud gaming “Apple has blocked the emergence of cloud gaming on iOS”. It made some particularly strong findings as regards Apple, for example, saying it has “blocked the emergence of cloud gaming services on its App Store”, “bans alternatives to its own browser engine on its mobile devices” and “seriously inhibits the capability of web apps”. Given the strength of those concerns and delays to the DMCC bill, it was therefore unsurprising that the CMA decided to reverse its previous decision not to conduct a fully-fledged market investigation.
Apple – who along with Google was the primary subject of the CMA’s concerns – brought proceedings in the CAT arguing that the CMA’s MIR was made outside the statutory time limits under the Enterprise Act 2002 (the Act), and therefore the CMA had no power to make that market investigation reference. Apple did not seek to argue, for instance, that the CMA’s decision should be quashed because its competition concerns were ill-founded; it focused only on the time limits under the Act.
The CMA, on the other hand, held the view that there is a separate, general power in section 131 of the Act to make a stand-alone market investigation reference which allowed it to make an MIR in November 2022, and that separate power was not subject to the time limits on which Apple relied.
In March 2023, the CAT ruled in Apple’s favour on the basis that it considered the CMA had not complied with the statutory time limits for making a market investigation reference. The deadline for the CMA to propose a market investigation reference was 15 December 2021, whereas the CMA published its proposal on 10 June 2022, and the deadline for beginning consultation was 15 December 2021, whereas the CMA commenced its consultation on 10 June 2022. It therefore ruled the CMA’s 10 November 2022 decision to make a market investigation unlawful.
Court of Appeal’s judgment
The CMA appealed the CAT’s ruling to the Court of Appeal. In its judgment yesterday, the Court of Appeal agreed with the CMA: it held that the CMA lawfully exercised its powers under section 131 of the Act to make a market investigation reference, and the time limits which Apple had relied on did not also limit the CMA’s power to make a market investigation reference under section 131 of the Act. In doing so, the Court of Appeal considered the interpretation of the relevant provisions by reference to their purpose. Lord Justice Nicholas Green (Green LJ) said, for instance, that the CMA’s interpretation of the Act was consistent with the principal purposeof the Actwhich was “to promote competition and protect consumers”.
The judgment has broader implications for two reasons. First, it clarifies that if the CMA opens a market study and concludes at the halfway point that it does not believe that an MIR is necessary, it can still rely on section 131 to reverse course and make an MIR after all, subject to the usual restrictions of public law (Green LJ mentions rationality and the “proper purpose principle” as two examples). The CMA also accepted (before the CAT) that it still had a duty to run a consultation exercise, which is what it in fact did in this case. Second, it highlights the importance of the statutory purpose of the Act, as highlighted in its Explanatory Notes, to promote competition and protect consumers, as well as of the general duty imposed on the CMA by section 25(3) of the Enterprise and Regulatory Reform Act 2013 to “promote competition, both within and outside the United Kingdom, for the benefit of consumers”. While these general principles are not a cure-all, they do, quite rightly, play a role when interpreting provisions of the Act. Third, it highlights that, when challenging CMA decisions, companies under investigation will not necessarily be able to rely on the burden on them. The Court of Appeal said that “[w]here, as here, there is no challenge to the conclusion of the CMA that it had reasonable grounds for suspecting the existence of a competition problem, then some level of burdensome regulatory intervention is an inevitability for the undertakings concerned”, and that the CAT had “lost sight of this consideration” in its ruling.
What happens next?
Apple can seek to appeal the Court of Appeal’s judgment to the Supreme Court, although at the time of writing we have not seen any confirmation of Apple’s intentions.
If Apple does appeal, we can expect further delay to the CMA MIR. The CMA said following the judgment that its “market investigation remains on hold pending the determination of any application for permission to appeal to the Supreme Court”.
It is clear, however, that the MIR is (for now at least) still a priority for the CMA. Following the judgment, the CMA’s Chief Executive, Sarah Cardell, confirmed that the CMA stands “ready to reopen it when the legal process is complete”.
As it stands, the CMA’s reasons for its MIR remain as applicable as ever. The important concerns the CMA raised remain unaddressed. And of course the DMCC bill is yet to receive royal assent and is unlikely to until Q2 2024 at the earliest. Even if the bill becomes law, it will then take further time to have its desired effect, given the steps the current bill requires from the CMA including adopting guidance documents, designating activities of firms as having Strategic Market Status, and then designing conduct requirements or pro-competitive interventions (as well as defending any appeals of those decisions).
Therefore, even where they may ultimately be determined in the CMA’s favour, these kinds of challenges have proved effective at delaying CMA investigations of competition issues. Understandably, the issue of undue delay has been prominent in recent debates regarding the DMCC bill, where parliament will be keen to ensure that the new regime strikes the right balance between allowing the CMA to investigate concerns expeditiously while also ensuring appropriate and timely oversight of CMA decisions.
Meanwhile, anyone hoping for swift changes in relation to the topics of the MIR would be forgiven for thinking that they should turn to Europe, where Apple has already been designated as a gatekeeper in relation to its App Store, Safari browser, and iOS operating system under the Digital Markets Act (DMA). However, surprise surprise, Apple has been reported to have challenged the European Commission’s designation decision with respect to the App Store, and of course the restrictions on cloud gaming relate directly to its App Store policies. It is not clear yet if Apple’s appeal is accompanied by an application for interim measures. Its compliance duties under the DMA which will kick in from 6 March 2024 will only be suspended if any such interim measures application succeeds.
Stijn Huijts and Anthony Ojukwu
Leave a Reply