For those of you that have been monitoring the Digital Markets, Competition and Consumers (DMCC) Bill’s journey through Parliament, fear not. The end is in sight.
Last November, my colleague Tom Smith wrote about the changes to the Bill as it was leaving the House of Commons. Since then, the Bill has received its first and second readings and completed the Committee Stage in the House of Lords. An updated version of the Bill, incorporating the latest changes, was published earlier this month.
With royal assent (hopefully) not too far away and with the publication of an updated version of the Bill, now seems a good time to check-in on what has (and has not) changed during the Bill’s time in the House of Lords.
What has changed …
During the House of Commons process, the Government had introduced a range of amendments with the overall effect of increasing scrutiny on the CMA and to some extent reducing its discretion. Many consider that these amendments will benefit the firms designated with strategic market status (‘SMS’). As a result, these amendments were the subject of lively debate in the House of Lords. Nevertheless the Bill remains in a similar form to when it left the House of Commons. The main amendments that were agreed during the Lords’ Committee Stage were minor. They include:
Requirement for the CMA to include reasons for not making an SMS designation (clause 15)
The DMCC Bill now requires that, when the CMA decides as a result of an initial SMS investigation not to designate an undertaking as an SMS firm in respect of the relevant digital activity, the CMA’s decision notice must include the reasons for that decision. This will increase legal certainty and allow those affected to exercise their rights to challenge the CMA’s decisions.
Restrictions on disclosure orders against the CMA (clause 116)
The DMCC bill now provides limitations on the disclosure that can be ordered against the CMA. It provides that, in competition and digital market proceedings, a court or the Competition Appeal Tribunal must not make a disclosure order requiring the CMA to disclose or produce information where the court or the tribunal is satisfied that another person would be reasonably able to provide the information. The court or tribunal also cannot make such an order before the CMA gives notice of the closure or outcome of each investigation to which the information relates.
Other amendments include: providing that a duty to consult under the DMCC Act may be satisfied by consultation that took place before the Act is passed (clause 332); and providing for the CMA’s levy on SMS firms to include interest which will be paid into a consolidated fund (clause 110).
… and what has stayed the same …
Countervailing benefits exemption
Despite much debate, the Government has mostly rejected proposed amendments from peers on key issues. One area for significant debate has been the countervailing benefits exemption (clause 29).
The Bill includes an exemption, whereby an SMS firm’s rule breach can be justified if it gives rise to countervailing benefits such as efficiency, security or privacy. In the House of Lords, several peers, including Conservative peers, questioned whether the exemption, as amended at the end of the Commons stage, is too permissive to SMS firms. Some rightly pointed out that the CMA will already have balanced any relevant trade-offs (e.g. involving efficiency, privacy and security) when writing the conduct requirements. The EU’s Digital Markets Act acknowledges that same point at recital 23 when it provides that “[a]ny justification on economic grounds seeking to […] demonstrate efficiencies deriving from a specific type of behaviour by the undertaking providing core platform services should be discarded, as it is not relevant to the designation as a gatekeeper.”
In relation to the criteria that SMS firms must satisfy to benefit from the exemption, in the House of Commons, the Government had removed the requirement that any conduct must be “indispensable … to the realisation” of the relevant countervailing benefits. It was replaced with a test that the “benefits could not be realised without the conduct” (clause 29(2)(c)). The Government says this change was made to make the drafting clearer, and it seems confident that the change will make no practical difference. Viscount Camrose (on behalf of the Government) has said that the new wording “has the same meaning and sets the same threshold as the previous wording“.
However, it may not be so straightforward and may instead introduce uncertainty. The test of “indispensability” is well-understood in UK law, having been introduced into UK competition law in the context of a similar exemption under section 9 of the Competition Act 1998. In that context, it is generally understood to represent a high burden for firms under investigation. Several peers and law firms (including some acting for Big Tech firms) consider that removing the explicit reference to “indispensability” represents a change from that well-understood standard. They also consider that change may make the countervailing benefits exemption easier to invoke.
In the same way, if a court or tribunal were to look at the new test, it may infer that Parliament intended to introduce a distinction between the well-understood indispensability standard on the one hand and the new clause 29 on the other: if it were otherwise, Parliament would have used the word “indispensable”. That court might then determine that Parliament intended to introduce a new standard that can only plausibly be lower.
What are unlikely to be determinative are comments of Viscount Camrose and other Government ministers, whether in Parliament or in notes accompanying the Bill, stating that the Government intended to maintain the “same threshold“. As Law Lord, Lord Nicholls, has stated: “the ‘intention of Parliament’ is an objective concept, not subjective. The phrase is […] not the subjective intention of the minister or other persons who promoted the legislation. Nor is it the subjective intention of the draftsman, or of individual members or even of a majority of individual members of either House” (R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] AC 349, 396). When considering the proper interpretation of a statute, the courts rarely give weight to statements made in Parliament (see e.g. Lord Hodge’s address to the Government Legal Service of Scotland, 10 November 2021, where he said “[i]t is rare that the courts are assisted by Pepper v Hart material and many judges will discourage counsel from devoting extensive resources” to such issues). Nor do courts give much weight to notes on clauses accompanying the Bill (as the Supreme Court reiterated in the Reference by the Lord Advocate of devolution issues under paragraph 34 of Schedule 6 to the Scotland Act 1998 [2022] UKSC 31, at para 26).
In interpreting an Act, the courts can look at other sources such as the Act’s Explanatory Notes (see e.g. Lady Arden and Lord Burrows in their concurring judgment in Kostal UK Ltd v Dunkley [2021] UKSC 47, at para 109). However, if the current Bill’s Explanatory Notes were also to accompany enacted legislation, there are several reasons to think that those Notes may not support Viscount Camrose’s statements, not least because those Notes make no reference to applying the “same threshold” as indispensability.
Other notable issues also continue to be debated, such as the leveraging principle, the consultation rights for non-SMS firms, and the requirement for Secretary of State approval of the CMA’s guidance on how it will exercise its new functions.
Leveraging principle
Several peers in the House of Lords had sought to expand the so-called leveraging principle in clause 20(3)(c) of the Bill. This provision relates to the concern that the regime’s targeted approach of designating and then regulating specific activities, rather than the whole SMS firm, will leave an enforcement gap.
As it is currently drafted, the CMA will not be able to address conduct that occurs outside a designated activity unless that conduct materially “increase[s] the undertaking’s market power” or “strengthen[s] its position of strategic significance” in relation to the designated digital activity. That test may be difficult for the CMA to meet, it will miss many problematic situations, and it misses the key point. As my colleague Tom put it, the market power of Big Tech firms “does not neatly stop at the boundaries of a specific activity; it can be leveraged into other activities to the detriment of competitors and competition.” The Lords’ proposed amendments would have meant that in certain circumstances the CMA could intervene more readily in harmful conduct that occurs outside the designated activity.
The jury’s recent verdict in the US Epic Games v Google case is a salient example of why a strong leveraging principle is important. The jury determined that Google had acted unlawfully regarding its Play Store, including through its deals with smartphone manufacturers when licensing the Android operating system and through its deals with games developers on where they can distribute their apps. Even though those forms of conduct arguably related to different digital activities (one in respect of licensing mobile operating systems and the other in relation to app distribution), they pursued the same aim, which was shutting out rival app stores. If the CMA designated an activity in relation to, say, mobile operating systems before designating an app store distribution activity, then conduct in the former activity with the potential to cause harm in relation to the latter may go unaddressed. This recent example—as well as Apple’s recent controversial plans to comply with the DMA—may provide some impetus to reconsider introducing a stronger leveraging principle.
This is not a remote issue. The CMA has said that, in the first year following the Bill coming into force, it would “expect to initiate approximately 3-4 SMS investigations”, in which it would decide whether to designate an SMS firm in respect of a digital activity. The CMA will therefore need to prioritise designating some activities over others. There will potentially be several years during which some activities are not yet designated, and the SMS firms can move their conduct to those activities.
It would not be difficult to find other wording that improves upon the current drafting without losing the regime’s activity-based approach – for example, the Bill might be amended to allow the CMA to investigate conduct that is “related to” the designated activity without requiring that the conduct increases market power in that activity. That change would be consistent with how the scope of the pro-competitive interventions in clause 46 is drawn.
Consultation rights for non-SMS firms
When undertaking an investigation or other process under the new regime, the CMA must involve the SMS firm from the start (for understandable reasons). But non-SMS firms do not see the details until the much later public consultation, at which point the CMA’s mind will be less open to new ideas.
Peers had tabled a series of amendments that would give non-SMS firms the right to receive various documents at an earlier stage of each CMA process. Under the current Bill, those non-SMS firms are only entitled to the “summaries” that the general public can see. Peers’ amendments were intended to allow non-SMS firms to better contribute their views and expertise. Again, these proposals have not (yet) been adopted into the Bill. This is a significant omission, especially if a challenger company is seriously affected by a breach in conduct requirements.
The main reason given by Government is that the proposed amendments would increase the burden on the CMA to seek out views of potentially “hundreds of thousands” of stakeholders. But this concern could be easily removed if the relevant provisions required the CMA to give copies of the relevant document only to those firms that formally request it, with appropriate redactions if necessary. That document will already exist as it will already have been sent to the SMS firm, so the additional administrative burden on the CMA is low.
An awful lot of effort has gone into placing burdens on the CMA to satisfy the SMS firms’ rights of defence; it is notable that comparatively little thought has been given to the firms on the other side of the argument, given the stated role of the DMCC regime to protect their interests.
Deadline for the Secretary of State to object to CMA guidance
The Government amended the Bill in the Commons to require that the CMA’s published guidance on exercising its digital markets functions must be approved by the Secretary of State. That guidance approval is a key step in the CMA’s implementation process post-Royal Assent.
However, the Government has not introduced any kind of statutory deadline for Secretary of State review. Delays in signing off the guidance and subsequent back-and-forth could significantly impact the effectiveness of the regime. Therefore, the Government should consider limiting the scope for unnecessary delay.
This need is made even more pressing by the current political situation. If the Government calls the upcoming election before the Bill is passed, the Bill will probably go through “wash-up”, which should mean it gets fast-tracked given its cross-party support. The election may still delay the new regime if, as seems likely, the election takes place in the Autumn this year just at the time when the relevant Secretary of State is asked to approve the CMA’s guidance. There may be no Secretary of State at that moment, or they may be subject to the purdah rules that restrict decisions in the run-up to an election, or there may be a brand-new Secretary of State who does not treat this minor administrative decision as a priority in their first weeks in office.
The Government added this additional hurdle with the objective of adding political oversight of the CMA. Oversight of the CMA is welcome; however, oversight which obstructs the regime from efficient implementation is unnecessary.
It is, therefore, a provision that some Lords are rightly proposing to change by adding a deadline of, say, 30 days for the Secretary of State to approve the guidance. Such a change would be in line with the approval process under other legislation, such as the current Data Protection and Digital Information Bill (clause 35), which imposes a similar deadline for the Secretary of State to give recommendations to the Information Commissioner’s Office as regards its code of practice.
… and what comes next
The Bill will now move to the Report Stage and third reading in the Lords, before returning to the Commons for its final stages. That still allows ample opportunity for the Government, Lords and Commons to tweak the Bill for the better.
Royal Assent is planned for April, after which the CMA will consult on its guidance. The first designation investigations should start in Autumn this year. In the meantime, the CMA is watching the implementation process for the Digital Markets Act on the other side of the Channel and taking detailed notes.
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