Implications for Business of the Digital Markets, Competition and Consumer Act 2024

May 28, 2024 Advisory

The Digital Markets, Competition and Consumers Act 2024 (DMCC Act) finally received Royal Assent on 24 May 2024 just before the Parliamentary session ended in readiness for the U.K. General Election on 4 July 2024. The DMCC Act heralds a new era of regulatory oversight for digital markets, mergers, antitrust activities and consumer protection in the U.K. It ushers in a range of measures aimed at promoting competition, enhancing market transparency and protecting consumer interests.

In this article we summarize the key implications for business of the digital markets, merger and antitrust provisions. The Act’s provisions are expected to be brought into force in successive stages over the next six months or so.

Pro-Competition Regime for Digital Markets

SMS Designations

One of the most critical aspects of the DMCC Act is the establishment of a new pro-competition regime for digital markets. The Digital Markets Unit (DMU) of the Competition and Markets Authority (CMA), the U.K.’s principal competition regulator, is now empowered to designate certain undertakings engaged in digital activities in the U.K. as having Strategic Market Status (SMS). This designation targets firms with substantial market power and control over digital markets. The DMU has the power, after consultation, to impose bespoke enforceable Codes of Conduct on each SMS-designated undertaking based on the objectives of “fair trading”, “open choices” and “trust and transparency”. The types of conditions the DMU can impose are set out in Section 20 of the DMCC Act. These include requirements not to apply discriminatory terms, conditions or policies or to prevent self-preferencing (including through access to data). Breach of the Code of Conduct can result in SMS undertakings facing fines of up to 10% of their worldwide turnover and also being exposed to private actions for damages in the Courts. The DMU does not expect the first SMS designations to be made until July 2025. Appeals against SMS designation and breach of conduct decisions, except penalty decisions,  will now be subject to judicial review principles rather than a full merits review, providing quicker resolution outcomes.

Targeted Pro-Competitive Interventions

The DMCC Act introduces a mechanism for the DMU to make Pro-Competitive Interventions (PCI) against SMS-designated companies in digital markets where the conditions of competition are not working effectively, or a market is being distorted by perceived market power. PCIs are a form of “Market Investigations Lite” procedure providing a proactive tool for the DMU to police digital markets. The new mechanism is capable of delivering effective solutions in a fraction of the time the traditional Market Investigation procedures under the Enterprise Act 2002 can. Following an investigation the DMU will be able to impose pro-competition orders that remedy, mitigate or prevent any identified “adverse effect on competition”. These remedies could include restrictions on conduct, obligations to be performed and even divestments.

SMS Merger Reporting

The DMCC Act introduces the CMA’s first mandatory and suspensory merger reporting regime, solely for SMS firms. The system introduces an advance notification obligation on SMS companies where they acquire share or voting rights of at least 15% in a company which carries out activities in the U.K. and the consideration under the transaction is £25 million or more. This is a low threshold regime designed to require SMS firms to report most transactions with a U.K. connection. The idea behind the obligation is to increase the CMA’s visibility of “killer acquisitions” in the digital space triggering an accelerated timetable for the CMA to determine whether to review the merger under its merger control regime. SMS-designated companies which fail to comply face substantial financial penalties.

Implications of the SMS Regime

Businesses coming within the SMS regime will need to consider:

  • Compliance Burden: Businesses designated with SMS will face stringent compliance requirements, including the need to report certain mergers and produce regular compliance reports. This will necessitate robust internal compliance mechanisms and increased administrative efforts.
  • Conduct Requirements: The CMA can impose conduct requirements on SMS-designated firms to prevent anti-competitive practices. Businesses may need to alter their operational practices to adhere to these new standards, potentially affecting their business models and strategies.
  • Pro-Competition Interventions: The CMA’s power to make pro-competition interventions could lead to mandatory changes in business operations or structures. Companies might need to divest certain operations or modify their market behaviours significantly.
  • Challenges to Anti-Competitive Behaviour: Third parties aggrieved by anti-competitive practices or policies of SMS-designated firms will have recourse to a quicker and more effective mechanism to challenge that behaviour through the DMU. Tackling anti-competitive behaviour under the competition rules in Competition Act 1998 proved slow, legally cumbersome and subject to long-winded appeal processes.

Reforms to U.K. Merger Control Regime

The DMCC Act also makes several changes to the thresholds which determine what transactions come within jurisdiction of U.K. merger control and are subject to investigation by the CMA. The legislation makes the following amendments:

  • Turnover Test: increases the level of the existing turnover test for the target of a merger transaction from £70 million U.K. turnover to £100 million U.K. turnover.
  • New De Minimis Safe Harbour: Introduces a safe harbour by adding a condition into the existing share of supply test in section 23(2) Enterprise Act 2002 that exempts from investigation any merger where the merging parties all have a U.K. turnover of less than £10 million. This has the effect that any merger involving only enterprises with a respective U.K. turnover of less than £10 million is exempt from U.K. merger review on competition grounds.
  • Vertical Mergers: introduces a new provision which brings within the U.K. merger regime certain verticals mergers. The new rules specify that an acquisition is capable of investigation under the U.K. merger regime if one party supplies at least a 33% share of relevant goods or services of a particular description in the U.K. or part of the U.K. and that party also has a U.K. turnover of at least £350 million. The conditions are to be assessed without taking the merger into account. They do not require any aggregation of the share of supply as a result of the merger. This addition to the share of supply thresholds was designed to catch killer acquisitions by technology companies aimed at stifling nascent competitors before they pose a threat to the acquirer’s powerful market position.

Notable other amendments introduced by the Act include the introduction of a new regime for mergers involving newspaper enterprises and foreign powers. This late amendment to the Act was included due to concerns about the implications of the proposed acquisition of the Telegraph Media Group by Red Bird IMI, a fund that is believed to be 75% owned by the UAE. Under these new provisions following a report from the CMA confirming the involvement in an applicable newspaper transfer of a foreign government, the Secretary of State must make an order reversing or blocking the identified foreign state newspaper merger situation.

Implications of U.K. Merger Control Reforms

Businesses need to be aware of the latest changes to the U.K. merger control regime when considering possible acquisitions in the U.K. The reforms will potentially bring more mergers within the scope of the CMA investigative powers and in the context of wider international deals will have an impact on deal timetables. The restrictions on media ownership will have implications for those businesses seeking to make newspaper mergers in the U.K. where the deal is financed in whole or in part by an investor who is backed by a foreign government.

Antitrust Reforms

The Act introduces enhanced investigatory and enforcement powers for the CMA. The legislation notably revises the jurisdictional scope of the Chapter I prohibition, so anti-competitive agreements are caught whether or not they are implemented in the U.K. The DMCC Act also amends the CMA's antitrust investigation and enforcement powers extending the CMA's powers to require the production of information held electronically. The Act also substantially increases the CMA’s powers to fine parties for the provision of misleading or incomplete information. Following the recent BMW and Volkswagen cases, the Act also confirms the jurisdiction of the CMA to seek information from foreign companies concerning their activities in the U.K. It also revises procedures for market studies and investigations under the Enterprise Act 2002.

Implications of Antitrust Reforms

The implications of these reforms mean businesses need to be more vigilant concerning their business practices to avoid breaches of antitrust laws. This is particularly true for foreign companies doing business in the U.K. The CMA’s enhanced powers to demand electronic information and impose civil penalties, coupled with provisions for extra-territorial reach, underscore the CMA’s increased regulatory oversight.

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