What's the issue?

The UK government, like the EU, has been scrutinising the market dominance of the big tech businesses in online digital services, commissioning a number of reviews and studies as a prelude to potential legislation.

Informed by the Furman Review and the CMA report of its market study into online platforms and digital advertising, as well as by the work of the Digital Markets Taskforce (the CMA working closely with Ofcom and the ICO), the government launched a consultation on potential changes to the competition regulation of digital markets in July 2021.  This focused on the design of a new pro-competition regime for digital platforms with strategic market status to be overseen by the Digital Markets Unit which brings together members from the CMA, DCMS, BEIS and HM Treasury, the ICO, Ofcom and FCA (DMU). 

What's the development?

The government has published its response to the July 2021 consultation setting out proposals to tackle entrenched market positions of big tech and prevent abuse of dominance.  These are centred on a legislative regime underpinned by codes targeted at companies engaged in "Digital Services" and which are designated as having "Strategic Market Status" (SMS).  The regime will be overseen and enforced by the DMU which will be placed on statutory footing.

The government highlights the introduction of fair-play rules to make it easier for consumers to switch between digital service providers without losing their data and to give them greater control over their data.  Rules will be introduced to ensure fair prices for content providers like news publishers and advertisers. SMS firms will also be required to notify smaller firms about changes to algorithms which might impact their revenues.

SMS

The regime is targeted specifically at big tech.  Only a few firms will be designated by the DMU as having SMS and there will be a minimum revenue threshold to ensure smaller firms are not in scope.  Legislation will set out a definition of in-scope activities and the relevant criteria against which the DMU will make designation assessments.  The list of criteria used to assess whether a firm has a strategic position will be exhaustive and set out in legislation.  It will be up to the DMU to decide how to prioritise assessments and to publish guidance on its approach, but it will be required to designate SMS firms within nine months (extendable by three in exceptional circumstances). 

Conduct codes

SMS firms will be subject to binding codes of conduct.  The DMU will develop targeted conduct requirements for each firm or relevant activity, but the types of conduct requirements will be set out in legislation.  The DMU will have to publish guidance about how the conduct requirements will work In practice for each firm subject to them.  Activities which provide net benefits to consumers will not breach conduct requirements.  SMS firms will not be able to leverage other parts of the business to further entrench market power in a designated activity.  Codes will introduce requirements on SMS firms to ensure news publishers are able to monetise their content on fair and reasonable terms.  App developers will also be able to sell their apps on fairer and more transparent terms

DMU intervention and enforcement powers

The DMU will:

• have broad discretion to make a wide range of pro-competitive interventions anywhere within an SMS firm provided it is related to an issue with a designated activity.  Remedies will not be set out in a defined list but may include requiring interoperability, access to algorithms, a wide range of information gathering powers and, ultimately, ownership separation
• have powers to intervene to address unfair and unreasonable terms which stem from the market power of SMS firms where this cannot be addressed through other routes.  The government suggests adopting the CMA and Ofcom's suggestion of an arbitration system to address pricing disputes.  The DMU will also be able to impose interim and final orders subject to defined thresholds and conditions
• be able to impose financial penalties of up to 10% of global turnover for regulatory breaches with an additional 5% daily of daily turnover for ongoing non-compliance.  Fines of up to 1% of annual global turnover will be available for information offences, and senior managers will face personal civil liability for certain breaches. It will also be a criminal offence to knowingly or recklessly provide false information to the DMU
• have a statutory duty to consult with relevant regulators.  It will be funded by the Exchequer but SMS firms will be required to pay a levy.  The regime will be subject to judicial review.

SMS merger reform

The government will introduce new mandatory reporting requirements for SMS firms which will have to report transactions exceeding defined thresholds prior to their completion.  The CMA will then review whether they require further investigation.

CMA/Ofcom advice on how code of conduct under new digital markets competition regime could apply to platforms and content providers

Alongside the response to the consultation, the CMA has published its advice prepared jointly with Ofcom, on how a code of conduct might apply to platforms and content providers.  It was sent to the government in November 2021, so the language does not always align with that used by the government in its response to the consultation.

The advice focuses mainly on how to ensure the relationship between the major digital platforms and publishers is fair for both sides in terms of access to consumers and getting value from content provided.  It also looks mostly at the concern around the role of platforms in hosting content and driving traffic back to their own sites and the negative impact that can have on publishers. 

The CMA/Ofcom found the following behaviour to be potential issues which could be addressed through a code of conduct:

• lack of transparency over algorithms where minor changes might have a significant impact on traffic and revenue for publishers and advertisers
• lack of availability of data on user engagement gathered by platforms
• limited publisher control over content presentation and branding
• lack of fair payment for content – the concern is that publishers are not fairly compensated for the use of their content by platforms to attract users and generate advertising revenue.

The CMA/Ofcom suggest a code of conduct could have an immediate impact by, for example, ensuring fair terms and policies between SMS platforms and content providers, and requiring SMS platforms to treat all content providers equally unless there is an objectively good reason not to.  This could give publishers visibility over algorithms, access to data, more control over presentation and branding, and fairer compensation.

What does this mean for you?

Some of the proposals look to parallel the EU's Digital Markets Act (DMA). Digital businesses, especially those likely to be designated as having SMS, will have a lot to take on board but much will depend on what is included in the relevant code.  They are also likely to be designated as gatekeepers under the DMA and it appears that the UK changes may, in addition, stray into the territory of the EC's draft Data Act in terms of requiring a degree of data sharing.

Smaller businesses and particularly online publishers and advertisers are likely to benefit from provisions around fair and reasonable terms, and consumers are likely to get flexibility and enhanced data rights.

There is no clear indication on timing as provision is made for legislation to be introduced "when Parliamentary time allows". However, some provision is expected under the Digital Markets, Competition and Consumer Bill which was announced in the recent Queen's Speech.

For cross-border businesses (which most SMS businesses are likely to be), it will be a complex process to ensure they comply with both the UK and EU regimes.