After much anticipation, the final text of the Digital Markets, Competition and Consumers (DMCC) Bill passed through the UK Parliament on 23 May 2024 and, with Royal Assent being received the following day, it is now law. The Act is expected to take effect in Autumn 2024.
Representing the most significant reform to UK competition and consumer protection laws for over 20 years, the DMCC Act introduces substantial changes in relation to:
In this briefing, we highlight the key takeaways relating to each of the areas highlighted above, that will be of interest to a wide range of organisations in the tech sector.
About the digital markets regime
The Act creates a pro-competitive regime for regulating digital markets. It grants the UK Competition and Markets Authority (CMA) and the new administrative function within the CMA, the Digital Markets Unit (DMU), significant powers to regulate companies falling within its scope.
The DMU will have the power to designate firms with “substantial and entrenched market power” and a position of strategic significance in relation to digital activities linked to the UK, as having Strategic Market Status (SMS). To be designated as having SMS, the firm must also have group worldwide turnover of more than £25 billion, or group UK turnover of more than £1 billion.
SMS firms will have to comply with conduct requirements to ensure fair dealings, open choices for users, or to improve trust and transparency. The CMA may also impose targeted pro-competitive interventions on SMS firms to tackle identified harmful effects on competition. SMS firms will also have to notify the CMA of certain mergers before completion.
In the short term, the CMA has stated that it intends to open 3-4 investigations within the first year to determine which firms should be designated as having SMS, with this process expecting to conclude in Q3-Q4 of 2025. The CMA is also consulting on draft guidance for the digital markets competition regime which will give stakeholders, including customers of SMS firms, an opportunity to engage with the CMA on how the regime will operate in practice.
Other opportunities for participation with the new regime could include:
- providing input to the DMU on whether firms should be designated as having SMS during the CMA’s SMS investigations
- providing views to the DMU on any issues that should be addressed through conduct requirements imposed on SMS firms
- providing information to the DMU on any concerns with the conduct of SMS firms, which could then lead to an investigation into any harmful effects on competition.
Changes to the UK merger control regime
Aside from the mandatory reporting requirements which impact on SMS firms, the UK merger control regime remains voluntary and non-suspensory. This means that the question of whether to notify the CMA about a merger which qualifies for review involves an assessment of a range of factors, including the risk of the deal resulting in substantive competition concerns and whether the subject matter of the transaction is likely to be of interest to the CMA. The non-suspensory nature of the regime also means that there is no obligation to wait for clearance from the CMA before completing a transaction.
The Act does, however, bring about a change to the merger control thresholds, which is aimed at capturing so-called “killer acquisitions” ie acquisitions in which small, innovative, start-ups are acquired, often for a high value. The CMA (like many other competition authorities) has been concerned that these deals have not been caught by the UK merger control rules as they stand, because the target often generates little or no turnover or has little in terms of existing market shares. This “enforcement gap” has been a particular concern for deals in the tech sector; an acquisition of a highly innovative target removes that innovation from the market, thereby adversely impacting on future competition.
The Act seeks to address this by introducing a new threshold, enabling the CMA to review acquisitions where:
- at least one merging party has an existing share of supply of 33% in the UK and UK turnover of at least £350 million; and
- the target has a UK nexus.
The test operates in such a way that the buyer alone can meet the threshold, without there being any increment at all to its market share. Also, the concept of a “UK nexus” is potentially extremely low and the 33% share of supply threshold may be broad. The CMA has demonstrated a wide discretion when applying the existing “share of supply” test. For example, when Facebook (now Meta) acquired Giphy in 2022, the CMA found that the share of supply test was met in relation to two frames of reference:
- the supply of apps and/or websites that allow UK users to search for GIFs (in which the parties were found to have a combined share of 50-60%); and
- the supply of searchable libraries of animated (GIF and non-GIF) stickers to users in the UK (in which the parties were found to have a combined market share of 80-90%).
The parties had argued that these overlaps were “artificial” and “unreasonably stretched” and did not correspond to the parties’ commercial activities. This, however, was rejected by the CMA. The CMA found that a relevant overlap did exist and, moreover, the fact that an overlap in goods / services may not align with a classification used by industry, or the economic markets that the CMA defines for its substantive assessment, does not make the description of goods / services unreasonable or inappropriate for use as part of the share of supply test.
The changes bring about some welcome clarity in other respects, which may be helpful for smaller deals in the tech sector:
- There is an uplift in the turnover threshold, from £70 million to £100 million to take account of inflation.
- There is a new “safe harbour” for small deals. Where each party has a UK turnover of less than £10 million, the deal will be exempt from the merger control regime, even if the “share of supply” test is met.
The Act will also bring about changes to the merger control processes aimed at making them more efficient, including a fast-track reference to an in-depth phase 2 enquiry upon request from the merging parties and the ability to extend the phase 2 timetable by consent.
Changes to CMA investigations and powers of enforcement
The Act will see an expansion of the territorial scope of the UK’s competition rules on anti-competitive agreements. These rules will apply to agreements implemented outside the UK which have an effect within the UK. This change will bring the UK in line with the rules of other important jurisdictions, such as the European Union. However, there will be no change to the territorial scope of the rules prohibiting the abuse of a dominant position (ie to fall within the scope of the prohibition, businesses must have a dominant position in the UK).
The Act will also introduce:
- enhanced investigative powers for the CMA, including powers to issue information notices and compel companies domiciled outside the UK to produce documents held outside of the UK where the entity is party to a merger, subject to a competition investigation, or has a UK connection; and
- enhanced penalties for procedural infringements, with fines for companies moving from a fixed cap of £30,000 to a cap of 1% of global turnover,whilst daily penalties are increased to 5% of global daily turnover. This change will also bring the CMA’s powers in line with the powers of other competition authorities, such as the European Commission.
This raises the stakes significantly in terms of compliance with the CMA’s processes and procedures, such as responding to a formal request for information during a merger inquiry, or during an investigation; the risk of non-compliance now carries a potentially eye watering penalty.
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