UK DMCC Act: Long-Awaited Regime For Regulation Of Big Tech

Digital technologies are at the heart of the UK Government's vision for driving economic growth. The new DMCC Act empowers the UK's Digital Markets Unit (DMU), already set up within the CMA, to designate the biggest digital players with 'Strategic Market Status' (SMS) and, for those designated firms to: (1) set ex ante Conduct Requirements i.e. rules on what those firms must and must not do; (2) enforce Pro-Competition Interventions in order to remedy competition problems; and (3) require the reporting of M&A activity before deals are completed. This new regime is expected to enter into force in the Autumn (following the UK general election in July). The UK is the latest jurisdiction to introduce regulation specifically targeting the largest tech firms, with the EU's Digital Markets Act (DMA) being the other most high-profile example. While the two pieces of legislation do vary materially (see below), the basic aim remains the same – promoting the openness, transparency, 'fairness' and, in turn, competitiveness of digital markets.

Please see our 5 key take-aways below, which also pick-up how the DMCC Act most clearly deviates from the DMA.

1 Designation of Big Tech firms with 'Strategic Market Status'

The Digital Markets Unit (DMU), set up within the CMA, can designate a firm with 'Strategic Market Status' where four cumulative thresholds are met.

• First, the firm must be carrying out a 'digital activity' that is 'linked to the UK', the scope of which is wide. The DMU's assessment will focus on whether a firm has SMS in respect of particular activities, rather than all of its activities.
  
  
• Second, the firm must be found to have 'substantial and entrenched market power' in respect of that digital activity (based on a forward-looking assessment of a period of at least 5 years). In the CMA's view, a full market definition exercise is not required to determine that – an area which is likely to attract significant debate as the CMA finalises its guidance on how to enforce the regime (currently under consultation) and the first designations filter through.
  
  
• Third, the firm must have a 'position of strategic significance' in respect of the digital activity. The Act provides four alternative routes based on the size or scale of the digital activity, the number of other undertakings that use the firm's digital activity, the ability of the firm to extend its market power to other activities, and its ability to determine or substantially influence the way in which other undertakings conduct themselves.
  
  
• Fourth, certain turnover thresholds must be met, designed to capture only the largest players. Total group-wide turnover must exceed £25bn globally and £1bn in the UK (i.e. relating to UK users or UK customers).

The CMA expects to initiate 3 to 4 designation investigations during the first year of the regime, which has led to much debate around which of the seven currently designated 'gatekeepers' under the EU's DMA will not also be designated in the UK. It also remains to be seen how broadly those initial designation investigations will be scoped, but the CMA has suggested it will take a "targeted" approach, leveraging its previous review of digital markets under its competition powers – e.g. its market studies into digital advertising and mobile ecosystems specifically recommended CMA intervention under the new digital regime. It is therefore thought that the UK's first designations will likely involve Google, Apple and Meta, with Amazon potentially joining the group or coming later.

The scope of the UK's digital regime is therefore significantly more flexible than that of the EU, giving the CMA some scope to pick-and-choose which digital markets to intervene on and making a firm's designation subject to a nuanced qualitative review. This is in contrast to the EU DMA, which has set thresholds above which a firm is presumed a 'gatekeeper' (equivalent to SMS designation) and a prescriptive, set list of the relevant 'core platform services'

2 Designated firms will be subject to tailored ex ante Conduct Requirements

Conduct Requirements will govern the way in which an SMS firm must conduct itself in relation to the specified digital activity. Whereas the EU's regime provides prescriptive rules that will apply in a uniform way to all 'gatekeeper' firms (subject to possible further specification in some cases), the UK's DMU will set tailored rules for each firm, drawn from a wide list of options. Conduct Requirements are subject to public consultation, and the DMU is required to act proportionately.

Conduct Requirements must be for the purposes of one of the following objectives:

• Fair dealing – to ensure that (potential) users are treated fairly and able to interact, directly or indirectly, with the SMS firm on reasonable terms.
  
  
• Open choices – to ensure that (potential) users are able to choose freely and easily between the services/digital content provided by the SMS firm and services/digital content provided by other undertakings.
  
  
• Trust and transparency – to ensure that (potential) users have the information they need to be able to understand the services/digital content provided by the SMS firm (including the terms on which they are provided) and make properly informed decisions about whether and how they interact with the SMS firm.

3 Adverse effects on competition can be remedied by Pro-Competitive Interventions

With some similarities to the CMA's existing market investigation regime, the Act also provides a route for the DMU to remedy adverse effects on competition through pro-competition interventions (PCIs), subject to the need to act proportionality.

PCIs are subject to public consultation and can take the form of either:

• An order imposing requirements as to how an SMS firm must conduct itself in relation to a designated activity (including the option for an order on a 'trial basis').
  
  
• A recommendation as to steps to be taken by any body exercising public functions (e.g. the FCA or another concurrent regulator, but also more broadly).

4 SMS firms will be required to report merger activity

Deals must be reported to the DMU where:

• The SMS firm increases its percentage of shares or voting rights in a 'UK-connected body corporate' through certain thresholds (i.e. less than 15% to 15% or more, 25% or less to more than 25%, or 50% or less to more than 50%), and
  
  
• The total value of all consideration (covering the time of the merger or beforehand) provided by the SMS firm for those shares and voting rights is at least £25m.

Once a deal is reported, and the notification form accepted as 'sufficient', there is a standstill period of 5 working days before completion can take place. The UK position contrasts to the EU's DMA given that merger reporting obligations apply to all transactions meeting the thresholds whereas designated firms in the EU are only required to inform the European Commission of particular deals in the digital sector.

5 Enforcement and Appeals

The CMA will be able to issue fines of up to 10% of a firm's global turnover for non-compliance, e.g. with a PCI or an enforcement order relating to a breach of a Conduct Requirement.

The DMU has powers to investigate potential breaches of Conduct Requirements, although it is open to an SMS firm to claim a 'countervailing benefits exemption'. Broadly speaking, this exemption will apply where the benefits of the conduct for users (or potential users) outweigh the actual or likely detriment to competition (similar to the individual exemption regime for anti-competitive agreements, although the exemption does not, following much debate in Parliament, require the conduct to be strictly 'indispensable' to the benefit in order to qualify.

Fining decisions are subject to full appeals 'on the merits'. However, other decisions adopted under the Act (e.g. decisions over designation, the imposition of Conduct Requirements and findings of non-compliance) can be appealed on judicial review grounds only, i.e. the Competition Appeal Tribunal can consider whether the DMU has acted with illegality, irrationality or procedural impropriety. In contrast, appeals of EU gatekeeper designation decisions are subject to the EU law judicial review standard, which arguably allows for more flexible grounds than the 'judicial review' standard in the UK.

In line with the provisions brought in by the Act across the competition law landscape (i.e. not just limited to Big Tech), natural persons (e.g. company directors) will be able to be fined for failure to comply with investigative measures (e.g. failing to comply with an information request, supplying 'false and misleading' information and concealing, or falsifying or destroying evidence). Fixed penalties of up £30,000 are available, as well as additional daily penalties of up to £15,000.

6 What next?

• The CMA is consulting until 12 July 2024 on draft guidance for the DMCC Act regime. Once approved by the Secretary of State, the guidance will take effect from the date of its publication.
  
  
• Once the newly elected UK Government passes commencement regulations (likely in Autunm 2024), the CMA will soon after launch the first SMS investigations while consulting in parallel on Conduct Requirements.
  
  
• DMCC Act obligations are expected to become enforceable by Summer 2025 earliest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.