The Digital Markets, Competition and Consumer Act (DMCC or the Act), adopted on 24 May 2024, gives the Competition and Markets Authority (CMA) powers to regulate the conduct of major technology platforms.
The CMA can designate a company to “Strategic Market Status” (SMS) if:
- Sales exceed a certain threshold
- Their digital activities are linked to the UK.
- They have strong market power and strategically important positions.
The CMA has indicated it is likely to begin the process of designating three to four digital companies in the first year of the Act.
SMS Status companies are subject to additional rules of conduct to ensure fair dealing, open choice and transparency for end users. The obligations of conduct are intended to prevent self-preferential treatment and ensure interoperability, fair data access and equal treatment for business users.
There are many similarities to the European Union’s Digital Markets Act (DMA). However, the DMCC focuses on qualitatively identifying which companies have SMS status, allowing it to tailor its conduct obligations to the operations of platforms.
Companies should consider the following:
- Whether you may be subject to an SMS designation and whether there are any obligations to act that may result from the designation
- How new rules regulating major technology platforms will affect your business.
The Act will come into force once a new UK Government is formed. The UK general election will take place on 4 July 2024.
objective
The law aims to limit the concentration of market power in a few tech companies. The CMA has said it will focus its initial investigations on three or four companies. CMA chief executive Sarah Cardell has stressed that these investigations will be “evidence-based, targeted and proportionate.”
Designation criteria
If a company meets certain qualitative and quantitative criteria, it may be considered to have an SMS in place.
- it is”Digital Activities“, In other wordsprovides services via the internet or digital content (DMCC Articles 2(1) and 3).
- The activity is Related to the UKby the existence of users or businesses, or because it is likely to have an immediate, significant and foreseeable effect on trade in the UK (DMCC Articles 2(1)(a) and 4).
- it is Strong and established market power At least a five-year forecast (DMCC Articles 2(2)(a) and 5).
- it is Strategic importanceIt is determined by their relative size, the number of business users, their ability to use their digital activities to their advantage in other activities, and their ability to determine or significantly influence the actions of other entities (DMCC Articles 2(2)(b) and 6).
- the turn over It must be at least £1 billion in the UK and at least £25 billion worldwide (DMCC Articles 2(3) and 7).
These criteria differ significantly from the DMA, which provides for automatic designation based on user numbers and financial criteria. The Act's approach seeks to avoid false positives by focusing on qualitative considerations.
Behavioral Requirements
Companies with SMS status are required to fulfil certain conduct obligations to enable informed decision-making and fair commercial terms similar to those that apply to DMA designated gatekeepers (DMCC section 20.3), such as equal treatment, ensuring interoperability and ensuring effective user choice. The CMA will tailor these obligations to the case and position of each SMS company.
Companies will need to self-assess their business practices and identify the measures necessary to comply with the obligations imposed on them (Section 8.2 of the Overview).
The CMA will monitor compliance and provide some guidance on, in particular:
- Fair dealing (DMCC section 19.6): Consumers and business users must be treated fairly and offered reasonable terms.
- Open Choice (DMCC Section 19.7): Consumers and business users should be able to freely and easily choose among services and content from companies and their competitors.
- Trust and Transparency (DMCC Section 19.8): Businesses must provide consumers and business users with information that enables them to understand the service and its terms and conditions and make informed decisions.
Merger Report
Under the Act, all SMS companies and groups must report to the CMA any acquisitions where the transaction value is £25 million or more (DMCC section 57.2(b)) and involves the acquisition of 15% or more of a UK-related shareholding in the target company. Completion of the transaction is prohibited until five business days have elapsed since the filing of full notice (the standstill period).
Once it receives the report, the CMA must inform the SMS company whether the report provides sufficient information about the transaction (sections 62(1) and 63(1) of the DMCC). If the CMA decides to open a merger investigation during this period, it can issue interim enforcement orders to separate the acquirer and target companies until the investigation is completed.
In this respect, the Act contrasts with Article 14 of the DMA, which only requires acquisitions relating to certain types of digital businesses to be notified to the European Commission (EC) prior to completion.
The Act also introduces new merger control thresholds, allowing the CMA to review mergers where:
- Either party has at least a 33% share of the supply or purchase of goods or services in the UK;
- The party's turnover in the UK exceeds £350 million.
- The other party satisfies the UK nexus test.
For further information on the merger control aspects of the Act, please see our related client alert: UK amends merger control to expand CMA jurisdiction and provide greater procedural flexibility.
Pro-competitive interventions
In addition to conduct requirements, section 46 DMCC gives the CMA the power to investigate a platform's adverse effects on competition (AEC) and issue orders (or accept commitments) to remedy concerns (section 56 DMCC).
Non-compliance
The CMA has wide-ranging enforcement powers, including the power to impose fines of up to 10% of a company's worldwide turnover (DMCC sections 85(3) and 86). It can also enforce criminal offences against officers who are found to have failed to comply with investigation requirements or obstructed a CMA investigation, including by providing false or misleading information (DMCC section 87).
Appeal
Decisions adopted by the CMA under the Act, including SMS designations, the imposition of conduct requirements or determinations of non-compliance, are subject to appeal to the Competition Appeal Tribunal (CAT) (section 103 DMCC).
The standard of judicial review has been a highly debated topic throughout the legislative process. The Act that was passed establishes a standard of judicial review (whether a public authority acted reasonably, within its powers and in accordance with appropriate established procedures).
These grounds may be narrow but, as the Court of Appeal ruled earlier this year, the standard of review remains strict and the CAT must carry out a detailed examination of the evidence.
However, penalty decisions may be appealed on their substantive reasonableness, meaning that the CAT will consider the substantive reasonableness of the penalty (DMCC Overview section 6.12).
Next steps
It is not yet clear when the law will come into force – this will depend largely on the priorities of the new Government that takes office after the UK general election on 4 July 2024 – but businesses should prepare for the law to potentially come into force later this year.
The CMA is expected to designate companies in stages, with each designation process potentially taking up to nine months, with the first three or four companies potentially designated as early as the summer of 2025.
The CMA is consulting on draft guidance on new powers and merger reporting requirements for SMS-status companies, and is inviting comments by 12 July 2024.
lastly,The CMA’s Digital Markets Unit (DMU) Expressed intent Consult with the EC on certain provisions of the DMCC that Overlap Work with the DMA to identify how to most effectively enforce compliance, including compliance report filing requirements.
