This article has been written by Ramapati Misra pursuing a Certificate Course in Advanced Criminal Litigation & Trial Advocacy at LawSikho and edited by Shashwat Kaushik.
It has been published by Rachit Garg.
Table of Contents
Introduction
In recent times, huge numbers of antitrust cases have been observed against giant tech companies, and various governments are tackling this problem by imposing hefty penalties. Digital markets are growing day by day, and a large number of people are employed in this sector; hence, governments have started realising the need for regulation to promote healthy competition in this field. The European Union recently enacted the Digital Market Act to deal with giant tech companies. The United Kingdom is also planning to regulate competition and healthy practices in the field of digital markets by creating a separate unit by the Competition and Market Authority (CMA) on the lines of the EU’s Digital Market Act. The UK’s new pro-competitive regime is targeting consumer harm and anti-competitive behaviour that risk becoming endemic when too much power rests in the hands of a few companies.
Structure of UK’s new pro-competition regime
Digital Market Unit (DMU)
The Digital Market Unit will have the responsibility of implementing and enforcing this new pro-competition regime. DMU is already been partially established by the government as a channel to consult with the stakeholders of the digital markets in order to reflect their concerns in the upcoming law. The core objective of the DMU is to benefit consumers by promoting competition and healthy practices within and outside the UK. DMU has been given the additional duty to consult with other regulators to ensure that this regime coordinates effectively with them. During the process of consultation, it was a matter of concern as to who would bear the expenses incurred by the DMU. A balanced approach has been adopted by the government of the UK in this matter, it has been decided that it will be funded by the exchequer as well as penalties collected by DMU itself. The DMU will be a subsidiary of the CMA and work within the CMA. The DMU has been a long time coming and has been operating in shadow form since 2021, undertaking preparatory work, gathering evidence and engaging with stakeholders across industry and government.
Strategic Market Status (SMS)
DMU will have this duty to identify firms with substantial and entrenched market power in at least one activity, providing the firm with a strategic position known as Strategic Market Status. The government of the UK is also planning to introduce a minimum revenue threshold to keep smaller firms out of the ambit of the SMS, though a clear figure for such a threshold has not been provided yet. DMU will have discretionary power to prioritise designation assessments. The process of designation assessment will be a time-bound process that will ensure the effective functioning of DMU. The DMU will be given 9 months to complete the assessment, which would be expandable up to 3 months in case of special circumstances. A range of qualitative and quantitative evidence will be used in the designation process by the DMU.
Conduct requirements
Some binding terms will be drafted by DMU. These binding terms or conduct requirements have a binding effect on the Strategic Market Status firms. The government of the UK, by implementing such a term, will be able to control the behaviour of such firms. The government has ensured that they will keep consumers’ interests in mind while drafting such terms. These conduct requirements will ensure healthy competition in the digital market by keeping a check on the dominance of Strategic Market Status firms. The Digital Market Unit has been given ample power in this regard. It can be said that it is a flexible and tailored approach. The main objective of these conduct requirements would be to:
- Prevent giant tech firms from applying discriminatory terms and conditions or policies to certain users compared to equivalent transactions.
- Prevent these giant firms from bundling or tying the provision of other products or services together by making access to them conditional on the use of the relevant designated activity.
- Not to leverage other parts of the business to further entrench power in a designated activity.
- To provide clear, relevant, accurate, and accessible information to users.
Pro-competitive interventions (PCIs)
The power of pro-competitive intervention is given to Digital Market Units. The Digital Market Unit will be able to intervene immediately in case they observe any unhealthy competition or practises by these strategic market firms by taking a flexible approach. In the event that the strategic market firms are deviating from the designated activities, such firms could be stopped immediately by using pro-competitive interventions. A time period of nine months will be stipulated by the government for the pro-competitive intervention investigation, which would be extended up to three months in exceptional cases. It has been proposed that the DMU will have the power to impose fines up to a maximum of 10% of global turnover for the most serious offences, with further daily penalties of up to 5% of daily worldwide turnover for continued breaches. It has also been proposed that fines of up to 1% of global turnover may be imposed for the offences related to information, which are supported by further daily penalties of 5% of worldwide turnover for continued non-compliance. These are wide remedial powers, which include structural separation. The consultation document shows that PCI will in many ways mimic the current CMA’s market investigation regime. Whenever the DMU applies PCI, it will have to prove an adverse effect on competition posed by the firm.
Regulatory framework
The Digital Market Unit will have the power to impose heavy penalties on the firms in cases of non-compliance. In the event that any firm gives false information, the DMU will impose various criminal and civil penalties on such firms. To ensure accountability, the government is planning to give more power to the DMU; such powers will include civil penalties on named senior managers and director disqualification in cases of non-compliance or breach. The decisions of DMU will be open to judicial review to avoid prejudice against such firms.
Strategic Market Status merger reform
The government has stated in the consultation process that they recognise the importance of ensuring that the changes to mergers are proportionate, targeted and take account of the needs of the digital market ecosystem by not blocking or discouraging beneficial mergers. The provisions will be made in the legislation that the SMS firms will be required to report certain transactions to the CMA prior to the compilation of the transaction. These transactions could be the following:
- When a SMS firm acquires more than 15% equity or voting shares after the transaction;
- When the value of the SMS firm’s holdings will be more than GBP25m; or
- When the transaction meets a UK nexus test, however, the government has not defined this test so far.
The clearest picture of such transitions will come when the legislation is passed by the UK legislature.
Criticism
- Many stakeholders and experts in the industry are of the view that we do not need a new set up such as Digital Market Unit; instead, they are emphasising the modernization and upgrade of the CMA. The rationale behind this given by such stakeholders and industry experts is that almost all sectors and almost all kinds of markets are going digital, and in such a situation, they do not feel the need to create a new setup when there is already something present to take care of such issues.
- Various industry experts have expressed their concern that such a dedicated setup is merely a trend. James Marshall, Partner at Washington, DC-based multinational law firm Covington and Burling LLP, indicated a trend that reminds him of the global crisis of 2008, when investment banks and big market participants were the focus of antitrust enforcement globally.
- The consultation documents indicate that a range of qualitative and quantitative evidence will be used in the designation process, but it is a matter of concern that excessive focus on quantitative thresholds for specific indicators such as market share, revenue or user base could lead to unsatisfactory results and act as a hindrance to the business.
- The government is planning to give broad discretionary power to the DMU, which may enable it to act in an arbitrary manner; i.e., the DMU will be able to implement PCIs anywhere within an SMS firm.
Advantages
- These markets are different from other kinds of markets, and normal competition rules of CMA are not adequate to tackle the problem arising from digital markets. Hence, a new, dedicated regime is required to tackle such a different market.
- It is necessary to foster more competitive digital markets, make changes to the competition framework that will include streamlined decision making and updating mergers, and protect consumers in fast moving markets by tackling subscription traps and fake reviews online.
- It will serve the aim of keeping users safe from illegal goods, content, or services and it will also help in protecting their fundamental rights.
- DMU will set out each firm’s conduct requirements; hence, we can say it will be a more customised kind of approach.
Conclusion
These digital markets play a huge role in the economic activities of a country. In the UK itself, employment in this sector has grown by 40% in the last two years, accounting for 9% of the national workforce. Digital markets are mainly controlled by a few giant tech companies commonly known as the big five or GAMAM (GAMMA defines: Google, Amazon, Meta, Apple, and Microsoft). A setup to protect digital markets from the influence of such companies is now inevitable. There could be various ways to reach the final destination; it might be an old, traditional way or a newly constructed highway. Similarly, it is necessary to control the digital market; it might be done by using an existing setup or by making a completely new setup.
India should keep an eye on such digital market regulation reforms in the EU and the UK because India has a large and growing digital market. Not today, but tomorrow, India will be facing the same problem, and it has to implement some laws along the same lines.
References
- www.diginomoca.com
- www.lexology.com
- www.cliffordchance.com
- www.eprint.gla.ac.uk
- www.allenovery.com
- https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.html
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