The launch of this unit is in response to a concern, shared by competition authorities worldwide, that existing tools and rules are insufficient to tackle the complex legal issues stemming from the development of digital markets generally, and the concentration of power among a small number of tech firms specifically. The COVID-19 pandemic has accelerated this development—and the need to address it—as both consumers and business have become increasingly reliant on large online platforms.
In November 2020—in response to the recommendations included by the CMA’s Digital Market’s Taskforce (DMT) in its market study—the Government announced its plan to launch the DMU. The Government agreed with the CMA that it was necessary to establish an enforceable code of conduct to govern the behaviour of digital platforms with considerable market power, referred to as firms with “strategic market status.” It further agreed on the need to establish the DMU to introduce, maintain, and enforce that code of conduct.
Upon commission by the Government, the DMT provided 15 further recommendations on the design and implementation of the code of conduct, the approach to designating firms as having “strategic market status”—which would subject them to the new regime—and the role, functions, and powers of the DMU.
The DMT’s recommendations
The DMT’s recommended approach is to implement a flexible regime that, unlike traditional enforcement, can respond quickly to competition concerns in digital markets and aims to reach negotiated pragmatic outcomes while retaining power to fine egregious conduct.
The DMT recommends designating companies as having “strategic market status” (SMS) when an evidence-based assessment shows it “has substantial, entrenched market power in at least one digital activity, providing the firm with a strategic position.” The DMT further recommends the establishment of specific enforceable codes of conduct for each designated SMS company, regulating its relevant activities while focussing on the three core principles of fair trading, open choices and trust and transparency.
It currently anticipates that only a few digital firms are likely to have activities that qualify them for a SMS designation, and recommends consideration of various factors, including whether the firm’s annual UK revenue is in excess of £1 billion and whether the firm’s activities are in key sectors such as online marketplaces, app stores, social networks, web browsers, online search engines, operating systems and cloud computing services.
With respect to the DMU, the DMT recommends it is granted various powers, including powers to impose interim measures, an unlimited range of pro-competitive interventions, and penalties of up to 10% of a designated firm’s world-wide turnover for breach of the code or failure to comply with a prescribed remedy.
The DMU’s preliminary work
The DMU is currently set up in shadow, non-statutory form pending legislation putting it on a statutory footing. It therefore remains uncertain whether the DMT’s recommendations regarding the DMU will indeed be followed.
The recently published terms of reference for the non-statutory DMU indicate it will focus on:
- carrying out preparatory work to implement the statutory regime
- supporting and advising government on establishing the statutory regime
- evidence-gathering on digital markets
- engaging stakeholders across industry, academia, other regulators and government.
To kick off its work, the Secretary of State for Digital, Culture, Media and Sport has asked the DMU to look at the relationships between digital platforms on the one hand and content providers and digital advertisers on the other, and at how a code could govern such relationships.
In the meantime, the Government is considering the final form and function of the DMU and plans to consult on final proposals, along with other key features of the new regime, in the first half of this year. The aim is to put the DMU on statutory footing as soon as parliamentary time allows. Uncertainty about the DMU’s precise powers therefore remains. The hope is that the DMU will be granted the powers recommended by the DMT so that it can effectively and pragmatically regulate the increasing concentration of powers on digital platforms.
One thing is for sure: the DMU will be busy. Speaking to the Communications and Digital Committee in the House of Lords, a senior CMA official recently said there is already an “active pipeline” of cases involving digital companies being considered by the DMU, and that the unit is being primed to “hit the ground running” once the statutory regime is in place.