UK Digital Markets Competition Regime now in force

As the new digital markets regime commences in the UK in January 2025, this article provides a recap of the digital markets powers established by the DMCCA, including the rationale for some of the main changes made to the legislation by Parliament.

The UK’s new digital markets regime, encapsulated in Part 1 of the Digital Markets, Competition and Consumers Act 2024 (“DMCCA”), will come into force on  1 January 2025.

Last year, in this article, we covered the powers set out in the draft legislation and the challenge of creating a “tailored” enforcement regime for digital markets.

This article has been updated to reflect the CMA’s final guidance published on 19 December 2024 and recent announcement on initial plans for the regime.

New and improved: Overview of the digital markets regime in the DMCCA

Four years after the CMA published its Digital Markets Strategy paper, and just over a year after it was introduced as a Bill in Parliament, the DMCCA became law in May 2024. It introduces a new framework for regulating digital markets that captures digital products and services such as social media platforms, mobile app stores, online browsers, and e-commerce platforms. The new regulatory powers are designed to boost competition by providing the CMA with the powers needed to effectively address the specific barriers present in digital ecosystems which affect effective competition and innovation.

Strategic Market Status

Under the new regime, powerful digital companies can be designated as having “strategic market status” (“SMS”) in relation to one or more digital activities. Companies will be designated as having strategic market status where they have substantial and entrenched market power and are in a position of strategic significance (“SMS firm(s)”).[1]

Conduct requirements

The CMA has the power to impose conduct requirements on SMS firms, which are rules as to how an SMS firm must conduct itself in relation to the designated digital activity. Conduct requirements can only be imposed where it is proportionate to do so for the purposes of fair dealing, open choices, or trust and transparency. The draft bill initially stated conduct requirements could be imposed where it was “appropriate” to do so; the change to “proportionate” was made to provide clarity to tech companies that they would not be subjected to disproportionate regulatory burdens.

If an SMS firm breaches a conduct requirement, the CMA can issue an enforcement order, accept binding voluntary commitments, or use the final offer mechanism (“FOM”), a last resort enforcement tool which requires the firm to offer fair and reasonable payment terms to affected third parties.

Conduct requirements will not be imposed where an SMS firm can show that their conduct creates benefits that outweigh the harm to competition (“countervailing benefits”).[2] A requirement for SMS firms to show that their conduct was “indispensable” to achieving the countervailing benefits was removed from the final version of the DMCCA, although a new requirement was introduced requiring SMS firms to show that the countervailing benefits claimed, “could not be realised without the conduct.”[3] In practice, this requirement may turn out to be essentially the same as (or at least very close to) demonstrating indispensability.

Pro-competition interventions

In addition to imposing conduct requirements on SMS firms, the CMA also has powers to initiate pro-competition interventions (“PCIs”) under the DMCCA. PCIs are intended to remedy or mitigate any adverse effects on competition uncovered by the CMA  in relation to an SMS firm’s digital activities. The CMA can impose structural remedies (such as requiring an SMS firm to divest part of its business) and behavioural remedies (which, as with conduct requirements, allow the CMA to prohibit or positively require certain actions/conduct).

What’s next on the horizon?

In practice, the Digital Markets Unit (“DMU”) will lead the new digital markets regime. Having invited views on its draft guidance for the Digital Markets Competition Regime over the summer, on 5 November 2024, the CMA requested formal approval from the Secretary of State for Business and Trade to publish the guidance in its final form. The guidance was approved on 17 December 2024 and published two days later.[4]

On 7 January 2025, the CMA announced that it will launch 2 SMS investigations this month, and a third investigation is likely to begin towards the end of the first  6 months of the new regime. Decisions on SMS designations and PCIs must be made within 9 months of notification unless there are special circumstances justifying an extension.

In Europe, numerous firms including Meta, Apple, and ByteDance have appealed “gatekeeper” designation decisions by European Commission. We anticipate that there could be a similar trend of challenges to the CMA’s decisions to the Competition Appeal Tribunal. An appeal does not suspend the effect of a decision[5], so the CMA could proceed with investigating and imposing conduct requirements while an appeal is ongoing. However, appealing SMS firms would likely seek an interim order preventing the CMA from taking any further action.[6] If granted, appeals would, in all likelihood, lead to a delay in small businesses and consumers feeling any practical effect of the new regime for some time.

The CMA has not yet announced which digital activities will be scrutinised first, although a key factor in where the CMA can be expected to prioritise markets/sectors will be where the CMA already has  evidence of positions of substantial and entrenched market power from previous antitrust and market investigations.[7] Educated guesses can be made based on the CMA’s digital strategy over the past few years. For example, in August 2024, the CMA closed its Competition Act investigations into Google’s Play Store and Apple’s App Store in favour of investigating concerns under the DMCCA. Additionally, in November 2024, the provisional decision published in the mobile browsing and cloud gaming market investigation recommended that the CMA uses its DMCCA powers to address the report’s identified competition concerns.  It is noteworthy that the first SMS investigations may be launched just as some of the first tech-related competition claims are going to trial on a standalone basis in the Competition Appeal Tribunal on similar issues (for example, Apple and Google’s conduct in their app stores).

We expect digital firms will be closely following how the CMA conducts its SMS designation investigations, with a particular interest in level and scope of stakeholder engagement and whether the regime is adaptable and flexible enough to match the ever-changing nature of digital markets.

Footnotes
[1] Section 2(2) of the DMCCA.
[2] Section 29 of the DMCCA.
[3] Section 29(2)(c) of the DMCCA.
[4] Section 114 of the DMCCA.
[5] Section 103(3) of the DMCCA.
[6] This would be similar to interim orders sought in appeals of merger and market investigation decisions before the Competition Appeal Tribunal.
[7] Keynote speech to the BIICL Tech Antitrust Roundtable 2024