The UK is proposing a radical overhaul of its approach to competition in digital markets that would see Big Tech companies subject to a fiercer set of rules. This is the culmination of years of interrogation of digital markets and charts the UK on an independent regulatory course post-Brexit.
Facebook experienced a taste of what might be to come when the Competitions and Markets Authority ruled its purchase of GIF search engine Giphy would harm the display advertising market. (Photo by Klevo/Shutterstock)
The new legislation, which opened for consultation this week, proposes designating companies “strategic market status” (SMS) if they have substantial, entrenched power that allows them to maintain a strategic position in a particular market.
Facebook was given a taste of what might be to come on Thursday, when the UK’s competition regulator, the Competitions and Markets Authority, ruled that the social network’s purchase of GIF search engine Giphy would harm the display advertising market because it might lead Facebook to withdraw Giphy from rival platforms. Facebook may now be forced to sell the company it purchased last year for a reported $400m.
UK digital markets legislation: what’s included?
Under the legislation, SMS firms would be legally bound to a code of conduct which could include increasing interoperability between their own products or services and those of other companies, halting ‘self-preferencing’ practices that push consumers to use a particular service or product by default, and not imposing “undue restrictions” on competitors.
A freshly created body, the Digital Markets Unit (DMU), will oversee the new regime. The DMU has operated informally since April 2021, and this new legislation would officially lay out its competencies and powers in stature.
The Big Tech cohort, that includes the likes of Google, Facebook and Amazon, will probably fall under the UK’s SMS classification. Singling out these “gatekeeper” companies for different treatment follows the same approach taken by EU competition legislation that is currently being debated. However, the UK’s approach is more focused, because it assesses a company’s behaviour within a certain market, whereas the EU’s Digital Markets Act proposes regulating the company as a whole based on size and revenue.
“While many of the principles at play here reflect existing competition law, the significant change is the introduction of up-front regulation that requires nominated companies to behave in a certain way – rather than regulators having to bring lengthy and expensive investigations when concerns arise,” Katherine Kirrage, digital competition and regulatory lawyer at Osborne Clarke, told Tech Monitor.
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What will happen to companies that violate the UK digital markets legislation?
If found violating the new code of conduct, the DMU will be able to require SMS companies to make changes to their business operations. In the case of serious breaches, the DMU would be able to levy fines of up to 10% of the business’s turnover for the most recent financial year. Repeated violations of the code would result in escalating penalties, such as investigations, or ultimately, the enforced break-up of Big Tech companies.
SMS businesses may also have to notify the CMA of any mergers they intend to undertake, and thresholds may be adjusted to enable the CMA to intervene at lower thresholds.
The proposals for digital markets will, if implemented as currently envisaged, have far-reaching consequences for technology companies.
Aniko Adam, Clifford Chance
“The UK government’s proposals for digital markets will, if implemented as currently envisaged, have far-reaching consequences for technology companies that have ‘strategic market status’,” says Aniko Adam, senior associate at Clifford Chance law firm. “The new rules would impact on their day-to-day operations as well as their future acquisitions, and include potentially draconian interventions if the Digital Markets Unit finds competition concerns.”
How does Big Tech view the plans?
Despite this, a source familiar with GAFAM (Google, Apple, Facebook, Amazon and Microsoft) companies’ thinking told Tech Monitor that the quintet are not particularly worried about the legislation and don’t consider the new code of conduct a threat to their underlying business models. The companies understand that increasing regulation is now a reality as similar moves are made around the world, and prefer the targeted approach of the UK compared to the more blanket strategy taken by similar EU legislation.
This isn’t the only proposed change to the UK’s regulatory landscape. Also currently open for consultation is the UK’s proposed reforms to competition and consumer policy. These proposals include allowing the CMA to tackle harms on a quicker timescale than it’s currently able to; to ‘rebalance’ the merger control regime by creating a ‘safe harbour’ for small mergers but putting more restrictions on “killer acquisitions” that pose a threat to competition. It could also equip the CMA with stronger powers to combat the wider issue of anti-competitive behaviour.
The Department for Business Energy and Industrial Strategy (BEIS) says this intervention is needed because the UK’s competition and consumer policies are failing to keep up with the challenges of the 21st century. It says that some markets are dominated by monopoly powers, some suffer from impaired competition and some are plagued by consistently low consumer satisfaction.
BEIS’s proposed changes to consumer law could affect digital companies by cracking down on how online shopping services use consumer data to exploit behavioural biases. To target this, BEIS proposes strengthening the law to better prevent the posting of fake online reviews and enforcing ‘fairness by design’ principles in online transactions. Digital subscriptions that auto-renew or are designed to make it difficult for the customer to exit are also targeted by the new legislation.
