UK Becomes Fourth Jurisdiction to Introduce Dedicated Digital Platform Regulation, with More Jurisdictions Likely to Follow

On 23 May, the UK Parliament passed the Digital Markets, Competition and Consumers (DMCC) Bill.  The new DMCC Act will bring about some of the most significant reforms to competition and consumer protection law in the UK in decades. Among other major reforms, it introduces a dedicated regime that provides for specific conduct rules for large digital platforms. The UK therefore becomes the fourth jurisdiction—after the EU with its Digital Market Act (DMA), Germany with its s.19A rules, and Japan with its new smartphone bill (also passed on 23 May)—to introduce rules that target a handful of the largest digital firms.[1]

Other countries are also considering their own dedicated digital regimes, including India, Australia, Brazil, and Turkey.  (For an overview of the status of these regimes, see our Digital Markets Regulation Handbook.) They’ll be watching the UK experience closely, including to assess whether the UK’s purported “more flexible, bespoke, and targeted” regime will bring about better outcomes for consumers and businesses than the EU’s DMA, which the UK Government has described as “blunt” and applying “blanket rules on firms, which risks creating unnecessary burdens on business.”[2]  India and Australia in particular have announced proposals similar to the UK regime.

Recap on the DMCC

We’ve previously described the wide-ranging reforms the DMCC will bring about for competition and consumer protection law in the UK.[3] In a nutshell:

  • New digital markets regime, providing for specific conduct rules for firms with “strategic market status” (SMS), which will be enforced by the CMA’s Digital Markets Unit (DMU). The regime is similar to the EU’s DMA in that it imposes obligations on specific companies that satisfy the threshold as holding SMS, but is different because it allows the DMU considerable discretion to formulate specific conduct rules applicable to each SMS firm. It also explicitly allows the DMU to take account of consumer benefits when setting conduct rules and carrying out enforcement. 
  • Merger control changes,including generally-applicable increases to the turnover threshold, a new safe harbour for mergers where both parties have less than £10m UK turnover, and an alternative jurisdictional threshold to catch so-called ‘killer acquisitions’. For more detail, see our previous blog post here. The DMCC also introduces special reporting requirements for SMS firms, with the DMCC creating a five-day “waiting period” for qualifying transactions, preventing SMS firms from closing deals until this period expires or the CMA consents. 
  • Reforms to UK competition law, by strengthening the CMA’s investigation and enforcement toolkits. For example, the Act gives the CMA additional powers to impose penalties and gather evidence when investigating suspected competition law infringements.
  • Strengthening of the UK consumer protection regime, introducing a new model of direct consumer protection enforcement by the CMA. This will allow the CMA to enforce consumer law directly, use formal investigation powers, impose penalties of up to 10% of global turnover, and impose other forms of remedies (e.g., directions as to future conduct), without the need for court action. The DMCC also introduces new rules governing subscription contracts, fake reviews, drip pricing, and secondary ticketing.

What changed in the final version of the DMCC?

The amendments proposed by the House of Lords have been rejected, and the final DMCC Act essentially reflects the version of the Bill first amended by the Commons in November 2023. In summary:    

  • The large majority of DMU decisions will be subject only to judicial review appeal grounds. There had been back-and-forth between the Lords and Commons about the standard of appeal applicable to DMU decisions (full merits vs. more limited judicial review, e.g., illegality, irrationality, procedural unfairness).  The final position is that all reviews of DMU decisions are on judicial review grounds, except the appeals of penalty decisions, which are reviewable on merits. 
  • Necessity—not indispensability—standard to the countervailing benefits exemption. Unlike the EU’s DMA, the DMCC includes a countervailing benefits exemption: even if an SMS firm breaches a conduct requirement, it will not be sanctioned if the conduct creates benefits to consumers that outweigh the harm to competition.[4]  The Lords and Commons had disagreed whether the exemption should be subject to an indispensability standard, or a somewhat lower (but still high) requirement that the consumer benefits “could not be realised without the conduct.” The DMCC settles on the lower “could not be realised” standard.
  • Conduct requirements imposed by the CMA have to be proportionate. There’d also been a back-and-forth between the Commons and Lords as to whether conduct requirements should be “appropriate” or “proportionate”. The final position is that the DMU can impose conduct requirements only if they are proportionate to their objectives. As a result, the DMU will need to conduct a balancing proportionality assessment when formulating conduct requirements, which arguably would not have been needed under an “appropriateness” standard.

What happens next?

Shortly after the DMCC was passed, the CMA launched a consultation on new guidance for its digital regime running to over 200 pages, published just three hours before the Government’s general election (“Purdah”) rules kicked in providing that new consultations should not be launched while the election is underway. The guidance sets out the procedural framework for how the DMU will enforce its new regime, including the merger reporting requirements applicable to SMS firms. We’ll address the new guidance in a subsequent analysis.    

In October 2024, the DMCC Act will likely come into force and the DMU will assume its powers. We then expect the DMU to make its first SMS designations in early / mid 2025 (there is a statutory 9 month investigation period but the DMU may not need the full time). The CMA has already announced that it expects to start 3-4 SMS investigations in the first year of the new regime. We also expect the DMU to identify its first conduct requirements for those SMS firms around the same time as designation.

Accordingly, over the next 12-18 months, firms across the UK—not only those likely to be designated as SMS—will need to assess how the changes introduced by the DMCC affect them (across digital, merger control, consumer protection, and traditional antitrust). And international firms subject to potential designation as having SMS will need to assess how to comply with the UK rules (e.g., roll out DMA compliance solutions, or create tailored solutions only for the UK) given the patchwork of digital market regulation now emerging across the globe. 

[1]              Since 2021,South Korea has had in place some targeted legislation relating to app stores.  It is now considering broader reform to introduce digital platform regulation.

[2]              See Michelle Donelan MP, The Times, ‘Digital Markets, Competition and Consumers Bill: ensuring fairness and free markets in the digital age’, April 25, 2023.

[3]              Cleary Gottlieb’s response to the House of Lords consultation on the Bill is available here: https://committees.parliament.uk/writtenevidence/121999/pdf/

[4]              Specifically: For a SMS firm to benefit from a consumer benefit exemption, it must show that, despite its conduct falling within the relevant requirement or prohibition: (i) the conduct creates benefits to users of the relevant service; (ii) those benefits outweigh the harm to competition; (iii) the conduct is indispensable and proportionate to achieve those benefits; and (iv) effective competition is not eliminated or prevented.