Regulatory Outlook

Competition | UK Regulatory Outlook January 2023

Published on 27th Jan 2023

Horizontal regulations | Subsidy control | EU market definition notice

Horizontal regulations

Horizontal agreements are agreements between competitors and, as such, potentially facilitate a range of horizontal coordination issues. Since Brexit, the UK has relied on retained EU legislation for two block exemptions that regulated horizontal agreements: the R&D Block Exemption and the Specialisation Block Exemption. Together these are referred to as the Horizontal Agreements Block Exemption Regulations (HBERs). The EU HBERs expired in the UK on 31 December 2022 and have been replaced by the Specialisation Agreements Block Exemption Order (SABEO) and the R&D Block Exemption Order (R&D BEO).

We are expecting detailed Competition and Markets Authority (CMA) guidance on the assessment of horizontal agreements to be published in the first half of 2023. The CMA has indicated that it will consult on this guidance before publication.

At a very late stage, the European Commission decided to extend the application of the current HBERs in the EU until 30 June 2023. The delay to the introduction of the new regulations and guidance is believed to reflect the considerable push-back the Commission has received from third parties to its controversial proposal in the R&D block exemption that undertakings must be able to demonstrate sufficient "competition in innovation". This requires the parties to evidence that there are at least three competing innovation efforts in the relevant market – which third parties maintain would be difficult to do in practice as a result of much innovation being done confidentially. While the Commission is rumoured to be considering amending or dropping this requirement, the UK has already adopted this requirement in its own R&D BEO.

Additionally, the Commission is proposing to introduce a chapter within its Horizontal Guidelines on how horizontal agreements that pursue sustainability objectives should be assessed for an exemption from competition law. The Dutch Authority for Consumers and Markets is leading the way on this front by encouraging consultation from businesses on agreements that pursue sustainability objectives. Taking this approach provides welcome clarity for businesses looking to collaborate on sustainability issues.

Businesses should be aware of the fact that the CMA has stated that there is benefit to be had in consistency between the EU and UK block exemptions. This indicates that there may be limited divergences from the EU's own horizontal guidance, although this position could change in the future. We have not seen a similar statement from the Commission.

Subsidy control

New rules governing all UK public sector funding and investment took full effect from 4 January 2023 in a major shift from the previous EU State aid regime.

On 11 November 2022, the Department for Business, Energy and Industrial Strategy (BEIS) issued statutory guidance on the Subsidy Control Act 2022 (SCA) which entered into force on 4 January 2023. In addition, the CMA has published guidance on the subsidy control functions of the Subsidy Advice Unit (SAU). Although this guidance is principally aimed at public authorities granting subsidies, they will nevertheless be relevant to businesses seeking to benefit from a subsidy as they may be required to pay back a subsidy that is received in breach of the rules.

The BEIS guidance on the SCA largely resembles the draft guidance published in July 2022, although it contains greater detail in a number of important areas, as well as containing more detailed examples: for example, on determining whether financial assistance is a subsidy and whether a subsidy achieves equity objectives. Many of the other changes are to simplify and streamline the guidance. A further point to note is the reorganisation of certain chapters within the guidance, for example the energy and environmental principles have been moved to earlier in the guidance.

Additionally the government published guidance on three "Streamlined Routes" in January 2023. The routes are for use in research, development and innovation, energy usage and local growth, and there is no need to assess subsidies given under a streamlined route against the subsidy control principles.

The SAU will review certain subsidies referred to it by public authorities and provide independent advice on them. This advice will provide guidance on whether the subsidy can be given, although the CMA guidance makes clear that the SAU will not provide binding decisions on whether a subsidy can be given, or directly assess whether it complies with the subsidy control requirements listed in the SCA. The subsidies it will consider are primarily those requiring mandatory referral under the SCA – subsidies and schemes of particular interest and some subsidies and schemes of interest, as defined by the SCA.

The introduction of the SCA marks a significant change from the previous assessment of subsidies under EU state aid law. As such, businesses that receive subsidies of any kind from public authorities should ensure that future subsidies meet the requirements of the SCA.

EU market definition notice

The European Commission is consulting on its draft revised Market Definition Notice, first published in November 2022. The consultation finished on 13 January 2023. This is likely to be of interest to companies involved in M&A deals with an EU dimension and will also have a wider impact on the application of market definition in the context of competition law within the EU. The Commission has stated that it intends to have a new Market Definition Notice in place in Q3 2023.

The proposed changes in the draft notice provide new or additional guidance on various key definition issues, including:

  • Explanations on the principles of market definition and the way market definition is used for the application of competition rules.
  • Greater emphasis on non-price elements of market definition such as innovation and quality of products and services.
  • Clarifications regarding the forward-looking application of market definition, especially in markets that are expected to undergo structural transitions, such as technological or regulatory changes.
  • New guidance in relation to market definition in digital markets, for example multi-sided markets and "digital eco-systems" (such as products built around a mobile operating system).
  • New principles on innovation-intensive markets, clarifying how markets should be assessed where companies compete on innovation, including through pipeline products.
  • More guidance on geographic market definition, including the conditions to define global markets, the approach to assessing imports as well as the Commission's approach to local markets defined by catchment areas (for example, in the retail sale of consumer goods).
  • Clarifications as regards to quantitative techniques used to define markets, such as the small but significant and non-transitory increase in price (SSNIP) test, that the Commission may use when defining a market.
  • Expanded guidance on possible sources of evidence and their probative value, based on the Commission's material experience and fact-based approach to market definition.

As such the draft notice is substantially longer and more detailed than the original 1997 Market Definition Notice. It also includes updated references to more recent Commission decisions and case law (with detailed footnotes).

Digital Markets Act

The EU Digital Markets Act (DMA) entered into force on 1 November 2022. The rules contained within the DMA will begin to apply on 2 May 2023. The rules in the DMA are targeted at digital players with large scale and reach within the EU – such firms will be designated as "gatekeepers"

The Commission's Implementation Taskforce is already engaging with gatekeepers and other interested third parties and many companies in this space can expect contact over the coming weeks and months.

The DMA is likely to have a significant impact on the functioning of competition in digital markets, as well as the effectiveness of public and private enforcement. The Commission hopes to achieve this impact by combining the ex-ante rules established by the DMA and traditional competition tools. This is a significant piece of legislation that all players active or planning to become active in digital markets should be aware of, and not just those to whom the rules apply. 

The DMA contains objective thresholds for assessing gatekeeper status – if firms meet the criteria below they will be presumed to be gatekeepers:

  • the firm has an annual turnover in the EU of €7.5 billion or more in each of the last three financial years or its average market capitalisation/market value is at least €75 billion in the last financial year. In addition, it must provide the same core platform service in at least three Member States;
  • the firm provides a core platform service that had an average of at least 45 million monthly active end-users and at least 10,000 yearly active business users established or located in the EU in the last financial year; and
  • each of these thresholds was satisfied in each of the previous three financial years.

The DMA provides that companies will need to notify the Commission if they meet these thresholds, within two months from when the thresholds are met.

Examples of the obligations which a gatekeeper may have to comply with include:

  • Allowing third parties to interoperate with the gatekeeper's own service in certain specific situations (for example, allowing alternative messaging services to interoperate with the gatekeeper's messaging service, if requested).
  • Allowing business users to access certain data that they generate in their use of the gatekeeper's platform.
  • Giving end users and third parties the ability to effectively port their data from the gatekeeper's platform.
  • Providing companies advertising on the gatekeeper's platform with the tools and information necessary for advertisers and publishers to carry out their own independent verification of their advertisements hosted by the gatekeeper.
  • Allowing end users to easily uninstall software applications on the gatekeeper's operating system.

For more information on the DMA please see our previous Insight.

UK Digital Markets Unit

The chancellor, Jeremy Hunt, confirmed in his autumn statement that the UK government will introduce new legislation to protect consumers from fake reviews and subscription protection and give the CMA substantial new powers to deal with anti-competitive practices in digital markets. We have discussed this development in a previous Insight. This is likely to include putting the Digital Markets Unit (DMU), which was launched in shadow form in April 2021, on a statutory footing. The government is intending to introduce the bill in the current parliamentary session, which will end in autumn 2023 and the DMU has indicated it hopes to have its new powers then.

The new digital markets legislation will allow the DMU to designate powerful digital firms with "strategic market status". This power is likely to be targeted at a small number of major digital platforms who enjoy "substantial and entrenched market power" in one or more designated activities. The DMU will impose precise conduct requirements on firms deemed to have strategic market status, these will be tailored to the particular harms associated with their specific activities.

Firms designated with strategic market status (under the UK DMU regime) or as gatekeepers (under the EU Digital Markets Act regime) will be required to undertake significant work to ensure compliance with the new rules. It will also be necessary for those firms that interact with powerful digital firms to understand the rules and what changes are coming.

Given the ever-increasing digitalisation of the economy, this legislation will be relevant to a number of businesses – and particularly those with substantial digital activities.

CMA's market investigation into mobile browsers and gaming

On 22 November 2022, the CMA launched a market investigation into cloud gaming and mobile browsers. The CMA notes that mobile phone and tablet providers control key gateways through which users can access content and services on their mobile devices. In particular, the CMA's investigation will focus on the restrictions imposed by Apple through the App Store.

The CMA comments that it will be able to tackle these issues most effectively through its new powers under the forthcoming Digital Markets, Competition and Consumer Act. This Act is likely to include putting the Digital Markets Unit on a statutory footing.

In the meantime, the CMA is committed to using its existing powers to deliver one-off interventions in digital markets where these are found to be necessary to improve outcomes for UK consumers and businesses. In particular, should the market investigation find problems with cloud gaming and mobile browsers, it may be able to tackle these via a one-off removal of restrictions.

Businesses which provide cloud gaming services, apps or mobile browsers should keep a close eye on developments as this investigation progresses, as the investigation will afford opportunities to lobby for substantial change in these markets. An issues statement was published on 13 December 2022 which invited affected parties to comment on the issues and possible remedies raised in the statement. The period for responding to this closed on 17 January 2023.

Information requests, site visits, consideration of responses to the issues statement and hearings will take place until June 2023. Additionally the CMA will publish working papers and/or disclose its thinking on certain issues to the relevant parties between March and July 2023. It is currently anticipated that a provisional decision will be published for consultation in September or October 2023 and, following response hearings, the CMA intends to publish the final report on the market investigation between February and April 2024. This is ahead of the statutory deadline of 21 May 2024.


* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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