Competition | UK Regulatory Outlook October 2022
Published on 26th Oct 2022
EU: Digital Markets Act | Ofcom market study into cloud services | DRCF publishes response to call for inputs on algorithms papers
EU: Digital Markets Act
The Digital Markets Act (DMA) was published in the Official Journal of the EU on 12 October 2022. It will enter into force on 1 November 2022, 20 days after appearing in the Official Journal. Following this, the rules in the DMA will be applied after a six-month transitional period. The DMA will have a substantial impact on the EU regulation of the largest tech firms – specifically, those designated as "gatekeepers". It is anticipated that the designation of gatekeeper platforms will take place in mid-2023 and those platforms will need to be fully compliant with the DMA by around March 2024.
There is a rebuttable presumption that an undertaking will have gatekeeper status if certain objective criteria are met. These criteria are:
- having a substantial impact on the EU internal market;
- being an important gateway for business users to reach end users; and
- having an entrenched and durable market position.
Additionally the DMA allows the Commission to designate firms as gatekeepers on a case-by-case basis. It is likely that this will occur following a market investigation.
Firms designated as gatekeepers will be subject to a number of prohibitions and obligations on their conduct. These include:
- an obligation to allow third parties to interoperate with the gatekeeper's services;
- allowing those advertising on the gatekeeper's platform to access tools and information in relation to their adverts;
- allowing businesses to promote themselves and conclude contracts with customers outside the gatekeeper's platform;
- preventing gatekeepers from preferencing their own services or products in rankings (for example search results); and
- preventing a gatekeeper from using non-public data acquired through its platform.
This legislation could lead to a substantial change in digital markets in the EU, and businesses need to be aware of the risks and opportunities posed by it. This is especially true as failure to comply can result in large fines of up to 10% worldwide turnover (rising to 20% for repeated infringements). For more, see our Insight.
Ofcom market study into cloud services
On 22 September 2022, Ofcom announced the launching of a market study into cloud computing. The market study will cover the largest providers of cloud services – known as "hyperscalers" – which together generate around 81% of revenues in the UK public cloud infrastructure services market. The market study will assess the strength of competition in the cloud services market.
Ofcom's study will focus on assessing the level of competition in cloud services generally and consider any market features that might limit innovation and growth in the sector. If Ofcom does identify that the market is not working well it could take one of the following steps:
- make recommendations to government to change regulations or policy;
- take competition or consumer enforcement action;
- make a market investigation reference to the Competition and Markets Authority (CMA);
- accept undertakings in lieu of making a market investigation reference.
Ofcom has stated that it may issue a consultation on the initial findings of its cloud computing market study in approximately six months' time (around March 2023). Businesses active in the cloud computing sector, as well as those who use cloud computing services, should be aware of this possibility, as it may present an opportunity to influence the future development of the regulatory landscape in this sector. Cloud computing is already of critical importance to a number of businesses and is forecast to become increasingly widely used in coming years.
In addition, Ofcom has indicated that it will examine other digital services, as online and traditional networks converge.
Ofcom's cloud computing investigation is another example of the increasing regulatory scrutiny on digital markets. Businesses that have an interest in cloud computing should pay close attention, as there will be opportunities to feed into, and potentially influence, Ofcom's investigation.
DRCF publishes response to call for inputs on algorithms papers
On 23 September 2022, the Digital Regulation Cooperation Forum (DRCF) published its response to a call for inputs on its algorithmic processing and algorithmic auditing papers. We covered the scope of these papers in a previous Insight. A key factor highlighted in these papers was a potential risk to competition that algorithms may pose.
Respondents highlighted that online platforms could leverage their dominant market positions to their commercial advantage, which risks reducing innovation. This could arise through designing algorithms that favour the platform's own products and services or by reducing the transparency of information available to third parties who make use of the gatekeeper's platform. In this vein, several respondents have stated that they do not have full access to data on how their media products behave on these platforms.
The term "gatekeeper" is borrowed from the Digital Markets Act although, being EU legislation, it will not apply directly in the UK. There are other suggestions made in response to DRCF's call for inputs which indicate that smaller tech companies would like to see similar legislation in the UK – for example, the point that tech companies should "not be allowed to expand exponentially, without constraint or proper regulatory oversight".
Initial legislative proposals indicated that the UK's Digital Markets Unit will examine the leading platforms' use of algorithms – being those designated as having "Strategic Market Status", which is the UK's equivalent of "gatekeepers". It is anticipated that the Digital Markets Unit (DMU) will confer similar obligations and prohibitions on such platforms as are imposed by the DMA on platforms designated as "gatekeepers". However, there is currently no indication of when the DMU will be put on a statutory footing, with only a draft bill mentioned in the State Opening of Parliament earlier this year. Given the recent (and ongoing) political turmoil in the UK, it unclear whether there will be any political will to introduce the necessary legislation in the foreseeable future.
The German competition authority (Bundeskartellamt) has recently published a compendium of approaches to improving competition in digital markets as part of its G7 presidency. It identifies that a majority of competition authorities in G7 countries are undertaking work to better understand algorithms and their potential adverse effects on competition. These authorities are also dedicating a substantial amount of time and resources to digital markets more broadly, including mobile ecosystems, app stores and multi-sided markets. The effects of data-driven business models on competition are also being considered by these authorities.
The rapidly-changing digital regulatory landscape will present a number of challenges to firms in terms of their ongoing compliance. However, it will also offer opportunities for firms operating in the digital sector (and beyond).
CMA publishes final recommendations on retained Motor Vehicle Block Exemption
On 4 October 2022, the UK's Competition and Markets Authority (CMA) published its final recommendation on replacing the retained EU Motor Vehicle Block Exemption Regulation (MVBER). The current retained MVBER is due to expire on 31 May 2023.
The CMA's recommendation is that a Motor Vehicle Block Exemption Order (MVBEO), broadly similar to the retained MVBER, be introduced on 1 June 2023. This will ensure continuity of the current regime for businesses, while making some amendments to improve the block exemption and reflect market developments.
The CMA is recommending that the new MVBEO has a duration of only six years, which would mean it would expire on 1 June 2029. This is intended to enable the CMA to take account of rapid industry change – not least, the phase-out of new fossil fuel powered vehicles in 2030 and the development of connected and autonomous vehicles. This timing would also enable the CMA to take account of any developments flowing from its planned review in 2028 of the UK Vertical Agreements Block Exemption Order.