On 1 July 2020, the UK Competition and Markets Authority (CMA) formally launched the Digital Markets Taskforce (DMT), first announced in the March 2020 budget. The DMT is tasked with advising the UK government on whether a new approach is needed to ensure effective competition in digital markets, particularly those where platforms play a "gatekeeper" position. The DMT has been charged with building on the work of the Furman review, which first recommended such an approach.
In essence, the issue is whether the UK should adopt proactive regulation of digital platforms which have "Strategic Market Status" (SMS). Of course, there is already a prohibition under UK and EU competition law on a dominant business in any market sector from exploiting that market power or acting to exclude others in order to protect it. However, reactive enforcement can be legally complex, hard fought and, in some cases, moves too slowly to prevent harm to market structure.
The CMA is concerned that competition in markets structured around digital platforms sometimes "tips " towards the most popular platform in a way which is difficult to reverse or counter – sometimes called "winner takes all" or "winner takes most". The risk of tipping underpinned the conclusion of the Furman review (and similar work at EU level) that ex ante preventative controls would be more effective than seeking to correct harm which has already happened through traditional ex post competition law enforcement.
The Furman review recommended creating a "Digital Markets Unit" to administer the new regime. The DMT will create the blueprints for the new body and the regime. Its terms of reference set out three focus areas:
- what the scope of any new regulatory framework should be, including how SMS should be defined and evaluated, and which online activities should fall within its scope;
- what enforcement remedies should be available, and who they could be used against (for example, only those with SMS or more widely); and
- what the associated procedure should be for applying the new rules and remedies.
The DMT was originally due to report to the government in September 2020 but the Covid-19 pandemic disruption has pushed this back to the end of the year.
The CMA's Digital Advertising market study
Also on 1 July 2020, the CMA announced the outcome of its year-long market study into the digital advertising market. Its findings include a proposal that any code of conduct for digital platforms should include three overarching principles: fair trading, open choices, and trust and transparency. Various enforcement powers are also suggested. These proposals build on the recommendations in the Furman report and will be considered as part of the DMT's work.
DMT's call for information
The DMT's launch is accompanied by a call for information. It draws on the findings in the Furman review and on the proposals in the digital advertising market study final report, and requests views on the following issues to inform its advice to the government (the questions have been condensed):
- What criteria should be used to assess SMS, what evidence could be used and how should this concept relate to similar concepts such as "significant market power" in telecoms regulation?
- What should be the impact of SMS beyond required adherence to a code of conduct? Should the designation impact on the whole corporate group or just to activities in the core SMS market and any adjacent ones?
- Which current and future digital technology or markets should be included in the scope of these new rules?
- What aspects of the competitive impact of digital platforms need to be considered?
- Would a code of conduct for SMS businesses work? What objectives and principles should the code be built around?
Should there be enhanced merger control scrutiny for SMS businesses?
- What remedies would be most effective? Should they focus on data access and interoperability? How could remedies respect data protection and privacy rights?
- Should structural remedies (e.g. ordering business divestments) be available? If so, under what conditions?
- Should tools extend to markets where no business currently has SMS but there is a risk of the market "tipping" to create it?
- Are additional measures needed to support third party sellers or app developers on platforms, or to give consumers more power over their data?
- Would open/common standards or interoperability support greater competition in digital markets?
- What procedural rules and enforcement powers are needed?
Responses are requested by 31 July 2020 – a relatively short deadline.
Close co-operation with the ICO and Ofcom
The CMA leads the DMT, in co-operation with the Information Commissioner's Office (ICO) and Ofcom, the communications sector regulator. This reflects the government's policy priorities in relation to digital markets, primarily ensuring sustainable journalism in the digital age, protecting consumers from online harms and reviewing digital advertising markets. The involvement of the ICO recognises the importance of personal data in powering digital markets and the need to integrate privacy regulation with competition law enforcement. Ofcom's involvement reflects its role both in regulating some aspects of online content and in ensuring media plurality – particularly given the role of digital platforms in enabling additional access to news content. All three regulators have a role in protecting consumers.
Osborne Clarke comment
Although the amount of regulation on digital businesses is steadily increasing, the move to regulate some digital market players on an ex ante basis remains a radical one. Typically, codes of conduct and formal designations of businesses as having market power are seen in markets where competition has been introduced after a historic monopoly (the telecoms sector is the obvious example), not in relation to businesses which have won their market status through game-changing innovation and disruptive creativity.
The proposed new approach would be business-model-changing for some and create a significant new regulatory compliance burden, so we anticipate considerable debate along the way. If this new approach would impact on your business, we would certainly recommend responding to the CMA/DMT's call for information to make sure your business' interests and any concerns are taken into account.
If you would like to discuss any of these issues further, or would like support in responding to the CMA's call for information (deadline 31 July 2020), please do not hesitate to contact the authors or your usual Osborne Clarke contact.