The Digital Markets, Competition and Consumers Bill – expanding the scope of the CMA’s powers

The Digital Markets, Competition and Consumers Bill (the DMCCB) has now been passed and will enter into force later this year.

Aside from the DMCCB’s creation of a Digital Markets regime, the DMCCB also introduces wide-ranging changes to existing UK competition and consumer laws, the significance of which should not be underestimated. We set out below our pick of the key amendments of which businesses should be aware.

Competition law amendments

Updates to UK competition law are included in Part 2 of the DMCCB and are designed to strengthen the CMA’s existing enforcement powers and expand its jurisdictional reach.

New merger control thresholds

Under the Enterprise Act 2002, the CMA currently has jurisdiction to review a merger where: (i) the target has UK turnover exceeding £70m or more in the last financial year; or (ii) the parties between them have at least a 25% combined share of the supply (or purchase) of a particular good or service in the UK (or a substantial part of the UK) and the merger would increase that share.

The DMCCB will introduce the following changes1.

  1. Target turnover increase: for the target turnover test, the threshold will be increased to £100m to account for inflation. The share of supply test will remain at 25%.
  2. Additional "acquirer focused" threshold: the CMA will also have jurisdiction to intervene in mergers where: (i) one party (either the target or the buyer2) has a share of supply/purchase of goods or services of at least 33% and UK turnover of over £350m; and (ii) the other party has at least some activities in the UK.
  3. Safe harbour: a de minimis threshold will be introduced to exempt small mergers from making a filing where the turnover of each party falls below £10m in the last financial year.3

The second of these changes expands the CMA’s jurisdictional reach, and therefore strengthens the recent concerted attempts by the CMA to assert itself as a powerful merger enforcement authority post-Brexit. This new ‘acquirer threshold’ would capture mergers where the parties have no horizontal overlap and where the target has little to no UK turnover. In particular, this threshold appears to be aimed at capturing the rise of so-called ‘killer acquisitions’ (where a buyer with an entrenched market position acquires a relatively small nascent target with the effect of eliminating future competition from it). The CMA enjoys significant discretion in calculating shares of supply, so businesses meeting the £350m turnover threshold should exercise due caution before concluding that an acquisition is not reviewable in the UK, even if there is currently no overlap between its activities and those of the target. Where necessary they should also ensure that regulatory review periods are built into their transaction timetables.

At the same time, the DMCCB provides a notable win for smaller businesses. They should welcome the certainty that the new de minimis threshold will bring, as well as savings of time and unnecessary legal costs, especially in light of the fact that the CMA has seldom used its discretionary de minimis exemption in recent years.

Antitrust investigations

The DMCCB makes it clear that the CMA’s compulsory information gathering powers under section 26 of the Competition Act 1998 (CA 98) are extra-territorial in nature. Despite the recent BMW/VW case (in which the two car manufacturers challenged the CMA’s jurisdiction) being resolved by the Court of Appeal in the CMA’s favour, this amendment settles any lasting uncertainty. The DMCCB provides that the CMA’s powers under section 26 CA 98 are exercisable: (i) in respect of a company located outside the UK; and (ii) to require the production of a specified document or the provision of specified information that is held outside the UK (provided the company has a UK connection or is being investigated for a suspected breach of the CA 98). This amendment leaves no doubt as to the territorial scope of the CMA’s investigatory powers and ensures that they cannot be frustrated through the use of complicated offshore legal structures.

The DMCCB also removes the need for an anticompetitive agreement or concerted practice to be implemented (or intended to be implemented) in the UK in order for it to breach CA 98 – an “immediate, substantial and foreseeable effect on trade in the United Kingdom]” being sufficient to engage UK competition law. This brings UK law in line with EU law insofar as its extraterritorial application is concerned, allowing the CMA to investigate overseas cartels that impact the UK market indirectly, for example where cartelised goods destined for the UK market are first sold to overseas distributors or OEMs.

Market investigations

The CMA will also gain additional flexibility to make a market investigation reference (MIR)4 after conducting a market study. The DMCCB will allow the CMA to make a MIR despite it having previously decided not to do so, provided either: (i) two years or more have passed; or (ii) there has been a material change of circumstances, since the publication of the market study report. These changes were introduced in part following Apple’s challenge of the CMA’s decision to commence a market investigation into mobile browsers and cloud gaming in November 2022. This came after the publication of its final report on the outcome of its market study into mobile ecosystems. Apple claimed that the CMA could not launch a market investigation as it had done so out of the time prescribed in the market study (i.e., 6 months). The CMA had originally decided not to make a MIR as it intended to address the sector once it acquired its digital markets regulatory powers under the DMCCB, the inception date for which was subsequently delayed. The Competition Appeal Tribunal (CAT) upheld Apple’s challenge, but the Court of Appeal then overturned the CAT’s ruling, holding that the CMA had lawfully exercised its powers to initiate a MIR using its standalone powers. Such powers are not subject to a time limit. The DMCCB therefore provides added flexibility to the CMA to make a MIR and ensures it cannot again have its hands tied by an initial decision not to do so.

Separately, the DMCCB will allow the CMA to impose fixed penalties of up to 1% of global turnover and/or daily penalties of up to 5% of a business’s global daily turnover for a breach of a market investigation order (MIO).5 MIOs are a form of remedy imposed by the CMA when conducting market investigations. Currently, the CMA cannot impose direct penalties in these circumstances. Its only available redress is to bring civil proceedings to enforce compliance. The new penalties are aimed at filling this gap and deterring businesses from non-compliance. At the time of writing, it remains unclear whether these changes will apply retrospectively and therefore allow the CMA to impose penalties for breaches of legacy MIOs.

The DMCCB will also increase the penalties for failing to respond to an RFI during an investigation, from a cap of £30,000 for fixed and £15,000 for daily penalties, to the same turnover-based limits that will apply to an MIO breach. Penalties for a breach of commitments during a CA 98 investigation or a breach of undertakings during a merger review will be even higher, with the CMA obtaining the power to impose fixed penalties of up to 5% of global turnover and/or daily penalties of up to 5% of the company’s global daily turnover.

The threat of higher, turnover based sanctions means businesses subject to market investigations should ensure that they are equipped to comply and continue complying with any CMA MIOs/RFIs/commitments/undertakings.

Mergers involving newspaper enterprises and foreign powers6

Sparked by the now abandoned takeover of the Telegraph newspaper group by RedBird IMI (an organisation backed by Abu Dhabi),7 an amendment to the DMCCB was introduced during its third reading in the House of Lords to prevent foreign states from owning, influencing or controlling UK newspapers or periodical news magazines.[8] Acting alongside the pre-existing public interest intervention regime, such powers will allow the Secretary of State to issue a “foreign state intervention notice” to the CMA in the event that the Government has grounds to believe that a potential takeover of or merger with a UK newspaper or magazine has given or would give a foreign state (or a body connected to a foreign state) ownership, influence or control (a “foreign state newspaper merger situation”). Such a notice would require the CMA to investigate a relevant merger and prepare a report confirming whether a foreign state newspaper merger situation has arisen or will arise. If so, the Secretary of State may issue an order to block or unwind the merger. Like the 2021 National Security and Investment Act, such amendments demonstrate the Government’s increasing scepticism towards foreign ownership of UK assets, which is bleeding into CMA policy. Businesses dealing with mergers of this nature should factor significant disruption into deal timetables (and potentially prepare for abandonment of the transaction altogether).

Consumer law amendments

Parts 4 and 5 of the DMCCB contain the consumer law amendments. These are designed to enhance the UK’s consumer protection regime, by expanding the range of proscribed conduct and increasing the effectiveness of enforcement.

Administrative enforcement

The DMCCB will introduce an "administrative enforcement model", with a regime that bears many resemblances to that for the enforcement of competition law under the CA 98. In particular, the CMA will have the ability to investigate and make a final determination on suspected breaches of consumer law. Where it finds a breach has occurred it will be able to take direct enforcement action, with the power to impose significant fines of up to 10% of global turnover. Currently, the CMA can only accept undertakings from a company under investigation, or otherwise apply to the court for an enforcement order to bring a breach of consumer law to an end.

Expanded consumer law protections

The DMCCB updates existing consumer protections, largely to reflect a shift in consumer behaviour as consumers make online purchases more frequently. Notable areas of focus include: (i) combatting fake reviews by banning the commissioning or incentivising of a person to write or submit a fake review;[9] (ii) preventing ‘subscription traps’, i.e. subscription systems that attract customers to sign up with low or free trial periods but do not inform consumers at the end of the trial and/or automatically renew10; and (iii) banning “drip pricing”, where unavoidable fees are added to advertised prices during the sale process. The introduction of these additional unfair practices will ensure current legislation is equipped to protect today’s increasingly digital consumer.

Conclusion

Even businesses unaffected by the introduction of the DMCCB’s Digital Markets regime should be alive to the increased likelihood (and consequences) of action by a more interventionist CMA once the DMCCB enters into force.

The more general changes to the antitrust, mergers and market investigations regimes in the DMCCB are, in themselves, significant. However, for consumer-facing businesses, the new consumer protection regime may well be of greater consequence. In its 2024/2025 Annual Report, the CMA noted that it intends to “place consumer protection law on a par with competition law with the new administrative enforcement model”.11 Businesses should therefore expect to see a significant increase in the CMA’s enforcement of consumer law, and would be well-advised to re-assess their regulatory risk strategy – with competition law, consumer protection and (where appropriate) digital markets regulation considered holistically.

It will be interesting to observe how the CMA wields its new powers once the DMCCB comes into force, which is expected to occur in Autumn 2024. The CMA has been pushing for some of these powers for over five years, and current CEO Sarah Cardell described the DMCCB’s publication as a potential “watershed moment” for the CMA. With a breadth of new powers at its disposal, we should expect the CMA to use every tool in its ever-expanding box in pursuing its enforcement agenda going forward.

 

1 See Schedule 4 of the DMCCB as introduced.

2 In practice this limb of the threshold will only be applied to buyers, as any target with a turnover greater than £100m will be caught under the existing target turnover threshold.

3 Currently, transactions in UK markets with a total value of less than £30m may benefit from a de minimis exemption from Phase 2 merger review, at the CMA's discretion. 

4 A market investigation is an in-depth investigation into a particular sector, led by a group drawn from the CMA’s panel of members. Under the Enterprise Act 2002, the CMA has wide powers during such investigations, including imposing behavioural (changing the behaviour of firms) or structural remedies (can require companies to sell parts of their business to improve competition).

5 Market Investigation Orders are a form of remedy (either behavioural or structural) imposed following a market investigation to regulate market conduct in a number of sectors. They have previously been imposed in the groceries, retail banking, private motor insurance and funeral sectors.

6 See House of Lords Amendments, paragraph 42.

7 Rishi Sunak seeks to block foreign state takeover of the Telegraph.

8 Digital Markets, Competition and Consumers Bill - Hansard - UK Parliament

9 See House of Lords Amendments, paragraph 140.

10 See Chapter 2 of the DMCBB.

11 Competition and Markets Authority Annual Plan 2024 to 2025 (publishing.service.gov.uk).