On 13 March 2019 the "Digital Competition Expert Panel" to the UK government published the "Unlocking digital competition" report ("Furman Report"), which considers the appropriateness of the current UK competition law regime in dealing with the emerging digital economy and makes a number of proposals to the government. On 22 March 2019, the UK's Competition and Markets Authority ("CMA") published its response to those recommendations, in which it stated that it "strongly welcome[d] the panel’s report and is very supportive of [the] overall approach".
| what you need to know - practical takeaways |
- These two UK publications form part of a wider global debate on the role of competition law in digital markets (see for example our article on the EU "Competition Policy for the digital era" report commissioned by the European Commission).
- They recommend a number of important, and potentially controversial, changes to the traditional tools of analysis and enforcement to adapt to the challenges posed by the digital economy for consideration.
- It should be noted that the issues discussed are proposals and items for consideration at this stage. Whilst stakeholders should not expect any immediate changes to the law any time soon, they should keep a close eye on developments and any public consultations that the CMA might launch in case they wish to contribute.
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Set out below is a summary of the Furman Report's recommendations, together with a summary of the CMA response in each case.
The establishment of a pro-competition digital markets unit, tasked with securing competition, innovation, and beneficial outcomes for consumers and businesses. The report recommends that the new digital markets unit should:
- establish a digital platform code of conduct, based on a set of core principles. The code would apply to conduct by digital platforms that have been designated as having a strategic market status;
- pursue personal data mobility and systems with open standards where these will deliver greater competition and innovation;
- use data openness as a tool to promote competition;
- have new powers available to impose solutions and to monitor, investigate and penalise non-compliance;
- be able to impose measures where a company holds a strategic market status – with enduring market power over a strategic bottleneck market; and
- have the specialist skills, capabilities and funding needed to deliver its functions successfully.
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CMA's reponse:
- The CMA welcomes the Furman Report's recommendations in relation to the new digital markets unit and associated regulatory functions, including the code of conduct, personal data mobility, systems with open standards and data openness.
- In particular, the CMA notes that enforcement action is no longer enough to address the wider concerns in online markets, and that ex-ante regulation in some form is likely to be required, complementing existing approaches. It points to the Groceries Supply Code of Practice and Open Banking as examples.
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Merger assessment in digital markets needs "a reset". The CMA should take more frequent and firmer action to challenge mergers that could be detrimental to consumer welfare through reducing future levels of innovation and competition, supported by changes to legislation where necessary. In particular:
- the CMA should further prioritise scrutiny of mergers in digital markets and closely consider harm to innovation and impacts on potential competition in its case selection and in its assessment of such cases;
- digital companies that have been designated with a strategic market status should be required to make the CMA aware of all intended acquisitions;
- the CMA's Merger Assessment Guidelines should be updated to reflect the features and dynamics of modern digital markets, to improve effectiveness and address under-enforcement in the sector; and
- changes should be made to legislation to allow the CMA to use a 'balance of harms' approach which takes into account the scale as well as the likelihood of harm in merger cases involving potential competition and harm to innovation.
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CMA's response:
- The CMA agrees that there are challenges in considering mergers in digital markets. For example, that some traditional forms of substantive analysis, focused on price effects, may fail to capture other metrics of competition effectively, including quality and innovation (in particular where services are 'free').
- However, the CMA does not believe that addressing these challenges requires fundamental changes to the existing legislative regime at this stage – the current regime is "fit for purpose" (including in capturing a range of theories of harm in fast-moving and dynamic markets based on recent inquiries in this sector).
- But the CMA does agree that there is likely to be benefit in a review of the Merger Assessment Guidelines (following extensive consultation) to better reflect its current thinking and practice in relation to digital markets.
- There are practical challenges in applying a 'balance of harms' test in a transparent and robust way without unintended consequences, and this would require a significant shift in merger policy.
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The CMA’s enforcement tools against anti-competitive conduct should be updated and effectively used, to help them play their important role in protecting and promoting competition in the digital economy. In particular:
- the CMA should perform a retrospective evaluation of selected cases not brought and decisions not taken, where infringements were suspected or complaints received, to assess how markets have subsequently evolved and what impact this has had on consumer welfare;
- the CMA’s processes should be streamlined to facilitate greater and quicker use of interim measures to protect rivals against significant harm;
- the review applied by the Competition Appeal Tribunal to antitrust cases, including interim measures, should be changed to more limited standards and grounds;
- if appeal standards are changed the government should introduce more independent CMA decision-making structures for antitrust enforcement cases;
- the government should ensure those authorities responsible for enforcing competition and consumer law have sufficient and proportionate information gathering powers to enable them to carry out their functions in the digital economy; and
- the CMA should continue to prioritise consumer enforcement work in digital markets, and alert government to any areas where the law is insufficiently robust.
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CMA's response:
- The CMA broadly welcomes the Furman Report's recommendations in relation to the CMA’s enforcement tools, noting that many of them align with those set out in the CMA Chairman's letter to the Secretary of State for BEIS of 21 February 2019, in particular: streamlining the processes for it to use interim orders (for example, through the introduction of a new overriding statutory duty to protect the interests of consumers, and possible reforms to access to file requirements) changing the standard of appeal for antitrust cases and the time those cases take; prioritising consumer enforcement work in digital markets.
- Regarding changes to CMA decision-making structures, the CMA suggests that its existing decision-making process, with strong checks-and balances including the “Case Decision Group” system, has its merits and any change would needs careful consideration.
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The government, CMA and the Centre for Data Ethics and Innovation should continue to monitor how use of machine learning algorithms and artificial intelligence evolves to ensure it does not lead to anti-competitive activity or consumer detriment, in particular to vulnerable consumers.
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CMA's reponse:
- This is an area the CMA is already investing heavily in, but the CMA believes that it needs strengthened information gathering powers to enable it to deliver on this recommendation.
- It references in this regard the proposals made in its 21 February letter, in particular the proposed introduction of a new general power to require businesses to provide information to the CMA, outside the context of a "formal" investigation. The CMA considers that this would enable it better to monitor, for example, growth in the use and sophistication of algorithms.
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The CMA should conduct a market study into the digital advertising market encompassing the entire value chain, using its investigatory powers to examine whether competition is working effectively and whether consumer harms are arising.
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CMA's response:
- The CMA is aware of the concerns regarding this market and is actively considering further work in this area, contingent on the outcome of EU Exit negotiations and any resulting resource constraints.
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Government should engage internationally on the recommendations it chooses to adopt from this review, encouraging closer cross-border co-operation between competition authorities in sharing best practice and developing a common approach to issues across international digital markets. In particular:
- the government should promote the UK’s existing competition policy tools, including its market studies and investigation powers, as flexible tools that other countries may benefit from adopting;
- the UK should use its voice internationally to prevent patent rights being extended into parts of the digital economy where they are not currently available;
- the government should support closer co-operation between national competition authorities in the monitoring of potential anti-competitive practices arising from new technologies and in developing remedies to cross-border digital mergers; and
- to ensure platforms and businesses have a simple landscape in which to operate, government should encourage countries to consider using pro-competition tools in digital markets. As part of this work, government should work with industry to explore options for setting and managing common data standards.
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CMA's response:
- The CMA notes that the inherently global nature of digital markets means that it is increasingly important to consider issues at an international level and to have effective frameworks for cooperation in place to facilitate this. In this regard the CMA intends to play a leading role on the international stage.
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