On 20 November 2023, the Digital Markets, Competition, and Consumers Bill (DMCC) cleared the report stage and an expedited third reading in the House of Commons, at which a series of significant amendments were passed. 

The latest Bill, published on 22 November 2023, reflects these amendments.  This post focuses on three categories of the amendments:

  • Enhanced accountability of the CMA’s Digital Markets Unit (DMU) and procedural rights under the proposed new regulatory regime for digital markets.
  • The role of consumer benefits under the proposed new digital regulatory regime.
  • The status of damages-based agreements in opt-out competition class action claims. 

Finally, it explains the next steps for the Bill, including the current expected timeline for its entry into force.  For an overview of the main reforms the Bill would introduce, see our blog post here. 

DMU Decision-Making Subject to Additional Checks and Balances

The Bill introduces a new “pro-competition regulatory regime for digital markets”, which enables the DMU to impose conduct requirements and more intrusive remedies, known as “pro-competitive interventions” (PCIs), on firms designated as having “strategic market status” (SMS) in respect of relevant digital activities. 

Concerns had been expressed during the Committee stage that the Bill did not include sufficient checks and balances on DMU decisions to ensure that firms’ procedural and defence rights were adequately protected.  This included suggestions that DMU decisions should be subject to “full-merits” appeals by the Competition Appeal Tribunal (CAT), rather than a lighter-touch “judicial review” approach; the incorporation of a right of access to file; and express rights to make written and oral representations to DMU decision-makers.[1] 

The latest draft Bill does not incorporate these suggestions, but does include some additional checks and balances.  In particular:

  • Merits-based appeals for DMU fining decisions.  The amended Bill provides that DMU penalty decisions are subject to a full-merits appeal to the CAT.  Other DMU decisions, such as findings of SMS status, decisions implementing conduct requirements or PCIs, or findings that a firm acted contrary to conduct requirements, remain subject to appeals on judicial review grounds. 
  • Reasons for imposing conduct requirements.  The amended Bill includes a duty for the DMU to provide the SMS firm with its reasons for imposing conduct requirements on an SMS firm, including (i)  the DMU considers it proportionate to impose the conduct requirement to achieve a specified objective; (ii) the benefits that the DMU considers would likely result from the conduct requirement; and (iii) which permitted type(s) of conduct requirements the DMU is imposing.
  • Delegation.  The amended Bill makes clear that the DMU cannot delegate to an individual staff or Board member decisions to make enforcement orders (other than interim enforcement orders), accept commitments, adopt the final offer mechanism, or impose a penalty.  The DMU may still delegate such decisions to a committee of the Board.
  • Secretary of State to approve DMU guidance.  Under the amended Bill, the DMU must obtain the Secretary of State’s approval before publishing any guidance (as well as consulting persons it deems appropriate on the draft guidance).  This amendment is welcome given the important role that DMU guidance will play in ensuring legal certainty for businesses subject to, and benefitting from, the new regime. 

Overall, these changes will improve the DMU’s accountability and are welcome.  It is, however, unclear whether they go far enough in light of the DMU’s significant discretion to write and enforce the rules under the new regime, breaches of which could lead to multi-million pound fines, fundamental changes to SMS firms’ business models, and private damages claims.

A Strengthened Role For Consumer Benefits Under the New Digital Regime

The UK government has advertised the UK regime as “more flexible, bespoke, and targeted” compared to the EU’s Digital Markets Act (DMA), which is “blunt”, “applies blanket rules on firms”, and “risks creating unnecessary burdens on business”.  While the DMA contains only limited exemptions to its list of “dos and don’ts”, subject to an overall proportionality assessment, the government stressed that under the UK regime SMS firms must be able to bring forward evidence that their conduct creates benefits to consumers and that the “DMU will not be able to take action against conduct that on balance benefits consumers.”

Accordingly, the original DMCC Bill included scope for the DMU to take greater account of consumer benefits compared with the DMA.  But the way that consumer benefits were considered did not seem to reflect the Government’s objectives (see Cleary Gottlieb’s comments to the Committee, paras. 21-27).  The amended Bill strengthens the role of consumer benefits in DMU decision-making in two main ways:

  • Overall proportionality assessment. The imposition of conduct requirements or PCIs is subject to an overall proportionality assessment: 
    • The DMU must only impose conduct requirements for the purposes of achieving one of three overarching goals (fair dealing, open choices, and trust and transparency) if it would be proportionate to do so having regard to what the conduct requirement is intended to achieve. 
    • The DMU may only impose a PCI where it would be proportionate to do so for the purposes of remedying, mitigating, or preventing an adverse effect on competition. 

These proportionality requirements will require the DMU to refrain from taking action that is more intrusive than necessary to resolve its concerns, and to take account of any consumer benefits that would be lost under its conduct requirements.

  • Consumer benefits considered when imposing conduct requirements.  Under the amended Bill, the DMU is expressly required to take likely consumer benefits into account when it develops conduct requirements.  Previously, the requirement to consider consumer benefits only applied when the DMU enforced potential breaches of existing conduct requirements. 
  • Consumer benefits exemption subject to lower standard of necessity.  The original Bill included a requirement for a SMS firm’s conduct to be “indispensable” to achieving consumer benefits before it can be exempted from breaching conduct requirements.  The amended Bill replaces this standard with a requirement that the relevant consumer benefits “could not be realised without the conduct”, which is arguably a lower (but still very high) standard.

It is unfortunate that the government has not amended the Bill to address other shortcomings in the treatment of consumer benefits.  For example, the CMA is not under an express duty to consider consumer benefits when deciding whether to impose a PCI; the Bill states only that it “may” take them into account. 

In addition, the Bill refers to consumer benefits in connection with conduct investigations, but customer benefits in relation to PCI investigations.  As a result, benefits to customers that are not end consumers risk being ignored when the DMU enforces conduct requirements, but may be taken into consideration in PCI investigations.  While possibly unintentional, this difference is significant because many firms active in digital markets operate in multi-sided markets that involve different sets of users in addition to end consumers, such as app developers, original equipment manufacturers, sellers on a marketplace, businesses listed on platforms, and advertisers. 

Damages-Based Agreements in Opt-Out Competition Class Actions

The Bill contains a new provision added in response to the Supreme Court’s judgment in R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28 (see Cleary Antitrust Watch post here). The Supreme Court held that litigation funding agreements under which the funder is entitled to recover a percentage of any damages awarded constitute damages-based agreements (DBAs) under the DBA Regulations 2013, and are therefore unenforceable unless certain prescriptive conditions are met.  Even if those conditions are met, however, a DBA is currently unenforceable in relation to “opt-out” collective proceedings before the CAT under section 47C(8) of the Competition Act 1998 (CA 1998).

The Bill amends the definition of DBAs in section 47C(9) of the CA 1998 to provide that DBAs are only unenforceable in opt-out collective proceedings if the agreement is with a provider of advocacy or litigation services.  Under the amended Bill, litigation funders that provide “claims management services” (but not “advocacy” or “litigation” services) would be able to fund opt-out collective proceedings via DBAs. 

However, such funders’ DBAs would still have to comply with the rigorous statutory conditions.  Given the view that previously existed among funders and claimants that a funder could legitimately recover a percentage of damages without this rendering the agreement a DBA, funders and claimants had not typically sought to ensure their funding agreements were drafted to comply with the DBA Regulations 2013.  As a result, these existing DBAs would remain unenforceable irrespective of the Bill’s proposed changes to allow certain types of DBA to be used in opt-out collective proceedings.  To avoid this outcome, funders will either need to comply with the prescriptive conditions for DBAs or similar changes would need to be made to the Courts and Legal Services Act 1990 (which declares DBAs unenforceable unless the prescriptive conditions are met). 

Timing of Passage

On 20 November 2023, the DMCC completed the Report stage and passed its third reading in the House of Commons.  All the amendments the government introduced were incorporated in the Bill.

The Bill received its first reading in the House of Lords on 22 November 2023.  Its second reading has been scheduled for 5 December 2023.  The overall timeline for passage of the Bill remains unclear.  It is currently expected to receive Royal Assent by Q2 2024 and become fully operational in Q4 2024. 

[1] See also Cleary Gottlieb’s comments to the Public Bill Committee