Digital Overload: How the Digital Markets, Competition and Consumers Bill’s sweeping new powers threaten Britain’s economy

Foreword
The global economy is changing, and the United Kingdom stands to greatly benefit from the growing importance of the digital sector. Our country has always excelled at innovation, and there is great potential with digital technologies for the UK to be a world leader. But the Digital Markets, Consumer and Competition Bill (DMCC) risks putting up barriers to innovation and investment that could greatly restrict the growth of the UK’s
digital sector.

This important paper from the Institute of Economic Affairs and the International Center for Law & Economics analyses the Bill and discusses many of the issues I and other Parliamentarians have been highlighting to colleagues in Government. Whilst well intentioned, this Bill would grant substantial powers to the new Digital Markets Unit, risking an overreach in regulation without the necessary checks and balances.

One area of particular concern is the proposed Judicial Review mechanism for appeals, rather than one based on merit. By not allowing appellants to question the rights and wrongs of a decision affecting them, but only its legality, the DMU would be given free rein to make unchallengeable decisions that affect large swathes of the economy. Colleagues and I have heard from companies in the digital sector who have all expressed anxiety about the diminution of accountability that these plans entail.

Regulation of this growing sector is clearly necessary, but it mustn’t be done in a way that discourages investment. Sadly, the Bill in its current form would have that impact. Regulation must never be overdone, and must always involve accountability. This paper not only highlights the challenges that the Bill in its current form poses, but also sets out clear ways in which it could be improved. There is still much time for the Government to put forward a more sensible regulatory regime, thus avoiding an overstretching of powers that could damage a burgeoning part of our economy.

Rt Hon Sir Robert Buckland KBE KC MP
MP for South Swindon
Secretary of State for Justice (2019-2021)
Solicitor General for England and Wales (2014-2019)

 

Summary

• The Digital Markets, Competition and Consumers Bill (DMCC or ‘the Bill’) endows the UK’s Competition and Markets Authority (CMA) with extensive new powers to tackle alleged anticompetitive practices in digital markets.


• The CMA will be able to both prohibit or require a wide array of conduct at an incipient stage and impose far-reaching remedies with limited accountability or consideration of consumer benefits.


• The DMCC’s powers are defined broadly, meaning the CMA will have significant discretion to direct the development of digital markets; this is unlike the European Union’s Digital Markets Act, which, although still far reaching, contains more clearly defined thresholds, requirements and prohibitions.


• The CMA will be able to designate any large company satisfying certain criteria and undertaking ‘digital activity’ as having Strategic Market Status (SMS). That could bring hundreds of companies into the scope of the regime, empowering the CMA to exert substantial control over broad swaths of the economy over time.


• The DMCC empowers the CMA to take crucial decisions at every step of the process — e.g. in designating relevant activities, imposing conduct requirements and pro-competition interventions, investigating breaches, adjudicating wrongdoing and imposing significant fines — without full merits review.


• It will only be possible to challenge the CMA on process grounds under the judicial review standard, giving it great power.


• The DMCC ignores important tradeoffs inherent to the proposed prohibitions and obligations, such as the privacy and security implications of requiring ‘interoperability’ or the convenience to users of ‘self-preferencing’.


• The ‘final offer mechanism’ backstop enforcement power marks a fundamental incursion on freedom of contract for private businesses, which could find themselves required to accept unfavourable terms in relation to third parties. The CMA will be asked to arbitrate commercial conflicts between large digital firms and their competitors, leading to a significant risk of rent-seeking behaviour by third parties, regulatory capture and politicised decision-making.


• The regime will undermine investment in the UK digital sector, and associated innovation, because of the risk of cumbersome, unclear and ever-changing rules – along with a lack of accountability. New features could be delayed or not introduced for British users as firms seek to minimise the risk of falling afoul of the new regime and incurring hefty fines and stringent remedies. The UK’s position as a ‘science and technology superpower’ will thus be undermined.

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