After lengthy delays, the UK government introduced the Digital Markets, Competition and Consumers Bill into Parliament on 25 April 2023. If enacted, the bill will make significant changes to UK competition law, as well as to UK consumer protection law (which is covered in a separate briefing), and allow for enhanced regulatory oversight of major digital "gatekeepers".
The reforms to competition law can be categorised into five main areas, which are dealt with in turn below:
- Amendments to the merger control regime, including a new threshold for "killer acquisitions"
- Amendments to the Competition and Markets Authority‘s (CMA) powers in market studies and market investigations
- Amendments to the CMA’s powers in "Chapter I" anti-trust investigations
- The introduction of increased fines for procedural infringements in competition law matters
- New provisions on the extra-territorial application of UK competition law
Currently, the CMA may have jurisdiction to review a merger if:
- The UK turnover of the target exceeds £70m (Turnover Test), or
- The merger creates or enhances a 25% share of supply or purchases in the UK, or a substantial part of it (Share of Supply Test)
The bill proposes to amend these thresholds so that:
- The threshold for the Turnover Test will be increased to £100m, and
- The CMA will not have jurisdiction unless a party to the merger has UK turnover exceeding £10m, even if the Share of Supply Test is otherwise met
These new thresholds are likely to be welcomed by business. The turnover threshold of £70m hasn’t been increased for 20 years, and the exemption for mergers where no party has UK turnover exceeding £10m will provide greater legal certainty to parties to smaller transactions who might otherwise have to grapple with the Share of Supply Test.
The bill also proposes to introduce a new threshold for "killer acquisitions". These are transactions where a large company acquires control of an innovative company without significant current turnover, but which might act as a market disrupter in the future. There are concerns in these circumstances that the purpose of the acquisition might be to eliminate the target’s potential to compete with the purchaser in the future. This new threshold will have particular relevance in innovative sectors, including the life sciences sector. The threshold would give the CMA jurisdiction over mergers where one party to the merger has:
- A 33% or greater share of supply in the UK or a substantial part of it, and
- UK turnover exceeding £350m
The bill will also provide for:
- The statutory ability for parties to the merger to make a "fast-track reference request". If a request is accepted by the CMA, this would allow parties to skip the initial "Phase I" investigation and proceed straight to a "Phase II" investigation, thereby potentially reducing timescales, but would only be expected to be used where the parties acknowledge that the transaction might give rise to substantial competition concerns, and
- Conversely, the ability for the parties to a merger and the CMA to mutually agree an extension of the "Phase II" investigation period. This could have the effect of increasing timescales for mergers giving rise to substantial competition concerns.
Market studies and investigations
In addition to its powers to investigate anti-competitive agreements and abuse of a dominant position, and review mergers, the CMA has powers to conduct market studies into markets where structural competition issues may exist, which may be referred for a formal market investigation. The bill proposes the following procedural changes to the conduct of market studies and investigations:
- The six month time limit for referring a market to a market investigation following the initiation of a market study will be removed (but the 12 month time limit for completing a market study will be maintained).
- Undertakings may be accepted at any time during a market study or investigation.
- The CMA will be able to conduct trials to assess the likely effect of any remedies that might be accepted or imposed.
- The CMA will be under an obligation to monitor the effectiveness of remedies on an ongoing basis.
"Chapter I" investigations
The CMA already has wide powers in relation to investigating activity that may breach the "Chapter I" prohibition of the Competition Act 1998 on anti-competitive agreements. These powers will be bolstered by:
- A requirement for persons not to dispose of, conceal or amend documents where a "Chapter I" investigation has been initiated and those documents might be relevant to the investigation, even if the relevant documents are not held by a company under investigation.
- Where a dawn raid is conducted, CMA officials will have the power to require electronic documents to be produced, provided that they are not subject to privilege – the previous requirement that the official had to consider them related to any matter relevant to the investigation will be removed.
- The CMA can conduct a formal interview on anyone as part of a Chapter I investigation - the requirement that a person has a connection with an undertaking under investigation will be removed.
In addition, where private damages claims are brought against cartel participants, the award of exemplary damages will be possible (but not for collective proceedings). This should provide an additional incentive for companies not to participate in cartel conduct.
Increased procedural fines
The bill proposes that a number of civil procedural fines relating to competition law investigations are introduced or increased, including:
- Fixed fines of up to 1% of an undertaking’s turnover, or daily fines of up to 5% of an undertaking’s daily turnover for failing to comply with certain directions issued in a Chapter I or merger investigation, or market study or investigation (e.g. a requirement to produce documents). In addition, a new criminal offence related to the intentional destruction or alteration of documents required to be produced as part of a merger investigation will be introduced.
- Fixed fines of up to 5% of an undertaking’s turnover, or daily fines of up to 5% of an undertaking’s daily turnover for breach of a commitment or direction issued in a Chapter I investigation, or an undertaking or order issued in a merger investigation or market study or investigation.
Important clarifications regarding the extra-territorial application of UK competition are proposed to be codified in the bill, which might be seen as a response to the Competition Appeal Tribunal’s decision in BMW AG v CMA and R (on the application of VW AG) v CMA which we reported on. This decision cast doubt on the powers of the CMA to direct information requests in "Chapter I" investigations to companies based outside of the UK.
The bill proposes that:
- The text of the "Chapter I" prohibition on anti-competitive agreements will be amended to specifically include agreements likely to have an immediate, substantial and foreseeable effect on trade with the UK.
- The CMA will be able to request information from companies outside of the UK in "Chapter I" investigations provided that the company’s activities are being investigated by the CMA, or the company has a connection to the UK (e.g. it carries on business in the UK, or is incorporated under the law of a part of the UK).
The bill proposes a number of important amendments to UK competition law that companies should be aware of. Key takeaways are that:
- Increased merger control thresholds may lead to less mergers falling under the CMA’s jurisdiction. However, companies operating in innovative markets should be aware of the new thresholds for "killer acquisitions".
- The CMA will have even greater powers, particularly in relation to the production of electronic documents, during dawn raids.
- Exemplary damages may be awarded against cartel participants: the risks of cartel participation will be even greater.
- Increased procedural fines means that the importance of complying fully with competition law investigations is enhanced.
- Companies based outside the UK may infringe the UK’s prohibition on anti-competitive agreements in relation to conduct implemented outside the UK.