Digital Markets Taskforce provides advice to Government on the forthcoming Digital Markets Unit

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14 December, 2020

Following the publication of the Competition and Markets Authority (CMA)'s final report into competition within digital markets which contained certain recommendations, as further detailed in our earlier article, the UK government called for the CMA to establish a Digital Markets Taskforce ('the Taskforce') to consider the practical implementation of the recommendations.

The CMA recognises the benefits of the growth of digital markets, such as increasing access to information and developing new business models. However, as the CMA's final report concluded, a small number of powerful firms are dominating the digital market and this leads to entrenched market power, which undermines effective competition.

Within their advice to the UK government, which was published on 8 December 2020, the Taskforce set out fifteen recommendations on how the new pro-competition regime should operate in practice. Some of the Taskforce's recommendations are detailed below:

Recommendation 1: There should be a Digital Markets Unit ('DMU') to further the interests of consumers, businesses and the economy by promoting competition. The DMU should be a centre of expertise and should proactively seek to foster compliance with regulatory requirements and taking necessary action to prevent harm from occurring.

Recommendation 2: The government should establish a pro-competition framework, to be overseen by the DMU, to address the harm arising from the power and position of firms with Strategic Market Status ('SMS'). When a firm has been designated as having SMS, it should be subject to:

  • An enforceable code of conduct which sets out clearly how the firm is expected to behave.
  • Pro-competitive interventions ('PCIs') to address the sources of market power and drive longer-term changes by promoting opportunities for greater competition and innovation.
  • SMS merger rules to ensure closer scrutiny of transactions involving SMS firms.

Recommendation 3: The DMU should be granted the power to designate a firm with SMS. For such designation to be made, the firm should have substantial, entrenched market power in at least one digital activity which provides the firm with a strategic position. A variety of factors could indicate a strategic position, such as where a firm has achieved a significant size or scale in an activity to the extent that certain products are regularly used by a very high proportion of the population.

The DMU's initial priorities should be firms with annual UK revenue in excess of £1 billion, and particularly those with annual global revenues over £25 billion, and also firms that are active in particular activities, including search engines, social network sites and online marketplaces.

Recommendation 4: An enforceable code of conduct should be established to prevent SMS firms from taking advantage of its power and position. Each code should comprise three elements:

  • Objectives. The proposed objectives are: fair trading, open choices, and trust and transparency;
  • Principles, to set out targeted standards as to how the SMS firm should behave to achieve the objectives; and
  • Guidance, to provide clarity to the SMS firm on how the principles should be interpreted, with specific examples of what conduct would be expected to breach the principles.

Recommendation 5: The DMU should be able to impose PCIs on an SMS firm to address the root cause of market power and to address harms. When any PCIs are implemented, they should be proportionate and an investigation should last only for a limited duration.

Recommendation 6: The DMU should be able to monitor compliance by SMS firms and have a range of tools available to understand issues and resolve concerns. In requiring an SMS firm to change its conduct, the objective would be to remedy the conduct, rather than punish the firm. Whilst not proposed that a breach should automatically result in a financial penalty, the potential for substantial penalties (up to a maximum of 10% of worldwide turnover) where a breach is committed intentionally or negligently, could act as a deterrent.

Recommendation 7: Overall, the DMU's decisions should be made in an open and transparent manner and the DMU should be held accountable for them. The DMU's decisions, which shall be viewed as independent judgments based on evidence and analysis, should allow for appropriate internal scrutiny and to be reviewable and appealable. The DMU's decisions should be timely and made within statutory deadlines.

Recommendation 8: The government should reform and strengthen competition and consumer protection laws and processes to ensure they are better suited for the current digital age and they properly tackle unlawful or illegal activity or content, such as fake online reviews and the sale of counterfeit goods. Key proposals include:

Imposing a more explicit duty on firms to take reasonable and proportionate steps to consider consumers' interests in the design of their products and services; and

Reforming the Consumer Protection from Unfair Trading Regulations 2008, for example by 'blacklisting' certain manipulative practices, such as subscription traps.

Recommendation 9: The government should ensure the DMU is able to work closely with other regulators with responsibility for digital markets, such as Ofcom, the ICO and the FCA, and to also share information with regulators in other jurisdictions to promote a coherent regulatory landscape. Nevertheless, the Taskforce recommends that the DMU should have primacy.

Overall

Whilst the above is just a snapshot of some of the recommendations, it should provide an indication of the role and powers which the Taskforce recommends the DMU to have in due course.

The Taskforce welcomes the government's support of the CMA's report and the commitment to the establishment of the DMU from April 2021, though does urge the government to move quickly in the legislative process to enable the benefits of the pro-competition regime to be realised promptly. We continue to await further developments about the DMU.

For more information contact John Pickervance in our Commercial department via email or phone on 0333 207 1134. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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