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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

On May 6, 2022, the UK government outlined its plans to boost competition and drive economic growth and innovation in a major regulatory reform aimed at big tech. The news comes in the wake of fears that a handful of tech giants disproportionately dominate the market, subjecting smaller businesses to predatory prices and ultimately harming consumers through higher prices as well as limited options and control over their online experiences.

The Problem

Digital technologies are positively transforming the way we access information, socialize, and conduct business. The emergence and exponential growth of the largest technology companies has created an imbalance of power, with businesses across the world increasingly relying on these powerful companies to ensure customers find their business online. A lack of regulatory intervention allowed such companies to monopolize the technology industry, making huge profits at the expenses of smaller businesses and consumers.

Criticisms of these technology companies include giving preference to their own apps and browsers, leveraging their market position to set unfair prices for online services they provide to businesses, and systematically increasing their market dominance by buying up the competition.

In response, the UK government launched a consultation in July 2021, seeking views on its proposal for a new pro-competition regime for digital markets, which will actively boost competition and innovation by tackling the harmful effects and sources of substantial and entrenched market power. The vast majority of respondents supported the proposals and, as a result, the UK government has now fleshed out its plans to implement the new regime.

The Proposed Solutions

The UK government has confirmed that it will introduce legislation to grant statutory powers to the UK Digital Markets Unit (DMU), which launched last year in non-statutory form within the UK Competition and Markets Authority (CMA), to allow it to enforce pro-competition rules and rebalance the relationship the big technology companies have with consumers and businesses. The DMU’s power will include the authority to designate in-scope technology companies (those that have substantial and entrenched market power in an activity, providing the company with a strategic position) with “strategic market status” and the ability to do the following: 

  • Codes of conduct: Enforce new tailored codes of conduct for how such companies dominating digital markets should treat their users fairly, ensuring that consumers have open choices about the digital services they use. For example, such companies will no longer be allowed to limit consumers to preinstalled software on their devices.
  • Consumer choice: Give consumers more decision-making power over how their data is used and handled by the big technology companies—for example, by opting out of targeted personalized adverts.
  • Transparency: Require such companies to meet the regulator’s clear expectations around trust and transparency, such as informing businesses using their services of significant changes which could impact them.
  • Fairness: Intervene to tackle the root causes of market dominance, including requiring such companies to share more data with smaller competitors to help them overcome the advantages of tech companies.
  • Trade with content providers: Regulate how such companies should trade with content providers such as news publishers, including the power to resolve pricing disputes so that news providers are paid fairly for their content online.
  • Market regulation: Require such companies to report takeovers before they complete to enable the CMA to conduct an initial assessment of the merger to determine whether further investigations are needed.

Consequences for Breach

The DMU will be granted powers to impose tough sanctions for non-compliance, including fines of up to 10% of annual global turnover and additional penalties of 5%  of daily global turnover for each day an offense continues. In addition, it will be able to suspend, block, and reverse behavior by strategic market status technology companies that breach their conduct requirements. Additionally, senior managers may face civil penalties if their firms fail to engage with requests for information.

Next Steps

The DMU’s powers are intended to be enshrined into law via the Digital Markets, Competition and Consumer Bill; however, the timeline for implementation remains unclear. The bill is not expected to be introduced in the United Kingdom’s 2022–2023 Parliamentary sessions despite its mention in the recent Queen’s speech. Given that the European Union is already leading the way in this area with their equivalent Digital Markets Act expected to become law by 2023, the United Kingdom may be forced to act sooner—watch this space!

Trainee Solicitor Chidi Ogbuagu contributed to this post.