Changes to competition law

Background

The Digital Markets, Competition and Consumers Act 2024 (DMCC) was passed by Parliament on 24 May 2024, just before Parliament was dissolved prior to the general election. The DMCC will implement wide-ranging changes to competition law, including introducing a new pro-competition digital markets regime for the regulation of businesses which are deemed to have “strategic market status” in respect of a particular digital activity, together with other competition law reforms, including, in particular, changes to the regime under which the Competition and Markets Authority (CMA) can investigate business acquisitions and mergers for their potentially anti-competitive effects.

The changes have not yet been brought into force but businesses need to be aware of them at an early stage so that they can properly prepare for them, including reviewing their business acquisition and  merger plans in light of the increased powers which the CMA will have to investigate these.

The DMCC will also strengthen the rights of consumers in certain circumstances. Those provisions of the DMCC are the subject of a separate Weightmans’ insight. This insight looks at the changes to competition law and the new digital markets regime which the DMCC will implement.

Merger control

The CMA currently has jurisdiction to investigate mergers for their potentially anti-competitive effects where either of the following two tests is satisfied:

Either:

• the target has an annual UK turnover which exceeds £70 million (“turnover test”);

Or

• the merger will create or strengthen a share in the UK, or a substantial part of the UK, of 25% or more in the supply or acquisition of goods or services of a particular description (“share of supply test”). For the share of supply test to apply, the acquirer and the target must each be supplying in the UK, or acquiring in the UK, goods or services of the same description.

The DMCC when it comes into force will make the following changes to the jurisdictional thresholds:

• the turnover test threshold for the target’s turnover will be increased from £70 million+ UK turnover to £100 million+ UK turnover.
• a new test will be introduced. This will be met where one of the parties to the transaction has a UK turnover of more than £350 million and supplies in the UK, or a substantial part of the UK, at least 33% of particular goods or services, with the other party being a UK business. This is aimed at what is known as “killer acquisitions”, where a large supplier kills off potential competition from a new business by acquiring it. It is also aimed at where a business with a strong presence in one market seeks to expand into an adjacent market by acquiring a business active in that market. This new test will be somewhat different to the share of supply test referred to above since for this new test to apply both parties do not need each to be supplying or acquiring in the UK goods or services of the same description.
• A new safe harbour will be introduced exempting from UK merger control rules transactions where each party’s UK turnover is no more than £10 million.

The UK merger control regime remains “voluntary” as for the most part there is no requirement to seek prior clearance from the CMA of a transaction which satisfies one of the tests, though with the potential downside that a subsequent investigation by the CMA into a transaction completed without prior clearance could lead to a forced divestment of the target business by the acquirer. Having said that, the DMCC will introduce a mandatory deal reporting requirement for businesses which are designated as having strategic market status in relation to the digital industries (see below) requiring them to report to the CMA certain transactions prior to completion.

The test which the CMA applies when investigating a merger remains the same, namely whether the transaction will lead to a substantial lessening of competition in the UK or a substantial part of the UK.

Businesses will need to consider the effects on their acquisition strategies of the proposed changes to merger control law, including the extended power for the CMA to investigate which will arise from the new jurisdictional threshold which will be introduced by the DMCC, to take account of the potential for investigation by the CMA, assessing the potential competition risk which may result from each transaction and whether to engage with the CMA based upon that assessment.

Competition law

Other competition law changes which the DMCC will introduce include:

• making provision for the purposes of preventing foreign powers from gaining control or influence over newspaper businesses;
• strengthening the CMA’s powers to carry out investigations in relation to suspected cartels and other anti-competitive arrangements, including stronger powers to carry out “dawn raids” on, and remove laptops and other personal devices from, domestic premises;
• the grant of new powers enabling the CMA to seek information from businesses involved in the distribution, supply or retail of petrol or diesel to enable the CMA to assess competition in the UK in connection with the retail of motor fuel and to propose steps to increase such competition.

Digital markets regime

The DMCC will introduce a new digital markets regime to regulate the activities of businesses which are designated as having “strategic market status” (SMS) in respect of a particular digital activity. The CMA has established a Digital Markets Unit (DMU) to oversee this new regime. The regime will be similar to, although not exactly the same as, the European Union’s regime for regulating such businesses.

The DMU may designate a business as having SMS in relation to a particular digital activity where it considers that the business has substantial and entrenched market power and is in a position of strategic significance in respect of that digital activity linked to the UK. Further, the business must have a global turnover exceeding £25 billion or a UK turnover exceeding £1 billion.

It is anticipated that only a handful of businesses will be designated as having SMS status, potentially the likes of Alphabet (Google), Amazon, Apple, Meta (Facebook) and Microsoft. The DMU will have powers to introduce binding codes of conduct on SMS firms and carry out pro-competition interventions to address competition issues in digital markets.

Although the direct impact of the new regime will only apply to businesses designated as having SMS status, it will be important for other businesses which have dealings with designated SMS players to be aware of the potential for DMU intervention. Further, where an SMS breaches its obligations under the digital markets regime, the DMCC enables third parties to take enforcement action before the courts, including claims for damages and injunctive relief.