Digital Platforms to be subject to a Digital Code in the UK to protect competition

By Anthony Rosen, Patricia Wing

12-2020

The Government has decided to move ahead with the establishment of the Digital Markets Unit (DMU) and the adoption of an enforceable code of conduct to tackle digital markets (Digital Code). These measures are designed to support the establishment of a new pro-competitive regime for digital advertising, general search and social media markets which will allow swift enforcement action to address competition concerns.

The Government, on 27 November 2020,  published its response to the Competition Markets Authority’s (CMA) final report in its inquiry on online platforms and digital advertising, published on 1 July 2020. More detail on the CMA’s findings can be found here.

New mandatory Digital Code 

The Government has confirmed the introduction of a new mandatory Digital Code to govern the behaviour of platforms funded by digital advertising that are designated as having strategic market status (SMS (firms characterised by substantial and enduring market power although the exact criteria are still to be finalised)).  The Digital Code is expected to follow the core principles recommended by the CMA of fair trading, open choices and trust and transparency and will set clear expectations over what represents acceptable behaviour when the large digital platforms interact with competitors and users.  

The final details of the Digital Code are still to be determined and it will be important to consider how the rules are designed.  Whilst it will be important to have clear principles that can allow a degree of flexibility to address the innovative and dynamic sector there will need to be a clear balance in order to ensure legal certainty on the nature of the requirements going forward.  Otherwise, this will risk undermining the effectiveness of the Digital Code and could harm innovation, competition and consumers.  The scope of application of the Digital Code will also need to be considered as “industry wide” issues which may impact the sector may not be suitably addressed by the narrow code limited to companies with SMS.  The Government’s position will be informed by the advice from the Digital Markets Taskforce which is due later this month. 

DMU powers and enforcement of the Digital Code

The DMU will enforce and maintain the Digital Code. The Government confirmed the DMU will sit within the CMA and operate from April 2021. The DMU will be given the necessary powers to enforce the Digital Code on a timely basis. These powers will include suspending, blocking and reversing decisions of the SMS firms, ordering conduct to achieve compliance with the Digital Code and financial penalties for non-compliance.  A consultation on the form and function of the DMU is promised for early 2021. 

The Government has also acknowledged the need for the DMU to be given powers to introduce a range of pro-competitive interventions (such as mandating access to data, interoperability, changing choices and defaults for consumers and imposing separation remedies). However, the Government notes that these interventions are complex and come with significant policy and implementation risks and require more work to understand the likely benefits, risks and possible consequences. We can expect further engagement on these issues.  

Support to news publishing industry

The Digital Code will also seek to address the recommendation of the Cairncross Review (on the sustainability of high quality journalism).  The Digital Code will govern the commercial arrangements between publishers and platforms and seek to promote greater fairness in the relationships and will form a major part of the Government’s work to support the sustainability of the news publishing sector.

EU Digital Markets Act

The Government’s  announcement is not surprising and builds on the CMA’s report (and the previous Furman Digital Competition Expert Panel report) and positions the UK, given Brexit,  well ahead of the EU’s Digital Markets Act (which is expected to include the introduction of market investigations powers (which the UK already has) and a set of ex ante competition rules to ensure online markets work well for consumers and businesses). 

Next steps?

The Government will consider the Digital Markets Taskforce’s advice on the design and implementation of the regime, which is due by the end of 2020.  We can then expect a further consultation in early 2021.  The Government will also bring forward legislation (as soon as Parliamentary time allows) to establish the DMU and make preparations for it to commence operation in April 2021. 

 

 
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