CMA releases its Digital Markets Strategy and opens new market study into online platforms and digital advertising

The CMA has today released its eagerly anticipated Digital Markets Strategy (the “Strategy”). The Strategy follows the publication by HM Treasury of an independent report on the state of competition in digital markets (the “Furman Report”) in March this year, draws together the various strands of work the CMA has already done in the digital space and sets out its ambitions for the future. It comes against the backdrop of an increasingly interventionist enforcement climate, and in the context of much broader reforms to the UK’s competition regime being pushed forward by the CMA’s Chairman Andrew Tyrie, which are referenced throughout the Strategy.
The digital space is top of mind for competition authorities globally and the CMA sees itself as playing a critical role in the UK in regulating digital companies, describing competition law as the “main tool to ensure that digital companies continue to innovate, support new entrants to the market so that monopolies do not form and ensure that consumers have their rights protected and receive better products”. With this expansive ambition, the Strategy sets out five Strategic Aims and seven priority areas of focus for the CMA’s work in the digital space over the coming years. We have summarised below some of the key themes.
A sector under scrutiny

The digital space has been under significant scrutiny by the CMA and other authorities around the globe over recent years. While the CMA’s enforcement in the area may not have generated as many headlines as the European Commission’s major cases (e.g. its €1.49 bn fine on Google earlier this year), the Strategy contains a list of 19 cases the CMA has worked on in the digital space across its competition (including merger control) and consumer functions since 2016, as well as four policy projects considering digital markets issues, which in addition to its appointment of a Chief Data and Digital Insights Director and the establishment of a Data Unit, underscores just how much resource the CMA is directing to digital markets.

It is clear that businesses operating in the digital space can expect ever more scrutiny from both a competition and consumer law perspective in the coming years. One of the priority focus areas listed by the CMA is to use its existing tools to take enforcement action in digital markets. The CMA says it is increasing its efforts to anticipate and target poor practices and areas of concern, which it can address using existing consumer, antitrust and merger tools. The CMA cautions that consumers should not suffer unduly if the framework for regulating digital markets is slow to evolve, and therefore emphasises its intention to be bold and use its available tools to the “fullest possible extent”.

In tandem with the release of the CMA’s Strategy today, the CMA also launched a new market study into online platforms and digital advertising in the UK. The market study will focus on whether online platforms have market power, whether consumers are willing and able to control their data, and whether competition in digital advertising is distorted by market power. This follows calls from many, including the Chancellor Philip Hammond and the Culture Secretary Jeremy Wright, for the CMA to investigate digital advertising and in particular the position of Google and Facebook, as well as investigations in the same space by the CMA’s peer authorities around the world such as the French, German and Australian competition authorities. The CMA’s market study tools do not allow it to fine or impose remedies on individual companies, but this new study will see significant evidence gathered from across the sector so the CMA can assess whether online platforms and digital advertising in the UK could be harming consumers. If, as part of this, the CMA finds conduct it thinks is illegal, it could open investigations into individual companies – for example the CMA’s market study of digital comparison tools led to the ongoing investigation into ComparetheMarket. The CMA describes its new market study as being “core” to the Strategy and expects it to play a major part in informing policy, especially in relation to advertising-funded business models.

The CMA’s market study follows parallel studies by the French Competition Authority and the Australian Competition and Consumer Commission (“ACCC”) last year. The ACCC’s preliminary report released in December 2018 outlined concerns about the significant market power held by Google and Facebook, which it describes as “dominant gateways”. The ACCC identified and is now investigating five potential breaches of existing laws, and made recommendations for broad reforms, including that a new or existing regulator be given powers to investigate, monitor and report on how large digital platforms rank and display advertisements and news content. The French Competition Authority’s report also focused on Facebook and Google’s market power and both companies have since been fined for breaches of data protection law.

Tougher tests for tech mergers?

The Strategy indicates that the CMA believes the existing legal framework for merger control is largely fit for purpose, but does flag concerns around under-enforcement of mergers both in the digital space and more broadly, particularly around so called “killer acquisitions”. The concern that a large incumbent can buy up its competitors before they become competitive threats has been a significant focus in relation to both tech/online and life sciences cases in the last year especially, particularly around the loss of innovation. In February, the proposed Experian / Clearscore merger was abandoned due in part to CMA concerns that it would result in a loss of dynamic competition and innovation, and just last week, the CMA referred the proposed $1.2 billion acquisition by Illumina, Inc. of Pacific Biosciences of California, Inc. for a Phase II investigation citing similar concerns. The theory that a strong incumbent has overpaid to “take out” a challenger also motivated the in-depth inquiry of PayPal’s acquisition of iZettle, though it was ultimately cleared.

A study of past CMA merger decisions in the technology sector published last month by LEAR (commissioned by the CMA), found that the CMA had been too fearful of uncertainty in conducting their competition assessment and therefore failed to properly consider and test fully some credible competition concerns, particularly where there were conflicting third-party views. The Facebook/Instagram and Google/Waze cases are both highlighted as examples of these issues.

The CMA indicates its approach is continuing to evolve, but that it is open to the possibility its tests and frameworks for digital markets may need a fundamental rethink, and in particular whether there needs to be some form of closer scrutiny for acquisitions by particularly powerful companies.

…and broader reforms

While much of the CMA’s focus is on making the most of existing tools and skilling up internally, the Strategy does touch on the broader debate over whether authorities need more powers to tackle competition issues in digital markets. This comes in the context of wider reforms to the UK competition regime proposed by the CMA’s Chairman Andrew Tyrie in February this year (see our client alert here). The Chairman’s letter had described the UK’s competition regime as being an analogue system in a digital age, and outlined a range of concerns with the CMA’s ability to gather information (especially to understand effects of digitisation such as use of algorithms) and intervene swiftly in digital markets. The Strategy describes Tyrie’s proposed changes as “important to ensure we are able to keep pace with the digital economy”.

One key issue which is particularly acute in the digital space is the proposed sharpening of the CMA’s ability to take interim measures – i.e. to intervene in a market before a full investigation. The Chairman’s letter to Parliament emphasised that such tools are necessary especially in fast-moving digital markets, as competitive harm may happen swiftly and irrevocably. The Strategy does not comment further on this, but the EU’s proposed use of Interim Measures for the first time in 18 years in the Broadcom case (see our client alert here) could be the shape of things to come.

In addition, following the Furman Report, the Government has announced plans to create a “digital markets unit”. This new regulatory function would monitor a code of conduct for businesses designated as having “strategic market status”, and have the potential power to impose remedies including data interoperability and openness. At this stage it is not known whether this unit would sit within the CMA, Ofcom or be a new body and the Strategy indicates that the CMA will carry out policy work to consider how such a unit could operate and assist to develop the new regulatory framework. Unlike many other national competition authorities, the CMA has both competition and consumer powers, which give it considerable flexibility to take an active role in the digital space. Whatever form the new regulatory framework takes, it is clear from the Strategy published today that the CMA sees itself as playing a central role in regulation of digital markets now and in the future.