WSG Article: The Digital Markets, Competition And Consumers Bill Has Been Inked

The Digital Markets, Competition And Consumers Bill Has Been Inked

May, 2023 - Shoosmiths LLP

The Digital Markets, Competition and Consumers Bill ('Bill') has now landed. Its aim is to protect against consumer harms that have materialised following the digital transformation of how we buy goods, services and digital content.

What does this mean for consumer protection law?

Subscriptions

Why? The Competition and Markets Authority (‘CMA’) estimates that consumers spend £1.6 billion a year on subscriptions they do not want [1]. The Bill seeks to save consumers from the perils of being trapped in subscription arrangements indefinitely, where unclear information is buried in lengthy terms and conditions and where cancellation rights are difficult to find or impossible to exercise.

What? The Bill will give new rights to consumers entering subscription contracts. Businesses offering subscription contracts to consumers will therefore need to review their operational processes to ensure that they:

Before: Provide prescribed pre-contract information prominently and clearly before consumers enter the contract and obtain express acknowledgement from the consumer that the contract imposes an obligation to make payment.
During: Send reminders in a prescribed form to consumers, alerting them that a free or discounted trial period is coming to an end, or that a contract is due to renew, with information on how they can exit the contract if they wish.
Cancellation: Provide a straightforward process to exit the contract via a single communication. The Bill will also extend consumers’ existing cancellation rights to all subscription contracts and introduce a new 14 day cancellation right after a free or reduced-price trial, and after auto-renewal if the renewal term is a year or more.

Enforcement

Why? The Bill seeks to address concerns that the current regime for enforcement of consumer rights lacks effectiveness and is slow. Consumers typically experience long delays in seeking redress, experiencing an average 20-month gap between a CMA application to the court to a judgment [2]. Such delays have created a culture which shields traders from accountability.

What? New administrative powers have been delegated to the CMA so that they can directly enforce consumer law in broadly the same way as it enforces competition law. This should result in quicker, simpler, and more cost-effective enforcement action for the CMA. The CMA’s new powers include:

Engaging in commercial practices breaching consumer protection laws: Fining traders up to £300,000 or, if higher, 10% of global turnover for breaches of core consumer protection breaches.
Breaching, without a reasonable excuse, an undertaking or direction given to/by the CMA: Imposing a fixed penalty of up to £150,000 or, if higher, 5% of global turnover. An additional daily penalty of up to £15,000 per day or, if higher, 5% of a trader’s daily global turnover, while non-compliance continues.
Failure to comply, without reasonable excuse, with an information notice given by the CMA, or providing materially false or misleading information in connection with a direct enforcement function of the CMA: Imposing penalties of up to £30,000 or 1% of a trader’s global turnover, whichever is higher. For continued non-compliance with information notices, an additional daily penalty will be imposed of up to £15,000 per day or 5% of trader’s daily global turnover, whichever is higher.

Fake reviews and banned practices

Why? The law does not currently reflect new business practices that have emerged through digital transformation, nor does it adequately protect consumers from the harm that may result (in particular, harm arising from fake online reviews). The CMA estimates that £23 billion a year of consumer spending is influenced by online reviews [3]. There is a concern that too many of us are being misled into buying the latest gadget on the back of dodgy reviews.

What? The Bill will repeal and replace the Consumer Protection From Unfair Trading Regulations 2008 (CPRs) which impose a general prohibition on traders from engaging in unfair commercial practices. The CPRs will be retained in their current form (with a few tweaks) but more notably the Government will gain powers to add to the list of banned practices. It will be this power that could be adopted to tackle the issues regarding fake reviews, with the following harmful practices being consulted on during the passage of the Bill:

Commissioning or incentivising someone to write and/or submit a fake consumer review;
Offering to submit, commission or facilitate fake reviews; and
Hosting reviews without taking reasonable and proportionate steps to check they are genuine.

What does this mean for competition law?

‘Strategic Market Status’ for digital markets behemoths

Why? The Bill seeks to address the Government’s concerns that the market power of a small number of digital technology companies is holding back innovation and growth. The proposed new rules seek to enable the CMA to target a small number of the most powerful firms, through powers that extend beyond the existing competition law and merger control rules.

What? The Bill makes a provision for firms with substantial and entrenched market power, and a position of strategic significance in respect of a digital activity. Such firms are to be designated with ‘strategic market status’ (‘SMS’) by the Digital Markets Unit (‘DMU’) within the CMA. Such firms will in effect be subject to an enhanced competition regime. In outline:

The CMA will have the power to impose “conduct requirements” (a form of forward looking regulation) and to make “pro-competition interventions” (an abbreviated form of competition enforcement) in relation to SMS firms.
SMS firms will be required to report certain corporate transactions to the CMA, thus in effect giving the CMA a heads-up on their M&A activity (including minority investments as low as 15%).

The DMU (which will not have any formal powers until the Bill becomes law) will need to designate businesses with SMS. In addition conditions of having substantial and entrenched market power and a position of strategic influence, a company may be designated with SMS only if its group turnover is more than £25 billion worldwide or £1 billion in the UK. That suggests that the list of potential SMS firms will be fairly short, limited to what might be described as the usual suspects.

Updated thresholds for UK merger control

Why? The current UK merger control rules are considered to be due an update. The objective is for more and less: more scope to catch transactions that currently fall outside the merger control regime; but less ability to review certain small transactions, thus offering greater certainty to some businesses. The overall structure of UK merger control – including the voluntary notification regime– will be retained.

What? The Bill updates the thresholds that determine when UK merger control applies. A transaction will be subject to the regime where:

The target’s UK turnover exceeds £100 million; or
The parties carry out activities of the same description and have a combined share of supply of 25% or more (in the UK or a substantial part thereof); or
One party has a share of supply of at least 33% and UK turnover exceeding £350 million.

The first and second tests above reflect the current merger control rules (except that the target turnover threshold is being increased from £70 million to £100 million).

The third test is new – it is intended to give the CMA the ability to review a wider range of acquisitions by relatively large purchasers of even very small targets (including so-called “killer acquisitions” in the digital sector and other deals where the parties may not be competitors such that the current 25% share of supply test would not be met).

There will however be a new safe harbour offering greater certainty for small parties: a merger will fall outside of the merger control rules where each party has a UK turnover of less than £10 million.

The CMA’s competition enforcement powers

Why? The Bill is considered an opportune time to update the CMA’s powers, to address a wide range of perceived deficiencies in the CMA’s current arsenal. These range from updating the CMA’s dawn raid powers to filling possible gaps in the jurisdictional scope of UK competition law.

What? The Bill proposes a raft of procedural changes that will be of little interest to businesses except in the (hopefully very rare) cases where they are under investigation by the CMA. It is however worth noting that, where a person knows or suspects that a competition law investigation by the CMA is being or is likely to be carried out, they will be under a new duty to preserve documents which they know or suspect would be relevant to the investigation. There will also be enhanced fines for failing to respond to CMA requests.

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