With the astounding proliferation of the digital market in recent years, the pervasive power and influence of a select few tech giants or “FAANGs” (Facebook, Amazon, Apple, Netflix and Google) has ballooned. Facebook and Google, to name just two, are commonly accused of systematically suppressing competition to dominate large swathes of the sector. Theoretically speaking, competition laws should prevent these types of business monopolies from thriving, instead encouraging healthy competition and innovation.
So what’s going wrong?
It has become abundantly clear that our competition laws are insufficient to effectively regulate the digital market and adapt to its rapid pace of growth.
As a result, in November 2020, the U.K. government announced it was establishing a new pro-competition regime that would address concerns relating to digital markets. A government consultation on possible new legislation and proposals for this ‘new pro-competition regime for digital markets’ closed on the 1st October 2021. The Government has indicated a desire to introduce relevant legislation ‘as soon as parliamentary time allows.’
What is a pro-competition regime for digital markets?
This ‘pro-competition regime’ is poised to respond to the ‘growing consensus that the concentration of power amongst a small number of companies is curtailing growth in the tech sector, reducing innovation, and potentially having negative impacts on the people and businesses that rely on them.’
According to the government, this will directly target tech giants, regulate their expansion, and offer consumers ‘more choice and control over their data’.
What does this look like on an international scale?
However, it’s clear that this might be easier said than done. Crucially, conversations around big-tech and competition law are not insular, but couched in a constantly shifting global legal landscape.
The USA regulatory landscape
From an international standpoint, the U.S. Government has historically been skeptical of the EU’s competition law enforcement against the FAANGs (all of which are American corporations). The US perceived these attempts to regulate the digital market as thinly veiled attacks on US exports. Thus responding through threats of retaliatory action against EU-based companies operating in the US.
In line with the U.K. and the EU, however, Biden’s administration has taken a different view. As a result, Lisa Khan, a noted antitrust scholar, has been tasked by the US Federal Trade Commission with heading up a crackdown on Big Tech.
The U.K.’s pro-competition regime
In the UK, a dedicated “Digital Markets Unit” (DMU) has been set up within the Competition and Markets Authority (CMA) to ‘introduce and enforce a new code to govern the behaviours of platforms that currently dominate the market such as Google and Facebook.’
The EU and the Digital Services and Markets Acts
The U.K.’s moves to implement this new ‘pro-competition regime’ are not anything original. Indeed, the government’s proposed legislation closely mirrors ongoing EU strategy to implement Digital Services and Digital Markets Acts that will govern the conduct of Big Tech within the union, and ‘create a safer digital space where fundamental rights of users are protected and [establish] a level playing field for businesses.’
So, why are tech giants so powerful?
Because, in terms of regulation, the digital market is like no other. This is because its constant innovation, reinvention, and expansion, make it a difficult beast to tame.
The constantly changing competitive landscape has left conventional approaches redundant. A new strategy should, theoretically, more effectively regulate the influence and power of these companies. In addition, this new regime should also maintain a healthy, competitive market in which its viable for new emerging competition to make a mark.
Read about Facebook, business monopolies and anti-trust law in our blog article
What is the CMA?
The Competitions and Markets Authority (CMA) is an independent non-ministerial department that works to promote competition for the benefit of consumers both within and outside the U.K.
How does the CMA enforce competition?
- Investigates mergers and acquisitions between organisations to make sure that they don’t affect market competition
- Investigates whole markets if there is suspicion of competition or consumer problems
- Takes action against businesses and individuals that are guilty of anti-competitive behaviour
- Encourages the government and other regulators to use competition to benefit consumers
The CMA and the Digital Market
Indeed, the CMA is already investigating a number of cases that explicitly relate to anti-competitive behaviour in the digital sector. Thus far, Google’s Privacy Sandbox, Facebook’s use of ad-data and Apple’s AppStore are under scrutiny.
Just recently, the CMA fined Facebook £50.5 million for breaching an initial enforcement order (IEO) that was issued as part of an investigation into the platform’s purchase of Giphy. In other words, Facebook was found to have taken steps to integrate the two businesses (or “scramble the eggs” as it is sometimes termed). All before the CMA had decided whether or not to permit the merger in the first place.
This came just after an unrelated announcement that the CMA would be launching an investigation around the music streaming industry. According to the authority’s chief executive, Andrea Coscelli, this investigation will ‘ensure that this sector is competitive, thriving and works in the interests of music lovers.’
What is the DMU?
The Digital Markets Unit (DMU) operates within the CMA, and exists to implement a pro-competition regime for digital markets.
Firstly, the DMU will focus specifically on cultivating greater competition and innovation in the digital markets. And it will work closely to rein in the power of the biggest digital firms. It will be critical in supporting the government as it drafts legislation that aims to temper the growth of the digital sector.
The DMU had its soft ‘non-statutory’ launch in April, and has been operating in shadow form pending legislation that will provide it with its full powers. In July of this year, the government finally published its consultation on a new pro-competition regime for digital markets. The consultation outlined the government’s vision for this ‘new pro-competition regime for digital markets’, which will aim to ‘drive greater dynamism in [the] tech sector, empower consumers and drive growth across the economy.’
Moreover, this consultation also officially called for the establishment of the DMU, explicitly outling its objectives and powers.
What powers will the DMU have?
As it stands, the DMU will have the power to:
- Suspend, block and reverse decisions of tech giants
- Designate tech firms as having ‘strategic market status’ (SMS)
- Enforce a special code of conduct specifically for SMS firms
- Order tech companies to take certain actions to achieve compliance with the pro-competition code
- Impose financial penalties for non-compliance with the code
What does this pro-competition regime mean for digital markets in the U.K.?
So, what will happen when the DMU sees its full powers legislated? We should expect to see action with a design to change digital markets for the better.
The DMU intends to help foster healthy competition and innovation in the digital sector. And theoretically it will cultivate a dynamic and exciting market, un-dominated by big players. In this vein, the intention is for the DMU to begin regulating the thus far unfettered expansion of the FAANGs by interrogating their operations far more scrupulously.
However, many onlookers are skeptical. Will this new regime be able to achieve any palpable success in the face of Silicon Valley’s tech giants? As recently as this summer, courts in the U.S. have ruled in Facebook’s favour after business monopoly charges were brought against the company last year. In conclusion, it’s clear that the immense power of these digital corporations is certainly a force to be reckoned with, and nobody is quite sure whether this new regime is up to the task.
Do you feel your business has been the victim of anti-competitive practices? Our competition law experts are here to help. Contact 360 Business Law for more information.