Antitrust has done little to deter anti-competitive behaviour by big tech, and so a preference for ex-ante rules has emerged. From market definition through to the appeals process, we assess how these regimes intended to curb the power of big tech compare
Competition authorities have usually been empowered to enforce new ex-ante regulation, with some establishing dedicated departments for this purpose. The UK’s Digital Markets Unit is a prime example, whereas the US has preferred to adopt a multi-agency approach.
Not all countries have chosen to set out the type of platforms and services that may be captured by regulation. While the EU outlines a list of 10 and Japan has targeted two, others have chosen to be more flexible about the digital activities that may be considered in scope.
The choice of remedies ranges from light-touch compliance reporting to strict prohibitions on certain types of conduct. The EU applies the same requirements to each gatekeeper regardless of the service they offer; however, the UK framework would allow for more tailored obligations.
Most countries offer firms the opportunity to challenge their dominant status and/or the rules imposed on them. Germany has shortened the appeals process against Bundeskartellamt decisions, while the UK allows companies to demonstrate that the benefits of their actions outweigh any harm to competition.
10% of turnover is a common maximum fine, although some regimes allow for harsher penalties. The EU is a case in point, with the EC able to impose financial penalties of up to 20% of global turnover for repeated infringements of the Digital Markets Act.
Following an array of deals involving big tech, some regimes have introduced stricter rules for M&A in the digital economy. In the US, proposed legislation would prohibit ‘killer acquisitions’ by large online platforms that may otherwise prevent competition emerging.
Fines have proved ineffective in stopping anti-competitive behaviour by big tech
Big tech has had profound impacts on markets, economies and societies, fundamentally altering the way people shop, communicate, discover information and more. As tech firms have grown in size and influence, concerns have emerged about their conduct and business practices, especially towards consumers and smaller rivals. Several competition authorities have sought to correct identified anti-competitive behaviour, initially through ex-post financial penalties imposed under existing competition law. Our Platforms and Big Tech Tracker has identified 25 fines worth almost £28bn that have been issued over the past seven years. However, with these sanctions having little reformative impact, the focus of authorities globally has shifted to the development of ex-ante frameworks intended to prevent abuses of dominance by large players.
The UK Government recently introduced the Digital Markets, Competition and Consumers (DMCC) Bill to the House of Commons, which seeks to stamp out unfair practices and promote ‘free and vigorous’ competition in digital markets. It comes around three years after the UK first pledged to establish a ‘world-leading’ regime to address the growing power of online platforms. The time taken to legislate means the bill's introduction in Parliament comes over a year after the EC adopted the Digital Markets Act (DMA), while the UK is also playing catch up to countries such as Germany and Japan.
Competition authorities have been empowered by new ex-ante rules
The approaches to ex-ante regulation of big tech differ in terms of the authority responsible for discharging and ensuring compliance with the rules. The UK framework will be overseen and enforced by the Digital Markets Unit (DMU), which sits within the CMA. The DMU was established on a non-statutory basis in April 2021, since which time it has undertaken preparatory work (e.g. building capabilities and resources), gathered evidence and engaged with stakeholders. Importantly, taking forward the DMCC Bill will provide the legal backing and the ‘teeth’ the DMU needs, having so far only operated in shadow form.
There is also a degree of novelty for the EU, where the EC will exercise powers similar to those of a regulatory authority for the first time – triggering it to scale up its headcount and expertise quickly. The EC will be firmly in control of implementation and enforcement of the DMA, with national authorities part of an advisory committee. Member States can empower their own authorities to start own-initiative investigations and transmit findings to the EC. Some have demonstrated a willingness to act while the DMA was under development, with France, Germany and Italy particularly busy. In January 2021, the 10th amendment to the German Competition Act (the GWB) came into force, providing the Bundeskartellamt – the independent competition authority – with enhanced control over the activities of large digital companies. Regulatory responsibilities lie with the Digital Economy Unit, which carries out its work in collaboration with other internal Bundeskartellamt departments and in consultation with relevant German authorities.
In contrast, Japan’s Ministry of Economy, Trade and Industry (METI) has primary responsibility for governing compliance with the Act on Improving Transparency and Fairness of Specific Digital Platforms (TFDPA), which came into effect in February 2021. While the provisions of the TFDPA are designed to help prevent tech firms from breaching the country’s Antimonopoly Act, METI can request the Japan Fair Trade Commission (JFTC) to conduct an investigation in the event it finds a potential violation. Similarly, the US has favoured a multi-agency approach, where the Federal Trade Commission (FTC) and the Department of Justice (DOJ) would be jointly empowered to enforce the proposed American Innovation and Choice Online Act (AICO).
Some countries have outlined the platforms and services to which their regimes apply, with others opting to be more flexible
There are some differences also in the services and firms that may be subject to each regime, and the mechanisms by which they become liable for regulation. In the EU, the DMA applies to 10 “core platform services”, including online marketplaces, search engines, social networks, operating systems and web browsers. In the US, AICO would apply to websites, online or mobile applications, operating systems, digital assistants and online services that: a) enable a user to generate or interact with content on the platform; b) facilitate e-commerce among consumers or third-party businesses; or c) enable user searches that display a large volume of information.
Japan’s TFDPA applies to only two types of digital platforms: “online shopping malls” (i.e. marketplaces); and app stores. The UK approach therefore appears to be relatively flexible in that it does not have a predetermined list of markets in which dominance could be found. The DMCC Bill uses a broad term (“digital activity”) to specify its applicability, which captures services or content provided over the internet – including those delivered for free. Similarly, the new Section 19a of the GWB in Germany does not define services in scope, instead indicating that it covers undertakings that are significantly active in ‘multi-sided markets and networks’.
With these service parameters, authorities are able to identify companies in scope, often leveraging their annual revenue figure. Under the DMA, the threshold for a core platform service provider to be considered relevant is a market value of €75bn (£64bn) or an annual European Economic Area (EEA) turnover of €6.5bn (£5.6bn), as well as 45m monthly active users and 10,000 yearly active business users. The UK is set to use a global turnover of more than £25bn or a UK turnover above £1bn. Notably, Japan applies different thresholds to online marketplaces (annual domestic sales of JPY300bn+ (£1.7bn)) and app stores (JPY200bn+ (£1.1bn)), thereby setting a slightly higher bar than the UK. In the US, the draft AICO is based on three cumulative conditions: at least 50m monthly active users (or 100,000 business users); annual market capitalisation exceeding $550bn (£438bn); and a critical nature of the service. In Germany, competition law does not state revenue thresholds, but directs the Bundeskartellamt to take into account a firm’s financial strength and its access to other resources.
Different terminology and factors are considered in determining dominance
Firms that meet the above criteria may then be determined as being in a dominant position. The DMA enables the EC to designate a company as a ‘gatekeeper’, while in the UK, the DMU will use a forward-looking assessment to identify firms as having Strategic Market Status (SMS). The SMS conditions require a company to have “substantial and entrenched market power” and a “position of strategic significance” in a given digital activity. This differs from the “entrenched and durable position”, internal market impact and role as an intermediary that are the targets of the EU regime. From 2 May 2023, firms providing core platform services have two months to notify the EC and provide all relevant information. The EC will then have two months to adopt a decision designating a specific gatekeeper.
In Germany, the GWB empowers the Bundeskartellamt to determine an undertaking as being of “paramount significance for competition across markets”, taking into account several factors such as a dominant position, vertical integration, access to data and influence on the business activities of third parties. In Japan, online marketplaces and app stores of a certain size can be considered “specified digital platform providers”. The fairly narrow principles of the TFDPA in Japan mean that METI has so far only designated a handful of firms under the act, including Apple, Google, Rakuten and Yahoo. In the US, the proposed AICO would allow the FTC and DOJ to jointly designate firms meeting the three cumulative criteria as “covered platforms” – a category that tech giants (e.g. Amazon, Meta and Microsoft) are expected to fall into.
Choice of remedies ranges from light-touch obligations to strict prohibitions on certain types of conduct
While there is overlap in the language used to identify market power, jurisdictions are set to impose different obligations on dominant firms. Before an EU-wide framework entered in force, in Germany, the Bundeskartellamt was granted new powers to prohibit types of problematic conduct by undertakings of paramount significance, for example raising barriers to entry through the use of certain data processing strategies and impeding the interoperability of products or services. In the EU, the DMA – which largely complements Germany’s revised GWB – outlines a set of 22 ‘dos’ and ‘don’ts’ for gatekeepers that includes preventing them from combining user data from different sources, bundling standalone products (e.g. pre-installing browsers on a device) and self-preferencing (e.g. ranking their own products higher than others in searches).
In the UK, the DMU will have the powers – but will use a ‘proportionate approach’ – to prevent firms with SMS from using their size to limit innovation or market access. The UK Government’s DMCC Bill enables the DMU to tailor rules to a given SMS company. It would have 13 conduct requirements to choose from, which can either oblige a SMS firm to act in a certain way (e.g. trading on fair and reasonable terms) or prevent types of behaviour (e.g. applying discriminatory terms, conditions or policies). As such, the UK approach leaves more room for the enforcer to decide remedies on a case-by-case basis, unlike the DMA in the EU, which applies the same rules to all gatekeepers.
If enacted in the US, AICO would create a number of violations for covered platforms, including unfairly limiting the ability of a rival business to compete and using non-public data collected from users’ spending activity to inform their own sales and pricing practices. Similar to legislation stemming from European markets, AICO would ban unfair and discriminatory self-preferencing; however, this must be shown to “materially harm competition” (not just give a covered platform an advantage) in order to fall foul of the law.
In contrast, Japan has adopted a ‘co-regulatory approach’, which aims to mitigate the risk that uniform or strict regulation could impede innovation in the rapidly-developing digital economy. This means that while the Government sets out a general framework, it leaves the details around implementing voluntary efforts to achieve the mission of the TFDPA to the private sector. Specified digital platform providers do still face three specific obligations:
Disclosure of terms and conditions;
Creation of systems and procedures to secure fairness and to resolve complaints); and
Annual reporting to the Government, including self-assessment of their compliance with disclosure and fair process obligations.
Regimes provide the opportunity for firms to challenge rules or requirements imposed on them
In the face of these obligations, some ex-ante regimes provide for appeals processes and/or for scope for counter arguments from digital players. During the current two-month reporting window, the EU’s DMA gives firms the opportunity to rebut the quantitative criteria that could see the EC designate them as gatekeepers. In Germany, the 10th amendment to the GWB introduced a shortened legal process for companies of "paramount significance" to dispute interim orders of the Bundeskartellamt. Provisions enable firms to appeal orders directly to the Federal Court of Justice (Bundesgerichtshof), effectively bypassing the Higher Regional Courts that deal with civil and criminal matters. In the UK, appeals to DMU decisions would be made to the Competition Appeal Tribunal (CAT) on procedural grounds – i.e. a judicial review – instead of on the merits as tech companies would have likely hoped.
While there appears no avenue for appeals under Japan’s relatively benign regulation, in the US, AICO would create several “affirmative defences” for companies accused of engaging in unlawful practices. Firms are permitted to take “narrowly tailored” or “non-pretextual” action to comply with federal or state law, protect user safety or data privacy, and maintain or substantially enhance the “core functionality” of the covered platform. Similarly, the DMCC Bill in the UK would give a SMS company the possibility of invoking a “countervailing benefits exemption” if it can successfully demonstrate that its actions bring about consumer benefits that outweigh any harm to competition resulting from a breach of a conduct requirement.
Up to 10% of turnover is a common maximum fine, although some regimes allow for harsher penalties
If a dominant firm is found to be in breach of a given piece of legislation, they may be liable for financial penalties – with some jurisdictions coalescing on the appropriate severity of sanction. Under the DMA, the EC can hand out fines of up to 10% of global turnover, which can increase 20% in the event of repeated infringements of the act. The EC also has the power to adopt interim measures, accept binding commitments and impose behavioural remedies and structural ones (e.g. selling assets, brands, IP) in case of systematic non-compliance. In the US, the draft AICO provides penalty guidelines, stating that the amount should be one that is sufficient to deter violations of the act, but not greater than 10% of total US revenue. Meanwhile, in Germany, the 10th amendment to the GWB increased the level of fines from a maximum of €100,000 (£86,000) to up to 1% of group-wide turnover for violations of certain procedural obligations.
In the UK, the DMU will be able to fine SMS firms up to 10% of their global turnover and to disqualify directors. The DMU will also be empowered to tackle the root causes of power in digital markets by carrying out targeted “pro-competition interventions”, which may result in a designated company allowing greater interoperability or data access. Penalties under Japan’s TFDPA are relatively modest: for example, a provider may be subject to a fine of up to JPY1m (£5,700) if it breaches an order by METI to properly perform disclosure obligations, and up to JPY500,000 (£2,850) if it does not file an annual report, or fails to include required information or makes false claims in that report.
Strengthening the oversight of M&A activity involving big tech
While establishing comprehensive rulebooks for fair competition in digital markets, some new ex-ante regimes also have implications for merger control. In the UK, the DMCC Bill would introduce stricter M&A notification requirements for companies with SMS. These would kick in where a SMS firm increases its percentage of shares or voting rights above certain thresholds, or where the value of its stake exceeds £25m. After studying and accepting a report, the CMA may choose to open an investigation using its existing merger powers.
Under the DMA, gatekeepers must inform the EC of a proposed concentration involving other providers in the digital sector, including where the transaction would not meet EU or Member State notification thresholds. This is intended to enable the EC to be aware of ‘killer acquisitions’ (buying nascent firms to head off the emergence of future competition), which it can investigate under Article 22 of the EU Merger Regulation. In cases of systematic non-compliance with the act, the EC would be able to temporarily block the acquisitions of gatekeepers – a power that was initially neither in the EC’s draft text nor in the Council’s. Potentially complementing AICO in the US, the Platform Competition and Opportunity Act was introduced in the House of Representatives and the Senate in 2021. This draft legislation would prohibit a covered platform from acquiring another company valued at greater than $50m (£40m) unless it can demonstrate that the target is not a current or potential competitor, and that the proposed deal would not enhance its market position.
While revisions to the GWB were designed to reduce merger filings in Germany, they allow the Bundeskartellamt to review successive acquisitions of smaller companies (so long as certain revenue and market thresholds are met). In Japan, ahead of the introduction of the TFDPA, the JFTC amended its merger review guidelines to clarify its approach to M&A in the digital economy. At the same time, the JFTC also indicated its willingness to investigate deals that do not meet the target’s turnover threshold, but may have a negative impact on competition and consumers in Japan.
More to come, while existing frameworks should be expected to evolve
The regimes implemented or proposed in the study countries reflect a growing international shift to the creation of ex-ante measures to oversee digital markets. Other countries, such as Australia and India, look set to introduce similar legislation in future, possibly using the frameworks analysed as an instructive starting point that would provide authorities the opportunity to learn from the experience of their peers. These will not, however, be an overnight remedy to guarantee competition across the digital economy, and will likely be reviewed and evolve in line with market and technological developments.
However, what they do represent are much-needed efforts to improve contestability, tackle unfair practices and protect consumers. In the UK, the DMU will have a different role to the CMA’s traditional competition and consumer law enforcement responsibilities, and it is actively considering guidance to help stakeholders engage with the new regime. While the DMCC Bill could see amendments, its aims and core principles may survive the legislative process largely unchanged, and it should become law by the end of 2023. Whether the bill delivers the world-leading regulation long-promised by the Government remains to be seen, but it is nevertheless a modernisation of the UK’s antitrust rules that is expected to help level the playing field for firms operating in digital markets.
