The UK’s Competition and Markets Authority Targets Big Tech

On 2 July 2020, the UK Competition and Markets Authority (CMA) released its final report on online platforms and digital advertising. The study, started in July 2019, focuses on Google and Facebook’s dominance in the digital advertising marketplace. While the findings and recommendations in the final report follow closely with those identified in the CMA’s interim report published in December 2019, this final report is interesting in terms of the recommendations it puts forward in order to tackle the issues it identifies.

While the CMA acknowledges that “big is not necessarily bad” and that these platforms have brought very innovative and valuable products and services to the market, the report nonetheless highlights, among other things, the competitive advantage Google and Facebook enjoy due to their extensive access to user data and how online platforms interpret data protection laws and regulations to their advantage, and it details issues arising from vertical integration in the digital ad markets.

In particular the CMA explains that it is worried that Facebook and Google’s entrenched positions could result in a lack of real competition and a lack of adequate choice for consumers and higher prices for advertisers. This could in turn lead to higher costs for goods and services such as hotels, flights, consumer electronics, and insurance bought online.

In order to tackle these issues, the CMA has recommended the UK government introduce a new regulatory regime for platforms that would see the creation of a Digital Markets Unit (DMU), which would be tasked with two far-reaching powers:

• designing an enforceable code of conduct to govern the behavior of platforms funded by digital advertising that are designated as having strategic market status and
• carrying out so called pro-competitive interventions designed to “tackle the sources of market power and promote competition and innovation”.

This proposal to require pro-competitive interventions has far-reaching consequences and will undoubtedly spark controversies given its possibility to completely reshape the digital advertising sector.

In practice, such power would comprise data-related interventions, such as requiring Google and Facebook to give access to certain of their proprietary data, or ordering platforms to increase interoperability for example by requesting Facebook to enable third party applications to publish posts on Facebook so that users could easily share content they have created on Facebook. This power would also foresee the possibility to require separation interventions (similar to structural divestitures) to address vertical integration and bundling concerns raised by the DMU.

It is worth noting that the CMA has chosen to take the legislative route recommending the UK government adopt legislation to tackle these issues rather than launch a sector-wide investigation pursuant to which it has far reaching powers, including the possibility to require structural remedies. This choice is even more surprising considering that the European Commission has recently launched in June 2020 a consultation aimed at introducing a new competition tool that would allow it to conduct wide-ranging inquiries into a specific market and impose legally binding remedies if competitive harm is found, similar to the CMA’s current investigation powers.

It now remains to see whether and how the UK government, which previously created a digital markets taskforce to advise it on what additional associated powers are needed to regulate digital platform markets, will decide to implement any of the CMA’s far-reaching and bold recommendations. In the meantime, a robust pushback from online platforms, and in particular Facebook and Google, appears inevitable — not least because the European Commission’s recent move to introduce similar new tools is already attracting fierce opposition from the business community.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Ben Bradshaw, an O’Melveny partner licensed to practice law in California and the District of Columbia, Riccardo Celli, an O’Melveny partner licensed to practice law in the Capital Region of Brussels, the Law Society England & Wales, and Roma, Courtney Dyer, an O’Melveny partner licensed to practice law in the District of Columbia and New York, Andrew Frackman, an O’Melveny partner licensed to practice law in New Jersey and New York, Yoji Maeda, an O’Melveny partner licensed to practice law in New York and Japan, Philip Monaghan, an O’Melveny partner licensed to practice law in the Capital Region of Brussels, Hong Kong, the Law Society England & Wales, and the Law Society Ireland, Anna T. Pletcher, an O’Melveny partner licensed to practice law in California, Katrina Robson, an O’Melveny partner licensed to practice law in California and the District of Columbia, Youngwook Shin, an O’Melveny partner licensed to practice law in California and New York, Ian Simmons, an O’Melveny partner licensed to practice law in the District of Columbia and Pennsylvania, Michael Tubach, an O’Melveny partner licensed to practice law in California and the District of Columbia, Christian Peeters, an O’Melveny of counsel licensed to practice law in the Capital Region of Brussels and Germany, Philippe Nogues, an O'Melveny counsel licensed to practice law in the Capital Region of Brussels and France, and Maude Vonderau, an O’Melveny associate licensed to practice law in the Capital Region of Brussels, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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