The UK’s Latest Antitrust Grab Could Be the Final Blow for Its Tech Sector

The United Kingdom’s House of Commons introduced a proposal that would create sweeping reforms to competition and consumer protection laws. Notably, the Digital Markets, Competition, and Consumers Bill would give the Competitive Markets Authority (CMA), the UK’s antitrust regulator, more authority over big digital firms. But if enacted, this will be bad news for the UK tech sector because it is likely to expand the CMA’s recent hostile approach to mergers in the online gaming sector to other nascent markets like generative AI and the metaverse, making it harder for the UK’s tech companies to compete against other countries, and penalizing businesses when they scale up.

Proposed in April 2023, the new bill provides the CMA with the ability to designate large businesses as having “strategic market status” (SMS) and fine these businesses 10 percent of their turnover if they break consumer and competition law. Just like the European Union’s Digital Markets Act, the UK proposal onerously acts ex-ante, punishing businesses for growing even before they attain market leadership.

Table 1: Summary of the UK’s Digital Markets, Competition, Consumers Bill

Given the precedence of recent decisions from the CMA, a proposal like this could prove detrimental to the UK tech market and multinational tech businesses for a few reasons.

The Bill Provides Too Much Jurisdiction to the CMA and Makes It Harder for Companies to Appeal Its Decisions

The CMA can decide when the law has been broken, investigate breaches, and enforce rules. The CMA will have the power to designate which firms, among those that meet revenue thresholds, have SMS based on whether these businesses have “substantial and entrenched market power” and “a position of strategic significance.” Absent further guidance, the CMA will have considerable latitude in determining which firms fit the designation. Whereas all businesses were previously subject to the same competition laws, this new bill will empower the CMA to cherry-pick and target some firms for stricter antitrust enforcement.

Unlike American antitrust law, where agency decisions face judicial review, this new bill would give one body—the CMA—the authority to punish companies with narrow recourse available for the targeted firms. In past CMA decisions, firms have been able to appeal case merits to the Competition Appeal Tribunal. But in this new configuration, firms can only appeal on procedural challenges, not case merits.

The Bill Disincentivizes Companies From Remaining in the UK, Which Will Likely Have a Negative Effect on the Country’s Tech Sector

The CMA will introduce separate conduct requirements for firms with SMS. These rules establish conduct requirements based on fair trading, open choices, trust, and transparency. The draft legislation states the CMA can ban a firm from “treat[ing] its own products more favourably than those of other undertakings” (self-preferencing), “applying discriminatory terms,” and “using data unfairly.” But since these categories are so broad, the new bill will grant the CMA extremely broad latitude in deciding what conduct to prohibit. Statements from the CMA confirm that the proposed Digital Markets Unit would establish flawed rules in the UK mirroring the Open App Markets Act and the Journalism Competition and Preservation Act.  

Examples suggest these rules could do more harm than good. Similar proposals requiring online platforms to pay news publishers have led firms to threaten to block news in Australia, Canada, and California. In sum, these proposals would likely harm British consumers by limiting their access to online content without ever benefitting small news publishers.

In addition to giving the CMA broad, unchecked power to regulate digital firms, the bill will introduce different standards for different companies based on arbitrary size thresholds and qualitative criteria. These thresholds currently exclude some significant tech companies, including Spotify, Epic Games, and TikTok. Although the bill claims to promote competition, the proposals would create unequal rules that discriminate against big firms and therefore harm their ability to compete with smaller rivals. Rather than cherry-picking which companies to regulate, the CMA should apply regulations uniformly to all companies operating in the UK.

Fines for violations are also far too large. The CMA can fine businesses up to 10 percent of global turnover for violations of new competition rules. Rather than accept these large fines without the possibility of appealing, firms may simply exit the UK, harming British consumers and the country’s tech sector.

The CMA Can Block Mergers and Fine Businesses on Predictive, but not Necessarily Accurate Information

The new bill will grant the CMA significant power to oppose mergers even when they have little connection to the UK. Specifically, the CMA will have jurisdiction to intervene when any party to a merger controls at least 33 percent of the supply of a good or service in the UK. This appears directed at so-called “killer acquisitions,” where the acquirer is a significant player in the UK. This expanded threshold will likely capture all acquisitions by SMS firms subject to mandatory reporting.

But the CMA’s track record suggests that it blocks mergers based on flawed premises. The CMA’s decision to block Microsoft’s acquisition of Activision last April is a perfect example. Despite strong evidence that Microsoft would license Activision titles to rivals and arguments that the deal would benefit consumers, the CMA blocked the deal even though the EU cleared it. The CMA has issued a similarly faulty decision blocking Meta’s acquisition of Giphy on the dubious grounds that the Gif library could someday compete with the tech giant on selling digital ads. Deliveroo’s founder even said the authority “treated [him] like a criminal” merely because Amazon offered to buy a stake in the firm. Put simply, the CMA has tended to oppose acquisitions even when they increase consumer access to new technology and do not pose a threat of monopolization.

The authority’s concerns about killer acquisitions are also largely overblown. Acquisition is a preferred exit strategy for startups because it allows entrepreneurs to recoup their costs. Acquisition also benefits consumers by increasing access to a startup’s innovation; for instance, Google built many high-quality apps, such as Google Maps, partly by acquiring start-ups like Waze. On the other hand, research disproves the CMA’s concerns that Big Tech is creating “kill zones” and depressing tech innovation.

Given the UK’s success in tech, it would be unwise to promote a proposal that could undo its trillion-dollar tech sector and expand the CMA’s powers to harass tech firms. Policymakers should instead focus on enforcing competition through existing legislation and enticing more multinational companies to seek UK talent, resources, and offices.

It is sad that rather than taking advantage of the freedom from Brussels’ regulators that Brexit gave them, British regulators seem to long for a return to the days of Euro overregulation. If they go down that path, the result should not be a surprise: a weak and stagnant tech sector just like the continent suffers from.