Appeals of Digital Markets Unit decisions: is a higher appeals standard only good for Big Tech?

The Digital Markets, Competition and Consumers Bill (DMCC) gives enormous discretion to the UK’s Competition and Markets Authority (CMA) to administer the UK’s new “Strategic Market Status” (SMS) regime for Big Tech. The CMA can choose not only how to exercise this discretion, but whether to exercise it at all in specific cases. This flexibility is a key strength of the UK regime – it means the regime can be tailored to specific firms’ circumstances and adapted over time as technology continues to evolve. But make no mistake, the DMCC itself does not impose any obligations on SMS firms. Obligations will only exist once the CMA exercises its power to impose conduct requirements or pro competition interventions (PCIs).

A comparison with the EU’s Digital Markets Act – aimed at curing the same “harm” as the DMCC – illustrates this vividly. To take one example, the DMA obliges Google and Apple (following their recent designation) to allow installation of alternative app stores on devices running their operating systems – this requirement was included in the text of the legislation by the European Parliament. The UK Parliament will impose no such requirement on Google and Apple when it eventually passes the DMCC: whether such an obligation is imposed at all, and its terms, will be entirely a matter for the CMA.

The delegation of what is in truth legislative power to the CMA has led to calls from some for additional checks and balances on how the CMA exercises this power. As we’ve previously written, the SMS regime is an outlier – all comparable regulatory regimes provide for a second “pair of eyes” on the decision, whether as part of the administrative process or through an appeal process.

In response to reports that the government is considering amendments to introduce checks and balances for the SMS regime, a flurry of letters have been published in the last two weeks suggesting this would be “watering down” the regime, or that it would significantly compromise the CMA’s ability to effectively administer the regime by allowing Big Tech to tie the CMA up in endless litigation.

The narrative that changes to the appeals standard or inclusion of other procedural safeguards would be to Big Tech’s sole benefit is appealing in its simplicity and makes a good headline. But it is not accurate. The scope of authority given to the CMA under the DMCC is immense and raises important issues of principle about oversight and accountability of legislative power that has been delegated to unelected bodies: these arguments have been made by many in the legal profession, most recently a joint working party of the UK Bars and Law Societies earlier this week.¹ This article will not focus on these issues of principle, but instead highlight two practical ways in which an enhanced standard of appeal may benefit third parties: first, the ability of the appeal court (the Competition Appeal Tribunal (CAT)) to “rescue” a CMA decision, and second, in making it easier for third parties (i.e. parties other than the SMS firm that is the subject of the relevant CMA decision) to challenge CMA decisions.

The significance of scope for the CAT to “rescue” CMA decisions in a merits appeal

Not only does an appeal on judicial review grounds narrow the scope for challenge compared to an appeal on the merits, it curtails what the CAT can do if it finds the CMA’s decision was taken in error. Where the CAT makes such a finding in a judicial review, it has no remedy available but to remit the case to the CMA – it cannot correct the CMA’s error, even if it is holding all the evidence it would need to do so.

The CAT made this precise point in a very recent judgment in the Hydrocortisone case, nothing that “whilst this [CMA error] would almost certainly be the end of the [CMA’s decision] were this a judicial review… this is an “on the merits” appeal. We have the jurisdiction to re-visit and re-determine this question... We have no doubt that – if it can properly be done – this is a question that we ought to determine now… so as to avoid the costs and delays inherent in remitting.” ²

The “costs and delays” which the CAT could sidestep in Hydrocortisone will be inevitable under the SMS regime on its current drafting. Where the CAT finds that a judicial review ground is made out, the decision in question will be quashed.³ This raises two issues: delay, and the lack of any (even an imperfect) order or direction applying while the remitted decision is retaken.

Our previous analysis showed that the time taken for remittals has historically been significantly longer than the time taken by the judicial process, meaning delays are likely to be significant. During this period of delay, it is very likely to be in third parties’ interests for some version of an impugned conduct requirement or PCI to continue to apply, but there is no legal basis for this under the current framing of the regime. To return to the app store example above, if the CAT were to find that there had been a procedural error in the way the CMA set a conduct requirement that side-loading of alternative app stores is permitted, the result would be that Google or Apple had no obligation to allow this (at least under the SMS Code of Conduct) while the remittal process runs.

Challengers’ challenges to CMA decisions

The decisions the CMA will be taking under the SMS regime will involve difficult judgment calls and weighing of competing interests. In some cases, the CMA will find the weight of these interests falls in favour of intervening in the business conduct of SMS firms. In others, the CMA will conclude intervention is not warranted. Whichever side’s interests do not win out will inevitably feel aggrieved – whether the SMS firm subject to the intervention, or the businesses hoping to take advantage of desired interventions that don’t come. In some cases, the aggrieved party will want to appeal. But on the current drafting of the bill, appeals by third parties will in practice be more challenging than appeals by SMS firms.⁴

As we have written previously, appeals on judicial review grounds do not allow the court to consider if the decision taken by the regulator is correct, only whether it has been made through a proper process. The DMCC therefore provides no right of appeal on the basis that the CMA got a decision “wrong” – an appellant must point to a particular defect in the process through which the decision was taken. This framework will make third party appeals particularly challenging because third parties will not be privy to many process issues.

A review of historical cases in which third parties have sought to appeal perceived “underenforcement” on judicial review grounds demonstrates this difficulty. For example in AXA PPP’s appeal of the private healthcare market investigation (which criticised the CMA’s non-intervention in relation to the formation and operation of anaesthetists groups), the CAT emphasised that the judicial review standard meant it had a limited role, and that the CMA had wide discretion to make choices as to how it prioritised its workload. Similarly, in ACS and NFRN v Office of Fair Trading (OFT) and Press Distribution Forum,⁵ two retailer trade bodies jointly challenged the OFT (the CMA’s predecessor) for deciding not to review the newspaper and magazine distribution industry. The trade bodies argued that the OFT’s prioritisation decision had relied upon flawed evidence from publishers and wholesalers and failed to take account of evidence from the retail side of the market. In rejecting the appeal, the CAT found unequivocally that issues relating to the weight to be given to conflicting evidence are “not matters in which it is appropriate for a reviewing court, applying judicial review principles, to interfere. It is up to the OFT to consider the conflicting evidence submitted to it about retailer numbers and decide which evidence to accept”.⁶

Unsurprisingly, the poor prospects of successfully appealing CMA decisions on judicial review grounds as a third party means such appeals are not common. By contrast, under regimes with enhanced review mechanisms (whether merits or what has been referred to as “judicial review plus”), the track-record for third party appeals is much better, and third party appeals make up a larger proportion of all appeals. Looking at the energy and telecoms regimes, appeals by third parties are both frequent and frequently successful (generally resulting in regulators being forced to reconsider price / tariff control decisions). Indeed, the Government’s impact assessment on the policy change to a judicial standard in the telecoms regime identified that a number of appeals that had been successful under the merits standard would probably have failed under the judicial review standard.⁷ The majority of these cases involved third party / challenger appeals.

It does not take much imagination to identify scenarios in which third parties will want to challenge CMA decisions for failing to go far enough (or indeed, failing intervene at all). There are high hopes for what the CMA will achieve with the SMS regime and it’s inevitable not everyone will be happy with the way the CMA resolves the difficult questions before it. But the judicial review standard means it will be difficult for non-SMS firms to appeal. This has implications not only for those parties, but for the regime itself, in what it implies for how the CMA weighs appeal risks. In addition, experiences in other regulatory contexts also show that substantive third party appeals (even where unsuccessful) can shine a light on aspects of where policy making may have gone wrong and help shape regulatory policy for the better in future decisions. This is lost if third parties do not pursue appeals because their prospects of success are low.

Conclusion

The CMA and the Government have repeatedly emphasised the need for the insight and expertise of third parties in the design and implementation of the SMS regime, given information asymmetries between CMA and SMS firms. However, the consultation and participation mechanisms for third party involvement are light and non-prescriptive in the DMCC. With all the will in the world, the CMA will simply not have the resource to spend as much time engaging with third parties as it will with SMS firms.

It is right that the firms whose property rights and business models are directly affected by the conduct requirements and PCIs the SMS regime will implement have the most extensive interaction and engagement with the regulator – it could not be any other way. But this inevitably means SMS firms will have the most face time with the CMA as interventions are designed, and in turn, the most “ammunition” to challenge CMA decisions, whatever the standard of appeal. The judicial review standard for appeal means any third party appeals are likely to be limited, and rarely successful.

In practice, this means the CMA will rightly worry about appeals on judicial review grounds by SMS firms, but unless there is a change to the current review standard, will not need to lose sleep over appeals of decisions not to take enforcement action. This is a critical dynamic to bear in mind in the context of the SMS regime, where there are no rules unless and until the CMA makes them. To assume a higher level of judicial scrutiny is to the sole advantage of SMS firms would be to assume that the only errors the CMA will make in administering the SMS regime are those of over-intervention. Such an assumption is more than a little at odds with the history of perceived underenforcement that has led us here.

Authors

Verity Egerton-Doyle

Partner and Global Co-Head of Gaming, Linklaters

Verity is a partner in Linklaters’ London Antitrust & Foreign Investment Group and co-head of the UK technology sector team and Global Co-Head of Gaming.

Verity has over a decade of experience across advisory, investigatory and transactional aspects of competition law in the EU and the UK, including on vertical and abuse of dominance issues. She is particularly familiar with the UK’s Competition and Markets Authority, having spent time on secondment to the CMA’s mergers group, during which she sat on the CMA’s Mergers Intelligence Committee. 

Verity is recognised as a leading commentator on competition and regulatory issues in the tech sector and on forthcoming platform regulation regimes.

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