Digital Markets, Competition and Consumers Act: Impact on competition litigation

Introduction

The Digital Markets, Competition and Consumers Act (DMCC Act) received Royal Assent on 24 May 2024 and is generally expected to come into force in autumn this year.

The new legislation aims to protect consumers by introducing a new UK digital regulatory regime and by strengthening private and public enforcement of competition law. As explained below, the DMCC Act contains a number of provisions which are likely to be of interest to competition litigators. We consider three developments in particular below.

Three developments in competition litigation

1. Private enforcement of digital regulation

As we explain here, the DMCC Act confers new powers on the Digital Markets Unit (DMU) within the Competition and Markets Authority (CMA). The DMU will oversee the new digital regulatory regime aimed at promoting greater competition and innovation in digital markets while protecting consumers and businesses from unfair practices.

Under the DMCC Act, the DMU will:¹

• be able to designate firms with “strategic market status” (SMS) in respect of one or more digital activities (provided the digital activity is linked to the UK and the firm meets the relevant SMS conditions, which the DMU has nine months to determine once it begins an SMS investigation, excluding extensions) and impose specified types of conduct requirements on SMS firms;
• investigate suspected breaches of conduct requirements and provide its findings as to whether an SMS firm has committed a breach within six months (potentially leading to an enforcement order if a breach is found), which is a much quicker timescale than traditional CMA investigations;
• have broader powers to make “pro-competition interventions” (PCIs) in relation to SMS firms where, following a PCI investigation, it considers factors relating to a relevant digital activity are having an adverse effect on competition, and the PCI is likely to help to remedy or prevent that adverse effect (which could include a PCI order imposing requirements as to how an SMS firm conducts itself in relation to the digital activity or otherwise); and
• have the power to accept commitments from an SMS firm as to its conduct – which could be in relation to an investigation into a suspected breach of a conduct requirement or to help address an adverse effect on competition or on UK users identified as part of a PCI investigation.

The above conduct requirements, requirements imposed by virtue of a PCI order and requirements arising from commitments are each referred to in the DMCC Act as a “relevant requirement” for the purposes of sections 101 and 102.

The DMCC Act provides that an SMS firm will owe a duty to any person who may be affected by a breach of a “relevant requirement”. This means that private litigants who suffer loss or damage as a result of an SMS firm breaching a relevant requirement will be able to bring a claim for breach of statutory duty, without the need to separately (i) evidence that the SMS firm owes the claimant the relevant duty or (ii) prove the constituent elements of a competition clam such as (for example) market definition and dominance. Private litigants will only need to demonstrate that the SMS firm has breached the relevant requirement, thereby causing loss or damage.

The DMCC Act allows claimants to bring a claim on a standalone basis, as described above. Significantly, it also allows claimants to bring follow-on claims, where the DMU has itself decided in a “breach decision” that the relevant SMS firm has breached a relevant requirement. The ability to bring follow-on claims means that private litigants will be able to rely on the DMU’s finding of breach, and hence they will only need to prove loss and damage.

2. Re-introduction of exemplary damages

Section 126 of the DMCC Act re-introduces the ability of the courts and the CAT to award exemplary or “punitive” damages in private competition claims. Punitive damages are more commonly seen in tort claims where the breach of duty is deliberate, and the wrongdoer has profited from their actions in an amount that is more than the loss they have caused. They are intended to punish a defendant, thereby deterring the defendant (and others) from committing further breaches of competition law.

The change to allow courts to award exemplary damages in respect of competition claims will only apply prospectively, where both the infringement occurs and the loss is suffered after the DMCC Act comes into force. Exemplary damages will not be available in collective proceedings, while immunity recipients will be liable to pay exemplary damages only to their direct or indirect customers or suppliers and not liable for exemplary damages that a claimant is unable to obtain from other undertakings involved in the cartel.

Claims for exemplary damages in respect of competition claims had previously been prohibited in order to comply with EU legislation – so the DMCC Act’s reform in this area is an example of post-Brexit divergence between the UK and EU competition regimes. The possibility of reducing their risk of exemplary damages will also be an additional factor for companies to consider when weighing up whether to apply for immunity.

3. Litigation funding – reversal of PACCAR postponed

Finally, earlier drafts of the DMCC Act had sought to reverse the impact of the Supreme Court’s decision in PACCAR² last summer, in which the Supreme Court held that litigation funding agreements which remunerated funders by a percentage of damages awarded were damages-based agreements (DBAs) and were not enforceable.

This was particularly relevant as regards competition litigation because section 47C(8) of the Competition Act 1998 contains a prohibition on DBAs for opt-out collective proceedings. As a result, many funding agreements in competition collective proceedings were thought to be unenforceable and were subsequently amended to provide for a different mechanism for remuneration to funders.

However, the DMCC Act does not now contain a provision reversing the effect of PACCAR in respect of competition proceedings. That provision was moved into the Litigation Funding Agreements (Enforceability) Bill (see our article on this Bill here). As a result of the UK’s snap general election on 4 July 2024, the Litigation Funding Agreements (Enforceability) Bill has fallen away. Therefore, at least for now, the impact of the PACCAR judgment looks set to continue. The issue may be re-visited by the new Parliament in the future, although the Litigation Funding Agreements (Enforceability) Bill was not included in the proposed legislation set out in the King’s Speech on 17 July 2024.

Comment

The DMCC Act is the culmination of many years of work (including a number of detailed reports, proposals and consultations) looking into whether the UK competition and consumer law regimes remained fit for purpose or needed strengthening, including by way of the new digital regulatory regime for SMS firms.

Before many of the changes under the DMCC Act can apply, various new guidance is needed and the CMA (known to be frustrated with how long the DMCC Act has taken) is keen to get this in place as soon as possible. Reflecting this, the CMA launched the first consultations on its new draft guidance the same day the DMCC Act received Royal Assent and a number of further consultations have followed since then.

The CMA has indicated that it expects to launch three to four SMS investigations in the first year after the DMCC Act comes into force. The draft CMA guidance confirms that the development of conduct requirements can run in parallel with an SMS or PCI investigation, so the DMU will be able to impose conduct requirements very shortly after the first SMS designations. Once the DMU has imposed relevant requirements on an SMS firm, private litigants could then bring claims as and when  potential breaches come to light.

One potentially significant proposal which did not make it into the final DMCC Act (or the recent King’s Speech) is a new ability for collective actions to be brought in the CAT for breaches of consumer protection law. This had some support in the House of Commons and House of Lords, but ultimately was not taken forward. Its omission may mean that claims which might ordinarily be considered to be closer to breaches of consumer law continue to be pursued as collective actions for breaches of competition law.