In the run-up to the TLS in-person event (The Future of EU & UK Competition Regulation), there was heightened chatter about the long-anticipated yet unreleased Digital Markets, Competition, and Consumers (DMCC) Bill. A mere five days after the event, news hit that the draft bill was finally introduced into Parliament in a substantial 388-page document in the first formal stage in its journey to becoming UK law—described as a “potential […] watershed moment,” according to CMA CEO Sarah Cardell. If that wasn’t big enough news to rock the competition law world, on April 26, the CMA blocked the proposed acquisition of Activision Blizzard by Microsoft. Both of these hot topics were addressed in our session on digital markets, kindly supported by Diogo Pereira (Meta), Anna Mitchell (Linklaters), Charlie Slingsby (Twitch, Amazon), Robert Bell (Armstrong Teasdale), and Sasha Toussaint (TLS).

Tough Love is certainly a possibility, given this new legislation will bring reforms to UK competition law in and out of the digital space. The Bill establishes a new regulatory framework for digital markets, which includes an expansion to the jurisdictional threshold for mergers designed to catch killer acquisitions and conglomerate mergers and the strengthening of the CMA’s investigative abilities. In a nod to the genesis of the legislation, it also significantly boosts the CMA’s consumer protection enforcement powers. Under the new Bill, if the CMA designates a firm as having “strategic market status” (SMS) with respect to digital activity, the CMA will have the power to impose “conduct requirements” to direct companies on how they must interact with their users and other undertakings. Additionally, SMS firms will be subject to a wider obligation to report possible M&A activity before it takes place. Of course, the DMCC now must pass the two houses of Parliament and receive royal assent before it becomes law. With further hurdles to overcome, the law is not expected to apply to designated tech companies until 2025. Given the speed at which these tech companies evolve, much remains to be seen about how the regulations will apply in practice. Further “deep-dive” commentary from our partners is available here and here.

Although the DMCC Bill is not yet UK law, a peak in the “current mood” was felt with the announcement that the CMA blocked Microsoft’s high-profile acquisition of Activision Blizzard. The potential outcome of this decision was discussed during the “Digital Tough Love” session as a potential indicator of the CMA’s thinking for upcoming deals. This mega vertical merger, worth an estimated $68.7B, is particularly high-profile, as Activision Blizzard is the sprawling corporation behind household game names, such as Candy Crush Saga, World of Warcraft, Tony Hawk’s Pro Skater, and Call of Duty. The CMA is just one of a number of international regulators investigating the potential acquisition. The United States Federal Trade Commission (FTC) already sued to block the acquisition in 2022, with a court appearance expected this year. The Australian investigation continues, whereas the European Union and Japan have both cleared the merger. The reasons behind the CMA and the FTC’s decision to block the merger tie in with concerns about Microsoft’s potential hold on the cloud gaming market, which changes the calculations around the impact of this particular vertical merger. With no meaningful competitors in this space and Microsoft’s ownership of the “one in a million” Call of Duty—the potential for huge profit and squashing of currently non-existent competition was deemed high enough to warrant the block. The fall-out has seen a press tour from both tech companies arguing that this decision proves the UK isn’t ready for an impactful and thriving tech sector, which will impact tech growth plans in the UK, and the parties have both announced their intention to appeal the CMA’s decision before the Competition Appeals Tribunal (CAT). The question now is whether this latest decision, following the CMA’s order last year for Meta to unwind its acquisition of Giphy, gives any indication of the CMA’s future decisions concerning M&A in the tech sector.

With these two major headlines in the space where competition law and digital markets converge—how are companies preparing for changes in regulations and regulatory power? While consumer protection is key, only time will tell whether the new regulatory framework for digital markets will strike the right balance between reigning in the market power of big technology companies and ensuring these companies continue to be innovative and develop new products for the benefit of consumers. Another key question is to what extent technology companies will seek to challenge the new framework (e.g., by appealing the CMA’s future SMS designations, conduct requirements, or decisions to block M&A). If the Microsoft/Activision and Facebook/Giphy appeals to the CAT are anything to go by, the future of digital market regulation may be hotly contested.

Horizon gazing during the Digital Tough Love session was very much tied to the upcoming DMCC Bill and Microsoft decision—so what is next? Both of these tremendous events will continue to play out in the coming months and years, and we at TLS are grateful for the opinions and expertise provided by our speakers during this session and in years to come.