Digital Markets, Competition and Consumers Bill
Wednesday 24th January 2024
(10 months, 4 weeks ago)
Grand CommitteeDigital Markets, Competition and Consumers Act 2024 View all Digital Markets, Competition and Consumers Act 2024 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 12-II(b) Amendment for Grand Committee (Supplementary to the Second Marshalled List) - (24 Jan 2024)
Lord Faulks
Member’s explanatory statement
This amendment would restore the Bill’s original wording in relation to Clause 19.
Lord Faulks (Non-Afl)
My Lords, I begin by apologising for not taking part at Second Reading. I have read the excellent debate, including the helpful introduction by the Minister. I also had the privilege of sitting through the first day in Committee, during which I learned a great deal. I refer to my interests in the register. I am not a competition lawyer, but I have experience of judicial review and of the operation of the Human Rights Act. I was chair of the Independent Review of Administrative Law, which reported a couple of years ago and resulted in the Judicial Review and Courts Act.
My amendment, which has the support of the noble Baroness, Lady Stowell, and the noble Lord, Lord Black of Brentwood, concerns the use of the word “proportionate” in Clause 19. I also have a similar amendment in this group, Amendment 53, which concerns Clause 46.
Despite some heavy lobbying of the Government by big tech, the right to appeal against an intervention by the CMA will engage the judicial review test, rather than a merits test, except as to penalty. Later amendments will carefully probe this latter aspect and I look forward to hearing the debate.
The original adjective in Clause 19 was “appropriate”. The word “proportionate” replaced it at a relatively late stage in the Bill’s progress through the Commons. Why? In one view, it is an innocuous change. Indeed, one would expect an intervention by the Digital Markets Unit to be proportionate. The word also has a respectable legal pedigree. For example, you can defend yourself against attack, provided that your response is proportionate to the attack. Whether that response is proportionate will be a question of fact, often for a jury to decide.
But judicial review is primarily concerned not with the facts of a decision but with the process by which the decision is made. Classically, the courts got involved only if a decision was so unreasonable that no reasonable public body could have reached it. The scope of judicial review has expanded somewhat to include challenges based on, for example, irrationality or the failure to take into account relevant considerations. There are other grounds, but all are effectively concerned with the process rather than with factual findings, although I readily concede that there are occasions when these distinctions can be somewhat opaque.
Since the enactment of the Human Rights Act, the concept of proportionality has entered the law in relation to judicial review, but only in limited circumstances. The most recent edition of De Smith’s Judicial Review, generally regarded as the leading textbook in this area, says at 6-090:
“Domestic courts are required to review the proportionality of decisions and enactments in two main categories of case: cases involving prima facie infringements of Convention rights and cases involving EU law”.
Some think that proportionality should be the test in all cases of judicial review, but that is not currently the law.
I cannot see why an appeal in the context of this Bill would obviously involve a convention right, although those rights have a habit of getting in everywhere. If convention rights are engaged, proportionality comes into the analysis anyway. Choosing to put “proportionate” into the legislation might lead a court to conclude that Parliament had deliberately used the word to widen the scope of a judicial review challenge, even when no convention right is engaged. For my part, that is a risk that I do not think should be taken. Your Lordships’ House is well aware of the risk of expensive, time-consuming litigation that may result from these interventions, which it may be perfectly sensible to bring about.
A proportionality test is far closer to an appeal on the facts than one based on conventional judicial review principles. Whether an intervention is proportionate or not gives the court greater scope for looking at those facts. I would therefore much prefer to revert to the original word, “appropriate”, which does not carry the same heavy legal charge and does not risk expanding the grounds of appeal. I look forward to hearing the Minister’s response and explanation behind the change in wording. I beg to move.
The Deputy Chairman of Committees (Baroness Fookes) (Con)
I add at this point that, if Amendment 16 were to be agreed, I could not call Amendment 17 by reason of pre-emption.
Baroness Stowell of Beeston (Con)
My Lords, I am hugely grateful to my noble friend Lord Faulks, if I can still call him that—in real life, he is my friend, even if he now sits on another Bench—both for tabling his amendments and for the incredibly comprehensive and thoughtful way in which he has introduced this group. To have the noble Lord’s expertise on this topic is incredibly valuable. I have signed his Amendments 16 and 53 but have also tabled my own in this group: Amendments 17 and 54. I am grateful to the noble Lords who have signed mine.
By way of some background to add to what the noble Lord has said, as I mentioned on the first day in Committee, and indeed at Second Reading, the Communications and Digital Select Committee held hearings on the Digital Markets, Competition and Consumers Bill during the summer of last year. We took evidence from the large tech firms as well as a range of challenger firms. We focused on Parts 1 and 2 of the Bill, which is what we are discussing at this time.
As my noble friend the Minister acknowledged when he spoke at Second Reading, we as a committee found that the Bill as it stood at that time—as introduced to Parliament—struck a careful balance. We felt that, overall, it was proportionate and would deliver on the outcomes that we were seeking to achieve and all felt were necessary for this legislation—namely, a level playing field for the various different businesses that now seek to operate in digital markets. We were careful to acknowledge that striking that balance was hard to achieve; it was not an easy thing. We commended the Government for that. We were also clear, however, that any further changes, particularly to some contentious areas, such as the appeals process, could cause significant problems.
As the noble Lord, Lord Faulks, said, we will come on to the question of appeals in a later group. The insertion of the word “proportionate” in the Bill, in the context of the conduct requirements that the CMA may impose, or the specific pro-competition interventions, has the potential to create a question and introduce a loophole that could be exploited during the appeals process. This is making people nervous—it is certainly making me nervous.
The noble Lord’s amendment would change the Bill back to its original wording. I have signed the amendment based on the way he, as a legal expert, has explained it, which seems to me to be the best way forward. However, my Amendments 17 and 54 try to make it clear to any tribunal hearing down the line that, by including the word “proportionate”, Parliament has not intended to create any new, novel or different opportunity for anybody to interpret what the CMA should always be doing, which is being proportionate in the way in which it goes about its duties. My amendments are, if you like, a safeguard, but I think what the noble Lord, Lord Faulks, has proposed is clearer and neater. Like him, I look forward to the Minister’s reply. This is an area which is causing quite a lot of concern and on which we need a clear response from the Government.
Baroness Harding of Winscombe (Con)
My Lords, it is an honour to follow such an esteemed legal brain and parliamentary brain. I am neither, but I have put my name to my noble friend Lady Stowell’s two amendments and I want to make two points in support of her arguments.
The common-law concept of proportionality is important in this legislation. I am not supporting these amendments in any spirit other than wanting to make sure that we are proportionate in the way we regulate the technology sector. After our first day in Committee, I was reflecting a little that perhaps all of us got a bit carried away—certainly I did—with some of our oratory about the importance of mitigating the downsides of the technology sector. I want to put it on the record that I recognise the upsides, too. Therefore, a proportionate path is important. I sit on the Communications and Digital Select Committee that my noble friend so ably chairs and, as she said, we felt that the Bill as introduced into the Commons got that proportional balance right.
We have been in this place before, having a very similar argument. A number of us here today are part of the Online Safety Act gang. I had a look at Hansard and on 19 July, during the last group on Report on the Online Safety Bill, I proposed a group of amendments in the name of the noble Baroness, Lady Kidron, which sought to clarify how non-content-related harms would be captured in the Bill. The argument made by the Minister, my noble friend Lord Parkinson of Whitley Bay, was that, by trying to define it in the Bill, we would create legal uncertainty because that concept was already defined. Now we find ourselves on the opposite sides of the same argument, where I think I am hearing the Government say that there is no intention to bring in any different definition of proportionality than that which already exists—that the CMA is already mandated to give significant consideration to proportionality—yet they want to put the word back in the Bill in the way that they resisted firmly in the Online Safety Bill, when a number of us were seeking a different form of clarification. I do not think that you can have it both ways quite so quickly in related legislation. Either the Government mean something different from the existing requirements of proportionality that the CMA is under, or we should simply take out this additional complexity and reduce the risk of further legal disputes once the Bill is enacted.
Baroness Kidron (CB)
My Lords, I have had a number of arguments about “proportionate” in the decade that I have been in this House. In fact, I remember that the very first time I walked into the Chamber the noble Lord, Lord Pannick, was having a serious argument with another noble Lord over a particular word. It went on for about 40 minutes and I remember thinking, “There is no place for me in this House”. Ten years later, I stand to talk about “proportionate”, which has played such a big part in my time here in the Lords.
During the passage of the DPA 2018, many of us tried to get “proportionate” into the Bill on the basis that we were trying to give comfort to people who thought data protection was in fact government surveillance of individuals. The Government said—quite rightly, as it turned out—that all regulators have to be
“proportionate, accountable, consistent, transparent, and targeted”
in the way in which they discharge their responsibilities and they pushed us back. The same thing happened on the age-appropriate design code with the ICO, and the same point was made again. As the noble Baroness, Lady Harding, just set out, we tried once more during the passage of the Online Safety Bill. Yet this morning I read this sentence in some draft consultation documents coming out of the Online Safety Act:
“Provisionally, we consider that a measure recommending that users that share CSAM”—
that is, for the uninitiated, child sexual abuse material—
“have their accounts blocked may be proportionate, given the severity of the harm. We need to do more work to develop the detail of any such measure and therefore aim to consult on it”.
This is a way in which “proportionate” has been weaponised in favour of the tech companies in one environment and it is what I am concerned about here.
As the noble Lord said, using “proportionate” introduces a gap in which uncertainty can be created, because some things are beyond question and must be considered, rather than considered on a proportionate basis. I finish by saying that associating the word specifically in relation to conduct requirements or making pro-competitive interventions must create a legal uncertainty if a regulator can pick up that word and put it against something so absolute and illegal and then have to discuss its proportionality.
Lord Vaizey of Didcot (Con)
I wonder if I can just slip in before Members on the Front Bench speak, particularly those who have signed the amendment. I refer again to my register of interests.
I support the principle that lies behind these amendments and want to reinforce the point that I made at Second Reading and that I sort of made on the first day in Committee. Any stray word in the Bill when enacted will be used by those with the deepest pockets—that is, the platforms—to hold up action against them by the regulator. I read this morning that the CMA has resumed its inquiry into the UK cloud market after an eight-month hiatus based on a legal argument put by Apple about the nature of the investigation.
It seems to me that Clause 19(5) is there to show the parameters on which the CMA can impose an obligation to do with fair dealing and open choices, and so on. It therefore seems that “proportionate”—or indeed perhaps even “appropriate”—is unnecessary because the CMA will be subject to judicial review on common-law principles if it makes an irrational or excessive decision and it may be subject to a legal appeal if people can argue that it has not applied the remedy within the parameters set by paragraphs (a), (b) and (c) of Clause 19(5). I am particularly concerned about whether there is anything in the Bill once enacted that allows either some uncertainty, which can be latched on to, or appeals—people refer to “judicial review plus” or appeals on the full merits, which are far more time-consuming and expensive and which will tie the regulator up in knots.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in day two of Committee on the DMCC Bill. Again, I declare my interest as an adviser to Boston Limited.
It is a pleasure to follow the introduction from my noble friend Lord Faulks. I think is highly appropriate that we discuss proportionality. I have a number of amendments in my name in this group: Amendments 33, 52 and 220, and then the rather beautifully double Nelsonian, Amendment 222. Essentially, a considerable amount of work needs to be done before we can have proportionality going through the Bill in its current form. My amendments suggest not only addressing that but looking at counter- vailing benefits exemptions and financial penalties.
Agreeing with pretty much everything that has been said, and with the tone and spirit of all the amendments that have been introduced thus far, I will limit my remarks to Amendment 222. It suggests that regulations bringing into force Clauses 19, 21, 46 and 86
“may not be made until the Secretary of State has published guidance”
going into the detail of how all this will operate in reality.
Proportionality is obviously a key element, as has already been discussed, this is just as important, as we will come on to in the next group. My Amendment 222 straddles the groups a bit, under the vagaries of grouping amendments, but it is nevertheless all the better for it.
I look forward to hearing my noble friend the Minister’s response on proportionality, countervailing benefits exemptions and financial penalties, and on the need for clear, detailed guidance to come from the Secretary of State before any moves are made in any and all of these areas.
Lord Black of Brentwood (Con)
My Lords, I am afraid I am going to play the role of Little Sir Echo here. I hope that the unanimity expressed so far will send a strong message to my noble friend the Minister. I support Amendment 16 in the name of the noble Lord, Lord Faulks, to which I have added my name, and Amendments 17, 53 and 54. I note my interests as declared at the start of Committee.
As I made clear in my remarks on Second Reading, we must, throughout the consideration of the Bill, steadfastly avoid importing anything into the CMA and DMU procedures that would allow the platforms to deploy delaying tactics and tie up the regulators in endless legal knots. Long legal wrangling will destroy the very essence of the Bill, and it is not mere speculation to suggest that this might happen. As we have seen elsewhere in the world, and indeed in publishers’ own existing dealings with the platforms, we do not need to gaze into a crystal ball; we can, as the noble Lord, Lord Tyrie, put it the other day, read the book.
In that light, as we have heard consistently this afternoon, I fear that the government amendments made in the other place, requiring the conduct requirements and PCIs to be proportionate rather than appropriate, do just that. They impose significant restrictions on the work of the CMA and, as an extremely helpful briefing—which I think all Members have had—from Which? put it, produce “a legal quagmire” that would allow the unaccountable platforms
“with their vast legal budgets … to push back against each and every decision the regulator takes”.
It is simply counterintuitive to the design of the flexible and participatory framework the legislation portends. As my noble friend Lady Stowell said, it certainly makes me very nervous.
The key point is that introducing the concept of proportionality is, frankly, totally otiose, as the noble Lord, Lord Faulks, put it so well, as proportionality is already tested by judicial review—something the CMA itself has already reiterated. The courts, in this novel area of legislation, will rely on Parliament clearly to state its intentions. Introducing the concept of proportionality not only is unnecessary but in fact muddies the waters and creates confusion that will be mercilessly used by the platforms. It certainly does not produce clarity. The Government really must think again.
Lord Tyrie (Non-Afl)
My Lords, I do not know whether I am the sole dissenting voice—I do not think I am—but I want to make one preliminary point. I never thought I would make a point in defence of lawyers, but not all legal challenge or scrutiny will necessarily be wrong as this Bill proceeds or as the CMA takes its decisions. It is extremely important that we bear in mind, as we will come on to later on in the Bill, that we need to have a sense of balance about all this, so that we do not allow quite reasonable discontent with some of the shocking practices we have seen from platforms to lead us to a place that we might subsequently regret and which could lead to injustices or damage to British interests through loss of innovation or inward investment.
I listened very carefully to what the noble Lord, Lord Faulks, said. It seemed to boil down to very few things. Are convention rights engaged? They probably are, or if they are not then they will be. Even if they are not, the courts will find a way of getting them in eventually. If they are, what have the Government added? That is why I think I might be with the amenders here. I think very little, if anything at all, has been added. Was this a piece of window dressing, supplied by the Government to satisfy the intense lobbying that has taken place, particularly of No. 10? It had a whiff of that about it for me when I first saw it—I see one or two nods of assent. If it is, I am particularly wary of this change, which is what leads me to think that the amenders might be right. If it is more than this—if something very substantive has been added—then I think we would all like to hear from the Minister what exactly it is that, as a result of the adding of “proportionality”, will be considered for legal scrutiny when this Bill is on the statute book.
Lord Lansley (Con)
My Lords, I will briefly intervene. I have not signed the amendments but I am rather supportive of what the noble Lord, Lord Faulks, said in support of his amendment.
In thinking about this, among other thing I had the benefit of seeing a letter that the Parliamentary Under-Secretary at the department sent to my friends in another place, Robert Buckland and Damian Collins, after Report in the Commons; other noble Lords may have seen it. In that letter, he set out why he was building proportionality into Clause 19. He said:
“Our intention for this amendment is to allow a firm to appeal a decision by arguing that the DMU made public law errors in its consideration of proportionality under normal JR principles—without establishing that their rights under the European Convention on Human Rights are engaged”,
for example, the right to peaceful enjoyment of possessions. So that would not bring convention rights on board. The letter continues: “For example”— it is always helpful to have an example—
“the firm could argue that the DMU failed to take a relevant consideration into account, made a material error of fact or otherwise acted unreasonably”—
so JR principles—
“when deciding against an intervention that would have been less burdensome on the firm while still achieving the same outcome”.
So the outcome has to be achieved, but is it proportionate to impose this particular conduct requirement or pro-competitive intervention?
Lord Kamall (Con)
My Lords, I have not put my name to these amendments but I want to speak in favour of Amendments 16, 17 and others in this group. After the first day of Committee, which I sat through without speaking, one noble Baroness came up to me and said I was unusually quiet—“unusually” being the key word there. When another noble Lord asked me why I sat through proceedings without saying a word, I said I had once been told about the principle that I should speak only if it improves the silence. Given the concern for my welfare shown by those two noble Members, I am about to violate that principle by making a few remarks and asking a couple of questions.
As this is the first time for me to speak in Committee, I refer noble Lords to my interests as set out in the register. These include being an unpaid member of the advisory board of Startup Coalition and a non-executive director for the Department for Business and Trade. I have also worked with a couple of think tanks and have written on regulation and competition policy, and I am a professor of politics and international relations at St Mary’s University. I mention that last role because in future interventions I will refer to some political science theories, but I assure noble Lords that I will try not to bore them. I am also a member of the Communications and Digital Committee.
I want to make only a short intervention on the amendments. Previous noble Lords made the point that we want to understand the Government’s intention behind deciding to change the word from “appropriate” to “proportionate”. I am grateful to my noble friend Lord Lansley for seeking to answer that question. I am not a lawyer, so I am very grateful to the noble Lord, Lord Faulks, for his intervention, which explained the legal context for “proportionate”. It has to be said, however, that at Second Reading I and a number of other noble Lords repeatedly asked the Minister to clarify and justify the change in wording. A satisfactory answer was not given, hence we see these amendments in Committee.
We could argue that this is an entirely appropriate response to what my noble friend said in Committee. Maybe the Government could argue that it was a proportionate response. It is a very simple question: can the Minister explain the reasons? Is it, as my noble friend Lord Lansley says, that there is something wider in “proportionate” than “appropriate”? Will the Government consider bringing forward an amendment that explains this—sort of “appropriate-plus”—to make sure that it is legally well understood? Can the Government assure us that it is not a loophole to allow more movement towards a merits appeal, as opposed to judicial review, which many of us have come to support?
I have some support for Amendment 222, in the name of my noble friend Lord Holmes, which seeks clarity on the appeal standards for financial penalties and countervailing benefits, but I know we will discuss these in a later group.
Lord Clement-Jones (LD)
My Lords, this has been a really interesting and helpful debate, with a number of noble Lords answering other noble Lords’ questions, which is always pretty useful when you are summing up at the end. One thing absolutely ties every speaker together: agreement with the letter to the Prime Minister from the noble Baroness, Lady Stowell, on behalf of her committee, about the need to retain the JR principle throughout the Bill. That is what we are striving to do.
It was extremely interesting to hear what the noble Lord, Lord Lansley, had to say. He answered the second half of the speech by the noble Lord, Lord Tyrie. I did not agree with the first half but the second was pretty good. The “whiff” that the noble Lord, Lord Tyrie, talked about was answered extremely well by the noble Lord, Lord Lansley. It was a direct hit.
The interesting aspect of all this is that the new better regulation framework that I heard the noble Lord, Lord Johnson, extolling from the heights in the Cholmondeley Room this afternoon includes a number of regulatory principles, including proportionality, but why not throw the whole kitchen sink at the Bill? Why is there proportionality in this respect? It was also really interesting to hear from the noble Lord, Lord Faulks, who unpacked very effectively the use of the proportionality principle. It looks as though there is an attempt to expand the way the principle is prayed in aid during a JR case. That seems fairly fundamental.
I hope that the Minister can give us assurance. We have a pincer movement here: there are a number of different ways of dealing with this, in amendments from the noble Lords, Lord Holmes and Lord Faulks, and the noble Baroness, Lady Stowell, but we are all aiming for the same end result. However we get there, we are all pretty determined to make sure that the word “proportionate” does not appear in the wrong place. In all the outside briefings we have had, from the Open Markets Institute, Foxglove and Which?, the language is all about unintended consequences and widening the scope of big tech firms to challenge. What the noble Lord, Lord Vaizey, had to say about stray words was pretty instructive. We do not want language in here which opens up these doors to further litigation. The debate on penalties is coming, but let us hold fast on this part of the Bill as much as we possibly can.
Lord Bassam of Brighton (Lab)
My Lords, I thank the noble Lord, Lord Faulks, for his neat and precise analysis of the position in which we find ourselves in the discussion on this group of amendments. This debate is a prequel to that which will follow on penalties, and we should see it in that light; the two things are very much connected, as the noble Lord, Lord Clement-Jones, made clear. Like him, I completely agreed with the noble Lord, Lord Vaizey, when he warned about using stray words. Proportionality is probably one of the most contested terms in law, and in all the 25 years or so that I have been in this House, I must have heard it in all the legal debates we have come across.
These are the first amendments seeking to restore some of the Bill’s original wording, which, as we have heard, was changed late in the day in the Commons. We are yet to receive a full explanation from the Minister of the reasons for that. The noble Lord, Lord Faulks, asked why, and we on these Benches pose the same question. Were Ministers lobbied into this and, if so, why? We support Amendments 16 and 53 in the name of the noble Lord, Lord Faulks, which, as he outlined, seek to restore the original wording of the Bill, taking out the word “proportionate”, removing proportionality as the determining factor behind a CMA pro-competition intervention and reinserting the word “appropriate”.
We have two, possibly three, sets of solutions to the problem that the Government have set. However, we also have added our names to Amendments 17 and 54, in the names of the noble Baronesses, Lady Stowell and Lady Harding, and the noble Lord, Lord Clement-Jones, with the intent of ensuring that clarifying that the condition for conduct requirements imposed by the CMA to be proportionate does not create that novel legal standard for appeals of decisions and the confusion that will flow from that. In our view, as the noble Baroness, Lady Harding, says, the original wording strikes the right balance, roughly speaking, whereas the Government’s version would weaken the intent of this part of the Bill.
The formulation of the noble Baroness, Lady Stowell, relies on prevailing public law standards—in other words, standards that are commonly understood. We take the view that we all need to know what rules we are working to, and if the Bill introduces or creates a new standard then that certainty is removed. Of course, when it comes to the issue of pre-emption, we will need to resolve the best way forward on this issue at the next stage of the Bill. For my part, I think that reversion might be the best route, but no doubt by negotiating round the Committee we can come up with a workable solution.
The amendments of the noble Lord, Lord Holmes, particularly Amendments 220 and 222, offer another way through it. However, on the face of it, for us they are useful in the context of reminding our Committee that guidance will need to be produced on the operation of this regime as it covers financial penalties and the countervailing benefits exemptions.
We have heard a lot about the new regime being flexible and participatory as a framework for regulation, and we agree with that principle. However, we think that, with this particular change, the Government strike at the heart of that and bring in a measure of uncertainty that is unwise, frankly, in this particular process. The intervention of the noble Lord, Lord Lansley, was very telling. What he told the Committee was extremely important and we should listen very carefully to what was said in that exchange of correspondence. He rather shot the Government’s fox.
In conclusion, the Minister has a bit of a difficult job on his hands here. He may feel the weight of the Committee against him. I rather hope that he can offer us a measure of reassurance and perhaps help us come to a point where the whole Committee can agree a sensible reversion or an amendment that makes the Bill as workable as it seemed when it was first drafted.
The Parliamentary Under-Secretary of State, Department for Science, Innovation and Technology (Viscount Camrose) (Con)
I thank the noble Lord, Lord Faulks, for raising the topic of proportionality in the digital markets regime and for doing so with such a clear and compelling analysis, which I think all of us, myself included, found deeply helpful. This is of course the requirement for the CMA to impose conduct requirements and pro-competition interventions on firms only where it is proportionate to do so.
First, I reassure my noble friend Lady Harding that this change is not about introducing a new standard or meaning of proportionality but about clarifying the scope of decisions that it applies to.
Amendments 16 and 53 from the noble Lord, Lord Faulks, seek to remove the explicit statutory requirement for PCIs and conduct requirements to be proportionate. Under these amendments, SMS firms would still be able to argue that their rights to peaceful enjoyment of property under Article 1 of the first protocol of the ECHR, or A1P1, were engaged in most cases, allowing them to appeal on the basis of proportionality. I refer noble Lords to the ECHR memorandum published by the department, which explains how the regime intersects with human rights and how this relates to property rights. A1P1 protects possessions, which can include enforceable rights such as contracts, and so regulating SMS firms under the regime would commonly affect possessions, and therefore engage A1P1.
The Government have always been clear that the CMA will need to act proportionately and comply with ECHR requirements, and that imposing obligations on SMS firms will very often engage the firm’s rights under A1P1. However, having a statutory requirement for proportionality in the Bill reinforces the Government’s expectations for how the CMA should design conduct requirements and PCIs, to place as little burden as possible on firms while still effectively addressing competition issues. This should be the case even when A1P1 property rights are not engaged, which this requirement provides for.
In particular, it is worth highlighting that A1P1 rights on their own would not amount to grounds to challenge interventions that impact a firm’s future contracts. It is right that these interventions should be proportionate. I understand the concern from many noble Lords about any extension to the grounds for appeal in the regime, but we are giving extensive new powers to the CMA to regulate digital markets.
Lord Lansley (Con)
Before we move away from this point, there was an interesting use of the word “reinforces”. Am I right in thinking that my noble friend is telling us that, if the original wording in the Bill were used and the word “appropriate” was there, it would none the less be his expectation that, in making decisions about conduct requirements or pro-competitive interventions, the CMA would in fact do so in a manner that was proportionate, because that is the appropriate way in which to make those decisions? Our worry is that by “reinforcing”, my noble friend is actually opening a door.
Viscount Camrose (Con)
I will go on to speak more about this. The intention of the Government in “reinforcing” is to bring clarity, particularly since, as I say, A1P1 is not universally applicable to these cases. It brings clarity, and therefore I hope that the effect will be as much closing the door as anything else.
Lord Faulks (Non-Afl)
The Minister has talked about A1P1 and the right to peaceful enjoyment of possessions. That may come into the analysis or it may not, but he has taken the view that it may not. If it does, then it is covered by the normal doctrines of judicial review, which include proportionality. If it does not, and he says it may not, why have proportionality in at all?
Viscount Camrose (Con)
I believe that, in most cases, A1P1 rights would be invoked, but there are cases where A1P1 would not necessarily be invoked, rare as those cases are. The intention of the Government is to treat all those cases in the same way. As I say, it is important that we also consider the safeguards around the new powers. Having an explicit requirement for proportionality, rather than just the implicit link to A1P1, sets a framework for the CMA as to how it must design and implement significant remedies. A proportionate approach to regulation supports a pro-innovation regulatory environment and investor confidence. I am also aware, of course, that later we are due to debate concerns noble Lords may have about the accountability of the CMA. Without pre-empting that debate, it is worth pointing out that setting out the requirement for proportionality explicitly will help ensure that the CMA uses its powers responsibly.
Lord Clement-Jones (LD)
This all sounds as though, really, the Minister should come clean and say that what he is trying to do is bring in merits by the back door.
Viscount Camrose (Con)
It is not my intention to bring in merits by the back door, nor is it my intention not to come clean, or to conceal from Members of this Committee any intentions of the Government. All this is about producing the clarity that we need to safely deliver the wide-ranging new powers of the CMA.
Lord Vaizey of Didcot (Con)
Can the Minister clarify for the Committee at some point, perhaps by letter, at what point the penny dropped within the department, with officials, that the word “proportionate” was necessary? If the word “proportionate” is removed, does this give the CMA permission to act disproportionately?
Viscount Camrose (Con)
I am happy to provide that information in the form of a letter, and I will leave it at that for now.
Lord Tyrie (Non-Afl)
Perhaps I could answer the question: the CMA never has scope to act disproportionately in law.
Viscount Camrose (Con)
In respect of my noble friend Lord Vaizey’s concern that proportionality will affect how the CAT conducts an appeal, the retention of judicial review in Clause 103 will still apply to the CAT, which will still have to conduct an appeal when a firm raises non-ECHR proportionality arguments in a JR style. It will not become a full merits appeal.
Amendments 33 and 52, from my noble friend Lord Holmes of Richmond, also remove the statutory requirement for proportionality but, in doing so, create greater impacts on the regime. Amendment 33 would remove the obligation on the CMA to set out, in its conduct requirement notice, the objective in relation to which it must consider proportionality. However, this is a key feature for setting a conduct requirement and it is important to include it in the notice for both the SMS firm and third parties.
Amendment 52, by removing Clause 46(1)(b), would reduce the Bill’s clarity that the primary objective of PCIs is to address competition problems. It is important that the Bill is clear on the objective that PCIs must pursue. Additionally, proportionality provisions will ensure that the CMA addresses its objectives without placing unnecessary burdens on firms and harming consumers.
I turn to my noble friend Lady Stowell’s Amendments 17 and 54. As she set out in her explanatory statement, these amendments seek to clarify that the use of “proportionate” does not create a novel legal standard. The amendment would state that it is defined in accordance with prevailing public law standards. Of course, I agree with her that it is important to be clear about what we expect from the CMA and concur with the spirit of her amendments. However, I hope my explanation of this provision as currently drafted will satisfy my noble friend’s concerns.
These amendments assume that there is a single public law definition of proportionality, when there is not. However, proportionality is also not a novel concept for either the CMA or the domestic courts to apply. There is domestic case law about how proportionality requirements have been interpreted. We expect that the CMA, the CAT and courts would follow the broad approach set out in the Bank Mellat 2 case, which considered proportionality in relation to the application of ECHR rights, as well as fundamental rights at common law. This is relevant when considering whether an infringement of a qualified ECHR right and/or a fundamental common-law right is justified. Noble Lords with an interest in this area will be familiar with the four-limb test set out by Lords Sumption and Reed. Previously, our domestic courts applied a separate, but broadly similar, test when considering proportionality under EU law.
In the event of an appeal against CMA interventions, it is the role of the courts to provide a definitive interpretation of the legislation, but they will likely give a certain amount of deference to the CMA as the expert regulator. When an intervention has engaged A1P1, there would be a clear link with the approach of the domestic courts to the ECHR proportionality requirements that I have already discussed. In the rare situation when an intervention did not engage A1P1, it seems logical that the courts would take an approach consistent with how they approach digital markets cases which do engage A1P1, although this could involve some modifications on a case-by-case basis.
The basic requirements of proportionality—that it balances private interests adversely affected against the public interests that the measure seeks to achieve—is well understood. As such, I hope my noble friend can appreciate that although I agree with the spirit of her amendments, in practice I do not believe they would provide the clarity they seek.
Amendments 220 and 222 from my noble friend Lord Holmes of Richmond would require the Secretary of State to publish guidance on how the appeals standard for financial penalties, proportionality and countervailing benefits exemption would operate. The amendments set out that the CMA could not impose conduct requirements, pro-competition interventions or financial penalties before this guidance was published.
I thank my noble friend for these amendments. He should be pleased to hear that the CMA will, as part of its approach to implementing the regime, produce guidance outlining its approach to delivering the regime before it is implemented. We expect this guidance to include the CMA’s approach to proportionality and the countervailing benefits exemption. The Secretary of State will have oversight of the CMA’s approach through the approval of that guidance. The Government feel that this approach strikes the right balance between maintaining the independence of the CMA and the CAT, and providing appropriate government oversight and clarity about how the regime will work. Suitable guidance will already be in place before the regime commences; as such, these amendments are not required.
I hope this has helped to address the concerns of the noble Lord, Lord Faulks, and my noble friends Lady Stowell of Beeston and Lord Holmes of Richmond, and that, as a consequence, they feel able to withdraw, or not to press, their amendments.
Lord Clement-Jones (LD)
My Lords, what harms does the Minister think the inclusion of “proportionate” is designed to prevent? What does he really think would happen if that word was not included in the Bill?
Viscount Camrose (Con)
As I said, for those cases where A1P1 cannot be engaged, they can be treated in the same way—equally proportionately to other cases under A1P1. In addition, it creates further clarity around the use of these extensive new powers for the firms that will be affected by their use. In addition, it creates another means for this newly powerful independent regulator to be held to account.
Lord Vaizey of Didcot (Con)
Forgive me for intervening to make what is more of a rhetorical point.
Lord Vaizey of Didcot (Con)
I want to get all the heckles out of the way; they have to be recorded in Hansard. I listened to the Minister’s explanation very carefully. He said that there is no single accepted definition of “proportionate”—that there are different definitions depending on case law and the common law. Is that not exactly what the problem is? The minute you put that word in the clause, you have, effectively, said that there are eight, seven or six definitions of proportionate. Guess what the platforms will do with that.
Lord Holmes of Richmond (Con)
May I build on that before my noble friend the Minister responds? What precisely was inappropriate about “appropriate”?
Lord Black of Brentwood (Con)
My Lords, this is not just to prevent the Minister getting up again; it is relevant to both points that have just been made. A number of noble Lords asked whether this huge volte-face by the Government between the publication of the Bill and the amendments made very late in the other place came about as a result of pressure from the platforms. Could he tell us whether the platforms lobbied for this change and whether he discussed it with them?
Lord Bassam of Brighton (Lab)
My Lords, if I might help the Minister, this legislation has been knocking around for some time now, so what was it that provided that blinding flash of official or ministerial inspiration to bring this amendment about “proportionate” so late in the day in the other place that it was tabled right at the end of the Commons process? What was it that was so compelling as to make that dramatic change?
Viscount Camrose (Con)
If noble Lords will forgive me; that was a large variety or questions. First, I can confirm right away that I have not received any lobbying from any big tech firms on this topic—none; zero. Secondly, as with any Bill, this was part of an ongoing pattern of constantly looking for means of improving the Bill, to maximise its clarity and effectiveness. I recognise the concern voiced by the Committee about this. I am very happy to set out in detail all the arguments I have attempted to make. I hope that will go some way further towards satisfying the Committee.
Lord Faulks (Non-Afl)
I am very grateful to the Minister and all noble Lords who took part in this debate. I think it has raised a pretty fundamental point which runs through a number of different parts of this Bill. I do not know whether to take it personally, but I have not received any of this lobbying that so many other noble Lords received about this particular adjective and its use. My approach is simply to look at it as a lawyer with some experience of the way litigation actually works, and it seemed to me egregious in what it is doing, or at least at risk of doing.
The Minister did well to stick with his instructions that this was to provide clarity. I am afraid it does not do that. As I indicated when I was talking about self-defence, the whole problem with proportionality is that it is very much a question of fact. I might regard something as proportionate; someone else might regard it as disproportionate. It is far more difficult than the tests of rationality or Wednesbury unreasonableness, the tests that are normally used for judicial review, so it is a much lower bar.
On the question of A1P1, it is not usually the most common of the convention rights relied upon. To the man and woman in the street, the idea that Google or Apple have human rights is perhaps a little counter- intuitive. However, I accept that there are ingenious arguments to the effect that A1P1 may have a role to play, which I acknowledged in my opening remarks. However, the Minister accepted that there would be cases when the European convention is not engaged in the analysis, in which case why have proportionality at all? I am afraid I did not find his answer convincing.
I am most grateful to the noble Lord, Lord Lansley, for referring to the communications he had with the Parliamentary Under-Secretary, who, in the course of the communications, seemed to me to be guilty of a most spectacular own goal and reinforced all the fears which have been expressed around the Committee.
This is not paranoia on our part. We have not received sufficient reassurance for the reason for this change. Of course I concede that we expect regulators to act proportionately, but that is not the same as inserting the particular word “proportionate”, which carries such a heavy charge. If it does not mean anything, do not put it in. If it is put it, it is going to be absolute catnip for the courts and judges. It will give them a chance to examine these decisions in a wholly broader perspective.
Grateful though I am to the Minister, I feel it is almost inevitable that we will return to this on Report. I beg leave to withdraw.
Lord Clement-Jones
“(ba) provide a means of payment within the platform in a way that offers consumer protection from goods and services disputes.” Member's explanatory statement
This amendment would allow the CMA to require online marketplaces to provide consumers with a more secure way of paying for goods or services, with a means of recourse in the case that something goes wrong.
Lord Clement-Jones (LD)
My Lords, let us go back to the calmer waters of Clause 20. In moving Amendment 18A, I look forward to hearing what the noble Lord, Lord Lansley, has to say about his Amendment 31, which I have signed as well.
It seems that 75% of purchase scams originate from social media platforms. They often occur when consumers go to digital marketplaces, such as Facebook Marketplace, and try to buy goods from their peers which never arrive. Such scams cost consumers over £40 million in the first half of 2023 alone, and they seem to be on the rise. Currently, many consumers purchasing on peer-to-peer marketplaces have no access to secure payment providers that offer protections in the event that their purchase never arrives. Some marketplaces, such as Vinted and eBay, have integrated with secure providers, but despite many experts stating that these integrations will protect consumers and keep money out of the hands of criminals, adoption is still patchy across major marketplaces.
Building on voluntary commitments made in the recent Online Fraud Charter, this amendment would empower the CMA to require these marketplaces to provide consumers with a way to pay on these platforms that offers protection when things go wrong, such as when goods and services do not arrive as described, provided that these marketplaces are identified by the CMA as designated undertakings which have strategic market status. This would also be a good step in protecting consumers transacting online. Some payment services, such as PayPal or Stripe, do offer consumers protection when things go awry.
Such an amendment would also have a secondary impact: marketplaces would be better incentivised to vet sellers to ensure that they are able to meet the risk-management expectations of the commercial partners that offer secure payment services. For the avoidance of doubt, this amendment does not propose that designated marketplaces use any specific provider of secure payment services. Clause 20 sets out an exhaustive list of permitted types of conduct requirements that may be applied to designated undertakings. This amendment would confer power on the CMA to impose conduct requirements that protect consumers buying goods on peer-to-peer marketplaces identified as designated undertakings with strategic market status. I hope very much that the Minister will give this suggestion serious consideration.
Lord Lansley (Con)
My Lords, I am grateful to the noble Lord, Lord Clement-Jones, for introducing Amendment 18A. On Monday, in the previous day of Committee, we looked at the list of conduct requirements—both the obligations placed on designated undertakings and the capacity to set conduct requirements preventing designated undertakings doing certain things. The noble Lord is asking whether we have covered the ground sufficiently, and so am I.
In Amendment 31, I come at it from the position that I took in earlier amendments, but I wanted to separate this out because it is in a different case. The train of thought is the same: to look at the detailed obligations included in the EU’s Digital Markets Act and to say that we are approaching it in what I hope is a better way that sets broader, more flexible definitions and looks to see how they will be implemented in detail by the Digital Markets Unit. That is fine; I am okay with that, but we need to be sure that the powers are there. For example, Amendment 18A is about whether the requirement to trade on fair and reasonable terms in Clause 20 comprises this power. It is a simple question: would it be possible for such conduct requirements to be included by the DMU under that heading?
Mine is a different one. In paragraph (6) of Article 5 of the Digital Markets Act, the European Union sets an obligation for gatekeepers—that is, its comparable reference to designated undertaking; in this sense it is dealing with platforms—that:
“The gatekeeper shall not directly or indirectly prevent or restrict business users or end users from raising any issue of non-compliance with the relevant Union or national law by the gatekeeper with any relevant public authority, including national courts, related to any practice of the gatekeeper”.
For our purposes, I have rendered that in the amendment as something slightly simpler in our language—that is to say, that an obligation may be placed on designated undertakings that they shall not seek
“directly or indirectly to prevent or restrict users or potential users of the relevant digital activity from raising issues of non-compliance with any conduct requirements with any relevant public authority”.
It is not just the CMA, of course; there may be others involved, such as the Information Commissioner and other public authorities.
For this purpose, I looked at the conduct requirements laid out in Clause 20 to find where this might be covered. I do not think it is covered by the material about complaints handling processes. This is not about whether you can make a complaint to the designated undertaking; this is about whether one is subject to the provision, as a user or potential user, such as an app seeking to complain about the non-compliance of a designated undertaking to the Digital Markets Unit. That is not the same as having a complaints process in place.
Do we think this could happen? Noble Lords will make their own judgments about that. All I am assuming is based on the fact that, for example, in April 2021, in the Judiciary Committee hearings on competition in app stores in the US Senate, Senator Klobuchar said, to paraphrase, that a lot of providers of apps were afraid to testify. They felt that it was going to hurt their business and they were going to get intimidated. So I am not having to invent the proposition that there may be a degree of intimidation between the providers of apps, for example, and the platforms that they wish to use.
In a sense, we do not actually need to know that it is happening to know that we should give the power to the Competition and Markets Authority to set conduct requirements as and when necessary to prevent such a thing happening. I do not think that it is comprised within the existing text of Clause 20.
I hope that my noble friend will take this one away, with a view to thinking positively about whether it is required to be added to the conduct requirements in Clause 20 at Report.
Lord Stevenson of Balmacara (Lab)
I am grateful to the noble Lords, Lord Clement-Jones and Lord Lansley, for raising this point. Clause 20 is very important, as has been mentioned, as it puts flesh on the bones of what we have been talking about for most of the first and half of the second day in Committee—which is whether we have in place the ability to deal with the important firms likely to be designated as SMS and the challenger firms. We have said before, and I am sure that we will repeat it, that this is a very innovative approach to regulating. We are very much trusting those who are appointed to take this forward with a great deal of power and not a lot of overarching scrutiny —or, if it is, it will be retrospective and not prospective.
Therefore, we have to understand that the CMA must have the ability to do all this and have the range of functions that are important. The noble Lord, Lord Clement- Jones, raised one in particular—a very important one to consumers—around seeing on the internet the goods of your dreams and then finding a payment system that siphons your money away but does not deliver the goods; that is not a palliative one for any Government to propose. I hope that the Minister has some reassuring words about the points raised by the noble Lord.
I had to read the amendment proposed by the noble Lord, Lord Lansley, three or four times to understand what he was getting at, so I am very grateful to him for his brief introduction. It was only on this occasion; normally, he is as a lucid as we would wish—and sometimes as pellucid. He raises a very subtle question about whether the measures that are not sufficiently exposed here will cover the question of those who have innovative lawyers thinking about ways in which they can avoid some of the very broad measures in Clause 20.
Viscount Camrose (Con)
I thank the noble Lord, Lord Clement-Jones, and my noble friend Lord Lansley for bringing these important amendments. It is enormously valuable and important to kick the tyres of Clause 20 and understand or assure ourselves that it works.
Amendment 18A, tabled by the noble Lord, Lord Clement-Jones, would create a new permitted type of conduct requirement, allowing the CMA to require an SMS firm to provide users with a way to pay for products and services that would provide consumer protection. I thank him for the amendment; it highlights the vital issue of ensuring that consumers are protected when using online marketplaces.
We feel that conduct requirements are already able to require that SMS firms have effective processes for handling complaints by and disputes with users or potential users. This will allow the CMA to intervene when competition issues arise in this area. My noble friend Lord Offord will be talking to the consumer provisions in Part 4 in a later sitting, and I will not tread on his toes here. However, those provisions put it beyond doubt that, where platforms promote or facilitate consumer transactions, they must act with professional diligence, in addition to more specific duties such as refraining from misleading omissions or actions or aggressive practices.
We recognise that public understanding of the requirements of professional diligence could be clearer, and we recently consulted on how price transparency and product information for consumers can be improved. The Government’s response to that consultation was published this morning, and, in the light of this, we will be undertaking further work with stakeholders to ensure that platforms’ obligations to consumers are more widely and easily understood. I would of course welcome the noble Lord’s input during that process.
Amendment 31, tabled by my noble friend Lord Lansley proposes to add a new permitted type of conduct requirement to deal with the issue of SMS firms attempting to stop third parties raising possible non-compliance with the CMA. I thank my noble friend for tabling this amendment and highlighting the importance of this issue, on which I have also received representation from affected firms.
Alongside information gathered through its own monitoring, the CMA will rely on information from third parties that will have direct knowledge of market conditions. It is therefore crucial that third parties have the confidence to speak to the regulator. I can provide assurances that the CMA will have strong powers to tackle discriminatory or unfair behaviour seeking to frustrate the regime or interfere with enforcement, where it occurs within the scope of a designated activity. Both conduct requirements and PCIs will be available to combat such behaviour, supported by the usual robust enforcement powers and penalties. I draw my noble friend’s attention specifically to Clause 20(3)(a), which, in addition to the conduct requirement
“on fair and reasonable terms”
in Clause 20(2)(a), can be used where relevant.
The CMA will also be able to intervene outside the designated activity, but not in an unconstrained way: it can use conduct requirements to prevent leveraging, or a PCI to address an adverse effect on competition in a designated activity.
Input from third parties will be crucial in ensuring the success of this regime. However, some stakeholders may have concerns about sharing information or experiences for fear of retaliation. The CMA has well- established processes for handling information and maintaining the anonymity of those providing evidence, whether informally or as part of an investigation. Recognising the importance of engagement, the CMA has also announced plans to expand this approach; for example, by establishing representative panels—one for consumers and civil society, and one for businesses and investors. This will facilitate input from third parties, which in turn will support the design and implementation of interventions.
I therefore hope that the noble Lord will feel able to withdraw his amendment.
Lord Stevenson of Balmacara (Lab)
The Minister mentioned in his address—I was grateful to him for doing so—that there was a recent announcement from the department about sneaky hidden fees or drip prices that are unavoidable, and the press report that I am reading says that they will be banned. Does not this bear directly on points made during this debate, and in particular on Clause 20? Does this mean that the Minister will bring forward amendments at a later stage?
Viscount Camrose (Con)
My preference would be to consider so doing once the Committee has had a chance to debate later sections of the Bill which go directly to consumers.
Lord Clement-Jones (LD)
My Lords, I think there is quite a lot of meat in what the Minister said just now, both in respect of the amendment in the name of the noble Lord, Lord Lansley, and my amendment.
I appreciate that we have a set of moving parts here, including the response to the consultation on smarter regulation, improving consumer price transparency and product information for consumers, which came out this morning.
The answer to the noble Lord, Lord Stevenson, was quite interesting. However, if what the Minister said about the conduct requirements in Clause 20 is to be put into effect, I suggest that he has to bring forward amendments on Report which reflect the response to the consultation. I do not think this can be done just as a sort of consumer protection at the back end of the Bill; it has to be about corporate conduct, and at the Clause 20 end of the Bill.
Obviously, we will all read the words of the Minister very carefully in Hansard. It is interesting. I have written down: “Why are we kicking the tyres on Clause 20?” As the noble Lord, Lord Stevenson, said, this is absolutely central to the Bill. Basically, it could not be more important; getting this clause right from the outset will be so important. This is why not only we but the CMA will be poring over this, to make sure that this wording absolutely gives it the powers that it needs.
I take the point of the noble Lord, Lord Stevenson. These are very important powers, and we have to make sure that they are used properly, but also, as the noble Lord, Lord Lansley, said, that the powers are there. Otherwise, what are we spending our time here in Committee doing, if we are going to put forward a Bill that is not fit for purpose? We have to make sure that we have those powers. I like what the Minister had to say in reference to the Clause 20(3)(a) provision. Again, when people look at Pepper v Hart and so on, that will be an important statement at the end of the day.
We have certainly managed to elicit quite a useful response from the Minister, but we want more. We want amendments coming down the track on Report which reflect some of the undertakings in the response to the consultation on consumer price transparency and product information for consumers.
The only other thing to say—exactly as the noble Lord, Lord Stevenson, has said—is that comments about the consultation are that it was half a loaf. There is a whole lot more to be said on drip pricing. We have a discussion coming down the track on that, and we will reserve our fire until then.
Lord Lansley (Con)
As I understood it, Clause 20(3)(a) is about discrimination between users; it is not about trying to stop any user of a platform going to the CMA to complain about non-compliance or other conduct requirements—or indeed that conduct requirement. I will happily look at what my noble friend said and hope that it meets the test of the kicking of the tyres. If it does not, we may have to return to this.
Lord Clement-Jones (LD)
My Lords, that is a useful warning that we need to read Hansard extremely carefully to see what the Minister thinks the scope of that really is and whether it covers the point that the noble Lord, Lord Lansley, has made.
This is a continuing discussion and, in the meantime, I beg leave to withdraw my amendment.
“(2) The CMA may have regard to any significant benefits to users or potential users that the CMA considers have resulted, or may be expected to result, from a factor or combination of factors resulting from a breach of a conduct requirement.”Member's explanatory statement
This amendment would ensure that the CMA considers any significant benefits to users resulting from the breach of a Conduct Requirement when it is considering representations from designated undertakings as part of a Conduct Investigation.
Baroness Jones of Whitchurch (Lab)
My Lords, in moving this amendment I will also speak to Amendments 39, 40 and 48 and the Clause 29 stand part notice, all in my name. I thank all noble Lords who have added their names.
These amendments follow on from our earlier debate about the proportionality of the CMA’s judgments and our desire across the Room not to create unforeseen legal loopholes. They address the new wording in Clause 29, which the Government introduced at a late stage in the Commons. They also address the countervailing benefit exemption, in which companies can argue that their conduct gives rise to benefits to consumers that outweigh the detrimental impact of competition that their conduct would otherwise breach. This clause then goes further and makes it clear that the CMA “must” close a conduct investigation in these circumstances.
Viscount Colville of Culross (CB)
My Lords, I have put my name to Amendment 48 in the name of the noble Baroness, Lady Jones of Whitchurch, and I support dropping Clause 29 from the Bill.
These amendments are also about speeding up the process of stopping anti-competitive behaviour by the tech companies. It is essential that no hostages to fortune are given for tech company lawyers to drag out the process, as many noble Lords said, particularly in the first group.
I want noble Lords to bear in mind that, for every big tech company, every week they succeed in delaying a decision against their anti-competitive practices is one in which they earn millions of pounds, while their competitors are left struggling in so many areas. Speed is of the essence.
As a former newspaper journalist, my most immediate field of concern is local and regional media, which are suffering from the anti-competitive behaviour of the tech companies. There has been a collapse in local newspapers over the past decade and in the next three years this will turn in to a major exodus, with huge areas of the country becoming local news deserts with nobody reporting on local councils, courts and other important civic activities.
The Digital Markets Taskforce study on digital advertising found that the tech companies had used network effects and economies of scale to dominate the market. It concluded that the “more vibrant competition” in the market would improve
“the bargaining power of online news publishers”,
which would
“improve the health and sustainability of journalism in the UK”.
In turn, this would
“contribute positively to the effectiveness and integrity of our democracy”.
On top of this, much of the news content generated by these media companies is used by tech platforms either for free or for little remuneration.
I have long campaigned for the final offer mechanism to be available to the CMA as a powerful deterrent against anti-competitive behaviour by the tech companies, but surely all deterrents are more effective if there is a realistic chance that they will be deployed, and in a short time. Once the CR requirements on an SMS have been imposed, breached and reported, the CMA should be in a good position to know whether the designated SMS company will take the long or short road to a solution. Amendment 48 would allow the CMA to issue an enforcement order, decide whether that has been breached and investigate the breach, if it feels that it will lead to a satisfactory resolution to the company’s behaviour. However, if, earlier in the process, the solution is not going to be possible, the regulator needs the power to bring forward its ultimate deterrent. No SMS will want to have the final offer mechanism imposed on it, and I understand that the CMA is equally reluctant to deploy it, but the more pressing the threat the more likely it is that the DMU investigation will be brought to a quick and effective resolution.
I know that these companies will fight tooth and nail to preserve their massive profits resulting from the anti-competitive behaviours. It might be useful for the Committee if I give just one really shocking example of how effective these delaying actions can be. The salutary lesson is the story of a nascent shopping comparison site, Foundem, based in London and founded in 2005, which was doing very well until 2008, when it was massively deprioritised on Google Search, at about the same time that Google Shopping, the search engine’s own shopping comparison site, was set up. Foundem issued a complaint to the EU Commission in 2009 about anti-competitive behaviour by Google. The Commission set up an investigation and, three years later, after many legal arguments, Google was given a preliminary assessment—similar, I imagine, to an SMS designation. Rules were then laid down for the company to follow, but within six months market tests revealed that it was not tackling the anti-competitive behaviour. The response was dragged out by Google until 2016, when it was given a supplementary statement of objectives, which were also heavily fought by the search engine.
Finally, on 27 June 2017, the EU imposed a record €2.4 billion fine on Google for violating EU competition law. However, the company appealed, first to the EU General Court and then to the Court of Justice of the European Union. Final judgment on the case has yet to be issued. Meanwhile, Foundem exists in order to fight the case, but it suspended all its services eight years ago. This is a 15-year David-versus-Goliath battle with a company, some of whose activities CMA might have to designate. This legislation must be drafted to ensure that the process brings results, and fast, if small digital competitors are to have a chance of surviving.
Already the CMA estimates that the designation process will not become operational until June 2025. I know that the hope is to set up a designation process at the same time as negotiating the conduct requirements, but that could still take up to nine months to implement on the SMSs. Meanwhile, many of the smaller media outlets I talked about earlier will have gone under.
The same arguments for legal delay by tech companies must apply to Clause 29, which introduces the concept of countervailing benefits. I do not understand the need for Clause 29. Clearly, the balance between consumer benefit and anti-competitive behaviour will have been looked at as part of the SMS designation process, which is clearly set out in the Bill. Does the Minister think that our world-class regulator will ignore these considerations in the initial process? If they will be considered then, why introduce this clause for consideration all over again? I have already explained the need for speed in the CMA’s process. This exemption can only play into the hands of the tech companies to draw out the processes and hold up the prospect of many more companies like the start-up shopping search website Foundem being littered by the digital wayside. I ask the Government to seriously consider taking Clause 29 out of the Bill.
However, I support the fallback in Amendment 40, to have the word “indispensable” inserted into the clause. Your Lordships’ Committee has heard that “indispensable” was taken out on Report in the other place. The Minister has said that the simple threshold of “benefit” is already established in Section 9 of the Competition Act 1998 and Section 134(7) of the Enterprise Act. However, the former talks of an “indispensable benefit” and the latter just of a “benefit”. The Minister says that the two thresholds are the same; clearly, they are not.
The new definition of the grounds on which anti-competitive conduct can be permitted states that
“those benefits could not be realised without the conduct”.
It requires only that anti-competitive conduct be necessary, rather than indispensable, which means that anti-competitive behaviour is the only way to achieve the benefit. Surely, if that is the case, it would be better for the consumer, in whose name the Bill is being enacted, to have the highest possible threshold of benefit.
The Explanatory Notes open up avenues for further legal wrangling by lawyers, as they say the definition of benefit will be similar to that in the Competition Act and the Enterprise Act. As the two Acts use “benefit” in different ways, that will surely lead to confusion. Is the use of the word “similar” because it is not possible to say “same”, in the light of the divergent terms that appear in these two Acts? Without it, there seems to be room for legal ambiguity. At the very least, there should be an explanation in the Bill that establishes “benefits” as having the same definition as in the Competition Act.
I know that all noble Lords want the Bill to be implemented and effective with all possible speed, to make this country a world leader in digital start-ups. However, it needs to be amended to avoid legal confusion and unnecessary delay by world players that have everything to gain from protecting their dominant position in markets.
Lord Fox (LD)
My Lords, on the pretext that he would not be here, my noble friend passed responsibility for this group on to me. As noble Lords can see, he is “not” here. This is a long group and my noble friend managed to attach his name to every amendment in it, with the exception of the two proposed by the Minister, so I apologise if I give a slightly long speech on his behalf.
I spoke at Second Reading, but I was not here for the first day in Committee, as I was in the Chamber speaking to the main business there. My noble friend has tabled Amendments 38 and 41, on countervailing benefits; Amendment 43, on goods and services; Amendments 49, 50 and 51, on final offers; and Amendment 107, on injunctions. He also supports Amendments 36, 39 and 40 from the noble Baroness, Lady Jones, which seek to restore the status quo of Clause 29.
In Clause 29, as we know, there is an overarching provision that enables SMS designated firms to push back on regulatory decisions through a countervailing benefits exemption. This is, in our opinion, a potential legal loophole for big tech to challenge conduct requirements through lengthy, tactical legal challenges. We just heard an example of how similar measures can be employed. This is a significant loophole, not a small one, and it would require the CMA to close a conduct investigation into a breach of conduct requirement when an SMS firm is able to prove that the anti-competitive conduct in question produces benefits which supposedly outweigh the harms, and that the conduct is “proportionate”—that word again—to the realisation of those benefits. It has the potential to tie up CMA resources and frustrate the intent of the legislation. It is critical that these provisions do not inadvertently give designated firms immunity from CMA decisions. We heard from other speakers that the scale of resources at the command of these companies far outweighs the resources that the CMA would be capable of summoning. That inevitably leads to the ability to clog things up.
As the noble Baroness, Lady Jones, explained, the Government added amendments to the Bill on Report in the Commons that could further weaken the ability of the DMU to push back against spurious claims of consumer benefit. The removal of the term “indispensable” may weaken the regulator’s ability to rebuff these claims as, by analogy with competition law, the use of the term “indispensable” is likely to require a high standard for firms to meet; therefore, the standard is now lower.
Lord Black of Brentwood (Con)
We are all delighted that he is in fact here. I support Amendment 48 in the name of the noble Baroness, Lady Jones of Whitchurch, to which I have added my name.
The final offer mechanism is a crucial part of the Bill; it is the engine that makes it all work. In an ideal world, of course, it ought never to be deployed because the platforms would see the light of day and enter into sensible agreements with publishers. It should be a last resort only where common sense has failed. But this last resort is—like a deterrent—credible as an incentive to negotiate only if it can be deployed throughout the process of negotiation, not at some far distant point in the future. If it is something so far off that the platforms and publishers believe it will never in reality be reached, publishers will be compelled, out of commercial necessity, to accept suboptimal deals from SMS firms, in some cases—I think in particular of the local and regional press—simply to survive. As the Bill is currently drafted, that is exactly what might happen. The noble Viscount, Lord Colville, talked passionately about that aspect.
SMS firms that have time and money on their side—in the way that hard-pressed publishers do not—could very easily hold out until the very last minute of negotiations before the final offer mechanism is deployed. That ability continually to delay things simply reinforces the market power of the SMS firms and does nothing to redress the balance, which is what the Bill is supposed to be all about.
Such an extended nature of the enforcement process means that it could take years for the FOM to be reached if SMS firms are not acting in good faith—and, let us face it, that will happen. We need a system much closer to the Australian news media bargaining code, whereby strict timelines mean that every step combined—bargaining, mediation and final offer arbitration—would take just over six months. Of course, neither publisher nor platform wishes to end up in FOM unnecessarily. This amendment from the noble Baroness would make the FOM available at an earlier stage only if the CMA judged that its standard enforcement mechanisms would not be effective; for example, if an SMS firm had simply refused to enter negotiations. However, if the CMA judges that its standard enforcement mechanisms under Part 1 would be sufficient to ensure that deals are made swiftly, it could proceed with other remedies. This ensures that the FOM is a last resort but also a credible alternative.
Many publishers, particularly local and regional ones, as I have mentioned, are under the most severe commercial pressure. They simply cannot afford to wait to see the fruits of this Bill. Many more titles will have closed and some publishers may have gone under. In the interests of media plurality and local democracy, we need to get this right. As it stands, the Bill wills the ends but not the means.
Lord Holmes of Richmond (Con)
My Lords, I shall speak briefly to this group of amendments and particularly commend those in the name of the noble Baroness, Lady Jones.
There are key themes that inevitably run through deliberations across groups in Committee, and it seems that, this afternoon, a recurrent theme has understandably been that the Bill is certainly better as was than currently as is. A number of amendments make that point very firmly.
If the Bill does not address at every point necessary the whole question of asymmetry in the nature of the relationship between the parties in all these complex arrangements, there is precious little point in proceeding beyond this point. The whole nature of the relationship and the negotiations therein is framed by the asymmetry of power, of resources and of what can be brought to bear by each party to proceedings. Hence, in this set of amendments, while different approaches are taken, similar ends are sought.
I look forward to hearing the Minister’s response and, as the noble Lord, Lord Clement-Jones, is “not” here, I also look forward very much to him “not” intervening on the Minister.
Baroness Stowell of Beeston (Con)
My Lords, I support Amendments 39 and 40 in the name of the noble Baroness, Lady Jones, which are about countervailing benefits. I have added my name to them. Before I make my remarks about those amendments, it is worth noting that my noble friend Lord Black gave quite a compelling argument in support of Amendment 48, describing how it would not drive a coach and horses through what the Bill is trying to introduce by virtue of the final offer mechanism but would strengthen it further. I will be interested to hear what my noble friend the Minister has to say in reply to that.
In response to the debate on a previous group of amendments, my noble friend the Minister said that, by virtue of the process of parliamentary scrutiny, or just making laws, we should improve Bills, in the sense that the way in which they are first introduced to Parliament does not mean that they cannot be changed. He is absolutely right: doing our jobs should lead to stronger, better and more effective legislation.
In the few amendments I have tabled I have tried not to unpick what has already been changed in the Commons but to add clarification where I felt that the changes were going in the wrong direction. On the topic of countervailing benefits, I added my name to Amendments 39 and 40, which revert Clause 29 back to its original wording at the point of the Bill’s introduction to Parliament, because I could not think of another way to secure the important purpose of Clause 29.
If I may, I again return to the way in which the Communications and Digital Committee scrutinised the Bill when it was first introduced. Countervailing benefits was one of the topics that we identified as an area of contention. In the course of our hearings, we heard a range of views on this clause. As other noble Lords have voiced in this debate, some wanted to see Clause 29 removed and others wanted it strengthened. The committee found that it should remain as it was; that it did not need to be changed and should remain in the Bill. We noted that the countervailing benefits exemption is
“designed as a backstop rather than an initial enforcement measure: the CMA is expected to take consumer benefit into account throughout its work”.
In conclusion, we said that the exemption
“provides a proportionate backstop as long as the threshold for using it remains high. The Government should resist any changes that would lower the threshold”.
Contrary to those who argued either to take out Clause 29 or to raise its threshold even further, my view is that, as it stood, it was fair and proportionate. Some of the big tech firms did not like it at all, but we thought none the less that it was an appropriate measure. Therefore, it would be fair to all parties for us to revert to the original text.
Baroness Harding of Winscombe (Con)
My Lords, I, too, wish to speak to Amendments 39 and 40, to which I have added my name. First, it is worth dwelling briefly on what the countervailing benefits exemption is: quite a “get out of jail free” card. To be clear: the company in question will have been found to have SMS, conduct requirements will have been imposed and the company will have been found to be breaching them and be on its way to jail. The countervailing benefits exemption is a “get out of jail free” card because the benefits that the new product or functionality brings are so good that it is worth breaching this set of fundamental competition principles.
That exemption is a really powerful tool that gets you completely out of jail. It can also enable you to simply slow down the process by arguing that it should be used, even if you will not succeed in getting out of jail. The process of slowing down being sent to jail is also very powerful for the big tech firms. This is a big weapon in the Bill.
However, I can also make the case, as many of the tech companies did at our Select Committee—as my noble friend Lady Stowell just said—that the exemption is an important tool to have in the Bill because we do not want to live in a world where large monopolists are not encouraged to innovate at all. There is an argument that we need to find the Goldilocks spot, if noble Lords will forgive me mixing my metaphors. I sit on my noble friend’s committee and, as she said, we have heard from the companies that would like this removed and from the companies that would like it strengthened. I share her view that the Bill as introduced to the House of Commons got that spot just about right.
Does my noble friend the Minister think that the new wording, introduced at a late stage in the Commons, of
“could not be realised without the conduct”
is the same as “indispensable”, or does it set a higher or a lower threshold to be able to use the “get out of jail free” card? I do not think he is going to argue that it sets a higher threshold; I think it is either the same as or a lower threshold. If it is a lower threshold, why do we really think that we need to make it easier for people who are on their way to jail to get out? If it is the same then we are right back to where we were two hours ago. Why do we need to define something differently that is already well enshrined in law as “indispensable”?
Lord Lansley (Con)
My Lords, in my short contribution I will look at what Clause 29 adds and whether it is necessary. I suppose I am saying that I want to speak to whether Clause 29 should stand part. We might have to come back to that.
My starting point was Clause 19(10):
“Before imposing a conduct requirement … on a designated undertaking, the CMA must have regard in particular to the benefits for consumers”.
Unless I am missing something, that will include disbenefits, so the countervailing benefits form part of that consideration. I do not understand why it would not be the best drafting, or the best Explanatory Note, to say, “Under Clause 19, when the CMA is considering imposing a conduct requirement, it must have regard to any countervailing benefits of not imposing such a conduct requirement”.
That is the starting point but let us say, for the purpose of the argument, that Clause 29 is not really about the imposition of a conduct requirement in the first place but about what should happen when there is a conduct investigation. But there are more stages for the designated undertaking. When the CMA wants to impose a conduct requirement, it has to give a notice under Clause 21 and say what the benefits are. The undertaking can come along and say, “Well, we have countervailing benefits if you don’t do this”, so it is entirely open at that stage to raise the countervailing benefits clause. I do not know why it is called an exemption. It is not an exemption. There should not be an exemption from the regime; there should just be a balance: how is the consumer benefit to be maximised? Once that notice has been served, it is subject to a public consultation under Clause 24, and the undertaking can come along under Clause 24.
Let us say that all that has happened, and there is a potential breach of the conduct requirement, and the CMA initiates an investigation under Clause 26. When the CMA does that, it has to give the opportunity to make representations within a defined period. Even if the countervailing benefits have not been taken into account in the original activity, when a breach is considered the notice is issued and the undertaking can come along and say, “Well, actually, the consumer benefits are being delivered by this means, and it is necessary and indispensable”, or whatever word you use. We could include it, if necessary, in the guidance.
I do not think that we are quite finished, even then. Clause 27 requires that in the
“undertaking to which a conduct investigation relates … the CMA must consider any representations that the undertaking makes”.
We could have put it in there, because it has a right to make representations at that point.
After all these things, which get us to the point where it has been considered in the first place, considered in whether a notice of a breach should be issued, and considered in the notice for the conduct investigation, and been given the opportunity to make representations, why do we need another clause that says that there is this thing that is called a countervailing benefits exemption as distinct from, at each previous stage—and there are many of them—the benefits or disbenefits and potential consumer benefits from different requirements that are to be considered? Frankly, I do not see it—unless it is, as my noble friend said, that there is a “get out of jail free” card that can be played. If it can be played, it will be played, so I do not think that we should allow it to be played.
Lord Kamall (Con)
My Lords, I will speak to Amendments 36, 38, 39, 40 and 41. I have been trying to understand the reason for the current government position. One issue that I have thought about, and which I have written about in the past, is the notion of unintended consequences. Often a well-intended government intervention can make things worse. Many of you will remember the example of the Government of the 1990s introducing the dash to diesel, as it was supposed to be better for the environment—and, in response, we found that actually it made things worse. That is not to criticise the Government of the day, as it was well-intentioned, and many people supported the reduction of greenhouse gases.
One thing that I have thought about with regard to better law-making is how we ensure that there are safeguards in place for when there are negative unintended consequences. For that reason, I have some sympathy for considering whether the unintended consequence of a CMA decision could make things worse for consumers. However, like many noble Lords I am concerned that this is a massive loophole for large tech companies to continue to engage in anti-competitive behaviour or, as other noble Lords have said, slow down the process.
Having looked at the amendments and the Government’s position, I want to ask my noble friend the Minister a direct question. Could he explain what the Government mean by countervailing benefits and give some real examples, or hypothetical examples, of where consumers may be harmed by a pro-competitive intervention by the CMA? If that response convinces noble Lords, perhaps the Government could consider bringing forward an amendment based on Amendment 41 from the noble Lord, Lord Clement-Jones. I look forward to my noble friend the Minister’s response.
The Lord Bishop of Manchester
My Lords, I shall be extremely brief. When we debate in Grand Committee, it always strikes me that we do so in the Moses Room —Moses, the great giver of the law. However, the biblical characters that I am more thinking of today would be David fighting Goliath, because it seems to be that a lot of the conversation around this group of amendments is about how we create a proper balance between the large platforms and small entrepreneurial providers. My mother was a small businesswoman; she ran two record shops in the Greater Manchester area. We could have been put out of business very easily if somebody had been able to delay some anti-competitive business action against us. We also have the judgment of Solomon here; he was quick in his judgment—there were no lengthy processes that took for ever and a day. I tend to the view that the Bill, as it entered the House of Commons, was probably at about the sweet spot, but let us get this right so that Davids have a chance amid the Goliaths. And yes, I apologise for not declaring that interest—I am called David.
Viscount Camrose (Con)
As ever, I start by thanking all noble Lords who have spoken so powerfully in this group.
I turn first to the series of amendments on the countervailing benefits exemption. I start by addressing the proposal to remove Clause 29 as drafted, Amendment 36 from the noble Baroness, Lady Jones of Whitchurch, and Amendment 38 from the noble Lord, Lord Clement-Jones—in his absence.
Lord Fox (LD)
The Minister has already introduced a difference between the two. There is a difference between “there is no other reasonable or practicable way” and “indispensable”. They are not the same—they are not synonymous. If I have to prove that something is not practicable, that is not the same as indispensable. The Minister has absolutely proved the point.
Viscount Camrose (Con)
Again, in my opinion, the two sentences are indistinguishable in their meaning.
Baroness Stowell of Beeston (Con)
My Lords, one of the arguments that has been advanced—I did not make it in my remarks because I forgot—is that part of the problem with changing the word from “indispensable” to what is now in the Bill is that the current phrase has not been tested in the courts, whereas “indispensable” has. The argument that changing from “indispensable” to what we have now provides clarity is one that is really hard for people to accept, because the clarity it is providing is not, seemingly, in everyone’s interests. That is part of the problem here.
Viscount Colville of Culross (CB)
If “indispensable” and purely “benefit” are the same, why was the change made on Report in the Commons?
Baroness Kidron (CB)
I was really interested in the introduction of the word “unknown”. The noble Lord, Lord Lansley, set out all the different stages and interactions. Does it not incentivise the companies to call back information to this very last stage, and the whole need-for-speed issue then comes into play?
Viscount Camrose (Con)
I will revert first to the questions about the word “indispensable”. As I have said, the Government consulted very widely, and one of the findings of the consultation was that, for a variety of stakeholders, the word “indispensable” reduced the clarity of the legislation.
Baroness Harding of Winscombe (Con)
Before my noble friend answers that, can he shed some light on which stakeholders feel that this is unclear?
Viscount Camrose (Con)
I cannot give a full account of the individual stakeholders right now; I am happy to ask the department to clarify further in that area. My contention is that the effect of the two sentences are the same, with the new one being clearer than the old one. I am very happy to continue to look at that and listen to the arguments of noble Lords, but that is the position. Personally, when I look at the two sentences, I find it very difficult to discern any difference in meaning between them. As I say, I am very happy to receive further arguments on that.
With respect to the participative arrangements by which a decision is reached around, for example, a conduct requirement, during the period of conduct requirement design, and during the decision-making period, it is, as my noble friend Lord Lansley has stated, highly to be expected that firms will make representations about the consumer benefits of their product. During a breach investigation, on the other hand, later on in the process, a consumer benefits exemption can be used as a safeguard or defence against a finding of breach.
Sorry, but there were so many questions that I have completely lost track. Perhaps the noble Baroness, Lady Kidron, will restate her question.
Baroness Kidron (CB)
I think the Minister was in the middle of answering it and saying why something might be “unknown” right at the last.
Viscount Camrose (Con)
As many noble Lords in the debate have alluded to, we have to be clear that this is a fast-moving field, and we have to at least allow for the possibility that new technologies can provide new consumer benefits and that it is okay to argue that a new and emerging technology that was not part of the original consideration can be considered as part of the defence against a finding of breach. The fact that the intended meaning is intended to be clearer in the current drafting is aiming to provide greater certainty to all businesses while ensuring that consumers continue to get the best outcomes.
Amendment 41, from the noble Lord, Lord Clement-Jones, would change the current drafting of the countervailing benefits exemption in several ways that together are intended to ensure that the CMA is provided as soon as possible with information relating to an SMS firm’s intention to rely on the exemption. We agree with noble Lords who have spoken today that it is important that the exemption cannot be used to avoid or delay enforcement action. The conduct investigation will operate in parallel to the assessment of whether the exemption applies, meaning that the investigation deadline of six months is not affected by the exemption process. The regime has been designed to encourage an open dialogue between the CMA and SMS firms, helping to avoid delays, unintended consequences and surprises on all sides. Therefore, in many cases, if a firm intends to rely on the exemption, we anticipate that this will be clear to all parties from early on in the process.
Lord Fox (LD)
I appreciate what the Minister said. By “early on in the process” does he mean after the process has been instigated, or before? A lot of this information is needed in order to understand whether there needs to be a process in the first place. There is a chicken and an egg here, in that some of this information is up front before we get to actions and enforcement.
Viscount Camrose (Con)
Indeed. It is an important point. Right from the beginning of potential conduct requirement design or PCI design, it would be consulting very widely with all stakeholders, including SMS firms and tech challengers. As part of that consultation, consumer benefits would be expected to be stated, in what is designed to be a participative process on all sides. As I was saying, the CMA is required to consider consumer benefits early on, when setting conduct requirements. The SMS firms will therefore outline the consumer benefits associated with their conduct at that stage, long before a conduct investigation.
Finally, adding further evidential requirements risks overburdening the regulator with more documentation than necessary, and therefore potentially delaying any enforcement action. For the reasons I have set out, I hope the amendment will not be pressed.
I come now to the discussion on the powers of the CMA to enforce obligations where they have been breached by SMS firms. Amendment 43, from the noble Lord, Lord Clement-Jones, would provide the CMA with a power to impose an enforcement order requiring an SMS firm to offer fair and reasonable payment and non-payment terms to third parties for goods or services. I can confirm that, under Clause 19, the CMA already has the power to require a firm to offer fair and reasonable terms through conduct requirements, and, where these are breached, the CMA has power under Clause 31 to make an enforcement order obliging the firm to stop the breach. As such, this amendment would not give the CMA any additional powers and could risk a narrower reading of its powers by raising the question of why other types of orders are not mentioned.
Amendment 107, also from the noble Lord, Lord Clement-Jones, would allow the CMA to apply to the High Court where a firm was breaching, or attempting to breach, an obligation or one of the conduct requirement objectives set out in Clause 19(5). The objectives in Clause 19(5) are not intended to be binding on SMS firms. Their purpose is to guide the design of conduct requirements by the CMA. It would therefore not be appropriate for the CMA to find a firm in breach of these objectives.
However, I agree with the noble Lord, and others who have spoken today, that it is important that the regulator can respond quickly before irreversible harm results from SMS-firm conduct. Where urgent action is needed in relation to a suspected breach of conduct requirements, the CMA will have the power under Clause 32 to make an interim enforcement order before irreversible harm occurs. For PCIs, the CMA will be able to issue directions setting out specific steps that a firm must take to become compliant with a pro-competition order. Failures to comply with orders under either conduct requirements or PCIs can be enforced through robust penalties. There is also the possibility of affected persons applying to court to enforce relevant requirements, and to apply for injunctions under Clause 101.
Lord Fox (LD)
I appreciate the Minister giving way again and his answers. I am slightly confused; I either misheard or misunderstood, but did the Minister say that Clause 19(5) is, in essence, unenforceable by the CMA and is merely an advisory action?
Viscount Camrose (Con)
I said that the purpose of Clause 19(5) is to set the parameters for the design of conduct requirements by the CMA. Its purpose is to guide the CMA, not to bind the recipients of conduct requirements.
Amendment 48 from the noble Baroness, Lady Jones of Whitchurch, would allow the final offer mechanism tool to be used earlier in the enforcement process. The final offer mechanism is a backstop tool designed to incentivise sincere negotiations about fair and reasonable payment terms between the SMS firm and third parties. It is crucial that there is room for good faith negotiation where disputes arise from sincere differences of understanding rather than deliberate non-compliance. Overly shortening the enforcement process would greatly reduce these opportunities.
We recognise, however, that some stakeholders may be concerned about SMS firms frustrating the process and refusing to comply with these conduct requirements and any subsequent enforcement. Here, the CMA could seek to accelerate the stages before the final offer mechanism, making use of urgent deadlines for compliance with enforcement orders and significant financial penalties where appropriate, ensuring that parties will also not be able to drag their feet and delay the process. In addition, interim enforcement orders can be issued on a temporary basis during a conduct investigation, before a breach has been found. They could be used to prevent significant damage, such as a company going bust, to prevent conduct that would reduce effectiveness of future remedies or to protect the public interest. Our regime aims to tackle the far-reaching power of the most powerful tech firms.
I know that my noble friend Lord Black noted the Australian legislation. Our regime contrasts the Australian legislation in that it has been designed to protect businesses and consumers across the economy including, but not limited to, news publishers. Alongside the final offer mechanism, the DMU will have other powers to tackle unfair and unreasonable payment terms via conduct requirements, ensuring that the final offer mechanism will rarely, if ever, need to be used.
Amendments 49, 50 and 51 from the noble Lord, Lord Clement-Jones, would allow parties to submit further final offers if the CMA considers that the first were not fair and reasonable. The final offer mechanism involves a binary choice between the two final offers submitted by the parties. It is the finality of the process that creates such a strong incentive for the parties to submit fair and reasonable offers. An unreasonable offer only increases the likelihood of the CMA choosing the other party’s proposal.
Introducing scope for an additional round of bidding would undermine these incentives and would only serve to delay the securing of fair and reasonable terms for the third party. As a result, we hope, for the reasons set out, that the noble Lord feels able not to press these amendments.
Finally, this group includes two government amendments, which are both minor and technical in nature, relating to Clauses 38 and 117. These amendments clarify that digital content is included in the meaning of the phrase “goods or services” when used in Part 1 of the Bill, including when mentioned under the final offer mechanism. I hope that noble Lords will support these amendments.
Lord Kamall (Con)
I apologise—I should have maybe intervened earlier but I did not want to join the barrage, as it were. When my noble friend the Minister writes to us, as he inevitably will, I wonder whether he can help us to understand the Government’s position on countervailing benefits by outlining what they really mean by that and giving some real or hypothetical examples of where consumers may be harmed by a pro-competitive intervention by the CMA.
Viscount Camrose (Con)
Yes, indeed. I thank my noble friend for repeating the question and I apologise that I did not get to it earlier. I would be delighted to write and provide such examples.
Baroness Jones of Whitchurch (Lab)
My Lords, I thank all noble Lords who spoke in support of our amendments. It is worth saying at the outset that it sounds like we are being very critical of the potential SMS firms. This is not about being critical but about getting the balance right. That is what we are aiming to do. A lot of the discussion that we have had in Committee today has been about feeling that that has become out of kilter. We are trying to get the very careful balance that the noble Baroness, Lady Stowell, talked about. Her committee felt, having agonised over it, that the original wording was about right. A lot of us feel that, which is why we are so anxious and testing of the changes that have come along more recently.
As we debated and identified in the previous discussion, the CMA already has a responsibility to act proportionately. This ought to apply to its judgments about countervailing benefits as well. The noble Baroness, Lady Stowell, said that it is designed as a backstop. It is important that the threshold remains high; that is one of the key issues.
The noble Lord, Lord Fox, said that because of the word “must”—that the CMA must desist if there are countervailing benefits—it becomes almost mandatory, so there will be no opportunities for the CMA to make balanced judgments. We agree that it is far too prescriptive.
I rather liked the canter through all the preceding clauses from the noble Lord, Lord Lansley, before he concluded: why do we need Clause 29, because all those provisions are already there? He made an important point about all of that.
I listened carefully to the Minister. He repeated what he said at Second Reading: that this clause on countervailing benefits is only to pick up new, unknown consumer benefits that have not been identified before. Try as I might, I have looked at the wording of Clause 29 and I do not see that it says that there. As the noble Baroness, Lady Kidron, quite rightly pointed out, as it is worded there is a danger that the SMS companies could hold back evidence to that last backstop and then start challenging at that point. It would then be very difficult for the challenger firms to come forward with different evidence. The current wording opens up a disturbing void.
We have had a really good discussion about whether the previous wording or the new wording maintains the high threshold. I think most of us remain unclear about that. I think it was the noble Baroness, Lady Harding, who said that this new wording has not been tested in the courts, so it gives us not more certainty but more uncertainty. That is the last thing that we want at this point.
The Minister said that this was put in partly because stakeholders were confused. I would push back and say that the Select Committee chaired by the noble Baroness, Lady Stowell, looked at this in a lot more detail than some of those stakeholders have and concluded that the original wording is clearer and more robust than anything he has come back with. I hope the Minister will take that point away. I do not think he was particularly convincing about why that new wording was necessary.
On Clause 48, I have considerable sympathy with the case made by the noble Lord, Lord Black, and very much support his arguments. We do not want companies to be put in a situation where they have to accept suboptimal deals because they are running out of time and money when, if we are not careful, it could take many years for the process to be completed.
The Minister tried to reassure us, because if there was an anxiety about the time we could have interim enforcement orders, for example. However, the difference is that the final offer mechanism is more of a collaborative process. When we met with representatives from the CMA, they said that that is how they like to work: they do not want to go to court, they want to reach collaborative agreements. I feel that that our Amendment 48 would allow some of that collaboration to work along the system before it gets to the final, final offer. Again, I am not convinced by the Minister’s response on all of that. We want to keep it out of court as much as we can but he is tying the hands of the CMA too much in the way this is worded at the moment.
I am sure I have not picked up all the points but I think the Minister gets the idea that he is not really taking us with him. I therefore hope that he will reflect on these issues again but, in the meantime, I beg leave to withdraw the amendment.
Lord Offord of Garvel
Member’s explanatory statement
This amendment ensures that transactions in which an undertaking uses goods or services of a third party have the potential to be subject to the final offer mechanism.
Lord Vaux of Harrowden
“(c) an undertaking which has received an SMS investigation notice in accordance with section 11(1), unless the initial SMS investigation has been closed in accordance with section 12 or an SMS decision notice has been given in accordance with section 14; and where such an undertaking is part of a group, any member of that group.”Member’s explanatory statement
This amendment would apply the merger reporting requirements to undertakings that are being investigated by the CMA as to whether they have strategic market status.
Lord Vaux of Harrowden (CB)
I hope that this group of amendments will not be as much of a marathon as the previous group—or indeed that performance from the Deputy Chairman. I start by apologising that I could not attend the first day in Committee, due to a combination of Avanti West Coast and Storm Isha. I would have liked to have spoken in support of amendments in the first group that day, and I entirely agree with what has been said about ensuring that we do not create opportunities for large tech firms to use their immense legal firepower to slow down the process of designating them as having strategic market status, and ensuring that the information and work already done by the CMA can be taken into account. It is fair to say that the same themes have continued today, and Amendment 59 is a continuation of them in a slightly different way.
As a number of noble Lords have already pointed out, we already know who the main strategic players are and that they are already abusing their strategic market positions, as the noble Lord, Lord Tyrie, said so clearly on day one. The noble Baroness, Lady Harding, described how the big tech players know that the regulation is coming, but they are walking backwards as slowly as they can. As she pointed out, we see that very clearly with the EU’s Digital Markets Act, in which so far every potential SMS-equivalent firm has challenged its designation through every stage of the courts that it can. So at best we are unlikely to see any SMS designations until well into 2025, and possibly much later, if they are able to spin out the process.
If I read the Bill correctly, there is actually only one immediate additional obligation that designation imposes on a company: a requirement to report possible mergers on a more enhanced basis than currently applies. But this obligation does not come into force until the SMS designation has been made.
As I said, we already know who the main players are. That is not just speculation—the CMA has already confirmed some of them in its previous work. As an example, in its Mobile Ecosystems market study report of June 2022, just a year and a bit ago, the CMA confirmed that both Apple and Google would meet the test of having strategic market status in the supply of mobile operating systems and the devices on which they are installed, in native app distribution, and in mobile browsers and browser engines. It is not speculation; we know who these people are. Why, then, would we want to wait for another year or more, allowing them to game the system during that period, before applying the enhanced merger reporting requirements on them?
Amendment 59 would apply the enhanced merger reporting requirement to companies that have been given notice that they are under SMS investigation, rather than having been designated. We do not have to wait until the designation has been made. We have heard already the fears that the large tech players will seek to spin the designation process out. Without Amendment 59, the large tech companies would have an additional incentive to game the system by deliberately prolonging the designation process so that they could complete a merger that would be reportable once designated but which is not reportable before the designation is made. I do not think that it is a good idea to give them further incentive to do that.
This is important. For much too long, the large tech companies have been able to entrench their market power through acquisitions with relative impunity. Very few have been passed to the CMA for investigation. In the 10 years to June 2023, according to Wikipedia—admittedly not the best source, but the only one I could find easily—Alphabet, the owner of Google, has completed at least 129 acquisitions, Apple 81 and Microsoft 110. In each case, that has happened across an extraordinarily wide area of activities. These big companies can afford to gamble on acquisitions, even if all they do is succeed in taking out a competitor, or potential competitor.
The enhanced merger reporting regime that this Bill will introduce is a really important step, and I very much welcome it, but we should ensure that it cannot be side-stepped by making it applicable as soon as a company has been informed that it is under SMS investigation. This does not prejudge the merits of any merger; it would simply allow the CMA to take a look while the SMS investigation is under way, rather than it going through under the radar.
I am sure that the Minister will argue that it would be unfair to apply the more stringent merger reporting rules to companies that have not yet been designated, but I do not believe that that is right. First, under Clause 9, the CMA is able to investigate an SMS firm only when it has reasonable grounds to consider that it may be able to designate an undertaking as having SMS. As previously pointed out, we know who those companies are, and we know that there are reasonable grounds for a lot of them that exist at the moment, as the CMA has already pointed out. More importantly, would not it be extraordinary if a merger that would meet the new threshold, and that therefore might impact the strategic status investigation itself, was not reported to the CMA during the investigation? That cannot make sense.
This is very simple: we know who the strategic players are, we know that they abuse their market power, including through mergers and acquisitions, and we know that they are likely to seek to challenge and prolong designation to avoid regulation—we have seen them do it. So let us at least put them under the enhanced merger reporting rules at the earliest opportunity, rather than leaving it for another couple of years.
Lord Lansley (Con)
My Lords, I am very glad to follow the noble Lord, Lord Vaux of Harrowden, who presented very well the context to both of these amendments and made a very good point about the desirability of extending the scope of Clause 57 in the way proposed in Amendment 59.
Amendment 60 stands in my name and that of the noble Lord, Lord Clement-Jones—who may be able to say something in his absence through the medium of the noble Lord, Lord Fox.
From my point of view, Amendment 60 goes back to the Furman review of 2019, which noble Lords will recall, which reflected a similar point to one that was made by the noble Lord, Lord Vaux of Harrowden. Paragraph 3.44 of the review referred to the preceding decade and said that in that preceding decade
“Amazon, Apple, Facebook, Google, and Microsoft … have made over 400 acquisitions globally”.
Under the Competition and Markets Authority in this country, in that decade none was blocked, none was notified voluntarily and none was called in for phase 1 or phase 2 investigation. There were European Commission investigations—and that might be regarded as the more appropriate umbrella as a competition authority—but it cleared Google and DoubleClick, Apple and Shazam, and Microsoft and LinkedIn. They were not blocked.
The world has moved on since Furman, and you might say that we have learned more and know more about some of the benefits that are obtained by some of those acquisitions. But the Furman review looked very carefully at whether we should regard mergers involving digital companies differently. That is, I suppose, my point.
I refer to paragraph 3.81 and subsequent paragraphs of the Furman review, which said:
“In mergers involving digital companies, the harms”—
the balance of benefits and disbenefits in relation to future competition—
“will often centre around the loss of potential competition”.
It goes on to say:
“Although potentially harmful to consumers, these outcomes are likely to be relatively uncertain at the time of the merger. This may make it hard to demonstrate that a substantial lessening of competition is more likely than not”.
I will come back to “substantial lessening of competition”, which will be a term familiar to many noble Lords. It gave the example, at this point, of the 2012 Facebook acquisition of Instagram, which at the time was a small photo-sharing platform. It said that even if the OFT had gone on from its phase 1 to a more thorough phase 2 investigation—which of course is more than a decade prior to the period it was looking at—it may have been limited in its ability to block the merger by the balance of probabilities standard: looking at a substantial lessening of competition, would it be more likely than not that there would be a substantial lessening of competition? We do not need to debate Facebook and Instagram and how it all turned out.
The Furman review said:
“The CMA should take more frequent and firmer action to challenge mergers that could be detrimental to consumer welfare through reducing future levels of innovation and competition, supported by changes to legislation where necessary”.
That was its strategic recommendation B. It went on to say, in a recommended action:
“Digital companies that have been designated with a strategic market status should be required to make the CMA aware of all intended acquisitions”.
That is indeed exactly what Clause 57 achieves. To that extent, the recommendations of the Furman review were carried through.
Interestingly, the Furman review went on to discuss the question of whether the balance of probabilities standard could be replaced by a balance of harms standard. I am not going to pursue that, because I can see that it was very difficult to vary a standard which is, in effect, not in the statute but is in the substance of the practice. What I have done instead, in Amendment 60, is to ask what it is that is lacking, or may be lacking, and should we, through the mechanism of the Bill, examine very carefully whether we can do more to strengthen the powers of the Competition and Markets Authority in relation to digital competition in particular.
Once there is a notification in relation to a potential merger, Clause 57(9) refers to the steps that the CMA may take in relation to a merger. It refers to Section 33 of the Enterprise Act 2002. It does not change it; it just refers to those steps. I have the benefit—I may not be the only one here, I am not quite sure—of having been on the Standing Committee in the other place on the Competition Act 1998 and the Enterprise Act 2002. I see that my noble friend was on the Standing Committee on the Enterprise Act—and maybe both.
We will come back to the issue, but I say to my noble friend the Minister, in parenthesis, referring to the previous debate, that trying to compare a block exemption under the Competition Act, which is ex post regulation, with an exemption applied in relation to an ex ante imposition of a conduct requirement by the regulator is, I am afraid, a false analogy. I will not go back to that, but I think it does not really apply.
What I have done in Amendment 60 is to seek to vary Section 33 of the Enterprise Act 2002—quite a big thing to do—but only in relation to designated undertakings. The amendment says that if one is a designated undertaking, not only does one have to notify but there is a difference in the structure of Section 33, so that where it says that a reference can be made in relation to
“(a) arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and (b) the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services”,
I am seeking adding an “or”. So (a) would apply in all cases; (b) might apply; or (c ) would apply, which the amendment makes clear would say
“or, (c) if the relevant merger situation involves a designated undertaking under section 2 of the Digital Markets, Competition and Consumers Act 2024 the creation of that situation may be expected to result in the loss of future benefit to consumers in the provision of digital activities as a consequence of the forestalling of prospective competition”.
The drafting may be deficient, but I make the point that we need to put in the drafting what we are trying to do. That is to give the CMA explicit statutory cover to look forward—as it does in its five-year forward designation—identify a merger situation and ask, in the context of its forward-looking assessment, which it must do for designation purposes, whether there is an expectation that that merger situation would result in the loss of future benefit to consumers if it were brought into effect. That is a reasonable alignment between the nature of the designation process and its forward-looking character and the desirability of the assessment of any potential merger situation having the same characteristic.
Lord Fox (LD)
My Lords, clearly the noble Lord’s days on the standing committee were not wasted; we thank him for his incredibly cogent set of arguments. He has said some of what I was going to say, which is good, so I will not repeat it.
It is worth remembering that there is a point of scale here, and it is scale that creates the issue. Alphabet, Amazon, Microsoft, Meta and Apple, in 2022, together had revenues of nearly £400 billion. How did they get there? Of course, they had their initial offering and their services and were able to attract customers, but then there is the law of networks and then predatory acquisition. The two feed off each other; one boosts the other and gives the finances and so on. Predatory acquisitions add to the network scale, and the network scale then makes the offer.
As we have heard, there has been a huge number of such acquisitions—not mergers—across those platforms, and they have very much been part of the strategy for those businesses. Few, if any, were questioned in time because, in classic competition terms, the scale of one outweighed the significance of the other in the short term.
The noble Lord pulled out the question of the acquisition of Activision. That was a departure—it did not go to court, but it did lead to a different way of looking at an acquisition by Microsoft. It was interesting that the authorities in the EU and the US did not take the same view. It was notable that the CMA stood apart and made that decision. It is a small step, and one that will clearly need much more support in order for the aims of this Bill to be properly supported.
The Bill introduces a requirement for SMS firms to report mergers, which is a start. They have to meet criteria relating to share ownership, voting rights, relevance to the UK and transaction value. This will help ensure that problematic acquisitions by dominant tech firms do not fly under the radar, but the Bill does not give the regulator additional powers, as such, to intervene in those deals.
Existing merger control practice in the UK and elsewhere has struggled to grapple with tech acquisitions, which can appear relatively harmless in the present, as we have said, while resulting in serious competition, as was elegantly illustrated by the noble Lord, Lord Lansley. In the UK, the CMA can intervene in a merger only if it proves that the deal is “more likely than not” to result in a “substantial lessening of competition”. Of course, that was not tested with the Microsoft acquisition. To address this, the Bill should be amended to give the CMA greater scope to block or impose remedies on SMS acquisitions. The Bill should introduce a tougher merger control regime for acquisitions by SMS firms, in the sectors where they have been designated as SMS firms.
On that basis, we support both Amendment 59, in the name of the noble Lord, Lord Vaux, relating to where an investigation is ongoing, and Amendment 60, in the name of the noble Lord, Lord Lansley, to Clause 57. As we have heard, it would amend the merger regime in the Enterprise Act. We think that may be a way of reaching in and giving the powers that the CMA will obviously need.
Lord Tyrie (Non-Afl)
My Lords, I will be brief. I strongly support the intentions of this part of the Bill. What the Government are attempting to do must be right. Relative inaction on mergers by leading regulators around the world has contributed to the problems that we are now trying to address with the creation of the DMU. Killer acquisitions are a serious and enduring problem in this market.
My view is that the CMA, among other regulators, probably could and should have acted earlier. It is worth pausing for a moment to consider why it did not. One reason is a lack of boldness; a reluctance to take risks by taking action with its existing powers; a fear of losing. Although we are empowering it a good deal through the DMU, it is important to bear in mind that, unless we secure a change of mindset in the CMA, I am not sure that we will get the benefits that we are hoping for from this Bill—certainly not all of them.
A second reason why a good number of the big regulators did not intervene earlier derives from the intellectual history of the current legislation, which is similar all around the world. Over the last 30 years, in the post-Cold War world, almost all the major jurisdictions, and a lot of minor ones, put on the statute book very similar legislation. About 150 jurisdictions have done so, based on a set of ideas often summarised as the Chicago school, although it is rather a caricature, which believed that there would be no need for such an interventionist approach because it would be difficult for any platform to sustain for long a dominant position, and another technological change would supplant them. That may yet turn out to be the case, with AI and new generations of technology.
However, we now know that it has not been successful with the existing range of platforms; they have been around for a long time, and we have ample evidence of abuse of market position by some of them. That is why we need to qualify the Chicago school approach in our minds. We need the people who run our competition regulators to shed what may be a lifetime of acceptance of some of their reflexes in respect of these big deals. They should start to challenge far more, and be far less accepting of, the tenets of the Chicago school.
Perhaps I could summarise my position overall by saying that I am sympathetic to all the clauses that have been tabled, but Ministers will need to reassure us that their intentions for these clauses really will be delivered by what is in the Bill at the moment. I myself am not sure that it is enough. There may be merit in some or all of the amendments in achieving what the Government themselves say they want to do.
Baroness Harding of Winscombe (Con)
My Lords, I associate myself with the remarks just made by the noble Lord, Lord Tyrie, about recognising how important it is that we embolden the CMA to tackle these merger issues. I do not have anything like the expertise in detailed drafting that my noble friend Lord Lansley has just demonstrated, but I encourage the Government to listen carefully to his advice and review the drafting. We should see if we cannot come together with a solution on Report that achieves what I think we are all trying to achieve here.
I would also like to briefly correct the record. On Monday, as the noble Lord, Lord Vaux, said, I said that all the companies had appealed their designation of the DMA. Much to my amusement, Google was very swift to email me on Tuesday morning to tell me no, it was very keen to collaborate, so I would hate that to become a considered fact of this Committee—I owe Google that.
I support the amendment by the noble Lord, Lord Vaux, but I point out to the Committee that it is actually a very small amendment. The CMA told us in one of its briefings last week that it could undertake only two SMS investigations at any one time. We should recognise that it is a very minor amendment meaning that, while the CMA is investigating two entities, those two entities will be required to report. We should accept that that is a very small improvement that we should encourage the Government to accept.
Lord Bassam of Brighton (Lab)
My Lords, I am sure the Committee will be relieved to know that we do not have a great deal to say on this, except that we see merit in the amendments from both the noble Lords, Lord Vaux and Lord Lansley.
I thought the noble Lord, Lord Vaux, made a very good point: this is very simple. It is about providing and encouraging greater transparency in the merger process. It is straightforward in ensuring that all parties are aware of the status of the undertaking involved, and it brings clarity where the SMS is concerned.
It has to be regretted that companies might want to use mergers and acquisitions as a way of delaying SMS designation. As the noble Baroness, Lady Harding, has just said, there are delays enough in the process as it is. If the CMA is going to be able to do only two of these a year, there is hardly much reason to encourage more, greater and longer delays in the process.
The noble Lord, Lord Vaux, argued that designations could take until 2025 and delays will occur. With the sheer volume of acquisitions taking place, if companies are going to use that as a means of gaming the system then that cannot be right. It cannot be in consumers’ interests either.
I turn to the elegant amendment by the noble Lord, Lord Lansley. It seeks to ensure, where a designated undertaking is involved, that there is an assessment of the impact on consumers. The Minister has argued from the Dispatch Box that the legislation is designed by the Government to place the interests of consumers at the very front of this piece of working legislation. So, if a merger is likely to lead to a loss of benefit to consumers, it must therefore be right that market intelligence is shared, and we assume from our perspective on the Labour Benches that that must be a public good to be supported.
Viscount Camrose (Con)
I very much thank the noble Lords, Lord Vaux and Lord Fox, speaking on behalf of the noble Lord, Lord Clement-Jones, and my noble friend Lord Lansley for using these amendments to raise the very important and quite subtle issues of merger reporting and assessment in digital markets. I also thank the noble Lords, Lord Tyrie and Lord Bassam, and my noble friend Lady Harding for their thoughtful contributions.
Amendment 59, tabled by the noble Lord, Lord Vaux, would extend the duty to report possible mergers, provided for in Chapter 5 of Part 1, beyond firms designated with SMS to also include firms that are subject to a designation investigation. Firms can use anti-competitive mergers to further entrench their powerful market positions, especially in digital markets, where fast-acting damage to competition can be difficult or impossible to reverse. That is why SMS firms will be required to report certain possible mergers to the CMA before they complete. However—this may be a philosophical objection as much as anything else—it would not be proportionate or in keeping with the targeted and evidence-based approach of our regime to apply this duty to firms before the conclusion of a designation investigation.
I agree with the noble Lord, Lord Vaux, that firms under designation investigation may hold powerful positions in the market; some may even have been the subject of previous CMA scrutiny. Nevertheless, it is right that the duty to report should apply only once a firm has been found to have substantial and entrenched market power following a rigorous assessment and SMS designation. To reassure noble Lords, firms under SMS designation investigation will of course remain subject to the economy-wide merger regime. The CMA will be able to intervene where their mergers would harm competition in the UK.
Amendment 60 from my noble friend Lord Lansley—
Lord Vaux of Harrowden (CB)
Before the noble Viscount moves on to the next amendment, there seems to be a slight logical problem here, in the sense that presumably the new enhanced regime was set at the level it was because those mergers are felt to be significant for a strategic market status entity. If it were to do such a merger during an investigation, it would presumably impact potentially on whether the CMA believes that it meets the SMS, and therefore it must be important that the CMA is informed about acquisitions that could impact the investigation itself. It seems that there is a circularity here, but the noble Viscount has not addressed that.
Viscount Camrose (Con)
I do indeed recognise it. As I say, it is a difficult one because equally, one cannot treat undesignated firms as designated until the designation has taken place. I am very happy to carry on considering this with the noble Lord, because the point is a powerful and important one. Before moving on, I just point out that over the course of the necessary consultation activities, it would of course emerge that a firm was considering or evaluating a merger.
Lord Vaux of Harrowden (CB)
As somebody who spent most of his life doing mergers and acquisitions, I can say that they are not always made public.
Viscount Camrose (Con)
As I said, I am very happy to carry on with this; there is a sense of rounding up the usual suspects otherwise.
Amendment 60 from my noble friend Lord Lansley is intended to give the CMA jurisdiction to intervene in a merger when an SMS firm seeks to remove or absorb a smaller firm that could reasonably be expected to compete with it in future. I agree that it is important to ensure that the CMA can act against harmful mergers, including so-called killer acquisitions. I reassure my noble friend that the CMA can and does do so under the current legislative framework.
When reviewing a merger, the CMA can already consider whether it removes a potential future competitor. This can be seen in the Meta/Giphy case where, in its forward-looking assessment, the CMA found that the merger removed Giphy as a potential challenger and consequently ordered Meta to sell Giphy. The decision was upheld by the CAT, which I hope and think shows that the CMA has the necessary legislative cover.
It has been suggested that the CMA and other regulators have not scrutinised mergers by large digital firms enough in the past. However, since the Furman review, the CMA has undertaken a comprehensive review of its merger assessment guidelines and updated them in 2021 to ensure that they more clearly reflect the CMA’s current thinking and practice on digital markets, drawing on conclusions from expert reports, analysis and cases.
Lord Tyrie (Non-Afl)
Before the Minister leaves that point, and further to the discussion we have had about the importance of the CMA taking advantage of its powers, is he able to signal that he is sympathetic to the approach that the noble Baroness, Lady Stowell, will take later on with her proposal to give Parliament much greater powers of scrutiny of the CMA, to give us a better prospect that the CMA will continue with its more activist approach to dealing with these mergers? The risk for all of us is that there is a boost in activity for a period, with this legislation and the focus and attention that we all are giving this issue, but that, over time, the CMA slips back to the very comfort zone-oriented place it seemed to be in when it implemented a number of its statutory obligations in the past.
Viscount Camrose (Con)
I thank the noble Lord for raising that point. He has alluded a number of times during our conversations to ensuring that the working culture within the CMA is suitably postured to deal with a fast-moving regime. I can indicate that I certainly have sympathy with the intent of enhancing the accountability both to Parliament and government of the CMA—with this and other ends in mind, but to ensure that it remains assiduous in its identification of opportunities to intervene.
The Bill will enhance the CMA’s ability to act to prevent harmful mergers by SMS firms. The reporting requirement will improve the transparency of merger activity in digital markets. Additionally, Clause 127 in Part 2 and Schedule 4 will introduce a new acquirer-focused jurisdiction threshold, which provides an additional basis for the CMA to review mergers involving large firms, including SMS firms.
For these reasons, I hope that the noble Lords, Lord Vaux and Lord Clement-Jones, and my noble friend Lord Lansley will be reassured for the time being and not press their amendments.
Lord Vaux of Harrowden (CB)
My Lords, I thank all noble Lords who have taken part in this short but interesting debate. I should say that I forgot to thank the noble Lord, Lord Clement-Jones, who sadly really is not here at the moment, for supporting my amendment. He is here in the spirit of the noble Lord, Lord Fox.
We have heard some excellent points—in particular the description from the noble Lords, Lord Lansley, Lord Fox and Lord Tyrie, of how regulating acquisitions in this sector is difficult and challenging. It is a sector where even quite small and apparently insignificant acquisitions can end up having a really substantial impact; we had the description from the noble Lord, Lord Tyrie, of the change in culture that will be required at the CMA to deal with that. This is an area that the Government will have to continue thinking about. We might want to discuss this further between now and Report.
I am also grateful to the noble Baroness, Lady Harding, for correcting me on Google’s desire to co-operate with the competition authorities, which is obviously most welcome. I am grateful for her correction. She is also right that my Amendment 59 is a small one, but I think that it is important, and I very much welcome the Minister’s offer to discuss it further as the process goes on. On that basis, I beg leave to withdraw Amendment 59.
Viscount Camrose
Member’s explanatory statement
This amendment clarifies that this subsection is subject to Part 2 of the Criminal Justice and Police Act 2001 as that Part is amended by Clause 77.
Viscount Camrose (Con)
I shall speak to the amendments tabled in the name of my noble friend Lord Offord. The Government have put forward some amendments in this group to support clarity and enhance predictability. These amendments will make clear the conditions of the levy that will fund the new digital markets regime and improve consistency with information-handling under the regime.
Government Amendment 62 clarifies the safeguards that will apply to the CMA’s handling of legally privileged information when using its powers to seize information. Government Amendments 74 and 75 require the CMA to address payment of the levy in its rules—for example, setting out when levy payments are due. They also ensure that the CMA is able to charge interest on late payment of levy fees.
Amendment 78 prevents existing disclosure order restrictions in the Competition Act 1998 being undermined by limiting access to restricted information for private actions brought under the new digital markets regime. This amendment will ensure that sensitive information is dealt with consistently for private actions brought under the new digital markets regime and for breaches of the Competition Act 1998. The amendment extends the same effect of existing disclosure order restrictions. It will help to maintain the integrity of CMA investigations and ensure protections for information that the CMA receives from third parties. I hope, for the reasons I have set out, that noble Lords will support these government amendments.
I turn to Amendment 70, tabled by the noble and learned Lord, Lord Etherton, which would allow private actions relating to breaches of the digital markets regime to be brought on a collective basis in the Competition Appeal Tribunal. I thank him for his amendment, and I agree that it is vital that the CMA can take a clear lead in imposing and enforcing the requirements of the new regime. The CMA works on behalf of all consumers, so a CMA-led approach to enforcement will bring the greatest overall improvement in digital markets to the benefit of all.
It is right that harmed parties should be able to seek redress, which is why we have made explicit provision to bring private actions. However, there is the risk that lengthy and complex private litigation in the early years would create uncertainty and undermine the goals of the regime as a whole, with CMA resources diverted to engaging with lengthy private actions rather than reforming digital markets. As such, it is the Government’s position that it would not be helpful to introduce collective actions at this time.
Once again, I thank the noble and learned Lord for his amendment, but I hope he will feel able not to move it.
Lord Etherton (CB)
My Lords, I thank the Minister for his comments on Amendment 70 in my name. As he indicated, it would enable consumers to bring collective proceedings where there has been breach of requirements specified in Clause 101. The amendment would also require the Secretary of State to conduct a review to ascertain whether there are any other types of claim appropriate for collective proceedings.
Under current procedural rules of the court in England and Wales, there are very limited circumstances in which more than one person can bring proceedings, even though they may have suffered harm or loss from the same defective product or conduct. A single set of proceedings with multiple claimants could not be brought, for example, where the harm or loss was suffered on different occasions and in different circumstances. Representative proceedings—or class actions, as they are usually called—would overcome these limitations.
Chapter 7 of Part 1 of the Bill, dealing with enforcement and appeals, makes provision for individual claims in the Competition Appeal Tribunal or to a court for breaches of requirements, such as conduct requirements and pro-competition orders following pro-competition interventions. There is no provision in the Bill or elsewhere enabling consumers and businesses to make collective redress where multiple parties have been harmed by the same breach. In many cases, individual consumers and small businesses will be unable to finance proceedings. Furthermore, the knowledge of the likelihood of such a difficulty will be a disincentive to those who are subject to conduct requirements and pro-competition interventions to comply with their obligations.
Provision for collective proceedings, or class actions, is made in the Competition Act 1998, as amended by the Consumer Rights Act 2015. However, that provision applies only to breaches of competition law. The Bill provides an excellent opportunity to extend the availability of such proceedings to cases where numerous consumers have suffered from the same defective goods or conduct. The Competition Appeal Tribunal is now well used to representative proceedings in competition cases and is well aware of how best to handle them. This is an important opportunity for the Government to increase accessibility to justice to those who would otherwise not have the financial ability to bring proceedings, especially against large and well-funded entities. The Government should grasp it.
Lord Wolfson of Tredegar (Con)
My Lords, it is a pleasure to support the noble and learned Lord, Lord Etherton, in this amendment, which he has proposed extremely clearly; I can therefore be relatively brief. However, I probably have the most difficult feat of advocacy ahead of me. Normally in these circumstances one is trying to persuade the Minister to depart from the written brief in front of him, but now I have to persuade him to depart from the written brief which he has already read out, so I feel as though we know the answer to the question I am about to pose. None the less, I will proceed. I refer to my interests in the register as a practising barrister, including, as I will mention in a moment, practising in the Competition Appeal Tribunal, popularly known as the CAT.
It is a fundamental principle of the rule of law that there ought to be an effective means for legal rights to be vindicated. Having a legal right without the ability to vindicate it is not of much use. There are areas of law where a breach of legal duty may affect many consumers, but it is likely to affect each of them minimally. Although such affected consumers can in theory bring a claim for damages, it is rarely worth their while because of the small amount of each individual claim. The irrecoverable legal costs—I again declare my interest—will swamp any damages recovered, even if the claim is successful. There is also the risk of an adverse costs order if the claim fails. The real-world effect is that these claims are brought only by large claimants who have suffered large losses. That means that legal rights are not in practice vindicated. That is, in effect, a gap in our justice system.
In order to make access to justice possible for consumers in these cases, and to create a means of effectively enforcing competition law, a class action regime was introduced into the Competition Act 1998, in Section 47B. That section does not create any new rights; it creates a new process for the more effective enforcement of existing rights. It does this by enabling individual claimants to pool their claims and have them brought by a class representative. The class representative does the running in terms of preparing, funding, and bringing the action. The individual class members tend to have very little to do, other than to receive their damages when they are awarded. Importantly, there is no exposure to adverse costs orders.
This regime has been very successful. There is a high degree of expertise, both procedural and economic, in bringing such claims, and for that reason, the Competition Appeal Tribunal is the only forum in which such claims can be brought. I am instructed in such cases in the CAT, both for potential claimants, through the class representative, and also for defendants. While there are a few rough points which need to be smoothed out, as in any new jurisdiction, there is no doubt that the jurisdiction is bedding down extremely well. There are specialist judges sitting in the CAT, and there is now a range of specialist practitioners, in London and elsewhere, who appear in it.
Clause 101 creates a new data right, which is unlikely to see much use, I suggest, unless it is collectivised—in other words, brought subject to the same regime so that right can be vindicated in the same way. The main thrust of the amendment to which I have added my name is that the class action regime in Section 47B be expanded to include such claims, which would benefit from better access to justice, and, really importantly, would avoid leaving claimants with a right but with no effective remedy.
Baroness Stowell of Beeston (Con)
I wanted to intervene briefly. I do not have an amendment in the group, I have not signed my name to any, but I wanted to piggyback on the introduction of the issue of private litigation to ask a question that has been put to me by one of the big tech firms. I thought it was a reasonable question, even though it was not one I felt moved to table an amendment on. I suggest to my noble friend the Minister that he might find it easier to reply by means of a letter to me that he can put in the Library of the House, rather than taking up time.
The question is why, in this Bill, if somebody wants to bring a private litigation, there is no provision for the CMA to be required to give consent before an action can be taken by way of private litigation. In contrast, in the Communications Act 2003, Ofcom’s consent is required before private litigation is taken on a matter that refers to conditions imposed on the various companies that come under its auspices. The relevant part of the Communications Act is Section 104, where claimants must obtain permission from Ofcom to bring private enforcement claims alleging a breach of the conditions that have been set by Ofcom: they cannot simply file a claim whenever they wish. The Act says:
“The consent of OFCOM is required for the bringing of proceedings by virtue of subsection (1)(a)”.
The purpose of this is to give Ofcom a sort of gatekeeping role and prevent overlapping, or private litigation happening while something is being carried out by the regulator.
I thought it was a worthwhile question and I am happy to ask it. The other issue that has been raised with me is that in these private litigations, the contentious countervailing exemption that we discussed in an earlier group is not available to the big tech firms in the same way that it is available to them in the procedure that is set out in the Bill.
I have given the Bill team notice of these questions. I know that they have some very good answers, and I suggest to my noble friend that he asks his officials to convert that into a letter that he can put into the public domain.
Lord Fox (LD)
My Lords, the hyperactive pen of my noble friend signed up to this amendment as well. It is a great pleasure to support the noble Lords, and particularly to get cover from the noble Lord, Lord Wolfson—it is not usually like that. I am very happy to support this amendment, or the principle of this amendment: if not these words, some others.
Just to emphasise, when I was speaking to the last group of amendments, I set out a group of the major tech companies and said that in 2022, they had a revenue of nearly £400 billion, which is twice the size of the Ukrainian economy. That is the scale of the opponent that we are asking citizens to take on. To deny them the opportunity to band together, which in itself would still be a formidable challenge, is really to deny them justice. It is unrealistic to expect any individuals bar a few—and they are probably the ones who own the companies in the first place—to have sufficient resources to take on businesses of this scale. I would like the Minister at least to acknowledge that point. Perhaps we can go away and work out the best way to enable the reality of individuals being able to bring cases, because at the moment it is merely an idea; it cannot possibly happen.
Baroness Harding of Winscombe (Con)
I will just add a couple of questions to the ones that my noble friend Lady Stowell just posed, and I am sorry that I have not been organised enough to share these with the Bill team in advance. Both relate to the importance of the collaborative nature of this legislation and how important it is that the tech companies are actually incentivised to work with the CMA as they go through this process. I too have had a couple of questions posed to me, in addition to what I would describe as the Ofcom-model question that my noble friend raised.
First, should the legislation require courts to avoid judgments that conflict with the DMU’s existing decisions? Otherwise, I think there is potentially a risk that you get two jurisdictions coming to contradictory conclusions. Secondly, how can we avoid litigation undermining existing DMU resolutions and therefore just extending and delaying any implementation? In both cases, there is a risk—although I defer to the huge expertise in the Committee on the need for the civil proceedings. We have to make sure that we do not undermine the very principle of trying to incentivise the SMS firms to engage in constructive dialogue through the process.
Lord Tyrie (Non-Afl)
The CAT’s class action powers have been a success, although probably not an unqualified success—but that is for another day. I just want to pick up on one point.
Nowhere is the asymmetry of power greater than between an ordinary consumer and a platform. We must try to find ways of enabling consumers to have greater self-reliance, to have mechanisms to achieve some redress of that asymmetry. When I was in the CMA, I did quite a lot of work on this subject, not only with respect to platforms but generally with respect to big firms, and that work largely got lost.
I suggest to the Minister that he asks for some work in this field to be done by the CMA, not only with respect to platforms but across the piece, to see whether a much more comprehensive programme—taking into greater consideration the reality of the asymmetries of power that we see have now developed in the marketplace —can be put together and give consumers greater confidence that they are not being ripped off, as so many of them are at the moment, frankly.
Lord Leong (Lab)
My Lords, I apologise for not being at Second Reading; I was only recently co-opted to support my noble friends Lady Jones, Lord Bassam and Lord Stevenson in the Bill’s passage through its various stages.
I thank the Minister for introducing this group of government amendments, which we are not opposing. I also thank the noble and learned Lord, Lord Etherton, for speaking to his important Amendment 70 on collective proceedings, and all other noble Lords for their contributions. We have signed the noble and learned Lord’s amendment and support what he has argued.
I will be brief. I am not a lawyer, and I hesitate to stray into this issue to the depth that it clearly requires. After listening to the noble and learned Lord, however, and having read some background material, I am bound to say that this is an area that needs more attention. If there are not to be changes made in this Bill, for which there seems to be a case, at the very least there needs to be a review, as suggested in the amendment.
We are very grateful to the noble and learned Lord for introducing this amendment and we will listen very carefully to the Minister’s response. If he is not able to give a positive response today, I am sure that this is an issue that we will need to return to on Report.
Viscount Camrose (Con)
I thank the noble and learned Lord, Lord Etherton, for his amendment and, perhaps even more, for his articulation of it today, which was extremely helpful. I also thank other noble Lords who have spoken, including my noble friends Lord Wolfson, Lady Stowell and Lady Harding and the noble Lords, Lord Fox, Lord Tyrie and Lord Leong, for their valuable and thoughtful contributions.
I will start by shamelessly stealing my noble friend Lady Harding’s metaphor from earlier. We are looking here to achieve the Goldilocks spot when it comes to private redress. We recognise that if an SMS firm breaches a requirement imposed by the CMA, this could have serious implications for businesses and individuals. It is right that recourse to redress should be available for parties suffering harm or loss as a result of that unlawful behaviour. The right of redress is a long-standing part of common law and explicit provision is part of most regulatory regimes. Our Clause 101 makes this right explicit. Doing so will also incentivise compliance and support the credibility of the regime.
At the same time, it is also important that the CMA can take a clear lead in imposing and enforcing requirements to bring effective change in digital markets. This DMU-led approach is important in providing certainty for all parties and ensuring the regime is coherent and effective and delivers the best outcomes for consumers. We want the regime to be collaborative, but not litigious. This is why we have made provision for a public-led enforcement approach, which will ensure the CMA’s central role in ensuring the consistent application and enforcement of the regime, while still making explicit provision for parties to seek redress.
Lengthy and complex litigation in the early years of the regime in particular would run the risk of creating uncertainty for all stakeholders and could undermine the delivery of the regime as a whole, particularly where CMA resources are diverted to engage with private actions rather than focusing on reform.
The noble Lord, Lord Fox, made a very serious point about the enormous disparity in size, which I duly take seriously. Our argument is that in the formative stages of the existence of this regime, the best way to deal with that disparity in size and scale is to have public-led engagements taking primacy over collective ones.
My noble friend Lady Stowell asked about Ofcom’s role in private actions under Part 2 of the Communications Act 2003. I would be happy to write to her on this important issue, as she suggested, but I will now respond briefly to her remarks in advance of that letter.
Under the Communications Act, claimants must first seek consent from Ofcom to initiate a private action for certain breaches. We have given this model consideration but concluded that it would pose difficulties in a digital markets context. It could politicise the CMA, forcing it to make a deeply contentious decision at the outset of each private action. The decision itself would also be subject to challenge in the courts through judicial review, so it would not likely bring additional certainty or clarity. These issues are less prevalent for Ofcom’s regime, where redress is more commonly sought through the Communications Ombudsman than in the courts. For these reasons, we do not think that replicating the Communications Act mechanism would be appropriate in this regime, but, as I said, I am more than happy to write and set that out in more detail.
All of that said, I hope that noble Lords are content to accept these government amendments. I thank the noble and learned Lord, Lord Etherton, for his amendment, but I hope that he will not press it.