Digital Markets, Competition and Consumers Bill

Lord Lansley Excerpts

Report stage
Monday 11th March 2024 Lords Chamber

Both Secretaries of State who are currently involved in this legislation, for DSIT and the Department for Business and Trade, are very strong individuals. I am not concerned about them being anything other than resolute in the face of great pressure. However, unfortunately we are legislating for a situation that goes way beyond the current personalities in these different posts. It is important, regardless of who is in the post, that there is a deadline. Therefore, if my noble friend Lord Lansley pushes his Amendment 56 to a Division, I will support him.

[Lord Lansley (Con)]

My Lords, with that lead-in I will say a few words about Amendment 56 and Amendments 13 and 35 in the name of my noble friend Lord Faulks, which were discussed very intensively in Committee. We are all very grateful to my noble friend Lord Offord for the extent of his response to that debate as Minister, but I fear that it gave us information on which to work but not sufficient reassurance to hold back, as my noble friend Lord Faulks has continued to press the argument.

Let me make a point about that. In the course of that debate, as the noble Lord, Lord Faulks, said, the Government’s intention seemed to be that either Article 1, Protocol 1, of the ECHR is engaged in relation to an appeal, using the arguments for the peaceful enjoyment of possessions and therefore, as the noble Lord, Lord Faulks, said, proportionality would be engaged as a consequence of that, or the ECHR is not engaged but it is the Government’s intention, by introducing this provision in the Bill, that the same test would apply. However, I fear that we need to say, as the Minister quite reasonably said in response in Committee, that there are expectations that proportionality would form part of the decision-making process of the Competition and Markets Authority as a responsible regulator. It would be expected, as the Minister said, to apply that principle in the terms on which it was done in the Bank Mellat v Her Majesty’s Treasury (No. 2) case.

The Minister referred to the “four limbs” of Lord Reed and Lord Sumption. I spent a bit of my life which I will not get back now reading some of these judgments, though it was quite interesting. It led me to go a little beyond the cases that were cited by my noble friend to the case of Pham v Secretary of State for the Home Department, where there was a really interesting discussion demonstrating that, although there was some development of the use of proportionality alongside reasonableness in determining administrative law cases, in the decisions that were being handed down there was a clear distinction between that proportionality which is linked to the reasonableness test—that is, that this was something so disproportionate that no reasonable regulator would have made this decision—and what they described as an intense review of the merits of the decision on proportionality.

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[Lord Lansley (Con)]

My Lords, I have four amendments in this group. Amendments 16 and 17 relate to the conduct requirements that the CMA can impose on designated undertakings, and Amendments 20 and 25 relate to countervailing benefits in relation to that conduct. I will come to that in a minute. Let me stick for a moment with Amendments 16 and 17.

Amendment 16 was helpfully introduced, to some extent, by what the noble Lord, Lord Clement-Jones, said about the activities in the run-up to the introduction of the Digital Markets Act in the European Union. There was a deadline of 7 March for that, and considerable attention has been paid to what Apple in particular has done in relation to that. The noble Lord made Apple’s position clear. It is saying, essentially, that we can either stay with our existing system, and it will charge 30% by way of fees for apps on the App Store, or we can go to this alternative which enables us to comply with the DMA, and Apple will offer an alternative but with a 17% fee for apps plus a 3% core technology fee, and, if you go beyond a million downloads, you will get a 50 cents processing charge per download. Those who fear that their app may go viral, with millions of downloads, are potentially facing enormous costs for processing them through the App Store. As far as all the potential users of the Apple App Store are concerned, this potentially restricts their opportunity for competition rather than enabling it.

My first point is to further reinforce that we have come together to design legislation in support of the Government that is more flexible than the Digital Markets Act. The DMA, in effect, puts the obligations into the originating Act. To change them will be considerably more difficult than would be the case for the Competition and Markets Authority in our regime to change the structure and the content of conduct requirements. Potentially, we have really good flexibility.

Amendment 16 is linked to whether the powers to impose conduct requirements enable the CMA to act in relation to the leveraging of market power in digital activities into other activities—the wider system of its business. Amendment 16 is absolutely about whether the conduct requirements that can be imposed under Clause 20 are sufficiently wide to enable the Competition and Markets Authority to structure them to limit activity which restricts competition in the way that these efforts are being pursued in relation to the Digital Markets Act. To that extent, Amendment 16 asks the Minister, if he would be kind enough to respond in this light, whether, if a designated undertaking were to behave in that sort of way, the CMA would have the power under the conduct requirements to respond and act, and to do so rapidly, to frustrate that kind of anti-competitive result.

Amendment 17 is slightly different, in that we discussed it in Committee. One of the European Union Digital Markets Act obligations is termed expressly to prevent others seeking to stop someone making a complaint to any public authority about non-compliance with the relevant obligations. I looked to see whether our conduct requirements, specified in Clause 20, cover a similar circumstance. In discussion in Committee, the Minister directed me to the “fair and reasonable terms” provision, which is very wide ranging but does not cover this, because these are not the terms of a contractual relationship between a designated undertaking and its users or potential users. It may not relate to that at all.

The Minister also directed me to the question of discrimination, but I do not think this is about discrimination between users; it is about preventing someone, who may be a user, a potential user or a potential competitor, from going to a public authority and saying, “This undertaking does not comply with its conduct requirements”. We know—I will not repeat the evidence that I gave in Committee—that there have, unhappily, been circumstances of intimidation of those who would complain to regulators about the conduct of organisations with significant market power. I return to this simply to say to the Minister that I am not yet convinced. Can he convince us that this kind of activity is covered by the conduct requirements? If it is not, will he undertake to ensure that the necessary changes are made to Clause 20, which the legislation would permit?

I will also speak to the amendments about counter-vailing benefits exemptions. Amendments 23 and 24 revert the Bill to its original wording, which would be better than where we are now. I have looked at Clause 29 from my point of view and I cannot find a good reason for it, so I thought it better to leave it out. If there is a conduct investigation and there are countervailing benefits, they should be presented to the CMA when it makes representations to a conduct investigation. Why would they be left to any other time or specified separately in the legislation?

I thought it better to amend Clause 27 such that, when making representations, the designated undertaking may give details of the benefits associated with its conduct to form part of that investigation. At that point, it should come forward if it is prepared to make commitments that the CMA could accept, without necessarily making a finding, to close that investigation.

All this should take place in Clause 27 on representations, because that is where the sequence lies. I do not understand why Clause 29 has been added at what appears to be a later stage in the sequence of the legislation. As it is a separate clause, it appears as though the benefits can be presented at an entirely separate point.

As I have also discussed with the Minister, there is an analogy with the exempt anti-competitive agreements under the Competition Act 1998. I was on the stand when that Bill was in Committee and this is a very different kettle of fish. The 1998 Act set out broad descriptions of agreements that would be deemed anti-competitive and therefore void, except if undertakings came to the Competition and Markets Authority; then the burden is on it to demonstrate that they have, in effect, countervailing benefits, such as to innovation, the consumer and the like, without an adverse effect on competition.

That is ex post regulation. That is agreements and obligations that are broad-ranging and apply across industry. Here, we are talking about conduct requirements that are optimised and designed in relation to that undertaking in the first place. This is ex ante regulation. You cannot compare ex post provisions in the Competition Act with ex ante regulation under this legislation. They are not the same kind of thing.

Therefore, again, I come back to the argument: let us not have exemptions. The use of “exemption” seems wholly inappropriate. We have here a very straightforward process. Conduct requirements require, in themselves, under Clause 24, for there to be a consultation. The undertaking should tell the CMA what the benefits associated with its conduct are at that stage.

There is a forward-looking process; the conduct requirement is supposed to look forward five years, but none the less, circumstances change. The CMA can review a conduct requirement, and the designated undertaking should come to the CMA if circumstances change and there are countervailing benefits and ask for the conduct requirement to be reviewed. Even if, under all these circumstances, a conduct investigation notice is issued, the undertaking should come forward and express what the benefits are at that point. Under none of these circumstances is there a requirement for the use of “exemption” or for an additional clause that offers countervailing benefits as such.

I dare say I will not press this, because there is probably more to be said for Amendment 23 and going back to the original wording, but it afforded me the opportunity, I hope, to explain why I think the whole proposition in Clause 29 seems misplaced.

[Baroness Kidron (CB)]

My Lords, I find myself in a slightly awkward position because my name is listed in support of Amendments 23 and 24, but I find the argument of the noble Lord, Lord Lansley, incontrovertible, and maybe he should press his amendment.

On the wording, I want to put on the record the view of Which?:

“This is a legal loophole for big tech to challenge conduct requirements through lengthy, tactical, legal challenges. It would tie up CMA (i.e., taxpayer) resources and frustrate the intent of the legislation. Whilst we agree with the intent of this provision, which is to encourage innovation that will benefit consumers, it is critical that these provisions do not inadvertently give designated firms a get out of jail free card from DMU decisions”


by presenting opaque consumer benefits.

I put that on the record because it is so measured in comparison with many of the emails and representations I have had, and still is absolutely categoric that this is a get out of jail card. Like the noble Lord, Lord Lansley, I do not understand why the regulator duty to be

“proportionate, accountable, consistent, transparent and targeted”,

within the context of coming to the conduct requirements and taking up any countervailing benefits at that point, is not adequate. So I will support the noble Baroness, Lady Jones, and, indeed, the noble Lord, Lord Lansley, should he change his mind in the next few minutes.

I also add my support to Amendment 60, tabled by the noble Lord, Lord Fox. I am an enthusiastic supporter of international standards. They provide for soft law and, having worked with the IEEE on a number of standards over the last few years, I see how brilliantly they work to bring disparate people together and provide practical steps for those tasked with implementation. I declare an interest in relation to the IEEE, which gives some funding to 5Rights Foundation, of which I am chair.

The point I leave with the House is that, toward the end of 2022, I had two conversations with companies that will certainly be SMS about why they were now recruiting for employees to work on standards full-time. I believe the CMA should be in the standards-writing game.

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I turn next to Amendments 23 and 24 from the noble Baroness, Lady Jones of Whitchurch, which would revert the wording of the countervailing benefits exemption to the text as introduced in the Commons. I stress that the current wording maintains the same high threshold. However, I will not repeat the arguments, given the extensive debate we shared on this in Committee.

[Lord Lansley (Con)]

I am very grateful to my noble friend. Could he say therefore whether a designated undertaking that feels it can demonstrate countervailing benefits must have presented those to the CMA before the CMA concludes its findings under Clause 30—or can it do so afterwards?

[Viscount Camrose (Con)]

It can make a representation to the effect of countervailing benefits as part of a breach investigation, which can of course happen at any time during the life of a conduct requirement. We would expect it to make those representations at the start of or during the initial investigation. When these representations are made as part of a breach requirement, the Bill sets out the high standards required in order to accept that argument.

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[Lord Lansley (Con)]

Sorry, may I just press my noble friend? Can he therefore say that the presentation of a countervailing benefits exemption after the CMA has made findings under Clause 30 would be void?

[Viscount Camrose (Con)]

A representation to the effect that there are countervailing benefits would take place as part of a breach investigation. Of course, once the investigation is complete, there is no further opportunity to do so. Have I answered the question?

[Lord Lansley (Con)]

Yes.

[Viscount Camrose (Con)]

To address the concerns of the noble Lord, Lord Leong, that the current wording deviates from legal precedent, I note that, since this is a new regime, existing exemptions in different competition regimes would not be directly applicable. It is highly likely that the application of the exemption will be tested, no matter the wording.

Finally, Amendment 34, tabled by my noble friend Lord Black of Brentwood, would allow the final offer mechanism to be used after the breach of a conduct requirement, rather than after a breach of an enforcement order. This novel tool has been designed as a backstop to normal enforcement processes. It is a last resort to incentivise sincere negotiations concerning fair and reasonable payment terms between the SMS firm and third parties. I wholeheartedly agree with my noble friend that these incentives must be both compelling and credible. It is clearly preferable for parties to reach a privately agreed settlement rather than one chosen by the regulator. That is why we must ensure due consideration of less interventionist options before turning to the final offer mechanism.

However, if SMS firms try to frustrate the process or drag it out to the detriment of third parties, I agree that the DMU should be able to accelerate stages before the final offer mechanism is invoked. That is why we have ensured that the DMU will be able to set urgent deadlines for compliance with enforcement orders, supported by significant penalties where appropriate, in cases of non-compliance.

I can robustly reassure my noble friend that the CMA can, via conduct requirements and enforcement orders as well as the final offer mechanism, gather and share key information with third parties.

Finally, to his comment on the forced withdrawal of content, the Bill is able where appropriate to tackle this issue. A conduct requirement could, for example, prevent an SMS firm withdrawing a service in a discriminatory way or treating users more favourably if they purchase the SMS firm’s other products.

The Government have worked hard to strike a balanced approach to intervention. This includes ensuring that firms cannot undermine regulation, and prioritising benefits to consumers at the heart of the regime. I believe the tools, as drafted, achieve these goals, so I hope that noble Lords will not press their amendments.

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Moved by

[Lord Lansley]

56: Clause 114, page 71, line 17, at end insert—
“(5) When the CMA seek the approval of the Secretary of State for guidance, the Secretary of State must within 40 days either—(a) approve the guidance; or(b) refer the proposed guidance back to the CMA with a statement of reasons why the guidance should not be published in that form.”

[Lord Lansley (Con)]

My Lords, in the debate on the first group, on Amendment 56 there was a strong view that when the Competition and Markets Authority presents guidance to the Secretary of State, the Secretary of State should either approve it or refer it back with a statement of reasons within a reasonable time, specified as 40 days, and not, as the Bill presently says, that the Secretary of State can choose not to approve it without any time limit. I am afraid, and I say it with regret to my noble friend, that we did not hear persuasive reasons to the contrary. I seek the opinion of the House on Amendment 56.