My Lords, I will speak to Motion B1 and briefly in support of other motions in this group.
Last December, at Second Reading, I said that we on these Benches want to see the Bill and the new competition and consumer powers make a real difference, but that they can do so only with some key changes. On Third Reading, I pointed out that we were already seeing big tech take an aggressive approach to the EU’s Digital Markets Act, and we therefore believed that the Bill needed to be more robust and that it was essential to retain the four key competition amendments passed on Report. That remains our position, and I echo the words of the noble Lord, Lord Faulks: that the degree of cross-party agreement has been quite exemplary.
As we heard on Report, noble Lords made four crucial amendments to Part 1 of the digital markets Bill: first, an amendment whereby, when the Competition and Markets Authority seeks approval of its guidance, the Secretary of State is required within 40 days to approve the guidance or to refuse to approve it and refer it back to the CMA; secondly, an amendment reverting the countervailing benefits exemption to the version originally in the Bill, which included the “indispensable” standard; thirdly, amendments reverting the requirement for the CMA’s conduct requirement and pro-competitive interventions to be “proportionate” back to “appropriate”; and fourthly, amendments reverting the appeals standard to judicial review for penalties.
We welcome the fact that the Government have proposed, through Motion D, Amendment 38A in lieu, which effectively achieves the same aims, ensuring that the approval of the CMA guidance by the Secretary of State does not unduly hold up the operationalisation of the new regime. However, the Government’s Motions A, B and C disagree with the other Lords amendments.
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In Europe, where the Digital Markets Act is now in force, we have seen big tech gatekeepers frustrate enforcement by evading the spirit, and in some cases ignoring the letter, of the law. They continue to use their market power to twist their obligations under the Act to maintain their stranglehold. The amendments passed by the Lords and put forward today offer the solution to minimise the chance of this happening in the UK and to ensure that the CMA’s new powers are sufficiently robust to hold big tech to account.
As regards the countervailing benefits exemption—Motion B1 in my name—in the Commons on Report the Government moved away from requiring a big
tech firm’s conduct to be “indispensable” to the realisation of consumer benefits to access the exemption. A new form of words was inserted:
“those benefits could not be realised without the conduct”.
The countervailing benefits Clause 29 in the Bill provides a defence to a designated strategic market status entity if it can show its actions provide consumer benefit. The House of Lords amendments were intended to reinstate the higher bar, which would have required the designated firm’s conduct to be “indispensable” to realise such consumer benefit. The “indispensable” standard is a well-understood concept in UK competition law, used in the Competition Act 1998. Nothing could give greater clarity than reinstating this wording, as the Lords amendments seek to do. It is likely that courts would interpret Parliament’s deliberate move away from an existing well-understood standard as intending to create a new, novel threshold. This inevitably will allow big tech firms greater scope to access the exemption and launch complex legal challenges.
The Government have claimed that the change was made to add “clarity”, and that the new wording maintains “the same high threshold”. In response to the concerns that the change in wording will make it easier for SMS firms to evade compliance or appeal, Minister Hollinrake in the Commons on consideration of Lords amendments stated:
“The revised wording about the countervailing benefits exemption did not change the effects of the clause and did not change the guidance in the explanatory notes
”.—[Official Report, Commons, 30/4/24; col. 208.]
and that the position has not been materially changed in any way. But we need to query why, if the Government wish to maintain the same high standard but add clarity, they do not simply combine the “indispensable” standard with the new wording in the Bill. The current wording in the Explanatory Notes—that there are “similarities”—is far too weak. If the Government will not reinstate the “indispensable” wording, then the Minister today should clarify at the Dispatch Box and in the Bill’s Explanatory Notes that the “indispensable” standard and the new form of words—that
“those benefits could not be realised without the conduct”—
are equivalent.
None of this debate about wording is academic, as activity by big tech companies in the US and EU already shows. Back in December last year, on Second Reading of the Bill, the noble Viscount, Lord Camrose, used the example of privacy and security as a potential benefit to the user under Clause 29 as a countervailing benefit. He said:
“The firm could claim that the ban was to protect user security and privacy … the DMU would close its investigation only if the SMS firm provided sufficient evidence, such as an independent report from security experts
”.—[Official Report, 5/12/23; col. 1450.]
There is already litigation running in the USA where Apple is seeking to justify its anti-competitive acts on the basis that it is justified in protecting the privacy and security of its users. In US v Apple this year, the Department of Justice has been explicit in saying that such justifications are spurious, and the real motivation is that of restricting competition. It would be extraordinarily unfortunate if the Minister’s language was referred to in subsequent litigation about the meaning of Clause 29 as being an indication of the Government’s support for the position adopted by Apple.
The view of the CMA will be crucial. Does the Minister expect the CMA to take the same attitude to security and privacy claims as they have in their Google privacy sandbox investigation—being sceptical of privacy claims and making clear that they are not a justification to allow unduly negative impacts on competition? The implementation of privacy sandbox has been delayed for some years globally because of the CMA’s intervention, protecting consumers from adverse impacts.
As regards the situation in the EU, 16 major trade associations and consumer organisations wrote to the Secretary of State on 24 April, saying:
“We have observed designated companies’ (‘gatekeeper’) efforts to frustrate enforcement of the EU’s Digital Markets Act … The solutions required to prevent this scenario being replicated in the UK are to keep grounds of appeal and challenge as narrow as possible; and preserve the latitude and efficiency with which the CMA can act. Consumers will not reap the benefits of the increased competition if the CMA’s work can be delayed by the designated companies”.
Noble Lords may have seen a recent piece in the Independent by the renowned business journalist, Chris Blackhurst, pointing out that we may become a competition regulatory outlier because:
“Other jurisdictions, including the US and EU, are moving hard against Big Tech, stepping up several gears in their drive to curb their growing dominance”.
Our fears and suspicions are widely shared outside this House. Are the Government in thrall to big tech? I hope the Minister can allay these fears today.
For the avoidance of doubt about the consequences if Motion B1 goes to a vote, we have received advice on these Benches from the Public Bill Office that, because the House has not considered the Government’s new wording in paragraph (c), alongside the indispensability test as inserted by Amendment 13, insisting on Amendment 13 but not Amendment 12 represents a new package of amendments. It is therefore the view of the clerks that any Motion would not risk double insistence in the Commons if the Lords agree to send back Amendment 13.
As regards proportionality, for all the reasons stated by the noble Lord, Lord Faulks, we support his Motion A1. The Bill originally required the CMA to ensure that its interventions were appropriate to the realisation of fair dealing, open choices or trust and transparency of objectives. In the Commons, the Government changed the requirement from “appropriate” to “proportionate”, as we have heard. As described by the noble Lord, Lord Faulks, while seemingly innocuous, this change will have a significant impact on the scope that big tech firms have to challenge CMA decisions under judicial review.
The Government have claimed that, even absent this specific requirement, the regulator would need to ensure that its interventions are proportionate because Article 1 of Protocol 1 to the European Convention on Human Rights would apply to interventions that affect the property rights of big tech firms. But, as the noble Lord has explained so clearly, courts are likely to interpret this as providing new, broader grounds for judicial review appeals of CMA decisions, and this will provide big tech firms with limitless legal budgets with even more scope to tie up the CMA in lengthy legal wrangling. The Bill should be returned to its original form in this area.
We also support Motion C2 regarding the appeal standard, which the noble Baroness, Lady Jones, will speak to. The Bill originally had judicial review as the appeal standard for all CMA decisions under Part 1, but in the Commons the Government moved to merits appeals for penalty decisions. This is dangerous, as it is ultimately the threat of fines that will incentivise big tech firms to comply with the CMA’s decisions. There is even greater danger that merits appeals on penalty decisions, as the noble Lord, Lord Faulks, has said, bleed back across the Bill into regulatory decisions, giving big tech firms greater scope to frustrate and challenge CMA decisions. Minister Kevin Hollinrake’s statement in the Commons that
“the Bill draws a clear distinction between infringement decisions and penalty decisions
”.—[Official Report, Commons, 30/4/24; col. 188.]
does not eliminate the concern about the two bleeding into each other, especially if the two streams take place together in the same case. All this means that we should revert to the judicial review standard for penalty appeals as well.