Brexit UK Rivals Europe in Race to Crack Down On Big Tech

The DMU does a disservice to the UK’s legal tradition and to UK’s economic future precisely when the country is at historical post-Brexit crossroads.

If you liked the European Union’s Digital Markets Act, the DMA, you will love the UK’s Digital Markets Unit, the DMU!

The DMU imposes preventative prohibitions on online platforms rather than sanctioning anti-competitive conducts after they occur. During a November conference that I jointly organized, Dr. Michael Grenfell, Executive Director of the Board of the Competition and Markets Authority, explained that “fast-moving” digital markets make current competition rules outdated. A few days later, his organization ordered Facebook to sell GIF platform Giphy, even though Giphy has no revenue.

It’s a gigantic, missed opportunity. Brexit Britain could have departed from the Brussels-inspired vision of competition. Instead, it is doubling down on the misguided continental techlash against US tech companies - at a time when London paradoxically appears well-placed to attract venture capital and global tech entrepreneurs.

The UK government unveiled its so-called “pro-competition regime” in July 2021. Six months earlier, the European Commission unveiled its proposed DMA. Both proposals follow the same logic: targeting a handful of US tech companies with ex-ante regulatory obligations that would supposedly lead to increased competition better than the ex-post judicial antitrust enforcement.

Both the UK and European proposals regulate Big Tech according to its size, not to the alleged anti-competitiveness of its conduct. The DMA identifies “gatekeepers” while the DMU names companies as having a “strategic market status.”  These definitions err because of four reasons.

First, the precautionary logic prohibits any business change or innovation made by these platforms even before these innovations ever materialize, let alone cause harm. Disrupted rivals would use these accommodating regulatory venues to halt future disruptions, leaving consumers voiceless and powerless.

Second, the logic of the precautionary principle is early intervention.  Swift regulatory intervention take antitrust enforcement away from the courts, leading to the denial of the fundamentals of a well-functioning democracy–the right to a fair trial with judicial review.

Indeed, like the DMA, which sidelines judicial review, the UK government insists that judicial review of DMU decisions be limited to procedural aspects. Only in limited circumstances of “significant financial penalties” would the right of a fair trial be protected by Article 6 of the European Court of Human Rights. The precautionary logic of granting power to regulatory bodies over courts reveals a preference for swift preventative measures overdue process.

Third, the UK approach reverses the normal burden of proof:  Everything is prohibited unless proven otherwise. Article 12 of Europe’s DMA lays down notification of any merger envisaged by the designated platforms. Similarly, Part Seven of the UK rulebook envisages a “bespoke merger regime” for all mergers involving companies with “strategic market status,” forcing the merging firms to demonstrate the absence of harm to competition. This will prove impossible.

Fourth, market actors must prove that their actions will never harm consumers or competitors. The DMU lays down a “Code of Conduct” and so-called “procompetitive interventions” (PCIs), which aim at ensuring that the targeted companies comply with “the ‘rule of the game’ in advance.”  These PCIs measures include prohibiting self-preferencing despite the procompetitive effects of such conduct.

In addition, the DMU will preemptively intervene to force the targeted companies to “give consumers more choice and control over their data.” These would inevitably force targeted companies to help their rivals. These companies would ultimately function as public utilities, leading to fewer investments and innovation than otherwise on their platforms, all at the expense of consumers.

Overall, it is clear that the UK is moving to copy destructive European rules just as the moment when it could have used its newfound regulatory freedom to promote dynamic competition. Such an approach would have reconciled the UK approach with its long-lasting adherence to the rule of law rather than the controversial precautionary principle. It would have paid tribute to competition as an evolutionary process of discovery and disruption as Friedrich Hayek and other renowned economists long have demonstrated. The DMU does a disservice to the UK’s legal tradition and to UK’s economic future precisely when the country is at historical post-Brexit crossroads.

Dr. Aurelien Portuese is Director of The Schumpeter Project on Competition Policy at the Information Technology and Innovation Foundation (ITIF). He is also an Adjunct Professor at the Global Antitrust Institute of George Mason University and at the Catholic University of Paris.