Competition | UK Regulatory Outlook May 2023

CMA launches review of artificial intelligence and competition law

On 4 May 2023, the Competition and Markets Authority (CMA) announced that it has launched an initial review of competition and consumer protection considerations in the development and use of artificial intelligence (AI) foundation models (a type of AI technology that is trained on vast amounts of data that can be adapted to a wide range of tasks and operations, including chatbots, content and image creation, writing assistant and code writing).

The goal of this review is to help this emergent and rapidly scaling technology develop in ways that result in open, competitive markets that will continue to bring benefits for people, businesses and the economy in the UK.

The CMA's initial review will:

• Examine how competitive markets for foundation models and their use could evolve.
• Explore what opportunities and risks these scenarios could bring for competition and consumer protection.
• Produce guiding principles to support competition and protect consumers as AI foundation models develop.

Many of the other issues raised by AI are being considered by government or other regulators, including safety, security, privacy, intellectual property and copyright, and human rights. The CMA will focus on questions it is best placed to address, such as those raising competition and consumer issues.

The review document identifies the key question as being "what are the likely implications of the development of AI foundation models for competition and consumer protection?" (Please see the Consumer Law section of our Regulatory Outlook for more details on this aspect of the review.)

The CMA invites views and evidence from stakeholders and welcomes submissions by 2 June 2023. It encourages interested parties to respond and be proactive in identifying relevant evidence. Following this review, in September 2023, the CMA will publish a report setting out its findings. The short deadline this gives the CMA is an indication of the urgency with which policymakers are seeking to address this emerging sector, especially as there are many pieces to the regulatory jigsaw in this area and it is vital to ensure consistency and completeness in how this sector is regulated.

The development and commercialisation of foundational AI is likely to have a large impact on the functioning of a wide range of businesses. These changes may include substantial shifts in business operating models. This development has already provoked many conversations about how the future of businesses in all sectors will be impacted by advances in AI. As such, it will be important for all businesses to consider how AI may impact their sector and monitor developments in this area.

Private litigation: the CMA clarifies its position

On 4 May, Sarah Cardell, CEO of the CMA, discussed the interaction between public and private enforcement of breaches of competition law at a conference for the Competition Appeal Tribunal's 20^th anniversary.

She indicated that if the CMA has to decide between two public enforcement cases, it could potentially choose the matter that has no overlapping private lawsuit. Additionally, she noted that “the CMA has finite resources”.

Although it was noted that the possibility of private enforcement is just one in a wide range of factors that the CMA considers when deciding which cases do investigate, clarifying that the agency may still open an investigation into a case that has an overlapping private claim.

This development in the CMA's enforcement priorities should be noted by businesses, especially given the burden placed on the claimants of damages for a breach of competition law when proving their loss. Many competition claims for damages rely on an existing finding by the CMA that a company has infringed competition law – if the CMA declines to investigate, it will be left to the claimant to prove both the infringement and their own loss, substantially increasing the time and cost involved.

As a result, all businesses considering bringing private enforcement proceedings for breaches of competition law should be aware that this could rule out the CMA's involvement under its case prioritisation principles.

New bill will help CMA promote effective competition in digital markets

On 26 April 2023, the CMA published a statement by its chair, Marcus Bokkerink, and chief executive, Sarah Cardell, in which they discussed the work that the CMA is doing to ensure effective competition in digital markets.

In particular, they noted that the Digital Markets, Competition and Consumer Bill (DMCC), if enacted as currently drafted, will give the CMA the ability to work in a faster and more targeted way to improve competition and foster opportunities for innovation in digital markets where a firm is found to have strategic market status. They noted that the bill is drafted to allow pro-competition interventions to give the CMA the ability to work more quickly to improve competition and foster opportunities for innovation in digital markets where a firm is found to have strategic market status. (See our recent Insight and our April Regulatory Outlook for further details on the DMCC Bill.)

Another item to note from the statement is in relation to merger control and digital markets. Cardell and Bokkerink indicated that merger control and the new digital markets regime are two sides of the same coin when it comes to ensuring effective competition in digital markets, indicating that the largest tech companies may anticipate further scrutiny of their acquisitions, an area that has caused controversy in recent years

There will be a significant amount of lobbying and government engagement on the new bill over the coming months and then consultations as individual companies are designated as having "strategic market status" and codes of conduct developed. For those businesses active in digital markets, this is an area to watch and to engage with actively.

Cabinet Office publishes guidance on the National Security and Investment Act

On 27 April 2023, the Cabinet Office published the second edition of the government's market guidance on the operation of the National Security and Investment Act 2021 (NSIA). For a discussion of key learnings from the NSIA's operations so far double-click see our previous Insight.

The guidance provides advice on the following issues:

• The timing of notifications. In relation to this, the guidance includes an indication that the government generally considers a notification to be appropriate when there is a good faith intention to proceed with an acquisition, and suggests how this might be evidenced.
• How the government will handle notifications involving parties that are facing material financial distress, and the information that should be provided in these circumstances. The updated guidance indicates that in exceptional situations, where evidence of material financial distress gives rise to genuine urgency, it may be possible to expedite the assessment process.
• How to engage with the government where there is significant uncertainty as to whether a transaction is within the scope of the mandatory notification regime. The guidance provides examples of the information that should be provided when seeking the government's view on whether notification is required. The government is unlikely to comment in relation to hypothetical scenarios, as their comments may be misapplied to similar but substantially different real scenarios.
• Details of the type of information the government has found to be particularly helpful in notification forms and which parties may therefore want to consider including in their notifications.
• Additional transparency regarding the various stages of the NSIA assessment process; for example, the use of interim orders, information notices and attendance notices; extending the assessment period; government communications with the parties during the assessment process; and the effect of the parties' withdrawal from an acquisition.
• The government’s power to provide financial assistance to parties affected by a final order and how this can be requested. The updated guidance confirms that the power does not operate as a general compensation scheme, and is likely to be exercised very rarely, and only where no appropriate alternative is available.

Given the substantial impact that the NSIA can have on a variety of M&A transactions, including corporate reorganisations, businesses currently involved in or contemplating such activity will find this guidance particularly helpful. Given this guidance and the length of time the NSIA has now been in force, it is likely that the Investment Security Unit will take a less understanding and patient approach to mistakes made in submission forms.

Digital Markets Act starts to apply 

On 2 May 2023, the European Commission announced that the Digital Markets Act (DMA) starts to apply from this date. Further steps are as follows:

1. Potential gatekeepers (as defined in the DMA) that meet the thresholds established have until 3 July 2023 to notify their core platform services to the Commission.
2. The Commission then will have 45 working days (until 6 September 2023) to assess whether the platform in question meets the relevant thresholds, and to designate them as gatekeepers.
3. Following such designation, gatekeepers will have six months to comply with the requirements in the DMA (at the latest by 6 March 2024).