Competition | UK Regulatory Outlook November 2023

Changes to National Security and Investment Act

On 13 November 2023, the Cabinet Office issued a call for evidence in relation to the National Security and Investment Act 2021 (NSIA) to collect views on how the national security and investment regime can be more business friendly while maintaining and refining the protections needed to protect national security.

The government is looking for views from cross economy stakeholders in the UK and overseas. Oliver Dowden, the deputy prime minister, has indicated that the powers are to be pared back to make them “more business friendly” with the aim of “narrowing and refining” the scope of the regime. In particular, this evidence will help the government:

• hone the scope of the system’s mandatory notification requirements;
• improve the notification and assessment processes under the NSIA; and
• develop the government’s public guidance and communications on how the NSIA works and where the government tends to see risk arising.

Depending on the responses received, a more detailed consultation on specific measures or legislative changes may be necessary. However, changes that require primary legislation are not currently being considered.

Notably, Mr Dowden proposes removing internal restructures from the regime as the ultimate beneficial owner of the company remains the same in these scenarios.

The call for evidence is open until 15 January 2024.

Businesses involved in M&A and private equity activity should remain aware of this development, as the proposed alterations would implement significant changes to a number of parts of the regime. To discuss responding to this call for evidence please get in touch with your usual Osborne Clarke contact.

AI and competition

Competition enforcement authorities across the globe are taking an increased interest in the impact AI can have across a range of industries. These concerns include maintaining a competitive landscape in the market for AI itself as well as the impact that this technology can have on competition in other sectors of the economy.

A number of these concerns were recently identified by the Competition and Markets Authority (CMA) in its initial report into foundation models.  Reflecting the rapid development of this area, the CMA plans to publish an update on the report in March 2024, covering: further developments in the market; the CMA's thinking on its proposed regulatory principles; an update on how key inputs (discussed below) are being accessed; and consideration of the role AI semiconductor chips play in the foundation model value chain. These concerns were echoed in a speech given at the AI Fringe Hub on 1 November by Marcus Bokkerink, chair of the CMA.

In addition the CMA, as part of its work in the Digital Regulation Cooperation Forum, hopes to publish a joint statement with the Information Commissioner's Office in 2024, which will address areas of crossover between competition, consumer and data protection objectives – all underlining the CMA's commitment to understanding and, if necessary, regulating AI.

The CMA is not alone – a recent G7 Communiqué on Digital Competition identified a number of key inputs for the development and deployment of large-scale AI, stating that inability to access these key inputs may inhibit competition to develop AI and AI applications, consequently reducing innovation and harming consumers.

The statement points to the resource-intensive nature of large-scale AI, including datasets, skilled work force and computational power, arguing that an inability to access these resources could inhibit competition. Bundling, tying, exclusive dealing and self-preferencing were mentioned as potential anticompetitive conduct by incumbent AI companies. Incumbents could also use mergers and partnerships to entrench their market power, the statement warns.  These principles reflect those being developed under emerging digital markets regulation, including the UK Digital Markets Competition and Consumer Bill, which may empower multiple regulators to intervene in AI markets.

The communiqué also mentioned the risk posed by algorithm-based digital cartels in facilitating collusion or price manipulation. This risk has been discussed in a report by the CMA, in which it committed to work with others to identify problematic markets and firms violating consumer or competition law. Earlier this year the European Commission identified algorithmic collusion as a "study subject" for the authority and the US Department of Justice is involved in two investigations into AI-fuelled information sharing which it sees as the "backbone" of inflation in kitchen staples.

Interestingly, although it contributed to the Compendium of Approaches to Digital Competition In Law,  India has not progressed further legislation in this area. Earlier this year, a committee was formed to review the adequacy of extant Indian competition laws with respect to the regulation of digital markets. India has a two-decade old law, the Competition Act, 2002, that is ill-suited to modern digital markets. The committee was tasked with considering whether a separate digital competition law was required to address the challenges posed by emerging markets, technologies, and significant players. Despite several extensions, the committee has overshot the deadline for submitting its report and has failed to meet even once during the past three months.

In the face of extensive delays, not to mention severe opposition from tech giants, and a lack of consensus among regulators, the fate of a new digital competition in India law remains uncertain.

The use of AI and algorithms is becoming increasingly widespread across all business areas. As such all businesses should remain aware of these developments in order to ensure compliance with competition laws.

Employment and competition

On 2 November, the Law Society and the CMA held a webinar highlighting the CMA's increasing focus on anti-competitive agreements in the employment sector. The CMA highlighted that it is paying particular attention to non-compete clauses, non-poaching agreements and restrictive covenants in employment contracts. It takes the view that these can have anti-competitive effects, including a detrimental impact on individuals/households in a cost of living crisis. There has been growing concern about the use of non-compete clauses and restrictive covenants in employment contracts, and the CMA is seeking to address these concerns.

The CMA is also concerned about the potential for agreements between employers to result in information sharing between competitors (the employers). It has caveated these concerns with the need to balance them with increasing demands for pay transparency and the requirements of other employment legislation.

This approach is reflected in a number of other jurisdictions, notably the EU and US.

The CMA itself is conducting two investigations into a number of undertakings involved in the production, creation and/or broadcasting of television content: one into sport content in the UK and another into all other television content in the UK. Both investigations focus on the purchase of services from freelance providers, and the employment of staff who support the production, creation and/or broadcasting of television content in the UK.

It is vital for businesses to remain aware of this development, as breaches of competition law can result in substantial fines and director disqualification, making it critically important to review employment contracts and discussions/arrangements with competitors for competition law compliance. There is also the potential for significant reputational damage following competition law breaches.