Digital Markets, Competition and Consumers Bill

Supplementary written evidence submitted by Google (DMCCB30)

Thank you for inviting Google to give oral evidence to the Digital Markets, Competition and Consumer Public Bill Committee, and for the opportunity to supplement that with written evidence.

Google’s products are used and trusted by millions of people in the UK every day. They drive considerable consumer benefit. Google Search and Workspace were estimated to have saved British workers over 600 million hours a year by helping them find information faster and collaborate easier. The Android app economy generates £2.8 billion in revenue for UK developers, supporting 240,000 jobs across the UK. Overall, Google is estimated to have driven £55bn of economic activity in 2020 and initial findings suggest this number to be substantially larger for 2023.

Google is proud to be a part of a competitive digital ecosystem in which competition acts as a force for good. It continually drives our business to innovate and improve our products for the benefit of consumers. We have seen with the recent acceleration in artificial intelligence how competition in these markets can evolve rapidly. To compete in these markets, Google is a substantial investor in R&D, spending a total of $145bn between 2018 and 2022. We continue to push technological boundaries with incredible breakthroughs right here in the UK, such as AlphaFold, DeepMind’s solution to the protein folding challenge.

The Digital Markets, Competition and Consumer Bill will be a profound change in the regulation of digital markets. These markets are often novel, dynamic and complex, and deliver a huge amount of consumer benefit to people across the UK. The bill should ensure the new regime puts consumer welfare at its heart, noting the Furman Review’s recommendation that "[c]onsumer welfare is the appropriate perspective to motivate competition policy and a completely new approach is not needed. This approach is flexible and can take into account broader considerations than price, narrowly defined, and also include choice, quality and innovation, among other areas."

We welcome the Government’s ambition for "legislation that drives innovation without placing blanket obligations on firms or creating unnecessary regulatory burdens". The vision of a "participative approach", that emphasises regulatory dialogue, is welcome and can help deliver this ambition through a speedy, flexible and targeted regime. We also welcome the intention of the countervailing benefits exemption to help ensure that consumer benefit is the overriding motivator of the regime.

While procedural innovations are welcome, we believe that the Bill can be strengthened in the following three respects:

1. A more robust appeals standard which would provide sufficient safeguards and ensure proper accountability for novel and complex regulatory decisions.

2. Adjustments to the countervailing benefits exemption to make it fit for purpose in an ex-ante regime and ensure consumer benefit is central.

3. A more proportionate private enforcement regime which ensures that the CMA is the first-instance decision-maker.

A more robust appeals standard

Given the wide ranging powers available to the CMA and the complexity, fast moving and novel nature of the markets this regime oversees, we believe that the judicial review (JR) standard provides insufficient safeguards for businesses regulated by the regime. By only providing an ability to challenge whether the proper process has been followed, and not whether the underlying assumptions and judgements are based on sufficiently robust evidence, the regime creates uncertainty for businesses and consumers, and provides an inadequate accountability framework.

While the innovative "participative approach" that the CMA is proposing to take - working with businesses under the regime to address issues - may help to reduce the likelihood of needing to appeal, it is not a substitute for a robust appeals process. We therefore believe that merits based appeals, which are already a feature of the Competition Act 1998 and have wide support, are the appropriate standard for this regime.

Merits-based appeals are vital for creating a sustainable and trusted framework with proper accountability on both sides. We have seen in previous Competition Act cases that decisions by the CMA have been overturned, so errors can and have been made. But these judgements also have the power to lead to improvements within the CMA, creating a more effective regulator in the long run.

In 2013 and 2019, the Government consulted on whether to reduce the appeals standard on Competition Act cases to JR and on both occasions it was considered inappropriate. On both occasions, the Competition Appeal Tribunal (CAT) expressed its opposition. In 2013, it stated that "no case at all is made" and "the CAT’s examination of a regulator’s findings and assessments in the context of a merits appeal has revealed serious errors which might have gone uncorrected on a more restricted review". In 2019, CAT chairman Peter Freeman said that "[Full merits]... remains in my view as important as ever. The need for it is in no way diminished by the challenges of applying competition law in the digital economy; if anything, the need is even greater…it is rather curious to find proposals to weaken the rigour of judicial scrutiny appearing in a package of reform proposals intended to address issues from the digital economy."

In March, the former head of the Government Legal Service, Sir Jonathan Jones, raised concerns about the move to JR in the digital markets regime, suggesting it "raises concerns about due process" and might not achieve the policy objectives outlined in the government's consultation paper. He writes,

The DMU will have power to decide who it is going to regulate, set the rules that apply to them, and then enforce those rules…This makes the DMU effectively legislator, investigator and executioner. For all decisions in this chain to be subject only to judicial review appears – to us – somewhat at odds with the approach to competition enforcement, and raises concerns about due process.

Given the strength of the DMU’s powers of intervention, he argues "there is a strong case for subjecting those decisions to a standard of appeal that allows the tribunal to determine whether the decision is "materially wrong" ".

We understand that the Government’s main concern is that such appeals will cause unnecessary delay to regulatory decisions. Research by Linklaters suggests merits appeals can achieve outcomes quicker than JR. Furthermore, we believe that this can be easily addressed by developing in statute a merits based appeals system that is expeditious, with statutory time limits or rules of procedure to speed up decision making. This is already the case in numerous other CMA appeals regimes including water, gas, electricity, civil aviation, railways, financial services and postal services where the appeals must be determined within 4-6 months depending on the regime in question.

Adjustments to the countervailing benefits exemption

There is widespread agreement that digital markets offer significant benefits to consumers. The Furman Review noted that "the fact that these services are used so frequently and valued so highly, while being provided at no monetary cost … strongly suggests that the consumer welfare benefits from the digital economy are large." Consumers use Google products because they are innovative, secure and easy to use and we continue to focus on delivering the best experience for our users by enhancing and developing our products.

We therefore support the Government’s inclusion of a countervailing benefits exemption which, as the Government set out, ensures "that conduct which brings about net consumer benefits will not breach conduct requirements. Firms with Strategic Market Status will be able to put forward evidence that particular conduct that would otherwise breach a Conduct Requirement brings about benefits to consumers." Nonetheless, we see two areas where the drafting of the Bill creates uncertainty for Google.

Firstly, the exemption has been copied from a similar exemption elsewhere in competition law, which introduces an ex-post concept into an ex-ante regime. In this regime, specific conduct requirements will provide very prescriptive rules on a SMS firm's behaviour up front, whereas the exemption can only be used after a breach. The result is that in order to provide benefits to consumers, Google may need to knowingly breach a conduct requirement without any certainty in advance that the countervailing benefits exemption will apply. This uncertainty may prevent Google from improving its products and rolling out changes that provide consumers with benefits, as there is no up front certainty that the benefits generated will be compliant with the exemption.

The second issue is that the exemption is difficult to apply in practice given the limited analysis required by the CMA and the fact that it can only be used if the conduct is "indispensable" to bringing about the benefit. This high bar of legal defence copied from other regimes where it is more appropriate will likely make the exemption irrelevant, potentially resulting in consumers being disadvantaged.

In the present system, regulators conduct extensive and detailed analyses to demonstrate anti-competitive behaviour. Companies can then provide an objective justification or countervailing defence in response to demonstrate that their analysis of benefits outweighs the CMA’s analysis of the anti-competitive behaviour.

Under this regime, the CMA will not be required to produce the same level of detailed effects analysis. Without knowing the anti-competitive effects that the CMA believe have occurred, SMS firms cannot be sure whether the countervailing benefits on the other side of the equation cancel out those effects. Clause 26 of the draft Bill puts limited requirements on the CMA in investigating a breach of the conduct requirements. Under clause 29 of the Bill, it is then for the SMS firm to provide analysis that demonstrates the countervailing benefits exemption applies. Not only will this be difficult to demonstrate given the lack of clarity on the negative effects in question, but these benefits must also be: (i) limited to those "in respect of which the conduct requirement in question applies", potentially preventing wider benefits from being taken into account and, (ii) must be "indispensable" such that there was no less anti-competitive alternative means of producing ‘benefits’ or ‘efficiencies’ that outweigh the conduct’s negative effects on competition, which is a high legal bar to meet.

Such analysis may also be incredibly difficult to demonstrate in an ex-ante regime. It may not be possible to demonstrate and forecast with sufficient clarity that new products, such as generative AI, give rise to consumer benefits that counteract the breach of the conduct requirement or that the breach was indispensable to achieving those benefits.

We therefore believe the countervailing benefits exemption is not constructed appropriately for an ex-ante regime and nor do we believe the high legal standard of evidential requirements placed on SMS firms is appropriate, particularly given the limited evidential requirements placed on the CMA. This may pose a significant risk to the pro-innovation and pro-consumer approach the Government is intending to take in implementing this regime.

A more proportionate private enforcement regime

Clause 99 of the draft Bill contains a provision that grants private parties the authority to initiate legal proceedings against SMS firms in respect of conduct requirements or pro-competitive interventions. This replicates a relatively new approach to competition enforcement in the UK, following a similar provision being previously included in the Consumer Rights Act 2015. The approach in the Consumer Rights Act has not yet been subject to a post-implementation review, which should consider how successful and proportionate the measure has been and yet it is being replicated into wider aspects of competition law. In its consultation response, the Government noted that views were "divided" on this issue with some believing that private action should be deprioritised or disallowed and "a similar number" in support. Given the divided nature of responses, we believe this merits further consideration.

As outlined by the Chief Executive of the CMA (Sarah Cardell) last month, "we are only at the start of seeing the impacts of the reforms introduced by the Consumer Rights Act 2015". She noted that the number of proceedings is growing rapidly putting pressure on the CAT and that the CMA should "refine its role as the private action regime continues to evolve".

Private enforcement presents new challenges to competition enforcement. In particular, Sarah Cardell outlined the challenges with overlapping cases where the CMA and private enforcers are seeking to challenge the same firm for the same suspected breach. This risks the CAT making judgements before the CMA has opined and requires the CMA to monitor and intervene on concurrent and related cases.

The Chief Executive also highlights "a striking feature of the collective proceedings currently before the Tribunal is the number which are backed - and to some extent made possible - by litigation funding firms" which seek to make a return and therefore select the highest value cases. This selection bias tends towards cases where there is widespread harm and therefore focuses on cases the CMA are most likely to be looking at themselves. It is therefore unlikely that private enforcement provides significant added value beyond the CMA’s work.

In the context of this Bill and fast moving digital markets, enabling private parties to bring cases directly to the courts, bypassing the expertise and oversight of the Digital Markets Unit (DMU), even where the DMU has not found a company in breach of its requirements, risks inconsistency, particularly since the same lower evidential requirements on the DMU are replicated for private enforcers. The Bill also does not appear to allow for a countervailing benefits exemption for private enforcement actions.

This approach undermines the intended "participative approach" that is a key feature of the UK proposals and creates the potential for conflicting compliance requirements and different interpretations of conduct requirements across firms depending on whether the firm has been subject to a private CAT enforcement or remains under the DMU interpretation of a conduct requirement.

Ahead of formally reviewing the impact of the Consumer Rights Act 2015 and to address the emerging challenges with private enforcement, we believe that a more coherent approach to private enforcement would be to allow ‘follow on’ cases after the DMU has identified a breach. This would ensure that private enforcement remains an option but also ensures the DMU acts as the main regulator of the regime.

Final Offer Mechanism

Given the prominence of the Final Offer Mechanism in the House of Commons’ Second Reading debate, I also wanted to take this opportunity to remind the committee of Google’s commitment to supporting publishers and news media organisations.

Google is proud to be one of the UK’s largest financial supporters of journalism. Through Google News Showcase, we pay for news content from over 285 publications, from the Daily Mail to the Independent Community News Network. Over 90% of these titles are local papers. These agreements were reached without the need for new laws or the application of a fixed offer mechanism. We believe we can continue to conclude these commercial arrangements on fair and reasonable terms without the need for price setting by the CMA. While we accept the Government has chosen to include such a mechanism, despite the Cairncross Review and the Government’s Digital Markets Taskforce setting out that final offer arbitration is likely to be ill-suited to digital markets, we do believe that the mechanism should remain a last resort, as currently drafted, so that the CMA can prioritise underlying competition issues rather than regular commercial negotiations.

Products like Google Search and News drive millions of free clicks to news publishers’ sites. This traffic is valuable. Deloitte estimates total web referral traffic to be worth approximately £500m a year to UK publishers. By contrast, in 2020, Google generated <$20 million in revenue (not profit) from clicks on ads against possible news-related queries in the UK.

Many of the news companies across the UK use Google Ad Manager to manage their digital advertising business. On average they keep between 70-95% of the digital advertising revenue generated on their sites with this tool. And between 2018 and 2020, we paid out over £245m to the top five UK news publisher partners alone in our ad network. Google also provides wider support to news publishers through products, programmes and funding, like investing £18m in training, partnerships and programming with news organisations in the UK.

Measures related to consumer rights

Google welcomes measures intended to ensure consumers are protected in the digital economy. We want to ensure these measures are proportionate and deliver the Government’s policy objectives. However, parts of the Bill go beyond areas which the Government consulted on and we therefore believe further scrutiny is required in the following areas:

Subscriptions and cancellations

The measures relating to "subscription traps", particularly those sections relating to pre-contract information and reminder notices, are significantly more prescriptive than the approach to regulation found in other areas of the Bill and appear to be inconsistent with the Government’s recent publication "Smarter regulation to grow the economy".

The purpose of the pre-contract information is to better ensure that consumers understand the most important information prior to entering into a subscription contract. That being said, it needs to be recognised that not all subscription contracts will be the same and not all consumers will consider the same categories of key pre-contract information to be pertinent. Rather, consumers need to be able to quickly and easily navigate to the information of importance to them.

Sections 248, 249, 250, 251 and Schedule 20 list exactly what needs to be included in pre-contract information and renewal reminders and at which intervals renewal reminders need to be sent (e.g. specifying a three-day window). Given the diverse range of subscriptions offered by businesses, we believe a more proportionate approach would be to provide guidance that is more flexible and could be updated more regularly in line with the future evolution of subscription models and consumer behaviour.

This is important so that companies can continue to communicate with consumers in an effective way. Overly-prescriptive requirements may not aid (and indeed, may in fact hinder) readability for consumers. For example, companies will be required to provide all "key pre-contractual information" on the same page, without the option for other steps that may help engagement. Furthermore, there should be greater discretion or guidance for companies to determine what "key" precontractual information is relevant for the subscription in question, what is already apparent from the context and when this information should be provided to the consumer (i.e. in line with the general and recommended approach that information should be provided to consumers at the point at which it is most relevant). Additionally, with limited allowances for reasonable alternative approaches to provide such information where time and/or space is limited, the Bill will not be flexible for future or indeed current innovations, with the methods for consumer contracting already spanning wearable devices with very small interfaces, such as smart watches.

Finally, the Bill provides rights for consumers to notify businesses of a cancellation of a subscription "by any means''. This is likely to require additional resources for many businesses to monitor any possible communication that a business may have with consumers. It is not clear for example, whether a post on social media which is addressed to the firm in question would qualify under this right. We judge that other requirements on businesses within the Bill to provide specific channels for cancellations negate this wide ranging measure.

Fake Reviews

Google is already taking robust measures to address fake reviews. Our services are built on consumer trust, and fake reviews threaten to undermine it. Therefore, clarity is needed on how the genuineness of reviews can be determined and whether a distinction will be made between product and service/business reviews. Restrictive or one-size-fits-all approaches should be avoided to maintain competition, variety, and consumer choice in the review services market. We welcome the commitment to further consultation to understand how to make these measures effective.

Blacklisted practices

The Bill introduces amendments to blacklisted practices. This includes extending the definition of "vulnerable consumer" by including a requirement for companies to take into consideration "the circumstances they are in". However, it is not clear how companies can ascertain an individual consumer’s circumstances, particularly in an online context. As such, we believe there should be more guidance on how this will operate in practice and recommend that in respect of aggressive commercial practices, a vulnerability must be reasonably foreseen by traders.

We welcome the focus on tackling persistent and unwanted communications. In order to better protect consumer safety, we believe there should be targeted carve outs for legitimate persistent solicitations required for legal or security reasons. As the UK National Centre for Cyber Security notes, keeping devices and software up to date is one of the most important ways of enhancing cybersecurity. Targeted carve outs are important for ensuring consumers can protect themselves through carrying out best practices.

Sincerely,

Tom Morrison-Bell

Public Policy Manager, Competition, Google

20 June 2023

 

Prepared 22nd June 2023