Lord Faulks:

Moved by Lord Faulks

Leave out from “House” to end and insert “do insist on its Amendments 9 and 19.”

Many of your Lordships will be familiar with the arguments we have had on the Bill. The important point to stress is that there has been a general welcome of this legislation. I would also like to stress that a measure of cross-party co-operation was the hallmark of the scrutiny of the Bill during its passage through your Lordships’ House. Ministers and officials have given their time generously in meetings and have responded promptly and helpfully to the issues that scrutiny has thrown up.

At the heart of the Bill is the regulation of the internet in a way that should prevent market abuse, in particular by big tech. Helpful though the Government have been, they have not provided answers to some important questions, hence amendments being passing on Report. These have been sent back to us by the House of Commons without the Government—save in one respect—making concessions.

One of the areas that gave noble Lords particular concern is the inclusion of amendments in the House of Commons at a late stage, following lobbying of the Government by big tech. A prospective intervention by the regulator is unlikely to be welcomed by big tech companies and, given their enormous legal budgets, will inevitably be challenged. The change of wording from “appropriate” to “proportionate” will make such challenges easier. A reversion to the Bill’s original wording will help to restore balance, and it is hoped that the amendments in my name and those in the name of the noble Baroness, Lady Jones, on appeals against interventions, will achieve that. Our amendments on Motion C are intended to prevent a seepage of arguments on penalty, which involves a merits test, into the judicial review test, which applies to the intervention itself.

Why have the Government made this late change of “appropriate” to “proportionate”? They have been rather coy about this. There has been some waffle—I am afraid I must describe it as such—about increased clarity and the need for a regulator to act in a proportionate manner. That is quite so but, on further probing, the reasoning was revealed: it is intended to reflect the level of challenge derived from jurisprudence from the European Court of Human Rights and the CJEU, where human rights issues are engaged. I remain bewildered as to why big tech has human rights. This is not what the framers of the convention had in mind.

But if—and it is a big “if”—a convention right is engaged, proportionality is the test, or at least part of it. This is a much lower bar than the normal judicial review test. If the Bill remains unamended, this lower bar will apply to challenges whether or not a convention right is engaged. This is good news for big tech and its lawyers, but not for the Bill and its primary purpose.

I ask the Minister this specific question: if the convention right is engaged, proportionality comes into the analysis anyway, but what if a court were to decide that A1P1—the relevant “human right”—was not engaged? With the Bill unamended, proportionality would apply to a non-convention case, greatly to the advantage of big tech. Is my understanding correct?

It seems that big tech has got its way and that litigation wars can commence—a great pity, most specifically for the smaller players and for the ostensible rationale behind the legislation.

On Motion C1, the test for appeals on penalty is to be a merits-based one, rather than the higher bar that a judicial review standard would, or should, involve. The amendments before your Lordships’ House are intended to prevent seepage from one test to another. His Majesty’s Government say that the courts are well used, in different contexts, to applying different tests as part of an analysis. This is true—in theory. My concern is that if I were advising Meta or Google about an intervention and a consequent hefty fine—this is not an advertisement—it is inevitable that I would advise in favour of appealing both aspects of the intervention: against conviction and sentence, as it were.

It is relatively easy to insulate arguments in criminal cases. One question is, was the conviction unsafe? Another is, was the sentence too long? In the emerging world of internet regulation, however, it is likely to be far more difficult in practice. The question of whether an intervention was disproportionate—disproportionate to what?—will inevitably be closely allied to that of whether the penalty was excessive or disproportionate: another win for big tech, and a successful piece of lobbying on its part.

I look forward to words of reassurance from the Minister. In the meantime, I beg to move.

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.

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 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.

My Lords, I am pleased to support the Motions in the names of the noble Lords, Lord Faulks and Lord Clement-Jones. My Motion C2, which proposes Amendments 32B and 32C in lieu, is in this group.

Throughout the course of the Bill, we have been grateful to the Ministers for their engagement and willingness to reconsider its provisions. We are pleased with a number of concessions which have considerably strengthened the consumer protections within it.

However, the issues at the core of the Bill, which are the ones we are dealing with in this group, remain unresolved. This is the Bill that was meant to even out the balance of interests between the big tech companies and the challenger firms. We heard numerous examples of why this was necessary, why challenger firms were being squeezed out of the market and why the CMA needed to have new powers to create a fair and balanced regime. We originally had a Bill that did just that. This was before the big tech companies intervened and objected to the Government’s proposals. The new version we have in front of us now weighs the scales very much in their interests again.

In the Commons, Minister Kevin Hollinrake claimed that the Government had engaged significantly with both large tech companies and the challenger firms on these changes and that,

“all those cohorts are happy with where the Bill is today

I have to tell the noble Viscount the Minister that this simply is not the case. Many firms remain unhappy with the changes introduced to the original Bill and that they have not been matched by the necessary assurances on the practical and legal consequences that will follow, so our objective all along in framing our amendments was to make the Bill legally watertight, to take out ambiguity and to give the CMA the best chance of assessing and moderating the conduct of the tech companies deemed to have strategic market status.

We have been keen to use the wording that is already legally recognised and does not increase the scope for the lengthy, costly and often strategic legal cases which we sometimes see in this field, challenges which could be used delay or undermine the CMA’s attempts to level the playing field. Clarity has to be of the essence. We and the noble Lord, Lord Faulks, have amendments to Motion C, and he has eloquently raised the legal concerns which continue to concern us as well.

Our Amendments 32B and 32C address an area of ambiguity that may give lawyers an open door to revisit CMA decisions to impose a penalty when conduct requirements have been breached. This concern was also raised in the Commons debate. For example, Conservative MP John Penrose described the possible impact of the government changes, such that

“clever lawyers working for big tech firms may effectively be able to broaden the scope through clever use of legal techniques to prolong their attempts to walk backwards slowly and prevent justice from being done

I could not have put it any better myself. To address this concern, our amendment makes it clear that appeals on penalties in such cases cannot revisit the original decision, whether to impose conduct requirements or that such requirements have not been complied with. Rather than leaving it to ministerial assurances or non-binding additions to the Explanatory Notes, our amendments would make it absolutely clear that merits appeals on penalties are on only the amounts and other points of detail and not the CMA’s decision to act, something that colleagues have referred to as “bleed back” at previous stages. This amendment represents a compromise. We would have preferred a switch back to the use of judicial review on all aspects of appeals, as preferred by the CMA, but in the absence of such a concession I hope noble Lords will see the value of our proposals.

We are not convinced by the assurances offered in the Commons by Minister Hollinrake that the courts will understand how the rules should be applied; the noble Viscount the Minister repeated this today. As the noble Lord, Lord Faulks, ably demonstrated, there are conflicting legal views on this and few precedents on which we can rely. There is also a remaining concern that where a number of issues are dealt with by the CMA concurrently, the evidence may overlap, which would impact on a merits decision on appeals. Our amendments address these concerns. I hope the Minister sees the sense in our proposal. It merely reflects what the Government say they want to achieve, but which they are refusing to put in legislation. Challenger firms and other interested parties cannot grow and compete with warm words alone, so I give notice that I am minded to test the opinion of the House on this important issue.

The noble Lord, Lord Faulks, also made a compelling case on his Motion Al with regard to proportionality. We have debated this issue before; I do not need to repeat the arguments. We continue to believe that the original wording that the CMA’s conduct in regulating digital markets should be “appropriate” rather than “proportionate” sets the right standard. I hope the Minister will be able to confirm that the Explanatory Notes will be amended to make it clear that the use of “proportionate” is not intended to set a heightened standard for appeals grounds.

Finally, I am grateful to the noble Lord, Lord Clement- Jones, for setting out his case so clearly on countervailing benefits. Again, this is a helpful compromise wording, which seeks to combine our preferred wording on the “indispensable” standard—a well-understood concept in UK competition law—with the Government’s new wording, which they claim helps to provide clarity. If the Minister is not minded to accept that amendment, could he please not only assure the House of this today but agree to change the Explanatory Notes to make it clear that the “indispensable” standard of countervailing benefits is the same as the Government’s preferred wording that

“those benefits could not be realised without the conduct”?

If we are not able to make progress on this, and if the noble Lord, Lord Clement-Jones, wishes to test the opinion of the House, we will support him. I look forward to the Minister’s response on all these issues.

My Lords, I thank all noble Lords who have contributed to the debate today and, of course, throughout the development of this legislation. It has been a characteristically brilliant debate; I want to thank all noble Lords for their various and valuable views.

I turn first to the Motions tabled by the noble Lord, Lord Faulks, in relation to appeals and proportionality. I thank him for his continued engagement and constructive debate on these issues. We of course expect the CMA to behave in a proportionate manner at all times as it operates the digital market regime. However, today we are considering specifically the statutory requirement for proportionality in the Bill. We are making it clear that the DMU must design conduct requirements and PCIs to place as little burden as possible on firms, while still effectively addressing competition issues. The proposed amendments would not remove the reference to proportionality in Clause 21 and so, we feel, do not achieve their intended aim, but I shall set out the Government’s position on why proportionality is required.

On the question of the wording of “appropriate” versus “proportionate”, proportionality is a well-understood and precedented concept with a long history of case law. “Appropriate” would be a more subjective threshold, giving the CMA broader discretion. The Government’s position is that proportionality is the right threshold to be met in legislation due to the fact that it applies, in the vast majority of cases, because of ECHR considerations. It is the Government’s view that the same requirement for proportionality should apply whether or not ECHR rights are engaged.

As Article 1 of Protocol 1—A1P1—of the European Convention on Human Rights will apply to the vast majority of conduct requirements and PCIs imposed by the CMA, with the result that the courts will apply a proportionality requirement, we consider it important that it should be explicit that there is a statutory proportionality requirement for all conduct requirements and PCIs. We believe that proportionality should be considered beyond just those cases where A1P1 may apply, in particular when a conduct requirement or PCI would impact future contracts of an SMS firm.

The courts’ approach to proportionality in relation to consideration of ECHR rights has been set out by the Supreme Court, and we do not expect them to take a different approach here. Furthermore, the CAT will accord respect to the expert judgments of the regulator and will not seek to overturn its judgments lightly. I hope this answers the question put by the noble Lord, Lord Faulks.

On appeals, I thank noble Lords for their engagement on this matter, and in particular the noble Baroness, Lady Jones of Whitchurch, for setting out the rationale for her Amendments 32B and 32C, which seek to provide further clarity about where on the merits appeals apply. I want to be clear that the Government’s intention is that only penalty decisions will be appealable on the merits and that this should not extend to earlier decisions about whether an infringement occurred. I do not consider these amendments necessary, for the following reasons.

The Bill draws a clear distinction between penalty decisions and those about infringements, with these being covered by separate Clauses 89 and 103. There is a Court of Appeal precedent in BCL v BASF 2009 that, in considering a similar competition framework, draws a clear distinction between infringement decisions and penalty decisions. The Government consider that the CAT and the higher courts will have no difficulty in making this distinction for digital markets appeals to give effect to the legislation as drafted.

I now turn to the Motion tabled by the noble Lord, Lord Clement-Jones, in respect of the countervailing benefits exemption. I thank the noble Lord for his engagement with me and the Bill team on this important topic. The noble Lord has asked for clarification that the “indispensability” standard in Section 9 of the Competition Act 1998, and the wording,

“those benefits could not be realised without the conduct”,

are equivalent to each other. I want to be clear that the exemption within this regime and the exemption in Section 9 of the Competition Act 1998 are different. This is because they operate in wholly different contexts, with different criteria and processes. This would be the case however the exemption is worded in this Bill. That is why the Explanatory Notes refer to a “similar” exemption, because saying it is “equivalent” would be technically incorrect.

Having said that, the “indispensability” standard and the threshold of the Government’s wording,

“those benefits could not be realised without the conduct”,

are equally high. While the exemptions themselves are different, I hope I can reassure noble Lords that the Government’s view is that the standard—the height of the threshold—is, indeed, equivalent. The Government still believe that the clarity provided by simplifying the language provides greater certainty to all businesses, while ensuring that consumers get the best outcomes.

I thank the noble Lord, Lord Clement-Jones, for his question in relation to the Google privacy sandbox case. The CMA considers a range of consumer benefits under its existing consumer objective. This can include the privacy of consumers. It worked closely with the ICO to assess data privacy concerns in its Google privacy sandbox investigation and we expect it would take a similar approach under this regime.

I urge all noble Lords to consider carefully the Motions put forward by the Government and hope all Members will feel able—

Will the Government update the Explanatory Notes?

Indeed. In principle I am very happy to update the Explanatory Notes, but I need to engage with ministerial colleagues. However, I see no reason why that would not be possible.

Meanwhile, I hope all noble Lords will feel able to support the Government’s position.

My Lords, before the Minister sits down, may I just press him on proportionality? I understand the argument to be that a proportionality test should be applied in this context even though it is not required in all cases by the European Convention on Human Rights. I see the Minister nodding. Will that now be the general position of the Government, because it is not the law in relation to judicial review generally that there is a proportionality test? If that is to the position of the Government, it would be a very significant development which some of us would welcome and some of us would not. I declare an interest, of course, as one of those lawyers referred to by the noble Baroness, Lady Jones, as looking to take advantage on behalf of their clients. It is a very real issue; how far does this go?

It goes only so far as its application to the Bill now. I am not aware of any further measures to take it into other Bills and would not expect to see any.

My Lords, I am grateful for the Minister’s response on that issue. I asked him the same question that I have asked throughout these proceedings—it is the same question posed by the noble Lord, Lord Pannick—and there does not seem, with great respect, to be an answer to it. The Minister has mostly allowed, to use a cricketing metaphor, the matter to go past the off stump without playing a shot. What really seems to be the position is that he says that proportionality will apply, even if the Human Rights Act or a convention right is not involved. But I think that, in answer to the noble Lord, Lord Pannick, the Minister is saying, “But only in the case of this Bill”. What that means is that big tech is getting a special privilege not afforded to any other litigant in any other context. I ask noble Lords, “Is that a good look?” I do not think that it is.

The Commons reason for preferring “proportionate” to “appropriate” reads as follows:

“Because it is appropriate for the CMA to be required to act proportionately in relation to conduct requirements and pro-competition interventions”.

I do not know whether that was supposed to be a joke, but it is profoundly unsatisfactory. The Government have missed a trick—or rather, they have succumbed to considerable pressure. I welcome the Bill because there is a great deal about it which is good. Having thought very carefully, and with considerable reluctance, I propose to withdraw my amendment.

Motion A1 withdrawn.

Motion A agreed.