UK targets fake reviews and killer acquisitions in reform package

The UK has announced a bundle of consumer protection and competition reforms which could see platforms that fail to tackle fake reviews fined up to 10% of their global annual turnover.

Also incoming: Stronger powers for the national competition regulator to prevent tech giants from being able to buy up startups or smaller rivals with the intention of shuttering a competing service (so called ‘killer acquisitions’).

However the government still hasn’t decided how to deal with the broad online scourge of dark pattern design which uses deceptive and/or manipulative tactics to dupe web users into spending more time or money than they intend on a digital service — saying it’s “seeking further evidence” on how best to arm regulators to combat these unethical tactics.

The reforms it has agreed follow a consultation last year on reforming competition and consumer policy which saw the government take feedback from businesses, consumers groups, regulators and others on how to strengthen legislation in these areas.

Consumer protection & competition reforms

In a response to the consultation published by the department for Business, Energy & Industrial Strategy (BEIS) today, the government said policies it’s proposing fall into three areas: Competition reforms to ensure the system is “fit for the digital age”; consumer rights reforms to keep pace with digital developments and tackle specific issues like fake reviews; and consumer enforcement reforms to empower the national antitrust watchdog to intervene effectively.

In a press release announcing the package of reforms this morning, BEIS said the plan would make it “clearly illegal” to pay someone to write or host a fake review.

There will also be “clearer rules” for businesses to make it easier for consumers to opt out of subscriptions so they are not stuck paying for things they no longer want.

So called ‘subscription traps’ — in which businesses make it difficult for consumers to exit a contract  — will also be targeted by new rules that companies must:

  • provide clearer information to consumers before they enter a subscription contract
  • issue a reminder to consumers that a free trial or low-cost introductory offer is coming to an end, and a reminder before a contract auto-renews onto a new term
  • ensure consumers can exit a contract in a straightforward, cost-effective and timely way

In a major change, the Competition and Markets Authority (CMA) will be able to directly enforce consumer law under the reform plan, rather than needing to go through a court process — with the aim of dialling up the speed of enforcement.

The watchdog will get new powers to fine firms up to 10% of their global turnover for “mistreating customers”, as BEIS put it, or up to £300,000 in the case of an individual.

It will also be able to award compensation to consumers, instead of that being the preserve of the courts.

There will also be measures aimed at helping consumers and traders resolve more disputes without needing to go to court — by improving Alternative Dispute Resolution (ADR) services in consumer markets, including via amendments to regulation intended to improve ADR services, per BEIS.

The government says the average UK household spends around £900 each year influenced by online reviews — and £60 on “unwanted subscriptions”.

The slated consumer protection reforms will apply in England, Scotland and Wales (the area is devolved in Northern Ireland).

In a statement, consumer minister Paul Scully said:

“We’re making sure consumer protections keep pace with a modern, digitised economy.  No longer will you visit a 5 star-reviewed restaurant only to find a burnt lasagne or get caught in a subscription in which there’s no end in sight. Consumers deserve better and the majority of businesses out there doing the right thing deserve protection from rogue traders undermining them.”

It’s not clear when exactly these new powers will come in. Legislation will need to be formally proposed and presented to parliament to undergo the usual process of scrutiny before it can become law and enter into force.

Prime minister Boris Johnson’s government also does not have the greatest record on swiftly legislating in these areas (consumer protection and competition) so it could be several years before new rules apply.

Fake reviews

On fake reviews, the government says it will consult on a new law to tackle fake reviews that would make it illegal to:

  • commission someone to write or submit a fake review
  • host consumer reviews without taking reasonable steps to check they are genuine
  • offer or advertise to submit, commission or facilitate fake reviews

In terms of the impact on platforms and marketplaces much will depend on exactly what “reasonable steps” boils down to in that context.

More thorough checks would be more expensive for platforms to implement. But if the measures are too weak and easy for scammers to circumvent it’ll be consumers left disappointed that fake reviews continue to proliferate.

The CMA — which has been broadly investigating online reviews since 2015 — has instigated a number of interventions against platforms on the issue of fake reviews specifically in recent years, including actions targeted at eBay, Facebook, Amazon and Google.

It has also expressed frustration with certain companies over their slow response to pressure to stop the trade in fake reviews, with CMA CEO Andrea Coscelli saying last year that it was “disappointing” Facebook had taken over a year to fix issues the regulator had flagged, for example.

A threat of fines that could — under the government’s reform plan — stretch into billions of dollars for a tech giant like Facebook would be more likely to concentrate C-suite minds on compliance with this issue.

Commenting in a statement on the full package of reforms, Coscelli said:

“This is an important milestone towards strengthening the CMA’s ability to hold companies to account, promote fair and open markets, and protect UK consumers. The CMA stands ready to assist the government to ensure that legislation can be brought forward as quickly as possible, so consumers and businesses can benefit.”

It may be that Facebook is also the inspiration for other planned changes to beef up penalties for breaches.

These reforms will see the regulator able to impose fines worth up to 5% of a business’ annual global turnover (as well as additional daily penalties for continued non-compliance) for breaches of undertakings given to it; and able to levy penalties worth up to 1% of a business’ annual global turnover (plus additional daily penalties if the breach continues) in the case of non-compliance with an information notice, concealing evidence or providing false information.

That’s notable after Facebook was fined $70M by the CMA last year for deliberately withholding information related to the regulator’s oversight of its acquisition of Giphy — the first such finding of a breach of an order by a company “consciously refusing to report all the required information”, as the CMA put it at the time.

The regulator subsequently ordered Facebook to undo the Giphy purchase — which was also the first time the CMA had blocked such a major digital acquisition.

Killer acquisitions

The tech giant’s power to inspire major regulatory reforms looks undeniably — given the government also intends to beef up the watchdog’s powers to combat killer acquisitions. (Facebook had shut down Giphy’s competing ad product after buying the smaller business, triggering competition concerns, an in depth probe and, finally, an order to reverse the acquisition.)

Other measures slated as incoming through the reform package include powers to strengthen the CMA’s ability to gather evidence to combat cartel-style anticompetitive behavior where companies colluding to bump up prices, per BEIS.

The CMA will also be empowered to fine businesses for anticompetitive abuses even in smaller markets as the government says it will reduce the minimum turnover threshold for immunity from financial penalties from £50M to £20M.

Smaller businesses will see some relief in the form of a government pledge to cut their M&A red tape by excluding mergers between small businesses — where each party’s UK turnover is less than £10M — from the CMA’s merger control altogether.

More details on the competition components of the reform are contained in the government response to the consultation — where it writes that it is progressing the following policies:

  • retaining a voluntary and non-suspensory merger control regime
  • adjusting the thresholds for the CMA’s jurisdiction to better target the mergers most likely to cause harm and ensure the regime remains proportionate:
    • Raising the turnover threshold in line with inflation (>£70m to >£100m UK turnover)
    • Creating an additional basis for establishing jurisdiction to enable review of so-called ‘killer acquisition’ and other mergers which do not involve direct competitors. Jurisdiction would be established where at least one of the merging businesses has: (a) an existing share of supply of goods or services of 33% in the UK or a substantial part of the UK; and (b) a UK turnover of £350m. In response to feedback received these thresholds have been raised from the levels originally consulted upon
  • introducing a small merger safe harbour, exempting mergers from review where each party’s UK turnover is less than £10 million, to reduce the burden on small and micro enterprises
  • government will also continue to monitor the operation of the share of supply test and may consider further proposals on how to reform it
  • enabling the CMA to deliver more effective and efficient merger investigations by:
    • accepting commitments from businesses which resolve competition issues earlier during a phase 2 investigation
    • enhancing and streamlining the merger ‘fast track’ procedure
    • updating how the CMA is required to publish its merger notice

Competition law covers the whole of the UK so these wider reforms will apply in all nations.

BEIS also noted today that it is developing closer ties with international partners as a result of the CMA dealing with more cross-border cases following Brexit.

“The government is making overseas disclosures of information held by a UK competition or consumer authority more streamlined, and introducing new powers on investigative assistance,” it added.

Moving like sludge…

While the UK government continues to consider how best to tackle dark pattern design, EU lawmakers have a chance to take the lead and ban these manipulative tactics in already proposed legislation — assuming the Council agrees with MEPs to include a prohibition on such practices in the Digital Services Act (another ‘trilogue’ compromise negotiation is scheduled for tomorrow so the issue is still a live one for the bloc).

The EU also already agreed a major ex ante reform of competition law to target tech giants — aka, the Digital Markets Act — which is expected to come into force later this year.

While the UK’s own slated ‘pro-competition’ ex ante reform is still pending legislation, despite the regime change being announced back in November 2020.

A Digital Markets Unit (DMU) was set up last year but it lacks the necessary powers to take action against tech giants’ market abuses, meaning the CMA has to tackle market power related problems using classic (slow) competition powers.

A UK government claim to be “moving in a more agile way than the EU, whilst maintaining high standards” — penned by the BEIS secretary in his ministerial forward to the response to the consultation outcome — looks questionable in light of how little progress has been made in bringing legislation forward to deliver on the long-trailed promise of a major competition reboot.

The CMA has been investigating a number of concerns about the market power of tech giants in recent years — including undertaking a market study of online advertising back in 2019 which concluded there were serious structural problems linked to the dominance of Google and Meta/Facebook.

However the regulator eschewed intervening when it reported its concerns — opting to wait for the government to the reform competition regime.

Another ongoing CMA market study — examining the Apple, Google mobile duopoly — has also raised substantial competition concerns but, again, the regulator has suggested these issues are best tackled by the DMU once it’s empowered, meaning that the structural remedies needed to tackle serious competition issues remain on pause.