• A UK regulator will soon be handed a raft of sweeping powers that will allow it to subject American tech companies to aggressive legal interventions

• A new “ex-ante” framework means companies will be forced to work with regulators at the level of product design

• The DMCC’s vague definitions and exotic terminology also give the UK virtually unlimited power to interfere in every deal of any real significance

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In September 2022, Adobe announced it would acquire interface design software company Figma for $20 billion. In the depth of the tech “recession,” when acquisitions and IPOs were scarce, the deal represented a glimmer of hope that the winter in tech was finally beginning to thaw.

Little more than a year later, the companies would pronounce the deal dead, killed by insurmountable regulatory hurdles. But it wasn’t Lina Khan’s FTC that was responsible for its demise. Instead, it was a UK regulator located thousands of miles from the companies’ Silicon Valley headquarters called the Competition and Markets Authority (CMA). The scuttling of the biggest American tech deal in months by a foreign regulator provoked outrage in the US, with commentators arguing that, if this continued, American companies would eventually abandon the British market entirely.

Evidently, UK lawmakers weren’t listening. This May, the British Parliament passed the Digital Markets, Competition and Consumers Act (DMCC), which gives the CMA sweeping new powers over companies around the world. The law was shaped by a Harvard professor and former Obama official named Jason Furman, who led the drafting of a UK report on competition law in 2019. Despite its provenance (or maybe because of it), it’s evident from key parts of the law — namely, the high revenue thresholds that trigger its most decisive provisions — that the real target is American tech.

At the heart of the DMCC is a newly forged group nested inside the CMA called the Digital Markets Unit (DMU). As the primary body responsible for enforcing the new law, the DMU will soon be handed a raft of sweeping powers. Foremost among them is its ability to designate companies meeting certain criteria as having “strategic market status” (SMS), which allows the DMU to subject them to aggressive legal interventions. The criteria include global revenue of around $30 billion or UK revenue of $1.3 billion, and companies in question need to hold a strategically significant role in their respective segment of the digital marketplace.

Under the framework, the DMU will be able to undertake breathtakingly bold enforcement actions. For starters, the DMU has power to create “bespoke” regulatory conditions for SMS companies. So, for example, Apple will have a set of regulatory conditions developed specifically for Apple, while Google will have its own set of rules to abide by — and so on. While this could give companies some flexibility, it will no doubt increase the level of unpredictability they have to deal with, and could be used arbitrarily (which could become preemptively punitive) if wielded improperly.

This alone is a marked departure from competition law, which takes a general, one-law-fits-all approach. But by far the more significant piece of the DMCC is that SMS-designated companies will operate under an ex-ante framework. In competition law (again, at least until now), remedies prescribed by regulators — such as forced divestiture or the cessation of offending certain market activities — come as the result of an investigation concluding there has been a breach of the relevant law. Regulatory intervention only takes place after a violation (i.e. ex-post).

Though subtle, the ex-ante approach represents a full paradigm shift in competition law. Before this shift, companies would have little to no interface with regulators — that is, until an investigation had been opened. Instead, they are assumed to be compliant with a broad swath of relevant laws and regulations pertaining to their industries, very few of which concern competitive practices. The assumption by governments under an ex-post framework is that companies are competing naturally and fairly, and only in exceptional circumstances is there a breach that calls for intervention.

Ex-ante frameworks flip this dynamic on its head. Companies that are given SMS status in the UK (or “gatekeeper” status in the EU) are automatically assumed to be in potential, if not actual, breach of competition law. So the government steps in preemptively with a set of regulations tailored to each to ensure (at least by the government’s measure) that this hypothetical scenario of would-be anti-competitive practices never comes about. This ex-ante approach to regulation was inspired by the European Union’s own regulatory overhaul, the Digital Markets Act (Pirate Wires primer here).

It’s from the EU that the UK law has borrowed many of its key concepts. For example, under the EU’s prohibition on “self-prefencing,” European consumers who Google a location like a restaurant, shop, or cafe are not given the option to click a link that will take them straight to the Google Maps location for that business. Instead, they’re served a somewhat useless non-clickable thumbnail for that particular location. What’s key here is that this outcome is noticeably worse for consumers, who are more of an afterthought in the equation. In this sense, the DMCC, like the DMA before it, disrupts competition law as we know it.

“These regulations have been designed to short circuit competition laws in the sense that they institutionalize the enforcer’s preferred outcome,” says Lazar Radic, senior scholar for competition policy at the International Center for Law and Economics. That outcome might be that major platforms, like Apple and Google, should be open, not closed (one of the major stipulations by regulators acting under the DMA). Whatever the product decision might be, the underlying principle remains the same. As Radic puts it, “Here we have regulators saying, ‘We make the choice.’”

With the new ex-ante approach in the UK, SMS-designated tech companies will almost certainly be required to abide by prohibitions like the one on self-preferencing. Companies will likely also be forced to introduce choice screens so when customers boot up a new iPhone, for example, they have to choose among a set of different apps, such as web browsers, to set as default. Interoperability and side-loading (allowing downloads of apps from third-party app stores) will also likely be mandatory for many SMS-designated companies, especially platforms like Apple and Google.

There are, of course, unintended consequences to this. The most prominent among them is that companies are simply keeping major products out of the EU market. Google has decided not to offer its AI search assistant to EU consumers, and Apple issued a forced downgrade of its iPhone 16 for European customers, with the phone not coming pre-loaded with Apple Intelligence — something the company admitted was directly due to concerns that the AI product could potentially violate DMA regulations.

The reason behind the cagey corporate approach to product releases is starkly straightforward: breaches of the DMA in Europe — and now the DMCC in the UK — can result in fines of up to 10% of a company’s global revenue. In some cases in the EU, fines can reach as high as 20% of global revenue (a penalty that former European Commissioner for Internal Market and Service Thierry Breton used as a threat against Elon Musk following his pre-election interview with Trump on X). Companies that fall afoul of both regulators can now potentially see fines on that scale leveled by each regulator.

But the new law also has significant implications for global mergers and acquisitions. Borrowing and adapting a term from tech, the DMCC gives the CMA broad new powers to intervene with mergers that target what it calls “killer acquisitions.” While the language makes it sound as if only massively disruptive technologies fall into the category, the letter of the law reveals the opposite to be true.

Instead, under the killer acquisition provision, the UK now has the ability to intervene in “no-increment” mergers — i.e. deals that don’t increase the market share of either party, which can be manifestly non-competitive with each other. For the CMA to step in, a potential deal needs to meet only two criteria: either one of the merging companies must have 33% market share in the UK as well as UK turnover of around $500 million (350 million GBP), so long as the target company has UK nexus, defined “activities in, or supplies goods or services” in the UK.

Given that the internet renders services in any location, the “nexus” criterion is met almost by definition. And while the 33% market-share threshold sounds high, the devil is in the details. As London-based law firm Linklaters explains:

[T]he 33% share of supply test is extremely broad, and as any seasoned adviser knows, it will be hard in most cases to establish that an acquirer does not have a 33% share on some cut of the market or permutation of supply that the CMA could use to establish jurisdiction.

Translation: the CMA can define both “market” and “share” however it pleases, including by using a tiny sliver of the broader market as the denominator, and taking everything from “value, cost, price, quantity, capacity … workers” to — and, yes, this is their literal language — “some other criterion of whatever nature,” including “such combination of criteria, as [CMA] considers appropriate” to form the numerator. TL;DR — the UK now has virtually unlimited power to interfere in every deal of any real significance.

But that’s not all. As part of its new extra-territorial powers, the CMA can now compel businesses and individuals abroad to produce information, including testimony and documentation. This includes cases where (a) the deal is not primarily UK-related (b) the individuals in question are not UK nationals or residents and (c) the relevant documents are stored outside the UK. Non-compliance with investigations can result in a fine of 1% of global revenue on companies and around $20,000 (15,000 GBP), per day of non-compliance, for individuals.

Even before the DMCC was signed into law, the shifting regulatory winds began to have an increasing impact on American dealmaking. In January, Amazon announced it would drop its $1.4 billion bid to acquire iRobot — an American company headquartered in Massachusetts — after EU regulators made clear the deal would be blocked. In response, Amazon put out a statement saying, “Undue and disproportionate regulatory hurdles discourage entrepreneurs, who should be able to see acquisition as one path to success, and that hurts both consumers and competition — the very things that regulators say they’re trying to protect.” iRobot cut 31% of its workforce in the wake of the deal’s scuppering.

With these compliance regimes, the focus on tech, specifically, is notable. Industries like gas, oil, electricity, logistics, and pharma are shaped by massive companies, in some cases outright monopolies, that hold sway over the market. Despite this, none of them have seen an entirely new set of anti-competition regulations. There’s a reason for that, too. The companies building the digital future are doing it in the US and, to a lesser extent, China. Europe is generally not mentioned in the same breath as these two digital superpowers. Rather than seeking root causes for this situation in Europe’s own tech ecosystem — such as the red tape involved in setting up businesses, the relative dearth of VC funding, or onerous personal income tax laws that lead to brain drain — Europe and the UK are blaming it on what they see as the predatory practices of American tech.

“There’s a huge fear in Europe that the continent’s lagging behind is due in no small part to US companies buying European startups and unicorns,” Radic says. The idea is that as soon as a company becomes interesting, some Silicon Valley behemoth snaps it up before it can grow. After dozens of such acquisitions, the result (in this view, at least) is a stunted tech market.

But underlying these fears — or maybe spurring them — are deep shifts in political currents around the world. Since the birth of globalization in the 1990s, the prevailing attitude towards business in Europe and the UK was that more freedom equals more prosperity for more people. This rough formula was adopted by governments as they opened their markets to Chinese imports, gutted their own manufacturing bases, and formed broad new economic alliances that relied on lending and borrowing to fund growth. A market-oriented, or “neo-liberal approach” to politics undergirded this ad hoc international economic system, broadly known as the Washington Consensus.

Over the past decade, the backlash to neo-liberalism has intensified. In the US, we’ve seen this with MAGA’s bull-horn calls for the restoration of American manufacturing, to be achieved by reshoring jobs and by adopting a more aggressive approach towards trade partners, namely China. In Europe, a parallel trend has unfolded, but it’s different in one critical respect: motivated by the socialist values that pervade the political culture, the conversation has largely focused on a narrative about cronyistic private sector forces poaching large tracts of public life from government control. In this read, which has grown vastly more influential since the rise of populism on both the right and left, the establishment’s “uni-party” sold the country out to enrich itself through backroom deals with global big business.

“This is a story about power — private versus public power, the state versus private enterprise,” Radic says. “Of course, it’s easier when the private companies happen to be American and you don't have any of your own Big Tech companies that will be regulated.”

This upheaval has given rise to a new political philosophy that rejects the model on which globalization is based. For Americans, globalization was most closely associated with the national force that had the greatest (and, in many ways, sole) impact on our economic shores: China. But Europe’s perspective is both literally and metaphorically distinct. It sees the same trend perpetrated by both Chinese factories to the east and also — and maybe more painfully — by American tech campuses to the west. The result is that governments are working to reshore not just jobs but what they consider to be lost economic sovereignty.

“A lot of people are talking about how neoliberalism is over, and how the Washington Consensus failed,” says Radic. “As a result, a lot of this new regulatory movement is about subjecting private companies to the control of the state. This is a shift in political economy concerning the role of the state versus the role of the market and the permissible limits of state power.”

The trend seems to be going global. In addition to the UK, Brazil, Australia, Nigeria, Germany, South Korea and Turkey are all either looking at or implementing similar regulatory frameworks. This means US companies powering digital innovation will be fighting on (at least) three fronts — one for technological progress, the second to keep competitors at bay, and the third against a raft of new regulations being pushed by world governments who are increasingly rejecting free market principles in favor of an approach that’s beginning to seem a lot like top-down economic planning.

There’s a possibility that the Trump administration will, at least in some form, push back. But in the meantime, the regulatory hurdles are getting higher and the fines are getting bigger.

— Ashley Rindsberg