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CMA to consider principles-based regulation of 'digital comparison tools'

Out-Law News | 29 Mar 2017 | 2:54 pm | 3 min. read

New cross-sector principles could govern how price comparison websites and other 'digital comparison tools' (DCTs) operate in future, according to a new report published by the UK's Competition and Markets Authority (CMA).

The CMA said it has not decided whether the approach would be "appropriate" but plans to look further into the option as part of an ongoing market study into DCTs, which it opened in September last year.

In an update paper (142-page / 2.5MB PDF), the CMA said it does not intend to open a full market investigation into DCTs when it completes its study. However, the CMA stated that it had identified four types of practice in the markets it examined which could raise competition concerns and is not excluding using its competition law enforcement powers to address them.

One of the areas of concern relates to use of wide 'most favoured nation' (MFN), or parity, clauses. These are clauses that specify that a product may not be sold more cheaply on a supplier’s own website or on any other DCT. Narrow MFNs are also of concern, it said. These clauses require a supplier to set a price on a DCT which is no higher than the price offered through its own website, but do not stipulate conditions for sales via other channels.

The CMA also raised concern over contract terms which limit bidding for online search terms, as well as with DCTs agreeing not to re-contact a consumer who has purchased a supplier’s product from them, in respect of the same product type, for a certain period.

Robert Eriksson, competition law expert at Pinsent Masons, the firm behind Out-Law, said: "Whilst the wider market avoided a lengthy market investigation, individual companies could end up facing an investigation by the CMA, who could rely on the evidence it detected during this market study."

"As regards MFNs, competition authorities have in general challenged wide MFNs rather than narrow MFNs but the CMA is suggesting that narrow MFNs in certain circumstances can harm competition if they replicate the effects of a wide MFN," he said.

The CMA also said it intends to consider how to regulate DCTs in a way which is flexible for shifting business models in the market, as well as how to avoid regulation becoming a barrier to innovation. It highlighted that the regulation of DCTs is currently inconsistent across sectors such as financial services and energy.

The CMA also raised a number of concerns in its paper, including in relation to the trust consumers have over the way DCTs store and handle their personal data.

According to the regulator, just 54% of DCT users trust that those sites store their data securely and fewer than half (45%) have confidence that the sites do not share their data with third parties without their permission. The CMA said it plans to look into the issue further during the second part of its study.

The CMA said that it is also keen to hear from stakeholder on how new trends in digital technology could impact on DCTs. Trends likely to have an impact on the market include developments in 'big data', including the use of open APIs, the use of artificial intelligence, increased personalisation via device fingerprinting, and new ways of engaging with consumers, such as via voice recognition technology, it said.

In the second part of its study, the CMA also said it wanted to understand more about the commercial agreements between DCTs and suppliers and their impact on competition. The use of 'most favoured nation' clauses, non-brand bidding and negative matching agreements and non-resolicitation agreements are among the commercial contractual issues the CMA said it would scrutinise.

The CMA said it would publish its final report from its DCT market study on 28 September.

"Our work so far suggests that digital tools like price comparison websites generally work well for consumers, who really value the service they provide," Andrea Coscelli, CMA acting chief executive, said. "However, our report suggests that improvements may be necessary to help more people get even better deals."

"Among the areas we wish to consider further are what can be done to increase confidence among consumers and how to improve competition, regulation and transparency in the sector. We are now seeking further views on these issues as part of our wide-ranging market study," Coscelli said.