The UK’s CMA and AI Foundation Models – 2024 Updates

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Earlier this year, the UK’s Competition and Markets Authority (CMA) published an update to its initial report on AI foundation models which presented the CMA’s findings on key changes in the foundation model sector and included stakeholder feedback. (Our thoughts on the initial September 2023 report, which provides a summary of foundation models and the CMA’s initial review, can be found here.) The updated report confirms the CMA’s final competition and consumer protection principles and details how the CMA plans to continue its investigations into the impact of foundation models on digital markets and take enforcement against unfair competition. The updated report also outlines recent and upcoming initiatives and publications from the CMA, emphasizing the importance of collaboration and cooperation between regulators in the digital markets sector.

Finalized Competition and Consumer Protection Principles
The competition and consumer protection principles initially proposed by the CMA to guide the foundation model sector toward positive outcomes for consumers, businesses and the UK economy have not been substantively amended. The CMA’s update confirmed six of the seven proposed principles, where the initial proposed principle of “Flexibility” has now been merged with the “Choice” principle, which states that consumers and businesses should be able to switch and/or use multiple foundation models as necessary.

The CMA reiterated the need for firms to align their business practices with these principles to promote effective competition and fully benefit from AI foundation models. The final list of principles covers access, diversity, choice, fair dealing, transparency and accountability, with the updated report assessing how the key risks related to foundation models (as outlined below) can be mitigated by these principles.

Key Risks to Fair, Open and Effective Competition
The CMA’s strongest concern regarding the foundation model sector remains the risk of the largest incumbent technology firms, which already have significant market power in key digital markets, being able to profoundly shape the development of foundation model-related markets. This could negatively impact fair competition, leading to reduced choice and quality and increased prices for consumers and businesses.

The updated report identifies three key risks to fair, open and effective competition:

  • Firms that control critical inputs for developing foundation models may restrict access to them in order to shield themselves from competition.
  • Powerful incumbents could exploit their positions in consumer or business-facing markets to distort choice in foundation model services and restrict competition in foundation model deployment.
  • Partnerships involving key players could reinforce or extend existing positions of market power throughout the value chain.

The CMA has also raised concerns about the market developing “winner takes all” dynamics if foundation model-related markets are characterized by high returns to data scale, high levels of personalization, or network effects, potentially tipping markets toward a single provider (or a small number of providers) and preventing entry or expansion by firms that could offer superior technology or a more attractive customer proposition.

Expanding the Scope of the CMA’s Enforcement Powers
Key developments identified by the CMA in its updated report include increased consumer use of generative AI, the public availability of more complex and capable foundation models, the release of foundation models on various platforms, their integration into more digital products and services, and greater interconnectivity within the foundation model value chain.

These developments are also reflected in legislative updates concerning the regulation and enforcement of digital markets, given that the scope of the CMA’s enforcement powers is set to expand once the Digital Markets, Competition, and Consumers Act (DMCC) is implemented. The DMCC will provide the CMA with the ability to:

  • enforce consumer protection law and impose significant financial penalties on firms for non-compliance;
  • create a pro-competition regime for digital markets, enabling the CMA to respond effectively to developments in the space and to set targeted conduct requirements for firms with strategic market status; and
  • observe and conduct tests on designated firms’ systems as part of its investigatory tools for its digital markets regime.

The UK Government announced an implementation plan for the DMCC on September 9, 2024, with an aim to commence the first part of implementation in December 2024 or January 2025. Pillsbury’s detailed overview of the DMCC and the changes businesses can expect can be found here.

The CMA’s Growth and Regulator Cooperation
Since the publication of its initial report in 2023, the CMA has focused on growth in anticipation of the DMCC coming into force. The CMA has significantly expanded its research and investigation capabilities, including an 80-person Data, Technology and Analytics unit and a 70-person Digital Markets Unit, with the goal of building a 200-person team to implement the CMA’s digital markets regime.

The CMA has also collaborated with other regulators in the Digital Regulation Cooperation Forum (DRCF) to create a digital hub to assist UK tech firms with launching new products by allowing innovators to receive free and informal advice from the CMA, Ofcom, the Information Commissioner’s Office (ICO), and the Financial Conduct Authority. The DRCF AI and Digital Hub launched in April 2024 and is receiving applications here until April 2025.

In addition, earlier this year in July the CMA, the European Commission, the U.S. Department of Justice, and the U.S. Federal Trade Commission issued a joint statement on competition in generative AI foundation models and AI products, echoing the findings in the CMA’s update. While acknowledging the transformative potential of these technologies to drive innovation and economic growth, the joint statement warns of significant risks to fair competition, such as the concentrated control of essential AI inputs by only a few firms, the entrenchment of market power by incumbent firms, and the potential for partnerships between powerful firms to stifle competition. The joint statement emphasizes the need for vigilance in preventing exclusionary tactics, ensuring interoperability and maintaining consumer choice in AI markets. It also emphasizes the importance of monitoring AI’s impact on competition and consumer protection, particularly regarding data usage and transparency, for those regulators with consumer protection authority within their respective jurisdictions.

Next Steps
As part of its ongoing work related to foundation models, the CMA intends to:

  • examine the conditions of competition in the provision of public cloud infrastructure services as part of its Cloud Market Investigation, with a statutory deadline of August 4, 2025 (extended from April 2025);
  • monitor current and emerging partnerships and investments between (a) firms with leading foundation model capabilities in their respective markets and (b) leading foundation model developers;
  • examine whether mergers between leading foundation model firms that fall outside of current competition rules could give rise to competition concerns, and under what circumstances they may do so; and
  • consider developments in foundation model-related markets to determine how to prioritize the enforcement of digital activities under the CMA’s new powers under the DMCC.

Additionally, the CMA plans to release a further update on AI foundation models and publish a paper on AI accelerator chips and their role in the foundation model value chain later this year. Further regulatory cooperation is also anticipated, as the CMA will publish joint research with the DRCF on consumer understanding and the use of foundation model services, and a joint statement with the ICO on the interaction between competition, consumer protection, and data protection in foundation models.

Pillsbury will closely monitor further developments. Please visit our Artificial Intelligence practice page for more insights.

The authors would like to thank trainee solicitor Anahita Shahrokh for her contributions to this blog post.

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