The ACCC has concluded its long-running Inquiry into digital platforms in Australia. It set out its findings and a detailed set of recommendations in its final report released on 26 July 2019.
While the Report is heavily focused on major digital platforms and the substantial market power they wield, the ACCC has made broad recommendations which are likely to affect businesses and commercial arrangements beyond the major digital platform operators.
The Report includes proposed reforms to the merger clearance regime and to consumer laws. Significantly, the Report also flags future reform targets for the ACCC, including the possibility of pursuing further reform to introduce a 'rebuttable presumption' for merger cases in Australia.
The ACCC is seeking enhanced investigation and oversight powers going forward in relation to digital platforms and, broadly, across the advertising sector.
Following an inquiry spanning more than 18 months, the Government has released the ACCC's Digital Platforms Inquiry Final Report (Report). Accepting the report, the Treasurer recognised the substantial power that has developed through the growth of platforms and accepted the ACCC's overriding findings about the need for reform, including to protect consumers and address power imbalances.
The Report, which contains 23 broad-reaching recommendations, recognises there are intersecting issues at play that touch on competition law, consumer protection, privacy and media regulation. The ACCC's recommendations are designed to pull 'regulatory levers' across each of these areas.
Competition and consumer law – digital platforms target, but a broader impact
While major platforms were the target of the Inquiry, the Report's recommendations concerning competition and consumer law are likely to have broader implications for business and commercial arrangements. The competition and consumer related proposals fall into three broad categories:
- Regulatory changes directed squarely at major digital platforms.
- Regulatory changes that are likely to have broader consequences for business.
- Enhanced investigation and enforcement.
We briefly explore these areas and the broader impact they may have going forward.
1. Regulatory change – a focus on major digital platforms
Several competition and consumer focussed recommendations made by the ACCC are likely, at this stage at least, to only impact the operations of major digital platforms in Australia. These include:
- A proposal that large digital platforms agree to a 'notification protocol'. This would involve platforms providing advance notice to the ACCC of any proposed acquisitions that may impact competition in Australia. At this stage, the proposal is for 'voluntary' commitments by platforms. However, if they are not forthcoming, further recommendations may be made to government. This proposal reflects recent comments by the ACCC Chair in which he flagged concerns that past acquisitions by major platforms may have eliminated substantial potential competitors. The Chair noted, for example, Google's 145 acquisitions (2004-2014) with a value of US$23 billion.
- A recommendation that Google provide Australian users of Android devices with the ability to select their default search engine and internet browser from a series of options. This, in effect, calls on Google to adopt the same optionality to support consumer choice and competition that Google recently announced in Europe. At this stage, this proposal is also 'voluntary', with the ACCC to make recommendations if Google does not implement this change within 6 months.
2. Regulatory change – proposals likely to have broader impact
While the Inquiry and the proposals in the Report are the product of a focus on the substantial power held by major digital platforms, the ACCC's recommendations include changes to competition and consumer laws that will have broader implications for business. These proposed changes include:
General merger reforms
A proposal that the Competition and Consumer Act be amended to include two additional factors that the ACCC must consider when assessing proposed mergers:
- the likelihood that the acquisition would result in a potential competitor being removed from the market; and
- the nature and significance of assets being acquired, including data and technology.
The ACCC recognises that it already takes these factors into account when conducting merger reviews. On that basis, this proposed change is unlikely to have a material impact in practice. However, the ACCC views this change as an important legislative 'signal' to merger parties, the Australian Competition Tribunal and the courts about relevant matters in assessing transactions.
Significantly, the Report also flags several broader concerns about the current merger test. In particular, the ACCC notes that it has increasing concerns about hurdles it faces in opposing mergers and the use of behavioural undertakings to address structural concerns. The Report suggests the ACCC may press for a 'rebuttable presumption' in some form for merger cases.
Any shift where merger parties were required to prove that a transaction would not substantially lessen competition would be a significant change in approach to merger reviews in Australia and would, in some cases, radically alter the strategy to pursuing and completing transactions.
Unfair contract terms
A proposal that the unfair terms regime under the Australian Consumer Law be amended so that unfair contract terms are prohibited. This change would mean that courts could impose pecuniary penalties where terms in standard form contracts (consumer and small business) are found to be unfair. At present, unfair terms can only be declared void.
This recommendation is consistent with previous advocacy by the ACCC regarding the regime and the need for a stronger deterrent effect. This proposal is unlikely to face hurdles as both the Coalition and Labor supported strengthening the unfair terms regime prior to the recent election.
A loose proposal for a new prohibition against certain unfair trading practices. At this stage, the scope of the prohibition is unclear and will require further review. However, in principle, the ACCC considers that in the course of the Inquiry it identified conduct harmful to consumers not prohibited by the Australian Consumer Law (ACL). This includes, for example, businesses collecting and disclosing consumer data without express and informed consent.
This change would be designed to address practices that do not necessarily involve misleading or unconscionable conduct, or involve unfair contract terms. The ACCC has expressly flagged that this prohibition should apply economy-wide, and not simply be limited to digital platforms. Other data-related regulatory reforms have progressed alongside the ACCC Inquiry. For example, on 1 August the Treasury Laws Amendment (Consumer Data Right) Act 2019 passed parliament. This legislation is a key plank in establishing a 'Consumer Data Right' (CDR) which is designed to facilitate consumers accessing their personal data and requiring it to be shared with other entities.
At present, the CDR is being rolled out in the banking sector, with energy and telecommunications flagged as industries to which the CDR will apply in the future. However, in the Report, the ACCC has indicated that it will revisit the applicability of the CDR and data portability to digital platforms in the future if it were likely to address issues of market power, competitive entry or switching. This shows CDR will, going forward, be treated as a possible tool to address competition concerns.
3. Investigation and enforcement – enhanced ACCC focus
A significant feature of the Report is the focus on enhanced investigation and oversight going forward. This includes the following key recommendations:
Proactive ACCC oversight
A proposal to establish a branch within the ACCC dedicated to digital platforms with the purpose of:
- Proactively monitoring and investigating instances of potential anti-competitive conduct and taking action to enforce competition and consumer laws in relation to digital platforms.
- Conducting inquiries and making recommendations to government. This would include an extended public inquiry over a period of at least five years with the power to compel information. This type of extended market inquiry would likely be similar to the ACCC's current three year study into the supply of various insurance products to consumers in northern Australia.
Ad tech service focus
The ACCC has also recommended a separate inquiry be conducted into ad tech services and advertising agencies. That review, to be conducted by the new digital platforms branch, would consider issues including the transparency in supplying these services.
If accepted, this proposal will mean that digital platforms and the advertising industry generally will be subjected to ongoing review by the ACCC with the risk of further regulatory changes.
An important feature of the Report is the reminder that the ACCC will use market studies not only to consider market structures and possible regulatory reform, but also as a source of information that may lead to separate enforcement investigations. In the Report, the ACCC notes that it is currently investigating specific conduct of digital platforms that may raise issues under the ACL, including:
- Representations by Google about the control users have over its collection of location data.
- Representations made by Facebook in relation to the nature of its services and the scope of its terms and conditions, including terms allowing user data to be shared with third parties.
The government has announced a 12 week public consultation process for interested parties to respond to the Report. This includes an invitation to make submissions on the Report up until 12 September 2019, followed by targeted consultation meetings. This means that the process of finalising the Government's response is still some time away, likely toward the end of this year.
Businesses should consider now if the reforms proposed by the Report are likely to have an impact on their operations. If they could, now is the time to act and participate in the consultation process.