ACCC calls for significant reforms in Digital Platforms Inquiry Final Report - Part 1 of Allens' two-part series

In brief 16 min read

The Federal Government has released the ACCC's Final Report from its Digital Platforms Inquiry, with significant and wide-ranging implications across competition, consumer protection, copyright and privacy issues.

This is the first of a two-part publication where we consider the ACCC's findings and recommendations, starting with a focus on the competition, consumer protection and copyright issues. We examine the Final Report's privacy and data protection issues in Part 2 of this series.

How does this affect you?

Although the Inquiry has had a particular focus on the conduct of Google and Facebook, its proposals go beyond these digital platforms and are likely to affect a range of businesses and commercial relationships.

• Measures to enhance competition in the digital economy: The ACCC proposed several measures to address Google and Facebook's market power and to facilitate greater competition in the digital economy. This includes requiring advanced notice of acquisitions by large digital platforms, and changes to search engine and internet browser defaults for Google. Additional measures include proposed changes to merger laws – which, if implemented, would affect any data-driven business.
• Additional scrutiny of digital and advertising markets: A specialist unit of the ACCC will be established to more closely scrutinise digital markets. The ACCC has also proposed a further inquiry into competition issues in ad tech services and online advertising markets.
• Changes to the regulation of news and media: The ACCC recommends regulatory reform to address inconsistencies in the way news and media outlets are regulated relative to digital platforms such as Google and Facebook. Additional measures are proposed to regulate commercial relationships between news media outlets and digital platforms, including a mandatory 'take-down' code to address the hosting of content that infringes copyright.
• More steps to follow against unfair practices: The ACCC continued its advocacy for amendments to the Australian Consumer Law (ACL) to make unfair contract terms illegal and subject to civil pecuniary penalties. Added to this is a recommendation for a new prohibition against 'unfair trading practices', which could have a substantial impact on a range of commercial relationships.

In addition to the above, the ACCC proposed a range of social initiatives to support public-interest journalism and to counter some of the harmful conduct in digital media markets (such as deliberate misinformation on social media).

Background

The ACCC's Digital Platform Inquiry commenced in December 2017 with a direction to consider the impact of online search engines, social media and digital content aggregators (digital platforms) on competition in media and advertising service markets. The Inquiry has been extensive: more than 180 submissions were received in response to the ACCC's Issues Paper in February 2018 and its Preliminary Report released in December 2018. The ACCC also gathered information from various organisations using 60 statutory notices issued under the Competition and Consumer Act 2010 (Cth) (CCA), and it has had the benefit of considering various findings and reports from overseas regulatory agencies (notably the UK, Europe and the US) prior to releasing its own report.

The Final Report now includes 23 recommendations (summarised below) – an increase of 12 from the ACCC's Preliminary Report. These range from legal and regulatory reform to further inquiries, and increased functions for the ACCC, the Australian Communications and Media Authority (ACMA) and the Office of the Australian Information Commissioner (OAIC). It now falls to the Federal Government to consider and provide a detailed response. While Treasurer Mr Josh Frydenberg has indicated the Government 'accepts the ACCC’s overriding conclusion that there is a need for reform', he has also said further consultation is needed before deciding which action the Government will take.

Key findings

The Digital Platform Inquiry has primarily focused on the market power of Google and Facebook (as the largest digital platforms in Australia). However, while the majority of its findings concern these digital platforms, the ACCC has also raised concerns regarding the operation of digital and data-driven businesses more broadly. Its key findings include:

• Google and Facebook's market power: The ACCC found that Google and Facebook have substantial market power in relation to online advertising and dealings with news and media outlets in Australia. This market power is supported by their ability to accumulate consumer data from various touch points, which enhances their respective services and attracts more users, leading to what the ACCC has described as a 'virtuous feedback loop', or network effects.
• Competitive impacts on advertising: The ACCC considers that digital platforms with substantial market power can misuse this market power in online advertising markets. It has identified instances where Google and Facebook preference their own advertising services above those of rivals (ie on search results or social media feeds), exclude rival advertisers from other products or access to data, or introduce technical specifications that favour their own advertising services to the detriment of competitors. Overall, the ACCC concluded there is a lack of transparency in the way Google and Facebook rank and display advertisements (particularly in respect of the underlying algorithms used to operate these advertising services).
• Imbalances between digital platforms and news media businesses: The ACCC found that Google and Facebook have substantial bargaining power in relation to news media businesses. The ACCC is particularly concerned that they can implement changes to the way news content is displayed on their respective platforms in ways that detriment news media businesses. In addition, the ACCC found there is an uneven playing field in terms of media regulation between digital platforms and news media businesses.
• Lack of consumer choice and protection: The ACCC identified an information asymmetry between digital platforms and consumers regarding the collection of consumer data. In the ACCC's view, consumers often lack the ability to make well-informed, free decisions regarding the collection, use and disclosure of their data when dealing with digital platforms. It is also concerned with an increase in scams or disinformation on digital platforms.

In the course of the Inquiry the ACCC also commenced a number of investigations into Google and Facebook regarding alleged breaches of the ACL, as well as a misuse of market power investigation. These relate to matters such as representations regarding data collection and use, and changes to terms of service or privacy policies. These investigations are ongoing and the ACCC has not confirmed what enforcement action (if any) it will take on these yet.

Final recommendations – amendments to consumer law

The ACCC reiterated its earlier proposals for a prohibition on unfair contract terms and a broad prohibition against 'unfair practices'. These matters are not specific to digital platforms and any reforms would have economy-wide implications. However, the ACCC raised these in the context of certain business conduct it identified as concerning in the course of the Inquiry. These include failures to obtain express informed consent from consumers, failures to secure consumer data appropriately, unilateral changes to terms of service without reasonable notice and attempts to dissuade consumers from exercising their legal rights.

• Unfair contracts prohibition: The ACCC continued its advocacy for a prohibition on unfair contract terms in the ACL so that unfair terms are not just voidable, but subject to a civil pecuniary penalty. It considers that without this type of prohibition, businesses are not significantly deterred from using contract terms that can substantially impact consumers and small businesses' financial rights and obligations.
• Prohibition on 'unfair practices': The ACCC also reaffirmed its proposal for a new prohibition in the ACL against certain unfair trading practices. The ACCC considers this necessary to address conduct which causes significant consumer harm but is not caught by current consumer protection laws in the ACL. In particular, the ACCC is motivated to address conduct by businesses that causes consumer detriment in circumstances where consumers lack 'real and meaningful choice'.

The Final Report refers to unfair practices provisions in overseas jurisdictions, particularly the US and Europe, as providing guidance for a new law in this area. These jurisdictions include parameters for determining what is a prohibited unfair practice by reference to matters such as 'substantial injury which is not reasonably avoidable' or behaviour that 'significantly impairs the consumer's freedom of choice'. The ACCC indicated it will progress this recommendation through the work being undertaken by Consumers Affairs Australia and New Zealand (CAANZ) (a committee of state, federal and New Zealand consumer protection regulators). CAANZ is expected to release a report in relation to an unfair practices prohibition in late 2019.

Measures to address digital platforms' market power

The ACCC's proposed measures in this area build on those outlined in its December 2018 Preliminary Report. There are also certain areas where it has indicated that further work is needed before it can outline more concrete proposals. We consider these proposals in turn below.

• Merger law reforms: The ACCC reaffirmed its earlier recommendation from the Preliminary Report that section 50(3) of the CCA should be reformed to expressly include among the list of merger factors: (a) whether an acquisition would remove a potential competitor; and (b) the nature and significance of assets, including data and technology, being acquired. These merger factors can already form part of any merger review under existing laws. However, the ACCC considers the amendments necessary to send a clear signal on their importance to merger parties, the courts and the Australian Competition Tribunal.
• Advance notice of acquisitions: The ACCC clarified its earlier proposal to require major digital platforms to provide advance notice of acquisitions in Australia, by indicating this would be implemented through agreed protocols with the ACCC. The proposed protocols would obtain commitments from each large digital platform that specify minimum advance notice periods and are likely to be subject to transaction value thresholds. If the digital platforms fail to commit to these protocols, the ACCC will recommend government intervention in this area.
• Default search engines: To address barriers to entry and expansion in online search, the ACCC proposes to require Google to provide Android device users with a choice regarding their default search engine and default internet browser. This follows similar changes adopted by Google in Europe following a European Commission ruling that Google's default settings led to an abuse of dominance under EU competition laws.
• Proactive investigation, monitoring and enforcement: A specialist branch of the ACCC will be established to assist the ACCC to effectively investigate digital platforms' conduct and enforce breaches of competition and consumer laws. The ACCC sees the role of this branch to also collect information that evaluates competition in digital markets over time, and to identify potential market failures and respond accordingly. This specialist branch would also lead the ACCC's proposed further inquiry into competition in online advertising, to be completed over 18 months and with the ability to compel businesses to provide relevant information.

The ACCC has not, at this stage, recommended divestments by Google or Facebook to address their market power. It found divestments would not counter barriers to entry in digital markets, particularly the significant network effects, economies of scale and brand effects that Google and Facebook have. In addition, the ACCC considers there is a significant implementation risk in imposing divestments on these digital platforms which would outweigh any potential pro-competitive benefits, given the complexity of these markets and the data flows between the various parts of their respective businesses. It has indicated it may consider structural separation of these businesses if it determines that the balance of risks versus pro-competitive benefits changes in the future. For now, though, the ACCC will instead rely on the above measures, particularly the proposed specialist digital platforms branch, to address competition concerns that arise.

Addressing the relationship between news media businesses and digital platforms

The ACCC considers that news media outlets are subjected to an uneven playing field relative to the large digital platforms, both from a regulatory standpoint and in their commercial relationships. It proposes the following mix of regulatory reforms to address this imbalance:

• Harmonised regulatory framework: A new, 'platform-neutral' regulatory framework is proposed, which would apply equally to news media businesses and digital platforms. This framework would be developed in stages through a process to be determined by the Government, but would include the following matters:
  • ensuring underlying principles of the new framework apply equally across all media formats and platforms;
  • the extent of regulation (setting objective factors to determine when regulations should be imposed and determining appropriate self-regulation and co-regulation arrangements);
  • content rules (creating a national uniform classification scheme for content, regardless of delivery format);
  • advertising restrictions that are consistent across delivery platforms; and
  • implementing appropriate enforcement mechanisms and meaningful sanctions.
• Codes of conduct: ACMA would be responsible for designating digital platforms as requiring a code of conduct, which would cover how they deal with news media businesses (in consultation with the ACCC). This would contain transparency commitments to share data about users' consumption of media businesses' news content, and to provide early warning of changes to the ranking or display of news content. The codes would also require digital platforms to fairly negotiate with news media businesses regarding use of their content (including in relation to 'snippets' of content) and to share revenue that is derived from this content, as well as promise not to impede news media businesses' monetisation of their own content.

Mandatory take-down code

The Final Report also cites difficulties faced by rightsholders trying to enforce copyright, including the cost and delay associated with litigation, and the challenges of commencing proceedings against overseas-based defendants. Australian copyright law does not provide for a general takedown regime, such as that established by the US Digital Millennium Copyright Act (DMCA). Under the DMCA, rightsholders can request that copyright-infringing content is removed from a digital platform. While the DMCA is also applied outside of the US by certain digital platforms, including for the benefit of Australian rightsholders, it can be difficult for Australian rightsholders to take advantage of this US-based regime.  

In the absence of a similar regime under Australian law, many digital platforms have implemented their own takedown processes. Various stakeholders identified concerns with these processes developed by individual platforms, including:

• lack of clarity and consistency in takedown policies;
• substantial investment in time and resources required to monitor infringement and to send takedown notices;
• regimes being administered overseas (leading to significant delays, typically for time sensitive situations such as live streamed events); and
• resurgence of the same or similar content after successful takedown request.

The ACCC recommends the implementation of a mandatory takedown regime, in the form of an industry code to be enforced by ACMA, with accompanying penalties. The Final Report emphasises the need for extensive consultation in the development of any code. Specific 'key issues of concern' to be covered in the code include communication measures (such as availability during Australian business hours and periods when Australian live events are broadcast), timeframes for removing content and mechanisms for bulk notifications to address repeated infringements.

Next steps

For now, the Federal Government has indicated it is considering the ACCC's recommendations, with a view to releasing a detailed response before the end of the year. The Treasurer has indicated this will include a 12-week consultation to obtain feedback on the Final Report.

Certain of the ACCC's recommendations could be implemented quickly as they are not subject to complicated legislative or regulatory change. These include the ACCC's proposed protocols requiring advance notice of acquisitions by digital platforms, the establishment of a specialist digital platforms branch and a further inquiry into the ad tech and online advertising services. In addition, the Federal Government had already (prior to the 2019 election), commenced a process to amend the unfair contract terms provisions under the ACL, including consultation on making those illegal and subject to civil penalties.¹ These measures could be introduced sooner rather than later (although the proposed inquiry into ad tech and online advertising services is subject to ministerial direction). However, a substantial part of the ACCC's other proposed reforms will likely require significantly more time, as they will require extensive government consultation on their scope, nature and implementation.

We also expect the ACCC to conclude its investigations into the digital platforms' alleged breaches of the ACL, and announce whether it will issue court proceedings or take other enforcement action. The ACCC expects to provide an update on those by the end of the year.

Table of recommendations made in the Digital Platforms Inquiry Final Report

We summarise the 23 recommendations in the ACCC's Final Report below.

Key focus area: Measures to address Google and Facebook's market power

ACCC recommendation

• Recommendation 1: Amend Australia's merger control laws to explicitly include, as merger factors to be considered, the likelihood that the merger will remove a potential competitor, and the nature and significance of assets, including data and technology.
• Recommendation 2: Require large digital platforms such as Facebook and Google to agree to a protocol under which they will provide advance notice of acquisitions in Australia (subject to minimum transaction values and notice periods).
• Recommendation 3: Google to provide Android device users with the ability to choose a default search engine and internet browser.

Key focus area: Increased monitoring of digital platforms

ACCC recommendation

• Recommendation 4: ACCC to establish a specialist digital platforms branch to monitor, investigate and take action against conduct by digital platforms that is potentially anti-competitive or detrimental to consumers.
• Recommendation 5: The ACCC's proposed specialist digital platforms branch to hold a further inquiry into competition in the markets for the supply of ad tech and online advertising services.

Key focus area: Harmonised media regulatory framework

ACCC recommendation

• Recommendation 6: Develop a new media regulatory framework that addresses the regulatory imbalance between media businesses and digital platforms.

Key focus area: Regulating relationships between digital platforms and media businesses and the use of copyright-protected content

ACCC recommendation

• Recommendation 7: Designated digital platforms to implement codes of conduct to govern their relationships with media businesses, addressing matters such as sharing of data, changes to the ranking or display of news content and monetisation of content. ACMA will designate which platforms require a code, and will also review and approve the codes, and investigate and enforce relevant breaches.
• Recommendation 8: A new mandatory code to enable copyright holders to seek the effective and timely removal of copyright-protected content from digital platforms (to be enforced by ACMA).

Key focus area: Measures to support choice and quality of news and journalism

ACCC recommendation

• Recommendation 9: Provide stable and adequate funding for public broadcasters to address the risk of under-provision of public interest journalism.
• Recommendation 10: Replace the Government's Regional and Small Publishers Jobs and Innovation Package with targeted grant funding for local and regional journalism.
• Recommendation 11: Amend existing tax settings to encourage philanthropic giving to public interest journalism.
• Recommendation 12: Establish a government program to improve digital media literacy in the community.
• Recommendation 13: The 2020 review of the national Australian Curriculum to include consideration of the approach to digital media literacy in schools.,
• Recommendation 14: An independent regulator to monitor initiatives by digital platforms to enable their users to identify the reliability of news content on their websites.
• Recommendation 15: A new industry code of conduct for digital platforms that have more than one million users, to counter disinformation. The code is to be enforced by an independent regulator, such as ACMA.

Key focus area: Consumer protection and privacy measures

ACCC recommendation

• Recommendation 16: Strengthen the protections in the Privacy Act 1988 (Cth) (the Privacy Act) to improve consumers' ability to make well-informed choices regarding the use of their personal information and data. The proposed amendments include stronger consent and notification requirements, measures to assist individuals to seek the erasure of their personal information and direct rights of action for individuals, as well as higher penalties, for breaches of the Privacy Act.
• Recommendation 17: The Government to consider broader reform of Australia's privacy regulatory framework to effectively protect consumers' personal information in light of the increasing volume and scope of data collection in the digital economy.
• Recommendation 18: The OAIC to develop an enforceable code of practice under the Privacy Act to regulate digital platforms' handling of Australian consumers' personal information.
• Recommendation 19: Introduce a statutory tort for serious invasions of privacy.
• Recommendation 20: Amend the ACL to make unfair contract terms illegal (not just voidable) and subject to civil pecuniary penalties.
• Recommendation 21: Introduce a new prohibition against certain 'unfair trading practices' in the ACL, to cover data handling practices that are detrimental to consumers but are not currently expressly prohibited by the ACL.

Key focus area: Addressing consumer harms from scams and new technologies

ACCC recommendation

• Recommendation 22: Digital platforms to comply with minimum internal dispute resolution standards to be set by ACMA, aimed at improving users' ability to resolve complaints against these platforms.
• Recommendation 23: Introduce an ombudsman scheme (potentially via the Telecommunications Industry Ombudsman) to resolve complaints and disputes that are not settled through the digital platforms' internal dispute resolution procedures noted above.