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Sector specific regulation for digital platforms: The ACCC develops the case for new powers

21 March 2022

#Technology, Media & Telecommunications, #Competition & Consumer Law

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Sector specific regulation for digital platforms: The ACCC develops the case for new powers

Mid-way through its 5 year inquiry into digital platform services, the Australian Competition & Consumer Commission (ACCC) has released a discussion paper seeking feedback on whether an enhanced regulatory framework is required to address the practices of digital platforms.

Why the ACCC considers there is a need for regulatory reform

The Australian Government accepted many of the regulatory reform recommendations from the ACCC’s important Digital Platforms Inquiry, which was finalised in 2019. Some of these reforms, such as the successful Mandatory News Media Bargaining Code, have been put in place. However, many others, including the wide ranging review of the Australian Privacy Act, are still in the process of development and consultation and therefore have not yet been implemented. 

Since 2019, the work of the ACCC in its Digital Advertising Services Inquiry (Adtech Inquiry), completed in late 2021, as well as its findings to date from the 2020-2025 Digital Platform Services Inquiry (5 Year Inquiry), have highlighted a number of additional competition and consumer protection concerns. This has led the ACCC to consider the question of whether it has sufficient regulatory tools to address problematic issues that it sees as recurring themes across the markets for different types of digital platforms services.

The ACCC is therefore consulting on whether it should make recommendations to the Australian Government to update the Competition and Consumer Act 2010 (Cth) (CCA), including the Australian Consumer Law (ACL). Submissions on the ACCC’s Updating Competition and Consumer Law for Digital Platform Services Discussion Paper (Discussion Paper) are due by 1 April 2022. The ACCC is required to report to the Australian Treasurer on its conclusions by the end of September 2022 and that report is likely to be made public by the end of October 2022.

Concerns of the ACCC: litigation is too slow and too limited to be effective

Following the completion of the Digital Platforms Inquiry, the ACCC has commenced numerous consumer protection cases against the behemoth digital platforms:

  • In April 2021 the Federal Court found in favour of the ACCC in relation to most allegations that the ACCC made against Google in its misleading and deceptive conduct case regarding Google’s location data collection practices, initially commenced in October 2019. A decision on penalties has not yet been handed down by the Court.
  • Misleading and deceptive conduct proceedings were initiated in 2020 by the ACCC against Google in relation to its actions in 2016 to commence combining data collected from interactions with Google’s consumer facing services with data collected from other sites through its DoubleClick advertising technology (adtech) services to enable more targeted advertising. Those proceedings are ongoing. 
  • The ACCC is suing Facebook (or Meta as it is now known) for false, misleading and deceptive conduct in relation to Facebook’s “Onavo Protect” app. The ACCC alleges that Facebook misled consumers by representing that use of the app would keep users’ personal activity data private, however that data was actually collected and used by Facebook for its own purposes.

The ACCC is considering commencing antitrust proceedings against Apple for its practice of restricting third party access to its near-field communication (referred to as NFC) technology, meaning Apple mobile devices may only be used to provide mobile payment services using Apple Pay and against Google regarding its practices in providing adtech services, as uncovered in the course of the Adtech Inquiry.

After the issue of the Discussion Paper, the ACCC commenced a further misleading and deceptive conduct case against Meta for misleading conduct in publishing scam celebrity crypto ads on Facebook. In addition to alleging that the actions of Meta are directly misleading, the ACCC has alleged in those proceedings that Meta has aided and abetted the scam advertisers, which is an additional breach of the ACL. Outgoing Chair Rod Sims stated in reference to this litigation:

“We allege that the technology of Meta enabled these ads to be targeted to users most likely to engage with the ads, that Meta assured its users it would detect and prevent spam and promote safety on Facebook, but it failed to prevent the publication of other similar celebrity endorsement cryptocurrency scam ads on its pages or warn users.”

Notwithstanding these cases, the ACCC considers that its enforcement action may provide limited benefits as:

  • Court proceedings take a long time to resolve and apply only to past behaviour. The dynamic nature of digital platforms services means that any judicial findings of consumer harm or anti-competitive behaviour may be too late to address the loss suffered by businesses and/or consumers and cannot deal with future actions.
  • Proceedings focus on very specific breaches, meaning, to quote the ACCC, “enforcement action is unable to effectively address the breadth of problematic conduct that a digital platform with substantial market power can engage in.”[1] 
  • Enforcement action, including through behavioural remedies, may be unable to address the underlying causes of anti-competitive conduct and is limited in its ability to address structural problems, such as barriers to entry to particular markets.
  • The maximum penalties payable for breach of the CCA, including the ACL, while high are not sufficiently high to act as an effective deterrent to global digital platforms.

What are the problematic behaviours that the ACCC has identified?

The Discussion Paper highlights the market power that is possessed by key global digital platforms, focusing on Google, Meta and Apple. This power has been created, in the opinion of the ACCC, at least in part through acquisitions by digital platforms of nascent competitors; the position of platforms as unavoidable gatekeepers connecting businesses to consumers; and the characteristics of digital markets. 

In discussing the characteristics of digital platforms, and the positions of Google, Meta and Apple specifically, the ACCC noted:

  • It is difficult to challenge a digital platform once it reaches a certain size. The ACCC cited Google search as an example of this. Google’s economies of scale in crawling and indexing webpages make it very difficult to compete with that search engine. 
  • Network effects (both same side and cross side) are also leveraged by the large digital platforms. “Same side” network effects for social media platforms refers to the fact that the more individuals that use a particular social media service, the greater the value of the platform to any particular user. 
  • While vertical integration in any market is not necessarily a competition problem, vertical integration in digital platforms markets has led to competition and consumer harms as this has created the ability and incentive to engage in anti-competitive conduct. The ACCC is concerned that, for example, Google’s vertical integration in adtech markets has created conditions for it to act anti-competitively.
  • The creation of ecosystems is also considered problematic, such as both Apple and Google’s control of hardware and software products for mobile devices. Although this does not necessarily create competition and consumer protection concerns, the ACCC is sceptical that these expanding ecosystems are pro-competitive.
  • The ACCC also referred to the fact that the ability of global digital platforms to collect vast quantities of consumer data provides those platforms significant advantages, including in the case of Google and Meta, a significant advantage in the ability to provide ad targeting services. 

Anti-competitive conduct

Reduced competition in digital platforms markets has, the ACCC believes, meant that consumers and businesses are likely paying higher prices (including in the case of consumers, through providing more personal data than most consumers would wish for the services that are provided) and obtaining lower quality products and services (including because innovation has been inhibited) than would be the case in competitive markets. This may have flow on effects in related markets. For example, higher adtech services prices may result in higher prices for goods and services (as advertisers pay more than they should for digital advertising) and less revenue for publishers (as publishers receive less than they should).

The behaviour of digital platforms that the ACCC has focused on in the Discussion Paper includes:

  • Anti-competitive self-preferencing, that is, where a digital platform may prefer its own services to those of its competitors. An example given by the ACCC is that Google, in adtech services markets, only permits advertising to be sold on Google’s YouTube platform to advertisers who use Google’s own adtech products.
  • Other exclusionary practices which include anti-competitive tying, bundling and refusals to deal. The ACCC provides, as one example of this type of behaviour, that Google, through its control of the Android operating system used by mobile device manufacturers, is able to bundle the supply of the Play Store app to such manufacturers with a requirement for the pre-installation of other services such as Google search. Where an app is pre-installed on a mobile device, this is likely to be used by the purchaser of the device, therefore meaning this anti-competitive bundling provides significant advantages to Google.

Other harms to consumers

The ACCC identified significant direct consumer harms such as excessive online tracking of individuals in ways those individuals would not agree to if choice was provided; insufficient monitoring by platforms of online scams and the like and a lack of interoperability between different systems leading to reduced choice for consumers who may be “locked in” to using particular services because of the difficulty in changing ecosystems, for example, changing an iPhone to an Android device would mean a consumer lost all of the apps and data on their iPhone. The use of “dark patterns” is also criticised by the ACCC in the Discussion Paper. A simple example of a dark pattern would be where choice architecture makes it easy to sign up for a digital subscription but very difficult to unsubscribe.

Unfair trading practices and a lack of transparency

In looking at unfair trading practices the ACCC has focused on business users. Not only small businesses but also large businesses suffer from unfair trading practices in their engagement with large digital platforms. This is because, even for the largest Australian businesses, there is a significant bargaining power imbalance when dealing with those platforms. This imbalance means many Australian businesses that deal with these large platforms have little option but to accept the terms offered by the platforms. In the case of small businesses, the ACCC referred for example to broad discretions to remove content and suspend or terminate accounts as unfair terms. 

The difficulties of businesses in engaging with digital platforms are compounded by a lack of transparency in relation to services provided. For example, in the operation of app marketplaces, search algorithms and the conditions that must be met to feature in editorials, important for the sale of apps, are very opaque. The Adtech Inquiry also extensively commented on the lack of transparency in adtech services markets.

What new regulation is required?

The ACCC does not believe these concerns are necessarily able to be addressed under the CCA, including the ACL. It has suggested that new powers may be required in the following areas:

  • Anti-competitive conduct:  The ACCC has suggested that it is necessary to prohibit anti-competitive self-preferencing and other types of exclusionary conduct as well as regulate for interoperability to allow greater choice in services that are used.
  • Data:  To limit the data advantages of the dominant digital platforms the ACCC has proposed, as also suggested in its final report from the Adtech Inquiry, that consumers could be given rights of data portability and/or that platforms could be required to share data with their rivals through interoperability arrangements. Privacy concerns may mean that such outcomes cannot be achieved in the short term at least. The ACCC has suggested that, although this may create economic inefficiencies, data separation arrangements may be an alternative, limiting the ability of platforms to use data collected from individuals for one purpose for other purposes.
  • Improved consumer protections:  The ACCC considers that greater protections are required for consumers to address the specific harms that it identified in the Discussion Paper. In this regard, the ACCC is likely to ultimately recommend that Australia follows the lead of other jurisdictions. For example, the UK Government has very recently released a bill that would, amongst other things, regulate paid for scam ads. It could be expected that the ACCC would examine the UK Government’s bill closely in determining any model it proposes to the Government for Australia.
  • Fairer and more transparent dealings:  The ACCC has for some time lobbied for a broad prohibition on unfair trading practices. Although the ACCC takes the view that a broad prohibition should apply economy wide, it is also considering specific application in the digital platforms sector, such as, in the case of app stores, prohibitions on restrictions being imposed on businesses communicating with consumers regarding alternative payment methods. The ACCC also raises the possibility of regulation to promote pricing and non-pricing transparency, though potentially at least in the first instance this may be proposed through voluntary industry led standards.
  • Enhanced powers to prevent acquisitions:  The ACCC has, for a considerable period, argued that it requires greater powers to prevent anti-competitive acquisitions. The ACCC believes that the test in the CCA, which prohibits mergers that would have the effect, or be likely to have the effect, of substantially lessening competition, sets too high a bar, allowing mergers that in hindsight are anti-competitive. Proposals the ACCC has put forward that would apply economy wide include a new formal merger clearance requirement with compulsory notification requirements to replace the current informal merger clearance regime. The Discussion Paper considers digital platform-specific merger rules that would again reflect the UK position, including that notification is given by designated platforms of all acquisitions, whatever the size of the proposed acquisition.

The ACCC is seeking views as to the manner in which any new regulation should be implemented. In addition to asking whether the new rules should be implemented by legislation, the ACCC is asking for feedback on whether codes of practice, rule making powers, an enhanced investigative regime and/or an access scheme similar to the existing telecommunications access regime in Part XIC of the CCA could be effective.

Changing of the guard

Rod Sims has now retired as Chair of the ACCC. Mr Sims has stated that the work he has done in relation to digital platforms, particularly the Digital Platforms Inquiry and the Mandatory News Media Bargaining Code, is some of the most important work of his term as ACCC Chair.

There is a question whether the ACCC, under new leadership, will maintain the same enthusiasm for shining a light on the practices of digital platforms. The recommendations to Government from this inquiry will demonstrate the views of the new ACCC Chair, Gina Cass-Gottlieb.

Author: Angela Flannery

[1] Paragraph 6.2.1, page 63 of the Discussion Paper.

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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