Upping the ante: Australian Government consults on ex-ante regulation of digital platforms

Introduction

In a move that may again put Australia in the forefront of reforms to digital platform regulation, the Australian government has launched a consultation into proposed reforms of Australia’s competition laws to introduce targeted ex-ante regulation of certain digital platforms. This follows the latest report in the ACCC’s Digital Platforms Services Inquiry which recommends significant reforms to address potential harms to competition and consumers.

On 11 November 2022, the Australian Competition & Consumer Commission (“ACCC”) released the fifth interim report in its five-year Digital Platform Services Inquiry (the “Report”). The Report recommended a range of measures to address perceived harms from digital platforms to Australian consumers, small businesses and competition more generally and is the result of submissions to a discussion paper that had been launched in February 2022 (which you can read more about here).

The ACCC has previously advocated for regulatory coherence across jurisdictions.[1] Consistent with that view and international trends, the Report advocates the adoption of ex-ante measures to address the perceived harms associated with the digital platforms.

The Treasurer has wasted no time in launching a consultation to consider the need for a new competition and consumer protection regulatory framework for digital platforms as recommended by the ACCC. A consultation paper titled “Digital Platforms Government consultation on ACCC’s regulatory reform recommendations” (the “Consultation Paper”) was released on 20 December 2022. Submissions are due by 15 February 2023.

What did the Report conclude?

In line with the views it has reached previously,[2] the ACCC again raised concerns that a range of conduct by digital platforms is impacting competition. Its concerns include the alleged withholding of access to important hardware, software, and data inputs. The ACCC favours up-front (ex-ante) measures for digital platforms instead of relying solely upon the existing ex-post regime. Enforcement of the Competition and Consumer Act 2010 (“CCA”) and Australian Consumer Law (“ACL”) is, it says, often time consuming and only serves to address specific conduct rather than broader market harms. The changes it proposes echo aspects of the recent News Media Bargaining Code and the Telecommunications Access Regime, which already form part of Australia’s competition laws.

In the ACCC’s view, new ex-ante regulations will be able to address harms to competition and consumers in markets for digital platforms in a faster, more flexible and streamlined way, which it sees as important given the dynamic nature of the digital platform markets.

It is noteworthy that, while the discussion paper asked for submissions on potential reform of the merger clearance regime, the Report has not included any recommendations to that effect. It seems likely that any future merger reform will therefore apply more generally, rather than being targeted at acquisitions of digital platforms.

Recommendations

The Report included 4 recommendations for digital platforms, which seek to address both consumer and competition law concerns identified by the ACCC. Our key focus in this article is the competition law reforms.

Consumer recommendations:

The ACCC considers that new measures are needed to protect consumers and small businesses, as well as to build trust and confidence in the digital economy.

To this end, the ACCC recommends strengthening economy-wide consumer protections, including a general prohibition against unfair trading practices. It has also recommended additional targeted measures protecting digital platform users, such as mandatory processes to prevent and remove scams, harmful apps and fake reviews, and mandatory internal dispute resolution standards.

Competition recommendations:

1. Additional competition measures for digital platforms

The most significant proposed reform in the Report is a new power to make mandatory service-specific codes of conduct for ‘designated’ digital platforms based on principles set out in law. This is similar to the approaches taken in Japan and Germany (and foreshadowed in the U.K, and the U.S) but is arguably more focused and comprehensive. It also reflects the clear move towards ex-ante regulation in the European Commission’s Digital Markets Act (“DMA”). Codes would be formulated by the relevant regulator working with the relevant policy agency but would have effect under Australia’s competition law.

A service-specific code regime would, in the ACCC’s view, allow policy makers to prioritise those platforms/services where the risks to competition are greatest. The ACCC also considers that introducing service-specific codes would provide for flexibility to consider differences across digital platform services. The ACCC has observed substantial variations in the business models of various digital platforms and their specific services.

Importantly, codes would only apply to “designated” digital platforms, with designation by a regulator such as the ACCC or the relevant Minister (in this case the Treasurer) under a power granted by law. The ACCC does not specify what thresholds would need to be met in order for designation to be made. However, it does propose certain broad designation criteria that might be employed comprising both quantitative and/or qualitative criteria.

The quantitative criteria would apply certain minimum thresholds, for example: the number of Australian users on a platform’s service or the global or Australian revenues associated with the digital platform service. Qualitative criteria would consider certain characteristics of a digital platform, for instance, whether it has substantial market power in the provision of its service or whether it occupies an important intermediary position between consumers and businesses.

To ensure fairness and transparency, the ACCC proposes that designation may be subject to a process whereby:

• a notice is given to the relevant digital platform that consideration will be given to designating one or more of its services;
• a consultation process will be conducted;
• industry guidance will be issued; and
• an expiry date for the decision, with an opportunity for extension will be set.

The ACCC left it open in the Report for designation to be undertaken by a suitably empowered regulator or for designation to occur by way of a legislative instrument made by an appropriate Government Minister. Australia’s competition laws already contain examples of both approvals in the declaration processes under the Telecommunications Access Regime[3] (ACCC declares) and the National Access Regime[4] (Minister declares upon recommendation of the National Competition Council).

Each code would be for an individual type of digital platform service (i.e. codes would be service-specific) and would contain targeted obligations based on the legislated principles.

The principles that a code should promote and enforce include:

(a) Competition on the merits to promote competition by addressing anticompetitive conduct. This could include obligations requiring that third-party services are treated at least as favourably as similar first-party services, as well as by addressing barriers to entry and expansion, including access to data.

(b) Informed and effective consumer choice to give consumers the ability to switch between alternative digital platforms by addressing switching costs, improving transparency over prices and quality, and promoting greater choice of services.

(c) Fair trading and transparency for business users to address the unfair terms faced by business users in their dealings with digital platforms by addressing specific terms and conditions or increasing transparency over certain processes.

2. Targeted competition obligations

The ACCC’s other key (and related) competition recommendation is that the code framework should support targeted obligations based on legislated principles to address the following potential areas of concern:

• Anti-competitive self-preferencing: e.g. search engines promoting their own services in search results on a search on that engine.
• Anti-competitive tying e.g. platforms requiring their own in-app payment systems to be used for certain in app payments.
• Exclusive pre-installation and default agreements that hinder competition: e.g. a search engines extensive, and often exclusive, pre-installation and default arrangements for its search service limit the ability of rival search services to easily reach consumers at scale.
• Impediments to consumer switching: e.g. digital platforms designing user interfaces that are likely to discourage users from switching services (e.g. changing the default search service).
• Impediments to interoperability: e.g. tech companies restricting interoperability for third-party app stores on their own mobiles or app stores
• Data-related barriers to entry and expansion, where privacy impacts can be managed
• A lack of transparency: e.g. platforms app review and approval processes for their own platform
• Unfair dealings with business users: e.g. inconsistently and arbitrarily applying app review policies
• Exclusivity and price parity clauses in contracts with business users

Again, the parallels with the prohibitions in the DMA are notable.

In considering each of these areas, the Report goes to some length to consider international approaches taken by Regulators and the Courts. This signifies the ACCC’s desire for alignment between international regulatory framework, a desire perhaps driven by the recognition that only a globally co-ordinated approach of these issues will have any real chance of impacting larger platforms’ behaviour.

The Consultation Paper

As discussed above, Treasury has wasted no time in progressing with a consultation paper to consider the ACCC’s recommendations for reform. It invites comment on a series of questions that will inform the Treasury’s decision on how best to proceed.

As part of the consultation, Treasury specifically invites views on the ACCC’s proposed competition law reforms. The Treasury is particularly interested in whether industry agrees with the model proposed by the ACCC, and whether it is targeting the appropriate areas of concern and whether the principles for designation that have been proposed by the ACCC are suitable. It also asks whether Codes should be mandatory or voluntary. Although the ACCC suggested introducing mandatory service-specific codes, Treasury rightly considers that all policy alternatives must be assessed, including voluntary or self-regulatory options.[5]

As set out above, the Report raised questions as to which regulator and which policy agency would ultimately be responsible for formulating, delivering and enforcing any future codes. In recognition of this, the Consultation Paper asks a number of questions regarding governance and oversight in the development of any future codes. It also asks whether the ACCC’s current information-gathering powers are fit for purpose in dealing with large multinational enterprises. This may reflect a preference for the ACCC, rather than the Treasurer, being the designating body.

Finally, and perhaps most interestingly, the Treasury asks whether, given developments in other jurisdictions, Australia should look to be a global leader and act in advance of other countries or whether it should look to align itself with other existing or proposed international regimes? If so, which ones?

Australia, in many respects, announced itself as a global leader in digital regulation through its initial Digital Platforms Inquiry and the subsequent News Media Bargaining Code that was incorporated into the Competition and Consumer Act 2010. The Treasury consultation suggests that the Australian Government may well want to continue down that path.

For more information, or if you are interested in making a submission to the Consultation Paper, please contact Thomas Jones or Matthew Bovaird.

[1] Keynote remarks to International Antitrust Law and Policy Conference by ACCC Chair, Ms Gina Cass-Gottlieb 16 September 2022.

[2] For example, in the ACCC’s Digital Platforms Inquiry – Final Report (2019).

[3] Part XIC of the Competition and Consumer Act 2010

[4] Part IIIA of the Competition and Consumer Act 2010

[5] Digital Platforms: Government consultation on ACCC’s regulatory reforms recommendations – consultation paper pg.7