On 10 December 2018, the Australian Competition and Consumer Commission (the ACCC) released its preliminary report on the Digital Platforms Inquiry (Report), outlining a range of significant findings and far-reaching recommendations that impact business, the media, and consumer privacy rights.

The ACCC is seeking feedback on its preliminary recommendations as well as the additional concerns it has identified for further analysis and assessment. Submissions are due by 15 February 2019. The final report is due by 3 June 2019.

Key finding in the Digital Platforms Inquiry

The key finding of the Report is that Google and Facebook have substantial market power in a number of markets. This has wide ranging impacts, including on the way news is distributed online, as well as how these companies collect, use and disclose their users' personal information. The recommendations made in the Report to address this finding will, if implemented, have significant implications not only for Google, Facebook and the broader media and advertising sectors, but in some cases, businesses operating across all sectors in Australia.

Preliminary recommendations

The Report contains eleven preliminary recommendations designed to address that power and related concerns. These include:

1. Amending s 50(3) of the Competition and Consumer Act 2010 (the CCA) to include additional factors for the ACCC to consider when deciding whether a merger or acquisition is likely to substantially lessen competition
2. Amending the Australian Consumer Law (the ACL) so that unfair contract terms are illegal and subject to financial penalties, instead of merely void
3. Establishing an independent authority to be tasked with monitoring, investigating and reporting on relevant digital platforms (including the extent to which they engage in discriminatory conduct and their ranking of journalistic / media content)
4. A call for a government review of media regulatory frameworks; and
5. Amending privacy laws, so that consumers have a better understanding and choice about how their personal information is being collected, used and disclosed, as well as enabling individuals to initiate breach of privacy claims.

Areas for further consideration

In addition to the findings and recommendations in the Preliminary Report, the ACCC has identified nine areas where further analysis and assessment is required, including:

• the potential establishment of a digital platforms ombudsman
• empowering the proposed regulatory authority with the ability to monitor the pricing of intermediary services supplied to advertisers or websites for the purpose of digital display advertising
• the addition of a general prohibition against the use of unfair practices in the ACL to deter digital platforms and other businesses from engaging in conduct that falls short of societal norms
• a requirement for greater transparency about online news, particularly in relation to its quality or 'trustworthiness'
• measures to improve news literacy online.

Google and Facebook have substantial market power

A central finding of the Report is that:

• Google has substantial market power in the markets for the supply of online search, the supply of online search advertising and the supply of news media referral services; and
• Facebook has substantial market power in the markets for social media services, display advertising and the supply of news media referral services. 

The potential implications of this finding for Google and Facebook are significant, as it creates a heightened risk of contravention of section 46 of the CCA, which prohibits corporations with a substantial degree of market power from engaging in conduct that has the purpose or effect of substantially lessening competition. The implications are important for both digital platforms and businesses that acquire services from them, as conduct that would otherwise be legal (such as discriminatory pricing or restricting supply) may be prohibited for a business with a substantial degree of market power where that conduct has an anti-competitive purpose or likely effect.

ACCC to consider additional merger factors

The ACCC has reached the preliminary view that an important contributing factor to the market power of platforms such as Google and Facebook has been their strategic acquisitions over time. It has therefore recommended that section 50(3) of the CCA, which identifies the factors to be taken into account in assessing the likely competitive effects of an acquisition, be amended to include the following factors:

• the likelihood that an acquisition would result in the removal of a potential competitor; and
• the amount and nature of data which the acquirer would likely have access to as a result of the acquisition.

While the ACCC can already take into account these factors in determining whether an acquisition would have the effect or likely effect of substantially lessening competition in a market, the explicit inclusion of these matters in section 50(3) will no doubt bring those factors to the forefront in future merger reviews. This is particularly relevant for a business proposing to acquire a nascent competitor or start up, and for any business collecting and monetising the data that they collect from consumers.

Unfair contract terms should be illegal

The ACCC has also recommended that the ACL be amended so that unfair contract terms are illegal and subject to pecuniary penalties.

Currently, when a contract term in a standard form consumer or small business contract is declared unfair, it is then void and unenforceable. Businesses that use unfair contract terms can be the subject of court proceedings seeking declarations, injunctions and other orders, but are not subject to pecuniary penalties.

While this preliminary recommendation is said to be aimed at deterring digital platforms from leveraging their bargaining power over consumers by using unfair contract terms in their terms of use or privacy policies, it is also consistent with the ACCC's broader policy objective of strengthening the unfair terms provisions and the ACCC's ability to enforce those provisions. At a speech made to the COSBOA National Small Business Summit in August, ACCC Chair Rod Sims signalled the ACCC's intention to lobby for certain changes to the unfair contract terms regime, including making a contravention of the regime subject to pecuniary penalties.

This recommendation, if implemented, would have significant implications for businesses operating in all sectors across Australia. Businesses that have previously conducted a risk assessment of their standard form contracts on the basis that unfair terms are void but not subject to penalty may need to reconsider their position and, potentially, take a much more conservative approach to compliance.

Impact of Google and Facebook platforms on news media businesses

The ACCC has found that Google and Facebook are now the dominant gateways between news media businesses and audiences. These platforms increasingly select, curate and rank news content on their platforms, but the ACCC identified that there is a lack of transparency about how they do this, and they are subject to less regulation than media businesses.

The ACCC recognised that news media outlets play important roles (both in maintaining journalistic processes and in resourcing the production and dissemination of journalistic content). This is because the information that the public obtains from news influences their decision making and participation in social, economic and democratic processes. However, in part as a result of the way news articles are now consumed on Facebook and Google on a story-by-story basis, the brand value of, and advertising investment in, traditional media businesses is declining.

For these reasons, the ACCC made preliminary recommendations for:

• a review of regulatory frameworks to apply consistently across all entities that provide comparable functions in the production and delivery of news and journalistic content in Australia; and
• a regulatory authority (with oversight of digital platforms) to be responsible for monitoring, investigating and reporting on the ranking of news and journalistic content by digital platforms that generate more than $100m per year in revenue in Australia, and their provision of referred services to news media businesses.

Facebook's Head of Content and Distribution Policy, Andy O'Connell, has said in a public response to this recommendation, that it is unnecessary and unworkable and that Facebook has already 'done a lot around transparency'.

Data sharing: lack of consumer understanding and choice when using digital platforms

The ACCC found that the privacy policies of digital platform operators are usually overly long, complex and ambiguous in describing how they collect, use and disclose personal information. This has resulted in consumers being unable to make informed choices about the amount of data that is collected by digital platform operators and how it is used. While consumers might feel uncomfortable with some of the ways that digital platform operators use and disclose their information, these practices are actually disclosed in privacy policies, albeit often buried deep in a privacy policy, to which consumers have consented.

Further, consumers are required to give bundled consents to privacy policies and online terms of use on a ‘take-it-or-leave-it’ basis if they want to consume digital platforms, which many consumers feel is not a real choice if they want to engage in the modern world. Although consumers may perceive they have choices about how they use digital platforms, or that they can control access to their online accounts, these controls do not operate in a way that consumers expect they do as digital platform operators can still view and use this information.

To address some of these concerns, the ACCC made preliminary recommendations for legislative change, which reflect the approach in the European Union’s General Data Protection Regulation (although the ACCC was not necessarily in favour of adopting identical requirements). In particular, these relate to:

• the content and presentation of privacy collection notices
• the requirements for consent
• the 'right to erasure' in certain circumstances
• higher penalties for breaches of privacy laws, at least equivalent to those in the ACL; and
• introducing the ability for consumers to have a direct cause of action against organisations who misuse their personal information or breach their privacy rights.

The ACCC also revived the call to introduce a tort of a serious invasion of privacy, as previously recommended by the Australian Law Reform Commission.

While the report principally concerns the practices of Facebook and Google, given their market power and the report’s focus on digital platforms, the ACCC noted that its observations about the unequal bargaining power and the collection, use and disclosure of personal information could also be made about other industries that increasingly rely on consumers' personal information in the conduct of the business and marketing activities, including banking, telecommunications, retail, airline, news media and a variety of data brokers.

As a result, the ACCC has largely not limited the application of its privacy-related preliminary recommendations to digital platform industries, particularly in relation to the proposals for regulatory change. If the proposed amendments to the Privacy Act were to be implemented, those amendments would impact all organisations that are subject its regulation, which means those impacted by the Report would be far more wide-ranging than Facebook and Google.

Next steps

If you would like any advice on the impact of the recommendations or assistance on submitting feedback to the ACCC on its preliminary recommendations, and the additional areas for further analysis and assessment by 15 February 2019, please contact a member of our competition or privacy teams.