What has just happened?
Today, the ACCC published its fifth Digital Platform Services Inquiry (DPSI) interim report (DPSI 5 report). While the DPSI 5 report recognises the many valuable services made available to consumers and businesses by digital platforms, the ACCC considers that Australia’s competition and consumer protection laws are not sufficient to address concerns relating to digital platform services, including scams, harmful apps and fake reviews, inadequate dispute resolution, increased market concentration and instances of anti-competitive conduct.
Accordingly, the ACCC has made four recommendations with differentiated application:
Economy-wide consumer measures prohibiting unfair conduct and expanded prohibitions against unfair contract terms.
Digital platform-specific consumer measures.
Digital platform-specific competition measures, applying mandatory codes of conduct to designated platforms, on a service-specific basis.
Targeted competition obligations for designated platforms.
These recommendations were built on market consultations and earlier reports. The ACCC observed that there is international consensus that current competition and consumer laws globally are not fit for purpose and similar reforms were also underway in other jurisdictions, including in Europe, the UK and Japan.
Notably, these proposed reforms are only the ACCC’s recommendations to the Government. Any such reforms to Australia’s competition and consumer laws will require legislative change. The Albanese Government has issued a brief press release in response to the DPSI 5 report, indicating that it is considering the ACCC’s recommendations and will consult publicly to seek stakeholders’ input “as part of its efforts to ensure Australia has the right regulations in place to be a leading digital economy”.
We will release a more detailed analysis and insight on the ACCC’s 214-page DPSI 5 report shortly. In the meantime, here’s a summary of the ACCC’s recommendations and how it proposes these reforms be implemented.
What are the ACCC’s four recommendations for digital platforms?
Consumer law issues
1. Strengthening economy-wide consumer protections
The ACCC continues to support a new economy-wide prohibition against unfair trading practices and expansion of the unfair contract terms laws.
Incidentally, changes to the unfair contract terms regime came into force yesterday when the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 received Royal Assent .
2. Digital platform specific consumer protection measures
The ACCC recommends additional targeted measures to apply to digital platforms to address scams, harmful apps, and fake reviews. The suggested mechanisms include:
notice-and-action mechanisms allowing users to report a scam or harmful app, and requiring the platform to respond and address the concern in a particular manner;
verification of certain business users, including advertisers, app developers and merchants; and
public reporting on their mitigation efforts.
It also recommends a mandatory internal dispute resolution standard and access to a digital platforms ombuds scheme. Further, the ACCC recommends the ombuds have the ability to make binding decisions on digital platforms and to investigate systematic conduct.
Competition law issues
3. Additional competition measures for digital platforms
The ACCC recommends that additional competition measures for ‘designated’ digital platforms be implemented through mandatory service-specific codes of conduct based on legislated principles. This allows flexibility to tailor the obligations to the specific competition issues relevant to that service as these change over time. When determining which digital platforms fall within the scope of these codes (i.e. who is a ‘designated’ digital platform) the ACCC indicated a platform’s number of Australian users and its Australian and/or global revenue should be considered, as well as the platform's market power.
4. Targeted obligations to promote competition
The ACCC recommends that the service-specific codes under Recommendation 3 should include obligations addressing:
anti-competitive tying (such as app stores requiring the use of their in-app payment systems);
exclusive pre-installation and default agreements that hinder competition;
impediments to consumer switching;
impediments to interoperability (preventing third parties from accessing hardware, software and systems at the same level of operability as the platform itself);
data-related barriers to entry and expansion (where privacy impacts can be managed);
lack of transparency (particularly in respect of ad-tech processes and the app review process in app stores);
unfair dealings with business users (particularly in respect of intellectual property); and
exclusivity and price parity clauses in contracts with business users (such as preventing businesses from offering their products and services though other sales channels or at different prices).
The ACCC did note that these obligations should take into account any potential reasons why such conduct occurs including how, in some circumstances, it may provide a net benefit to consumers.
How’s the ACCC proposing to implement all of this?
As mentioned above, implementing these proposed reforms will require new legislation and/or amendments to legislation. The ACCC considers it would be most appropriate for new consumer measures to be included in the existing Australian Consumer Law (i.e. Schedule 2 of the Competition and Consumer Act 2010 (CCA)) and the new recommended competition framework be included in the CCA.
However, the ACCC also considers that both competition and consumer measures will likely require subordinate legislation (e.g. regulations or Ministerial rules):
For the consumer measures , the obligations are well-suited to inclusion in primary legislation.
However, for the competition measures , the ACCC considers they should be mainly implemented through codes (made by way of subordinate legislation). Such codes should be developed in consultation with industry and stakeholders, should target specific competition issues relevant to each service and consider any justifiable reasons for the conduct (e.g., proportionate privacy or security justifications).
The ACCC considers that where possible, any additional competition measures for digital platforms in Australia should seek to align with emerging international competition reforms for digital platforms. While the ACCC states it has engaged with eight international agencies on digital reform issues, the ACCC’s recommended competition measures appear to be drawn closely from the European Union’s Digital Markets Act and the United Kingdom’s proposed pro-competition regime for digital markets, adopting aspects from both of these regimes.
What happened to digital platforms-specific merger reform?
The DPSI 5 report has not recommended any changes to Australia’s merger regime, although the ACCC does note that future economy-wide merger reform should consider the competition effects of serial strategic acquisitions, including by digital platforms. The ACCC has been long advocating for an overhaul of Australia’s merger regime and we anticipate economy-wide merger reform proposals to come out of the ACCC in 2023.
So, what’s next on these proposals?
The ACCC's recommendations are significant and, if implemented, would represent an enormous shift in how we regulate digital platforms in Australia. However, the DPSI 5 report recommendations are just that - recommendations . We’ll now wait for the Australian Government to fully consider the DPSI 5 report and kick off its consultation process (which it said it would do in its media release today).
In the meantime, our digital markets experts are combing through the finer details of the ACCC's 214-page report and will be sharing their analysis and insights next week.