Regulation of Digital Platforms in Australia and UK

By Thomas Jones, Richard Eccles, Cicely Sylow

08-2019

Digital search engines, social media platforms and other digital content aggregation platforms have come under increasing global scrutiny in recent times.  We are at a critical point in understanding the impact global digital search engines and platforms have on content aggregation, markets and society more generally.  Regulators around the globe are grappling with how to ensure that both competition law tools and regulatory policy effectively address the market power of online platforms and are focused and relevant in this rapidly evolving digital age.

The latest policy and strategy reviews in the UK and the recent market inquiry in Australia will likely be springboards for tighter competition law enforcement and regulation (including co-regulation via codes of conduct), to ensure that the benefits to society those platforms and search engines bring are not at the expense of consumer welfare, high quality news and journalism and market driven innovation. 

UK

2019 is seeing a significant focus of UK competition policy on competition in the digital environment, the Competition and Markets Authority (CMA) launched its Digital Markets Strategy in July 2019. This was preceded by the report by the independent Digital Competition Expert Panel (chaired by Jason Furman and known as the "Furman report") to the government in March 2019. The Furman Report can be seen as in large part the basis or inspiration for the CMA's Digital Markets Strategy.

The CMA has launched a market study into online platforms and digital advertising, on 3rd July 2019. Broadly the study will assess three main areas: to what extent online platforms have market power in user-facing markets; how online platforms are using people's personal data (including the provision of this data to advertisers for payment; and whether competition in the digital advertising market may be distorted by platforms holding market power. The CMA will be required to publish a final report within twelve months, i.e. by 2nd July 2020, and this may result in a referral for a full, 18 months market investigation. The CMA could also seek undertakings from relevant digital platforms to make remedial changes, as an alternative, so called "undertakings in lieu" of a full market investigation.

The Digital Expert Panel included the launch of such a market study into the digital advertising market, as one of its six strategic recommendations. The Digital Expert Panel made a range of recommendations concerning the application and enforcement of anti-trust rules in the digital environment and on the need for merger control assessments in digital markets to be given a reset.  This took account of the fast-moving characteristics of digital markets, the high levels of concentration of the main digital markets in the hands of one or two powerful platforms, and the tendency of digital platform features to result in markets "tipping" to a single winner in a short period. The Digital Expert Panel further recommended that to sustain and promote effective competition in digital markets, the government should establish a Digital Markets Unit (within the CMA or Ofcom) which would be responsible for ensuring competition, particularly in relation to digital companies holding strategic market status, by means of an ex ante digital platforms code of conduct.

The CMA's Digital Markets Strategy includes the general aims on the part of the CMA of using existing tools effectively and efficiently in its anti-trust enforcement and merger assessments in digital markets, building knowledge and skills to understand digital business models, considering the case for new regulatory structures and digital markets, and increasing the digital-focus of potential remedies, such as data portability or interoperability. The priority focus areas of the Strategy include, in addition to the market study on online platforms and digital advertising, a review of the CMA's approach to assessing merger in digital markets, and policy work with regard to a possible Digital Markets Unit as recommended by the Furman report.

A first step has been taken regarding the CMA's merger assessments in the digital sector, through the CMA's publication in May 2019 of a report for the CMA by an independent economists' firm, Lear, Ex-Post Assessment of Merger Control Decisions in Digital Markets. This report emphasised the importance of potential competition and potential competitors in digital markets. It indicated the complexity of defining a counterfactual in digital markets because of the dynamic development of such markets and because of the need to assess whether the target could develop independently (or by attracting external resources) to become a significant competitive force. The report drew attention to certain specific previous merger control decision, highlighting that the CMA's fore-runner, the Office of Fair Trading, may have under-estimated the target's potential to become a significant competitor in the relevant digital market.

Both the Furman Report and the CMA's Digital Markets Strategy emphasise the importance of international co-operation between competition authorities, taking account of the fact that the incumbent digital platforms are global forces and that their data flows over national boundaries. In this regard it is important to note that the European Commission obtained an Expert Advisors' Report in April 2019, on Competition Policy for the Digital Era. By contrast to the Furman report, the EC Expert Advisors' Report did not propose any new type of public utility regulation for the digital economy.  This was because of the risk of rigidity and lack of flexibility in relation to establishing fixed ex ante rules. With or without Brexit, it will be interesting to see the UK government's eventual decision on the Furman report's recommendations, especially as regards the establishment of a Digital Markets Unit, and whether its policy in this area diverges from the EU's.

The Furman report's strategic recommendations: a snap shot of the Digital Expert Panel's most high level proposals:

Strategic recommendation A To sustain and promote effective competition in digital markets, government should establish and resource a pro-competition Digital Markets Unit
  - tasked with securing competition, innovation, and beneficial outcomes for consumers and businesses.
   
Strategic recommendation B Merger assessment in digital markets needs a reset;
   - the CMA should take more frequent and firmer action to challenge mergers that could be detrimental to consumer welfare through reducing future levels of innovation and competition,

- supported by changes to legislation where necessary.
   
Strategic recommendation C  The CMA's enforcement tools against anti-competitive conduct should be updated and effectively used, to help them play their important role in protecting and promoting competition in the digital economy.
   
Strategic recommendation D The government, CMA and the Centre for Data Ethics and Innovation should continue to monitor how use of machine learning algorithms and artificial intelligence evolves to ensure it does not lead to anti-competitive activity or consumer detriment, in particular to vulnerable consumers.
   
Strategic recommendation E The CMA should conduct a market study into the digital advertising market encompassing the entire value chain,
  - using its investigatory powers to examine where competition is working effectively and whether consumers harms are arising.
   
Strategic recommendation F Government should engage internationally on the recommendations it chooses to adopt from this review,
  - encouraging closer cross-border co-operation between competition authorities in sharing best practice and

- developing a common approach to issues across international digital markets.

The CMA's Digital Market Strategy: the CMA's high level statement of its strategic aims and priority areas of work:

A Use our existing tools effectively and efficiently
  We will use our tools effectively and efficiently, considering how best to target our antitrust and consumer enforcement action, market studies, and merger assessment to digital markets.
   
B  Build our knowledge and capability
   We will build knowledge and skills to ensure we understand digital business models, and their opportunities and risks.
   
C Adapt our tools to the digital economy
  We will adapt, or propose adaptations to, our tools where needed to meet the challenges of the digital economy.
   
D Consider the case and options for regulation
  We will support the Government’s consideration of the need, and options, for new regulatory structures in digital markets.
   
Consider potential future remedies in digital markets
  We will build on our existing remedies expertise with an increased focus on potential digital-focused remedies, such as data portability or interoperability.

Australia

The 26th July 2019 marked a significant milestone for the Australian Competition and Consumer Commission (ACCC), when the Final Report into the impact of digital search engines, social media platforms and other digital content aggregation platforms on consumers and news media businesses, was published.  While the 619 page report may have heralded the end of an 18 month long inquiry for some, it is only the starting point. The Government has indicated it will respond to the report by the end of the year.  

Like several countries before it, Australia’s inquiry has a particular focus on the impact of digital platforms on the choice and quality of news and journalism, but unlike those inquiries, the breadth of the ACCC’s remit which has the protection of consumer welfare at its heart, means the ACCC has been able to take a more holistic approach.  This has resulted in recommendations that address matters concerning the fitness of current media and advertising regulation, but also suggests amendments to 'future proof' Australia’s competition laws, consumer laws and privacy laws more generally.  

The non-binding recommendations will need to be adopted by the Government and passed into law before they have any force.  The ACCC's recommendations propose to amend laws and introduce new ones, create new processes and bodies, which in summary, aim to:

  • redress the ability of dominant platforms to acquire potential competitors;
  • create a more level playing field for content production and delivery in Australian media and advertising markets;
  • use grants and tax incentives to address the under provision of public interest journalism that generates broad benefits to society and to increase digital media literacy in the media via programs and schools;
  • chip away at some of the 'opaqueness' shrouding ad tech services and the supply of online advertising services to test or bring about more efficiently operating markets;
  • provide the ACCC with quicker (and more) access to information concerning digital platforms, enabling it to identify and investigate practices that deteriorate consumer welfare before it's too late; and 
  • shape norms of engagement that promote fairness, reduce information asymmetries in the market, and provide consumers with more bargaining power and control over the value of their data.

A key aspect of the Final Report was that the ACCC made a finding that several digital platform operators – namely Google and Facebook – had substantial market power. Like electricity and utilities before it, these platforms were described as ‘gateways’ for businesses to reach Australian customers.  In the ACCC's view, this privileged position comes with special responsibility, and there is a growing community perception that in some quarters this special responsibility has not been embraced.  It is therefore unsurprising that there have recently been a spate of government inquiries and investigations into industries or particular companies, such as Google, Apple, Facebook and Amazon. 

What this responsibility is and the standard to which digital platforms must operate will be hotly debated over the course of the coming months as the Government prepares its response to the report and global regulators deal with similar issues.  Sensibly, Facebook has beseeched global regulators to coordinate their regulatory responses to avoid a 'balkanisation' of the internet.  While big steps are also being taken in Europe and the US (particularly in relation to fines), we suspect Australia will forge ahead with attempts to regain some control and setting various norms for tech companies meet. Australia might be a minnow in this fast-moving global landscape but the ACCC's pursuits are not going unnoticed.

The ACCC's 23 recommendations: a snap shot of Australia's solutions to the issues uncovered by the inquiry

1 Changes to merger law
  Two additional merger factors be added to section 50 of the Competition and Consumer Act:

(i) the likelihood that the acquisition would result in the removal from the market of a potential competitor, and 

(ii) the nature and significance of assets, including data and technology being acquired

The proposed amendments would require the merger parties (and the ultimate decision-maker) to positively address the ‘significance’ of data and technology assets being acquired. The ACCC has also indicated it is considering pursuing legislative change to introduce a rebuttable presumption, so that the starting point for any significant acquisition is that a merger is presumed likely to substantially lessen competition, absent evidence to the contrary.
   
 2 Advance notice of acquisitions
  Each of the large digital platforms to 'agree' to a bespoke notification protocol, providing advance notice to the ACCC of particular types of acquisitions that have the potential to impact competition in Australia, including where these transactions occur overseas and could impact a market in Australia. 
   
 3 Changes to search engine and internet browser defaults
  Google to give Australian Android users the ability to choose their default search engine and default internet browser from a number of options to overcome default bias and to align the Australian position with that being taken by overseas regulators.
   
 4 Proactive investigation, monitoring and enforcement of issues in markets in which digital platforms operate
  The creation of a specialist digital platforms branch within the ACCC to develop expertise in digital markets and the use of algorithms and pursue investigations into anticompetitive conduct. This is intended to increase the effectiveness of cross-border enforcement, reduce the lag between technological change and policy review and therefore the speed at which regulators and governments can address any deterioration in consumer welfare.
   
 5  Inquiry into the supply of ad tech services and advertising agencies
  An inquiry into competition for the supply of ad tech services and the supply of online advertising services by advertising and media agencies, areas which the ACCC described as "opaque". This is intended to increase transparency around the flows of money throughout the processes to analyse whether the digital platforms are providing value for money and if the market is operating efficiently.
   
 6 Process to implement harmonised media regulatory framework
  A new platform-neutral regulatory framework to ensure effective and consistent regulatory oversight of all entities involved in content production or delivery in Australia, including media businesses, publishers, broadcasters and digital platforms, to create a level playing field that promotes competition. 
   
 7 Designated digital platforms to provide codes of conduct governing relationships between digital platforms and media businesses to the ACMA
  Codes of conduct for each digital platform to contain mandatory content and to be enforced by ACMA that enable equal, fair, reasonable and transparent dealings with news businesses.
   
 8 Mandatory ACMA take-down code to assist copyright enforcement on digital platforms
  A mandatory code to ensure effective and timely removal of copyright protected content from digital platforms.
   
Stable and adequate funding for the public broadcasters
  Stable and adequate funding to be provided to Australia's public broadcasters in recognition of their role in addressing the risk of under-provision of public interest journalism that generates broad benefits to society. The ACCC noted that governments overseas had taken more active roles in this area. 
   
10 Grants for local journalism
  Grants, to replace existing packages, that target original and regional journalism in areas of public interest that are at risk of under-provision by the Australian commercial media market.
   
11 Tax settings to encourage philanthropic support for journalism
  Establishment of new categories of charitable purpose for public interest journalism.
   
12 Improving digital media literacy in the community
  Educating the community to improve the ability of Australians to assess the validity of news sources, determine whether what they are reading is genuine and reliable, understand the types of and modes of delivery of news, the importance of journalism to the democratic process and how to distinguish between factual report and editorial opinion and commentary.
   
13 Digital media literacy in schools
  The Terms of Reference for the review of the Australian Curriculum scheduled for 2020 to include consideration of the approach to digital media literacy education in Australian schools.
   
14 Monitoring efforts of digital platforms to implement credibility signalling
  A regulator, such as ACMA, be required to monitor digital platforms and to report on its findings so consumers can ascertain the veracity, trustworthiness and quality of news and journalism they access online. 
   
15 Digital Platforms Code to counter disinformation
  Digital platforms with more than one million monthly active users in Australia to implement an industry code of conduct to govern the handling of complaints about 'fake news' that pose a serious public detriment.
   
16 Strengthen protections in the Privacy Act
  Updating the definition of 'personal information' to capture technical data such as IP addresses and device identifiers, strengthening notification and consent requirements, enabling the erasure of personal information and giving individuals a direct right of action.
   
17 Broader reform of Australian privacy law
  These broader reforms would consider amendments to the current law in relation to its objectives, scope, whether higher standards or protection are required, inferred information, de-identified information, overseas data flow and third party certification. 
   
18 OAIC privacy code for digital platforms
  A new enforceable code of practice to enable proactive and targeted regulation of digital platforms' data practices.
   
19 Statutory tort for serious invasions of privacy
  Australia has not yet recognised a common law action for serious invasions of privacy (unlike the UK and other jurisdictions).  A new statutory tort for serious invasions of privacy would give individuals a cause of action to pursue serious invasions of their privacy.
   
20 Prohibition against unfair contract terms
  Amend the Competition and Consumer Act so that unfair contract terms in standard form consumer or small business contracts are prohibited (not just voidable) and are subject to the same civil pecuniary penalties as other breaches of the Australian Consumer Law. 
   
21 Prohibition against certain unfair trading practices
  Introduce a new prohibition against unfair trading practices. This (and the above amendment) is likely to significantly impact many of the Digital Platform's ‘terms of use’ and privacy policies.
   
22 Digital platforms to comply with internal dispute resolution requirements
  A new minimum internal dispute resolution standard to apply to digital platforms.
   
23 Establishment of an ombudsman scheme to resolve complaints and disputes with digital platform providers
  A new scheme to resolve complaints and disputes between consumers and digital platforms, and businesses and digital platforms.