Digital platform markets – the ACCC publishes its recommendations to address competition and consumer harms

Co-authored by Nicholas Cousins, Solicitor

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Digital platform markets – the ACCC publishes its recommendations to address competition and consumer harms

Digital platform markets – the ACCC publishes its recommendations to address competition and consumer harms

Co-authored by Nicholas Cousins, Solicitor

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November 28, 2022

Key points

The ACCC has recommended new legislative protections and measures be introduced to address consumer and competition harms emanating from digital platform markets
The measures include economy-wide and digital platform specific consumer measures and mandatory codes of conduct to address competition concerns in designated digital platforms
The ACCC recommends implementing these measures by amending the Competition and Consumer Act (Cth) 2011 and the Australian Consumer Law, and proposes significant penalties for breaches

On 11 November 2022 the Australian Competition and Consumer Commission (ACCC) published its Digital Platform Services Inquiry Report on Regulatory Reform (Report), as part of its ongoing inquiry into the consumer and competition harms emanating from digital platforms. In our previous article (accessible here) we considered the competition implications of the ACCC’s inquiry into markets for the supply of advertisement technology (ad tech) and ad agency services. Now, the ACCC’s Report has concluded that Australia’s current competition and consumer laws are insufficient in addressing the range and scale of competition and consumer harms deriving from digital platform markets and below we discuss the ACCC’s four recommendations which comprise two consumer focused protections and two competition specific measures.

What reforms does the ACCC propose in the Report?

The ACCC recommends a number of new ex ante measures to address the competition and consumer harms emanating from digital platform markets. At present the enforcement measures available to the ACCC under the Competition and Consumer Act 2001 (Cth) (CCA) and the Australian Consumer Law (ACL) (being Schedule 2 of the CCA), are primarily through the courts. Enforcement is therefore timely and available only after an alleged contravention has occurred (i.e. ex post) – in other words, the current regime lacks dynamic measures to prevent consumer and competition harms in platform markets from ever arising. The ACCC’s recommendations fall into two broad categories: stronger consumer protections and targeted competition measures, as outlined below.

Consumer Protections
Recommendation 1: Economy-wide consumer measures a. Prohibition on unfair trading practices b. Strengthen unfair contract term regime	The ACCC recommends the expansion of consumer protections under the ACL to address certain business practices not currently covered, by imposing a general unfair trade practices prohibition and changes to the unfair contract term (UCT) regime. The ACCC considers that whilst these issues are exacerbated in the context of digital platform markets, their prevalence in all markets means the measures should be imposed and operate economy-wide. One business practice the ACCC focuses on is the use of ‘dark patterns’ being user interfaces intended to confuse and manipulate consumers such as false scarcity reminders on websites (e.g. ‘low stock’ warnings), false countdown timers or pre-selected add-ons. The proposed changes would be in addition to significant UCT changes introduced by the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (the Bill) which was granted royal assent on 9 November 2022 (as foreshadowed in our earlier article).
Recommendation 2: Digital platform specific consumer measures a. Targeted measures to address scams, harmful apps and fake reviews b. Reform to dispute resolution processes	The ACCC recommends the implementation of digital platform specific processes to prevent and remove scams, harmful apps and fake reviews, including through: 1. a notice-and-action mechanism for individuals and entities to notify a platform of suspected scams, harmful apps and fake reviews, which also impose obligations on the platform to take action (p 82-84); 2. verification of certain business users including advertisers, app developers and merchants (p 84-85); 3. verification of advertisers of financial services and products where relevant to certain platforms (p 85-86); 4. improved review verification disclosures to provide users with information as to the credibility and legitimacy of reviews (p 86); and 5. requiring platforms to publicly report on their efforts to mitigate scams, harmful apps and fake reviews (p 86). In addition the ACCC recommends implementing minimum standards for internal dispute resolution processes (p 88) and mechanisms to escalate disputes to an independent ombudsman scheme (p 98).

Consumer Protections

Recommendation 1: Economy-wide consumer measures
a. Prohibition on unfair trading practices
b. Strengthen unfair contract term regime

The ACCC recommends the expansion of consumer protections under the ACL to address certain business practices not currently covered, by imposing a general unfair trade practices prohibition and changes to the unfair contract term (UCT) regime. The ACCC considers that whilst these issues are exacerbated in the context of digital platform markets, their prevalence in all markets means the measures should be imposed and operate economy-wide.
One business practice the ACCC focuses on is the use of ‘dark patterns’ being user interfaces intended to confuse and manipulate consumers such as false scarcity reminders on websites (e.g. ‘low stock’ warnings), false countdown timers or pre-selected add-ons. The proposed changes would be in addition to significant UCT changes introduced by the Treasury Laws Amendment (More Competition, Better Prices) Bill 2022 (the Bill) which was granted royal assent on 9 November 2022 (as foreshadowed in our earlier article).

Recommendation 2: Digital platform specific consumer measures
a. Targeted measures to address scams, harmful apps and fake reviews
b. Reform to dispute resolution processes

The ACCC recommends the implementation of digital platform specific processes to prevent and remove scams, harmful apps and fake reviews, including through:

1. a notice-and-action mechanism for individuals and entities to notify a platform of suspected scams, harmful apps and fake reviews, which also impose obligations on the platform to take action (p 82-84);

2. verification of certain business users including advertisers, app developers and merchants (p 84-85);

3. verification of advertisers of financial services and products where relevant to certain platforms (p 85-86);

4. improved review verification disclosures to provide users with information as to the credibility and legitimacy of reviews (p 86); and

5. requiring platforms to publicly report on their efforts to mitigate scams, harmful apps and fake reviews (p 86).

In addition the ACCC recommends implementing minimum standards for internal dispute resolution processes (p 88) and mechanisms to escalate disputes to an independent ombudsman scheme (p 98).

Competition Measures
Recommendation 3: Mandatory codes of conduct for ‘designated’ digital platforms	The ACCC recommends the creation of mandatory codes to impose rules of conduct for specific ‘designated’ digital platforms to account for the dynamic nature of individual platform markets. The ACCC suggests ‘designations’ may be based on quantitative criteria, such as the Australian or global revenue or usage of a platform, qualitative data such as the market power or degree of vertical integration of a platform, or a combination of both.
Recommendation 4: targeted obligations to promote competition	The ACCC states that the focus on mandatory codes is to address issues which vary in prominence across platform markets and to impose obligations in relation to those issues, which include: 1. anti-competitive self-preferencing whereby certain digital platform hegemons favour their own services across different levels of the market (e.g. Google promoting its own services in Google Search results) (p 124); 2. anti-competitive tying whereby certain digital platform hegemons tie their products at different levels of the market (e.g. Apple requiring its own in-app payment system to be used for certain in-app purchases) (p 132); 3. exclusive pre-installation and default agreements such as Google appearing as the default search engine on certain devices which limits the possibility of rival search engines reaching consumers at scale (p 139); 4. restrictions or processes which frustrate customer switching, such as the difficulty for consumers to change their default search engine from Google (p 151); 5. the denial of inter-operability by digital platform hegemons in which they restrict the possibility of third-parties operating on their platforms, such as Apple preventing third-party app stores on Apple devices (p 156); 6. data related barriers to entry and expansion, in which a lack of equal access to relevant data prevents the emergence of competition in certain digital platform services including search and ad-tech services (p 165); 7. lack of transparency, including in relation Apple and to a lesser extent, Google’s app review and approval process and in relation to the ad tech market, Google’s price, auction and ad tech performance information (p 174); 8. unfair dealings with business users whereby businesses are treated unfairly by digital platforms or their ability to exercise legal rights is limited, including for example, through the inconsistent application of app review policies and by imposing restrictive terms and conditions for access to app stores, such as requiring businesses to forfeit intellectual property rights (p 180); and 9. the use of exclusive agreements and price parity clauses with business users, which can prevent businesses from being free to explore various sales channels and prices (p 185).

Competition Measures

Recommendation 3: Mandatory codes of conduct for ‘designated’ digital platforms

The ACCC recommends the creation of mandatory codes to impose rules of conduct for specific ‘designated’ digital platforms to account for the dynamic nature of individual platform markets. The ACCC suggests ‘designations’ may be based on quantitative criteria, such as the Australian or global revenue or usage of a platform, qualitative data such as the market power or degree of vertical integration of a platform, or a combination of both.

Recommendation 4: targeted obligations to promote competition

The ACCC states that the focus on mandatory codes is to address issues which vary in prominence across platform markets and to impose obligations in relation to those issues, which include:

1. anti-competitive self-preferencing whereby certain digital platform hegemons favour their own services across different levels of the market (e.g. Google promoting its own services in Google Search results) (p 124);

2. anti-competitive tying whereby certain digital platform hegemons tie their products at different levels of the market (e.g. Apple requiring its own in-app payment system to be used for certain in-app purchases) (p 132);

3. exclusive pre-installation and default agreements such as Google appearing as the default search engine on certain devices which limits the possibility of rival search engines reaching consumers at scale (p 139);

4. restrictions or processes which frustrate customer switching, such as the difficulty for consumers to change their default search engine from Google (p 151);

5. the denial of inter-operability by digital platform hegemons in which they restrict the possibility of third-parties operating on their platforms, such as Apple preventing third-party app stores on Apple devices (p 156);

6. data related barriers to entry and expansion, in which a lack of equal access to relevant data prevents the emergence of competition in certain digital platform services including search and ad-tech services (p 165);

7. lack of transparency, including in relation Apple and to a lesser extent, Google’s app review and approval process and in relation to the ad tech market, Google’s price, auction and ad tech performance information (p 174);

8. unfair dealings with business users whereby businesses are treated unfairly by digital platforms or their ability to exercise legal rights is limited, including for example, through the inconsistent application of app review policies and by imposing restrictive terms and conditions for access to app stores, such as requiring businesses to forfeit intellectual property rights (p 180); and

9. the use of exclusive agreements and price parity clauses with business users, which can prevent businesses from being free to explore various sales channels and prices (p 185).

Implementation and enforcement

Unsurprisingly, the Report confirms the heavy regulation foreshadowed by the ACCC in its previous report into the ad tech industry, is the ACCC’s chosen remedy to address consumer and competition harms emanating from digital platform markets.

The ACCC states its recommendations could be implemented through legislative amendments to the CCA and ACL. It suggests subordinate legislation such as regulations or Ministerial rules are likely to be required to support the operation of legislative changes, and that competition codes should be developed by relevant regulators in consultation with relevant policy agencies following public consultation.

The ACCC describes digital platform markets as lacking “strong compliance culture” and so the ACCC proposes significant penalties for breaches of these new suggested provisions, an approach it says is in sync with that of other overseas regulators, which the ACCC reiterates is important given the global presence of the largest and most trouble-some digital platform markets.

The push for hefty penalties for digital platform market participants reflects the ACCC’s concerted effort over the past few years to inflate penalties, and is in parallel to significant increases to the maximum pecuniary penalties under the CCA and ACL that were introduced by the Bill and came into effect on 10 November 2022.

The ACCC is also conducting internet sweeps focusing on deceptive practices in the digital marketplace. The subjects of the sweeps will include fake or misleading online reviews and testimonials (at least 100 businesses will be reviewed) and misleading advertising by influencers on social media. The ACCC has announced that the findings of the sweeps will be published and compliance, education and potential enforcement activities will follow.

Next steps

As the ACCC’s inquiry into digital markets draws towards its conclusion, consultation with market participants is likely to continue prior to the tabling of legislation before Parliament. We will keep you updated on any developments, and the Dentons team, including partners Donald Robertson, Robyn Chatwood and Vanessa Gore, are available to assist, should you decide to engage in this ongoing discourse.