Digital Markets Update

Introduction

It’s easy to think that effective competition in digital markets requires new laws and sector specific regulation.  A public consultation on that issue and on the ACCC’s proposals for amendments to the Competition and Consumer Act 2010 (CCA) will be published in March, with recommendations to the Treasury in September.  Significant resources have already been spent on progressing the new regime — with three market inquiries and seven detailed reports so far, a further two this year, and eight more until 2025.[1]

Developments this year may however show that there is life in the old competition law yet.  We will find out whether the ACCC will issue enforcement proceedings against Google or another digital platform; and the Federal Court will develop the application of competition law in private damages claims against Apple, Google, Instagram and Meta.[2]  Precedent from the Federal Court and findings in the ACCC’s inquiry may further support proceedings against digital platforms before the ex ante regime comes into effect, including through the dispute resolution process currently being established by the Treasury and Department of Infrastructure.[3] 

In fact, both the ACCC and Government have emphasised the need to take enforcement action against digital platforms as we transition to the new regime.[4]  The Full Federal Court has also made clear that private damages claims are needed to supplement public enforcement, and in particular, present an important opportunity to clarify the law on misuse of market power in relation to digital platforms.[5]  Ongoing public and private enforcement is therefore important for addressing existing infringements — but it is likewise needed to support the new regime once implemented, which will equally rely on litigation in the Federal Court.

ACCC competition enforcement

Chairman Rod Simms has recently confirmed that the ACCC has a number of ongoing investigations of suspected infringements by digital platforms,[6] and there are several reasons why the ACCC might not want to put all of its eggs in the ex ante basket:

• First, the implementation of the new legislation will take a very long time. The various proposals being developed by the ACCC are likely to elicit substantial debate and will not reach Parliament until 2023, at the earliest.
• As everyone knows, the new regime will not be retroactive. It will not help businesses that have struggled to compete or become insolvent in the meantime, or provide redress for consumers who have experienced limited choice and higher prices.
• The efficacy of the new regime relies on the ACCC being able to maintain a credible threat of enforcement, including in the Federal Court.That will be more difficult and take longer to establish without a record of enforcement under the existing regime.
• The ACCC will also be influenced by the fact that other national competition authorities are taking a combined approach, pursuing significant enforcement action at the same time as developing new regulation — including Italy’s recent €1.3 billion fine against Amazon.[7]

As such, the ACCC has continued to promote enforcement as “critical in addressing potential harms associated with the impact of digital platforms on markets and consumers in Australia”.[8]  In fact, the Digital Platforms Branch was established to undertake “proactive investigation, monitoring and enforcement”, using the expertise gained through its market inquiries.[9]

So, what is the ACCC investigating and what cases might it enforce?

The clearest indication so far is that the ACCC is investigating “whether access restrictions imposed by a digital platform on a third-party app developer raise issues under section 46 of the CCA”.[10]  It subsequently indicated that it will continue to monitor and explore complaints about self-preferencing behaviour and the impact of pre-installation or default settings in relation to app marketplaces,[11] and that “it is important that Apple and Google treat all apps equally on their merits and certain apps do not receive preferential treatment”.[12]

Other expressed competition concerns include:

• Google’s conduct in relation to advertising technology services (or ad-tech).[13] For the purpose of its inquiry, the ACCC found both that Google has substantial market power in the relevant markets, and that its self-preferencing conduct “prevent[s] both actual and future rivals of Google’s ad tech services from competing effectively with Google’s vertically integrated services”,[14] also harming publishers, advertisers and consumers.
• Arrangements between Google and Apple that install Google Search as the default search service on Safari and Apple devices.[15]The ACCC expressed concerns that arrangements such as tying or bundling and payment for default positions create a significant barrier to entry, and effectively foreclose rival search engines from reaching a substantial proportion of Australian consumers.

We might also find out more about whether the ACCC is investigating ebay or Amazon once the fourth interim report is published in March.

Private damages litigation

This year will also involve significant developments in private litigation against digital platforms:

• Dialogue Consulting Pty Ltd v Instagram, Inc (VID369/2019)
• Epic Games, Inc v Apple Inc (NSD1236/2020)
• Epic Games, Inc v Google LLP (NSD190/2021)
• Andrew Hamilton v Meta, Inc and Google, Inc (NSD899) (JPB Liberty)

At this stage, the first substantive adjudication of whether and how Australian competition law applies to digital platforms is expected to occur in the Epic Games litigation against Apple, listed for trial commencing in late November. In the meantime, the Federal Court has already, and will continue to set important precedent for future private litigation and for ACCC enforcement.

In a seminal ruling, the Full Federal Court made clear that the pursuit of private damages is necessary to ensure an effective competition law regime, supplementing ACCC enforcement — that "private litigation can also help develop and clarify the law, … encourage industry participants to change their practices and deter future contraventions.[16] As such, competition claims should be decided in the Federal Court whatever the respondent’s nationality and despite an agreement to exclusively resolve disputes in another jurisdiction.[17]

Second, the Court has duly noted that the litigation against Apple and Google has the potential to directly affect the distribution and use of nearly all apps in Australia.  As Justice Perram stated, if the claim succeeds “… it would mean that other firms would be able to provide payment processing systems for in-app content within the environment of iOS apps”, not just Epic Games.[18]  In fact, the ACCC intervened in the Full Federal Court stating that the claim “can have significant implications for the broader Australian economy”.[19]

The Federal Court has also taken an encouraging approach to the issue of interlocutory injunctions to prevent the suspension or termination of access to digital platforms (even if consistent with agreed terms), given their gateway status.  Most recently, Justice Beach refused to vary an interlocutory injunction that required Facebook and Instagram to preserve Dialogue Consulting’s continuing access those platforms, on stricter terms than what would apply under a permanent injunction imposed in the US and despite changes in the platforms’ operating policies.[20]  This followed an interlocutory injunction grated by Justice Moshinsky in 2018, restraining Google from interfering with Unlockd’s access to the platform.[21]

Finally, the Court’s ruling on whether the JPB Liberty class action has properly pleaded a prima facie case against Meta and Google is expected early this year.[22]  If the claim is permitted to proceed, the claimants are expected to apply for a no adverse costs order under section 82 of the CCA — which would be the first time the Federal Court considers the provision.  It is an important reform implemented following the Harper review — if the criteria are met, the court may order that a claimant in a competition law damages claim is not liable for the respondent’s costs, regardless of the outcome. Needless to say, its successful application against Google and Meta is likely to encourage other would-be claimants against digital platforms.

What further litigation might there be?

The ACCC has done a substantial amount of work investigating digital markets and the issues raised by a wide range of stakeholders, much of which is published online and might otherwise be accessible through Freedom of Information requests or court issued subpoenas.  Although the ACCC’s administrative findings cannot be relied upon for the purposes of follow on claims under section 83 of the CCA, they may be readily adopted as submissions supported by the underlying evidence referred to.

Significantly, the ACCC has made independent research-based findings on the market power held by the major platforms and the impact that has on competition — it will be very difficult for Google and Meta to argue that they do not have substantial market power in the markets identified or that competition is functioning effectively.[23] 

As noted above, the ACCC has also identified concerns with particular conduct that may have caused or contributed to the lessened competition — the terms of access to Google and Apple’s app marketplaces; Google’s leveraging and self-preferencing behaviour in the ad-tech supply chain; and Google’s arrangements with OEM’s for Google search to be the default search service.[24] The fourth interim report may also include relevant findings about ebay and Amazon’s conduct. Even if the ACCC does not bring enforcement proceedings, the material it discloses combined with the developing precedent from the Federal Court provide opportunities for app developers, publishers, software suppliers and even consumers to seek private redress.

Conclusion

Developments this year may therefore show that digital platforms cannot simply defer substantively engaging with the existing competition regime until the current market inquiry is completed in 2025.  Both public and private enforcement under existing competition law, if successful, will require some measure of behavioural change and compensation for harms to business customers and consumers.  These developments should also be closely watched — they are critical to determining whether the existing regime provides a sufficient framework for ex ante regulation, or whether further incentives are needed to promote voluntary compliance by global digital platforms in Australian markets.