Australia: The right tools for the job? The merger control proposals in the ACCC Digital Platform Inquiry Preliminary Report

The ACCC’s Digital Platforms Inquiry Preliminary Report proposes a number of important reforms to Australian merger control law and practice, to ensure close scrutiny of acquisitions by large digital platforms. However, the ACCC has not made the case that its current toolkit is inadequate for that purpose. If implemented, its merger control proposals are likely to be redundant.

Background

The ACCC’s focus is on curtailing the inorganic growth of multinational digital platforms. It already considers Facebook and Google to have market power in their core markets, and is seeking to prevent them from acquiring emerging competitive threats and extending their dominance into adjacent markets.

Like many global regulators, the ACCC has expressed second thoughts about recent acquisitions by multinational digital platforms. It is aware of the challenges in reviewing mergers in fast-moving digital markets, and wants to ensure that it has the right tools to review and remedy potential issues.

In December 2017, the Government directed the ACCC to undertake a public inquiry into the impact of multinational digital platforms. The ACCC delivered a Preliminary Report on 10 December 2018 (Preliminary Report) and a final report is due by 3 June 2019.

The Preliminary Report’s findings included that Google has market power in online search and search advertising, and Facebook in social media and display advertising.

For the ACCC, multinational digital platforms – while positive – are unavoidable, dominant gateways. They have both the ability and incentive to favour their own businesses over third party suppliers. In a recent press release ( available here), ACCC Chair Rod Sims said that: 'the strong market position of digital platforms like Google and Facebook justifies a greater level of regulatory oversight….'.

In that context, as Mr Sims said in a recent speech, the ACCC’s proposed merger control amendments are driven by a concern about the difficulties of: “assessing what may be a small possibility of a large reduction in competition and [considering] future development paths of digital markets, for which there are unlikely to be precedent or historical data”.

The Preliminary Report cites the Facebook/Instagram transaction (2014) as one where the competitive impact of Instagram, which had no revenue and 13 employees at that time, was difficult to establish.

The ACCC is aligned with other regulators in this regard. Other agencies also appear to be eyeing the way in which large players can distort market outcomes through M&A practices. In her opening remarks to a recent conference, EU Competition Commissioner Margrethe Vestager noted that her agency has repeatedly heard that large companies are 'blocking paths' to innovation and promising ideas are 'disappearing', because large market players are acquiring their creators in order to 'kill them'.

The merger control proposals

Of the ACCC’s 11 preliminary recommendations and eight areas for further analysis, two are directed to the merger control provisions of the Competition and Consumer Act 2010 (Cth) (CCA). The ACCC recommends in the Preliminary Report that those provisions be amended to include two new mandatory factors to be considered in evaluating whether an acquisition substantially lessens competition:

  • whether an acquisition would remove a potential competitor; and
  • the amount of data to which an acquirer would have access.

The ACCC also proposes asking large digital platforms to undertake to notify acquisitions of business activities in Australia and to provide sufficient time for an ACCC review. This proposal is discussed further below.

Potential competition and access to data

As the ACCC itself notes in the Preliminary Report, it is currently not prevented from looking at potential competition or access to data and it will continue to consider those factors even without a legislative amendment. So it is unclear why any legislative amendment is required to 'signal the significance of these factors in relevant cases and remove any ambiguity as to their relevance' (page 63).

Indeed, it will be seen that the ACCC can – and does routinely– look at potential competition and data access.

  • The CCA does not limit the factors which the ACCC may take into account in determining whether the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition.
  • Several of the existing mandatory factors for consideration in the CCA (sections 50(3)(c), (e), (g), (h) and (i)) are directly relevant to assessing potential competition or access to data:
    • the level of concentration;
    • the market’s dynamic characteristics, (eg growth, innovation, product differentiation);
    • the removal of a vigorous and effective competitor; and
    • the nature and extent of vertical integration.
  • The ACCC’s general Merger Guidelines already state (at [1.13]) that the ACCC will assess potential competition. And the ACCC says it will look at 'expected' competition for example in media markets, where parties do not presently constrain one another, but would be likely to in the foreseeable future (Merger Guidelines, at [3.20]).
  • The ACCC regularly considers the long-term effects of mergers. For example, in media markets it will take into account the changing nature of technology and the competitive impacts of technology, if there is evidence that changes will occur. In pharma cases, the ACCC will analyse products in early-stage clinical development. In one oncology matter, it looked at two molecular targeted therapies in the early testing stages, where oncology products have a less than 5% chance of securing regulatory approval (see eg Novartis AG/GlaxoSmithKline plc (2015)).

These recent examples also demonstrate the ACCC’s existing approach:

  • In a 2018 review of the acquisition of a Sydney toll road project by a consortium led by Transurban, the ACCC examined four sources of Transurban’s incumbency advantages:
    • exclusive access to data from existing NSW toll roads;
    • traffic modelling capability and expertise, due to ownership of existing NSW and other toll roads;
    • lower costs of finance based on the perception of financiers (debt providers and equity partners) that Transurban has significant exclusive data and superior traffic modelling capability; and
    • its strong position to negotiate unsolicited proposals with the NSW Government.

These meant that rivals could not compete on an equal footing. The ACCC cleared the deal in question only after Transurban offered a data access undertaking to publish very detailed traffic data.

  • In its protracted 2017 review of the Tabcorp/Tatts merger, one ACCC focus was the extent to which Tatts was a legitimate potential competitor for racing media rights, even though Tatts had not sought to obtain racing media rights directly from any rights holder previously. The ACCC lost on this point before the Australian Competition Tribunal, which found that the evidence showed the theory was 'pure speculation'.

Ultimately, the test is and will remain whether the merger is likely to substantially lessen competition, and the ACCC’s success in any given case will depend on the strength of the evidence. If the potential competition or risks around the use of data are no more than speculative, then – with or without a legislative amendment – the ACCC will be unlikely to oppose, due to the risk of losing in court.

Previous legislative experience

Previous 'reactive' and industry-specific legislative amendments have been found to be confusing, redundant or difficult to apply. A 2012 amendment to the CCA prohibited certain price signalling conduct in the banking sector, and was proposed because of apparently 'strong evidence' that banks were signalling pricing intentions to undermine competition.

Also, a new predatory pricing-specific prohibition was introduced in 2007 in response to a concern that the CCA’s market power provisions did not adequately cover predatory pricing.

In 2015 a competition policy review panel concluded in its final report that both provisions were unfit for purpose and should be repealed. Neither was ever litigated.

Where the Preliminary Report’s proposals add little to the ACCC’s enforcement toolbox, on balance any increased risk of redundancy, confusion or misapplication recommends against their adoption.

Undertakings to notify

In addition to legislative change, the ACCC proposes requesting prior notification of proposed acquisitions by large digital platforms and a 'longer' period for ACCC review – although the Preliminary Report does not suggest a length for these extended review periods.

Australia has a voluntary merger control system, but the ACCC sometimes requests such a commitment where highly acquisitory large companies have made a large number of transactions.

A requirement to notify would not strongly support the ACCC’s practice. Large digital platforms’ transactions are sufficiently public, and the ACCC can use its practical and CCA powers to investigate and enforce as appropriate.

The ACCC regularly sends detailed information requests to parties where it finds out about proposed or completed acquisitions that could substantially lessen competition. It also regularly opens merger reviews ex officio. As an example, in 2016, the ACCC launched an extensive investigation into Primary Health’s completed acquisition of certain Healthscope pathology assets. To resolve substantial competition concerns, Primary Health undertook to divest a large proportion of the pathology assets that it had acquired, largely reversing the acquisition.

Our thoughts

We would recommend that the ACCC continue its current merger control practice, under the recently amended CCA.

The ACCC already has the right tools – and 'if it ain’t broke, why fix it?'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Chambers Asia Pacific Awards 2016 Winner – Australia
Client Service Award
Employer of Choice for Gender Equality (WGEA)

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions