The latest in competition and consumer law 10 min read
On 23 October 2020, the ACCC published its first Digital Platform Services Inquiry Interim Report (Interim Report) as part of its ongoing role in monitoring the impact of digital platforms on competition and consumers. This first biannual report examines competition, consumer and privacy issues related to three key digital services: online private messaging, search and social media services. We've summarised the key findings below.
Online messaging services
- Facebook (Messenger, WhatsApp) and Apple (iMessage, FaceTime) are the two largest suppliers of standalone online private messaging services in Australia.
- Facebook's messaging services are dominant due to substantial 'identity-based network effects' and arguably do not face direct competitive constraint from services like Skype, Microsoft Teams, Slack or Zoom given these services focus on business customers and particular types of use cases.
- Apple's iMessage enjoys a competitive advantage, particularly over smaller messaging service providers. These advantages are moderated because it is easy for Apple users to switch to non-Apple messaging services, and it is also costly for non-Apple users to switch to Apple's iMessage service.
- Data collection, use and disclosure practices by messaging services were of concern to consumers. The ACCC recognised that broad disclosures about these practices (eg via privacy policies or T&Cs) were unclear and did not provide sufficient information to enable consumers to understand what data was collected about them and how it would be used / sold to third parties (and who these third parties were).
Social media and search services
- Despite the entry of new platforms and expansion of existing platforms, consumers continue to spend a large proportion of their time on services owned and operated by Google and Facebook.
- Online advertising expenditure in Australia continues to increase and a growing proportion of expenditure is spent with Google and Facebook. The ACCC referenced a report by PWC that notes 'beyond Google and Facebook, the rest of the online advertising market is in decline'.
Consumer and small business harms across these services
- Consumers are increasingly concerned about the collection and use of their personal and usage data.
- A range of potential harms, including decreased consumer privacy and welfare and increased exclusion and discrimination, flow from tracking and profiling of consumers by platforms and third parties (including via collating data from use of private messaging services, mobile apps, websites, video games, etc).
- Small businesses are increasingly reliant on the advertising services provided by platforms like Facebook and Google. The reliance on these advertising services leads to an imbalance in bargaining power reflected in the standard form terms and conditions, and the ACCC identified several potentially unfair contract terms including: unilateral discretions to revoke/block advertising or content for any reason; unilateral discretions to suspend/terminate user accounts or ad campaigns without reason; clauses which allow platforms to vary terms without notice / with a short notice period; prohibitive dispute resolution processes (eg international arbitration or the requirement to make claims in the US); confidentiality or publicity limitations; and disclaimers on the reach or performance of ads.
Emerging trends including platforms' acquisitions and expansion
- The ACCC observed that the expansion of large digital platforms into new markets and sectors impacts competition and consumer outcomes. In this regard, the ACCC drew on examples of Apple, Facebook, Google and Microsoft expanding into new sectors (via acquisitions or organic expansion).
- The ACCC noted in respect of mergers that while specific acquisitions by Facebook may not have amounted to a substantial lessening of competition, there appears to be a pattern of Facebook acquiring businesses in related markets and entrenching its market power. The ACCC outlined inherent challenges in reviewing digital platform acquisitions and referred to its current work with digital platforms on a voluntary merger notification protocol to give the ACCC advance notice of proposed transactions.
- The ACCC made various observations on the growth of voice assistant and augmented reality services in Australia and the implication of data collection and usage practices on competition and consumer outcomes (eg targeted and precise price discrimination as a result of more robust data collection and use practices through these services).
Recommendations and next steps
A number of the Interim Report's findings support recommendations previously made by the ACCC in its original June 2019 Digital Platforms Inquiry Final Report. Allens published a two-part series in which we considered the ACCC's findings and recommendations, with a focus on competition, consumer protection and copyright issues in Part 1, and privacy and data protection issues in Part 2.
The ACCC’s second report will be on app marketplaces, which is expected to be provided to the Treasurer by 31 December 2020.
On 27 October 2020 the ACCC commenced proceedings against AA Machinery (trading as Agrison), alleging the tractor and agricultural equipment supplier made false or misleading representations about the warranties and after-sales services available to its customers.
The ACCC alleges that Agrison represented in promotional materials that its tractors are supported by a '5 year nation-wide warranty'. The company also promised a national after-sales service network with access to spare parts and timely after-sales service in statements such as:
- 'We offer a professional after-sales service by qualified staff, and have over 20,000 spare parts in stock at any given time';
- 'Agrison tractors are fully supported in Australia through its after sales service and supply of 5 year warranty on all new tractors…'; and
- 'Proudly servicing Agrison customers Australia-wide'.
The ACCC received several complaints from Agrison customers complaining they had purchased machinery with serious defects such as failing brakes and leaking hydraulic systems. When customers raised these issues with Agrison, the customers were unable to have the defects remedied or get the correct spare parts. The ACCC therefore alleges that Agrison, in breach the Australian Consumer Law, did not have reasonable grounds for making its representations about the warranties and after-sales services.
On 29 October 2020 the ACCC announced it had lodged an appeal against the Federal Court's decision to dismiss its case against Employsure, a private company that offers workplace relations and health and safety advisory services to small businesses.
The ACCC, after receiving more than 100 complaints about Employsure's conduct, alleged that Employsure misrepresented to small business consumers in Google ads that it was, or was affiliated with, a government agency. On 1 October, the Federal Court dismissed the ACCC's case, finding that the ads were not misleading. The key takeaways from the court's decision are set out in a previous edition of InTouch.
The ACCC believes the trial judge made an error in finding that reasonable business consumers, including smaller and less sophisticated business owners, would not have been misled by the Google ads. It is concerned that the judge relied on small differences in the ads to conclude that reasonable business consumers would not have been misled (eg the fact they were marked 'ad' and linked to a '.com', not '.gov', URL).
The appeal will be heard at a date yet to be set.
On 4 November 2020 the Full Federal Court dismissed an appeal by hotel comparison site Trivago, finding that Trivago made misleading representations to consumers about hotel room rates on its comparator website and in television advertising.
The Full Court agreed with the primary judge's findings that Trivago misled consumers by representing its website would quickly and easily help users identify the cheapest hotel rates available. In fact, Trivago's website rankings were determined by an algorithm which placed weight on hotel booking sites that paid Trivago the highest cost-per-click fee rather than the cheapest rates for consumers.
The court also found Trivago’s hotel room rate comparisons that used strike-through prices or text in different colours gave consumers a false impression of savings. This was because Trivago often compared a standard room offer with a luxury room offer at the same hotel.
The matter will now return to the trial judge, who will consider the declarations, injunctions, penalties and costs sought by the ACCC.
On 5 November 2020, the ACCC announced it is investigating acquisitions by Innovation Holdings Australia (which, through related bodies corporate, owns Compare the Market), which would provide it with approximately 35% of the shares in iSelect Limited.
Compare the Market and iSelect both offer services to consumers that compare insurance, utilities and financial products and services. iSelect is a direct competitor of Innovation Holdings.
Innovation Holdings holds approximately 29% of the shares in iSelect following a series of acquisitions beginning in 2018. It is proposing to acquire a further 6% of the shares in iSelect.
Despite resulting in a minority holding in iSelect, the ACCC is considering whether the completed and proposed acquisitions are likely to substantially lessen competition. The acquisitions were undertaken without consultation with the ACCC and the ACCC is consequently reviewing them from an enforcement perspective.
On 5 November 2020 the ACCC announced it had accepted a court-enforceable undertaking from home security provider Tyco Australia, which trades as ADT Security. The company has undertaken to refund wrongly invoiced customers and amend or remove from its residential service agreement certain unfair contract terms.
Under the residential service agreement, customers were entitled to terminate their contract at the conclusion of the initial term by giving 30 days' notice. It was, however, ADT Security's practice not to terminate the agreement until it had contacted the customer. If it could not contact the customer, the termination notice was disregarded and the contract treated as ongoing. ADT Security admitted this conduct was likely to amount to making false or misleading representations that it had a right to payment for services. It has undertaken to refund affected customers.
ADT Security also admitted that two clauses in the residential service agreement were unfair, which allowed ADT Security to:
- unilaterally vary the terms of the agreement with one months' notice; and
- increase any fee payable under the agreement after the first 12 months of the initial term.
The ACCC considered these clauses caused a significant imbalance in the parties' rights and obligations, and were not reasonably necessary in order to protect the legitimate interests of ADT Security, particularly because the firm required customers to pay an exit fee for terminating the agreement within the initial term where the customer rejected the unilateral variation or fee increase.
ADT Security has undertaken to remove the unilateral variation right and remove the requirement that a customer pay an exit fee in circumstances where the company increases the fee payable by more than 5% and the customer rejects this increase.