28 October 2021
Last year, the Australian Competition and Consumer Commission (“ACCC”) flagged its plans to seek reforms to Australia’s merger laws in light of its concerns that big Tech companies are enjoying unprecedented market power. Recently, the ACCC introduced some concrete proposals for merger reform in a speech given by Rod Sims at the Competition and Consumer Workshop on 27 August 2021. While most of the proposals would apply to companies across the economy, the ACCC has proposed specific changes for digital platforms. This follows-on from the ACCC’s ongoing concerns regarding the alleged dominance of tech-companies such as Google, Apple, Facebook, and Amazon, and the ability of these companies to acquire smaller and innovative competitors. Examples of acquisitions that the ACCC has taken issue with in the past include Google’s acquisition of Fitbit (see our article here), and Facebook’s acquisition of Giphy. However it’s fair to say that, like regulators in a number of other countries, it is also exhibiting some ‘buyer’s regret’ in not opposing earlier acquisitions such as those of WhatsApp and YouTube. In presenting its ideas, the ACCC intends to start a debate on the adequacy of Australia’s merger control regime.
Overview of ACCC Merger Proposals
The ACCC has proposed a number of reforms including:
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The introduction of a new formal merger regime, where acquisitions above certain thresholds are contingent on mandatory notification (among other measures). These acquisitions would only be allowed to proceed with ACCC clearance or if a notification waiver has been obtained. The proposal of a formal regime contrasts to the existing system of merger review, where clearance can be obtained in a number of ways including through informal merger review, merger authorisation, or a Federal Court declaration. The ACCC would also have a ‘call in’ power, which could be used for those acquisitions not exceeding the notification threshold but still raising competition concerns. In relation to appeals of ACCC decisions, merger parties would be confined to limited merits review by the Australian Competition Tribunal. This approach would bring Australia’s regime closer to that in the EU and UK but risk losing the benefits in terms of flexibility and speed associated with the current informal process;
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The implementation of substantive changes to the merger test. The current merger test in s.50(1) of the Competition and Consumer Act 2010 (Cth) (CCA) prohibits acquisitions that ‘would have the effect, or be likely to have the effect, of substantially lessening competition in any market’.[1] An example of the substantive reforms is that the ACCC wants to redefine the term ‘likely’ in s.50 to mean ‘a possibility that is not remote’. Other changes include introducing new merger factors in s.50(3), including a ‘deeming provision’ for acquisitions that entrench ‘positions of substantial market power’, and including a provision to consider other agreements made by merger parties. These reforms are likely to be highly controversial as they effectively shift the burden of proof; and
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The introduction of sector-specific reforms regulating acquisitions by digital platforms (as explained below).
Digital Platform Reforms
One of the ACCC’s key concerns is that, in its view, Australia’s current merger laws do not adequately deal with mergers involving digital platforms. In this regard, the ACCC recognises that the ‘economy-wide proposals’ mentioned above will go some way in addressing its concerns around digital platforms.
In particular, one of the proposed changes to the merger test is to update the merger factors in s.50(3) to include new factors, such as whether the merger would detract from potential competitive rivalry, or increase access to, or control of, technology, data and other assets. These factors are based on the ACCC's recommendations from its final report in the Digital Platforms Inquiry. As discussed in our previous article in November 2020, these amendments would likely require the parties to the acquisition to consider the importance of any data and technology being acquired as part of the merger process.
Additional Reforms for Digital Platforms
However, the ACCC believes that these proposals will only partially address its concerns in relation to digital platforms, and the ACCC doubts whether the reforms ‘will go far enough to enable us to scrutinise and, if necessary, block certain critical acquisitions by large digital platforms’.[2] To this extent, it has proposed a set of additional reforms.
This additional set of reforms includes a proposal to introduce a more specific merger test for certain digital platforms. It is clear that the test will only apply to specified digital platforms, according to factors such as the size of the platform, the market power of the platform, or if it is a ‘gateway’ firm that has a degree of control over businesses’ interaction with consumers.
As part of this approach, the ACCC suggests altering the substantive test for digital platforms such that the threshold for finding a probability of ‘competitive harm’ is lower than the general merger test. However, the ACCC is undecided on the precise nature of the test that will apply to digital platforms. On top of this, the ACCC is considering introducing a lower notification threshold for digital platform mergers. Ultimately, the implementation of any of these proposals would mean there is a more restrictive merger regime for digital platforms as compared to the broader economy.
It is fair to say that this approach is quite unusual and seems, at first glance, to risk conflating the role of ex-post and ex-ante market interventions as well as arguably dampening (some might say ‘choking’) innovation and investment. However, it may be somewhat of an ‘ambit claim’ from which the ACCC is prepared to negotiate down.
The Regulation of Digital Platforms
More Broadly Looking beyond the merger space, the ACCC has been active recently when it comes to the regulation of digital platforms. On 28 April 2021, the ACCC released a second report under the Digital Platforms Services Inquiry, which focuses on competition and consumer issues in app marketplaces. Specifically, it focuses on the Apple App and Google Play Stores, and discusses the market power held by Google and Apple in these markets. In the report, the ACCC made several proposals to address their concerns, including a measure to allow developers to give consumers information on different payment options. Apple has now made some progress in facilitating the use of alternative payment options, as it announced that it will permit developers of ‘reader’ apps globally to insert a link to their website on their apps. These apps offer subscriptions for certain digital content such as books and newspapers, and the change will allow users to make an account on the external websites of ‘reader’ apps.
For further information, please contact:
Thomas Jones, Partner, Bird & Bird
thomas.jones@twobirds.com
[1] Competition and Consumer Act 2010 (Cth) s.50(1).
[2] Ibid.
