It was late November last year, and Australia’s review of Google’s US$2.1 billion play for Fitbit seemed to be running to schedule. Having released a long list of objections to Google’s plan to take control of the smartwatch-maker’s ten years of data, the Australian Competition and Consumer Commission was digesting new undertakings Google had offered watchdogs around the world.
Then the Australians went off-script. Just a few days after the European Commission opted to accept Google’s reassurances and let the acquisition go ahead, ACCC chair Rod Sims stunned observers by announcing that he considered the search giant’s commitments, including a ten-year moratorium on using Fitbit’s health data, impossible to enforce. The acquisition, said Sims, “may result in Google becoming the default provider of wearable operating systems for non-Apple devices and give it the ability to be a gatekeeper for wearables data.”
Australia’s decision to go its own way on a global deal of this size was stunning. Sims conceded that Australia was a smaller jurisdiction and that a “relatively small percentage of Fitbit and Google’s business takes place here.” But, he added, the ACCC “must reach its own view in relation to the proposed acquisition given the importance of both companies to commerce in Australia.”
It was yet another reminder to the world that Australia is developing one of the toughest digital-platforms regulatory systems in the Western world. Whether it’s the bargaining code that will force Facebook and Google to pay for media content, or the three lawsuits targeting the same platforms over alleged consumer-law violations, or the detailed antitrust probes bubbling away behind the scenes, the ACCC appears to be setting standards unmatched anywhere else.
The likelihood that the muscular stance of a distant regulator will ultimately stop Facebook and Google from achieving their goals is debatable. On 14 January Google signalled it had paid no heed to the ACCC’s objections and was ploughing ahead with an acquisition that, in time, will see it use valuable and sensitive health-related data to target advertising at anyone with a Fitbit device.
This leaves the ACCC to pursue a competition probe rather than an acquisition review, which suggests that we might next hear about the dispute when Sims announces a lawsuit in the Federal Court of Australia. But even if the court were to support Sims’s decision to oppose the merger, the deal would still be done and dusted, raising the prospect that Australia may have to be excised from the global acquisition — an unpalatable prospect for Google.
Australia’s forceful regulation of Big Tech has sparked intense interest in Brussels, where the European Commission has imposed hefty fines over the past ten years but made no headway in its key concern that the platforms’ accumulation of data is steadily eroding competition. The Europeans view the Australian push with a mix of admiration, scepticism and professional envy. Some Brussels insiders fear that the ACCC’s bold experiment highlights their own limitations and would like to see the outspoken Sims cut down to size. This may yet happen, with the Australian regulator facing the very real prospect that the Federal Court will overturn any attempt to stand in Google’s way.
For its part, the ACCC believes, rightly or wrongly, that its recent world-first Digital Platforms Inquiry gave it an unrivalled insight into Facebook’s and Google’s business models. That expertise is now percolating through the ACCC’s reviews of global deals that have an Australian component — be it Google’s acquisition of Fitbit or Facebook’s equally problematic acquisition of Giphy, a gif database. The inquiry has left the ACCC with what it considers a solid understanding of how the tech giants’ acquisitions pose a risk to competition.
At the heart of the Digital Platforms Inquiry’s final report was the conclusion that the platforms already derive ample market power from their unrivalled accumulation of data. While there’s no evidence yet that Facebook and Google have already abused their market power, the ACCC believes the risk is real.
In the case of Fitbit, the Australian regulator didn’t appear concerned about the hardware component — so what if Google owned a company making watches? What raised red flags was the fate of the trove of health data, past and future, that could force other players out of the market and deter new ones from entering. The ACCC certainly worries about privacy and consumer law — using sensitive data to target advertising is ethically and legally fraught — but its biggest fear is that the tech giants could dramatically limit competition.
This goes some way to explaining why, in June last year, the ACCC led the world once more in announcing an investigation into Facebook’s acquisition of Giphy. Again, the fact that Facebook would want to own a company that hosts the short bits of video and animated stickers known as gifs is neither here nor there. But Facebook’s control and accumulation of data — in this case, data potentially acquired from rivals through Trojan-horse-like, embedded gifs — was something the ACCC was never going to accept uncritically. British and Austrian regulators have followed suit, with Brazil’s competition watchdog also pondering whether to investigate.
Google’s acquisition of Fitbit also raises another global issue on which the ACCC is less of an outlier: what are known as behavioural undertakings. It’s true that the European Commission expressed similar concerns about Google’s control of Fitbit data as its Australian counterparts, but the Brussels antitrust officials ultimately accepted Google’s legally enforceable undertakings — namely, the ten-year freeze on using data collected through Fitbit devices for advertising and a pledge not to use its Android operating system to “discriminate against wrist-worn wearable devices… by withholding, denying or delaying their access to functionalities of Android.”
It’s not unusual for regulators to allow deals to proceed subject to conditions like these. But Sims has repeatedly resisted approving deals that involve companies committing themselves to behave in certain ways. His view is that you can’t believe a word said by board members planning a merger — they will promise anything to get a deal across the line.
In the case of Big Tech, Sims’s recalcitrance appears justified. In 2014, the European Commission allowed Facebook to acquire messaging service WhatsApp after the company assured the regulator that combining its user information with WhatsApp’s was impossible. Facebook then went ahead and did just that, prompting the European Commission to impose a penalty of €110 million — a substantial fine, but still well within the cost of doing business for a company reaping the benefits of consolidating two lucrative datasets.
The ACCC argues that only structural remedies — ownership arrangements and asset sales — should be taken seriously. It isn’t alone, with the acting head of the US Federal Trade Commission, Rebecca Slaughter, recently describing the Europeans’ willingness to accept behavioural remedies as an important point of difference with US regulators. She would sooner go straight to courts than accept a complex behavioural undertaking, she added.
The problem for the ACCC is that its scepticism about Big Tech’s promises doesn’t appear to be shared by the judges who have the final say over whether the regulator can block a merger. With no significant deal involving tech companies having yet made it to court, the Fitbit or Giphy deal could be the first case of its kind to be examined by the Federal Court.
On that score, the ACCC’s recent defeat in a case involving Pacific National’s acquisition of the Acacia Ridge terminal, a key piece of rail infrastructure in Queensland, was a painful reminder that courts are happy with legally enshrined undertakings. After two defeats in the Federal Court, the ACCC took the Acacia Ridge case to the High Court, only to have the court refuse to hear the appeal.
But is a merger case involving rail infrastructure likely to resonate in a debate over data dominance? Remarkably, yes. The ACCC’s objection to Pacific National’s acquisition was that it would allow the company to hinder its rivals’ access to the only connection between Queensland’s narrow-gauge railway network and the standard gauge of other Australian states.
The ACCC hammered the same point in the final report of its Digital Platforms Inquiry. If Amazon, Facebook and Google control access to their platforms, and if the services they own are competing against other companies using those platforms, then they have the ability and the incentive to hinder the operations of companies they don’t own. The owner of the pipeline can’t also own the company competing for the right to use that pipeline.
All this means that the ACCC would be facing an uphill battle if Google’s promise to behave itself were to end up in an Australian court. Google would argue that its legally binding commitments sweep aside the regulator’s competition concerns; the court, whose judges regularly deal with the enforcement of less monumental contracts, might well agree.
A high-profile defeat for the ACCC would reverberate around the world, harming the credibility of its digital regulatory regime and feeding the schadenfreude of European regulators who have found themselves lagging behind their Australian counterparts. •
The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.