The Australian Consumer and Competition Commission (ACCC) published the Digital Platform Services Inquiry Interim Report No. 5 – Regulatory Reform (Interim Report) on 11 November 2022. The ACCC recommends a new regulatory framework to strengthen consumer and small business protections and improve competition in the online environment. The Interim Report advocates for robust legislation that addresses the challenges posed by digital platforms, not sufficiently addressed in existing laws.

This blog considers some of the challenges small businesses currently face operating in the digital space and how these reforms may offer relief.

The Interim Report is the latest episode in the ACCC-led inquiry into the digital platform services industries, which commenced in 2020, addressing concerns initially raised in the watershed Digital Platforms Inquiry finalised in 2019. The ACCC expects to provide the final report to the Treasurer in early 2025.

The Recommendations

The Interim Report makes four broad recommendations relating to developing specific digital service regulations:

  1. economy wide reforms to strengthen unfair contract terms law and prohibit unfair trade practices;
  2. new processes to protect users of digital platforms including:
  • preventing and removing scams, harmful apps and fake reviews,
  • new mandatory dispute resolution processes; and
  • providing access to an independent external ombuds scheme;
  1. introduction of targeted service specific codes of conduct that only apply to designated digital platforms; and
  2. develop frameworks around the service specific codes of conduct that place obligations on designated digital platforms to prevent unfair dealings and anti-competitive conduct.

Why are these reforms relevant to small businesses?

E-commerce has become increasingly integrated into how businesses offer their products and services, with some businesses solely relying on online foot-traffic to generate sales. Digital platforms play a key role in how small businesses participate in the digital economy. The Interim Report outlines the ACCC’s concern that the power imbalance between large digital platforms and the small businesses that use the platforms is negatively impacting fair trade practices.

In this context, the ACCC has found that imbalances created by information asymmetry and varied bargaining power should be regulated to protect business and economic growth.

Issues the ACCC is trying to solve with the recommended reforms

The Interim Report refers to operators of digital platforms as “gatekeepers” between business and their consumers which the ACCC alleges has led to several issues including:

  1. Lack of auditing, transparency: Unchecked, fake reviews can be posted onto digital platforms and have the potential to negatively impact small businesses who rely on positive reviews to attract customers. Although digital platforms don’t post fake reviews themselves, they allow fake reviews to be posted on their platform and fail to take them down. The result is that small businesses suffer financially and have little recourse to recover any losses they may experience from the fake review.
  2. Power imbalance and bargaining: The size of the key digital platform operators has allowed them to engage in unfair trading practices that the Australian Consumer Law has not yet caught up with. As small businesses have little bargaining power and few choices between existing digital platforms, they must accept the largely unfavourable terms that are on offer from the major operators.
  3. Limited avenues for redress: Digital platforms have established their own internal dispute resolution process for small businesses to resolve complaints. Small businesses can either rely on these often-inadequate processes or engage in costly litigation if the issue is addressed by existing law.

We discuss the solutions proposed in the Interim Report below.

Proposed Solutions

1. Fake Reviews

Fake reviews are more common on digital platforms due to their wide user-base. As thousands of reviews are posted a day, it is difficult for platforms to monitor the accuracy of these reviews and identify where a fake review is intentionally posted.

However, the ACCC has recognised that fake reviews can be very harmful as “these practices frustrate consumer choice, distort competition and erode consumer trust in the digital economy”. Therefore, the ACCC suggests the onus should be on Digital Platforms to identify, verify and delete fake reviews as they are brought to the platform’s attention.

The ACCC recommends targeted measures that require digital platform operators to address fake reviews including:

  • being more transparent about how digital platforms identify and remove fake reviews. This could also include a warning to consumers about the existence of fake reviews and how to spot them;
  • reporting on the action digital platforms take to identify and takedown fake reviews;
  • requiring digital platform operator to promptly respond to a takedown request for a fake review. Where the digital platform does not consider the review to be fake, it should provide reasons to the person who reports the review.

The ACCC has not specified how these obligations will be enforced. Some options may include changes to the ACL or introducing mandatory codes of conduct for digital platforms.

2. Unfair Trade Practices

In the Interim Report, the ACCC recommends changes to the Australian Consumer Law to prohibit unfair trading practices in both online and offline domains. This broad prohibition is intended to target specific conduct the ACCC is concerned about. This includes:

  • ‘take it or leave it’ – terms that are non-negotiable, often contain clickwrap consents and are designed to only be favourable to the digital platform. As these digital platforms have the majority market power and are unwilling to negotiate, small businesses are left with no choice other than to agree to unfavourable terms.
  • dark patterns – user interfaces designed to confuse users and manipulate them into taking certain actions that may go against their intentions and restrict their ability to make informed decisions. For example, making one choice stand out amongst others, false low stock notifications, or countdown warnings, including preselected add-ons.

The ACCC has not stated how the unfair trading practice prohibition should be framed. The prohibition could be broad and economy-wide to cover dark patterns and ‘take it or leave it’ terms. Alternatively, the prohibition may be narrower to only cover certain aspects of unfair trading practices used by digital platforms. For instance, digital service providers with greater market power may be subject to additional obligations to monitor and prevent unfair trading practices.

The ACCC also supports changes to prohibit unfair contract terms (UCT). This has now come into effect through the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) which both prohibits UCTs and imposes penalties on companies that rely on UCTs.

3. Dispute Resolution

The ACCC has recommended that digital platforms meet minimum internal dispute resolution standards to offer stronger consumer protections to customers. This recommendation addresses the concern that consumers and small businesses who fall victim to untrustworthy sellers have no accessible mechanism to enforce their legal rights.

The ACCC recommends that the minimum standards must include obligations by digital platforms to:

  1. provide easily accessible and visible dispute resolution policies that inform consumers of their legal rights;
  2. respond to disputes within 30 days from the initial complaint;
  3. provide substantive responses to complaints concerning how they were managed and methods for escalating the complaint;
  4. give consumers the ability to contact a human representation; and
  5. publicly report the proportion of resolved to unresolved complaints.

Additionally, the ACCC has recommended that a new digital platform ombuds scheme be introduced to manage dispute resolution between consumers, small businesses, and digital platform providers.

The ACCC has proposed that the potential ombuds scheme must be established and empowered to:

  • escalate complaints and disputes; and
  • compel digital platforms to provide information and reach binding decisions.

What is Next?

The Treasury is currently welcoming stakeholder consultation on the ACCC’s recommendations. You can read the consultation paper here and make a submission by 15 February 2023 if you are interested in providing a response.

The ACCC is also due to publish its next Interim Report for the Digital Platform Services Inquiry on 31 March 2023.

Please get in touch if you have questions on the Interim Report and how the potential reforms may affect your business, or you would like assistance in drafting a submission.

Image by Mohamed Hassan from Pixabay