The ruling will have major ramifications throughout the global hi-tech world given the industry’s tendency to combine to gain network effects, but the real test comes with the remedy to be imposed.
Google has said if it lost its default position on Apple products its queries would fall by 70 per cent, and rival Microsoft has said that from every 1 per cent its Bing gains it earns another $US2bn in advertising.
Australia sits on the European side of fence, arguing so-called ex ante or before the event regulation works best in combination with enforcement action.
Courts take time and often focus on specific issues, which leaves ample room to walk around, but codes of conduct prescribe behaviour.
Good in theory, but the ACCC handed its digital platform enforcement recommendations to the government in December 2022 and received in-principle support from Treasurer Jim Chalmers in December 2023, with a final decision, after more consultation, due from Assistant Treasurer Stephen Jones in December.
In response to questions from The Weekend Australian, Jones said: “The Albanese government remains committed to ensuring our laws and regulatory framework are up to date and fit for purpose, in the context of an increasingly digitised world.”
He added: “We will have more to say on this soon.”
The US case against Google from the Department of Justice and 11 states has run from 2020, with discovery finished last year and the August 5 decision is now subject to appeal before remedies.
The logical remedy is to ban Google making payments (totalling $US20bn to Apple) in return for default status for Google search on the Safari browser.
Other remedies are tougher, like forcing Google to divest its Chrome web browser or open its data to all users, which would promote competition rather than entrench market power.
If Google search is so good why does it have to pay so much money to ensure default status?
The more traffic it generates, the better quality its answers and the more data it can hoover up to sell more targeted advertising.
A common argument in the digital platform debate says the law is meant to protect consumers from monopolies who use their powers to kill innovation and raise prices, so what is the problem here?
What Google does is less obvious than, say, Qantas cancelling flights to boost profits, because the digital platform doesn’t raise prices – it pumps out more targeted advertisements from which it makes its money, more privacy is invaded and barriers to entry are raised.
If AI is all-encompassing then it will again prove that technology works best to create competition by opening a window to defeat Google, but right now that question is moot.
The ACCC has a case lined up against Google search, due to be lodged either late this year or early in the new year.
It has the power now to serve notices on company executives outside Australia if it has the relevant documents, and the Google case is the first time this power is being tested.
The ACCC is dealing with offshore companies that are making global deals offshore which have clear effects in Australia, making such power vital.
The ACCC also has reciprocal arrangements with the US Justice Department and FTC but this is sometimes problematic because each jurisdiction has its own day job.
As impressive as the Google victory was, even more impressive are the other cases already in the pipeline against Apple, Amazon and Meta among others.
In Australia we await Jones’s consultations.
Merger reform
Submissions on the federal government’s proposed merger changes, including mandatory disclosure, are due by next Tuesday, after just a three-week discussion period.
The proposed notification thresholds are yet to be released, this column is told, because the Business Council of Australia wanted to split consideration of the issues – even though most would think they’re inextricably linked.
Release is imminent, and as previously reported, it is expected to raise the threshold to over $100m from the $35m suggested by the ACCC, but the details are important.
This would mean software giant Canva would comfortably meet the requirements but it ignored ACCC wishes and announced its $370m Leonardo AI deal without seeking prior clearance.
The ACCC will get around this major embarrassment by issuing a statement saying the deal was pre-cleared (as the vast majority are).
There are roughly 18 weeks till Christmas for Jones, who aims to release his decision soon.
It is based on an ACCC report from November 2022 which was granted in-principle support from Treasurer Jim Chalmers in December 2023.
Legal conference
Digital platforms will be a key agenda item at this month’s Law Council conference featuring US District Court judge Yvonne Gonzalez Rogers, who presided over the US Apple victory over Tim Sweeney at Epic Games. ACCC chief Gina Cass-Gottlieb will open the two-day conference on August 22 talking about merger reform, followed by her favourite judge Justice Michael O’Bryan, who will speak on the future of the Competition Tribunal in the wake of proposed amendments limiting the power of the courts.
Cass-Gottlieb will address the same topic the day before at the American Bar Association conference in Sydney, which will also include Justice Gonzales Rogers, ACCC enforcement chief Liza Carver on antitrust remedies, competition task force chief Marcus Bezzi and KWM’s Peta Stevenson.
Fair share
The early Australian profit reports are ahead of estimates, supporting the S&P 200’s price/earnings multiple of 16.5 times.
Likewise US second-quarter earnings are up 12 per cent against estimates of a 9 per cent gain, but the fact is the local market, on AMP chief economist Shane Oliver’s figures, is vulnerable to more falls, given it is more than fully valued against a long-time multiple of 15 times.
Consensus earnings per share forecasts are for a 3.6 per cent rise for the latest year and a 4.8 per cent lift in the 2025 financial year, after a 2.9 per cent fall in 2023.
The latest half then represents the bottom of the market, and with interest rates expected to fall next calendar year, an election year, the cost of living squeeze should ease.
A rate easing cycle tends to be bad for banks as they find it difficult to cut deposit rates and are meant to pass on mortgage rate cuts.
The upside is lower rates in a still expanding economy means higher credit growth.
Energy stocks like AGL, Origin et al are among the big losers for the last financial year, down some 47.9 per cent, but tipped to fall just 0.4 per cent this financial year.
Consumer discretionary stock earnings are tipped to rise 5.1 per cent for the 2024 financial year and by 9.1 per cent for the 2025 year.
By contrast, consumer staple stock earnings were tipped to fall 6 per cent for the 2024 year, rising by 8 per cent this year.
The big miners like BHP are another group tipped to report lower earnings for the 2024 year before rebounding by 8 per cent in the present financial year.
The S&P 200 is up just 1.2 per cent this year.
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The debate among international competition regulators about the value of codes of conduct compared with court enforcement tipped heavily in favour of the US position with this week’s landmark Google monopoly decision.