Competition, Mergers and Acquisitions Review

Friday, October 25, 2019 at 4:31:33 PM GMT+10:00

Competition, Mergers and Acquisitions Review0:0013:34
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 Lynsey Edgar Adrian Lawrence  Allison Manvell


LISTEN: Adrian Lawrence, Lynsey Edgar and Allison Manvell discuss how the ACCC's Final Report of its Digital Platforms inquiry might change the competition and consumer regulatory landscape.


Transcript of podcast:


Adrian Lawrence

Okay so really this, the whole inquiry has been driven from a place of competition as a starting point. There's two things in fact, competition and consumer sitting there together as the drivers for an examination of how digital platforms work.  


The basic proposition here is that the ACCC needed to take a look at how those two areas in the technology space are operating to see whether we have the policy leaders quite right and this is something that we're seeing not just in Australia, we're seeing it in a number of different jurisdictions around the world.  We've seen competition regulators thinking about how technology markets work, thinking about how technology players have grown very rapidly and just making sure that those policy leaders are correct.  So that's really where this whole inquiry has come from, driven by that idea that we need to understand how these tech players are operating in our market.  


There is a sense in which some of the regulators are trying to portray it a little bit as that but you know we didn't really realise that some of these players were getting to the size they were and having the influence that they have.  But I think the reality is we probably did know that.  You know we know that markets have changed dramatically.  We know as we look at the top 10 companies by market cap in the world, most if not all of them are technology players.  That's well known.  It has been for a long time.  So I think it's really more catch up than you know markets having been taken by surprise.


Lynsey Edgar

So the ACCC in its report looked at platform dominance. It's important to realise that having market power of itself is not a problem.  It's what you do with it which is important.


Adrian Lawrence

It's an interesting question isn't it? Get that balance right and I think that's, from a policy perspective, that's what the market wants, that's what business wants to understand where is that balance between encouraging innovation and ensuring that we don't have overly dominant players that will stifle innovation. I think one of the points that has come out of the inquiry is this question about merger and merger clearance and where is the balance there?  Are we actually seeing companies you know starting up for the purposes of being bought out and how does that play out in innovative markets?


Lynsey Edgar

It's all very well for competition regulators worldwide to say we don't want innovative new start-ups to be acquired and we don't want to have an impact on competition in the long term, but you don't want to get to a point where those innovative start-ups don't even start up because they're worried about their acquisition subsequently being blocked by the competition regulator because that would be a bad outcome for everyone.  


So I think that's why I guess some of the recommendations about merger control in the report came out when they talked about assessing whether or not someone could be a potential competitor.  I think the ACCC is really trying to capture whether the acquisitioner, the smaller party, would have a longer term impact on competition.  


Allison Manvell

And do you think that the way that they're recommending that that be done will actually have any impact I guess on the way measure assessments are done at the moment?  You know it seems to be a lot of crystal ball gazing anyway.


Lynsey Edgar

Yeah exactly.


Allison Manvell

As to what's going to happen with small players in the market. You know there are very still early stage start-ups usually at the point that these decisions are being made. You know looking forward to see what are they going to be in 5 years' time.  


You know it seems to be a near on impossible thing to do and it seems a little bit difficult to see how you know some of these recommendations are necessary going to change that.


Lynsey Edgar

Yeah how they'll do it.  I mean I think from a practical perspective it will mean that when merger parties and their competition lawyers draft their submission to the ACCC there will be two extra factors which are considered, one will be is the acquisition a potential competitor and there'll be some commentary around that, but whether or not, and then of course the other one will be you know whether there's data being combined which might create market power.  


From a practical perspective, I'm not sure that much will change but that will change.


Adrian Lawrence

Yeah I think the data point is a really interesting one.  In many different areas of law, but in particular in competition law, a recognition that data equals value or can equal value and therefore when you think about all of the assets that make up the value of a business merging with another business, I think we're now seeing a more clear recognition of the proposition that the data sets merging together will derive more values.  You know this sort of 1 + 1 = 3 analysis.


Lynsey Edgar

And then what you can do with that additional data.  Will that give you market power and could that market power be abused will be interesting.


Adrian Lawrence

It is a question that privacy regulators, anti-trust regulators around the world are struggling with.  The technology exists for the data to be anywhere but we are seeing jurisdictions or countries not liking that and saying actually we want to regulate that a little bit more. We want to actually shut our border down a little bit more or make it harder for data to move across boundaries. 


So it's again, there's a bit of a clash between what the technology can do, what people want to use the technology for and what a regulatory regime might want to lock down in terms of the value of that data, and that kind of plays out in a number of different areas actually. Tax is another perfect example of that. This report is not about tax but it's just another aspect of the same thing.  Data generates value.  How do you think as a country, how do you take care of that value.  How do you take your tax cut? That's something that a lot of countries or very powerful countries are thinking about right now. So as someone that regularly reviews contracts and Allison does the same, to see whether they're unfair, it's a very difficult thing to do.  Here's a contract, is it fair or unfair? That's not something that the law really gives us much guidance on and for the getting that wrong to be illegal 


Allison Manvell

And subject to penalties.


Adrian Lawrence

And subject to penalties, that's going to be quite a game changer I think.  


For organisations to have to look at all of their contracts and say am I being fair to consumers, am I being fair to small business and if I'm not, I'm subject to pretty significant penalties, I think that could be a real game changer if that recommendation gets implemented.


Lynsey Edgar

And I think the effects as well will be that companies which when drafting their contract might have tried to think about every possible future scenario and account for it, will suddenly be faced with a situation where they can't account for it because whatever they say might be construed as unfair because they've never used it so you can really only make your contract targeted towards what you actually intend to do.  If you go wider than that, that might be unfair.


Allison Manvell

Yeah I agree and I think that's a significant change.  I mean I think you know you do when your drafting a contract normally, put your forward thinking hat on it.


You know and think about where might the business want to go in you know one year's time, two years' time beyond that.  I think you know increasingly you're going to be looking at the terms of the contract through the spectrum really of just what am I collecting it for now and what am I doing with things now and that's not just from the unfair terms but that's also from a privacy perspective you know it's very much increasingly becoming around what you currently know and want to do as opposed to any kind of forward looking aspect to it.  I think that will become a lot more difficult.


Adrian Lawrence

All of these elements of the discussion wrapped together, so the privacy and data piece, the consumer piece, the copyright and content piece and the competition piece, you know it's been a very comprehensive review of that by the ACCC and trying to make recommendations in all of those different areas, it will be really interesting to see what the government actually does with that. Which of those they want to pick up, is it all of them, will they focus on some particular parts of that.


We should find out in a couple of months which way the government wants to actually go in terms of those recommendations.  This issue of value of data and assessing it, I think is going to become a central question for a whole lot of disciplines. We're starting to hear economists talk about that question and say what is the value of data, how do you assess it, is there an economics of data that goes along with the law of data and I think inevitably we're going to see that grow because the basic answer is data of itself sitting there doing nothing has no value.  It's only when you start to apply it and try to derive something out of it to provide a better product, to provide a better service to innovate, that's when it has value.  So it's a very different kind of asset to you know a piece of property or a machine or a piece of land --


Allison Manvell

Or a piece of software.


Adrian Lawrence

Or a piece of software.  Even intellectual property is different in kind to data and the economics and the whole data ecosystem I think we're really just at the start of understanding how that works. Where are we headed in the immediate next period we're in a let's see what happens with the government.  How is it going to respond?  


I think inevitably we then go into a period of law making.  So you know it's a number of months if not maybe a year until we start to see the answer to these questions but what we're going to see is this area, digital platforms but the digital economy more generally, becoming more difficult to operate in from a legal perspective and a number of the different areas we've spoken about we'll see that play out. We'll see regulators becoming much more interested in how transactions are operating and how businesses are dealing with consumers and how content is generated on platforms and treated and so you know Australia as a jurisdiction is really putting its hand up and saying we want to be one of the leading jurisdictions in the world on these issues.  


Clients that play in this space, technology companies, don't usually just think about Australia or the UK or the US. They are global businesses.  One of the real challenges for those global businesses is how do you then deal with different jurisdictions that are coming up with maybe slightly different answers to these questions or on a different trajectory in terms of how the law is developing.  


That's really the challenge with multijurisdictional activity.  You really need to understand how that's playing out in all of your major jurisdictions to engage on a transaction.


Lynsey Edgar

If the ACCC sets up its specialist branch to look into these types of issues, then companies operating in this space can expect to see more regulatory scrutiny.


Allison Manvell

I think that's right and I think it also, it's going to have a shift at some level in terms of different players in this market both also from an innovation perspective I think up till this point there's been perhaps a reticence from some regulators to move too soon because they didn't want to stifle innovation. I think those days are past.  


I think that you know there is a very clear move to say we think there needs to be increased regulation across a number of different areas of law in this space and I think trying to get that balance right for different players in the market moving forward is going to be something that's interesting to see how it plays out.


Adrian Lawrence

Yeah I think there's a really interesting comparative piece to that. If you look at Europe has traditionally been very regulation led, a very difficult jurisdictional set of jurisdictions to do a number of different kinds of business in. The US have typically taken the opposite approach. Open markets, free markets, less regulation.  


I think we are now, with this report, we are tending a little bit more towards the European model and I do wonder whether that's actually ultimately a good thing for the economy because where have the big businesses grown?  The US.  There's not that many very large technology businesses that are coming out of Europe, they tend to be coming out of the US and of course now China, two markets that are less regulated so to your innovation point, yes as we look at all of these different pieces of regulation, we might say of themselves yes they make sense or they don't, but from a big picture perspective, do we actually want to be led by regulation or more led by innovation and markets.  


I think that's a key question for us.



Listen to more podcasts:


LISTEN: Adrian Lawrence discusses the Data and Privacy Review from the The Digital Platforms Inquiry Final Report

LISTEN: Andrew Stewart discusses the Regulation of Digital Environment Review from The Digital Platforms Inquiry Final Report

WATCH: The Digital Platforms Inquiry Final Report Review - What this means for Australian businesses and consumers.

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