Google and Facebook (Photo: Shutterstock.com and ALM)

Australia's competition regulator is likely to take legal action against Google and Facebook and could allege "unconscionable conduct" or breaches of consumer protection laws, the previous head of the regulatory agency said.

In its long-awaited report into online platforms released in July, the Australian Consumer and Competition Commission (ACCC) took the unusual step of revealing it was investigating Google and Facebook for alleged breaches of consumer and competition law.

Allan Fels, the previous chairman of the ACCC, said he expects prosecutions to follow.

"The likelihood of legal action seems to be high," he told Law.com, pointing to other legal actions in Europe.

The actions by Australia illustrate the degree to which regulators around the world have been paying increased attention to issues of privacy and data and could be a foreshadowing of steps regulators take elsewhere to control big tech companies' influence on markets.

The ACCC outlined five separate areas of investigation, most of which it said involved alleged contravention of Australian Consumer Law (ACL).

"Given the nature of the issues being investigated, the potential impact on the significant numbers of Australian consumers who use Google and Facebook's services and the significant industry and community interest in the matters being considered in the Inquiry, the ACCC considers it to be in the public interest to disclose these investigations," the ACCC said in its report.

The ACCC said it was investigating whether representations made by Google to some users about the control users have over Google's collection of location data and whether representations by Google about its privacy policy and the level of disclosure about subsequent privacy policy changes, raise issues under ACL.

It also is investigating whether representations made by Facebook about its services and the scope of its terms and conditions, including those allowed user data to be shared with third parties, raise issues under ACL and whether terms of use and privacy policies used by Facebook contain unfair contract terms.

Finally, it is investigating whether access restrictions imposed by "a digital platform" on a third-party app developer raise issues under competition laws, which prohibit firms with substantial market power from using that power to substantially lessen competition in a market.

The ACCC said it would complete its investigations by the end of the year and has not formed any views on the matter. In a speech to the Melbourne Press Club in August, the regulator's chairman, Rod Sims, described the investigations as "well advanced" and said: "Facebook and Google are clearly subject to our laws. They either comply or do not do business in Australia."

It was "unusual but not unprecedented" for the regulator to announce likely legal action ahead of time, Fels said.

"The ACCC wants to show that it is doing something significant about the issues where it has the power to do so," said Fels, now a professorial fellow at the University of Melbourne. "It is also a useful way of getting other witnesses to come forward and give them evidence."

He said the regulator would focus on areas within its traditional jurisdiction, with the most obvious ones being in the consumer protection area.

"They may take action regarding alleged unconscionable conduct, and/or unfair contracts," Fels said.

"They may also take action regarding misleading or deceptive conduct. The issue there may not be that they have actively misled people. Sometimes by omitting to tell consumers and others certain pieces of information and what they're doing with that information and so on can be grounds for an action of misleading conduct."

Read more of our international coverage here.

The ACCC's report into digital platforms concluded that the companies wield too much influence over Australia's news and advertising markets, stifle competition and deprive consumers of control over their personal information.

Facebook and Google are expected to be hit with tough new laws in Australia as the government endorsed the report and is seeking to limit their market power, curb their dominance of the online advertising industry and boost privacy protections for individuals.

Sarah Benbow, a competition partner at Anglo-Australian firm Herbert Smith Freehills, said the ACCC could bring legal action with the new "misuse of market power" law.

This law, which was introduced in 2017, states businesses with a substantial degree of power in a market are not allowed to engage in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market.

"There clearly seems to be some appetite for the ACCC for enforcement action in the space," Benbow said, although she observed that most of the investigations ACCC has said it is carrying out into the digital platforms fall under consumer law.

"It's clearly signalled through this report that these digital platforms have market power, and that there may be areas where they can bring enforcement action against them under the new law."

The overall report and recommendations demonstrate the increased interest from regulators globally in privacy and data. "The ACCC's report and just how much they pushed into looking at some of these issues is the start of regulators worldwide starting to focus a lot more on how these markets are operating," she said.

Benbow's colleague Karman Tsoi, a special counsel who advises on privacy and information governance, said the report suggests the ACCC sees its role as stepping in to protect consumers. "The ACCC has formed its view that, because of the imbalance of power between consumers and the platforms, consumers will agree to virtually anything in order to get the service that they want, which is often a free service," he said.

Miranda Noble, a competition and consumer law partner at Australian firm MinterEllison, highlighted recommendations in the report that could significantly impact the operations of Google and Facebook in Australia.

A recommendation that designated digital platforms develop codes of conduct to govern their relationships with media businesses would see greater sharing of data with news media businesses, early notification of algorithm changes, and negotiations as to how revenue that Google and Facebook generate from the original content produced by media organisations is shared.

"This would empower media organisations with a stronger bargaining position and, if implemented, potentially increase their bottom line," she said.

A proposal to implement a platform-neutral regulatory framework that would have oversight of all entities involved in content production or delivery in Australia would help end the disparate regulatory systems for publishers and broadcasters. And the implementation of a platform-neutral framework would require digital platforms to comply with standards that other media organisations must adhere to, she said.

However, the impact of the report will depend on the "critically important" political response. "Until the recommendations are supported and implemented by government, they remain, in large part at least, recommendations only," Noble said.

The government has promised to introduce new regulators governing digital platforms before the end of the year.

Fels said he expects most of the recommendations from the ACCC will be accepted and adopted by the government. "The recommendations are not over the top," he said. "I would be surprised if the current government was opposed to them. I think it would probably go ahead with all the recommendations."

Facebook and Google both declined to comment on the possibility of legal action.