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    Google’s Tussle Over Payment for News Content in Australia

    • 15.02.2021
    • By Hugh Stephens
    Hugh Stephens Blog

    The ongoing tussle between two major US online platforms (Google and Facebook) and the Australian government over proposed legislation that would require the two internet platforms to pay Australian media for using their news content has just been joined by a third party, Microsoft. The legislation would enshrine in law a proposed News Media Bargaining Code developed by Australia’s competition authority, the Australian Competition and Consumer Commission (ACCC). Microsoft has waded into the debate unequivocally on the side of Australia, and in a very timely manner. This positioning by a major US corporation will have wider implications for other countries, such as Canada, seeking to deal with the issue of requiring Google and other major platforms to compensate news content providers for content used on their services.

    Does Microsoft’s alignment with the provisions of the ACCC’s Code spring from a genuine concern over the fate of news outlets, many of which are dying on the vine as advertising dollars shift from traditional media to online service providers, or from commercial interest? According to Brad Smith, President of Microsoft, it is both. In a personal blog released late last week, Smith makes the case for maintaining a free and financially healthy Fourth Estate as a critical element of democracy. He recognized that the Australian legislation, about which I reported last week, will help redress the imbalance that exists between technology and journalism by requiring negotiations, backed up by a binding arbitration mechanism, between the two internet giants (“tech gatekeepers”) and independent news organizations. Although the Australian legislation applies only to Google and Facebook, who are specifically named, Smith says that Microsoft would willingly submit itself to the proposed Australian disciplines. This would be both the right thing to do and would also be good business for Microsoft.

    Google and Facebook are caught by the legislation because of their market dominance. The fact that two US companies are specifically targeted in the legislation of another country has led to intervention by the US government (the previous Trump Administration) through the US Trade Representative’s Office (USTR) and the US Embassy in Canberra. The USTR wrote to the Australian Senate committee reviewing the legislation that the US government is concerned that “an attempt, through legislation, to regulate the competitive positions of specific players in a fast-evolving digital market, to the clear detriment of two U.S. firms, may result in harmful outcomes”. Smith points out that it would have been better for the legislation to have targeted any company that exceeded a specified market share rather than call out specific named companies. He suggested a market dominance threshold of 20 percent to trigger the legislation. (Google dominates 95 percent of online search in Australia and is clearly a better search engine at the moment although if Bing attained scale and Microsoft invested more in it, it could become competitive).  If the legislation was contingent on a 20 percent market share, and if Microsoft was able to reach that threshold, then it would readily comply according to Smith;

    “…the obligations…could easily be written to apply to any search business that has more than 20% market share in Australia. At Microsoft, we are fully prepared to aim for this search share and become subject to the law’s obligations the day we do.”

    Google has resorted to various threats to try to stop the legislation. These range from curtailing or cutting its search function in Australia, removing news listings from Search, or even leaving the Australian market altogether. It has tried to mobilize Australian users to pressure their government to back off. At the same time, it rolled out—and then retracted—an offer to pay for some news content, but on its terms, called the Google News Initiative. Google’s “dangle of the carrot” payment proposal was very recently put back into play (after Microsoft entered the fray), restoring its offer to pay for some content but only on condition that it reserved the right to terminate any contracts reached if the Australian government followed through by legislating the Bargaining Code.

    Smith also takes aim at the US government for intervening with Australia on this issue, expressing hope that the Biden Administration will not double-down on past representations made by USTR. In fact, he urges the US government to adopt a similar provision to that being enacted in Australia, “requiring tech companies to support a free press”. There are no current proposals in the US to do this although there was draft legislation in the previous Congress, the Journalism Competition and Preservation Act (HR 2054), that would have provided US news publishers with a four-year exemption from anti-trust restrictions, permitting them to combine to negotiate with major platforms.

    The fact that Microsoft has waded into this issue is good news for Australia and will likely result in the US government standing back. When one or two US companies are on one side of an issue involving a foreign country it is relatively easy for the US government to take a position to “defend US interests”. When there are US companies on both sides of an issue it is much more difficult to intervene, especially when both are large, powerful entities with significant lobbying clout in Washington. My guess is that the US embassy in Canberra will be monitoring the legislation but staying out of the melee in future.

    As for the legislation itself, the Australian Senate committee responsible for reviewing it has reported out, rejecting any changes after holding hearings and listening to various threats and proposals put forward by both Google and Facebook. Google’s arguments that the legislation is “unworkable” have been undermined by Microsoft’s endorsement of the proposal. The only new proviso put forward by the committee was a proposal that the legislation be reviewed a year after adoption, recognizing that there may be a need for tweaks to the binding arbitration process envisaged by the Code. The ultimate intent of the resort to binding arbitration, of course, is to avoid having to go there by encouraging the two sides to reach a commercial agreement on payment for news content. The legislation will now proceed with a view to adoption within the next few weeks.

    These developments in Australia are being closely watched in Canada where news publishers are pushing for the adoption of a similar mechanism requiring the platforms to negotiate. As I wrote back in September (“A Day of Reckoning is Coming for Google, Facebook and other major Online Platforms that access News Content without Payment: Will Canada be Next?”), the Trudeau government has made no secret of its intention to rebalance the playing field between news content producers and the major internet platforms. The exact proposals are still being worked on, but draft legislation is expected soon. Heritage Minister Guilbeault has said that “publishers must be adequately compensated for their work…We must address the market imbalance between news media organizations and those who benefit from their work”.

    Guilbeault has made it clear that even though Google is now rolling out its Google News Initiative in several countries (it has signed up two small players in Canada although the program is not currently offered to Canadian consumers), this will not stop him from introducing legislation to require payment to news producers. He has acknowledged that one of the issues to be taken into account in devising a “made in Canada” solution is the existence of the USMCA, the trade agreement between the US, Canada and Mexico that went into effect on July 1, 2020.

    When Guilbeault first started talking about supporting the news industry, opponents of the publishers’ proposals argued that the new NAFTA (the USMCA; called CUSMA in Canada) would constrain any Canadian policy measures since action against the major platforms would violate the terms of the trade agreement. In their report submitted to the government, “Levelling the Digital Playing Field”, News Media Canada, representing the major publishers, addressed this point by including an opinion from a noted trade expert, Barry Appleton, rebutting the USMCA argument.

    Appleton pointed to Article 32.6 of the USMCA, known as the “cultural exception”. The definition of a “cultural industry” in the Agreement includes the publication of newspapers. Article 32.6 exempts a Canadian cultural industry from any of the USMCA obligations but there is a catch; the other two Parties (the US and Mexico) are allowed to retaliate with equivalent commercial effect against any measure taken by Canada to protect a cultural industry.

    “Notwithstanding any other provision of this Agreement, a Party may take a measure of equivalent commercial effect in response to an action by another Party that would have been inconsistent with this Agreement but for paragraph 2 or 3.” (i.e. the exception).

    This is a deterrent to ensure that Canada rarely, if ever, uses the cultural exception to override its obligations. It has never done so in the more than thirty years of the existence of the cultural exception (both the original Canada-US FTA and NAFTA had a similar clause) and if it did, it could be made to pay dearly. Retaliation could be applied against any sector, so if Canada’s other two CUSMA partners were really upset with a Canadian cultural measure that “violated” the Agreement they would exert pressure by hitting other, politically influential sectors unrelated to the cultural industry that was being protected. That is the criticism levelled at the cultural exception argument adopted by News Media Canada. I agree that the cultural exception is a pretty thin reed to rely on—it is more of a political fig-leaf than anything else–although it is certainly a defence that can be put forward.

    But here is the key question. Is the cultural exception the only defence that Canada would have if it were to bring in a regime that required major internet platforms to strike compensation deals with news content providers, and would such a measure be challenged by the US? There are two angles to consider. The first is that it should be possible to deal with major global corporations like Google and Facebook through policies of general application (i.e. directed at any company meeting certain criteria—such as market dominance–regardless of national origin) in a manner that would be consistent with the CUSMA. For example the Competition Chapter of CUSMA, which happens to be exempt from the Dispute Settlement Mechanism of CUSMA by virtue of Article 21.6, requires that Each Party “shall ensure that the enforcement policies of its national competition authorities include…treating persons of another Party no less favorably than persons of the Party in like circumstances;”. In other words, if a compensation scheme for news publishers were dealt with as a competition issue, it could be devised in such a way as to be applicable to both Canadian and US or Mexican entities without running afoul of the CUSMA. Moreover, the decision could not be taken to dispute settlement by the US government.

    The second is the willingness of the US government to invoke the USMCA if Canada established a requirement for certain platforms to negotiate payment for news content. Quite apart from devising measures of general application that would be CUSMA-proof, now that Microsoft has positioned itself in favour of a policy where internet platforms compensate news organizations, and is willing to do so itself, it is much less likely that the US government would invoke CUSMA to argue that US companies are being discriminated against. USTR’s hands are now effectively tied, if not legally than practically in terms of the internal politics affecting the US government’s position.

    And it’s not as if Google itself could initiate action. The “investor-state” provision that existed in the previous NAFTA was dropped in the USMCA/CUSMA, ironically at US insistence. The Trump Administration felt that investor-state protections encouraged US companies to invest abroad, and so had it removed. The investor-state provision allowed a private party (a company) to invoke dispute settlement against a NAFTA government if that government had taken action that resulted in expropriation of the company’s property, or measures that were tantamount to expropriation. Changes of domestic policy that resulted in making it more difficult for a foreign NAFTA company to operate or generate expected returns on investment could be argued to violate investor-state protections. Canada lost several investor-state cases under NAFTA and the Canadian taxpayer had to compensate US companies as a result. Even where the investor-state clause was not invoked, it had the potential to exert a chilling effect over policy development and implementation if there was a possibility that a US (or Mexican) company might have grounds to object. No Canadian company ever succeeded in bringing a successful investor-state case against the US although there were a few such cases launched.

    Microsoft’s entry into the debate in Australia will scramble the cards and make it easier for the Australian government to deal with Google. However, an added indirect bonus is to widen Canada’s scope for action given the decreased probability that Google will now be able to convince the US government to try to restrain Canadian action under the USMCA/CUSMA.

    This article was originally published in Hugh Stephens Blog.