By Byron Kaye

SYDNEY (Reuters) -Australia’s competition watchdog is looking into a claim that Facebook Inc refused a publisher’s request to negotiate a licensing deal, the regulator told Reuters, setting the stage for the first test of the world’s toughest online content law.

The Conversation, which publishes current affairs commentary by academics, said it asked Facebook to begin talks as required under new Australian legislation that requires the social media firm and Alphabet Inc’s Google to negotiate content-supply deals with media outlets.

Facebook declined without giving a reason, The Conversation said, even though the publisher was among the first in Australia to secure a similar deal with Google in the lead-up to the law in 2020.

The knockback could present the first test of a controversial mechanism unique to Australia’s effort to claw back advertising dollars from Google and Facebook: if they refuse to negotiate licence fees with publishers, a government-appointed arbitrator may step in.

In a statement responding to Reuters questions, Facebook’s head of news partnerships for Australia, Andrew Hunter, said the company was “focused on concluding commercial deals with a range of Australian publishers”.

Hunter did not answer specific questions concerning The Conversation, but said Facebook was planning a separate initiative “to support regional, rural and digital Australian newsrooms and public-interest journalism in the coming months”, without giving details.

“If Google’s done a deal with them, I can’t see how Facebook should argue that they shouldn’t,” Rod Sims, the chair of the Australian Competition and Consumer Commission (ACCC), said in an interview.

“The question of designation might need to come into play,” he noted, using the term for assigning an arbitrator.

Under the law, the decision to designate a Big Tech firm for intervention was made by the treasurer, which is advised by the ACCC, noted Sims, but “an absolute ‘no’ for an organisation that should be getting a deal is something we’ll look into.”

The Conversation was “exactly what we had in mind with the Code”, he said, although the situation had some way to play out before any further action would be taken.

Governments around the world are introducing laws to make the tech giants compensate media companies for the links that drive readers – and advertising revenue – to their platforms. But Australia is the only country where the government may set the fees if negotiations fail, a factor that drove Facebook to block newsfeeds in the country just before it was passed.

Treasurer Josh Frydenberg, who earlier this year negotiated with Facebook founder Mark Zuckerberg over the laws, was not immediately available for comment.

“SCRATCHING OUR HEADS”

Since the law took effect, a handful of the country’s biggest media players, from News Corp to the Australian Broadcasting Corp, have struck deals with the tech giants.

But some small and independent publishers whose content helps draw four-fifths of Australia’s 25 million population to the Facebook site said the law had created a two-tier industry where rival titles that were owned by large parent companies secured deals while others missed out.

Nelson Yap, publisher of Australian Property Journal, which is on a government register of media businesses covered by the law, said he was in early discussions with Google but had emailed Facebook twice with no response.

He said he read Facebook’s public statements about talking to publishers and “I’m sitting here going, with whom? Not with us. Despite reaching out, we haven’t heard anything. We’re all scratching our heads, trying to work out what to do next.”

A Facebook spokesperson did not answer a question about any contacts with the Property Journal. Country Press Australia, a regional newspaper industry group, said it was holding constructive talks with Facebook on behalf about 140 publishers.

The Conversation editor Misha Ketchell said that “obviously we are disappointed that we haven’t been able to engage in negotiations with Facebook so far, but we remain optimistic that we will be able to reach an agreement”.

The ACCC’s Sims said the deal pipeline had “gone quieter than I would have envisaged” but urged smaller publishers to be patient.

“On the one hand I’m concerned that people aren’t getting a response to the emails, on the other hand I have seen it before and then things change and deals get done,” he said.

(Reporting by Byron Kaye; Editing by Kim Coghill)