Google and Facebook could be fined millions of dollars by the Australian Government if they do not comply with a proposed code that would force them to pay news publishers for their content.

The Australian Competition and Consumer Commission has published a first-of-its-kind draft code of conduct, which it said aims at “addressing acute bargaining power imbalances between Australian news businesses and Google and Facebook”.

The code will force the tech giants to negotiate with a news business – or a group of them banded together – and if they cannot agree a deal within three months then an independent arbitrator will decide which offer is most reasonable.

ACCC chairman Rod Sims said: “News content brings significant benefits to the digital platforms, far beyond the limited direct revenue generated from advertising shown against a news item. News media businesses should be paid a fair amount in return for these benefits.

“We believe that our final offer arbitration proposal provides a compelling incentive for parties to put forward fair and reasonable proposals, given each has just one chance to make an offer, and only one offer can prevail.

“We have ensured that the cost of producing journalism would be taken into account in arbitration. However, the arbitrator is also required to consider whether the payment proposals from news media businesses place an undue financial burden on the digital platforms.”

As well as bargaining over payment of content, the code would set new mandatory standards for how the tech giants must treat news media organisations.

Google and Facebook would be forced to finally give them information on how users engage with news content on their platforms, including how long people spend on an article and how many they read in a certain time frame.

They would also have to give publishers the ability to turn off comments on individual posts.

Publishers would get 28 days’ notice of algorithm changes that could have a material effect on their news traffic referral or that are designed to affect the ranking of paywalled news. The ACCC said this was long enough to give news media time to adapt without putting an “unnecessary burden” on the platforms.

The platforms would also have to notify them of substantial changes to how their platforms display news and to advertising that is directly associated with news.

Breaches of any of these standards, or the failure to negotiate on payment in good faith, would initially receive a fine of AU$133,200 (£72,962).

If the ACCC decides to bring court proceedings, it could lead to a fine of whichever is greatest out of $10m (£548m), three times the benefit gained, or 10% of the platform’s annual turnover in Australia in the previous year.

The ACCC gave the example that it would seek higher penalties as a deterrence if a platform continually refused to provide any advance notice of an algorithm change.

The Guardian reported that Sims told reporters the fines could be up to hundreds of millions of dollars given the size of Facebook and Google’s Australian revenues.

He also said that if Google turned off Google News, as it did in Spain to avoid paying publishers when a new copyright law came into force, the company would still be covered by the code because it serves up news articles in search results and owns Youtube.

The code will initially apply only to Google and Facebook but could be extended to other platforms later if they gain more power in Australia.

Media business will be eligible to take part if their online news content “investigates and explains issues of public significance for Australians; issues that engage Australians in public debate and inform democratic decision-making; or issues relating to community and local events”.

Other criteria includes that they must generate revenue of more than $150,000 per year and have a “suitable degree” of editorial independence.

News Corp Australia chairman Michael Miller praised the Australian Government’s “world-first action”, which he said comes as other countries are only “talking about the tech giants’ unfair and damaging behaviour”.

Google criticised the proposal, saying it ignores the “billions of clicks” it sends to Australian news publishers each year worth $218m.

Sims said Google and Facebook had contributed to the process of drawing up the draft code.

But Mel Silva, managing director of Google Australia and New Zealand, said: “Our hope was that the code would be forward thinking and the process would create incentives for both publishers and digital platforms to negotiate and innovate for a better future – so we are deeply disappointed and concerned the draft code does not achieve this.

“Instead, the government’s heavy handed intervention threatens to impede Australia’s digital economy and impacts the services we can deliver to Australians. “

She added that the draft code “sets up a perverse disincentive to innovate in the media sector and does nothing to solve the fundamental challenges of creating a business model fit for the digital age”.

Facebook’s managing director for Australia and New Zealand, William Easton, said only that the company is reviewing the proposal “to understand the impact it will have on the industry, our services and our investment in the news ecosystem in Australia”.

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