Antitrust, Privacy, and the New Economy

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Presentation from Peter Swire at a May 11, 2009 Center for American Progress event on "Antitrust and the New Economy."

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Antitrust, Privacy, and the New Economy

  1. 1. Professor Peter P. Swire Ohio State University Center for American Progress CAP Event on Antitrust & the New Economy May 11, 2009
  2. 2. The Basic Idea <ul><li>Basic idea: </li></ul><ul><ul><li>Price competition is part of antitrust </li></ul></ul><ul><ul><li>Non-price competition is part of antitrust </li></ul></ul><ul><ul><li>Privacy can be a form of non-price competition </li></ul></ul><ul><li>All 5 FTC Commissioners recognized this idea in the Google/DoubleClick opinion </li></ul><ul><li>So, privacy considerations will be part of antitrust analysis going forward </li></ul>
  3. 3. Overview <ul><li>My background </li></ul><ul><li>Other arguments for how privacy matters to antitrust </li></ul><ul><li>My approach: privacy as non-price competition </li></ul><ul><li>Response to critiques </li></ul><ul><li>Implications for antitrust analysis and remedies </li></ul>
  4. 4. My Background <ul><li>Privacy background </li></ul><ul><ul><li>Chief Counselor for Privacy in OMB, 1999-2001 </li></ul></ul><ul><ul><li>Much writing on privacy & online issues since then </li></ul></ul><ul><li>Antitrust background </li></ul><ul><ul><li>Practiced in antitrust before entering law teaching </li></ul></ul><ul><ul><li>Teach antitrust law </li></ul></ul><ul><ul><li>Submitted testimony on privacy & antitrust to FTC in 2007: http://www.americanprogress.org/issues/2007/10/privacy.html </li></ul></ul>
  5. 5. History of Privacy & Antitrust <ul><li>Traditionally, mergers were for products </li></ul><ul><ul><li>Exxon/Mobil </li></ul></ul><ul><ul><li>Beer manufacturers </li></ul></ul><ul><ul><li>Etc. </li></ul></ul><ul><li>Information about individuals was not a major factor in the mergers </li></ul><ul><li>Practices about personally identifiable information were not a major factor in the businesses </li></ul><ul><li>2007 concerns about antitrust & privacy with the Google/DoubleClick merger </li></ul>
  6. 6. Other Views on Privacy & Antitrust <ul><li>U.S. Senator Kohl – “big is bad” so concern about Google/DoubleClick merger </li></ul><ul><ul><li>Bigness has not been the focus of recent merger law </li></ul></ul><ul><li>Marc Rotenberg – privacy as fundamental right, so scrutinize merger </li></ul><ul><ul><li>Will return to this briefly at the end </li></ul></ul><ul><li>Microsoft – merger as an exclusionary practice </li></ul><ul><ul><li>Fact-dependent, not accepted by regulators </li></ul></ul>
  7. 7. My Approach: Privacy as Non-Price Competition <ul><li>NY Times May 2007: “Strictly speaking, privacy is not an antitrust issue” </li></ul><ul><li>Swire testimony for FTC Town Hall in October, 2007 </li></ul><ul><li>The basic idea: </li></ul><ul><ul><li>Privacy can be an important aspect of competition </li></ul></ul><ul><ul><li>Where it is, then a merger or other practice can reduce competition, triggering antitrust scrutiny </li></ul></ul>
  8. 8. Peter Fleischer Response <ul><li>Peter Fleischer, for Google, critiqued my approach </li></ul><ul><ul><li>Precedents from 1970’s that competition law should not consider effects on pollution and other non-competition issues </li></ul></ul><ul><ul><li>He says privacy protection is a non-competition issue </li></ul></ul><ul><ul><li>Therefore, he says privacy is not a proper subject of competition analysis </li></ul></ul>
  9. 9. My Response to Fleischer <ul><li>Consider a non-price factor for automobiles </li></ul><ul><ul><li>Miles per gallon </li></ul></ul><ul><li>Goal of reducing a country’s reliance on foreign oil </li></ul><ul><ul><li>I agree with Fleischer </li></ul></ul><ul><ul><li>That is not a proper subject for competition law </li></ul></ul>
  10. 10. Response to Fleischer (2) <ul><li>Gas mileage as an important non-price aspect of automobile competition </li></ul><ul><ul><li>Many advertisements about gas mileage </li></ul></ul><ul><ul><li>An important aspect of competition – consumers care about this in choosing their car </li></ul></ul><ul><ul><li>If proposed merger would reduce competition on mileage it is a proper subject for antitrust analysis </li></ul></ul><ul><li>To recap: </li></ul><ul><ul><li>Effect of merger on foreign import of oil not part of antitrust </li></ul></ul><ul><ul><li>Effect of merger on gas mileage competition is part of antitrust – don’t reduce innovation & competition in that </li></ul></ul>
  11. 11. Gas Mileage & Privacy <ul><li>As with gas mileage, privacy is relevant to the antitrust analysis if: </li></ul><ul><ul><li>It is a material, non-price aspect of competition that is relevant to a proposed merger or other antitrust action </li></ul></ul>
  12. 12. FTC Decision on Google/DoubleClick <ul><li>FTC agrees with this approach, at least in theory </li></ul><ul><li>Majority upheld Google/DoubleClick merger (4 votes) </li></ul><ul><ul><li>It specifically referenced the approach here: “We investigated the possibility that this transaction could adversely affect non-price attributes of competition, such as consumer privacy. ” </li></ul></ul><ul><ul><li>Accepted the analysis, but held the facts not there </li></ul></ul><ul><li>Commissioner Harbour dissented </li></ul><ul><ul><li>She cited my testimony, saying antitrust law should ensure competition “based on privacy protections or related non-price dimensions.” </li></ul></ul>
  13. 13. Second Requests <ul><li>One concrete way that privacy may figure in future mergers </li></ul><ul><li>Commr. Harbour: companies seeking a merger in data-rich industries should receive detailed questions about privacy in “second requests” </li></ul><ul><li>Companies may thus be required to provide detailed answers and data about their privacy practices, and how the merger will affect those practices </li></ul><ul><li>Christine Varney is a privacy expert & so may be receptive to this approach as well </li></ul>
  14. 14. Is Privacy Important to Competition? <ul><li>Facts will matter going forward </li></ul><ul><li>For many online markets, competition for eyeballs is non-price competition </li></ul><ul><ul><li>Search engines </li></ul></ul><ul><ul><li>Social networks </li></ul></ul><ul><ul><li>Online newspapers and other content </li></ul></ul><ul><li>Online markets often two-sided </li></ul><ul><ul><li>Need eyeballs, where consumers do not pay money </li></ul></ul><ul><ul><li>Large number of eyeballs generates advertising and other revenue sources </li></ul></ul><ul><ul><li>Non-price competition is likely to be important for many online markets </li></ul></ul>
  15. 15. Evidence of Competition in Privacy? <ul><li>Yes </li></ul><ul><li>Search engines: </li></ul><ul><ul><li>Leapfrog announcements by Google, Yahoo, Microsoft, Ask on privacy features – length of time until delete; quality of the deletion; anonymous search </li></ul></ul><ul><li>Social networks: </li></ul><ul><ul><li>Facebook & MySpace have different privacy features, with competing announcements over time for why each is better </li></ul></ul><ul><ul><li>Facebook and Beacon – market reaction when intrusive on privacy </li></ul></ul>
  16. 16. Does Privacy Matter? <ul><li>Quite possibly yes </li></ul><ul><li>Personal information practices – privacy & security – clearly more important in the information economy </li></ul><ul><li>Westin surveys consistently show: </li></ul><ul><ul><li>“ High privacy concern” group at 25-40 % </li></ul></ul><ul><ul><li>Large “medium privacy concern” group as well </li></ul></ul><ul><li>For these diverse consumer preferences, there is competitive advantage to having a good privacy reputation </li></ul>
  17. 17. What Implications for Antitrust? <ul><li>Exploring the implications of privacy as material, non-price aspect of competition </li></ul><ul><li>Mergers </li></ul><ul><ul><li>Where significant effect on competition, could be a basis under U.S. or E.U. law for blocking a merger or imposing conditions </li></ul></ul><ul><ul><li>Second requests & companies have to do deeper analysis of effects of data practices on competition </li></ul></ul>
  18. 18. Implications for Antitrust Remedies (2) <ul><li>Market power </li></ul><ul><ul><li>Many online markets have strong network effects </li></ul></ul><ul><ul><li>Network effects lead to high market share, and leapfrog competition may or may not be effective </li></ul></ul><ul><ul><li>Thus, risk to consumers of exercise of market power, with harm to consumer privacy & other non-price aspects of competition </li></ul></ul><ul><li>Possibly not legally actionable under competition law </li></ul><ul><ul><li>Sherman Act Sec. 2 requires “bad acts” & so may be difficult to prove wrongful conduct even if monopoly power exists </li></ul></ul>
  19. 19. Implications for Antitrust Remedies (3) <ul><li>If have monopoly power, but no remedy under antitrust law, then have a new public policy rationale for regulation of privacy </li></ul><ul><ul><li>Competition for privacy may be weak due to monopoly power </li></ul></ul><ul><ul><li>A traditional public policy reason for public utility or market failure regulation </li></ul></ul><ul><ul><li>This argument has not previously been explicit in U.S. privacy debate </li></ul></ul><ul><li>I am not claiming this argument is dispositive, but it adds a new piece to the privacy debate </li></ul>
  20. 20. Fundamental Rights & Privacy <ul><li>For “fundamental rights”, the government must consider the right as part of official action </li></ul><ul><li>U.S. example of a fundamental right is 1 st Amendment (freedom of speech): </li></ul><ul><ul><li>For antitrust & other areas of law, judges strike down the law if it violates the fundamental right of free speech </li></ul></ul><ul><li>In Europe, privacy clearly a fundamental right </li></ul><ul><ul><li>That strengthens the case for privacy concerns to be explicitly considered in E.U. competition review </li></ul></ul><ul><ul><li>The Commission & other official actors should not take actions that violate a fundamental right </li></ul></ul><ul><ul><li>In Google/DoubleClick, DG-Comp left this to the privacy regulators </li></ul></ul><ul><ul><li>Going forward, European law has a stronger fundamental rights argument to supplement the privacy-as-non-price-competition argument </li></ul></ul>
  21. 21. More to Explore <ul><li>Issues for possible discussion: </li></ul><ul><ul><li>How should we factually assess the likelihood that a merger will reduce competition for privacy? </li></ul></ul><ul><ul><li>How should we weigh possible harm to privacy felt by some consumers with possible benefits to consumers from more intensive personalization? </li></ul></ul><ul><ul><li>How well will antitrust agencies deal with these privacy-based problems? How do we use government competition and privacy expertise? </li></ul></ul><ul><li>Let the debates begin </li></ul>
  22. 22. Contact information <ul><li>www.peterswire.net </li></ul><ul><li>www.americanprogress.org </li></ul><ul><li>[email_address] </li></ul><ul><li>240.994.4142 </li></ul>

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