“Antitrust, Privacy, and Other Non-Price Competition”

1. “Antitrust, Privacy, and Other Non-Price Competition” Professor Peter P. Swire Ohio State University Center for American Progress The Law & Economics of Innovation: Online Markets vs. Traditional Markets May 7,2009

2. The Basic Idea • Basic idea: • Price competition is part of antitrust • Non-price competition is part of antitrust • Privacy can be a form of non-price competition • All 5 FTC Commissioners recognized this idea in the Google/DoubleClick opinion • So, privacy considerations will be part of antitrust analysis going forward

3. Overview • My background • Other arguments for how privacy matters to antitrust • My approach: privacy as non-price competition • Response to critiques • Implications for antitrust analysis and remedies

4. My Background • Privacy background • Chief Counselor for Privacy in OMB, 1999-2001 • Much writing on privacy & online issues since then • Antitrust background • Practiced in antitrust before entering law teaching • Teach antitrust law • Submitted testimony on privacy & antitrust to FTC in 2007: http://www.americanprogress.org/issues/2007/10/privacy.html

5. History of Privacy & Antitrust • Traditionally, mergers were for products • Exxon/Mobil • Beer manufacturers • Etc. • Information about individuals was not a major factor in the mergers • Practices about personally identifiable information were not a major factor in the businesses • 2007 concerns about antitrust & privacy with the Google/DoubleClick merger

6. Other Views on Privacy & Antitrust • U.S. Senator Kohl – “big is bad” so concern about Google/DoubleClick merger • Bigness has not been the focus of recent merger law • Marc Rotenberg – privacy as fundamental right, so scrutinize merger • Will return to this briefly at the end • Microsoft – merger as an exclusionary practice • Fact-dependent, not accepted by regulators

7. My Approach:Privacy as Non-Price Competition • NY Times May 2007: “Strictly speaking, privacy is not an antitrust issue” • Swire testimony for FTC Town Hall in October, 2007 • The basic idea: • Privacy can be an important aspect of competition • Where it is, then a merger or other practice can reduce competition, triggering antitrust scrutiny

8. Peter Fleischer Response • Peter Fleischer, for Google, critiqued my approach • Precedents from 1970’s that competition law should not consider effects on pollution and other non-competition issues • He says privacy protection is a non-competition issue • Therefore, he says privacy is not a proper subject of competition analysis

9. My Response to Fleischer • Consider a non-price factor for automobiles • Miles per gallon • Goal of reducing a country’s reliance on foreign oil • I agree with Fleischer • That is not a proper subject for competition law

10. Response to Fleischer (2) • Gas mileage as an important non-price aspect of automobile competition • Many advertisements about gas mileage • An important aspect of competition – consumers care about this in choosing their car • If proposed merger would reduce competition on mileage it is a proper subject for antitrust analysis • To recap: • Effect of merger on foreign import of oil not part of antitrust • Effect of merger on gas mileage competition is part of antitrust – don’t reduce innovation & competition in that

11. Gas Mileage & Privacy • As with gas mileage, privacy is relevant to the antitrust analysis if: • It is a material, non-price aspect of competition that is relevant to a proposed merger or other antitrust action

12. FTC Decision on Google/DoubleClick • FTC agrees with this approach, at least in theory • Majority upheld Google/DoubleClick merger (4 votes) • 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.” • Accepted the analysis, but held the facts not there • Commissioner Harbour dissented • She cited my testimony, saying antitrust law should ensure competition “based on privacy protections or related non-price dimensions.”

13. Second Requests • One concrete way that privacy may figure in future mergers • Commr. Harbour: companies seeking a merger in data-rich industries should receive detailed questions about privacy in “second requests” • Companies may thus be required to provide detailed answers and data about their privacy practices, and how the merger will affect those practices • Christine Varney is a privacy expert & so may be receptive to this approach as well

14. Is Privacy Important to Competition? • Facts will matter going forward • For many online markets, competition for eyeballs is non-price competition • Search engines • Social networks • Online newspapers and other content • Online markets often two-sided • Need eyeballs, where consumers do not pay money • Large number of eyeballs generates advertising and other revenue sources • Non-price competition is likely to be important for many online markets

15. Evidence of Competition in Privacy? • Yes • Search engines: • Leapfrog announcements by Google, Yahoo, Microsoft, Ask on privacy features – length of time until delete; quality of the deletion; anonymous search • Social networks: • Facebook & MySpace have different privacy features, with competing announcements over time for why each is better • Facebook and Beacon – market reaction when intrusive on privacy

16. Does Privacy Matter? • Quite possibly yes • Personal information practices – privacy & security – clearly more important in the information economy • Westin surveys consistently show: • “High privacy concern” group at 25-40 % • Large “medium privacy concern” group as well • For these diverse consumer preferences, there is competitive advantage to having a good privacy reputation

17. What Implications for Antitrust? • Exploring the implications of privacy as material, non-price aspect of competition • Mergers • Where significant effect on competition, could be a basis under U.S. or E.U. law for blocking a merger or imposing conditions • Second requests & companies have to do deeper analysis of effects of data practices on competition

18. Implications for Antitrust Remedies (2) • Market power • Many online markets have strong network effects • Network effects lead to high market share, and leapfrog competition may or may not be effective • Thus, risk to consumers of exercise of market power, with harm to consumer privacy & other non-price aspects of competition • Possibly not legally actionable under competition law • Sherman Act Sec. 2 requires “bad acts” & so may be difficult to prove wrongful conduct even if monopoly power exists

19. Implications for Antitrust Remedies (3) • If have monopoly power, but no remedy under antitrust law, then have a new public policy rationale for regulation of privacy • Competition for privacy may be weak due to monopoly power • A traditional public policy reason for public utility or market failure regulation • This argument has not previously been explicit in U.S. privacy debate • I am not claiming this argument is dispositive, but it adds a new piece to the privacy debate

20. Fundamental Rights & Privacy • For “fundamental rights”, the government must consider the right as part of official action • U.S. example of a fundamental right is 1st Amendment (freedom of speech): • For antitrust & other areas of law, judges strike down the law if it violates the fundamental right of free speech • In Europe, privacy clearly a fundamental right • That strengthens the case for privacy concerns to be explicitly considered in E.U. competition review • The Commission & other official actors should not take actions that violate a fundamental right • In Google/DoubleClick, DG-Comp left this to the privacy regulators • Going forward, European law has a stronger fundamental rights argument to supplement the privacy-as-non-price-competition argument

21. More to Explore • Issues for possible discussion: • How should we factually assess the likelihood that a merger will reduce competition for privacy? • How should we weigh possible harm to privacy felt by some consumers with possible benefits to consumers from more intensive personalization? • How well will antitrust agencies deal with these privacy-based problems? How do we use government competition and privacy expertise? • Let the debates begin

22. Contact information • www.peterswire.net • peter@peterswire.net • 240.994.4142