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,
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:

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 %
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: Let the debates begin
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