“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

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

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

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

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

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

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

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

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

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

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

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.”

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

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

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

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

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

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

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

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

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

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