1. “Privacy and Antitrust”
Professor Peter Swire
Ohio State University
Center for American Progress
IAPP Spring Conference
March 2008

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
Sen. Kohl: privacy and be skeptical of bigness
Rotenberg: privacy as fundamental right
Microsoft last fall: beware of exclusionary conduct
My approach: privacy as non-price competition
What that means for privacy professionals

4. My Background Privacy background
Chief Counselor for Privacy at OMB,
“Privacy Year in Review” to all IAPP members
Lead author of official book for Certified Information Privacy Professionals exam
Antitrust background
Practiced in antitrust before entering law teaching
Teach antitrust law
Submitted testimony on privacy & antitrust to FTC this October:

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

6. Sen. Kohl – Bigness is Bad
The populist strain of antitrust law
Bigness is itself a cause for worry
Fear of the big “trusts” at time of Sherman (1890) and Clayton (1914) Acts
1950 amendment to Section 7 of the Clayton Act continued the populist tradition – block mergers that “may substantially affect competition”
1960s cases stopped mergers to <10% of the market, to prevent gradual mergers into bigness

7. Big is Bad
Sen. Kohl is Chairman of the antitrust subcommittee in Senate Judiciary
In hearing this fall on Google/DoubleClick and privacy:
“The antitrust laws were written more than a century ago out of a concern with the effects of undue concentrations of economic power for our society as a whole, and not just merely their effects on consumers’ pocketbooks. No one concerned with antitrust policy should stand idly by if industry consolidation jeopardizes the vital privacy interests of our citizens so essential to our democracy."

8. Legal Status of Big is Bad
Sen. Kohl very important as chair of the committee
But “big is bad” or “undue concentration of economic power” has faded from antitrust jurisprudence
Recent focus instead on whether merger will harm competition: will the result be reduced price or non-price competition?

9. Rotenberg: Privacy as Fundamental Right
EPIC complaint to the FTC: “The right of privacy is a personal and fundamental right in the United States.”
Therefore, “unless the Commission establishes substantial privacy safeguards by means of a consent decree, Google’s proposed acquisition of DoubleClick should be blocked.”
On this view, as for traditional antitrust concerns, a merger can increase the risk of harm to consumers, so mergers are an important opportunity to protect privacy rights

10. Fundamental Rights
U.S. example of a fundamental right is 1st Amendment:
Intermediate or strict scrutiny of limits on free speech
Do Not Call rule has exception, for instance, for political speech
For fundamental rights, government actors must take them into account in official actions
In Europe, privacy clearly a fundamental right
That strengthens the case for privacy concerns to be explicitly considered in E.U. competition review
In U.S., much weaker legal basis for privacy as that sort of right
Would quite likely require statutory change to have privacy (as privacy) become a factor in merger review

11. Exclusionary Arguments
A standard antitrust issue is whether a merger “excludes” effective competition
Microsoft GC Brad Smith critiqued Google/DClick:
“These privacy issues have antitrust consequences. Given the nature and economics of online advertising, this concentration of user information means that no other company will be able to target ads as profitably. It will substantially reduce the ability of others to compete.”
Standard antitrust issue if can identify an exclusionary effect

12. My Approach: Privacy as Non-Price Competition
NY Times May 2007: “Strictly speaking, privacy is not an antitrust issue”
Swire testimony for 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

13. Price and Non-Price Traditional focus on price competition
Would G/DC merger affect prices of online advertising?
Longstanding antitrust attention to non-price competition
Imagine an agreement not to compete on warranties
Or, a merger where competition on warranties would be greatly reduced
On those facts, there would be an antitrust injury to consumers

14. Non-Price and Quality DOJ 2001 speech where price is “synecdoche”
Price stands for the full range of issues that can affect competition in a market
Quality of a product one example, such as if quality of shirts would decline due to merger
Privacy as quality of a product or service
One quality of a service, such as surfing the net, is whether it is high-surveillance or low-surveillance
Consumers who care about privacy are harmed if there is less competition on privacy, and privacy protections decline

15. 2 Key Questions
Is privacy a non-price factor (a quality of a product or service) that is important to consumers?
Will the merger or other action reduce competition in privacy, creating antitrust injury to consumers?

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. Competition in Privacy?
Again, often yes
Search privacy :
Google announcement on deleting logs
Microsoft announcement on logs & other issues
Ask announcement of AskEraser
This is evidence of competition on privacy, by major players, in a major market

18. What Implications for Antitrust?
Have just said:
Privacy as potentially important non-price factor
Evidence of competition on privacy
Clayton Act § 7, for mergers: “may substantially affect competition”
This is the logic of how a merger could reduce competition in privacy, affecting competition in a significant non-price way
Could be reason to block a merger
Or, place “conditions” on a merger, to assure no harm to privacy

19. Current Mergers
I have specifically not taken a position on the facts for Google/DoubleClick or Microsoft/Yahoo
I have done work for companies potentially affected by these theories – the views here are mine, as an academic
My point – is part of the job for antitrust agencies to look at privacy as a non-price aspect of competition
The agencies receive confidential information & presentations
Those on the outside thus don’t see critical information on market definition and market effects

20. FTC Decision on Google/DoubleClick
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.”

21. Second Requests
Another important way that privacy may well become part of antitrust cases
Commr. Harbour: companies seeking a merger in data-rich industries should receive detailed questions about privacy in “second requests”
Companies can thus expect to provide detailed answers and data about their privacy practices, and how the merger will affect those practices
A new role for the CPO in mergers & other transactions

22. To Recap
Significant, but limited, effects of privacy issues on mergers & other antitrust analysis
The significant effects:
Unanimous FTC support for the idea that antitrust law should examine whether any loss of competition in privacy due to the merger
Increased questions likely as part of mergers about privacy practices, and thus a role for CPOs as part of the antitrust due diligence

23. Limits of This Antitrust Approach
This approach fits within existing U.S. law, with focus on competition & antitrust injury to consumers
Not treating privacy as a fundamental right
Not a free-floating investigation into privacy practices
Section 7 looks to the effect of the merger
If privacy practices are lousy, but unchanged by the merger, then antitrust authorities don’t intervene

24. More to Explore Issues for possible discussion:
How should we 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? Would the FTC do better at this than DOJ?
Let the debates begin