Professor Peter P. SwireOhio State UniversityCenter for American ProgressCAP Event on Antitrust & the New EconomyMay 11, 2009

The Basic IdeaBasic idea:

Price competition is part of antitrustNon-price competition is part of antitrustPrivacy 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

OverviewMy backgroundOther arguments for how privacy matters to

antitrustMy approach: privacy as non-price

competitionResponse to critiquesImplications for antitrust analysis and

remedies

My BackgroundPrivacy background

Chief Counselor for Privacy in OMB, 1999-2001Much writing on privacy & online issues since then

Antitrust backgroundPracticed in antitrust before entering law teachingTeach antitrust lawSubmitted testimony on privacy & antitrust to FTC

in 2007: http://www.americanprogress.org/issues/2007/10/privacy.html

History of Privacy & AntitrustTraditionally, mergers were for products

Exxon/MobilBeer manufacturersEtc.

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 & AntitrustU.S. Senator Kohl – “big is bad” so concern

about Google/DoubleClick mergerBigness has not been the focus of recent

merger lawMarc Rotenberg – privacy as fundamental

right, so scrutinize mergerWill return to this briefly at the end

Microsoft – merger as an exclusionary practiceFact-dependent, not accepted by regulators

My Approach:Privacy as Non-Price CompetitionNY Times May 2007: “Strictly speaking,

privacy is not an antitrust issue”Swire testimony for FTC Town Hall in

October, 2007The 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 ResponsePeter Fleischer, for Google, critiqued my

approachPrecedents 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 FleischerConsider a non-price factor for

automobilesMiles per gallon

Goal of reducing a country’s reliance on foreign oilI agree with FleischerThat is not a proper subject for

competition law

Response to Fleischer (2)Gas mileage as an important non-price aspect of

automobile competitionMany advertisements about gas mileageAn important aspect of competition – consumers care

about this in choosing their carIf proposed merger would reduce competition on

mileage it is a proper subject for antitrust analysisTo 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 & PrivacyAs 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/DoubleClickFTC agrees with this approach, at least in theoryMajority 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 thereCommissioner Harbour dissented

She cited my testimony, saying antitrust law should ensure competition “based on privacy protections or related non-price dimensions.”

Second RequestsOne concrete way that privacy may figure in

future mergersCommr. 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 forwardFor many online markets, competition for

eyeballs is non-price competitionSearch enginesSocial networksOnline newspapers and other content

Online markets often two-sidedNeed eyeballs, where consumers do not pay moneyLarge 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?YesSearch 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 yesPersonal 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 competitionMergers

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 effectsNetwork effects lead to high market share, and

leapfrog competition may or may not be effectiveThus, 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 lawSherman 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 privacyCompetition for privacy may be weak due to

monopoly powerA traditional public policy reason for public

utility or market failure regulationThis argument has not previously been explicit

in U.S. privacy debateI am not claiming this argument is dispositive,

but it adds a new piece to the privacy debate

Fundamental Rights & PrivacyFor “fundamental rights”, the government must consider

the right as part of official actionU.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 ExploreIssues 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

Contact informationwww.peterswire.netwww.americanprogress.orgpeter@peterswire.net240.994.4142