107302017 Digital Privacy Is Making Antrust Excting Again | WIRED
NITASHATIKU €USIN
DIGITAL PRIVACY IS MAKING ANTITRUST EXCITING AGAIN
A COUPLE WEEKS ago, during an unassuming antitrust conference at Oxford University, a German
bureaucrat uttered a few words that should send a chill through Silicon Valley. In front of a crowd of nearly
200 competition law experts—including enforcement agents, scholars, and economic policy-makers from
the United States and Europe—Andreas Mundt, president of Germany's antitrust agency, Bundeskartellamt,
said he was “deeply convinced privacy is a competition issue.”
It’s a conviction major tech platforms are listening to closely, especially since Mundt’s agency is in the
midst of a high-profile investigation into whether Facebook abused its dominance as a social network by
forcing customers to agree to unfair terms about the way the company uses their data. Mundt’s words may
have sounded mundane, but his implication was anything but: the world’s foremost antitrust regulators
were publicly discussing whether they should intervene if a transaction weakens consumer privacy
protections, a pervasive concern in the era of big data.
A few years ago, to suggest that enforcement agents should act based on privacy would have be heretical to
accepted antitrust dogma, particularly as it’s been practiced in the US. The underlying aim of antitrust
regulation is to keep the market humming by promoting competition and limiting barriers to entry (this is
why the field is known as competition law outside of the US).
For decades, antitrust philosophy in America, and to some extent in Europe, has been shaped by the
Chicago School, a highly influential conservative framework that favored big business. Its proponents
argued that intervention was only necessary if a business deal hurt consumer welfare, not, for example,
smaller competitors. The scope was narrowed further by measuring consumer welfare primarily by
whether people had to pay higher prices.
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prarmaceuticars to weree%
mastered the art of making money off of free products. An intellectual shift among antitrust experts could
ultimately pose an existential threat to Silicon Valley—especially to the idea that its companies are simply
scrappy, innovative upstarts that won out rather than heavyweight incumbents using valuable data troves
and network effects to dominate one niche after the other.
UL Une IaGition On price nas Been a BOON JUF WEEN priors, wmen nave
For most people, it might still feel hyperbolic to cast tech CEOs as modern-day robber barons or to label
Mark Zuckerberg the second-coming of John D. Rockefeller (before the philanthropic rebranding). That's
partly due to the nature of the work. How can software ever be as rapacious as oil refineries or steel? Yet
the markets tell a different story.
‘To get a sense of Silicon Valley’s stupefying power writ large, just glance at a list of the world’s top 10 most
valuable companies. In the first quarter of 2017, Apple, Alphabet (Google’s parent company), Microsoft, and
‘Amazon inhabited the top four spots; Facebook sat just a few rungs below, at number eight and has already
climbed up to number five. Companies that were near the top of the heap just a few years ago—big pharma,
big box chains like Walmart, the “big four” Chinese banks, oil conglomerates, household names like Nestle
or General Electric—are glaringly absent from the mix. The world’s most valuable resource is now data, and
Silicon Valley has cornered the market on amassing personal information.
This new world order is one of many reasons why antitrust officials are questioning their methods, even if
they're a bit slow to do so. (Even in the EU, as recently as last fall, Margrethe Vestager, the antitrust czar,
was still calling Facebook's terms of service “a gray area” between privacy and competition.)
If competition policy were working, “we wouldn’t have record wealth inequality,” law professor Maurice
Stucke says. “We wouldn’t have market power and monopoly profits.” Stucke should know, He’s a former
trial attorney for the US Department of Justice’s antitrust division and has published research on
algorithmic collusion, big data, and digital cartels.
American antitrust statutes like the Sherman Act are broadly worded and largely centered around
competition; they don’t explicitly instruct regulators to account for political realities like income inequality
or the effect on wealth creation for smalll businesses, But the number of new companies started has reached
a 40-year low, and profits for some US companies are abnormally high compared to GDP. The cracks in the
antitrust establishment are starting to show, said Stucke, and experts are wondering if “the emperor maybe
has no clothes.”
“We are living in a world of extreme consolidation and concentration,” such as the rise of technology
platforms, says Lina Khan, a fellow with the Open Markets program at New America, a think tank focused on
the intersection of policy and technology. “We have seen the effects of 30 years under this one regime, and
ithas prompted the community to question whether we've gone off course.”
Antitrust Busting
‘The history of antitrust interpretation in the US seems to be guided by correcting the mistakes of the past.
When President Reagan came into office, the feeling was that government intervention had exceeded its.
bounds during the 1970s. That left an opening for Yale law school professor Robert Bork to radically
redefine the way statutes like the Sherman Antitrust Act, which first passed in the 1890s, were interpreted.
(Yes, that Bork. The guy with the doomed Supreme Court nomination, who helped President Nixon fire the
James Comey of his day in 1973.)
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rien une suLULe, Says Wary ReDUeK, BSICON Vaney BNULTEST RWyer ABNOUS IDF aIyMINY MIETLSENT
monopoly in the 1990s who now represents some of Google's rivals.
The debate about how to police monopolistic practices has also been reinvigorated due to mounting
evidence that the status quo has been ineffective, “Even if all you care about is prices or consumer welfare
narrowly defined,” Khan says, counterarguments are piling up in studies and white papers, like a recent
study which reviewed dozens of mergers permitted by regulators showing and found that prices rose after
merger.
Relying on consumer prices to judge the openness of a market can also be misleading when regulating tech
companies. “When more and more services are ‘free, you can see how that really renders antitrust feeble,”
says Khan. After the rapid expansion in social networking and online search, it’s clear that financial power
lies in data, not just price. “he Europeans hit on this,” says Stucke, “Data is the new lingua franca. That is
the currency, and [tech platforms] can translate that data into dollars.”
This is evident in the European Union’s intensified scrutiny of how Silicon Valley tech platforms operate.
Germany’s antitrust agency is investigating Facebook. The EU conducted an antitrust probe into Amazon's
e-books business deals (the company agreed to change its contract with publishers in May). Days before the
Oxford conference, the EU fined Facebook $122 million for making misleading privacy statements to the EU
when it acquired WhatsApp for $19 billion in 2014 about the ability to match Facebook and WhatsApp
accounts. (The merger of the popular texting apps raised concerns that Facebook's online advertising
business could gain an unfair advantage.)! Days before that, watchdogs in the Netherlands and France
slapped Facebook on the wrist for privacy violations.
Not everyone finds the Bork School as constricting. Thomas Lenard, senior fellow and president emeritus of
the Technology Policy Institute, a conservative think tank based in Washington, D.C,, tells WIRED focusing
on harm to consumers does leave room for privacy concerns, for example whether a company protects
consumer data from theft. Theoretically, “price is a proxy for a whole bunch of attributes,” he says.
Enforcement has been less aggressive in US because here antitrust authorities tend to be skeptical of
complaints of competitors. “In Europe, they seem to have more of a ‘big is bad’ ideological perspective,
which I think at various points and times we have had in this country too,” says Lenard.
He also argues that the personal data Facebook and Google have collected is replicable. “They're not
successful because they have a lot of data, they have a lot of data because they’re successful,” says Lenard.
“That is really the source of their intellectual capital and analytical ability to create value out.” If you
discourage that, “then you're just basically discouraging success.”
The current antitrust debate doesn’t just end with privacy or price, however. Khan says experts are even
considering whether the focus should be on consumer welfare. Dominant tech platforms “also affect us as
workers, entrepreneurs, and just as citizens,” she explains. In other words, perhaps those disruptive side
effects from Silicon Valley’s rise—job loss, misinformation campaigns, inability for young companies to
compete—aren't just inevitable casualties but are changes that could be regulated.
Of course, just because academics are abuzz doesn’t mean it will ever translate into stricter rules for Silicon
Valley, particularly within the US. America has been especially reluctant to intervene because of the
presumption that tech is a rapidly-changing market fueled on innovation that regulation would only slow
down, “It’s becoming increasingly obvious that that view is misguided,” says Khan. "These platforms are so
entrenched and have been for awhile.”
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‘There is no consensus yet on what should replace the Chicago School, but there is a growing acceptance of
the fact that Silicon Valley’s standard line of defense—that competition is only a click away—doesn’t hold.
On the same panel at Oxford last week, Mundt told the audience, “Sometimes I doubt that [idea].”
Digital competition operates very differently from brick-and-mortar retail stores. “The stickiness of online
services is actually quite real,” says Khan. As tech platforms amass more and more data to personally tailor
their experience to a consumer, “there is a pretty decent cost to switching.” Consumers who stop using
Amazon would lose their purchase history of 10 years. For parents or repeat buyers, that’s not trivial, she
says.
MORE ANTITRUST
‘The EU's Android Antitrust Complaints Are Contrived
EU Accuses Google of Antitrust Violations Over Android
‘he FIC May investigate Google Andold for Antirust Abuses
What’s more, Khan says, many of these companies have begun “to play an infrastructure-like role in the
economy, so a host of other businesses rely on them.” Amazon is a perfect example of this in e-commerce,
although Internet sales currently represent less than 10 percent of retail sales according to recent data from
the US Department of Commerce. “One-hundred-plus years ago, if you wanted your goods to get to the
market, you had to ride the rails; nowadays, you have to ride Amazon’s rails, be on Amazon's platform,”
Khan says.
Google operates in a similar manner, and Reback argues that much of its growth can be traced to.
acquisitions. “Google's rise in many ways was attributable to its business [sense], but also the failure to
enforce antitrust against Google,” says Reback, the antitrust lawyer. “They acquired Android; they didn’t
build it. They acquired much of their advertising [technology].”
“This not only enabled them to squelch competition, it has enabled them to control markets such that they
get very complete profiles on you, me, everybody,” Reback adds. This is where it gets troubling for
consumers. Airlines and credit cards companies, for example, have always collected data, “That’s never
really disturbed people in the same way. That data was never used to profile you in terms of how you'd vote
inan election.”
Speaking of politics, legislators can be influential when determining how antitrust is interpreted, in large
part by riling up constituents, On the campaign trail, Donald Trump mentioned blocking the $85 billion
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raerr ing wore preucapie xepuonean patterns.
Democrats, however, could pick up this drum and beat it loudly during the next election cycles. “Obviously
[the Democrats] have no power right now,” says Khan, but even since Hillary Clinton’s defeat in the 2016
presidential election, members of her staff have continued to be in touch with antitrust advocates. Khan
also pointed to speeches by Senator Elizabeth Warren, like one this year at the Center for American
Progress, where Warren said “It is time to do what ‘Teddy Roosevelt did: pick up the antitrust stick again.” It
bodes well that these issues will be “a major part, if not a pillar, of the Democratic party, especially if they
are thinking of ways to become more populist on economic issues,” says Khan.
With or without regulatory follow-through, though, an antitrust renaissance could hit Silicon Valley where
it hurts: the public’s good will. (To get a sense of how important consumer perception is, just consider
recent photos of Mark Zuckerberg riding a tractor or posing with farm animals.) Reframing tech platforms
as entrenched corporations chips away at the narrative that CEOs like Zuckerberg or Jeff Bezos ascended to
the top because of their technological genius, their ability to see the future, and their innovative new ways
of doing business.
With an ideological shift, Facebook could look less like benevolent force for connecting the world and more
like a $400 billion industrial machine that grew through acquisitions and consolidation, unchecked data-
mining, behind-the-scenes lobbying, and suffocation of the very entrepreneurs who look up to their hero,
zuck.
In that light, late capitalism looks an awful lot like the Rockefeller version.
‘UPDATED 1:35pm 6/5/2017: A previous version of this story incorrectly stated the reason that the European
Union fined Facebook for its WhatsApp acquisition.
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CIPL Protecting Privacy in A World of Big Data Part 1 Protecting - Privacy - in - A - World - of - Big - Data - Paper - 1 - The - Role - of - Enhanced - Accountability - 21 - October - 2015