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The Corner Newsletter, November 15, 2019: Open Markets Leads Group Demanding FTC Block Google’s Fitbit Acquisition – Data Breaches and the Problem of Bigness

Welcome to The Corner. In this issue, we discuss why Google’s “Project Nightingale” is a danger not just because Google might use the information, but because of the security risk. We also wrote a letter to the FTC calling on it to block Google’s blockbuster acquisition of wearable tech company Fitbit. And we share two articles on the need for antitrust law to foster beneficial cooperation.

November 15, 2019  |  by Open Markets

Open Markets Leads Group Demanding FTC Block Google’s Fitbit Acquisition

The Open Markets Institute and eight other public interest groups sent a letter to the Federal Trade Commission on Tuesday calling on the agency to block Google’s $2.1 billion purchase of wearable technology company Fitbit. The coalition warned that the acquisition would allow Google to “further consolidate its monopoly power over Internet-based services,” especially in light of The Wall Street Journal’s recent exposé of “Project Nightingale,” Google’s secret partnership with health care system Ascension to gather medical records on millions of patients.

“We have the choice to accept a future where Google is at the center of all services, or directly regulate its monopoly power. Your job is to protect American consumers from such power, and we urge you to act.” The other members of the coalition were Center for Digital Democracy, Public Citizen, Electronic Privacy Information Center, Campaign for a Commercial-Free Childhood, Consumer Federation of America, Oakland Privacy, Media Alliance, and Consumer Action. Notably, House antitrust subcommittee Chairman David Cicilline, D-R.I., read a portion of the letter at the House Judiciary Committee Hearing, Online Platforms and Market Power Part 4: Perspectives of the Antitrust Agencies.

You can read the letter here, and further coverage in ReutersBloombergThe HillHealth Data Managementand MediaPost.

Sanjukta Paul and Sandeep Vaheesan Call to “Make Antitrust Democratic Again!” in The Nation

In a new article in The Nation, Open Markets Legal Director Sandeep Vaheesan and Wayne State University law professor Sanjukta Paul argue that a truly “democratic antitrust policy” would not only check the power of large corporations but also allow workers and small businesses to organize. “Demanding that antitrust law promote only competition is not a tenable solution,” the two write. “Competition is not categorically good. Indeed, we take many of the current limits on competition for granted, from patents and property rights more generally to business corporations themselves, all of which antitrust law recognizes as legitimate. The fact is that both pernicious and socially desirable forms of competition and cooperation exist.”

You can read the article here. You can also read Open Markets Policy Director Phil Longman’s Washington Monthly article making the “case for small-business cooperation” here.

House Committees Hold Hearings on Small Business, Dominant Platforms

Two House committees held hearings this week to investigate Silicon Valley giants. The House Small Business Committee yesterday looked into “Big Tech’s Impact on Small Business.” Chairwoman Nydia Velazquez, D-N.Y., said, “There is growing anxiety not only in the U.S. but around the world that the large tech companies pose a threat to innovation and competition.” One small Maine resort owner outlined a history of “the detrimental actions of Google for independent lodging properties in the online travel ecosystem” and said that Google presents “a serious threat to small business.” Another small business owner said that Amazon accounted for 98 percent of his company’s 2018 revenue and that small businesses like his rely “completely” on Amazon: “When they say, ‘Jump,’ we say, ‘How high?’ If Amazon suspends us from the platform, we go bust, and we go bust fast.”

The House Judiciary Committee also held a hearing on Online Platforms and Market Power Part 4: Perspectives of the Antitrust Agencies, with the Justice Department’s Assistant Attorney General for Antitrust Makan Delrahim and Chairman of the Federal Trade Commission Joseph Simons. The hearing focused on the two agencies’ weak antitrust enforcement and concerns with data control leading to monopoly power. Rep. David Cicilline, D-R.I., brought up the FTC’s $5 billion Facebook settlement, and Simons responded, “Even if we wanted to do more, we do not have the authority to do more.”

Data Breaches and the Problem of Bigness

On Monday, The Wall Street Journal reported that Google plans to start collecting the health data of millions of Americans as part of a cloud-computing deal with Ascension, one of the largest health systems in the United States. This comes after Google’s recent announcement that it plans to acquire Fitbit, the maker of fitness-tracking devices, which will give Google access to the personal health data of millions of Fitbit users.

Critics are already pointing out the many ways that Google might abuse the knowledge it gains through these deals. Yet, even if Google lives up to its promise not to use heath care data for nefarious purposes, a big problem remains, and it should be getting more attention. Google’s growing size alone makes it an ever more tempting target for hackers. Moreover, Google’s scale also means that once a hack occurs, the resulting loss of privacy is on such a scale that it would have consequences throughout society. Finally, Google’s scale also brings with it levels of complexity that can make securing data more difficult.

And the same is true of other giant digital giants. While computer systems always have some risk of getting hacked, size matters.

Microsoft presents a perfect example of how bigness amplifies the risk of an attack. Microsoft Windows is not markedly less secure than Apple’s operating system. But Windows’ enormous market share creates an incentive for hackers to target the operating system. In a 2003 report, the Computer & Communications Industry Association noted that “the presence of this single, dominant operating system in the hands of nearly all end users is inherently dangerous.”

The same point applies to Facebook. Last month, Facebook quietly revealed that 100 developers potentially accessed Facebook Group member information, despite Facebook changing its policies. Could Facebook have been more vigilant? Probably. But as Rep. Cindy Axne, D-Iowa, noted during last month’s congressional hearing into Facebook’s proposed Libra cryptocurrency, “size makes Facebook a target for attacks.”

Microsoft, Facebook, and other large corporations often market their breadth of operations and product offerings as giving them the technical and financial wherewithal to provide better data protection. But strong security measures do not require expensive tools. Scott Schober, a cybersecurity expert and CEO of Berkeley Varitronics Systems, says some of the most effective security protocols “have minimal costs or are costless.” In other words, many companies can afford excellent security measures, not only market behemoths.

Schober states that some protocols, such as strong passwords, updating software, and enabling two-factor authentication, can deter a significant number of hacking attempts. In fact, a 2017 data breach report from Verizon detailed that 80 percent of all security breaches involved stolen or weak passwords.

Meanwhile, the most devastating recent data breaches affected millions of people – but only a single, giant corporation. Consider the recent Equifax data breach, in which one of the three major consumer credit reporting agencies was hacked, revealing personal information including first and last names, Social Security numbers, birth dates, addresses, driver’s license numbers, or credit card numbers of approximately 145 million Americans.

Another part of the problem, Schober says, is that as corporations grow, the complexity of their operations also increases. Complexity creates security vulnerabilities across the landscape of a company’s operations. As security expert Bruce Schneier has written in his book, Click Here to Kill Everybody, complexity creates risks because it is not possible to “anticipate every configuration, condition, application, [and] use.”

Consider the Cambridge Analytica scandal, when a single decision in 2014 by Facebook to permit the harvesting of data without explicit user consent led to a single developer potentially acquiring group memberships, event histories, liked pages, interests, and more for 50 million users.

The risks of these mammoth stores of data are too great. Google’s deals with Ascension and FitBit create a wide array potential abuses. But even if those abuses do not occur, the increased risk of hacking attacks caused by scale alone provides regulators with a strong reason to oppose further concentration among digital giants.

🔊 ANTI-MONOPOLY RISING:

  • Last week, Democratic presidential candidate Sen. Cory Booker, D-N.J.released his plan to ensure “Opportunity and Justice for Every Community,” which would “combat corporate concentration that is hollowing out local economies.” Booker cited Open Markets’ work in calling for limiting vertical mergers, or mergers between competitors at different points in a supply chain, and banning non-compete clauses in worker contracts.
  • The U.S. Senate Committee on Small Business & Entrepreneurship hosted a hearing on “Noncompete Agreements and American Workers.” Keith Bollinger shared his story of struggling as a worker bound by a non-compete in North Carolina. “The company I worked with had me sign a non-compete after 16 years, then cut my pay – never reinstating it,even after the market returned,” said Bollinger. “I had an opportunity to recover my losses by joining another company, and for that I was punished. My career has not recovered, and it may never… If my testimony today can help prevent somebody else from going through what I’ve gone through, I had to be here today.” (Read Open Markets’ petition to the Federal Trade Commission to ban non-competes here).
  • Sens. Jeff Merkley, D-Ore., and Dick Durbin, D-Ill., introduced the End Price Gouging for Insulin Act last Thursday. The bill would establish a mandatory reference price for insulin, based on the median cost of the drug in more than 11 other comparable industrialized countries. It would also subject drug companies to civil penalties for charging more than the established reference price. “It’s unconscionable that Americans are rationing their supplies of life-saving insulin because the prices charged by Big Pharma are more than $300, while at the same time a consumer in Canada can pay a mere $37 a month for the same insulin,” said Durbin.  “Our bill ensures American consumers in need of insulin are treated the same as other foreign countries that pay substantially less for this life-saving drug.”
  • Sens. Amy Klobuchar, D-Minn., Bill Cassidy, R-La., Richard Blumenthal, D-Conn., Mark Warner, D-Va., and officials at the Department of Health and Human Services are calling for strict scrutiny into Google’s ongoing patient data-sharing initiative with health system Ascension, code-named “Project Nightingale.” “Allowing already dominant technology platforms to leverage their hold over consumer data to gain entrenched positions in the health sector is a worrying prospect,” said Warner in a statement. Ascension shared sensitive patient information such as medication and lab test history with Google as part of the project, without informing patients or doctors.
  • The coalition of 50 state attorneys general investigating Google for antitrust concerns has decided to include the company’s Android and search business as part of the ongoing effort. The original investigation was framed around Google’s advertising business.
  • Presidential candidate Sen. Elizabeth Warren, D-Mass., and officials from the New York State Department of Financial Services (DFS) criticized Goldman Sachs, in light of allegations the company’s Apple Card algorithm is discriminatory. “Let’s just tell every woman in America, ‘You might have been discriminated against, on an unknown algorithm, it’s on you to telephone Goldman Sachs and tell them to straighten it out,’” Warren said in an interview to Bloomberg. “Sorry guys, that’s not how it works.”
  • The Reserve Bank of India (RBI) prevented the launch of WhatsApp’s new online service, WhatsApp Payments. Responding to an earlier request for information on the matter from the country’s Supreme Court, the RBI found that WhatsApp had failed to abide by the country’s demands that Indian users’ data be stored within India only.

📝 WHAT WE’VE BEEN UP TO:

  • Sandeep Vaheesan and Assistant Professor of Media Studies Nathan Schneider of University of Colorado Boulder published “Cooperative Enterprise as an Antimonopoly Strategy” in the Penn State Law Review’s current issue. Vaheesan and Schneider argue that an explicit antitrust exemption of cooperative businesses can prevent some of the market harms resulting from monopoly and strictly shareholder owned enterprises. “Cooperation among small actors can remedy the yawning imbalance of power between corporate giants and everyone else,” Vaheesan and Schneider wrote in a similarly-themed article in The Atlantic.
  • Sally Hubbard spoke on a panel on corporate power at the International Women’s Forum in Toronto yesterday. Hubbard, talking about how monopoly and sexism work together to stifle economic opportunity for women, said, “The glass ceiling is really just a cartel.” See a picture from the event here.
  • Barry Lynn spoke at Santander’s International Banking Conference last week on “Competition in the Digital Age: Ensuring a Diverse Economy.” Lynn warned of Amazon, Facebook, and Google’s enormous power: “It’s important now to understand that democracy in the United State, in Europe, our democracies are under real threat. Google, Facebook, and Amazon manipulate how people communicate with each other.”
  • Sarah Miller spoke with The New York Times about California Attorney General Xavier Becerra announcing an ongoing investigation into Facebook’s privacy practices, and how Facebook has yet to comply with their document requests. “It’s welcome news that the attorney general is investigating Facebook’s gross abuses of privacy,” said Miller. “But it’s also important to understand that they are able to abuse users’ privacy so egregiously because of their monopoly power.”
  • Matt Stoller discussed Apple’s growing presence in health research studies with The New York Times, noting that “[t]hebroader point here is the fact that Apple has control over the app store, that Apple has connections with all of the people that have Apple iPhones, and that Apple gets to make a lot of decisions about how you collect the data, about how to notify people to be a part of the study.” Though the project may produce deep insights, Stoller added, “it’s still an extraordinary concentration of power in Apple’s hands.”
  • Matt Stoller talked about Japanese Goliath Softbank with The New Yorker and how its Vision Fund is trying to “basically break the rules of capitalism.” “They finance entities that provide goods and services for lower than their cost,” Stoller explained. “That was the model Amazon used, with the idea that at some point in the future they would be able to raise prices or find some other way to make money to cover their losses. That’s what you do when there are no rules against predatory pricing—you’re pricing to acquire market power.”
  • Matt Stoller warned The Guardian that Facebook has enormous power to suppress voices or politicians who seek to check their power. Stoller said, “I’m not saying [Facebook is] just for Republicans. I think that they are as likely to try to destroy [Republican Missouri Senator] Josh Hawley or to try to promote Kamala Harris or Pete Buttigieg or other [Democratic presidential] candidates they like as they are to help Trump. They’re authoritarians. They don’t care particularly about which party is in charge.”
  • Sandeep Vaheesan explained to the Dallas Observer how ineffective the FTC’s settlement with local therapist-staffing agencies was, after the FTC found them guilty of wage fixing. “This is a case that could have been referred to the DOJ for criminal prosecution,” said Vaheesan. “The only thing the FTC did is tell the companies not to break the law again, but they’re already under an obligation not to break the law.”
  • Barry Lynn spoke with Inside Philanthropy about the importance of antitrust and how, throughout history, policymakers’ ideology about the relationship between democracy and capitalism shifted to favor extreme concentrations of power and wealth, even though it wasn’t always that way. Lynn said, “We didn’t change any of the laws – we just changed the philosophy by which we interpret those laws.”
  • Matt Stoller spoke with Steve LeVine at The Marker about his book, Goliath, and about the historical events that shaped our economy and market structure today. “[University of Chicago professor Aaron] Director is the real creator of neoliberalism,” Stoller explained, “but he only succeeded because left-wing corporatists John Kenneth Galbraith and Richard Hofstadter opened the door with a fake history that corporate power had never been a contested political issue.”
  • Matt Stoller spoke with Concord Monitor about Google’s latest announcement to buy Fitbit for $2.1 billion. The company is under investigation from state and federal regulators for antitrust violations, and Stoller noted that “it’sobviously embarrassing to enforcers if they allow it without any sort of scrutiny.”
  • Matt Buck criticized the Federal Communications Commission’s final approval of the Justice Department’s settlement allowing T-Mobile to acquire Sprint. “T-Mobile’s acquisition of Sprint already threatened to dramatically reduce market competition and drive up bills for consumers as a result,” said Buck. “But today’s approval by the Federal Communications Commission of the Justice Department’s settlement represents the culmination of two agencies’ overwrought attempt to see this merger through.”
  • Daniel Hanley spoke with Vox and The Hill about Google’s proposed acquisition of Fitbit, explaining the dangers of its accumulating data control. “This absolutely strengthens the idea that Google is using its dominant position to make its way into every possible industry that relates to data and newer methods for pushing advertising,” Hanley told Vox. “Thebiggest problem would be to understand and know the extent to which they use the data gathered from Fitbit and how they will integrate that into other existing Google services.”
  • Daniel Hanley spoke with The Hill about Google’s “Project Nightingale,” their health data partnership with Ascension, the nation’s largest nonprofit health system. Hanley warned that “[Google has] already shown that they’re going to integrate their data … that’s the core of their business model.”

📈 VITAL STAT:

$5,000

Amount that concentrated industries cost the average American household per year, according to economist Thomas Philippon. Philippon’s new book, The Great Reversal: How America Gave Up on Free Markets, details the many American industries that have become more concentrated in the last few decades. The New York Times‘ David Leonhardt said, “Philippon’s biggest contribution is to explain that it isn’t some natural result of globalization and technological innovation. If it were, the trends would be similar around the world. But they’re not … What explains the difference? Politics.” Specifically, antitrust.

📚 WHAT WE’RE READING:

  • “The Inflation Gap” (The Atlantic, Annie Lowrey): Defenders of corporate power like to argue that at least Goliaths offer cheap prices. Lowrey covers the latest story, showing that poorer Americans actually experienced higher inflation than richer ones, because of less competition for poorer Americans’ dollars.
  • “Fleeced by the Telecoms and Your State is Blessing It” (The American Conservative, Christopher Mitchell): How Republican-voting towns are fighting telecom monopolies with publicly built broadband networks. One conservative mayor “say[s] the big cable and telephone companies – with their many lobbyists in DC and state capitals – are more akin government than local governments are.”
  • “Assessing Drug Pricing Reform Proposals: The Real Leverage And Benefits of Competitive Licensing” (Health Affairs, Christopher J. Morten and Amy Kapczynski): Proposals to let the federal government negotiate drug prices with Big Pharma have to address what to do if those negotiations fail. Why competitive licensing – where the government gives other drug makers the right to produce a patented drug – makes sense from a bargaining, manufacturing, regulatory, and legal perspective.
  • “Kill Zone” (University of Chicago working paper, Sai Krishna Kamepalli, Raghuram Rajan, Luigi Zingales):When a startup gets acquired by Google or Facebook, venture capital investment in similar startups drop 46 percent, a new paper finds. Why Google’s and Facebook’s acquisitions – and permissive antitrust enforcement – create “Kill Zones,” industry areas where investors fear to support outmatched startups.

Written by: Barry Lynn, Phil Longman, and Daniel Hanley
Edited by: Barry Lynn, Phil Longman, Krista Brown, Udit Thakur, Daniel A. Hanley, Michael Bluhm, and Matt Buck

 

Image credit: gorodenkoff via iStock

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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