The Corner Newsletter, December 13, 2018: Judge Wilkins Mentions OMI in AT&T Appeal — Location Data and Corporate Power — Pressure on Facebook Continues to Grow

Welcome to The Corner. In this issue we look at what The New York Times missed in its otherwise excellent recent story on location tracking by Google, Facebook, and app developers. We also put the UK Parliament's release of the Six4Three documents in the context of rising anger around the world with Facebook’s abuses of power.

Judge in AT&T-Time Warner Appeal Cites Open Markets Brief

Last Thursday, a three-judge panel on the U.S. Court of Appeals for the D.C. Circuit heard the Justice Department’s appeal in its challenge to the merger between AT&T and Time Warner. Two of the three judges appeared unconvinced by the DOJ’s case. Judges Judith Rogers and David Sentelle indicated they didn’t think that there were “clear” or “plain” errors in the ruling by District Judge Richard Leon.

(Read Open Markets’ statement criticizing Judge Leon’s decision here.)

The third judge, Robert Wilkins, cited Open Markets’ amicus brief twice during oral argument. Open Markets argued that the government only had to show that the vertical merger created a reasonable probability of hurting competition. “By raising the price of Time Warner content or withholding it from downstream competitors,” OMI wrote, “AT&T could weaken existing rivals, exclude emerging rivals, and thereby protect and enhance its power in the market for video programming distribution.”

Open Markets took particularly sharp aim at the idea that AT&T could justify its purchase of Time Warner by claiming the deal would lower prices. Defendants have tried to use this sort of “efficiencies defense” to argue that anticompetitive mergers should be legal if they generate consumer savings. In cases like Brown Shoe, Philadelphia National Bank, and Procter & Gamble, the Supreme Court has rejected this approach. But the Justice Department accepted and acted on the premise that efficiencies defenses are permitted, setting itself up for a vulnerability that may prove fatal to its case.

Open Markets argued that once the government shows that “a merger presents a reasonable threat of substantially lessening competition … they have established that the merger is illegal, and the merging parties are not entitled to justify the merger on efficiency grounds.” In other words, the fact that the merger posed a reasonable threat to competition is enough to stop it. To stop the merger, the government doesn’t have to show a net cost on the balance of the merger’s predicted costs and benefits.

The government, led by Assistant Attorney General Makan Delrahim and supported by UC Berkeley economist Carl Shapiro, not only recognized an efficiencies defense, but extensively engaged with it as well, conceding that the merger would generate some savings.

At last week’s argument, the government tried to distance itself from that focus on efficiencies, but it might have been too late. The judges asked how the government could show that Judge Leon had erred.

Wilkins said to Justice Department attorney Michael Murray, “The amicusbrief of the Open Markets Institute … says that once the plaintiffs establish that there’s a reasonable probability of a substantial reduction in competition from the merger, that’s it. That there is no ‘efficiency defense,’ so to speak. And so all of this discussion about efficiencies … what they seem to be saying is that it’s really beside the point. That doesn’t seem to be the way that you’re arguing this, or that you argued this in your brief.”

Murray agreed that was not the government’s argument. Instead, he went on to say that an efficiencies defense “has to be focused on the ‘pass-through number,'” or the cost savings that the merged corporation will “pass through” to consumers.

Judge Wilkins’ questioning suggests that, for the government, focusing on the behemoth AT&T-Time Warner’s threat to competition – as opposed to arguing over studies contesting cents in savings – might have been a more compelling theory of harm and helped protect American democracy from yet another corporate media giant.

ANTI-MONOPOLY RISING:

• Sen. Elizabeth Warren, D-Mass., gave a speech at American University last month titled, “A Foreign Policy For All.” In the speech, she laid out a comprehensive vision for a post-Trump foreign policy, saying, “to make sure that globalization benefits middle-class Americans, trade negotiations should be used to curtail the power of multinational monopolies and crack down on tax havens.”
  Read Open Markets Executive Director Barry Lynn’s 2015 history of America’s role in shaping international trade to curb private power in Harper’s here.

• Sen. Bernie Sanders, D-V.T., tweeted, “A small number of major corporations owning and controlling large parts of what we see, hear, read, and buy poses a real threat to the kind democracy we want to be.” In the tweet, he also pointed to a recent New York Times article featuring Open Markets’ “America’s Concentration Crisis” report.

• Thomas Friedman, in his column for The New York Times, argued that shaping a democratic economy “will require changes in antitrust policy” and implicitly criticized the consumer welfare standard, quoting Open Markets’ Advisory Board member Rana Foroohar saying, “that definition is increasingly irrelevant in an age in which the most powerful companies in the world offer products and services for ‘free’ in exchange for personal data.”

• The Australian Competition and Consumer Commission early this week said that Facebook and Google exercise “substantial” power and called for stricter oversight of the two corporations’ dominance of digital advertising markets.

• Obama administration Defense Secretary Ash Carter called for bringing back the Congressional Office of Technological Assessment. Writing in Politico, Carter said that the currently-defunct congressional agency “helped members understand the scientific and technological dimensions of policy options.”
  Read Open Markets’ press release in November calling for reviving the OTA here.

• The Italian Competition Authority fined Facebook 10 million euros last week for misleading users about the extent to which their data is collected and shared for commercial gain. The enforcer criticized Facebook’s default settings, which gives user data to third parties “without [their] express consent.”

• In his latest column this week, Bloomberg Opinion’s Noah Smith wrote, “The outcry over monopoly power has gone mainstream.” Weighing the response from reactionary establishment figures and “a merger-friendly regulatory environment,” Smith thinks, “the new antitrust movement has the weight of evidence on its side.”

• Former FCC Chair Tom Wheeler condemned the Federal Trade Commission’s statement that a default rule requiring consumers to opt in to online advertising, as opposed to opt-out, would have “unintended consequences.” In particular, Wheeler took issue with the idea that an opt-in rule would likely lead to “the loss of advertising-funded online content.” An opt-in rule, he said, “does not mean [consumers] are choosing to opt out of advertising. It only means that each consumer is exercising individual agency to decide what information is collected about them for the targeting of advertisements.”

• European Union antitrust investigators sent out questionnaires to European competitors of Google, to see if Google unfairly demoted their local search results from 2012 through 2017, according to Reuters. This would be the fourth antitrust investigation that the EU has or will conduct into the technology giant.

 

WHAT WE’VE BEEN UP TO:

• The Open Markets Institute co-hosted an event with the Economic Policy Institute on Wednesday called, “Monopoly, Monopsony, and the Labor Market: Declining Worker Power in an Era of Market Concentration.” Sarah Miller moderated a conversation with FTC Commissioner Rohit Chopra while Sandeep Vaheesan spoke on a panel alongside Wayne State law professor Sanjukta Paul, and EPI Senior Economist and Director of Policy Heidi Shierholz. The event discussed how concentrated power hurts workers and the role that antitrust law should play in supporting small actors’ economic power.
  Law360 reported Commissioner Chopra saying that FTC might be “too focused” on prices as the predominant indicator of competitive harm.

• Sandeep Vaheesan and University of Maryland law professor Frank Pasquale wrote two posts in the Law and Political Economy blog arguing that occupational licensing rules can serve useful consumer protection and labor market goals. Vaheesan and Pasquale criticize the opposition to occupational licensing rules for resting on faulty assumptions about the purpose of those rules and the supposedly natural or “spontaneous” character of markets. Read Part 1 here and Part 2 here. And read Phil Longman making a similar argument in the Washington Monthly here.

• Referring to Facebook COO Sheryl Sandberg’s changing story about the actions the company took against its critics, including the Freedom From Facebook coalition, Sarah Miller said on Bloomberg that the deception shows that “you cannot take Facebook in good faith.” Facebook’s maneuvering shows, Miller said, that “Facebook will do what it takes to protect their reputation and their profits, and if that includes lying to the public, or lying to members of Congress, or lying to others to do that, so be it. Facebook is just like any other monopoly and they’re willing to go to great lengths to protect that status.”

• Sandeep Vaheesan spoke at The Capitol Forum and Complete Discovery Source’s “Fifth Annual Tech, Media, & Telecom Competition Conference” on the antitrust issues that giant technology corporations like Google, Facebook, and Amazon pose.

• Lina Khan spoke at “Charles River Associate’s Annual Brussels Conference: Economic Developments in Competition Policy, 2018” on a panel which asked “Do We Need a ‘Radical Antitrust’ Answer to ‘Populist Antitrust?'” Khan discussed some criticisms of the consumer welfare standard, how competition policy extends beyond antitrust law, and how the legal structure of antitrust enforcement could benefit from more active competition rulemaking from the FTC.

• Matt Stoller spoke to Politico about the news that giant technology corporations, like Amazon and Google, unsuccessfully sought meetings with FTC Chairman Joe Simons. Stoller said that the purpose of the FTC is to “prevent large companies from dominating and structuring markets … So to have these companies coming in and saying, ‘We’re just here to educate the commissioners,’ the commissioners should not be getting their information from the companies. They should be getting their information from the staff of the FTC.”

• Barry Lynn spoke at the conference “Bridge Over Troubled Waters – Antitrust in a Trans-Atlantic Dialogue” in Brussels. The meeting brought together leading regulators and civil society organizations to discuss ways to address some of the various political and economic threats posed by Big Tech.

• In an article arguing that Facebook’s cynical political maneuvering is actually “nothing new” among big technology corporations and analogous to Big Oil and Big Tobacco, Wired pointed to Google CEO Eric Schmidt’s role in pushing out the Open Markets Institute from its previous home at New America over a year ago as an example of the power that technology corporations have over public debate.

• In its coverage of Google CEO Sundar Pichai’s testimony before the House Judiciary Committee on Tuesday, Bloomberg quoted Matt Stoller saying that Google “us[es] personal data to monopolize ad markets.”

• Austin Frerick explained to The Huffington Post that concentration in the agricultural sector is high, “creating a system where only the largest farms can eke out a living, pushing out most midsized operations.”

• The Verge covered the UK’s recent release of internal Facebook documents, and quoted the Freedom From Facebook coalition saying that Facebook was “seemingly in violation of antitrust laws, from tying arrangements involving data, to the marginalization and exclusion of competitors from Facebook’s dominant platform, to illegal conditions surrounding Facebook’s acquisition of WhatsApp.”

• An op-ed in Canada’s Globe and Mail called for breaking up Big Tech corporations, and criticized the relative acceptance of private power in the United States. The author, financial journalist Carl Mortished, wrote, “Thankfully, a young maverick American legal scholar, Lina Khan, is getting a lot of attention for suggesting, in a Yale Law Journalarticle last year, that online platforms are the new railroads, akin to the market infrastructure that supported Standard Oil’s monopoly.”

• Open Markets advisory board member Frank Foer talked with Kara Swisher on her “Recode Decode” podcast about the power that Amazon, Facebook, and Google wield and why that makes them “the enemies of independent thought.”

Apply for the Open Markets Brandeis Legal Fellow Program

Open Markets is continuing to accept applications for its Louis Brandeis Law and Political Economy Fellowship for Summer 2019, intended for current first-year law students interested in using antitrust law, banking law and financial regulation, telecommunications regulation, corporate governance law, intellectual property law, and other legal tools to address concentrated power.

Interested in Working With Us? Open Markets is Hiring a Reporter-Policy Analyst 

Open Markets is also continuing to accept applications to  work full-time as a Reporter-Policy Analyst to cover concentration in the political economy and develop policy solutions to address private power.

 

WHAT’S MISSING FROM THE PICTURE? 

The New York Times Underplays Google’s Role in Location Tracking

Last week, The New York Times published a chilling report showing the extreme extent to which many mobile apps collect, share, and sell users’ location information.  As one executive quoted in the article put it, “The book ‘1984,’ we’re kind of living it in a lot of ways.” Just as troubling is that no authority appears to be doing anything about it, with one cybersecurity expert saying “There are really no consequences … other than bad press that gets forgotten about.”

The article is deeply researched, and engagingly presented. But unfortunately it understates the centrality of a few corporations, Google and Facebook in particular, in driving these practices. That’s because while selling ads is the main motivation behind collection of location information, Google and Facebook benefit most from the sale of those advertisements. According to eMarketer the two corporations alone will collect 68 percent of U.S. digital advertising revenues in 2019. That comes after they giants drove 90 percent of the growth in global digital advertising spending in 2017, according to PwC.

Google does not simply lead in digital advertising; it controls the operating system on which most apps depend. The New York Times reported that one app recorded one woman’s location “as often as every two seconds.” But it does not mention that this aggressive surveillance is possible by Google’s Android mobile operating system – which according to Statista runs 88 percent of all mobile smartphone devices.

Figure 6: Traffic data sent from idle Android and iPhone mobiles.

Courtesy of Digital Context Next. Bar graph reproduced based on DCN graph. Pie graphs from DCN report. Read DCN’s paper here (data reproduced from page 14).  Reproduced with permission.

A study by a trade association representing digital content companies made the point more explicitly in August. Digital Content Next found that on idle Android phones, Google pulled data from those phones just over 40 times per hour. One-third of those requests were location requests.

That commercial data is then used to produce more targeted, personalized advertisements, as the Times report said. In some cases, companies may also use it to price discriminate, which is when a seller charges different people a different price for the same good or service.

The possibility is far from theoretical. Last year, Uber announced that it would use “route-based pricing” meaning that it would offer different prices based on where users were requesting rides and how busy demand for rides are at that moment. The goal is to predict what users are “willing” to pay and thus get more money from passengers. “If passengers request a trip from an affluent neighborhood to a luxury shopping district, for example,” Slate wrote earlier this year, “their fare might be pricier.”

Price discrimination could theoretically mean that lower-income consumers might get lower prices. But, Public Knowledge Policy Counsel Allie Bohm said, “I think the data sort of demonstrate that that is not always true,” at the sixth FTC hearing in its series on “Competition and Consumer Protection in the 21st Century.” Her co-panelist, Consumers Union Policy Counsel Katie McInnis, added that many of “ … these decisions are made about the consumer based on data collection, which they did not agree to, and is rather privacy-invasive.”

At the seventh FTC hearing, University of Washington law professor Ryan Calo put the concern more explicitly. “The issue,” Calo said, “is taking advantage of people. It happens a lot.”

WHAT WE’RE READING:

• “Dollar Stores Are Targeting Struggling Urban Neighborhoods and Small Towns. One Community Is Showing How to Fight Back.” (The Institute for Local Self-Reliance: Marie Donahue and Stacy Mitchell): Rigorous reporting illustrating another way that consolidation hurts people outside of major cities. How just two corporations that own most of the dollar stores in the country are exacerbating food deserts and public health. And how small towns can and are fighting back.

• “You Should Have a Right to Sue Apple” (The New York Times,Rebecca Kelly Slaughter): An FTC commissioner makes the case that app users should be allowed to sue Apple for its App Store monopoly in the pending Supreme Court case Apple v. Pepper. “America is grappling with serious questions about the levels of concentration and competition in our economy,” Commissioner Slaughter writes, adding that “the Supreme Court should reinforce rather than constrict the ability of consumers to seek justice for illegal abuses of market power.”

• “The Myth of Capitalism?” (Competition Lore, Caron Beaton-Wells): In a recent podcast, Jonathan Tepper, one of the co-authors with Denise Hearn of The Myth of Capitalism: Monopolies and the Death of Competition, talks about the economy’s concentration crisis, why antitrust is “fundamentally broken on its own terms,” and why antitrust enforcement has to be stronger.

Facebook’s Difficult Year Looks to Get Worse in 2019

Facebook faces what may be an impossible task over the coming months in keeping its abusive business methods secret. A gauntlet of regulators and legislatures around the world are targeting the corporation and using increasingly aggressive tactics to get what they want.

The latest example comes from the United Kingdom’s Parliament, which last week released internal Facebook documents it obtained from app developer Six4Three’s American lawsuit against Facebook. The documents confirmed a number of suspicions and led to some damning discoveries. As The New York Times put it, they show Facebook “discussing ways to undermine their competitors, obscure their collection of user data and — above all — ensure that their products kept growing.”

The documents came to light after a member of Parliament, Damian Collins, learned that Six4Three founder Ted Kramer was on a business trip in London. Collins demanded that Kramer turn over the documents. Among the findings: Facebook prevented a competing social media service, Vine, from accessing Facebook data to help Vine users find their friends. And although Facebook publicly proclaimed in 2014 that it would be changing its data privacy policy so apps couldn’t see users’ friends’ data, Facebook also apparently “whitelisted” certain companies including Airbnb, Netflix, and Badoo. This allowed those select corporations to maintain full access to users’ friends’ information.

The judge presiding over Six4Three’s lawsuit, Raymond Swope of the Superior Court of San Mateo County, had previously sealed the documents, claiming that many did not relate the to trial. At one point, Swope called Six4Three’s lengthy filings “abusive litigation tactics.” Swope kept the documents secret despite the Open Markets Institute’s, in addition to The New York Times, The Washington Post, CNN, the Associated Press, The Guardian, and CNN, filing an amicus brief last summer that argued against doing so. Open Markets pointed out that the public has a strong interest in seeing how Facebook handled user data, as well as competitors, and that the public should be able to weigh that evidence with Facebook’s public statements.

MP Collins released the documents as Chairman of the United Kingdom’s Digital, Culture, Media, and Sport Committee and its investigation into Facebook’s conduct in a range of areas including data collection and political advertising. Citing “considerable public interest in releasing” the documents, Collins said on Twitter that they “raise important questions about how Facebook treats users’ data, their policies for working with app developers, and how they exercise their dominant position in the social media market … we don’t feel we have had straight answers from Facebook on these important issues, which is why we are releasing the documents.”

The aggressive step by the U.K. is one of a series of actions that international law enforcers have been taking against the technology behemoth in the past weeks. Australia’s competition enforcer this week called out Facebook and Google’s “substantial” power and proposed significant constraints over Facebook’s ability to exploit its advertising power and user data. And Italy’s antitrust authority fined Facebook 10 million euros for misleading users as to what data they collected and who they shared that data with.

Revelations about Facebook’s power and how the technology giant used its control over billions of users’ data to exclude competitors and app developers continue to come in. As they do, the United States’ uneven response grows increasingly pronounced. Hearings have been held, and some legislators are eager to tackle Facebook’s massive power. But American enforcers, like the Federal Trade Commission and the Department of Justice, have said little about what they will do to address Facebook’s destructive place in American and global democratic life.

VITAL STAT: 30,000

The number of job losses that T-Mobile’s acquisition of Sprint would lead to, according to the newly-launched 4Competition Coalition, a coalition of groups, including the Open Markets Institute, opposing the combination.

WHAT WE’RE WATCHING:

• Staying Tuned: The Federal Communications Commission officially opened its new Office of Economics and Analytics, a major proposal by Chairman Ajit Pai. We’re waiting, alongside FCC Commissioner Jessica Rosenworcel, to see whether the new office will reduce the FCC’s reliance on economists in the pay of corporations.

• New Sheriffs in Town: Reps. Jerrold Nadler, D-N.Y., and David Cicilline, D-R.I., are the incoming chairs, respectively of the next House Judiciary Committee and House antitrust subcommittee. Both expressed interest yesterday in investigating the power held by giant corporations in this “monopoly moment” as Cicilline put it. On their plate: a potential T-Mobile-Sprint merger that would leave the country with three behemoth wireless providers with 98 percent of the market, according to a recent finding by the FCC.

• Cracking the code: The Washington Post came out with detailed reporting on how generic drug companies likely scammed Americans out of billions of dollars by colluding with each other. Soon after, Sen. Elizabeth Warren, D-Mass., announced that she would introduce legislation “later this month … to help put a stop to this & bring down costs for patients.” We’re watching to see what she proposes.

Written by: Barry Lynn, Phil Longman, Sandeep Vaheesan, Lina Khan and Matt Buck
Edited by: Barry Lynn, Phil Longman, Sandeep Vaheesan, Lina Khan,  Katherine Dill, and Matt Buck